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Umpqua Holdings Corporation (NASDAQ:UMPQ)
Q3 2021 Earnings Call
Oct 21, 2021, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Umpqua Holdings Corporation Third Quarter 2021 Earnings Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to introduce Jackie Bohlen, Investor Relations Director for Umpqua to begin the conference call. Jackie, the floor is yours.

Jackie Bohlen -- Investor Relations Director

Thank you, Joanna. Good morning and good afternoon everyone, thank you for joining us today on our third quarter 2021 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, President of Umpqua Bank; Ron Farnsworth, our Chief Financial Officer; and Frank Namdar, our Chief Credit Officer. After our prepared remarks, we will take your questions.

Yesterday afternoon, we issued an earnings release discussing our third quarter 2021 results. We have also prepared a slide presentation, which we will refer to during our remarks this morning. Both 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 different materially from expectations, please refer to Slide 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 Cort.

Cort Lane O'Haver -- President and Chief Executive Officer

Okay. Thank you, Jackie. I'll provide a brief recap of our performance and then pass to Ron to discuss financials. Frank will discuss credit and then we'll take your questions.

For the third quarter, we reported earnings available to shareholders of $108 million. This represents EPS of $0.49 per share, compared to the $0.53 reported last quarter and $0.57 reported in the third quarter of last year with the decline due primarily to lower mortgage banking income as volume and margins normalized from historically high levels.

The focal point of an all-around strong quarter was non-PPP organic loan growth, which contributed to increased net interest income from the prior quarter and highlights continued momentum at the bank. The strong growth momentum we experienced in the second quarter continued into the third quarter as non-PPP organic loan balances grew $480 million, representing a quarterly growth rate of 2.3% and over 9% annualized. The quarter's expansion is all the more noteworthy as it comes on the heels of record quarterly loan growth for the company in the second quarter and continued to be balanced across all categories.

We continued to process the forgiveness of PPP loans, which declined $653 million or 47% from June 30th. While this expected runoff drove a net reduction in loans and leases of $174 million, the headwind that is winding down as remaining PPP balances are only 3% of the loan portfolio. We are very pleased with the growth in our non-PPP loan book, which reflects successful talent acquisition, brand momentum in our markets, and the resulting healthy customer pipelines.

Regarding capital, in August, we paid our shareholders a dividend of $0.21 per share consistent with historical payments and we repurchased 4 million shares at an average price of $19.50 in the quarter as part of our previously announced stock repurchase authorization. In total, during the quarter, we returned $124 million to our shareholders through dividends and buybacks. Our capital levels remain very healthy, however, we no longer intend to repurchase shares in the near-term given our pending combination with Columbia Banking System, which we announced last week.

Now for a quick update on Next Gen 2.0. First, balance growth. We continued to leverage the positive brand awareness of our PPP work and the market disruptions that provided us opportunities to attract both customers and talent, and our results demonstrate the strong momentum we've talked about for the past few quarters. Elevated customer pipelines drove strong balance growth and the momentum continues into the early days of this quarter as our pipelines remain strong. Recently onboarded bankers and new teams continue to generate new business as they hit their stride and we continue to expand our relationships with PPP customers, who are now new to the bank.

Our human digital initiatives remain critical to our long-term strategy as our customers continue to engage with us through digital channels in an accelerated pace. We experienced increases of 3% more mobile deposit transactions, 39% more Zelle transactions, and 10% more daily sessions within our mobile banking app in the third quarter, compared to the year-ago period. Notably, Go-To enrollments continue to increase and we are getting close to 100,000 mark -- to the 100,000 mark. Our human digital initiatives also support our commercial customer acquisition efforts.

This past quarter, we finalized a partnership with Visa to be the first FI in North America to launch Visa Commercial Pay, a mobile app-based solution to offer instant issue virtual commercial cards for T&E, point of sale, and supplier payments. Additionally, we launched our pilot of consolidated payments. This will allow commercial and business clients to fully outsource their payments to Umpqua in a variety of formats, including checks, ACH, wires and commercial card complete with APIs to over 160 different accounting platforms.

