Good morning and welcome to Umpqua Holding Corporation’s First Quarter 2020 Earnings Call. I will now turn the call over to Ron Farnsworth, Chief Financial Officer.

Okay. Thank you, Cheryl, and good morning and thank you for joining us today on our first quarter 2020 earnings call. With me remotely this morning, are Cort O’Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, our Chief Banking Officer; Dave Shotwell, our Chief Risk Officer; and Frank Namdar, our Chief Credit Officer. After our prepared remarks, we will then take questions. Yesterday afternoon we issued an earnings release discussing our first quarter 2020 results. We have 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 umpquabank.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 Page 2 of our earnings conference call presentation, as well as the disclosures contained within our SEC filings. And I will now turn the call over to Cort O’Haver. Cort O’Haver: Okay. Thanks Ron. Before jumping into the financial results for the quarter, I want to spend a few minutes addressing the COVID-19 global pandemic. We are living through an extraordinary period of disruption and uncertainty. As a company, we have been focused on protecting the health and safety of our associates, while continuing to deliver the essential service of banking to our customers. I want to acknowledge our incredible associates who have adapted quickly and courageously to minimize disruption to our customers and our communities. I’m proud to lead an institution that is so uniquely able to service in a moment like this. I also want to acknowledge the…

Okay, thank you, Cort. And for those on the call who want to follow along, I will be referring to certain page numbers from our earnings presentation. Before I get into the numbers, there are two items I want to cover upfront. First, based on market volatility and consensus forecasts for a prolonged low interest rate environment, coupled with the drop in price of the company’s common stock during the quarter, we are completing the impairment evaluation of goodwill with our auditors, and do expect significant impairment. It is important to note that while any potential goodwill impairment will be material to reported earnings, it would be a non-cash charge and would have no impact on our cash balances, liquidity, tangible book value or regulatory capital ratios. We expect to complete the impairment analysis before filing our quarterly report on Form 10-Q with the SEC in early May. And second, given the dramatic turn-ins over the past quarter and extreme economic volatility, we remain focused on expense management to help offset expected revenue pressure. We continue to make good progress on our expense containment priorities, but forward-looking statements made on the January call are no longer applicable. I hope to provide detailed estimates later this year, assuming we start to see a recovery on the back end of this pandemic. With that, now turning to Page 12 of the Slide presentation, which contains our summary quarterly P&L. Our GAAP loss per share for Q1 was $0.13 compared to net earnings per share of $0.38 in the prior quarter, and $0.34 in the same quarter a year ago. The most significant item this quarter was an elevated provision for loan loss of $118.1 million, of which approximately $100 million was directly related to the economic fallout from the COVID-19 pandemic. In…

Thank you, Ron. I will also be referring to certain page numbers from our earnings presentation, for those who want to follow along. We have been diligently working with our customers on any needed loan payment deferrals. The average timeframe of these deferrals has been in the 60 to 90 day range, across all of our lines of business. On Slide 3, to be transparent, we have listed deferral information by line of business, highlighting the percentage of accounts electing deferment, the payment amounts deferred, and the percent of those amounts in comparison to the total payments amounts for loans and leases in each line of business. This information is as of April 19th. I do want to point out that the Cares Act, including the personal stimulus dollars and programs such as PPP, will obviously play a critical role in supporting our small business portfolios. On Slides 5 and 6, we show specific segment totals and associated relevant underwriting characteristics. Overall, our entire loan portfolio is very granular, and that holds true within these segments. Operationally, we have enhanced our credit monitoring on the entire loan and lease portfolios and have chosen to highlight the following five segments for you today. Hospitality at 2.3% of our portfolio; air transportation at 0.6%; oil and gas with essentially no exposure; restaurants at 0.7%; and finally gaming at 1.7% of our portfolio. On Slide 9, we indicate our line of credit utilization statistics across the entire product set, including commercial lines of credit, small business lines and home equity lines of credit. Given the inherent granularity of the portfolio combined with the high caliber credit quality of some of the larger relationships within the portfolio, utilization has remained stable over the past 90 days. Most of these credit facilities have characteristics associated with asset based lines, as specific advances are backed by qualified accounts receivable and inventory. Slide 21 depicts our loan portfolio, its geographic diversification and select underwriting criteria for each major area. We are pleased with the composition of our loan book, along with our conservative and disciplined underwriting practices. Slide 22, shows Umpqua’s historically strong credit quality by comparing our ratio of annualized charge-offs to total loans and leases to the entire FDIC-insured population, covering more than 5,000 institutions. For the past 10 years, Umpqua’s net charge-off rates have averaged 86% lower than the FDIC-insured institution average. Slide 23 reflects our credit quality statistics. Ron covered the provision and CECL comments, and I would like to point out that included in the provision and the net charge off numbers for this quarter, was a single $8 million impairment attributable to an air transportation lessor, that was COVID-19 related. I will now turn the call back over to Cort. Cort O’Haver: Okay. Thanks Frank and Ron for your comments, and now we will take your questions.

