Ronald Farnsworth - EVP & CFO Cort O'Haver - President & CEO Tory Nixon - Head, Commercial & Wealth.

Tyler Stafford - Stephens Inc. Jared Shaw - Wells Fargo Securities Steven Alexopoulos - JP Morgan Aaron Deer - Sandler O'Neill & Partners Riley Storm - D.A. Davidson & Co. Matthew Clark - Piper Jaffray & Co. Jacque Bohlen - Keefe, Bruyette & Woods, Inc. Brian Zabora - Hovde Group.

Good day, everyone and welcome to the Umpqua Holdings Corporation First Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth, Chief Financial Officer. Please go ahead, sir..

Alright, thank you, Dana. Good morning and thank you for joining us today on our first quarter 2017 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Dave Shotwell, our Chief Credit Officer and Tory Nixon, our Head of Commercial and Wealth.

After our prepared remarks, we will then take questions. Yesterday afternoon, we issued an earnings release discussing our first quarter 2017 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 laws.

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..

Okay. Thanks, Ron, and welcome to everyone listening in on the call. First quarter, earnings per share were $0.21 compared to $0.31 in the prior quarter. $0.08 of the $0.10 quarter-over-quarter decline was related to the change in fair value adjustment on the MSR and debt capital markets swap derivatives.

Our financial results this quarter benefited from much stronger loan grow, although much of that occurred late in the quarter along with a 2 basis point expansion and net interest margin. Consistent with our prior guidance mortgage banking revenues declined, reflecting the usual seasonality of that business. We also saw higher payroll taxes during Q1.

With the encouraging trends in loan growth and net interest margin and as we head into seasonally stronger mortgage banking periods, I feel very good about how we are positioned for the remainder of 2017. During last quarter's earnings call, I laid out my top priorities for 2017 starting with achieving balance growth.

This will continue to be our number one priority as it sets the stage for everything we want to accomplish to drive stronger and more consistent long term financial performance.

Continuing on the momentum we built towards the end of 2016, growth in the first quarter was very strong especially after you factor in normal seasonality and a challenging growth environment for traditional commercial loans. Loans and leases increased by $321 million or 7% annualized.

That reflected balanced growth between our C&I, consumer, leasing and commercial real estate portfolios. Now let me make a few points on loan grow. This quarter a much larger portion of our overall growth came from commercial loans.

This is in contrast to our growth during the first quarter of 2016, which was weighted heavily with commercial real estate and residential mortgage loans. Our strong commercial loan growth last quarter reflects our emphasis on traditional commercial lending and the success of the initiatives we put in place earlier this year to grow that portfolio.

In the first quarter, total commercial loans increased by 18% annualized, driven by strong growth in both C&I lending and in the leasing and equipment finance portfolio. Traditional C&I loans increased by 17% annualized to $2.7 billion.

I am extremely encouraged by this growth even more so given the recent sluggish trends we are seeing for the overall industry. About 50% of our C&I growth this quarter was from larger middle market customers that we would not have originated a quarter ago. This reflects our new focus on this segment and fully utilizing our $25 billion balance sheet.

Our loan pipelines remain extremely robust. With the commercial pipeline up $500 million from the end of the fourth quarter and our consumer pipeline at the highest level it has ever been. Although very new, our Corporate Banking division continues to make great strides.

They are bringing in new full service banking relationships with larger companies, without sacrificing the exceptional credit quality and underwriting standards Umpqua is known for.

The early success we are having is directly attributable to the quality of the bankers, we've been able to bring on board virtually all of whom have a significant experience at larger banks. On the deposit side, we had another strong quarter in growing consumer and commercial deposits.

First quarter deposits were up just over 3% annualized, but that included a decrease of $187 million in public bonds, which was due to a combination of seasonal fluctuations and target run off. Excluding the impact of that deposit growth was 7% annualized. Before I turn the call back over Ron, let me make a few comments by financial performance.

Over the last 5 quarters, our efficiency ratio when you exclude the impact of merger related expenses and fair value changes has been in the low sixties to high fifties. This quarter that ratio was at 65%. As we said last quarter, our goal is to get that ratio consistently below 60%.