With regards to operational excellence, we continue to build on the progress achieved since announcing our initiatives a year ago. The third quarter run rate benefited from a mid-Q2 sale of Umpqua Investments to Steward Partners, we are on track to consolidate an additional 15 stores by year-end, which will bring the total rationalizations under Next Gen 2.0 to 34. This moves us into our 30 to 50 store consolidation goal, which we originally laid out a year ago. During the quarter, we also recorded some exit and disposal costs related to the exit of certain leases as we continue to rationalize other office space. On Slide three of the earnings presentation, we show the cumulative saves accomplished so far under the Next Gen 2.0 program and we expect to accomplish by mid-next year.

One final comment before passing to Ron. I want to reiterate the remarks I made on last quarter's call regarding the growth opportunities ahead for Umpqua, which are further supported by our strong performance in the third quarter. I remain highly enthusiastic that our growth prospects within our markets and the momentum from our banking teams will continue to spur growth and will enable us to deliver shareholder value over the long-term. While we are clearly focused on fine-tuning our integration plans with Columbia, our bankers activities are not impacted and they will remain focused on delivering top-notch service as we meet the needs of our current and prospective customers. We expect a strong finish here in '21, which will carry us into 2022.

And with that, I'll turn it over to you, Ron.

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

All right. Thank you, Cort. For those on the call who want to follow along, I'll be referring to certain page numbers from our earnings presentation. Page eight of the slide presentation contains our summary quarterly P&L. Our GAAP earnings per share for Q3 were $0.49, excluding MSR input and CVA fair value adjustments along with exit disposal costs, our adjusted earnings were $0.51 per share this quarter.

For the moving parts as compared to Q2, net interest income increased 2%, reflecting the combination of higher average non-PPP loan balances, along with the continued reduction in our cost of funds. We had a recapture of prior provision for loan loss of $19 million with improving economic forecasts slightly lower than the prior period recapture. Non-interest income reflected the expected decline in mortgage banking revenue, along with a flip in the swap derivative fair value, and the gain on sale of Umpqua Investments back in Q2. And non-interest expense reflected the lower mortgage banking activity.We previously communicated our expectations for an annualized 2022 non-interest expense run rate in the range of $690 million to $710 million for Umpqua on a stand-alone basis. This outlook is unchanged and it was taken into consideration when we designed our cost savings forecast for the pending combination with Columbia Banking System. I want to reiterate this last point. Next Gen-related cost savings are separate from and before any of our cost savings related to our forthcoming combination with Columbia.

As for the balance sheet on Slide nine, interest-bearing cash increased to $3.3 billion this quarter, driven by continued strong deposit growth. This higher level of cash cost our NIM 4 basis points in Q3, as compared to Q2, but gives us significant future optionality for funding ongoing loan growth or deleveraging certain liabilities. We increased the bond portfolio of 7% as longer-term yields were higher later in the quarter into similar duration agency investments.

Cort mentioned previously, our significant non-PPP loan growth this quarter was offset by PPP loan forgiveness, while our deposits increased $750 million. Our total available liquidity, including off-balance sheet sources at quarter end increased to $16.2 billion, representing 52% of total assets and 60% of total deposits, giving us ample liquidity to fund future loan growth.

Before we get to the segments, let's jump forward to Page 14 of the presentation. Our NIM increased 1 basis point to 3.21% in Q3. While the NIM excluding the impact of PPP loans and discount accretion was 3.04%, fairly consistent for the last few quarters, which is great to see the impact of continued non-PPP loan growth and deposits continue to reprice lower offsetting the impact of the low rate environment.

Our cost of interest-bearing deposits was 13 basis points in Q3 and 11 basis points for the month of September, suggesting a continued decline in the overall quarterly costs in Q4. Our non-interest bearing demand mix increased slightly to 41.3% contributing to our total deposit cost of just 8 basis points in Q3.