Thank you. [Operator Instructions]. Our first question comes from Michael Young SunTrust Robinson. Please go ahead, your line is open.

Hey everyone, thanks for the question. Cort O’Haver: Good morning Michael.

Wanted to maybe just start on the CECL reserve. The Day-2 reserve build was maybe a little bit higher than what we have seen for other banks, and it looks like CRE was maybe a big component of that. I don’t know if you can compare in contrast what you guys did, I know you gave some detail, but maybe what you did versus what peers did, did you guys just take the straight Moody’s forecast, and you feel like other people have taken kind of blended forecasts or any contrast you could draw there?

This is Ron. Yes, hard to speak specifically to what other banks are doing on that, I will point out that within CRE, of course you have got multi-families and owner occupied and non-owner occupied, and multifamily was very low, it is still low, but it was a larger piece of an increase, in terms of that reserve build. And no, we actually had about $4 million of additional reserve we booked over and above what the model suggested on some of the smaller categories, like consumer and HELOC, where the sensitivity wasn’t moving as much as we expected. So no downward adjustments to the model resolve. And I guess back to one of the issues with CECL and banks, I will be comparing economic forecasts used, because they’re all going to be slightly different. But ours is a straight up, that in a month. Moody’s updated baseline.

Okay, thanks. And then just maybe moving over to the lease and equipment finance portfolio. There is a 6% reserve against that portfolio now. How does that compare to maybe historical losses, maybe through the last cycle and should we kind of consider that as COVID impacted portfolio as well, in addition to the five relatively small portfolios you guys outlined?

Yes, good question. The 6% reserve obviously, we feel comfortable with it. For the last couple of years, that reserve level has been in that probably 2% to 3% range. And keep in mind about a little over half of that portfolio is in the traditional B and C quality paper space. So back during the last recession, their loss levels were probably upper single digits. But the other half of the portfolio is in the more A quality stuff, which will have a lower than 6% reserve. So I feel pretty good about where it is, compared to prior recessions.

Okay, great. And maybe just one last one. I think, Frank, you mentioned the line utilization, obviously we didn’t see a big uptick like we have seen in other banks, and it sounds like that was just because a lot of these are secured, so borrowers weren’t able to increase their line utilization. Is that the right characterization, or is there something else that we should infer about, maybe the durability or wherewithal here, your clientele, based on that statistic?

Yes, I think as I said, I mean I think that the majority of our facilities are true asset based lending facilities. We do not have a lot of liquidity focused facilities. So unsecured, uncontrolled facilities or facilities secured by the total asset base of the company, thereby being uncontrolled as well. So most of it is formulaic and I think that is truly a main reason why we have not seen the surge in line utilization that some of our other peers may have.

Okay, thanks for all the color. I will step back. Cort O’Haver: Thanks, Michael.

Thank you. Our next question comes from Jared Shaw from Wells Fargo Securities. Your line is open.

Hi, good afternoon and good morning.

Good morning Jared

With the MSR sale being postponed or delayed or terminated in March, I guess, what are your thoughts for future MSR on potential sales there?

Hey Jared, this is Ron. We will stay opportunistic on that. But for the time being we don’t see those particular counterparties come back, just given the extended volatility. What the Fed has done over the last month, has helped with some of that secondary mortgage market volatility, but it is probably going to take some time.

Okay. And then on the PPP loans that were funded, what was the average blended fee on that?