As a part of the strategies we laid out this year, we have begun working on initiatives to add revenue and be more efficient across the organization and in our delivery. And quite frankly, we may have to make some tough decisions in order to get our efficiency ratio consistently below 60%.

Now let me share with you a few of the ideas and areas that we are looking to help get us there. We need to start adding more consistent streams of non-mortgage related fee income. This will help lessen some of the quarter-to-quarter volatility in our overall revenues. There's a tremendous opportunity just bringing our fee base in line with peers.

It will take some time and let me emphasize that, it will take some time. We are working to make that happen. Let me give you a few examples; first, increasing our penetration rate with our existing customer base with core treasury management products, card services, international including FX.

Second, we've aligned goals and incentives within the commercial bank to support our balance growth initiative of loans, deposits and non-interest income. And third, a recently hired executive to help support and build our fee income initiative in the commercial bank.

There's also room to improve operationally from an overall organizational efficiency standpoint. Smart changes to our processes and functions can provide meaningful benefits to the bank. For example, in many instances closing loans just one day faster, these changes are great for our customers and have a material financial impact for us.

We're also looking closely at our delivery channels both on the retail and commercial side. The way consumer's bank has dramatically changed, and we will continue to do so. Like other industries, bank needs to be able to evolve with the changing consumer habit.

This does tell [indiscernible] with the work we are doing around the digital customer experience and our subsidiary Pivotus.

By finding ways to maintain the same level of exceptional customer service, through a variety of digital channels we lessen our reliance on the physical channel which can lead to significant efficiencies and be the differentiator for the bank. I will talk more about these initiatives in my closing comments.

Now back over to Ron to cover the financial results..

Okay. Thank you, Cort. And for those on the call who want to follow along, I'll be referring to certain page numbers from our earnings presentation. Before I get started, I want to make a comment on our financial presentation. As you can see from our earnings release and slide deck, we have removed the non-GAAP operating earnings metrics this quarter.

We will still continue to provide those notable items from our P&L, which are highlighted on the first page of our earnings release.

Turning to page 5 of the slide presentation, which contains our detailed P&L, first quarter earnings were $46 million or $0.21 per share compared to $0.31 per share in the prior quarter and $0.22 per share in the same period of the prior year.

As Cort said, from Q4 to Q1, $0.08 of the overall $0.10 decline related to the change in fair value adjustment from the MSR and debt capital market swap derivatives from the decline in long term interest rates this quarter. The MSR fair value loss was $7.7 million in Q1 compared to a gain of $16.5 million in the prior quarter.

Similarly we had a loss of $0.70 million related to the fair value of debt capital market swap derivative compared to a gain of $4.6 million in the fourth quarter. Factoring out the impact of these 2 items, the remaining $0.02 linked quarter decrease in earnings was driven primarily by lower home lending activity and seasonally higher payroll tax.

Turning to net interest income and margin, on Slide 6; net interest income decreased by $1.1 million from the prior quarter level. Interest income was lower by $600,000 compared to the previous quarter due to a lower level of credit discount recorded on acquired loans and two fewer days in the period.

We were hoping this will be overcome by growth, but much of the loan growth, we had occurred late in the quarter. To echo Cort's comments on loan growth, this quarter was very strong especially given the heavier mixes C&I, which typically has longer lead time and lower draws than commercial real estate loans.

The initiatives that we put in place to really grow the C&I portfolio didn't begin in earnest until late last year. Those initiatives are now really starting to gain traction, as we see evidenced by the growth this quarter.

Credit discount accretion from acquire loans was $6.4 million in the first quarter, down from $7.7 million in the previous quarter. As we've noted on prior quarterly calls, this accretion is expected to continue to decline modestly on a quarterly basis.

Interest income from our investment portfolio, which is predominately agency mortgage backed securities increased by $3.3 million over the prior quarter level.