Okay, now to our segment disclosures. Starting with the core banking segment on Page 10 of the presentation or Page 19 of the release. Net interest income increased 2% sequentially driven by the strong non-PPP loan growth and continued decline in cost of funds. I'll talk about CECL and the provision in detail in a few minutes, but you'll see here we had a $19 million recapture this quarter from improving economic forecasts.

Two lines down is the change in fair value on swap derivatives noting there was a gain of $1.4 million here in Q3 as long-term interest rates increased this quarter, compared to the loss of $4.5 million back in Q4 as rates decreased in the second quarter. Non-interest income of $38.3 million was lower than Q2 related primarily to the $4.4 million gain on sale from Umpqua Investments recognized in Q2 along with lower swap and M&A advisory fees in Q3.

The exit and disposal costs of $3.8 million relate to lease exits from recent store consolidations and a right of use lease asset impairment as we execute our return to work plan. The direct non-interest expense for the core banking segment was flat for the quarter and pre-tax income for the core banking segment was $136 million and represents 95% of the consolidated total. The efficiency ratio in the core was consistent at 57%.

Turning now to Page 11 of the presentation or Page 20 of the earnings release. We show the mortgage banking segment's five quarter trends. To start, we had $1 billion in total held for sale volume this quarter, down from $1.25 billion in Q2. The gain on sale margin was 3.07% down from Q2 as expected, given a slowing mortgage market and decline in the loan [Phonetic] pipeline. These two items resulted in a $30.3 million of origination in the sale revenue noted toward the top left of the page.

Our servicing revenue was stable and for the change in MSR fair value, the passage of time piece remains flat as expected, while the change due to valuation inputs was a loss of $0.6 million, due mainly to higher pay down activity earlier in the quarter. Non-interest expense totaled $29 million for the quarter. Again, this represents direct held for sale origination costs, servicing costs, along with administrative and allocated costs. The direct expense component of this was $20 million as noted on the right side of the page, representing 2.02% of production volume consistent in basis points with Q2. It's important to note here, the mortgage banking segment represents only 5% of our pre-tax income.

A couple of final items before I turn it over to Frank. Let me take your attention forward to Slide 23 on CECL and our allowance for credit loss. As a reminder, our CECL process incorporates the life of loan, reasonable, and supportable period for the economic forecast for all portfolios with the exception of C&I, which uses a 12-month reasonable and supportable period reverting gradually to the output mean thereafter. Hence these forecasts incorporate economic recovery through the remainder of 2021 and beyond, as most economic forecast reverts to the mean within the two to three-year period.

We use the consensus economic forecast this quarter updated in August. Overall, the forecast showed improvement in several key areas as the economy continues to reopen. We included a $14 million overlay for various theory portfolios to hedge against any potential near-term slowdown or negative turns with the pandemic. Net of this overlay, we recognized a $19 million recapture on prior provisions for loan loss.

Net charge-offs for Q3 declined to $6 million, much lower than the models from last year suggested, and the majority of net charge-offs this quarter related to the small ticket portfolio. The ACL at quarter-end was 1.23%, noting this ratio was 1.27%, excluding the government-guaranteed PPP loans. As these are economic forecasts driving the reserve, it will simply take the passage of time to see if net charge-offs follow as modeled. But today, the models are simply overestimating the actual net charge-offs given the lag of at least five quarters.

Our day one CECL level was right at 1% on the ACL, which is about $57 million lower on the ACL for non-PPP loans that we are at currently. All else equal, this excess ACL will either be charged off in future periods if the models are eventually proven correct or be recaptured and/or used for providing for future loan growth if the economic forecast continue to improve. Time will tell.

And lastly, back on Slide 21, I want to highlight capital, meaning that all of our regulatory ratios remain in excess of well-capitalized levels. Our Tier 1 common ratio was 12.1% and our total risk-based capital ratio was 14.9%. The bank-level total risk-based capital ratio was 13.4%.