Jared, this is Tory Nixon. As Cort mentioned, we had just over 6,700 applications approved by the SBA, while money was still available for about roughly $1.460 billion and the average loan size there is about -- so it makes about $215,000. The fee generators roughly around 3% looking at kind of the scale that was provided.

Okay, great. Thanks, for the color.

Thank you. And our next question comes from Steven Alexopoulos from J.P. Morgan. Your line is open.

Hi, everyone. Cort O’Haver: Good morning, Steve.

Wanted to start, just to follow up on the deferrals. Could you guys provide the balance of the loans in each of the segments you are calling out on Slide 3? Looks like you have the payments that were deferred, but can you tell us the balances associated with those payments?

This is Frank Namdar. As of as of April 19th, in the commercial space, $35 million; commercial real estate about $201 million; consumer about $10.3 million; FinPac, $125 million; and residential, $340 million.

Okay. And those are the balances of loans associated with these?

That is the book balance of those loans.

Okay.

About $715 million.

Okay. On FinPac, which seems to have the most requests for deferment, can you walk through which segments were seeing the greatest pressure within FinPac?

FinPac, Yes. So we have seen a lot of activity in the freight hauling space. So FinPac has got some smaller trucking operations, and those have been impacted, it is really just more difficult to find loads to haul for some of those smaller operators at this point in time. Doctors, dentist offices, obviously any of the verticals that we cited in the Slide presentation has also carried over into FinPac. And I would say that those are the main areas at present.

Okay. Do you have the aggregate size of those?

These will be in aggregate balances, if you will, as opposed to payment amount. Trucking space, about $53 million; doctors, dentists, for the healthcare space, about $36 million; restaurants, about $20 million, and I think that about covers it.

Okay, that is helpful. Appreciate that. To shift directions a bit for Ron, if we look at the goodwill impairment, I mean all banks are under the same pressure as you guys are, and I have not heard of anybody else talking about impairing goodwill. Is this something unique to Umpqua’ that you are considering this year?

Yes, Steve, good morning. There was actually one yesterday announced, as well, and I think it is something that just came on so fast late in the quarter, that my guess is, if you are not going to see it in Q1, in the regional bank space, you might see it later in the year, depending on the economic forecast.

Okay and then, sorry, just one final one, to follow up on Frank’s comment about PPP helping your small business customers. If you look at your $1.4 billion that was approved, how much of that are you finding is actually going to your most distressed customers? It seems like there is a bit of a crowding out going on?

Yes, Steven. This is Tory Nixon again. If you look at what we have funded as of this morning, roughly 95% of that is to Umpqua Bank customers and about 5% of it is to non-Umpqua Bank customers. And we were very strict in the ability to process and support the customer base through a kind of first-in, first-out mentality. So we have just been very broad based, supportive in the PPP process, and have not broken it out by distressed industry or any kind of other risk classification. It has been strictly those that have applied, we have been working diligently to get them through the process and get them funded.

Yes, that is what I figured. Okay.

Hey Tory, before Steve hangs up, it might be worth letting Steven know what we have got, since the money ran out in kind of pending applications for the next round of stimulus is probably worth mentioning.

So as we have talked about earlier, we actually did 6,784 before the money was exhausted. And we have today, about 4,000 additional applications that we have received, that we have processed as far as we could process, and we are ready to the minute that money is available again. And the numbers from a dollar amount, are relatively close. I think it might be a little bit less than -- on an average at $215,000, but relatively close from what we can see today. So there is a healthy pipeline sitting there today. And we have done what we can do and we will move it forward as soon as we can.

Yes, got you. Thanks for taking my questions.

Sure. Thank you.

Thank you. And our next question comes from Tyler Stafford from Stephens. Your line is open.

Hey, good morning guys.

Good morning Tyler.

I wanted to start on credit here. There seems to be a lot of focus on the charge-off this quarter, which I am a little bit surprised about, considering the now new reserve is over seven times your non-accruals and I think well in excess where other banks are. But it was a little surprising that there was a COVID related charge-off this quickly. So I was wondering, if you could just talk a little bit more specifically about what drove that so early, was it already having problems or any details you could give us?

