Ron Farnsworth - CFO Cort O'Haver - President & CEO Tory Nixon - Head of Commercial & Wealth Dave Shotwell - Chief Risk Officer.

Michael Young - SunTrust Steven Alexopoulos - JPMorgan Aaron Deer - Sandler O'Neill & Partners Matthew Clark - Piper Jaffray Jared Shaw - Wells Fargo Securities Jeff Rulis - D. A. Davidson David Chiaverini - Wedbush Securities Jackie Bohlen - KBW Brian Zabora - Hovde Group Tyler Stafford - Stephens.

Good day and welcome to the Umpqua Holdings Corporation Fourth Quarter Earnings Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth, CFO. Please go ahead, sir..

Alright, thank you, Mia. Good morning and thank you for joining us today on our fourth quarter and full year 2017 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Dave Shotwell, our Chief Risk 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 fourth 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 two of our earnings conference call presentation as well as the disclosures contained within our SEC filings. I will now turn the call over to Cort O'Haver..

Thanks Ron and welcome to everyone listening in on this morning's call. Let me begin by providing a brief recap of our fourth quarter and full year 2017 results and accomplishments. Ron will talk later about the financials in more detail and then we'll take your questions.

After just over a year as CEO I'm extremely pleased with the progress we've made. 2017 was truly a pivotal year for Umpqua. We delivered strong financial performance and grew the company while developing and making significant progress on Umpqua Next Gen, our three year program to transform the company.

Together all the hard work completed across the organization last year positions us extremely well for 2018 and beyond. Let me start with the financial performance. During the fourth quarter we reported earnings of $0.38 per share which compares to $0.28 per share in the prior quarter.

Full year 2017 earnings per share were $1.12 compared to $1.05 in 2016. Ron will talk about financials in more detail but I want to take a moment to say more about our tax benefit of 26.9 million related to the passage of the tax cuts in Jobs Act that’s included in our fourth quarter results.

In light of this adjustment we took the opportunity to make additional investments in key areas including 3.2 million for employee profit sharing, and a $2 million donation to the Umpqua Bank Charitable Foundation.

We are also accelerating strategic investments in digital and technology capabilities that will enhance the customer experience for our business customers. And we are planning to increase shareholder returns via higher dividends in 2018. These are key investments that we will build on our success last year.

A year ago, on this call I told you that balanced growth was our top priority and I'm pleased to report that our strategy is working well as our growth last year demonstrates. I'll share a few highlights beginning with our loan growth.

Our loan and lease portfolio increased by just over 400 million during the fourth quarter bringing total growth to 1.6 billion or 9% for the year. 45% of the total loan and lease growth in 2017 was in the commercial portfolio which includes C&I as well as our leasing business.

That portfolio grew 20% over the prior-year which is a result of the strong momentum our corporate banking group has been building. They're able to leverage the bank's balance sheet and size which is critical part of our overall strategy to drive stronger and more profitable growth.

This growth also reflects the strength of Umpquas market position, brand and culture which allows us to add key talent and develop new core relationships with small business in middle-market companies across the footprint.

With the recent addition of our corporate banking market leader in Orange County we now established teams in all of our major metropolitan markets, demonstrating our commitment to fully building out this division of the bank.

The residential real estate portfolio increased by 11% over the prior year and our commercial real estate portfolio was up 4% from the previous year. Loan pipelines across the organization are robust and we remained optimistic about continued loan growth for 2018. Now turning to deposits. Total deposits increased by 927 million or 5% for the year.

That primarily reflected growth in demand and savings accounts with a small decline in time deposits. It's important to note as a part of our focus on balanced growth we have developed a comprehensive deposit strategy that includes all areas of the bank and here are a few highlights.

We are emphasizing multifaceted relationships across the bank and its working well. Total deposit growth for 2017 within the Commercial and Wealth division was 422 million, which represents 60% of growth in the commercial loan portfolio last year. Of the 422 million in deposit growth, a little under half was smart corporate banking teams.