This was driven by higher average balances as we reinvested some excess cash in the middle of the quarter, along with higher average yields and a lower level of bond premium amortization resulting from a reduction of prepayment fees during the quarter.

Our target for interest bearing cash will be approximately $0.5 billion for the balance of the year with the bond portfolio at about current levels. For the first quarter, reported net interest margin was 3.85%, up 2 basis points from the prior quarter.

Excluding the credit discount accretion on acquired loans, adjusted margin with 3.7%, an increase of 5 basis points from the fourth quarter. Recall the last quarter, we forecasted our net interest margin have bottomed out and guided to an adjusted margin in the range of 3.63% to 3.7%.

Roughly 2 basis points of the linked quarter increase was driven by the redeployment of excess liquidity from interest bearing cash to investment securities.

There was little to no impact from the mid-March Federal Reserve rate increase and assuming another later this year with continued loan and deposit growth, we expect the margin X credit discount to increase slightly to the 3.65% to 3.75% range.

Now on slide 7, the provision for loan and lease losses was $11.7 million, down from $13.2 million in the fourth quarter. Net charge off decreased to $9.40 million from $12.9 million in the prior quarter. Our credit quality remains strong with our MPA ratio declining one basis point to 0.24% of assets at the end of the first quarter.

Moving to non-interest income on slide 8. We saw a decrease of $38.4 million from the fourth quarter level of which $29.4 million was from the 2 fair value gains I mentioned. These items drove the linked quarter declines and mortgage banking revenue and other income.

We sold $12.5 million of equipment and lease financing loans during the first quarter together with the normal sales of SBA loans. We had a gain of $1.80 million for the quarter. This compares to a gain of $4.10 million for the fourth quarter.

Revenue from the origination and sale of residential mortgages decreased by $7.70 million to $24.6 million for the first quarter, this decrease was primarily driven by lower mortgage origination volume partially offset by higher gain on sale margin.

On page 9, you will see for sale mortgage originations decreased 29% to $755 million, driven by the typical seasonal bell curve on purchase activity and lower overall industry refinance volume. As we got into last quarter, our gain on sale margin increased to 3.27% from 3.05% last quarter.

We continue to price loans for a gain on sale margin in the low to mid 3% range and with that, we expect the seasonal bell curve on volumes and our gain on sale margin to pick up in Q2 and Q3 then down again in Q4.

This is still in line with our guidance last January on a volume drop of about 15% year-over-year assuming the rates remain relatively constant from here. Turning to slide 10, non-interest expense was $182.7 million, the decrease of $0.80 million from the prior quarter.

The bridge we provide on the right side of the slide, details the major moving parts. Direct home lending expense was down $2.60 million consistent with the decline in mortgage origination.

Seasonal payroll taxes were higher by $4.30 million as I guided to on last quarter's call, and merger related expenses decreased by $2.20 million from the prior quarter. In addition we have $1.20 million in legal settlements this quarter.

For the rest of the year, we expect higher home lending expense to match increased volumes and a decline in payroll taxes of $1 million to $1.50 million a quarter. Also, we expect to incur $4 million to $6 million of merger related expense spread across Q2 and Q3 related to clean up work needed from a prior non-customer facing system conversion.

In addition, we'll have a smaller amount of exit or disposal cost related to some additional back office facility consolidation. Turning now to the balance sheet, beginning on slide 11. Our tangible book value per share increased $0.07 to $9.57.

Including the impact of dividends, our tangible book value per share growth was strong at 10% annualized this quarter. On slide 12, you'll see details on our loan and deposit portfolios noting the strong and balance first quarter growth, as Cort discussed.

Our loan to deposit ratio ended the quarter at 93% and we expect it to remain around this range for most of the year. Slide 13, shows a snapshot of the overall credit quality of the company. Noting nonperforming assets remain stable had 24 basis points of assets. We did see an increase in loans past due 30 to 89 days this quarter.

But in reviewing the details there are no significant individual loans or industry concentrations that concern us. And we attribute this to expected fluctuation. And lastly on 14, I want to highlight capital.