This is Frank Namdar. It was a weaker credit to begin with and had some exposure to some smaller airlines that were out there. But with the shared national credit as well and there was a defined work out in place, but in March, once the pandemic accelerated, if you will, like so many of these types of situations, the workout plan that was in place kind of fell apart, and Umpqua has is historically been extremely aggressive in their workout strategies and recognizing risk and we view the situation as one, in which we had to take an impairment at this time.

Got it, OKAY. Appreciate that. And just going back to FinPac for a moment, Ron, can you just go over again what those losses were last cycle? I think I missed it. And just thinking about it in relation to the 6% reserve you have on the book?

Yes, you bet. Again the time last cycle was -- it was all made up of BC quality paper, and that would have been in the high single digits in that 7% to 9% charge off rate range. Keep in mind though, the yield is on the BC stuff is in that kind of high teens to low 20s. And so when I characterize the back of the 6% reserve level today, a little over half the portfolio now is in A paper, it is a much higher quality lower yield, probably closer to 10% yield, but also lower losses.

Perfect. Okay. And then just going back to the expense comments you made. I think you said the higher mortgage expense drove the run rate or the absolute expense level this quarter up $12 million. So it would have been $165 million I believe, expenses for the quarter. So how are you thinking about, I guess one, mortgage production for the near term and for full-year 2020, and then how we should be thinking about the run rate expenses as well, in relation to that?

Yes. Mortgage is going to stay strong obviously, just given where billable rates. What I try to back into though, was X that surge compared to the prior commentary. We are targeting in that 6.60% range for the year. So absent that, I would expect mortgage to remain strong. But then again too, we are deploying guidance, if you will, for the full year amount. So we will leave it at that.

OKAY. And maybe parlaying on that last comment just about guidance, I fully appreciate that RoTC guidance is impossible to predict at this point, just given provisions and charge-off unknowns. But I was hoping you could comment maybe just around how you are viewing the efficiency ratio? Obviously, we have got 150 basis points of Fed cut since January, but any color you can share on how you are viewing that mid 50s prior efficiency ratio guidance?

Yes. Again, I am going to have to fall back on that prior guidance we have to withdraw, just given the environment and the range of potential economic forecasts.

Fair enough. Thanks.

You bet. Thank you.

Thank you. And our next question comes from Jeff Rulis from DA Davidson. Your line is open.

Thanks, good morning.

Good morning, Jeff.

Ron on the margin, similar maybe discussion here, kind of the old math goes out the window, we rush to zero on the Fed cuts pretty quickly. Previously, I think you kind of outlined for every 25 basis point cut, there was a five to seven basis point impact to margin. Helpful to know that March, 3.28%, some puts and takes there outside of specific guidance. How do you think the balance of that further pressure and/or I guess you could layer in if there is PPP pressure on that yield, any readjusted kind of comments on margin. would be helpful?

Maybe just a couple without providing again, detailed guidance. On the PPP loans, assuming the vast majority of those turn into grants or forgiven, the net fee will be recognized that quarter and net interest income in the 1% coupon, if you will, and the loan will be reversed. So you will see a surge related to the PPP fee income recognition for all banks, not just Umpqua. The net effect from that, the other item we are obviously focused on, is reducing the cost of deposits. The standard 0.94% in the month of March, shows you the extent of the move late in the quarter.

Got it. So to interpret the deposit work is, you hope to clamp back some efforts on the margin or the puts and takes on earning asset yields versus funding costs, where would you peg that through 3.28%?

I would say, given the fact that rates are at zero, there is room to move lower on the customer deposits.

Okay, great. And on the CECL, the election to delay the impact on regulatory capital, do you have an estimated impact, that you could share?

Yes, it is ballpark 10 to 15 bps.

10 to 15. Okay. Great. And then just a housekeeping, just want to confirm that, net charge-off was out of the FinPac Division, correct?

No, that was out of the core bank. The SNC.

Okay. Yes. Got it. Alright. That is it from me. Thanks.

You bet. Thank you.

Thank you. Our next question comes from Jacqui Bohlen from KBW. Your line is open.

Hi, good morning everyone. Cort O’Haver: Good morning, Jacqui.

Ron, in terms of that 3.28% margin, is that core or GAAP?

That will be the GAAP number. I would say that that delta between GAAP and core is narrow and pretty small, it is going to be a 1 basis point or two pretty quick.

