Umpqua Holdings' (UMPQ) CEO Raymond Davis on Q1 2016 Results - Earnings Call Transcript

| About: Umpqua Holdings (UMPQ)

Umpqua Holdings Corporation (NASDAQ:UMPQ)

Q1 2016 Earnings Conference Call

April 21, 2016, 01:00 PM ET

Executives

Raymond P. Davis - President and Chief Executive Officer

Ronald L. Farnsworth - Executive Vice President, Chief Financial Officer

David F. Shotwell - Chief Credit Officer

Cort L. O'Haver - President of Commercial Bank

J. Gregory Seibly - President of Consumer Bank

Analysts

Aaron Deer - Sandler O'Neill & Partners, L.P.

Joseph Morford - RBC Capital Markets LLC

Steven Alexopoulos - J.P. Morgan & Co.

Matthew Clark - Piper Jaffray & Co.

Jeffrey Rulis - D.A. Davidson & Co:

Jacquelynne Chimera - Keefe , Bruyette & Woods , Inc.

Jared Shaw - Wells Fargo Securities LLC

Operator

Good day everyone, and welcome to today’s Umpqua Holdings Corporation First Quarter Earnings Conference. Just as a reminder, 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.

Ronald L. Farnsworth

Okay, thank you Sarah. Good morning and thank you for joining us today on our first quarter 2016 earnings call. With me this morning are Ray Davis, the President and CEO of Umpqua Holdings Corporation; Cort O’Haver, our President of Commercial Banking; Greg Seibly, our President of Consumer Banking; and Dave Shotwell, our Chief Credit Officer. Cort, Greg and Dave will join us as we take your questions after our prepared remarks.

Yesterday afternoon, we issued an earnings release discussing our first quarter of 2016 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 under the Ask Us, Investor Relations section.

During today’s call, we may 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.

I will now turn the call over to Ray Davis

Raymond P. Davis

Okay good morning. We’re pleased to report that Umpqua’s financial results for this past quarter were once again solid and in line with expectations. Our operating earnings were $0.29 per diluted share was driven during the quarter by strong growth in both loans and deposits as well as solid progress in rebalancing the overall loan portfolio. As previously indicated management continues to feel confident in the Company’s ability to grow earning assets and deposits as reflected in the following result for the quarter.

Gross loan growth was $489 million or 12% on an annualize basis. Our commercial loan pipeline as we moved into the second quarter remains strong at $2.4 billion. Total deposit growth was $456 million or 10% on an annualized basis and FinPac our equipment leasing subsidiary report a lease growth of more than $63 million or 36% annualized, which carry a 10.7% average yield. You may remember that when we acquired FinPac in July of 2013, we projected the Company would grow from a $250 million organization to a $1billion dollars in total assets within four to five-years.

We are pleased to inform you that as the end of last quarter their totals exceeded $790 million placing them well on-track to reach that initial growth projection. FinPac’s growths and contribution to the Company’s earnings since acquisition have a course being outstanding. Management has also been focused on the Company’s overall loan portfolio mix. All though we recognize that significant changes will take time, we are taking actions now that are responsible and necessary for us to sustain our flexibility as we continue to grow the portfolio.

To this end, during this past quarter, we sold our position loans for stale as follows. Acquired impaired CRE loans of $10 million were sold, a $171 million of fixed rate residential loans were moved to loans held for sale and the sale closed on April 9. And within our multifamily loan portfolio, we sold the $130 million and moved another $85 million to help for sales, which were also closed in the month of April. We do expect additional loan sales to occur throughout 2016.

Last quarter, I mentioned our resolve are reduced the Company’s efficiency ratio to 60%. I’m pleased to report that we’re already making progress towards this goal. This past quarter, we reduced our core operating expense by $2.1 million even with a $3.4 million seasonal increase in payroll taxes, which of course will level off again during the rest of this year.

Ron will provide more details on this and additional initiatives that are underway to continue this trend. Ron, take us away.