We are making strategic investments in our digital and training platforms to build on that progress and we are investing in other deposit rich areas including digital capabilities which I'll discuss more in a moment and in key divisions like wealth management.

Last year we had an experienced wealth executive who has restructured the team and product offerings is now focused on generating significant deposit in fee growth.

Consistently with industry expectations total mortgage banking revenues declined year-over-year, they increased in interest rates caused the mortgage landscape to further shift away from refinance activity to a heavy purchase driven market. Industry outlooks call for that to continue in 2018.

Our overall mortgage originations declined by 13% from the 2016 level reflecting a 29% decrease in refinance volume. Mortgage banking continues to be a core business and a profitable segment for the bank. The business model is highly scalable and our cost to originate a loan is below industry average.

Capital liquidity are strong and credit quality remains stable. We are not seeing any early indicators or warning signs deterioration within any of our loan portfolios. Let me now provide a brief update on Umpqua Next Gen.

On past calls we discussed our strategy to build on Umpqua's customer centric brand in order to differentiate ourselves in the marketplace and create a new competitive advantage.

We call this strategy human digital banking an approach that combines technology with one of our most powerful assets, our people, to create a unique offering in our markets.

As part of our human digital strategy we're redeploying capital to transform Umpqua into an organization that uses technology, data and analytics to empower our people to build even deeper and more valuable profitable customer relationships.

Our investments in digital and data will make it possible for our customers to bank in a more convenient way and will empower our associates to be even more effective and efficient providing smart valuable solutions for our customers.

This is particularly important as we continue to right size our physical footprint to reflect changing customer preferences while remaining focused on growing deep customer relationships.

As one example I'm pleased to report that earlier this month we successfully introduced a suite of new digital offerings and capabilities including a new mobile optimized website, enhanced online origination capabilities and new digital products, supported by an aggressive digital marketing campaign.

Together a powerful offering designed to attract new customers, we're already starting to see strong results and look forward to providing updates on our human digital initiatives later this year and over the course of our next gen program.

Regarding store consolidation as we discussed last quarter in 2017 we identified 30 locations for closure in Q1 of this year and began that process earlier this month. Consolidations of all 30 store locations will be completed by the end of Q1 and we've identified one additional location that will be closing in mid-April.

Going forward we plan to incorporate additional Umpqua next gen tracking and metrics into our quarterly earnings calls and materials. Look more for that later in 2018. Now back to Ron to cover financial results..

Okay, thanks Cort. And for those on the call who want to follow along I'll be referring to certain page numbers from our earnings presentation. On page five we've updated our 2020 financial goals, discussed last October to reflect the recent Federal tax reform. A major change is lowering our effective tax rate from 36% to 25%.

Of the increased earnings resulting from the lower tax rate we are planning for one, approximately 20% of the benefit will be invested in key areas in 2018 resulting in an increased operating expense due to investments and profit sharing, staffing and additional digital and marketing initiatives that support and accelerate our Umpqua next gen initiative.

Two, approximately 35 to 40% for increased dividends to shareholders starting in March 2018. And three, the balance to be retained in equity for future investments. Net of these changes we are increasing our 2020 goals as highlighted on the page.

Noting our return on tangible common equity goal is increased from greater than 13% in the flat rate environment to now greater than 14.5%. And for the moderately increasing rate scenario, we are increasing it from greater than 15% to greater than 17.0%. A similar increase has shown for return on assets.

I want to reiterate that we are framing these three-year financial goals separately between our flat rate scenario and in moderately increasing rate scenario with those recast noted at the bottom of the page. It's also important to note the following. We are assuming no recessionary or lower rate environment here.

If those were to occur over the next three years it is reasonable to expect that our financial results will differ. Two, as we discussed last quarter we're in the middle of our operational and back-office efficiency review.

We have engaged Boston Consulting Group in this project and expect to discuss opportunities and timing for future cost savings in our April earnings call. Any benefit arising from this review is expected to be accretive to the financial goals presented on this page.

