Q2 2022 Umpqua Holdings Corp Earnings Call

July 21, 2022

Good morning, and welcome to the Umpqua Holdings Corporation second quarter 2022 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session. As a reminder, this call is being recorded.

At this time I would like to introduce Jackie Bohlen Investor Relations director for Umpqua to begin the conference call.

Thank you Michele good morning, and good afternoon, everyone. Thank you for joining us today on our second quarter 2022 earnings call with me. This morning are Cort o'haver, the president and CEO of Umpqua Holdings Corporation, Tory Nixon President of Umpqua Bank, Ron Farnsworth, our Chief Financial Officer, and Frank Namdar.

Our chief Credit officer after our prepared remarks, we will take your questions.

Yesterday afternoon, we issued an earnings release discussing our second quarter 2022 results.

Also prepared a slide presentation, which we will refer to during our remarks. This morning. Both of these materials can be found on our website at Umpqua Bank Dot com in the Investor Relations section during today's call. We will make forward looking statements, which are subject to risks and uncertainties and are intended to be covered by the safe Harbor provisions of Federal Securities Law for a list of factors that may.

Cause actual results to differ materially from expectations. Please refer to slides two and three of our earnings presentation as well as the disclosures contained within our SEC filings.

We'll also reference non-GAAP financial measures alongside our discussion to the GAAP results. We encourage you to review the GAAP to non-GAAP reconciliation provided in the earnings presentation Appendix I will now turn the call over to court. Okay. Thank you Jackie I'll provide a brief recap of our performance in past Ron to discuss financials, Frank will discuss credit and then we'll take your questions.

For the second quarter, we reported earnings available to shareholders 70 $579 million. This represents EPS of <unk> 36 per share compared to the 42 thirds reported last quarter and 53 <unk> reported the second quarter last year.

On operating basis, which excludes a number of interest rate driven items, our merger expenses that Ron will review EPS of <unk> 37 compares to 36% last.

Last quarter to 55 in the second quarter of last year.

<unk> of a provision for credit losses compared to 2020 was recapture was the primary driver of the annual various notably rising interest rates and portfolio loan growth enabled higher net interest income to exceed lower mortgage banking revenue.

Customer tax payments contributed to a 2% decline in deposits for the quarter, but we are seeing growth in the third quarter to date.

Loan balances grew $1 5 billion in the second quarter, representing a quarterly growth rate of six 3% and annualized growth rate of 25%.

The second quarter's growth reflects an anticipated pickup in activity relative to the first quarter that span business lines portfolio of classes and geographies given favorable market conditions and the continued momentum of our associates in both new and existing markets.

The loan portfolio was up 8% this year meeting the mid to upper single digit levels of annual expansion, we have been discussing over the past past few quarters.

Slower payoff activity relative to 2021, and a small increase in net advances in the second quarter favorably impacted net portfolio growth in the first half of the year.

At this point market trends and our existing pipelines indicate continued loan growth the second half of the year, but likely slower pace in the second quarter significant volume we remain.

Acutely focused on the health of our new and existing borrowers and our new loan production mirrors, the high quality metrics exhibited by our overall loan portfolio.

In June of this year, we published our annual business parameter, which measures the mood mindset and strategic priorities of leaders at small and middle market companies across the United States <unk>.

Inflation and rising interest rates are driving an increase in the cost for goods talent the capital for these businesses our customers manage through the pandemic and then gain knowledge over the past two years, enabling them to adjust strategies and adapt to challenges in front of them.

Many business leaders reported more cautious views of the overall economy compared to the prior year. It remained confident in the resilience and ability to continue to grow their businesses to expand revenue improve and improve profitability. We remain focused on being the business bank of choice for these existing and prospective customers at our bankers.

Support teams will continue to focus on providing a distinguishing level of service that enables us to win business with strong companies throughout our markets.

Now moving onto a handful of other initiatives are.

Our ongoing advancements in payments technology, most recently through two commercial card solutions in collaboration with visa.

<unk> to produce tangible results as commercial card spend set new records during the quarter and was up 50% in June compared to the year ago period.

The pipeline is strong across all fee.

<unk> businesses, which includes Treasury management cards.

And international.

Our teams continue to implement enhancements to our product offerings and service capabilities and we expect a busy second half of the year as many of the initiatives currently under development are brought live.

As an industry all lending is facing significant headwinds given the sharp increase in mortgage rates and the impact of volume and the impact on volume and margins as previously announced we reduced head count earlier in the second quarter and we implemented other strategy measures to shift production towards favorable volume, which is a.

More profitable business segment, we will continue to take necessary steps to adjust the business model in light of the current operating environment, which we expect to persist for the foreseeable future.

We're evaluating multiple options everything is on the table with regard to our mortgage business.

Regarding capital yesterday, we declared a <unk> 21 per share dividend payable to shareholders of record as of August one.

While the amount is consistent with historical payments the timing has accelerated compared to our prior cadence as we continue to plan for our pending combination with Columbia banking system.

We currently target close date during the third quarter when the timing will ultimately be determined by the receipt of all regulatory approvals, which we have not received to date.

As we detailed on slides six and seven of the deck, we continue to make headway with our integration planning and our scheduled Q1 of 'twenty three core system conversion date remains achievable at this point given our ability to separate conversion planning activities.

Legal close date.

As we have discussed on prior calls the integration management office, which includes senior executive leaders from both Columbia and Umpqua enables umpqua bankers to have an undisturbed focused on generating business and serving customers.

The separation of our integration planning activities from our growth objectives has enabled us to successfully drive our business forward.

We continue to attract and hire exceptional talent.

It has enabled us to build deeper presence in existing markets and expanding new desirable areas like Colorado and Arizona.

Proven local leaders who know their regions are joining umpqua.

We are embracing our expertise driven and personalized team based approach to customer relationships and their success is highlighted by the growth momentum exhibited over the past several quarters.

Our operating markets and top tier banking teams support my expectation was our net expansion through 'twenty, two and into 'twenty three outside significantly.

Economic deterioration, which we have not seen yet to date.

And with that Brian take it away.

Alright, thank you.

Those on the call I want to follow along I'll be referring to certain page numbers from our earnings presentation.

Starting on page 12 of the slide presentation, which contains our summary quarterly P&L or.

Our GAAP earnings for Q2 were $79 million or <unk> 36 per share <unk>.

The adjustments to our internal operating measures with various fair value changes from interest rate volatility.

Along with merger and <unk> costs, which are detailed in the appendix on slide 31.

On an operating basis, we earned <unk> $80 million or <unk> 37 per share.

So the moving parts as compared to Q1.

Net interest income increased $19 4 million or 8%, representing the power of our spring cash skipping Barnes and water falling down into loans this quarter.

With the recent fed rate increases.

We had a provision for credit loss of $18 $7 million driven primarily by continued strong loan growth.

Non interest income declined $24 7 million, reflecting lower home lending gain on sale revenue along with the fair value adjustments driven by the significant bond market, selloff and higher yields, namely MSR and swap CVA gains.