And with that, I will now turn the call over to Frank Namdar to discuss credit.

Frank Namdar -- Executive Vice President and Chief Credit Officer

Thank you, Ron. I will also be referring to certain page numbers from our earnings presentation for those who want to follow along. Slide 24 reflects our credit quality statistics. Our non-performing assets to total assets ratio held steady at 0.17%. And though our classified loans to total loans ratio ticked up 7 basis points to 0.81%, it remained in a fairly consistent range. Our annualized net charge percentage to average loans and leases decreased 14 basis points to 0.11%, reflecting continued normalization of credit trends in the overall portfolio.

The FinPac portfolio's ratio came in at 1.2%, notably below its historical 3% to 3.5% range during the quarter reflective of higher levels of customer liquidity arising out of stimulus, improving economies, and the favorable impact of credit tightening that was put in place last year. Excluding FinPac, annualized net charge-offs were just 4 basis points.

Slide 25 shows total loan balances that were on deferment at the end of the quarter at only 0.6% of the loan book, continuing to work its way down.

To wrap up, we are very pleased with our credit quality metrics this quarter. We remain confident in the quality of our loan book and we look forward to future continued growth.

Back to you, Cort.

Cort Lane O'Haver -- President and Chief Executive Officer

Okay. Thanks, Frank and Ron for your comments. We will now take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question is from Jeff Rulis of DA Davidson. Jeff, your line is open.

Jeff Rulis -- D.A. Davidson -- Analyst

Thanks. Good morning.

Cort Lane O'Haver -- President and Chief Executive Officer

Hi, Jeff.

Jeff Rulis -- D.A. Davidson -- Analyst

Cort, you mentioned the focus of the team through the deal announcement and just want to kind of dig into that loan growth. It's been pretty consistent in the high single-digit range. And the pace of new hires has been, as you look at that and into '22 and along with the deal news -- expectations on loan growth, I guess simply put, is just to get a handle of that given the moving pieces?

Cort Lane O'Haver -- President and Chief Executive Officer

Well, let me just make a comment, and then I'll kick it over to Tory, he can give you some greater details on the pipelines. So, we've hired some great people as we've talked about over the last three, four years or five years, and they are to the point in the comments, beginning to hit their stride and Tory will talk about the robust pipelines that we've got. We just see continued momentum or the bank is going to operate at -- as our bank for until we close this deal and there's significant momentum with the people we've hired and with our customers. And so, we don't see that stopping even though we've got a pending combination with Columbia. But let me have Tory give you some greater details around the pipelines.

Torran Nixon -- President of Umpqua Bank

Sure. Hey, thanks, Cort. Jeff as Cort mentioned, I mean we've obviously hired a bunch of folks in various markets as they kind of hit their stride. Pipelines are growing very nicely. I mean our pipelines today are about $4.5 billion in total, which is consistent with last quarter about $2 billion of that is C&I and about $2 billion of that is real estate and the rest is consumer and some other parts of the company. So, we feel really good about the pipeline. I mean, that's a significant growth kind of year-over-year, especially in the C&I space for us. So, got a lot of focus, lot of good activity, feel very good about that high single-digit loan growth as we move forward.

Jeff Rulis -- D.A. Davidson -- Analyst

And Tory, the additional hires, is that business as usual earlier or how do you approach into the close of the transaction? Is there a moratorium on hires? How do you treat that in the first half of the year?

Torran Nixon -- President of Umpqua Bank

Yes. No, it's just business as usual. We're continuing to move forward. In fact, we just hired a middle market executive in Phoenix, Arizona as we look to expand outside of our traditional footprint. So, there's a lot of infill in a variety of places, whether it's from -- in the State of Washington to Oregon and all throughout California. So, now we're actively looking and finding the right key talent that fits what we're looking for in the culture and value of Umpqua Bank can help us continue to grow the business.

