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

Okay. Thank you, Ryan, and good morning and thank you for joining us today on our second quarter 2020 earnings call. With me this morning, are Cort O’Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, President of Umpqua Bank; 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 second 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 and good morning everyone. The second quarter presented a unique set of challenges as well as opportunities and I couldn't be prouder of the resilience our associates demonstrated supporting each other, our customers and our communities. Our stores have remained opened and operational adapting quickly, as needed to the changing local and state requirements. And our back office teams have adapted smoothly to remote working, maintaining strong productivity. Our commitment to our customers and communities was evident and Umpqua’s early and active participation in the Paycheck Protection Program. A cross functional team of associates worked in shifts around the clock to get these much needed dollars into…

Okay, thank you Cort. And for those on the call that want to follow along, I will be referring to certain page numbers from our earnings presentation. Page 11 of the slide presentation contains our summary quarterly P&L. Our GAAP earnings per share for Q2 is $0.24, compared to the net loss in the first quarter, driven by the goodwill impairment resulting from the pandemic driven economic fallout. Our provision for credit loss remained elevated but dropped 26% from Q1 while our higher non-interest income was fueled by strong mortgage banking results given the lower rate environment. Excluding MSR and CVA fair value adjustments, our adjusted earnings were $0.26 per share this quarter. On the PPNR front, excluding the Q1 goodwill impairment and fair value charges for both quarters, our PPNR was 153 million in Q2, an increase of 26% from $121 million in Q1. Turning now to net interest income on Slide 12. Net interest income decreased 3% from Q1, driven by the impact of a full quarter of Fed funds rate declines back in March. Shown here is the quarterly interest and fee recognized from the PPP loan program. Taking that to Slide 13, our net interest margin declined to 3.09% Q2. The margin excluding discount accretion and PPP effects was 3.03%.The bottom of the page shows the impact from the expected higher bond premium amortization, which was up $7 million and led the 10 basis points for the NIM contraction this quarter. Also our higher interesting bearing cash balances, compared to a year ago, is reduces in the current NIM by seven basis points. While we feel it is prudent to have more rather than less on balance sheet liquidity in this environment. Also in the quarter, we lowered interest bearing deposit cost from 1.03% in Q1…

Thank you, Ron. I will also refer to certain page numbers from our earnings presentation for those who want to follow along. As noted on the prior call, we have been diligently working with our customers on any needed loan payment deferrals. We have updated our deferral information as of July 20 on Slide 6. Total loan balances that are currently on deferment represent 5.7% of the loan book. Within the quarter deferral request picked in velocity in April and the first part of May. Subsequent to that time period deferral request have slowed substantially. Starting in early July, our first deferral agreements expired and we experienced normally scheduled payments which dropped total loan amounts on deferral from their mid June peak of about 9%. On a portfolio basis, we are reporting 2.8% deferrals in commercial, 5.9% in commercial real estate, 16.8% in FinPac, 1.3% in consumer and 6.2% in residential real estate. On the FinPac portfolio, it is worth noting that during the July 1 and July 15 bill cycles, we have seen more than half of the customers that were on deferral make regularly scheduled payments and are working with customers who may need to apply for an additional 90-day deferral. On Slide 7 and 8, we continue to show specific segment totals and relevant characteristics for portfolios that have been impacted by COVID-19. The following price specific segments are highlighted hospitality at 2.4% of our portfolio, air transportation at 0.6%, oil and gas with essentially no exposure, restaurants at 0.6% and finally gaming at 1.8% of our portfolio. Applicable deferral information is also highlighted within these segments. The associated PPP loans granted to these segments are not included in the portfolio percentage calculations, but are highlighted at the bottom of each section for visibility. Hospitality remains directly…

[Operator Instructions]. Our first question is from the line of Michael Young from SunTrust.

Hey thanks for taking the question. I wanted to maybe just start with a kind of bigger picture question Cort on capital. You have earned the dividend, basically every quarter except for the goodwill impairment, which is non-cash in 1Q and the outlook look decent with the reserve built up to a pretty high level now and mortgage still kicking along pretty fast. So, just wanted to see if you had any updated thoughts on the dividend level and what we should expect, as we see that announcement maybe this quarter? Cort O’Haver: Like I mentioned, in my opening comment. We covered our historical dividend over the last eight quarters are so. And feel highly confident about our ability to continue to cover that over the near-term. Obviously, we are still in the beginning of this recession and potentially an economic for credit cycle. And I would be the first to tell you that I think a lot of the stimulus deferrals and other things that were necessary, have probably potentially kicked the can on issues at all banks, not just Umpqua, we will see relative to credit performance. So I can tell you on a near-term basis, to answer your question it is clearly as I can, with as much as I know today, that we feel comfortable. But until we get beyond deferrals and enhanced unemployment benefits and other things that do trickle into our credit portfolio, it is hard to beat for me to give you guidance more than that, which feels good guidance on, but hopefully you can appreciate my position. So we feel comfortable today with what we see but there is a lot of unknown.