Mostly offset.

Buy rate driven fair value losses on bonds and loans held at fair value as detail later on the right side of slide 31.

And <unk> expense declined $2 9 million or 2% from lower mortgage banking and payroll tax expenses.

As for the balance sheet on slide 13.

Interest bearing cash was used to fund the significant loan growth and deposit decline as.

The decline in investment CFS related primarily to the unrealized loss, resulting from higher market yields this quarter as new purchases offset maturing cash flows.

Overall loans held for investment increased $1 5 billion or 6% during the quarter. This was net of $71 million in PPP loan forgiveness.

This makes five quarters in a row of robust loan growth during the total amount of the fee growth over the past year was $3 6 billion or 17, 3%.

At quarter end, we had $102 million in remaining PPP loans.

And deposits were up 2% driven in part by seasonal tax payment trends and continued reduction in time deposits.

Our total available liquidity, including off balance sheet sources ended the quarter at $14 3 billion represented 48% of total assets.

55% of total deposits.

And noted on the bottom of slide 13, our tangible book value decline due to the OCI right Mark on NFS investments.

Also added measures for this in the TCE or TCE ratio, both including and excluding <unk> for reference.

Slide 15 highlights net interest income.

And the decline in effects of PDP in acquired loan accretion.

The base increase again due to the recent rate increases.

Along with reducing cash funding record loan growth.

From a rate volume standpoint, increasing rates led to a $13 million of the $19 million increase with volume and mix may have been making up to $6 million difference.

Following that on slide 16 of the presentation of the trends for our net interest margin.

Knowing that our NIM increased 27 basis points in total to $3 four 1% in Q2.

And we presented waterfall on the margin change on the web page.

The NIM, excluding the impact of PPP loans and discount accretion was up 32 basis points in Q2, which is great to see the impact of continued non PPP loan growth.

Our cost interest bearing deposits increased slightly to 11 basis points in Q2, so the spot rate at June 30 was 10 basis points.

With Q1s average level.

Key for me here is following the 125 basis point increase in the federal funds rate during Q2, our NIM for the month of June was three 6% another 19 basis points higher than the full Q2 about <unk>.

Which bodes well for the remainder of the year.

The next two slides include information, which investors may find helpful and continued rate sensitivity.

First on slide 17, we provide the repricing and maturity characteristics of our loan portfolio.

The first table on the upper left breaks down the price and drivers on loans.

As of quarter end, 35% of the portfolio is fixed.

31% is in floating rate.

And 34% are adjustable rates over time.

The lower left table shows the maturity schedule by category.

The upper right table shows loan rates, where buckets for floating and adjustable rate loans.

Only 8% of the combined total are at their floor.

92% have no floor or above it.

For the $1 3 billion in floating and adjustable rate loans at their floor.

The lower right table breaks down the balances by rate change band along with the weighted average rate change required for these loans to move above their floor.

Hopefully investors and analysts will find this information useful in assessing the beneficial impact on net interest income future potential rate hikes.

Next on slide 18 on the left we've included a projected net interest income sensitivity for future rate changes in.

And both ramp in shock scenarios over two years.

This is a simulation we run them back to us quarterly and assumes a static balance sheet.

So deposit beta used in this simulation is 45% on interest bearing deposits.

For sensitivity on our model results every 10% change in the absolute data.

Minus one 2% on the plus 100 basis point shock results.

The table on the right shows our deposit beta from the last rising rate cycle, starting in Q3, 2015 and ran through Q3 2019 to catch the lag effect.

<unk> was 42% uninsured deposits.

Okay now to our segment disclosures.

Starting with the core banking segment on slide 21 of the presentation.

Net interest income increased $20 million of Q1, given the higher rates and loan growth discussed previously.

I'll talk about seasonal in the provision in detail in a few minutes, but you'll see here, we had $18 $7 million provision this quarter, primarily related to continued loan growth.

The net heroes show the fair value changes due to rising interest rates.

As a group.

$10 million loss in Q2 compared to $17 million fair value loss in Q1.

Non interest income of $34 5 million was down from Q1 due to lower gain on sale was lower gain on sale gains not fully being offset by continued growth in card based fees.

And in the non interest expense section, you'll see the merger expense recognized data on the combination.

Along with exit and disposal costs related to lease exits on recent store consolidations.

The direct management expense for the core banking segment was up slightly this quarter, primarily related to some nonrecurring project costs.

<unk> ratio for the segment improved to 57%.

This would be 54% ex the nonoperating fair value changes and merger exit costs.

And the operating disclosure for the core banking segment back in the appendix and also on page 24 of the release, it's good to see the operating <unk> increased year over year, which is great to see the benefit of continued loan growth and rate increases more than offsetting us.

Significant decline of CPP fees over the past year.

This is significant and bodes well for future core banking revenue with forecasted fed funds rate increases.

Turning now to slide 22 of the presentation, we showed the mortgage banking segment five quarter trends.

To start the continued increase in longer term yields where the volatility in our volume gain on sale margin and MSR evaluation.

We had $577 million in total loans held for sale volume this quarter down 11% from Q1 due entirely to lower activity with higher rates.

The gain on sale margin was 262% up slightly from Q1.

These two items resulted in a $15 1 million of origination and sale revenue loaded towards the top left of the page.

Our servicing revenue is stable.

And for the change in MSR fair value of the passage of time piece was stable, while the change due to valuation inputs with a gain of $10 9 million.

Due again to the increase in long term interest rates in the quarter.

Noninterest expense totaled $24 million for the quarter again. This represents held for sale origination costs servicing to us along with administrative and allocated costs.

The direct expense component of this was $13 2 million as noted on the right side of the page.

Presenting two 3% of production volume up slightly in basis points from last few quarters with the lower volume.

There's no towards the bottom of the page. The MSR is at a record high valuation of $1 three 9% as of quarter end, we are working through the governance and risk management process to hedge the MSR assets and.

In effort to reduce future net volatility.

We expect to have this in place over the next few months and we'll keep you updated.

A couple of final items before I turn it over to Frank.

Slide 24, we've included the quarterly loan balance roll forward.

Non PPP loan growth was driven by a $2 $6 billion in new originations and net advances.

Offset by $1 2 billion of payoffs.

Next let me take your attention to slide 26 on seasonal and our allowance for credit loss and as a reminder, our seasonal process incorporates a life of loan reasonable and supportable period for the economic forecast.

All portfolios with the exception of C&I, which uses a settlement reasonable and supportable period.

<unk> gradually to the output mean thereafter.

We used the consensus economic forecast this quarter updated EMEA.

Overall, the forecast showed improvement in some areas offset by higher expected inflation and interest rates.

We recognized $19 million provision for credit loss was about two thirds of that for the quarters strong loan growth.

And one third for slightly deteriorating economic variables.

The ACL at quarter end was one 2%.

And these are economic forecast driving the reserve it will simply take the passage of time to see if net charge offs follow this model.

But to date the models that simply overestimated the actual net charge offs given the lag of at least eight quarters.