The financial goals exclude fair value adjustments and as to disposal costs we are exploring strategies to reduce volatility from fair value adjustments to future earnings more to come on this also in our April earnings call.

And last our access capital is projected to decline over the coming two years to around half of current levels, before rebounding slightly in 2020 when season comes in the play.

Share repurchase is still expected to cover net share issuance with the generally flat common share count and dividends will be maintained in the 50% to 70% payout ratio range of earnings. Knowing again that we planned to increase our dividend starting in March 2018 to maintain a similar payout ratio.

Let me now spend a few minutes for reviewing fourth quarter results. Turning to Page 7 of the slide presentation which contains our summary P&L. Fourth quarter ends with $83 million or $0.38 per share up from 61 million or $0.28 per share in the third quarter and up from 69 million or $0.31 per share in the same quarter a year ago.

At a high-level the $0.10 increase from Q3 to Q4 resulted from $0.12 or 27 million of net benefits with the income tax line given the revaluation of our net deferred tax liability resulting from federal tax reform.

$0.02 of benefit from a combination of the change on MSR and junior subordinated debenture fair value marks along with merger expense and access disposal costs.

$0.03 of increased expense in response to the net benefit this quarter from tax reform including employee profit-sharing and charitable foundation contribution and other expense and $0.01 of lower gain on portfolio loan sales. Turning to net interest income and margin on Slide 8, and noted on Page 7 of the earnings release.

Net interest income was flat from Q3. Within this total our credit discount accretion declined $4 million this quarter. This increase excluding credit discount reflects the benefit of continued strong loan growth over the past few quarters and an increase in rate environment.

Also, within net interest income our interest income out of investments was up slightly representing lower premium amortization. And our interest expense on deposits increased 1.2 million or 4 basis points based in part on the growth this quarter and modest repricing based on the recent fed funds rate increase.

Our deposit beta based on the fed rate increase over the past year has been 16%, driven primarily by higher costs public funds and broker deposits. For the fourth quarter our net interest margin was down 4 basis points reflecting the lower credit discount accretions.

While the margin x credit discount was up one basis point, at 3.79%, slightly above our prior guidance range, given deposits betas were still relatively low. On slide nine, the provision for loan and lease losses was $13 million up slightly from Q3, based primarily on continued strong loan growth.

As shown later in the deck on page 15, net charge-offs were 25 basis points annualized, and our NPA ratio increased slightly to 37 basis points of assets, based on two loans. Overall credit quality remains very strong. Moving now to non-interest income on slide 10.

The decrease in total non-interest income from Q3 to Q4 was driven impart by lower gain on portfolio loan sales, nearly in the change in MSR and trust preferred fair values mostly offset each other. On the home lending front as showed on Slide 11 and also in more detail on the last stage of our earnings release.

For sale mortgage originations declined 5% as expected, given the seasonally slower fourth quarter. Our gain on sale margin decreased to 3.51% this quarter, reflecting impart in lower lock pipeline and at the end of September.

Absent the declining rates, we expect a normal seasonal bell curve for 2018 in both mortgage originations and gain on sale margins. Turning to slide 12. Non-interest expense was $193 million, the bridge we provide on the right-side details the major moving parts, including merger expense declined to zero as expected.

Home lending direct expense drop a little over $2 million, again as expected with lower volume. In response to tax reform, we had $5.2 million of expense, foreign employee profit sharing contribution and the contribution to the Umpqua Bank Charitable Foundation.

In the next two categories, for consulting professional and other, total of $6.7 million increase, and includes several smaller moving parts. The majority of this amount was recorded in response to the Q4 benefit of tax reform, including items to be deducted for the 35% tax rate in effect for 2017.

The $1.5 million increase in exit disposal costs for a total of $3 million for the quarter. Relates to the Q1 2018 store consolidations and includes severance and estimated loss on disposal. We expect gains on about half of the property exits, but cannot recognize them until the properties are disposed of, which will be later in Q1 and Q2.