Ronald L. Farnsworth

Okay, thanks Ray. So as usual, we prepared a Slide presentation with our detailed first quarter financial information, which is included in the Investor Relations section of umpquabank.com. I will refer to these slides during my remarks. Before I get into the details on our financials, let me update you on changes we made to our non-GAAP operating disclosures. These changes are being made to more accurately report the ongoing operating results of the Company in light of the current interest rate environment, and related rate fluctuations that have had an impact on fair value accounting.

Again, we realized these are non-GAAP results. However, our intention is to give you a more detailed view of how well the Company is performing. These adjustments include the change in the fair value of the MSR assets and mortgage revenue, and the change in the fair value of the customer loan level swap derivative or CBA and other non-interest income. We’re also backing out gain or loss on investment securities and exit disposal costs and other expense related to extra cost we have for store or facility consolidations and closures.

Starting first with the P&L as noted on Page 5 of the Slide deck. For the first quarter, we reported $0.29 per share in our non-GAAP operating earnings measures flat with Q4 and up $0.01 from the year-ago quarter. Adjusting out the non-operating items, we saw a $2.1 million decline in net interest income, a slight increase in provision for loan loss, a $1.1 million increase in non-interest income, mostly related to higher mortgage production revenue, and $2.1 million decline in our operating non-interest expense to $180 million, which included a seasonal increase in payroll taxes of $3.4 million. After tax, these all netted out to $0.29 per share for the quarter consistent with the fourth quarter.

Turning to net interest income and margin on Slide 6. Net interest income decreased by $2.1 million from the prior quarter level, related in part to one less day in the quarter and the changes in credit discount accretion. For the first quarter, sterling credit discount accretion reported in interest income was $16.5 million, up from $13.1 million in the prior quarter. Of that total, approximately $6.5 million was accelerated based on the sale of a small portfolio of legacy sterling purchase, credit impaired CRE loans. Excluding this sale, the credit discount accretion would have been approximately $10 million, down slightly as expected from the prior quarter. We will continue to report a moderate decline in credit discount accretion over time.

Net interest income excluding total credit discount accretion was $200 million this quarter, down from $205 million last quarter. This $5 million decrease was a result of one less day in this quarter, costing $2.9 million, a decrease in core loan yields of $2 million due in part to portfolio mix changes and impacts from the continued low interest rate environment and changes in interest from cash and investments, mostly offsetting change in deposits and borrow. With this, the total net interest margin was down three basis points to 4.34%, and the margin excluding credit discount was down 10 basis points to 3.98%.

On Slide 7 with the strong credit quality performance, the total provision for loan and lease losses was $4.8 million, in line with the prior quarter level. Moving to non-interest income on Slide 8, we saw an increase of $1 million from the fourth quarter level, driven mostly by higher mortgage production revenues. Gain on loan sales of $2.4 million was slightly higher this quarter and other income was down slightly from lower customer loan level swap trading revenues.

I’ll talk about the balance sheet in a few minutes, but we had a $170 million in loans held for sale at quarter end that traded in early April at $2.5 million gain, which will be reflected in the second quarter results. These kinds of gains should continue through the rest of 2016 as we continue to manage the portfolio to the mix and size we are targeting.

The largest component of our non-interest income is mortgage banking revenue. Now the total GAAP figure this quarter included a $20.6 million charge on the change in fair value of the MSR, resulting directly from the significant decline in long-term interest rate since December. The MSR asset is now valued at 88 basis points of the service portfolio down from 101 basis points at year-end. Excluding the MSR fair value change, mortgage production and servicing revenue was $36.1 million, up $3.2 million from the previous quarter.

On Page 9, you will see for sale mortgage originations declined seasonally by 4% from the prior quarter level. Our gain on sale margin increased to 3.72%, up from 3.19% the last two quarters, based in part on the higher refinancing activity and an increase in the log pipeline heading into Q2. Also, our services revenue continues to grow to $7.6 million for the first quarter, up 18% over the same period a year-ago. We expect mortgage production to remains strong in the second quarter and expect our gain on sale margin to remain in the mid 3% range.