Okay, thank you. And I wondered if you could just provide some color on your remaining SNC exposure, and if there is any industry exposure in there, that may be included in some of the other disclosures that you provided. I mean, just how you are thinking about the rest of that portfolio?

We have got about $1.2 billion in that portfolio remaining and all of that is pass-rated. None of it is an issue and stable overall. Nothing [Multiple Speakers] sensitive industries.

Nothing in sensitive industries? Okay. That is really helpful. Thank you. And when...

Jacqui, this is Tory. Just one thing real quick on the SNC pieces from Frank’s comment; I would say that our commitments are -- the number he gave you, our outstanding are about $750 million or so. So just from a book balance.

Okay, that is helpful. Thank you. And then just lastly, that 95.5% breakdown between customers and non-customers in terms of the PPP, is that a function of specifically prioritizing your existing customers? Meaning that, did you get a lot more inquiries from customers that aren’t included in that number, or did you process that, as they came in? Cort O’Haver: Hey Jacqui, this is Cort, let me answer that. So we made a decision early on that we weren’t going to exclude -- like Tory said, in the first-in first-out sense of the way we handle, that we weren’t going to exclude non-customers from applying here at the bank. We felt somewhat of a moral obligation to the communities we serve, to process applications. Most people went to their primary banks. We didn’t get a lot of it, but that was a decision that Umpqua, to make sure we were serving all of our communities.

So that 95.5, is that indicative of the 6,784 that have been processed, or is it the overall -- almost 1,100 that you have received? Maybe not with that, but with the additional 4,000?

Yes. So this is Tory again. So the 95.5% is actually as of this morning what we have actually funded, which is just over $850 million of the $1.460 billion. From what we see, though that 95.5% should stay fairly close to those levels as we fund the remaining balance of the original $1.460 billion. To Cort’s point as the process grew, we are trying very hard to support non-customers, as well as customers, but at times, decided to support our existing customer bases best that we could. So my gut instincts tell me that, as we kind of get through the remaining 4,000 which then will equal roughly 11,000 in total or so, we should stay close to probably the 95.5 split.

Okay. And I guess where I’m getting at with my line of questioning, and understanding that on a relative basis 5% is very low, but when you look at the sheer volume of applications, 5% of 11,000 is not an inconsequential number. How are you viewing this in terms of relationship development, and might you see associated deposit growth from new customers alongside it? Cort O’Haver: Let me start and then Tory can put on the back end. Once again, the decision was made mostly by me, that because we were seeing some non-customers in the intake process, the online intake process that Tory created three, four weeks ago, and truly believing in the foundation that the small business segment provides the economy, we made the decision to support those businesses as the primary reason for making that decision. As opposed to, we were going to try to cross-sell them products and services, but I’m not saying, you are saying that, I will tell you that, yes, knowing what the percentage is, Tory can tell you those customers, when those PPP loans or grants were funded, opened the deposit accounts here, which we welcome and clearly I think and like in my opening comments, where Umpqua from my perspective, is one of the few banks and maybe I am being somewhat naive to this statement, one of the few banks that has taken in some non-customers, and has been pretty open about that. That maybe there is an opportunity to gain some customers in the future. But I want to be clear, that we did it mostly or primarily to support these businesses, and the fact that they root and the economic livelihood of all the communities we serve. We are pretty much still a rural bank. A lot of our stores, a lot of our customers are in non-metro markets, and we feel a strong obligation to support these communities. And Tory if you want to add something on there, you can.

No, I don’t think there is a lot to add. I mean we would love to be able to do all of -- everyone that we possibly can and capacity issues just reach a certain limit, and there is some that we want customers -- hopefully not customers, but there would be some non-customers we just won’t be able to assist. But we are doing the best we can to help as many as possible. Certainly, for those that we supported through the PPP, that are not Umpqua Bank customers today, we hope that they will become Umpqua Bank customers tomorrow. But there is no outward reach in that regard.

Okay, great. Thank you for the added color. Appreciate it.

Thanks Jacqui.

Thank you. And our next question comes from David Chiaverini from Wedbush. Your line is open.