Our day, one <unk> level was right at 1% on the ACL.

Which is about $30 million lower on the ACL to nonaccrual loans and we are at currently.

All else equal this excess ACL will it be charged off in future periods. If the models are eventually proven correct.

Or be recaptured and are used to providing for future loan growth if the economic forecasts improve time will tell.

And lastly, I want to highlight capital on page 28.

And then all of our regulatory ratios remain in excess of well capitalized levels.

Our tier one common ratio of 10, 9% and our total risk based capital ratio was 13, 5%.

The bank level total risk based capital ratio was 12, 6%.

And with that I will now turn the call over to Frank Namdar to discuss credit.

Thank you Ron I want to call your attention to slide 25.

Provided expanded disclosure on the characteristics of our loan portfolio to highlight how new loan generation in the second quarter compares to the overall loan book.

The average size of new loans is larger than the existing portfolio averages given higher real estate values the mix of loans within those portfolios and our intentional focus and investment in middle market bankers.

Moving on to slide 27, our nonperforming assets total assets ratio of <unk>, 5% was relatively steady with the prior quarter and our classified loans to total loans ratio declined to <unk> point, some 5% after last quarter's modest increase.

Our annualized net charge off percentage to average loans and leases.

It was only 11 basis points in the quarter, reflecting continued below average net charge off activity and the impact portfolio.

This impact portfolios ratio came in at 147%, notably below its historical 3% to three 5% range for the fourth consecutive quarter still reflective of higher levels of customer liquidity and the impact of strategic credit tightening implemented last year.

Our expectation continues to be a gradual migration to historical norms over the coming quarters in this space.

Essentially all of the quarters charge off activity was in the <unk> portfolio as the bank's activity was de minimus.

We continue to be very pleased with our credit quality metrics charge off activity is minimal.

Nonperforming and classified loan ratios are low.

Delinquency migration continues to cure.

This latter metric remains great to see as it is a positive signal of stability within the portfolio.

We remain confident in the quality of our loan book and we look forward to continued high quality growth.

Balanced with effective and active risk management practices back to your core.

Okay. Thank you Frank and Ron for your comments, we will now take your questions.

As a reminder, if you'd like to ask a question. Please press Star then one.

Our first question comes from Jeff <unk> with D. A Davidson your line is open.

Thanks, Good morning.

Hi, Jeff.

Question on the.

The management of.

Deposits.

Bit of a hypothetical here, but.

I guess as you look at managing our loan to deposit ratio D D.

Do you take into account the assumption of the Columbia merger I guess in other words would you would you press harder to retain deposits absent the merger or is it is it.

You are truly running in an isolated basis any thoughts on sort of deposits.

Retention with or without the merger.

Jeff CT so it's a good question quite.

Quite frankly, we.

Or still.

Core bank, we're still on our own slugging it out and we will continue to manage until we get approvals and close this bank on an independent fashion so to answer your question.

We're just doing what we've been doing all over the last five to seven years, which is a balanced growth philosophy at loans and deposits. We will continue down that road and like we mentioned.

I mentioned in my comments, we have seen a bounce back in deposits based on all the good work that have gone on over the prior quarters and we will continue to do that.

As we get closer to close.

Got you fair enough.

And.

Yes, I guess the other part other question I had was.

Maybe maybe for Ron.

Could you.

You've mentioned the June margin.

Average.

What was the timing of the cash work down through the quarter in other words did the margin.

For the quarter or for the month of June reflect kind of the full cash deployment.

Or is it sort of a lag into into the third quarter for.

The cash impact on line.

Question, Jeff It was pretty ratable over the course of the quarter. So.

Not exactly a third third third by month, but pretty close so we will definitely see some lift.

And margin on a quarterly basis in Q3 compared to Q2 and again the wildcard will be what happens on the deposit beta side.

Got it. Thank you and then maybe a last one just on the expenses.

Yes.

The drop in comp expenses, what portion of that was was kind of variable or mortgage or Andy.

Andrew what piece was was may be structural savings.

Any.

Yes, Jeff This is Ron again, and there's a good slide.

In the presentation deck I want to say, it's probably page 20 of the deck I'd say, we've got a couple of million dollars was on went inside for the quarter. I mean, there is some lag there and there is another just under $2 million of payroll tax related.

With the two primary drivers of the drop in comp.

I guess, maybe quantifying that a bit more on the on the next gen savings less.

Left to come in in 'twenty. Two is there is there much more there or is that kind of complete for the year I.

I'd say were pretty close to that run rate because right now we're right smack Dab I mean, if you back out merger and extra disposal costs were basically.

Ballpark in the middle of that six 9% to 7% range I gave on expenses for the year.

Feel pretty good about where we're at.

Okay. Thank you.

Yes.

Our next question comes from Jared Shaw with Wells Fargo. Your line is open.

Hi, there good morning, good afternoon, Thanks, Hey, Jared.

Hey, just following up on the deposit question.

As you see this the loan to deposit ratio moving higher does that should we think that maybe we get to that.

Sure.

45% deposit beta faster.

As you as you sort of fight for deposit retention at this point or I guess, how should we be thinking about sort of building into that 45% data.

Hey, Joe This is Ron I would say I fully.

Don't expect to see that hit right away.

That of course is a muddled amount based on past experience, we'll see how it plays out over the course of the second half of this year.

But my expectation would be for some NIM left early in Q3, just based off of the math from the month of June versus the quarter. In Q2 looking forward again, the key is going to be growing deposits slightly more than loans for the second half of the year, we're able to execute on that but my guess would be that at the end of the 45% Beta Hey, Gerrick, Let me just throw one you'll have a different philosophy.

Maybe prior.

Deposit cycles, if you will about how we look at relationships and you've heard Tory and I talk about AD nauseum about a balanced growth philosophy.

<unk> seen that in the run up in deposits. The way, we are continuing to grow C&I customers, which which carry.

Higher deposit balances relative to borrowing level. So it's a completely different company than it was when we go into a rising rate environment I just want to make sure everyone keeps that in line.

Yes.

Okay.

Could highlight thanks and then.

On the commercial real estate side there was.

Solid growth this quarter or are you starting to see the impact of higher rates, yet on on sort of that incremental demand.

Maybe that pipeline in terms of how they're evaluating incremental purchases or is it.

Now things are still pretty good on on CRE as we go into the third quarter.

Hey, Jeff This is Tory Nixon I think the place where we're seeing the interest rates impact real estate commercial real estate. The most is in the multifamily division and we had a really strong.

Q2, and in multifamily and some of that is just a result of of borrowers getting.

Getting financing done and in place before.

This continued rise in interest rates. So certainly it was a very robust quarter there for that reason.

As much as anything the pipeline and the pipeline for the for the entire company is very strong.

The pipeline for the multifamily division is down.

A bit.

And for obvious reasons and rates being that one.

Okay.

Good color. Thanks, and then just.

Just final question for me.

<unk>.

You said that you are still looking to.

Not moved the integration to date.

The deal if we get approval here in the near term I guess, what what what's the latest approval could come before you have to actually start thinking about.