Now, turning to non-interest expense on Slide 10. Our operating expense was $180 million for the first quarter, down from $182.2 million for the fourth quarter. Our payroll tax expense was up seasonally $3.4 million this quarter, which we expect to trend down approximately $1.5 million in Q2 and another $1 million each in Q3 and Q4. In addition, our first quarter operating expense includes $1.4 million OREO loss which will be offset by $1.25 million OREO gain in early April. We had originally expect that these two items to offset one another here in Q1, but half of the sale was delayed to April.

We expect further reductions to our balance of OREO in the second and third quarters. Last quarter we guided to operating expense of $177 million plus or minus home lending variable expense and the normal seasonal increase in payroll tax. Again, the seasonal increase in payroll tax was $3.4 million and home lending expense was $1.7 million over our guidance target due to higher volume. When you did that the OREO charge and the payroll tax seasonal surge, our operating expense in Q1 would have been $175 million, slightly under our guidance.

As Ray mentioned last quarter, we’ve made great strides on a perspective basis in several areas for our goal of 60% or lower efficiency ratio. And assuming the economy doesn’t throw us the curve ball, we expect to get there later this year. Some additional initiatives we are taking include; the previously announced 26 store consolidation with an expected annualized savings of $6 million starting in the middle of the third quarter, along with excess back office facility consolidation, streamlining our front and back office operations. And I think this is fair to say, our store network will be continually reviewed for optimization in light of customer utilization changes.

Ex-the OREO and payroll tax surge in Q1, our efficiency ratio would have been under 61% this quarter. As for the non-GAAP expense adjustments, we expect merger expense to remain at about this level for the next two quarters. Also, we expect we’ll have $5 million to $6 million in exit disposal costs in the second quarter related to the store consolidations.

With that I’m going to now turn to Slide 11 on the balance sheet. Interest bearing cash was up slightly this quarter to $613 million, which was driven by the deposit growth we experienced in the quarter. Our goal is to keep our interest bearing cash in the $0.5 billion to $1 billion range and our investments in the $2.5 billion to $2.6 billion range for the foreseeable future.

On Slide 12, you will see the mix of the loan portfolio. As discussed earlier, we sold a small pool of legacy sterling purchase credit impaired CRE loans this quarter along with $130 million of portfolio multi-family loans. In addition, we transferred into held for sale $171 million of portfolio residential loans and $85 million of multi-family loans for sale in the second quarter. Again, grossing up for these sales and transfers our total loan growth this quarter was $489 million or 12% annualized.

Now on Slide 13, total deposits increased by $456 million from the prior quarter, or 10% annualized. Our loan to deposit ratio ended the quarter at 93%. The cost of interest bearing deposits remained stable at 27 basis points for the quarter. Lastly, on Slide 15, I want to highlight capital. Knowing that all of our regulatory ratios remain in excess of well capitalized level, with our Tier-1 common at 11.2% and total risk based capital at 14.2%.

We repurchased $3.5 million to stock this quarter and with the cash dividend our total payout ratio was strong at 61% of operating earnings. Our excess capital is approximately $215 million, down slightly from last quarter based on the strong loan growth we continue to see. As we have discussed for the last few years, we plan to continue to employ excess capital in a prudent and thoughtful manner.

And now, I’ll turn back the call to Ray to wrap up our prepared remarks.

Raymond P. Davis

Okay, before we take your questions, a few comments on our Pivotus Ventures subsidiary. Our Pivotus team in Silicon Valley is making terrific progress on reimagining and creating a new digital banking platform that would allow Umpqua orchestrates our customer’s commercial lives. As we indicated in our original press release announcing Pivotus, these activities and new technologies will go a long way to sustain Umpqua’s relevancy into the future as the digital world expands and as customer preferences continue to change.

One unique aspect of our endeavor with Pivotus is to collaborate, to collaborate with other like-minded institutions whose focus is also on customer experience and being able to successfully differentiate that experience through new technologies. We look forward to announcing more in collaboration in the near future.

We'll now take your questions.

Question-and-Answer Session

Operator

Thank you [Operator Instructions] we'll go first to Aaron Deer of Sandler O’Neill & Partners.

Aaron Deer

Hey, good morning guys.