Jeff Rulis -- D.A. Davidson -- Analyst

Okay. Thanks. And maybe the last one for Cort and kind of fluffy, but -- that part of the hires also, kind of, involves retention of the team and I guess just any overall thoughts of morale with the news and how you think that the current team is -- has viewed the transaction? Thanks.

Cort Lane O'Haver -- President and Chief Executive Officer

We'll give you greater details as we move forward. It's only been a week since we made the announcement. I'll just tell you that historically this bank has rallied around things like this, whether it's just recruiting people from banks that where our bankers and store associates just want a different experience, the opportunities to create a real regional West Coast player. So, we feel great momentum. I know that Troy and I and the team are greatly lifted by the enthusiasm of all the associates here at the bank.

Jeff Rulis -- D.A. Davidson -- Analyst

Okay. Thank you.

Cort Lane O'Haver -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Jared Shaw of Wells Fargo Securities. Your line is open.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hey, everybody. Good morning. Thanks for taking the questions. Cort, your enthusiasm is pretty high. You're seeing good growth this quarter. We're hearing from some other banks that are seeing good growth looking more toward low single -- I'm sorry, low double-digit growth on the loan book, looking out a little further. What would have to happen for that to be triggered at Umpqua? Is that continued customer acquisition, but then you also need to see utilization rates go higher? Or I guess what could drive additional optimism around loan growth?

Cort Lane O'Haver -- President and Chief Executive Officer

Let me have Tory comment on the Jared and then I'll follow-up.

Torran Nixon -- President of Umpqua Bank

Yes, Jared, I think you kind of touched on a couple that certainly continued to help the cause. I mean we obviously will continue to acquire customers and provide debt capital for those customers as we move forward. As we hire people, we'll continue to do more and more business. I think line utilization is something that's kind of interesting to look at.

I mean our C&I line utilization is about 27%, which has been relatively flat for a few quarters. And if that were to even move up to historical levels at around 40 at about a $170 million lift right there, is kind of the same in our HELOC portfolio. We continue to grow the commitment side of our HELOC business, but we're at about 30% -- 36% utilization there. And if we got to historic kind of pre-pandemic levels of 45%, that's about $300 million. So, that utilization is something that certainly could help the cause as we move forward as customers continue to look to borrow more money than they do today. But as you know, I mean, folks are flushed with cash and certainly there is -- there will at some point be a -- a time that they'll start to borrow more on the lines.

Cort Lane O'Haver -- President and Chief Executive Officer

And then Jared, as we've talked about in prior quarters and we've been able to attract talent at Umpqua Bank, the $30 billion or $25 billion to $30 billion, since I've been CEO, mark because we offer a great, a different experience for a lender and obviously lenders bring customers, that's why we hire great people. And that has really spurred our growth. We've really been able to kick our growth in the gear and have gotten into new verticals by attracting teams of people. I've been here 11 years, Tory has been here seven or six, I think we've really turned the corner on making this a fully integrated commercial bank, and that's at $30 billion. So, I'll just leave you with the idea that, when we combined with Colombia, I think our ability to attract talent will really be astronomical.

Jared Shaw -- Wells Fargo Securities -- Analyst

That's a good color. Thanks. And then shifting over to the fee. Some of the initiatives you announced on fees this quarter with payments and Visa. What's some of the revenue opportunity around that? And do you view that more as building out services for the existing customer base? Or is it something that could actually drive customer acquisition?