Changing the the.

Conversion integration date.

We've got some time <unk> court, obviously, you get closer to the holidays.

We would probably.

Tissue some type of statement, but we've got we've got time.

Okay. Thanks.

Thanks for taking the questions.

Thank you.

Our next question comes from Matthew Clark with Piper Sandler Your line is open.

Hey, good morning.

Good morning.

Just trying to get a sense for how much of the loan growth. This quarter was kind of a pull forward in anticipation of higher rates.

Still comfortable with mid to high <unk>.

Mid to.

Okay.

High single digit loan growth given the higher recession.

Yes, Matt Tory Nixon again.

Roger.

Thanks.

Feedback there.

The.

Loan growth for the quarter was quite spectacular actually in we.

Interestingly enough, we had growth in every line of business and the bank over the quarter.

And that's actually very very nice to see such a lot of diversification.

The growth I think there's three primary factors for our Cline is.

As I alluded to and talked about earlier in the multifamily efficient part part was.

Getting loans done in booked and funded prior to increasing rates if its a fixed rate.

Although that's not a lot of what we do but that has certainty a bit of it.

I think the other reason for growth is just because of rates a little less on the payoff side than that historically, we see so.

That also provides a little bit of a lift for us and I think just lastly.

Some very robust efforts by all of the folks in the bank both all the RMS.

Our customer facing and back office folks as core talked about earlier this focus around balanced growth and relationship banking.

Spending time with our customers in <unk>.

And continuing prospects.

We've got we've got a very robust sales effort in the company and pipelines continue to look strong and I feel very confident that.

And as.

As we come in as we were into quarter three that we will have we will have some some some nice loan growth not albeit not at the same level. I think is what we had in Q2, but we do have very strong growth in all different parts of the bank forecast.

We're just not prepared yet.

Yeah.

Sorry about that.

Yes.

Just last question for me.

Do you have a do you have a guesstimate for where you think your pro forma CET one ratio will shakeout with Colby based on your latest results.

And your estimated rate marks.

Hey, Matt This is Ron I'd say, yes, overall, obviously, when we announced the deal last fall rates were much lower most of the marks were premium marks another split with higher rates to be discount marks.

Overall, though it's really been a function of where it'll be up when we when we close this second speculate where that might be.

But we do have ample capital cushion here today, which is one of the reasons traveling that helped the capital cushion any rate Mark.

Discount would also creep back in income pretty quickly. So we'll give updates as we get closer.

Okay. Thank you.

Sure.

As a reminder to ask a question. Please press Star then one.

Our next question comes from Andrew <unk> with Stephens. Your line is open.

Hey, good morning.

Good morning.

Hi.

I wanted to go back to some of your comments earlier on the call around the mortgage division, maybe everything being on the table.

I'm just trying to get a sense that I would love some color on I guess at this point in the rate cycle, what type of efficiency ratio.

You would view as acceptable in the mortgage division.

Well, let me let me start with your mortgage has been an important product for the company and will continue to be an important product for the company. It does.

We will serve us well.

Clearly the mortgage market.

Our refinancing.

New purchase.

Pretty much.

We have gone through the floor.

We as we've talked about.

In the years that I've been CEO , we have a scalable model, both up and down we do anticipate that with rates being up.

Specifically in the markets.

We used to them right here with the lack of available inventory, we don't see mortgage getting back to the levels. It was three or four quarters ago.

That being said, we're going to have to continue to look at the model and reduce cost to give you an actual efficiency number I'm not able to do that but I am telling you that we are looking very very hard at the model that has served us well to this point.

I think on a go forward basis, the capital and.

I will say the burden it places on the company is something that we need to take into account as we look at a pure profitability and we're going to do that.

I'm not going to get on a call and announced a dramatic shift in the business model without communicating with our people, but we are looking at the model like I've mentioned everything is on the table. It's just not going to be where it was and we understand that will make moves and what was communicate that with you all as soon as we get to the point, where we have a model that we're willing to talk about.

Okay, Great. That's really helpful color I appreciate it.

Maybe one for Ron.

We all know.

Production picture is going to be challenged but looking at the gain on sale margin on the mortgage business and it was pretty stable around closer to 5% number quarter on quarter.

Any reason to think there would be any margin degradation going forward on the gain on sell side or do you think it'll be pretty stable near this two 5% level.

Well I would say bigger picture and it's hard to give guidance on something.

Volatility in the rate market, which causes that.

Headwind on the gain on sale margin so.

I'd like to think it would be higher than that has been historically over time, but it's probably more Intel on where you think rates are going to be and I can give you a better answer.

Okay.

So if I can sneak one last one in as well.

Just Frank on some of your comments around just a really low level of genpact charge offs, we've seen so far.

Is there any way to think about or have you done any analysis on just how much more liquid.

Borrowers are versus kind of pre pandemic levels and then.

So far in the third quarter have you seen any of that kind of a normalization higher than charge offs.

Fruition at all.

Andrew Yes, it's just with the volume.

Of the individual lessees within that portfolio that number is just too hard to get at in terms of the.

A dollar figure for customer liquidity, so we really focus on the delinquency number.

And does this point.

That delinquency number has really held pretty steady.

And so far so good.

And it's.

<unk> puts inflation the way it is.

My expectation is that that that liquidity within those small businesses will will gradually continue to decrease in payments will be more difficult to make and delinquencies will rise and as those.

Likely will migrate through the delinquency bans and return to that.

Closer to that normalized.

Historical number.

Okay.

And thank you all for taking my questions.

Our next question comes from Chris Mcgratty with <unk>. Your line is open.

Great. Thanks.

Excuse me Ron can you remind us the monthly cash flows or the quarterly cash flows off the bond book and also what the strategy might be from here given the growth the loan growth accelerating should we just assume this portfolio continues to fund.

Fund loan growth.

Hey, Chris This is Ron Yes, I'd say on the cashless, obviously prepays have slowed down to them. There are six on the CBR side right, which is this went up and so it's probably going to be.

Tens of millions of dollars a month.

On the lower end of that compared to where we were.

You're going to have back with much higher prepays.

Looking at that specifically to fund loan growth I'm looking at continued deposit growth right balance deposit growth just north of loan growth, which seasonally we usually see in the second half of the year. So that's the that's the plan with that at this point.

In fact, the bond portfolio to be relatively static aside from fair value changes with rates moving around.

Okay.

That's helpful.

Finally on the on the acquisition.

In the release, just the regulatory world that we're in.

Additionally, you can share I mean, it feels like it's.

It's just taken a long time and in the <unk> issue is something I feel the questions, but just any color on what might be.

Driving the little bit slower approval process.

First of all as a merger acquisition.

But I.

We're going to comment on individual <unk>.

Amazon where they're at there is a process you. All know there was a series of deals ahead of us going into the year, which I think you all know some of those got cleaned out.

Right around the first of the year.

There was a backup if you will and the entire process. So it's kind of working through the process. We feel good about where we're at with all of our regulators we talked to them on a regular basis going back to the question on <unk>.