Raymond P. Davis

Good morning Aaron.

Ronald L. Farnsworth

Good Morning.

Aaron Deer

Ron can you walk us through your margin numbers again, if I heard you correctly I thought you said that the core margin differential was down three basis points in the quarter versus the 10 and I'm just wondering if you could walk through that math again for me.

Ronald L. Farnsworth

Yes. actually the total reported margin was down three basis points for the quarter, the margin excluding credit discount accretion was down to 10, so 3.98%. In terms of the net interest income on the dollars, the total change was down $2 million if you back out the credit discount accretion it was down $5 million. $2.9 million of that $5 million again was because there was one less day this quarter and the other $2 million was mostly the impact of lower loan yields extra credit discount accretion, and those lower loan yields were the result of continued repricing pressure in the low rate environment and or some mix changes.

Aaron Deer

Can you differentiate, obviously the day count is the day count, but with the other items I guess 10 basis points is a big swing and even if it's less than that on a nominal basis, I mean is there more pressure to come? Can you give anything back in terms of remix changes? And where is the spread between the new loans that are coming on versus where the portfolio is that's causing this much pressure at that point.

Ronald L. Farnsworth

Let me get the first part of that. So again, continued strong loan growth will help offset the impact of the low rate environment in terms of the margin pressure over time, we do expect the margin as a percentage will continue to face headwinds like it is for most banks in this environment. We fully expect to see continued strong loan growth over the course of the year, so that obviously helps mute the impact of the margins' percentage for the quarter.

In terms of new loan yields, new business yields on the commercial side you are talking low threes, on the [Lone Rock] (Ph) CRE you are talking upper three to four, on investor CRE you're probably talking low fours, multifamily is up a three to low fours. Consumer is going to be in that three to four range and then of course the growth we really like to see in the same amounts of its impact on leasing and those yields are up around 10%.

Aaron Deer

And the Ginnie Mae residential loans that were repurchased, was that a put back, is that what that was.

Ronald L. Farnsworth

No after 90- days - and these are of course loans that were certainly for servicing. but after 90-days past due we have the unit level right to repurchase them. No loss potential on those, want to very much point that out they are still backed by Ginnie Mae, in terms of the within well let’s do the work out over the next month or two, turn those back into the pool. So no loss expected on those.

Aaron Deer

Okay, and I probably missed it in the presentation, did you give any sort of update in terms of any remaining cost saves from Sterling?

Ronald L. Farnsworth

Good question, so in terms of cost saves from Sterling, we do expect some to under remain, we expect in all over the course of this year it would be approximately 10% over our original target, but keep in mind what I talked about on the expense side. In terms of the other initiatives we have under way over the balance of the year and that number this quarter being closer to $175 million of expense, it's the OREO timing and the seasonal payroll tax surge and those amounts are going to be higher than the balance left on the Sterling specific cost saves, but we're definitely getting after it.

Aaron Deer

Okay, very good, thanks for taking my questions.

Ronald L. Farnsworth

Good. Thanks.

Operator

Up next from RBC Capital Market we'll go to Joe Morford.

Joseph Morford

Thanks, good morning.

Raymond P. Davis

Good morning.

Joseph Morford

First is I guess following up on Aaron's question on expenses, just to clarify, Ron I think you said the run rate saving from the branch consolidations would be $6 million and you start to see that in the third quarter or…

Ronald L. Farnsworth

Middle of the third quarter forward to annualized should be $6 million of savings.

Joseph Morford

Forward annual so kind of you hit that full run rate by mid Q3.

Ronald L. Farnsworth

Correct, going forward.

Joseph Morford

Right, okay, alright. And then I guess I had a question deposit growth was really strong this quarter and I was just curious kind of what initiatives do you have or what’s driving that activity because it continues to be pretty encouraging.

J. Gregory Seibly

Yes Joe its Greg and I think Cort can chime in here as well. I think both sides of the organization consumer and commercial are always in the water on deposits. So we spend a lot of time with the team really focusing on the right hand side of the balance sheet. Obviously we've seen good strong loan growth over the course of last many quarters and solid deposit growth hasn't been quite at pace. So part of this is just reprioritizing, make sure we are focused on gathering relationship based high quality deposits. Making sure that we have the right incentives and alignment in place and I think you will hear about more on that issue and initiative in the quarters to come.