Noting that all of our regulatory ratios remain in excess of well capitalized levels, with our Tier 1 common at 11.3% and total risk based capital at 14.4%. Our excess capital is approximately $275 million. As we discussed for the last few years, we plan to continue to employ excess capital in a prudent and thoughtful manner.

And with that, I'll turn the call back to Cort to wrap up our prepared remarks..

Okay. Thanks Ron. Just a few things before we take your questions. I mentioned Pivotus earlier and the part it will play and how we think about the customer experience across all of our delivery channels. Ray has been heavily involved in that effort and we are currently in pilot. I look forward to sharing more over the coming quarters.

Earlier this week, we announced that Rilla Delorier has joined Umpqua as our new Chief Strategy Officer. In this role she will work to bring together our creative product and technology teams to develop and implement strategies to move the company forward.

As some of you may also recall, when we announced the acquisition of Financial Pacific Leasing, we guided to growing that portfolio to $1 billion in 5 years. I am pleased to report this past quarter we reached that goal in just under 4 years. And finally, we engaged Fitch Ratings to provide us with a credit rating.

On April 11 Fitch issued a press release announcing that it assigned to Umpqua a long term issuer default rating of BBB+. This will benefit the bank especially as we look to grow in the larger middle market and corporate space. Now we'll take your questions..

Thank you. [Operator Instructions] We'll go first to Tyler Stafford with Stephen King..

Hi, good afternoon guys..

Hi, good morning Tyler..

Maybe first to start on expenses, the compensation -- the mortgage compensation expense has been running about 240 bps that's closed loan volumes but that increased around 290 this quarter.

Can you just talk about the expenses out of the mortgage business why those did not climb with the decline in volume?.

You bet Tyler, you are comparing that to Q4 level. So there are some level of cost that as you go up in volume over the course of the year decline in basis points, so when you compare Q4 to Q1, take them into that account it would be relatively in line with the overall production drop.

Probably a better comparison will be Q1 a year ago to Q1 this year, but that was the main driver of it. So we do expect that expense and basis points to decline over the balance of the year. Get down on that call it 230, 240 range by the end of the year..

Okay, great.

And did I hear you correctly earlier in your prepared remarks that a gain on sale margin you expect to increase in 2Q and 3Q and then to decline as well as the volumes?.

Yes. We expect it to be like the seasonal bell curve in production. So three in a quarter and what we talked about last was 3.25, 3.5, 3.5, and 3.25 that's the current thinking on..

And then just last month for me back on expenses, I think we're now in year for post Sterling and what we're still taking some merger charges any idea when those are ending or when that end is in sight?.

Yes, I can talk about -- we've got some costs related to the clean-up of conversion from a year back. That'll hit mostly in Q3, a little bit in Q2 and I expect following that you will see that drop to zero..

Great, thanks guys..

You bet..

We'll take your next question from Jared Shaw with Wells Fargo Securities..

Hi, good afternoon. Thanks..

Welcome..

Can you give me a little color on the securities this quarter, what you are buying this quarter and in terms of yields duration deployment and what you are buying this quarter and in terms of yielding duration and then what the overall portfolio looks like as well?.

Yes, you bet. So then against the soaring again the purchases were down about $0.50 billion second half of February so we didn't get a full quarter.

But overall that make us just consisted for what we have vanilla benefit other, but overall that mix is just consistent now with what we have now very vanilla plug in 4 to 5 year average live mid to yield in terms of the mix. So no change in that, just the price points then what we had in the quarter..

Okay. Thank you. So then on the C&I side, where you said that you were able to move up customer size and bring on some new relationships.

Are you also taking on bigger are you retaining bigger pieces of loans and you did the past and if so, what level are you feeling more comfortable keeping the relationship on the balance sheet?.

That's a great question. So, yes both.

I mean we are looking at bigger middle market customers that we hadn't traditionally looked at in the year ago or actually most recently four months ago and we are looking at holding more of the debt that we've originated for those customers and one of the things we had done is sold down larger chunks of the loans we had originated and we are taking larger pieces of those deals with customers where we feel the credit risk warrants that.