<unk> integration, we don't feel like we need to move that date at this point, we've separated like we've talked about before the approval and the close from the core integration, which is really the tipping point in the beginning point of all the cost saves associated with.

Revenue synergies with.

The merger so.

So we feel good about it and obviously if something changes we will certainly let you know immediately but right now maybe a little longer than we'd anticipated, but such is life right. So we just worked through it.

Great. Thank you.

Got it.

There are no further questions I'd like to turn the call back over to Jackie Bohlen for any closing remarks.

Thank you Michelle we'd like to thank you for your interest in Umpqua Holdings Corporation and participation in our second quarter 2020 earnings call. Please contact me if you would like clarification on any of the items discussed today are provided in our presentation materials. This will conclude our call goodbye.

This concludes today's call you may now disconnect everyone backed everyone have a great day.

The conference will begin shortly to raise Johan during Q&A, you can dial stolen.

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Good morning, and welcome to the Umpqua Holdings Corporation second quarter 2022 earnings call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session. As a reminder, this call is being recorded.

At this time I would like to introduce Jackie Bohlen Investor Relations director for Umpqua to begin the conference call.

Thank you Michele good morning, and good afternoon, everyone. Thank you for joining us today on our second quarter 2022 earnings call with me. This morning are Cort Ohaver, President and CEO of Umpqua Holdings Corporation, Tory Nixon President of Umpqua Bank, Ron Farnsworth, our Chief Financial Officer, and Frank Namdar.

Our chief Credit officer after our prepared remarks, we will take your questions yes.

Yesterday afternoon, we issued an earnings release discussing our second quarter 2022 results. We have also prepared a slide presentation, which we will refer to during our remarks. This morning both.

These materials can be found on our website at <unk> dot com in the Investor Relations section.

During today's call, we will make forward looking statements, which are subject to risks and uncertainties and are intended to be covered by the safe Harbor provisions of federal Securities Law.

The factors that may cause actual results to differ materially from expectations. Please refer to slides two and three of our earnings presentation as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussions with GAAP results.

Courage you to review the GAAP to non-GAAP reconciliation provided in the earnings presentation Appendix I will now turn the call over to court. Okay. Thank you Jackie I'll provide a brief recap of our performance then pass to Ron to discuss financials, Frank will discuss credit and then we'll take your questions.

For the second quarter, we reported earnings available to shareholders of <unk> 70, $579 million. This represents EPS of <unk> 36 per share compared to the 42 reported last quarter and 50 <unk> reported the second quarter of last year.

On operating basis, which excludes a number of interest rate driven items, our merger expenses that Ron will review EPS of <unk> 37 compares to 36 last.

Last quarter and 55 in the second quarter of last year.

The return of a provision for credit losses compared to 2020 was recapture was the primary driver of the annual variance, notably rising interest rates and portfolio loan growth enabled higher net interest income to exceed lower mortgage banking revenue.

Customer tax payments contributed to a 2% decline in deposits for the quarter, but we are seeing growth in the third quarter to date.

Balances grew $1 $5 billion in the second quarter, representing a quarterly growth rate of six 3% and annualized growth rate of 25%.

The loan portfolio was up 8% this year meeting the mid to upper single digit levels of annual expansion, we have been discussing over the past.

Past few quarters.

Slower payoff activity relative to 2021, and a small increase in net advances in the second quarter favorably impacted net portfolio growth in the first half of the year.

At this point market trends and our existing pipelines indicate continued loan growth the second half of the year, but likely slower pace in the second quarter significant volume.

Main acutely focused on the health of our new and existing borrowers and our new loan production mirrors, the high quality metrics exhibited by our overall loan portfolio.

In June of this year, we published our annual business barometer, which measures the mood mindset and strategic priorities of leaders at small and middle market companies across the United States inflation.

There are many business leaders reported more cautious views of the overall economy compared to the prior year. It remains confident and their resilience and ability to continue to grow their businesses to expand revenue improve and improve profitability. We remain focused on being the business bank of choice for these existing and prospective customers and our bankers.

Support teams will continue to focus on providing a distinguishing level of service that enables us to win business with strong companies.

All of our markets.

Now moving on to a handful of other initiatives.

Our ongoing advancements in payments technology, most recently through two commercial card solutions in collaboration with visa.

<unk> to produce tangible results as commercial card spend set new records during the quarter and was up 50% in June compared to the year ago period.

The pipeline is strong across all fee based businesses, which includes treasury management cards merchant and international.

Evaluating multiple options everything is on the table with regard to our mortgage business.

Regarding capital yesterday, we declared a <unk> 21 per share dividend payable to our shareholders of record as of August one.

While the amount is consistent with historical payments the timing with accelerated compared to our prior cadence as we continue to plan for our pending combination with Columbia banking system.

We currently target a clue.

Date during the third quarter when the timing will ultimately be determined by the receipt of all regulatory approvals, which we have not received to date.

As we detail on slide six and seven of the deck, we continue to make headway with our integration planning and our scheduled Q1 of 'twenty three core system conversion date remains achievable at this point given our ability to separate conversion planning activities from the legal close date.

The separation of our integration planning activities from our growth objectives has enabled us to successfully drive our business forward.

We continue to attract and hire exceptional talent.

This enabled us to build deeper presence in existing markets and expanding new desirable areas like Colorado and Arizona.

Proven local leaders who know their regions are joining umpqua.

We're embracing our expertise driven and personalized team based approach to customer relationships and their success is highlighted by the growth momentum exhibited over the past several quarters.

Our operating markets with top tier banking teams support my expectation sort of net expansion through 'twenty, two and into 'twenty three outside significant.

Economic deterioration, which we have not seen yet to date.

And with that Brian take it away.

Alright, Thank you Cort and political on the call I want to follow along I'll be referring to certain page numbers from our earnings presentation.

Starting on page 12 of the slide presentation, which contains our summary quarterly P&L or.

Our GAAP earnings for Q2 were $79 million or <unk> 36 per share the.

The adjustments to our internal operating measures with various fair value changes from interest rate volatility along with merger and <unk> costs, which are detailed in the appendix on slide 31.

On an operating basis, we earned $80 million or <unk> 37 per share.

So the moving parts as compared to Q1.

Net interest income increased $19 4 million or 8% representing.

Presenting the power of our spring cash skipping bonds and water falling down into loans. This quarter combined with the recent fed rate increases.

We had a provision for credit loss of $18 $7 million driven primarily by continued strong loan growth.

Noninterest income declined $24 7 million, reflecting lower home lending gain on sale revenue along with a fair value adjustments driven by the significant bond market, selloff and higher yields, namely MSR and swap CVA gains.

We offset.

Buy rate driven fair value losses on bonds and loans held at fair value as detail later on the right side of slide 31.

And other <unk> expense declined $2 9 million or 2% from lower mortgage banking and payroll tax expenses.

As for the balance sheet on slide 13.

Interest bearing cash was used to fund the significant loan growth and deposit decline as.