Joseph Morford

Okay, and then just Ron I think or anyone, you talked a bit about on the capital part, where you have retained some, it’s just being cautious with the outlook for the economy. As you have gone through this quarter, have you seen any kind of change in the customer behavior that gives you some cause for the concern or I mean with the loan growth numbers it looks like and things are still pretty healthy?

Ronald L. Farnsworth

They are and no cause for concern and I’ll point out though that $200 million of excess capital is not a egregious amount of excess capital. So nice safe comfortable amount of excess capital and we’ll continue to be prudent and thoughtful on how we deploy it.

Joseph Morford

Okay. Thank you so much.

Operator

Steven Alexopoulos of JPMorgan has our next question.

Steven Alexopoulos

Good afternoon everybody. I wanted to start, you guys had good loan growth in the quarter, quite a few banks have talked about momentum building for the quarter, whereas January was pretty weak and March was fairly strong. Did you guys see this, did you see momentum build through the quarter? And how do you feel like here in 2Q?

Raymond P. Davis

We actually had great momentum going into the year, and quite honestly maybe February was off slightly from January, but it was pretty consistent month-over-month.

Steven Alexopoulos

Okay that’s helpful and Cort maybe for you. Regarding the loan sales, can you remind us of the loan mix you are targeting and maybe how far away you are from the point where you could hold more of your production?

Cort L. O’Haver

So we saw 130 million in multifamily we’ve got another shipment held for sale. We’re going to look at how we continue to sell multifamily down as a function of what our production is and we have kind of trimmed the edges a little bit on the types of loans we’re making in multifamily, look at our preterm payoffs. We do get hit with some payoffs unexpectedly and then we’ll balance down some throughout the balance of the year. We kind of look at that on a quarter-to-quarter basis Steven to be quite honest with you. We know the market is real liquid, the 130, we did with five partner banks and we’ve been through a negotiation process, so we feel that we have to go out and sell something down to continue to balance, it's a fairly efficient process.

Steven Alexopoulos

Okay that’s helpful. And then one last one for Ray, you mentioned Pivotus, I assume this is the equivalent of a pre-revenue start up at this stage. One, how much of this initiative costing you guys. And could you talk about the thoughts here and the plans to eventually monetize the investment?

Raymond P. Davis

No I think we want to monetize everything we do Steven, no question about that. I will tell you as far as overall cost, it's yet to be seen. And one of the thing that I think perhaps the media and maybe people in the industry have missed a little bit, it is the unique way that we’re going about this and that is through this collaboration effort. But I know I beat it to death and I have talked about it two or three times, it seems like on the calls. It's very unique, that hasn’t been done before within the industry that we’re aware of and our collaboration efforts will basically mean that there will be banks that will join us as well as perhaps other non-bank institutions who have access to significant amount of data to join with us to collaborate.

And as part of that collaboration, there will be financial requirements, resource requirements to move this forward as fast as we possibly can. So that’s a moving target right now. I will tell you that today that Pivotus is not having any material impact on the performance of the Company as far as revenues or expense. But we are certainly very much focused and as I think I have mentioned in my previous call that Pivotus reports directly to me and the General Managers of Pivotus are extremely talented young guys who I believe very strongly will be able to bring something to the table that we can monetize perhaps even in the near future, but we’ll wait and see.

Steven Alexopoulos

Fair enough. I appreciate all the color. Thanks guys.

Operator

We’ll go next to Matthew Clark of Piper Jaffray.

Matthew Clark

Hey good morning. Just maybe first on expenses, you guys provided some guidance coming into this quarter, I was just curious whether or not you might want to venture I guess about 2Q knowing that mortgage is going to be probably a little stronger?