Okay, that makes sense. And then maybe Ron more specifically just on the net interest income outlook, obviously a lot of moving pieces and we have the premium amortization, pretty high this quarter. Should we kind of assume based on current CPR speeds, that that is going to drop back down to a more normalized 4-ish million? And then maybe kind of outlook on PPP fee recognition through NII?

Good morning Michael. I would say, specific to premium memorization, keep in mind there is usually probably two month lag from when you see the refi occur on the mortgage to when it hits the bottom, so we will probably have another quarter at least relatively high premium amortization based on speeds. And there is a strong Q3 that might actually also extended into Q4. As I would just say that we do expect funding costs to continue to drop and it is good to see the month of June, roughly 10 basis lower than the second quarter on that front. For PPP fee income, yes, if we do see, a significant level of forgiveness in the fourth quarter that we will accelerate the remaining on the amortized fee income at that point. Right now, it is all setup to accrete into interest income over the life of the two year loans. But again, we see big trouble forgiveness in Q4 and then there will be a pop there for it.

And then maybe just a follow-up on NII relative to kind of balance sheet size. You mentioned, Ron, I think in the prepared remarks that you do want to maintain from higher levels of liquidity. And I imagine investing in securities isn't that attractive right now, but maybe just on the loan growth side, are there any areas that you think will be growth drivers over the next couple quarters or is it really just kind of a whole bunch of gotten fed down the hatches right now?

Hey, Michael, this is Tory Nixon. I think, in late Q1 and throughout most of Q2, we turn the attention of all of our RMs inward to focus and help our customers work on deferrals, work through the PPP program. And towards the end of quarter two, we started to kind of push them back out again. So we have seen an uptick in pipeline in commercial and corporate banking, actually $350 million or so over the last month, which is a really good sign. There is some activity. We have 3400 PPP customers who are not Umpqua bank customers. And as Cort mentioned earlier, we are making a very strong effort to approach and discuss and bring those folks into the bank to become Umpqua bank customers and certainly some of them will be borrowers and some of them will not be borrowers, but good activity for us, starting to kind of creep up here.

And just one last quick one, just retail CRE loan exposure. Have you guys disclose that or could you provide that information?

Now, retail exposure is about $485 million. So, I think that is about 5-ish, 5% to 6% of the portfolio.

A lot of retail is grocery and drug anchor, Cort. We don't have a lot of big box, it is mostly grocery and drug.

Okay. Thanks. That is all for me.

Okay. Thank you.

Thanks. Our next question comes from the line of Jeffrey Rulis from DA Davidson. Again, Jeff, your line is open.

Thank you. Good2 morning everyone. Question on the deferral chart in the slide deck, that is a great picture. I wanted to get a sense for the amount or loan or percent of deferrals that have yet to reach exploration is any figure that you have got them in?

We have got about roughly half to go that have not had not yet run their course. But we are seeing a great deal thus far. Those deferrals that have expired, borrowers resuming regular payments, so we are encouraged by that that thus far.

Got it. And I guess the mix of - if you look at risk are those - is it a pretty - I don't know if you put deferral timelines on different segments, but the half do you still see expiration - any thought that those are any riskier than the first half that you saw?

No, I would not make that statement. No, no difference.

Okay, got you. And Cort, you had mentioned sort of the expectation for the second half of PPP or the second half of the year to see forgiveness, any finer tune on that in terms of 80% forgiveness by your end or anything that you assign is Q3 of a step up, and then the bulk is in Q4. Any thoughts on how you think that plays out? Cort O’Haver: It is a great question, Jeff, and we talked about a -I can member talking about the first week PPP rolled out. I think you will see a step up in Q3, you will probably see the bulk in Q4, there is going to be some that are going to take it as non-PPP eligible forgiveness and use it as long-term 2% debt. I mean, there is going to be a percentage. I just don't know. I can tell you this. There is a lot of small businesses in Portland that have all new shiny equipment at them, and they may not be Umpqua customers. So, I really don't know. I think, assuming it is all going to be forgivable this year is probably not accurate. I just can't give you total percentage.

Got it, okay. And then lastly, I guess what is left on the next-gen expense stage or is this sort of molded or shifted into a general operating efficiency focus. You touched on this store, closures, but is there any tangible numbers to assign still, what you have achieved or still to come?