And then, yes we will look at buying business if not a big piece of the business so Jared, we really are much of a buyer as much as we are a seller. It's really more of a function, but it's just not selling down our better customers businesses..

Great, thank you..

We'll go net to Steve Alexopoulos with JP Morgan..

Hi guys, how is everything?.

Good..

I want to start first on the loan side, obviously a very strong C&I growth.

Did you go see a change in line utilization from your existing customers or was this all share gains in new customers driving that?.

Yes, this is Tory. We saw utilization that went from roughly 42% to 43% quarter four in 16 to Q1 17..

Okay. That's helpful. And then on the consumer pipeline, I think the comment was it's the strongest it's ever been..

Yes..

Can you talk about what types of loans are in there and is this stuff you're going to hold on the balance sheet?.

Yes, most of them are e-lock and yes, we will hold those in the balance sheet. There are some of them consumer loans, but majority of it is e-lock..

Okay, majority e-lock. And then a follow-up on Ron's comment to hold the loan to deposit ration flattish around 93% seems like you would have to ramp deposit growth right with this front loan pipeline coming through.

Help us think about what you need to offer in the markets that drive that and what the impact should be on the deposit cost?.

I think we'll continue to offer what we've offered over the last 30 years. And in terms of that loan to deposit ratio, we've been anywhere from 92% to 95% percent over the past year, year and a half. That's kind of the range I expect us to be in.

But again on a balanced growth standpoint this past quarter, the seasonal rundown you'd expect some public along with some targeted rundown. We were balanced at 7% loan to deposit growth. I want to see that balance continue for the rest of the year..

Okay, Ron.

So no reason for us to see a big increase in deposit costs coming through?.

That impacts the betas and the betas have been very small with the exception -- and there are some beta increases on larger public and or broker, but really on a vast majority of it -- I don't think anybody in banking has seen betas kicking yet.

So your guess is as good as mine, we all speculate potentially another two to three moves of Fed, you might also see that kick in. So probably the first part of the question would be if you expect couple of more moves from the fed over the balance of the year, I'd expect industry would see the betas kick in later..

Okay, maybe final one just for Cort. Following up on two of the priorities you had in last quarter, the improved customer experience you mentioned also the digital strategy. How much are you guys spending on technology right now and how should we think about that growing from here? Thanks..

I'll let Ron answer the actual technology spend. We clearly know we have to divert resources in the technology to continue with that experience.

I'd say you know some of it is both customer-facing, some of it is also internal and like I mentioned doing things quicker adds a very significant increase into the bank's revenue just by doing these faster there's technology spend internally. But I'll let Ron actually answer the question on our technology spend..

In terms of the overall annual technology spend, we're around $110 million and I would expect that have a faster growth rate over time than just core inflation of the bank. But the key is back to our core types earlier getting more efficient than other areas of the bank to build or employ some of that into more on the digital side..

Okay, great. Thanks for the color..

Great, thanks..

We'll go next to Aaron Deer from Sandler O'Neill & Partners. Aaron Deer your line is open..

Hi, sorry about that. Following up on the deposit questions, I was surprised to see. It looked like your interest bearing deposit cost ticket higher despite you mentioned some targeted run down that's presumably within higher cost and accounts.

Can you kind of give some insight, greater insight in terms of what types of accounts we're seeing in the higher pricing on this quarter?.

Yes, generally it's going to be in your larger balanced public and or some of the brokerage side, so you have the one bit increase from Q4 to Q1 that was not related to the mass market consumer commercial business. So those really are the target areas which are more market based.

So as you see those move and then in terms of the decline in public that was really later in the quarter so, so that's really what drove the one bps increase..

Okay.

And then on the occupancy costs, I just deals are having closed the 26 stores last year was priced at -- the run rate on occupancy go up can you talk about that and where we expect should expect that to go from here?.

Yes, what was interesting this past winter, there was about $700,000 increase in snow removal cost. So that was definitely a piece of it. We had much smaller amounts in Q1 a year ago and very little in Q4, but that's just one of those seasonal timing Aaron.