Ronald L. Farnsworth

Yes, we do expect mortgage to be stronger into 2Q. I’m going to give specific dollar guidance, but if you look at the trending it's going to be down just based off of the initiatives we have underway. And then again, I mentioned earlier that payroll tax, so we’re up $3.4 million in Q1, it will drop off $1.5 million in Q2, about $1 million in Q3 and again $1 million in Q4, just in terms of timing to the year. And also keep in mind, I mentioned in my comments on our OREO side there is $1.4 million loss in Q1 that we expected to have time with an offsetting gain that offsetting gain will occur in Q2. So if you are looking specific to Q2 there is $3 million drop without doing anything combined with some payroll tax and the OREO change.

Matthew Clark

Okay great and then mortgage expenses in the quarter, could you quantify that?

Ronald L. Farnsworth

Yes, total mortgage expense in the quarter was right around $28 million.

Matthew Clark

Okay great and then your comments about some more gain on sale of non-mortgage loans as you managed down your concentration. It just seems like the pace is stepping up to do to manage this concentration down any reason for that? Could you maybe help us get a sense of where you want this portfolio to be, whether it would be on a percentage basis or on a dollar basis in terms of what is left to work down?

Ronald L. Farnsworth

You bet. So just in terms of the pace, I mean may be you just look back at the last three-month compared to the prior three-month you could say they are accelerating, but again over the last two years we've been opportunistic on a quarterly basis. So while the ebb and flow based off of growth and the another factors, we do expect they will continue, I can’t tell you it’s going to be the same amount in Q2. The one underlying - is we do expect to gross growth and to remain very strong and also net growth over the course of the year.

In term of the overall ideal mix we’re working towards and again this is a multiyear plan, we have ability to be opportunistic. If you take the overall portfolio break into three buckets, commercial, investor and consumer. Our target for long-term is roughly 40% for commercial 30% to invest and 30% for consumer. Right now, we’re under on commercial, we’re a bit over on investor and we’re a bit under in consumer, but those are the moves you will see us getting towards those target overtime and again we will be opportunistic.

Matthew Clark

Okay great. And then just last one from me, just curious on this succession planning and anything to report on that front?

Raymond P. Davis

Nothing to report.

Matthew Clark

I assume that process is underway, is it something you are going to be more vocal about or transparent about our or not just curious?

Raymond P. Davis

I don’t know if there is any reason to be any more vocal than we have been about it, we’ve always had a succession plan in the bank and something that the Board and Management obviously take very seriously, but I think right now it’s business as usual.

Matthew Clark

Okay. Fair enough, thanks.

Operator

[Operator Instruction]. We go next to Jeff Rulis of D.A. Davidson.

Jeffrey Rulis

Thanks, good morning.

Ronald L. Farnsworth

Hey good morning Jeff.

Jeffrey Rulis

On the merger cost Ron you mentioned that you expect the level to stay this and could we get a handle on, one what is occurring there and then may be is there a figure to tie that up or is it a ongoing expense, could you may be quote an annual number kind of any sort of additional color on what it is and how much more to come?

Ronald L. Farnsworth

So that was the $2 million I talked about after tax and I expect it to stay at about that our level give or take over the next two quarters. You know you look out into next year assuming no M&A, I expect that number to go to zero, so really what we are dealing with at this point is final tie-up of a couple of smaller system related items, but our methods significantly identifiable within that number to point other than expected it to be about that level for the next few quarters and then turned down. If you go back over the last two years and compare it to the original deal announcement, we did talk about some changes in terms of moving items differences between the original good will impact and merger expense, but in total I think we’re pretty close to recommend after the several next few quarters.

Jeffrey Rulis

So do you exceeded for are you still in line with what was the number on the combined merger cost?

Ronald L. Farnsworth

Well I don’t have that here right in my finger, so I'll tell you we are going to be right in line with what where we expected to be. Again, after the deal was close we talked about some shift between original expectations going to goodwill, which is fixed tangible but moving a bit of that into merger expense overtime just based off the accounting rules. So we’re going to be in line with original targets.

Jeffrey Rulis

And then in the other income you dropped from sequentially that what it was $13.3 million last quarter to $8.3 million so a $5 million drop, I assume the fair value adjustment was close $2 million of that. Is there something else that came out in the quarter?