Also, of note this quarter, we exited our loss sharing agreements with the FDIC, at a small net cost of less than half a million dollars. Given the exit, we no longer have to share future amounts recovered under formal loss share loans.

As Cort and I both mentioned earlier, we are making additional investments in people and technology in response to tax reform, and have incorporated them into our three-year financial goals.

The first half of 2018 will have several moving parts from expense, including one digital marketing investments, we are making ahead of the store consolidations early in 2018, in order to maximize growth opportunities; two, the seasonal payroll tax increase, we see every Q1 of approximately $4.5 million, which runs down in over the balance of the year; three, annual merit increases starting later in Q1; four home lending expenses at approximately 250 basis points of volumes for the full year.

From a timing perspective home lending expenses are generally 30 to 40 basis points higher in the beginning of the year and the decline over the remainder of the year; five, consulting and professional fees related to various reviews underway; six, exit disposal costs related to completion of the 2018 store consolidations; and lastly additional staff and technology related investments we are making utilizing approximately 20% of the benefit from tax reform.

These will be reduced by savings in store consolidations of approximately $12 million annualized starting later in Q2.

With these moving parts we expect our overall fiscal 2018 GAAP expense to be in the range of $192 million to $197 million for the first quarter, declining over the year to be in the range of 178 million to 183 million by the fourth quarter of 2018.

And again, that this I'll reiterate that this guidance excludes any benefit from our operations and back-office efficiency review currently underway. We will discuss initiatives stemming from this engagement in our upcoming April call, and are expecting to reduce future expense forecasts as a result of the opportunities identified.

It's important to note that while utilizing 20% of the expected benefit from lower tax rates on expense initiatives adds about 1% to our efficiency ratio for the year, the benefits to shareholders are much higher return on investment, with higher dividends and higher return on tangible equity.

And we believe it strikes an appropriate balance for all constituents involved as we execute our next gen initiatives. Turning now to the balance sheet, beginning on Slide 13. This past year our loan book increased 9% while deposits increased 5%, leading to the higher loan deposit ratio and lower interest-bearing cash.

Our goal for the coming year is balanced growth among loans and deposits and we expect will be seasonally slower on deposits in the first half the year making that up in the second half of the year. Also, our tangible book value per share is $9.98 which when we also account for the dividend to shareholders increased 12% this past year.

And lastly on Slide 16, I want to highlight capital. Knowing that all of our regulatory ratios remain in access of low capitalized levels with our tier 1 common at 11%, in total risk-based capital at 14%. Our total payout ratio was 50% this quarter.

I also want to note that towards the end of the first quarter in 2018 we plan to redeem $10 million of higher costs in trust preferred debt which should provide just under $1 million in annual net interest income. Our excess capital is approximately $240 million and as discussed earlier, we expect this to decline moderately over the coming two years.

To conclude our focus is on executing our Umpqua next gen strategy, improving financial results and generating solid returns for shareholders overtime, including the healthy dividend. And with that we will now take your questions..

[Operator Instructions] And we will take our first question from Michael Young with SunTrust..

I wanted to start with just loan growth outlook for 2018 now that you have got sort of the commercial hiring done that you want to have in place but then I guess the potential offset of -- if you are looking to exit anymore lending categories post your kind of review of return on capital there..

Sure, hi. Michael this is Tory Nixon.

We had loan growth in '17 the commercial bank was about a 1.1 billion and I think was kind of a continued build out in corporate banking, the addition of what we're doing on the wealth side and the activities and the pipeline kind of see '18 to look similar, similar mix and slight real increase of what we did in '17..

And then Michael, Cort. On the consumer and home lending side right now, applications are firming up on the home lending side much like last year and then on the consumer side pretty strong and expecting much like we did last year on the consumer side..

Okay, great and just wanted to also clarify kind of the expense comments, obviously the acceleration of the investment on the front end.