So I think in terms of overall occupancy costs moving forward for self reflects equipment and certain technology cost and on that I'll [indiscernible] I'd expect as we look to give more efficient in other areas of the bank including physical chuck it out that we redeployed in the visual.

You might have a drop in that line but then also hopefully smaller increase now. But one of the bigger moving part, it was simply snow removal cost from Q4..

And then Cort you mentioned that the [indiscernible] production as well as buying some width. What amount of commercial loans were purchased this quarter..

Let me -- actually I said the opposite. We were actually holding bigger positions of loans were originating and not buying much and I'll let Tory give you the actual numbers of that. But just make sure that you head me correctly, we're selling less than we used to sell and we're buying very, very little..

Yes, I don't have the exact number on the buy side for us in front of me today. But I can get it to you but it's very small. So our growth has been in poor C&I no market customers that were holding the entire credit facility..

Okay, great. Thanks for taking my question..

Thanks..

We'll go next to Jeff Rulis with D.A. Davidson..

Hi, good morning guys. This is Riley Storm on for Jeff. So most of my questions have been asked, I just wanted to get some color on the California market. I know you guys identified it last quarter as a pretty solid opportunity in terms of both loan growth and then fee income, so just any color on that would be appreciated..

So, I think the real answer to that as we start to put a lot of emphasis earlier in the quarter taking advantage of new opportunities specifically our corporate banking initiative which we started rolling out late last year really kind of hit a stride in the first quarter.

We also have new offices facility in California, which started to hit their stride and that's really where that growth is coming from I think. More than half of the commercial loan growth and C&I was from our California side of geography which is exactly what's intended to do.

We are looking at other opportunities, vertical opportunities specific segments of the business that we think that we can only manage risk because a good return we've been successful at doing that over the last 5 to 6 years, I think you guys have seen that. And that's how we'll continue to get that balance growth..

Perfect, that's helpful. Thanks..

We'll go next to Matthew Clark with Piper Jaffray..

Hi, good morning. First one just curious what your updated thoughts are on M&A these days..

Matt, I think based on what you heard in the opening comments. There is so much near term opportunity for us just to run the bank.

Do things quicker, more efficiently take advantage of what we got in front of us that would trump anything out there so that where we're going to focus on near term which is running the $25 billion retail commercial bank that's in some of the most robust markets certainly got on the West Coast of the United States, and that to me is a much bigger and brighter opportunity for not only customers associates and shareholders in anything that I'd be interested in..

Okay. And then on the middle market, larger middle market business that you guys are originating now, can you give us a sense for what the weighted average rate is. On that almost let alone..

Yes sure, the weighted average C&I businesses in the mid 3 for these credits for us..

Got it, okay. And then couple of health keeping items.

Can you just -- I want to make sure, mortgage expense number can you just quantify that and how much of that is variable?.

$28.6 million of direct, this is not allocated but direct expense on -- down 2.6 quarter-to-quarter and in terms of the variable component that's roughly 60% of that number..

And then did you buyback any share this quarter and if so how much and at what price?.

Yes, no. We will in Q2. It's on a lag basis..

Okay. And then last one to add it….

And again on that point Matt, just we'll buy back then that's share issuance through over the equity compliance over the course of the year, which the majority of that typically is in Q1, so we'll see the buyback in Q2..

Got it. And then if you have it just the taxable equivalent adjustment in the quarter..

Taxable equivalent adjustment in the quarter, I don't that on top of my head. We're roughly $4 million..

I can follow-up. Thanks..

Appreciate it..

We'll go next to Jacque Bohlen with KBW..

Hi, good morning everyone..

Good morning, Jacque. I was talking again on loan yield, just thinking about the change in mix of what you've been generating over the past couple of quarters.

According to my calculations when I strip out the accretible yield portion since barely studied for the last few quarters what kind of an impact of increased commercial generation have on that and if we do get that extra rate increase that you spoke about with the….

At what point do we hit an inflexion and we could see loan yields start to pick up?.