Ronald L. Farnsworth

You know I think hopefully you will appreciate the enhanced disclosures we have put out that on the second page of the earnings release and or the deck, but if you look at this CVA change, which is the item within that. Yes that would have been $2.5 million swing in Q4 to Q1, aside from that I talked about a little lower just core swap trading revenue just based off of the drop in rates this quarter.

Jeffrey Rulis

Okay and then on last one, I think you guys discussed on the last quarter some LPO opportunities in Las Vegas and another markets any further thoughts or is that materializing further?

Raymond P. Davis

Well we opened the San Diego office in February and they hit the ground right in the fact based on their current loan production and quoting are probably in the black. So we've seen good progress with the new CVC we've opened. Vegas is doing very well. We always continue to look at major metropolitan markets and for us as we talked about before its always the teams of people that we can hire and we have our eyes in a few markets and if we find the right teams in and then we will act.

Jeffrey Rulis

Extraordinary.

Operator

[Operator Instructor] from KBW we go to Jacque Chimera.

Jacquelynne Chimera

HI good morning everyone.

Ronald L. Farnsworth

Good morning Jacque.

Jacquelynne Chimera

In the past you talked you about jumbo sales and I’m wondering if you could just provide an update on that?

Ronald L. Farnsworth

Yes Jumble sales - if you - one reference some of the work that we have done in terms of moving jumbo is in long-term fixed during asset held for sell an subsequent sale on the April, 7. And Jacque what we’re are going to do is we continuing to look at ways to reduce our holding of jumbos as we balance out portfolio. Again, goal is overtime to continue to drive up the agency mix and to make sure that we’re managing he portfolio of overall as of our portfolio loans appropriately. So we feel like we get execution in what closed here in April, we'll have more to report on that I'm sure at the second quarter financial results, 90-days from now.

Jacquelynne Chimera

Okay, so are you looking more to the jumbos that are already on the portfolio for sale or would there be future new generation of vehicles.

Ronald L. Farnsworth

Well, I think realistically we've tweaked our portfolio program that we go see is that there is going to be a ongoing harvesting of what's already in residence if you will on our portfolio. But if we have opportunities in current flow to be able to do things and corresponding relationships and other things like that, we'll do that as well. So I think we're looking at all options to make sure that we're maintaining discipline around portfolio growth.

Jacquelynne Chimera

Okay, thank you, and question on the 60% efficiency target. When I look at that, do you yourself look at it on a GAAP basis or do you look at it on an operating basis meaning how do you take the fair value market into account about that.

Raymond P. Davis

We've always looked that on an operating basis.

Jacquelynne Chimera

Okay, everything else I had was already asked, thank you.

Ronald L. Farnsworth

Excellent, thank you Jackie.

Operator

Jared Shaw, Wells Fargo Securities. Your line is open, please go ahead.

Jared Shaw

Hi, thank you, could you just talk a little bit about where you have seen in terms of credit migration during the quarter, not necessarily just to non-performing but some of the earlier stage movement and then as a corollary to that would future provision growth really be dependent upon loan growth or is it more dependent at this point upon that internal credit migration.

David F. Shotwell

Dave Shotwell here, provision in the future will be based on loan growth, we're not seeing any early stage delinquency, think the bank is benefiting from our footprint which is primarily major metro West Coast and we're not seeing any leading indicators that are causing us concern at this time.

Jared Shaw

Okay thanks, and just on the FinPac growth, as we look at that growing over the course of the year is there any seasonality that we should be planning for or would it be more linear?

Cort L. O'Haver

Hey, it's Cort, you know there is a little bit of seasonality in the third quarter, July and August but really it's pretty minimal.

Jared Shaw

Thank you.

David F. Shotwell

Thanks.

Operator

And it appears there are no further questions at this time, I would like to turn the conference back over to our presenters for closing remarks.

Ronald L. Farnsworth

Okay, thanks Sarah. And thank you all for your interest in Umpqua Holdings and your attendance on the call today, this will conclude the call, good bye.

Operator

Thank you, and again that does conclude today's conference. We thank you for your participation.

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