So, the magnitude of investment you expect to be relatively similar or just kind of pull it forward and get it done quicker and then we're going to end up at a lower net net kind of expense run rate exiting the year is that the thought process..

That's correct so it'll be higher in the first half of the year, Q1 will be higher than Q2 and then it will be dropping down through Q4, so by Q4 we expect our GAAP expense to be $178 million to $183 million, probably very small exit disposal cost.

If we do any additional consolidations we're pulling it forward from '19 and '18, we'll guide to that over the course of the summer months. So, 178 to 183 in Q4 of expense but also just keep in mind that that excludes any benefit we get out of our operational efficiency review which we look forward to talking about in April..

If I could sneak one last one in just on the deposit side, did you see any pull forward of deposits from in like a public fund space or anywhere else as a result of the tax changes from people prepaying property taxes or anything like that..

No, no pull forward we notice on that front..

We'll take our next question from Steven Alexopoulos with JPMorgan..

Wanted to drill down first on the loan side a bit further. You strung together two really good quarters of CNI loan growth here. How sustainable do you think the CNI loan growth is at the pace you've put up the last two quarters..

Steven hi, it's Tory Nixon again.

I think it is sustainable, we've gone to great effort and lengths to hire and kind of organize this corporate banking franchise up and down the West Coast and we now have a leader and a team in every major metropolitan market we're starting to really see some traction and some growth out of all of the markets and at this point we expect that to continue..

Okay, thank you, and then on the multifamily you had nice growth there in the quarter too, give some color on that, are you guys just more willing at this stage to grow that portfolio again?.

It's Tory again. We're seeing some slight growth really in the production side of multifamily but again it's mostly smaller ticket to our family division and I think we're kind of keeping a very small growth number and a pretty tight box in that space..

Okay, and then on the deposit side, you guys had good deposit growth in the quarter but it was almost entirely a money market account, curious what you're paying on those and how do you think about the deposit mix as you you've fund the strong loan growth that's coming?.

This is Ron, Steve. So in terms of overall money market balance there in that call it 35 to 50 bp range on average. In terms of the growth over the course of the year the coming year we do expect to see growth across all categories.

I would like to think kind of how the growth is going to kick in here again if we do see another one or two increases, but we have got a lot of focus on the consumer side we are growing DDA. So, our goal is going to be balanced growth across the categories. I hope that helps.

And again, the betas just are low, right, I think the online banks have taken a lot of the half money out of the system over the past 10 years..

And Ron since your accretion guru maybe one for you, was the accretion about 3.3 million this quarter? I don’t understand why it was so low, I don’t know if that’s a scheduled level and how should we think about a run rate there?.

Sure, all in accretion -- credit accretion was about $4 million this quarter down from 8 million in the prior quarter. Recall the prior quarter included some acceleration related to smaller required portfolio sales.

I would expect that $4 million we had in Q4 just to continue to monitor those clients where maybe a year out from now Q4 of '18 it's in the $1 to $2 million quarter range. It's going to be pretty small..

And we will go next to Aaron Deer with Sandler O'Neill & Partners..

Following up on the comments, the C&I growth has been pretty impressive.

I'm curious Tory in addition to hiring folks and just getting some good traction on that front, how have you employed kind of pricing relative to the market? You have been pretty aggressed on that front to bring in this business and how are the current yields on new production relative to kind of what's existing in the book for the C&I?.

I'll answer the yield first, we are over the -- just if I look at October, November and December we saw slight increases in new production yield. So, we are seeing that as a general flow and increase in the market.

As far as acquiring relationships -- I mean its spend is much about hiring the right folks with access to the market, knowledge of the market a customer base that we have been able to bring into the bank, and so we haven’t had to be aggressive on the pricing front.

In my view has been definitely end market and there is a lot to be successful I think in bringing those relationships over..