The decline in investment CFS related primarily to the unrealized loss, resulting from higher market yields this quarter as new purchases offset maturing cash flows.

Overall loans held for investment increased $1 5 billion or 6% during the quarter. This was net of $71 million in PPP loan forgiveness.

This makes five quarters in a row of robust loan growth during the total amount of the fee growth over the past year was $3 6 billion or 17, 3%.

At quarter end, we had $102 million in remaining PPP loans.

And deposits were up 2% driven in part by seasonal tax payment trends.

And continued reduction in time deposits.

Our total available liquidity, including off balance sheet sources ended the quarter at $14 3 billion represented 48% of total assets and 55% of total deposits.

And noted on the bottom of slide 13, our tangible book value decline due to the OCI right Mark on NFS investments, but we.

Also added measures for this in the TCE or TCE ratio, both including and excluding <unk> for reference.

Slide 15 highlights net interest income.

And the decline in effects of PDP in acquired loan accretion.

The base increase again due to the recent rate increases.

Along with reducing cash funding record loan growth.

From a rate volume standpoint, increasing rates led to $13 million of the $19 million increase with volume and mix, maybe not making up to $6 million difference.

Following that on slide 16 of the presentation of the trends for our net interest margin.

Knowing that our NIM increased 27 basis points in total to $3 four 1% in Q2.

And we presented waterfall on the margin change on the right of the page.

The NIM, excluding the impact of the PPP loans and discount accretion was up 32 basis points in Q2, which is great to see the impact of continued non PPP loan growth.

Our cost of interest bearing deposits increased slightly to 11 basis points in Q2, though the spot rate at June 30 was 10 basis points.

With Q1s average level.

Key for me here is following the 125 basis point increase in the federal funds rate during Q2, our NIM for the month of June was three 6% another 19 basis points higher than the full Q2 amount.

Bodes well for the remainder of the year.

The next two slides include information, which investors may find helpful and continued rate sensitivity.

First on slide 17, we provide the repricing and maturity characteristics of our loan portfolio.

The first table on the upper left breaks down the pricing drivers on loans. This.

At quarter end, 35% of the portfolio is fixed.

31% is in floating rate.

And 34% our ingestible rates over time.

The lower left table shows the maturity schedule by category.

Right table shows loan rates, where buckets for floating and adjustable rate loans only 8% of the combined total are at their floor, meaning.

92% have no floor or above it.

For the $1 3 billion in floating and adjustable rate loans at their floor.

Lower rate table breaks down the balances by rate change band.

What was the weighted average rate change required for these loans to move above their floor.

Hopefully investors and analysts will find this information useful in assessing the beneficial impact on net interest income future potential rate hikes.

Next on slide 18 on the left we've included a projected net interest income sensitivity for future rate changes.

And both ramp in shock scenarios over two years.

This is a simulation we run them back to us quarterly and assumes a static balance sheet.

The deposit beta used in this simulation is 45% on interest bearing deposits.

For sensitivity on our model results every 10% change in the absolute data.

Lesser minus one 2% on the plus 100 basis point shock results.

The table on the right shows our deposit beta from the last rising rate cycle, starting in Q3, 2015 and ran through Q3 2019 to catch the lag effect.

Our beta than was 42% underscoring deposits.

Okay now to our segment disclosures.

Start with the core banking segment on slide 21 of the presentation.

Net interest income increased $20 million of Q1, given the higher rates and loan growth discussed previously.

I'll talk about seasonal in the provision in detail in a few minutes, you'll see here, we had $18 $7 million provision this quarter, primarily related to continued loan growth.

The net zero, so the fair value changes due to rising interest rates.

As a group.

$10 million loss in Q2 compared to $17 million fair value loss in Q1.

Noninterest income of $34 5 million was down from Q1 due to lower gain on sale.

Lower gain on sale gains not fully being offset by continued growth in card based fees.

And then the non interest expense section Youll see the merger expense recognized data on the combination.

Along with exit and disposal costs related to lease exits on recent store consolidations.

The direct management expense for the core banking segment was up slightly this quarter, primarily related to some nonrecurring present us.

<unk> ratio for the segment improved to 57%.

This would be 54% extra nonoperating fair value changes and merger exit costs.

It's a significant and bodes well for future core banking revenue with forecasted fed funds rate increases.

Turning now to slide 22 of the presentation, we showed the mortgage banking segment five quarter trends.

Let's start the continued increase in longer term yields with volatility in their volume gain on sale margin and MSR evaluation.

We had $537 million in total loans held for sale volume this quarter down 11% from Q1 due entirely to lower activity with higher rates.

The gain on sale margin was 262% up slightly from Q1.

These two items resulted in a $15 $1 million of origination and sale revenue noted towards the top left of the page.

Our servicing revenues stable.

And for the change in MSR fair value of the passage of time piece was stable while the change due to valuation inputs was a gain of $10 9 million.

Due again to the increase in long term interest rates in the quarter.

Non interest expense totaled $24 million for the quarter again. This represents held for sale origination costs servicing to us along with administrative and allocated costs.

The direct expense component of this was $13 2 million as noted on the right side of the page.

Presenting two 3% of production volume up slightly investments from last few quarters with the lower volume.

As noted towards the bottom of the page. The MSR is at a record high valuation of $1 three 9% as of quarter end, we are working through the governance and risk management process to hedge the MSR assets in an effort to reduce future net volatility.

We expect to have this in place over the next few months and we will keep you updated.

Couple of final items before I turn it over to Frank.

Slide 24, we've included the quarterly loan balance roll forward.

Non PPP loan growth was driven by a $2 $6 billion in new originations and net advances.

Offset by $1 2 billion of payoffs.

Next let me take your attention to slide 26 on seasonal and our allowance for credit loss and as a reminder, our seasonal process incorporates a life alone reasonably affordable period for the economic forecast for all portfolios with the exception of C&I, which uses a 12 month reasonable and supportable period.

<unk> gradually to the output mean thereafter.

We used the consensus economic forecast this quarter updated EMEA.

Overall, the forecast showed improvement in some areas offset by higher expected inflation and interest rates.

We recognized $19 million provision for credit loss was about two thirds of that for the quarters strong loan growth.

And one third for slightly deteriorating economic variables.

The ACL at quarter end was $1 one 2%.

And these are economic forecast driving the reserve it will simply take the passage of time to see if net charge offs follow this model.

But to date the models that simply overestimated the actual net charge offs given the lag of at least eight quarters.

Our day, one <unk> level is right at 1% on the ACL.

Which is about $30 million lower on the ACL to nonaccrual loans and we are at currently.

All else equal this excess ACL will be charged off in future periods. If the models are eventually proven correct.

Or be recaptured and are used for providing for future loan growth if the economic forecasts improve time will tell.

And lastly, I want to highlight capital on page 28 million.

And then all of our regulatory ratios remain in excess of well capitalized levels.

Our tier one common ratio of 10, 9% and our total risk based capital ratio of 13, 5%.

The bank level total risk based capital ratio was 12, 6%.