Yes, I think again part of that story is going to be in terms of short term the funds rate increases but as Tory talked about in the middle market C&I is in the mid-3, lower middle market and small business is going to be in the upper 3.

Theory is going to be in the upper 3 solo or other say god we mean that they're in the upper single digits for the incremental growth and consumers pretty straight up around 4%. So we're getting close to it, I think part of the story too is going to be continued growth on both sides of the balance sheet.

Now you saw another one or two more rate increases and that will accelerate the delta or we're going to miss the delta..

Let me add one thing Jackie and understand Ron. There were things we get and it's not necessarily Yield with the C&I customers. We get treasury management products and services at a much higher volume than we do with the lower middle market and then we also get pretty significant deposit. That is a part of the balance growth strategy.

Our opportunities to really drive non-interest income off these middle market so small corporate type customers is pretty significant compared. To last couple of years, I understand the question and yield totally get it but you know.

But also there's a huge opportunity and Tory has been doing a great job, but the teams that gathering some real team and collecting these customers and getting we will get that business..

So essentially looking to these middle market customers, even if you are booking more loans out of yield that's perhaps a present a little bit lower the loan the overall net positive revenue benefit is there given the increase in fees you're expecting..

Yes, I mean. Yes absolutely, I mean to ask absolutely and what I'm probably could speak for every other Bank CEO that's exactly what you go after. I mean if you got a significant net interest income opportunity, it's pretty sticky business to move up corporate commercial customer from one bank to another can be a painful process and sort sticky.

It's relationship and there are great opportunities in other areas in revenue that weekend that we can build on pretty quickly..

Great, that's helpful. Thank you. Just one other quick one, you spoke about the consumer pipelines being largely lock.

Is that weight driven or is it a conscious effort on your part?.

Yes, conscious efforts on our part we are not pricing that product anywhere near the top of the market, meaning the most aggressive pricing we're not even close. It's just a conscious effort to offer the product.

We do team up pretty well with our home lending group and where we can offer it as combined product and we are the largest first mortgage originator in state of Oregon. So when we combine up to do a marketing push to make sure that our customers understand we have other related products and services we've done a great job.

So it really is just a concerted marketing effort..

Okay. And as I look at the balances of that portfolio the growth has been there but it's been a little bit on the slower side.

Is that something where you just haven't seen the drawdown from all these other generation yet we could see movement in future quarters?.

Yes. I would say that's exactly the issue or in fact I was talking to Head of retailer the other day and that's exactly what you give me for an answer so that's exactly right..

Okay. So maybe let's know me more home repair. Thanks guys..

We'll go next to Brian Zabora with Hovde Group..

Thanks, good morning..

Good morning Brian..

Question on provisioning with the increasing commercial originations could we see a difference in the level of provisioning it's similar to what we saw maybe last year when it was more CRE based?.

Actually in terms of the quality of the customers are going it's probably a bit better than average. So probably a good way to think about that is, if you just compare production levels and net growth levels quarter-over-quarter correlated in the provision.

So ideally yes, you're going to see higher provision future both driven by much stronger growth which is why you want to see..

Okay.

Just a question on the MSR valuation and maybe this is too simplistic but can we look at the movement the tenure in the first quarter and kind of extrapolate that out as maybe MSR changes in value going forward or were there any kind of anomalies in the first quarter?.

No anomalies. That is a good proxy. The second step of that course is the par mortgage rates and so the change there was a bit more than what you saw on the straight of 10 year bond yield.

So you've got the 10 year bond yield plus the spread differential and there is a bit wider for gap in terms of a drop on the straight up mortgage rates during the quarter..

Great, well thanks for taking my questions..

Good bye. Thank you..

Thanks..

And with no further questions in the queue, I would like to turn the conference back over to Ron Farnsworth for any additional or closing remarks..

Okay, thanks Dana. I want to thank everybody for their interest in Umpqua Holdings and attendance on the call today. This will conclude the call. Goodbye..

Again, that does conclude today's presentation. We thank you for your participation..