And then the -- obviously credit metrics remain pretty healthy but the trends on NPAs have been up the past couple of quarters, hoping you could just give a little bit of color in terms of what categories those -- the problem credits are in, if there is any sort of correlations that you would look at?.

Hi, Dave Shotwell here Chief Risk Officer. Nonperforming assets did pickup last quarter but it was concentrated in two individual relationships. One was a larger old vintage Ag loan and one was a single asset real estate loan. So those two combined to about 21 million net some resolutions we had during the quarter and it was limited to those credits.

We are not seeing any kind of systemic deterioration -- if you look at classified loans in the bank and you look at kind of early stage delinquencies, those are both solid to trending down. .

Okay and with the Ag one, what category was that in, in terms of across.

It was in C&I. .

No, I mean in terms of that type of Ag. .

We don’t get into the detail on that, but suffice say it was a grower, and we are now in aggressive workout mode with that borrower. .

We’ll go next to Matthew Clark, with Piper Jaffray..

The FDIC assessment extends this quarter was down kind of half, just curious if there was anything unusual there, if that’s a good run rate from here?.

Yeah, we were back to and recast some of the data in [indiscernible] back a year or two recognize that $2 million credit, I expect that will be in $4 million to $4.5 million range quarterly going forward. .

Okay, and then the non-mortgage portfolio loan sale gains, I know came down a little bit, I think last quarter you guys talked about, maybe not doing much of that going forward.

Is that still the case, should we see that, should we expect those portfolio loan sales to dry up?.

Yeah, the plans we laid out for the three-year goals exclude portfolio loan sales. What you will see in that line item quarter, would be your typical SBA activity which is probably about a third to 40% of the balance we have this quarter. .

Okay, great.

And then for the next round of brand closures, I guess when should we expect you guys to identify kind of the next tranche of that 70 that’s remaining?.

Hey Matt, its Cort.

So, we will get through the first 31, now by mid-April, and obviously on the last call we mentioned, we are going to reduce by 100 over the next three years, we have already identified the next 30 and I think relative to when we would make that announcement both to our customers, our associates and then you all will become a little bit dependent on how we do relative to the closures and maintaining our performance to our forecast, relative to any attrition if we had any, we have forecasted some attrition.

And then we will balance that against our performance there and then other opportunities in the banks. So, I mean I guess I tell you is right now we don’t have any of schedule this year, like we had messaged on the last call, it doesn’t mean that we wouldn’t consider it this year, but we don’t have any schedule, what we do have them identified. .

Okay, and then on the home lending expense down $2.3 million this quarter I think to just over $29 million.

I guess how much of $29 million is variable, -- was variable this quarter?.

Roughly two-thirds. .

Okay.

And then just on the MSR, I guess how much of that was kind of normal course MSR amortization embedded in that $2 million mark?.

Right, also we had an increase in rates over the course of the quarter, so really that 1% pretty much were worth at the start of the year for the valuation. The normal half of the time charge or erosion of the MSR is in that, anywhere from $3 million to $5 million quarter range, depending on we are coming off of quarter of a while shift in rates –. .

We will go next to Jared Shaw with Wells Fargo Securities..

Just looking at the -- so the assumptions on the provision going forward where you said 30 to 40 basis points of loans, is that 30 to 40 basis points of net loan growth in annual provision? Or is that on the total balance of loans so we should -- if we have 25 basis points of charge-offs we should expect to see that overall allowance level grow on that 5 to 15 basis points range..

Yes, that 30 to 40 basis points is over the average balance of loans for the year. So not new growth of funding but on balance sheet average loan balances, and the idea there is it will exceed the net charge off amounts of that forecast and that reserve level will build over the three years.

Add to the sequel in 2019 [ph] which, of course, it'll build for everybody..

So that's sort of the new way of -- we should be modeling out the provision growth..

Yes..

And then just shifting onto the expenses on the exit and disposal cost.

Is the 12 million that you are referencing, is that allocated to the 31 branches that we are looking at in first quarter? Or is that allocated to whatever the next round of branches would be?.