And with that I will now turn the call over to Frank Namdar to discuss credit.

Thank you Ron I wanted to call your attention to slide 25, we have provided expanded disclosure on the characteristics of our loan portfolio at a highlight.

How new loan generation in the second quarter compares to the overall loan book.

The average size of new loans is larger than the existing portfolio averages given higher real estate values and mix of loans within those portfolios and our intentional focus and investment in middle market bankers.

Moving on to slide 27, our nonperforming assets to total assets ratio of <unk>, 5% was relatively steady with the prior quarter and our classified loans to total loans ratio declined to <unk> point, some 5% after last quarter's modest increase.

Our annualized net charge off percentage to average loans and leases was only 11 basis points in the quarter, reflecting continued below average net charge off activity and the impact portfolio.

This impact portfolios ratio came in at 1.47%, notably below its historical 3% to three 5% range for the fourth consecutive quarter still reflective of higher levels of customer liquidity and the impact of strategic credit tightening implemented last year my expectation continues to be a.

Gradual migration to historical norms over the coming quarters in this space.

Essentially all of the quarters charge off activity was in the <unk> portfolio as the bank's activity was de Minimis.

We continue to be very pleased with our credit quality metrics charge off activity is minimal.

Performing and classified loan ratios are low.

Delinquency migration continues to cure.

This latter metric remains great to see as it is a positive signal of stability within the portfolio.

We remain confident in the quality of our loan book and we look forward to continued high quality growth.

Balanced with effective and active risk management practices back to your core.

Thank you Frank and Ron for your comments, we will now take your questions.

As a reminder, if you'd like to ask a question. Please press Star then one.

Our first question comes from Jeff <unk> with D. A Davidson your line is open.

Hi, Thanks, good morning.

Jeff.

On the kind of the management.

Deposits in a bit of a hypothetical here but.

I guess as you look at managing our loan to deposit ratio do you do you take into account the assumption of the Columbia merger I guess in other words would you would you press harder to retain deposits absent the merger or is it is it.

You are truly running it on an isolated basis any thoughts on sort of deposits.

Retention.

With or without the merger.

Hey, Jeff Court. So it's a good question.

Frankly, we are still umpqua.

Core bank, we're still on our own slugging it out and we will continue to manage until we get approvals and close this bank on an independent fashion so to answer your question.

We're just doing what we've been doing over the last five years to seven years, which is a balanced growth philosophy of loans and deposits will continue down that road and like we mentioned.

I mentioned in my comments, we have seen a bounce back in deposits based on all the good work that have gone on over the prior quarters and we will continue to do that.

As we get closer to close.

Got you fair enough.

And.

Yes, I guess the other part other question I had was.

Maybe maybe for Ron.

Could you.

You've mentioned the June margin.

Average what was the timing of the of the cash worked down through the quarter in other words does the margin.

For the quarter or for the month of June reflect kind of the full cash deployment.

Or is it sort of a lagging into the third quarter.

For the cash impact online.

Good question Jeff.

Ratable over the course of the quarter so.

Not exactly a third third third by month, but pretty close so we will definitely see some lift in.

And margin.

Quarterly basis in Q3, compared to Q2 and again, the wildcard will be what happens on the deposit beta side.

Got it. Thank you and then maybe a last one just on the expenses.

Yes.

The drop in comp expenses, what portion of that was kind of variable or mortgage or Andrew.

Andrew what piece was was may be structural savings.

Danny.

Yes, Jeff This is Ron again, there's a good slide.

In the presentation deck and when I say, it's probably page 20 of the deck I'd say that a couple of million dollars was on the home lending side for the quarter and then there is some lag there and theres another just under $2 million of payroll tax related.

With the two primary drivers of the drop in comp.

I guess, maybe quantifying that a bit more on the on the next Gen savings.

Left to come in in 'twenty. Two is there is there much more there is that kind of complete for the year.

They were pretty close to that run rate because right now we're right smack Dab I mean, if you back out merger <unk> disposal costs were basically.

Ballpark in the middle of that six 9% to 710 range I gave on expenses for the year.

Thanks.

I feel pretty good about where we're at.

Okay. Thank you.

Yes.

Our next question comes from Jared Shaw with Wells Fargo. Your line is open.

Okay.

Hi, there good morning, good afternoon, Thanks, Hey, Darren.

Hey, just following up on the deposit question.

As we see this the loan to deposit ratio moving higher does that should we think that maybe we get to that.

Our full 45% deposit beta faster as as you as you sort of fight for deposit retention at this point or I guess, how should we be thinking about sort of building into that 45% data.

Hey, Joe This is Ron I'd say I fully don't expect to see that hit right away.

That of course is a muddled amount based on past experience, we'll see how it plays out over the course of the second half of this year.

But my expectation would be for some NIM left early in Q3, just based off of the <unk>.

Now from the months of June versus the quarter in Q2 looking forward again, the key is going to be growing deposits slightly more than loans for the second half of the year, we're able to execute on that that might get will be at the end of the 45% Beta Hey, Gerrick, let me just throw one you'll have a different philosophy than maybe prior.

Deposit cycles, if you will about how we look at relationships and you've heard Tory and I talk about AD nauseum about a balanced growth philosophy.

We've seen that in the run up in deposits the way, we're continuing to grow C&I customers, which which carry much higher deposit balances relative to borrowing levels. So it's a completely different company than it was when we go into a raising rate environment I just want to make sure everyone keeps deadline.

Yes.

Could highlight thanks and then.

On the commercial real estate side there was.

Solid growth this quarter or are you starting to see the impact of higher rates, yet on on sort of that incremental demand.

Maybe that pipeline in terms of how they are evaluating incremental purchases or is it.

Right now things are still pretty good on on CRE as we go into third quarter.

Hey, Jerry this is Tory Nixon I think the place where we're seeing the interest rates impact real estate commercial real estate. The most is in the multifamily division and we had a really strong.

Q2, and in multifamily and some of that is just a result of.

A far worse getting.

Getting financing done and in place before.

This continued rise in interest rates. So certainly it was a very robust quarter there for that reason.

As much as anything the pipeline and the pipeline for the for the entire company is very strong that the pipeline for the multifamily division is down.

A bit.

And for obvious reasons and the rates being that one.

Okay.

Good color. Thanks, and then just.

Final question for me.

<unk>.

You said that Youre still looking to.

Not moved the integration to date.

For the deal if we get approval here in the near term I guess, what what what's the latest approval could come before you have to actually start thinking about.

Changing the <unk>.

Conversion integration date.

We've got some time <unk> court.

They get closer to the holidays.

We would probably.

Tissue some type of a statement, but we've got we've got time.

Okay. Thanks.

Thanks for taking the questions.

Thank you.

Our next question comes from Matthew Clark with Piper Sandler Your line is open.

Hey, good morning.

Good morning.

Just trying to get a sense for how much of the loan growth. This quarter was kind of a pull forward in anticipation of higher rate.

So comfortable with mid to high <unk>.

Mid to.

Okay.

High single digit loan growth given higher regression.