Hi, thanks. I had a follow-up question on credit in your gaming portfolio. There has been some concern by investors this earning season for banks that have exposure to gaming companies, that particularly tribal customers and 80% of your gaming portfolio is to tribal, and granted it is a pretty small portfolio exposure for you, at less than 2%. But could you walk through what if it came to that, what a workout would entail in some of the measures you could take? Cort O’Haver: Interesting question. Yes. Obviously it would involve a lot of attorneys and working through the tribal attorneys on both sides. Our portfolio is at the time of underwriting, extremely strong, still as displayed in the Slide presentation. The great majority of them have over 12 months of liquidity. So we have great confidence in the strength of that portfolio. And to date, we have only received one request for deferral in that space.

Great, thanks for that. And then shifting gears to expenses, it sounds like it is a good news kind of story, given that you guys are trending at the lower end of that prior guidance. But I was a little surprised when you said that you kind of pulled the guidance for it, as opposed to just adjusting it, if needed because usually that is a line item that banks have the most control over. Could you discuss just why you pulled the guidance on that?

Hey David, this is Ron. Yes, I mean obviously mortgage is going to be a wildcard over the course of the year, strong in Q1, we expect it to be strong again in Q2, based on market conditions. But underlying that the nice thing about the next-gen initiatives is, not really market specific drivers of the drops and costs were down. So feel good about, ex the mortgage surge, which comes with much revenue above expectations, and that will be in that range. I think it is just in terms of overall guidance, there is enough moving parts over the course of the year that, I don’t think anybody can tell you what Q3 or Q4 are going to look like specifically, just given the range of outcomes. Cort O’Haver: Hey, David, Cort. We have continually driven down our core operating expenses over the last couple of three years. And we did end the quarter, I understand your question. Obviously with the pandemic hitting as fast as it did, our primary focus has been on serving our customers, and we have already taken initial initiatives in the company, to restrict expenses, and we are looking at right now, in the future, reduce expenses. But to Ron’s point, it happened so quickly, focus on the customer, and we will get to the expense saves, we have shown The Street before that we can control expenses. We get it and we will get that information to you as soon as we kind of iron out exactly how we are going to deliver on that.

That is helpful. Makes sense. Thanks very much. Cort O’Haver: Thank you.

Thank you. And our next question comes from Michael Young, SunTrust Robinson. Please go ahead, your line is open.

Hey, thanks for the follow-up question. Just wanted to touch on the mortgage banking business real quick. Just gain on sale margins obviously were quite strong, good to see this quarter, obviously with the high volume. But could you maybe just talk about what you are seeing in terms of how much volume you have been able to process, versus kind of the pipeline and should we expect a continued surge or even a larger surge in 2Q? Just kind of what you are seeing in terms of activity levels, and then what that may mean for gain on sale margins?

Yes Michael, this is Ron. Historically, it was like a bell curve through the year, right. So you typically had higher purchase activity, Q2, Q3. We will see how that plays out in the light of the pandemic. But we have been able to obviously manage the volume -- significant levels of volume though, also with better pricing. Hence, the gain on sale margin, with that 3.43% range with the increase in loan pipeline. So we feel good about utilizing that as a clutch if you will, to manage volume.

Okay. But no comments or updates on kind of what you have seen late in 1Q or in the early 2Q, in terms of have you had to delay closings or anything like that, that may further increase or sustain kind of the surge in volume?

Nothing significant outside of the historical pattern, I mean other than rates are zero. So we are starting to see more refi activity. But mortgage rate spreads on mortgages have actually gapped out, compared to the move in the tenure, right. So it is not a refi bonanza, as one would expect, if you just follow the tenure move.

Okay. And then one last one, this would be true for anyone, but just on the servicing side, there is a lot of chatter about servicers basically having to fund payments, even if there is forbearance for maybe up to four months. Can you talk about any impacts that would have on you all?

Hey, this is Ron again. Yes, we have got significant liquidity. So we don’t see that as an issue here over the coming couple of quarters.

Okay, thanks.

You bet. Thank you.

Thank you. And that concludes the questions in the queue. I will turn the call back to management for their closing remarks.

Okay. Well, this is Ron. I want to thank you all for your interest in Umpqua Holdings and your attendance on the call today. This will conclude the call. Goodbye.

Thank you for joining us today ladies and gentlemen. You my now disconnect.