That’s a good point. Actually 3 million of it got pull forward into Q4 so the balance I guess of what 5 to 9, I would expect that to be in the lower end of that range and you will see that being recognized in Q1 and Q2, might be a bit lower just given the expected gain on dispositions from the properties..

And as for the current 30, 31 stores..

Okay, can you just walk through what's included in that as I look back over the last two years the 5.6 million you took in '17 the 4.7 million in '16, just given the number of branches that declined, it seems like a big number per branch.

What's a wrap up in that accounting?.

It will include severance accruals, it will include lease termination if that’s the case, it will include gain or loss on sale or disposition of the property. Once the property is identified there's a loss we recognize a loss that day, it was a gain it's not recognized until its disposed of.

So probably over the past year the majority has been around lease exit..

And then I guess as we go forward most of that next gen cost or a lot of that next gen cost will be captured in this line item..

Not in exit disposal cost, this is simply set around the store consolidations we have planned over the coming three years. So overall next gen initiative compensation staff and training digital marketing, digital product investment. That will all be throughout the expense categories, but not identified separate like the disposal cost..

And then in the past you have stated that looking for 400,000 annual cost saves for branch closure is that just for the stuff that we have seen in the past or going forward is that still a good level of cost saves to use?.

That’s again proxy on average, across to 100 we are looking at over the next three years..

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

It’s a follow up on the expense detail, just wanted a map through the certainly the profit-sharing and donation that’s running through the comp line is that correct?.

Jeff sorry I can barely hear you, the volume is a little low. I think you asked about charitable foundation contribution and profit sharing? So, for Q4 2017 the $3.2 million profit sharing accrual was in compensation, the charitable foundation contribution was another expense..

And we've lost connection with Jeff. We'll move next to David Chiaverini with Wedbush Securities..

You mentioned that you're expecting deposit attrition in the first quarter and second quarter related to the branch closings.

Could you first remind us how much attrition you had with the six branches closed in the third quarter?.

It's been zero..

So, given that it’s zero for those, can you kind of describe how much or give a magnitude for how much deposit attrition you're expecting for the upcoming branch closures and why you're assuming attrition for these closures when you had zero attrition in the third quarter..

Sure, no. Good question, good question and again following up on our conversation in October, to a certain extent these 30 stores are a bit further apart. Couple of them are smaller market exits, in total we're estimating anywhere from 20% to 30%.

We hope to overachieve or come in much lower than that, that's what we factored into the three-year forecast, with initiatives of course on the side to grow more than that expected run off.

Specific to Q1 deposits, seasonally we're always slower in Q1, I think banking generally is coming off of Q4 and heading into tax time in April and we generally a rebound late in Q2 through Q3 and Q4 so Q3 and Q4 are generally the stronger quarters of the year for overall growth and deposits..

Okay, thanks for that and then you mentioned about how the deposit beta has been very low at 16%. What are you modeling for beta in the coming year and also can you provide some thoughts on the net interest margin outlook for the next couple quarters..

You bet, so just in terms of overall beta again on these, on our three-year financial goal which we laid out on page five of the slide presentation. We model these margins in our historical 50 to 60% deposit beta range in total. So that's what's reflected in those margin estimates.

Obviously, we're outperforming that here today but this is one quarter with three years to go. In terms of near term margin outlook, I'm going to assume here for the near-term betas are going to remain low but I expect that margin ex-credit discount to be in that call it 375 to 380 range bit higher than the prior guidance we gave..

We go next to Jackie Bohlen with KBW..

Hi, good morning everyone. Following up on that margin question that 375 to 380 range does that include the impact of what's going to happen with the tax effect on munis' rate..

Yes, its roughly 1 bp..

Okay, just one bp, okay.

And Ron what was the late quarter impact of the lower premium amortization?.

Premium amortization on bond income?.

Yeah..