Yes, Matt Tory Nixon again.

Sam.

Yes.

Feedback there.

The.

Loan growth for the quarter was quite spectacular actually in we.

Interestingly enough, we had growth in every line of business and the bank over the quarter.

And that's actually very very nice to see such a lot of diversification.

The growth I think there's three primary factors for our Cline is.

As I alluded to and talked about earlier in the multifamily efficient part part was.

Getting loans done in booked and funded prior to increasing rates if its a fixed rate product, although thats not a lot of what we do but that is certainly a bit of it.

I think the other reason for growth is just because of rates a little less on the payoff side and historically, we see so.

That also provides a little bit of a lift for us and I think just lastly is some very robust efforts by all of the folks in the bank both all of the RM.

Customer facing and back office folks as Cort talked about earlier this focus around balanced growth and relationship banking us spending time with our customers.

And continuing prospects so.

We've got we've got a very robust sales effort in the company and pipelines continue to look strong and I feel very confident that.

And as we come in as we were into quarter three that we will have we will have some some some nice loan growth not albeit not at the same level. I think is what we had in Q2, but we do have very strong growth in all different parts of the bank forecast.

We're just not prepared yet.

Sorry about that.

Sure.

Just last question for me.

Do you have a guesstimate for where you think your pro forma CET, one ratio will shake out with Colby based on your latest results.

And your estimated rate marks.

Hey, Matt This is Ron I would say overall, obviously, when we announced the deal last fall rates were much lower most of the March were pre remarks, another split with higher rates to be discount marks.

Overall, though it's really going a function of where it will be when we close this speculate where that might be.

We do have helped the capital efficiency of the day, which is one of the reasons for having that healthy capital cushion any rate mark.

Discount would also accrete back in income pretty quickly. So we will give updates as we get closer.

Okay. Thank you.

Yes.

As a reminder to ask a question. Please press Star then one.

Our next question comes from Andrew <unk> with Stephens. Your line is open.

Hey, good morning.

Good morning.

Hi, Kurt.

Let me go back to some of your comments earlier on the call around the mortgage division, maybe everything being on the table.

Just trying to get a sense I would love some color on I guess at this point in the rate cycle, what type of efficiency ratio.

You would view as acceptable in the mortgage division.

Well, let me let me start with your mortgage has been an important product for the company and we will continue to be an important product for the company. It does.

We're serve us well.

Clearly the mortgage market.

Financing.

New purchase.

Much.

<unk> gone through the floor.

We as we've talked about in.

In the years that I've been CEO , we have a scalable model, both up and down we do anticipate that with rates being up.

Specifically in the markets that we see them right here with the lack of available inventory, we don't see mortgage getting back to the levels. It was three or four quarters ago.

That being said, we're going to have to continue to look at the model reduce costs to give you an actual efficiency number I'm not able to do that but I am telling you that we are looking very very hard at the model that has served us well to this point.

I think on a go forward basis, the capital and all.

I will say the burden it places on the company is something that we need to take into account as we look at a pure profitability and we're going to do that.

I'm not going to get on a call and announced a dramatic shift in the business model without communicating with our people, but we are looking at the model and like I'd mentioned everything is on the table. It's just not going to be where it was and we understand that will make moves and we will communicate that with you all as soon as we get to the point, where we have a model that really wanted to talk about.

Okay, Great. That's really helpful color I appreciate it.

Maybe one for.

Ron.

I mean, we all know the production.

Production picture is going to be challenged but looking at the gain on sale margin in the mortgage business and it was pretty stable around two 5% number quarter on quarter.

Any reason to think there would be any margin degradation going forward on the gain on sell side or do you think it'll be pretty stable near that's two 5% level.

Well I would say bigger picture and it's hard to give guidance on something.

Volatility in the right markets, which causes that.

Headwind on the gain on sale margin so.

I'd like to think it would be higher than that it has been historically over time, but it's probably more Intel on where you think rates are going to be and I can give you a better answer.

Okay.

If I could sneak one last one and then as well.

Just Frank on some of your comments around just a really low level of impact charge offs, we've seen so far.

Is there any way to think about or have you done any analysis on just how much more liquid these borrowers are versus kind of pre pandemic levels and then.

So far in the third quarter have you seen any of that in kind of a normalization higher than charge offs.

Fruition at all.

Andrew Yes, it's just with the volume of it.

The individual lessees within that portfolio that number is just too hard to get at in terms of.

A dollar figure for customer liquidity, so we really focus on the delinquency number in and does this point.

That delinquency number has really held pretty steady.

And so far so good.

And it.

With inflation the way it is.

My expectation is that that liquidity within those small businesses will will gradually continue to decrease and payments will be more difficult to make.

And delinquencies will rise and as those as they likely will migrate through the delinquency bans and return to that.

Closer to that normalized.

Historical number.

Okay great.

Great. Thank you all for taking my questions.

Our next question comes from Chris Mcgratty with <unk>. Your line is open.

Okay, great. Thanks.

Fund loan growth.

Hey, Chris This is Ron Yes, I would say on the cashless, obviously prepays or slow down to.

Then there are six on the CBR side, right, which is this went up and so it's probably going to be.

Tens of millions of dollars a month.

On the lower end of that compared to where we were a year ago.

Add back with China Prepays.

Im not looking at that specifically to fund loan growth I'm looking at continued deposit growth right balance deposit growth just north of loan growth, which seasonally we usually see in the second half of the year. So that's.

That's the plan with mechanism.

We expect the bond portfolio to be relatively static.

From fair value changes with rates moving around.

Yes.

That's helpful.

And finally on the on the acquisition.

In the release, just the regulatory world that we're in anything additional you can share I mean, it feels like it's.

It's just taken a long time and in the <unk> issue is something I feel the questions with but just any color on what might be.

Driving the little bit slower approval process.

First of all as a merger acquisition.

But.

We're going to comment on individual.

Amazon where they're at there is a process you. All know there was a series of deals ahead of us going into the year, which I think you all know some of those got cleaned out.

Right around the first of the year.

There was a backup if you will and the entire process. So we're just kind of working through the process. We feel good about where we're at with all of our regulators we talk to them on a regular basis going back to the question on <unk>.

Core integration, we don't feel like we do.

That date at this point, we've separated like we've talked about before the approval to close from the core integration, which is really the tipping point in the beginning point of all the cost saves associated with it.

And revenue synergies with.

The merger so.

So we feel good about it and obviously if something changes we will certainly let you.

Immediately, but right now maybe a little longer than we anticipated, but such is life right. So we just worked through it.

Great. Thank you.

Got it.

There are no further questions I'd like to turn the call back over to Jackie Bohlen for any closing remarks.

Thank you Michelle.

Thank you for your interest in Umpqua Holdings Corporation and participation on our second quarter 2020 earnings call. Please contact me if you would like clarification on any of the items discussed today are provided in our presentation materials. This will conclude our call goodbye.

This concludes today's call you may now disconnect.

Q2 2022 Umpqua Holdings Corp Earnings Call

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