Hey Jeff, this is Ron here. Ex-home run in you can see we have achieved more than our goal for originally laid out three plus years ago, but we will talk more about that in October as we finalize plans looking at 2021 and get some targets at that point.

Okay. alright. Thanks. Cort O’Haver: Thank you.

At this time we do have more questions on our line. Next question comes from the line of Jacqui Bohlen from KBW.

Hi good morning everyone. Turning to last interest rate cycle. You didn't want to reinvest at low interest rates and so you held a pretty high cash position. Have you changed your viewpoint on that at all this cycle? Cort O’Haver: Well I think the cash position analysis given the quick move and timing, I think, it makes more sense than sticking them into a 1% yielding in the mortgage backed securities. Still some wildcard in terms of how much of that billion dollars of estimated PPP deposits what the life on that looks like over the balance of this year into early next. So as of now I'm comfortable with this level of cash and maintain some of that $1 billion to $2 billion range on balance sheet for the second half of the year. And if we see it, creep above that. And yes, we would look at potentially put them in the bonds. But as you heard, Troy talked about, we are starting to see some more activity on the new and funding side. So that would be the first spot for it.

Okay. And are there - if some of that liquidity does stick around. Would you look at potentially reducing other sorts of higher cost funding sources rather than deploying it into bonds, or would you be more inclined to just deploy the bonds and just keep some education elevated cash? Cort O’Haver: Yes. No. Actually, that is what we have been doing over the last six months really in terms of reducing broker deposits, still resulting in higher cash balance from the balance sheet. So I would definitely look at reducing higher cost funding sources, be it like deposits and/or borrowings versus sticking into the bonds.

Okay. And then understanding there is a lot of push and pull and a lot of unpredictable items such as the timing of PPP related deposit outflows and everything else that is impacting the balance sheet size. I mean, how are you thinking about temporary balance sheet size versus what's longer term growth? Cort O’Haver: So just to clarify, temporary balance sheet size, you mean. Like I said the lock in the second half of this year will be the how much of the remaining billion dollars of PPP deposits, one out you utilize. That is probably the larger balance, we do expect to see a continued strong deposit growth on P2P related. Generally in Q3 is very strong on that front. But not, we are not in a position to say we think assets will be X by the end of the year, just given some of the moving parts.

Yes, I definitely understood. And then just one clarification question that I had. You mentioned in prepared remarks that there was some stores in Eastern Oregon that were closing. Can you just provide some added detail on that? Sorry, if I missed that somewhere else.

This is Ron. Yes actually, Cort mentioned, it was actually three, we have under contract to sell. So that $100 million in total deposits, we will have that sale completed in the third quarter. And again, we will talk on the October call about plans as we look in the 2021.

Okay, great. Look forward to that. Thank you. Cort O’Haver: Thank you.

[Operator Instructions]. And our next question does come from the line of Jared Shaw from Wells Fargo Securities.

I guess just following backup on the deferrals. When you look at the loans that are coming due and will likely stay on deferral. How are you approaching that? Are you able to get any concessions from borrowers? Are you able to get any type of, sort of restructuring to your advantage? Or are you just, if they are under pressure, you are just giving them the second round? And then I guess, as a follow-up to that, when you look at some of the most troubled loans that are on deferral, is your thought that you would be comfortable just keeping a longer term deferral as you go into 2021? Or would you really look to try to do more of an official restructuring at the end of the year and have a new structure going into 2021? Cort O’Haver: Yes, good question. We, a second deferral is not an automatic, there is a defined process and analysis we go through among other things. Cash burn analysis, a survivability analysis, and at the end of that analysis, we do absolutely look for shoring up our position via payment reserve guarantees where we might not have them initially, some form of credit enhancement in return for the second deferral and we have had good luck with that initially, thus far. And to the second half of your question, no, we would not simply just grant the deferral. We would look to structure a workout that is both to the benefit of the bank, and also the benefit of the customer. Realizing that, that in a lot of cases, if you kick the can down the road, it is just going to get more difficult to work out of any situation both for the bank and for the customer. So that is the strategy we are employing here.

Okay, that was great color, thanks. And then obviously Portland has been in the news a lot lately. Can you comment on how that is impacting sort of day-to-day operations of either the bank or your customers or is that really more a bigger headline issue than it is the day-to-day issue in the ground? Cort O’Haver: You know It is not a day to day issue, Jared here. I mean it is - we are downtown headquarters is and it's not bound our buildings. So it is an issue, but it doesn't affect the operations of the bank.

Okay. I think that kind of it. Thanks. Cort O’Haver: Thank you.