It actually was about $1 million. So, the majority of that increase in the overall line was related to lower premium amortization. We didn't grow the portfolio..

Okay, and then just lastly on the agricultural loan that we put on nonperforming to grow you had mentioned was that weather related or was it something unique to the borrower?.

I would say it was more operational issues..

And have you seen anything throughout your footprint given the severe weather that we have had, going on has there been any weakness to any loans that you are seeing or anything that’s of concerning to you?.

No, no and we monitor that obviously very closely in the Ag portfolio including water issues in the west, have a pretty good handle on that. We are not seeing any emerging issues for our borrowers..

And we will go back to Michael Young with SunTrust..

Just wanted to follow up on what you mentioned last quarter on evaluating the profitability and risk adjusted returns across the organization both by loan category and customer level. Any results or anything to kind of announce along that front.

I know you exited auto or announced exit of auto last time but any other product types or customer types that you are kind of moving away from?.

Nothing to announce at this point. And again, we will have follow on discussions in April on the heels of the operational efficiency review, that could factor in based on decisions we make companywide but nothing jumping out at this point..

We will go to Brian Zabora with Hovde Group..

Just clarification on the expense expectations the quarterly ranges that you gave.

Does that include or exclude those exits and disposal costs you are expecting?.

Great question Brian, that includes them and as for the GAAP expense which include the exit disposal. And again, Q1 of 2018 we are expecting in the range of 192 million to 197 million, dropping over the course of the year so for Q4 in that 170 million to $183 million range..

And then on the last year you see exited how much of the loan book was still covered under the loss share?.

Its small, its less than $100 million..

And then just lastly, I think you mentioned your multifamily, your growth's you said it's kind of a tight straight box, are there areas of your footprint that you are maybe more concerned about, you are staying away from, what type of properties are you maybe also avoiding?.

We are looking carefully at higher end product in all the major markets, I mean that’s the one space that we are probably being a little more conservative with, so that would be our focus..

And we will go next to Tyler Stafford with Stephens..

Just one last one from me, just on the 4Q expense base I appreciate you guys given the 1Q '18 kind of run rate that we shall expect to see but I was a little surprised to see it up so much in the fourth quarter especially with mortgage down, the 2.3.

I know in the third quarter you closed the six branches and I believe the 10 non-stores that were expected -- expecting to drive 4 million cost range.

Did you guys end up recognizing that? or is that I guess getting to the puts and takes in the first quarter is that less to come out in the fourth quarter into the first quarter?.

It wasn’t there for the whole fourth quarter but it probably hit mid fourth quarter but I think the bigger moving parts in Q4 we talked about the little over $5 million between profit sharing and charitable contribution.

There is another call it nets $6.5 million, $7 million increase and that’s a majority of that we took in relation or in response two tax reform and a lot of that was items that we were able to pull forward and deducted a 35% tax rate.

Of course, in Q1, replace with digital investments little higher extra costs, along with the payroll taxes and the other items I talked about. .

Did you hit on earlier what those 4Q items were that you pull forward, I may have just missed it?.

Sorry, I did, there are lot of small items, nothing individual to call out, but in total I’d say in the range of $4 million to $5 million. .

And we will take a question from Matthew Clark, Piper Jaffray. .

Yeah, hi. Just a quick follow-up.

I am curious, I know it's still early, but have you guys or will you kind of update kind of what you think you achieved in terms of revenue enhancements and cost base to-date for next gen?.

We will do that over the course of the year, obviously lot of discussion coming on our April call, specific to the operational efficiency review we have underway along with plans for reducing the volatility of the fair value at MSR, lot more to come on that in April. That’s the big piece for Umpqua next year. .

There are no more questions in the queue, I’d like to turn the call back to management for additional comments or closing remarks..

Okay, well concluding the call, I want to thank everyone for their interest in Umpqua Holdings and attendance on the call today. This will conclude the call. Good bye..

Thank you, sir. It does conclude the call today. Thank you for your participation. You may disconnect at this time..