And we do have more questions on the line. And the next question comes from the line of Steven Alexopoulos [J.P. Morgan].

I wanted to first follow-up on the dividend. Can you comment on this shift in timing to declare the dividend?

Yes, well, based on the 8K we put out about a month so back based off of the goodwill impairment in Q1 retained earnings are negative, even though the - good will as nothing to common stock account. But with that under Fed, FTC and state rules, we have to now go through a process to seek approval or non-objection on a level of dividend. And so that is why the dividend was not announced in mid June, but we are looking to do it here following earnings for the quarter announcement.

So, Ron, is this one time or will this be an ongoing practice?

This will be an ongoing quarterly cadence.

Okay, that is helpful. And then if we look at the reserve build this quarter, how much of that was purely model driven? Do you have a material amount of qualitative overlays now built into the reserve, in addition to what the model is telling you?

The vast majority of this is model driven and you know the unemployment rate increase in the June forecast compared to the March forecast really added more outsized impact on the commercial real estate component of the portfolio, which is what you see in our presentation in the highest increase in reserve on that front. So, not charge off base.

Okay got you. And then if we look at the impact, the deferrals are very high there. And I'm curious, one the deferrals and in FinPac follow the same trajectory that you are showing? It was a peak, I think it was in June. And maybe can you give us a little bit of a deeper dive in terms of what you're seeing in that book? Thanks.

Yes, first, I mean, the FinPac deferrals have - they are at about what market is in that tiny ticket leasing space. That being said, it is following the same cadence. So, about 60% of those customers that had the first round of deferral have resumed making payments, some portion of the first round, small portion have actually paid off their leases and the remainder we are currently working with really to ascertain whether or not they need another deferral or when they can resume their regular payments as structured. And the great majority of deferrals in that space was centered around the transportation, medical and restaurant space. And we are seeing those numbers come down as economies have opened up. Thus far we are seeing transportation improved, we are seeing the restaurant space improve and we are seeing more elective procedures in the medical spaces, which is therefore resulting in a lot of those medical related deferrals, resuming back to regular payments. It is a good story really, it is impact to this point.

Okay, that is helpful. And maybe just one final one for Cort. I know you will give updated thoughts on expenses next year in next-gen. I'm curious, what are you learning from this period in terms of efficiency improvements, that you could potentially apply longer term? Cort O’Haver: How much time do you have. it has been interesting. And I think it is moved around. I mean, the initial thought that we all could work virtually which we can, the bank is doing an exceptional job of working virtually. However, the loss of some a productivity by not being in the same room, you have to kind of value that. There will be savings there and we are already looking at how we can work virtually permanently with people can work remotely and then doing a long-term kind of forecast in how we can stair step down our hard real estate costs. I would tell you originally I thought maybe the whole bank could work virtually I'm not so sure I can work that virtually anymore. Our stores, I think we are really proving to ourselves that our digital next-gen and our investment in our digital product delivery was the right move that we made three, four or five years ago and it will set us up very, very well, both right now and clearly as we go into 2021. I mean you have heard from all the bank you cover about, the amount of traffic that is down, and it is continuing to be down. For me Actually, the value has been is that customers are self training themselves to become digitally and mobile functional and bear and get used to the technology. It sometimes has been a challenge in some of our communities to get our customers to…

Okay. Thanks for all the color.

And we do have one last question on the line is follow-up Michael Young from SunTrust.

Hey thanks for the follow-up. We didn't touch on the biggest revenue driver mortgage this quarter. So, just wanted to Ron get kind of an outlook on the gain on sale margin. Obviously, I think that usually tracks with the highest volume quarters, which likely was this quarter. So should we expect that to kind of trial off through the back half of the year? Or will it be more of a step function down and receiving?

Hey Michel, yes we expect home lending volume to remain very robust in the second half of the year. Probably more so in Q3 drop off a bit in Q4, just from typical seasonal factors. In terms of the gain on sale margin. I did make a comment earlier. We don't expect it to be at 475 level, but my guess is it will be just slightly above our most recent historical levels in that mid-3% range, so probably just a bit about this in the third quarter.

Sorry if I missed it, was there anything one off or special in 2Q that drove increase, sale margin or was it just wider spreads on origination?

Wider spreads on originations, the ability to price for it, obviously capacity within the industry has been constrained, just given the level of race and increasing volume. So we price for it. Cort O’Haver: We are really good at it.

Got it. Great. Thanks.

Thank you, Ryan. Any other questions online?

No other questions at this time. Cort O’Haver: Okay. Well, I want to thank everyone for their interest in Umpqua Holdings and attendance on the call today. This will conclude the call. Goodbye.

Again, this does conclude our call. You may all now disconnect.