Torran Nixon -- President of Umpqua Bank

This is Tory. And let me say this, I think it helps support the -- a full-fledged commercial relationship. So, as we can -- as we prospect, whether it's to existing customers or to new customers, the ability to leverage an add-on technology and technological solutions to how they run their companies and how they interact with their customers, which is critically important, is part of the mix. And I think as we -- as you saw through our virtual commercial card through the Visa Commercial Pay, just another really good product that supports that. As we're moving forward within nCino, which is a loan origination system in the company. So there's just a lot of things that are happening both inside the company and outside the company from a product perspective that leverages technology to make our customers do their banking with us easier and faster, actually. So, it's very supportive as we prospect and as we grow the bank.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Thanks. And then just finally for me. Looking at the allowance ratio Ron, you mentioned the $14 million of qualitative overlay still in there and then the FinPac data looks a lot better. Should we be thinking that the net qualitative overlays sort of gets flood back into the ratio just with growth or what's the -- how should we think about I guess the timing of approaching back to the day one as the broader economic backdrop is improving.

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

That's a good question. Right, because I mean when I think about is what was our day one CECL in a normalized environment, because the question is, as we get back to a normalized environment. That was roughly $57 million to get back to enter the 1% ACL, the $14 million overlay is part of it and it's just strictly going to depend upon economic forecast and how those forecasts change. If they continued to improve, then we wouldn't see charge-offs for that balance, then that would help support provisions on future loan growth and/or recaptures and vice versa. Economic forecasts go the other way. So, it's just going to take time and -- which we have the forecast change.

Jared Shaw -- Wells Fargo Securities -- Analyst

And should we expect -- so that the FinPac losses to normalize or is this sort of a new good level for that?

Frank Namdar -- Executive Vice President and Chief Credit Officer

This is Frank Namdar. I think you'll continue to see them normalize closer to that 3% range. I think, I alluded to in my comments, I mean this is specifically driven by stimulus dollars that are within the customer's hands right now and some of the tightening that was done pre-pandemic and shortly thereafter. It's the nature of the portfolio is of higher risk, higher yield and we expect that to trend up, but more closer to that 3%.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great, thanks for all the color.

Operator

Your next question is from Brandon King of Truist Securities. Your line is open.

Brandon King -- Truist Securities -- Analyst

Hey, good morning.

Cort Lane O'Haver -- President and Chief Executive Officer

Good morning, Bran.

Brandon King -- Truist Securities -- Analyst

So multi-family are seeing strong momentum, very strong growth in 3Q and also pretty strong growth in 2Q. And I wonder if you could provide any color on what the outlook is there? Was there any pull-through from 4Q? Or could we see similar levels of growth in 4Q and potentially in 2022?

Torran Nixon -- President of Umpqua Bank

Brandon, this is Tory. There is a couple of places where we do multifamily lending in the company. One is through our real estate group, primarily larger projects, a lot of it is construction, but a lot of term facility as well. And then we have a multifamily division, that does mostly average deal size is about $2 million. That part of the business this multifamily division business has the activity in the pipeline is picked up pretty significantly here in the past couple of quarters. And it looks very strong right now, feel really good about it, excited to see the team, we've added some folks in this space both to kind of underwriting process, but also to be, kind of, RM's in customer-facing people. So we're seeing some nice expansion there, and think that should continue.

Brandon King -- Truist Securities -- Analyst

Okay. Thank you. And then for Ron, if deposit growth continues to be strong in our solid purchase seen for some securities in the third quarter, could you potentially increase the amount of purchases for securities-based of the current rate high outlook and interest rate outlook that you currently have?

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

Definitely possibility. I mean, first, and primary focus will be continued core organic loan growth, as you've heard Tory and Cort talked about which we are excited about continued prospects on that front. But definitely, you can see a little bit of that go into the bond portfolio, it's going to be give and take the space out the outlook in those deposit flows.

And as I pointed out too, in terms of the NIM impact, so it was down 4 bps this quarter just because of the higher average cash, it was down 4 bps in Q2, because of the higher-up's cost, that's about 8 bps compared to Q1 and, but I just want to point out that's like zero impact or close to zero impact on the P&L. It's just in terms of NIM and cash is a great thing when we look at future opportunities for continued growth and funding of the loan book.

Brandon King -- Truist Securities -- Analyst

Okay and then lastly, this is for Cort, I know it's a different environment now, but there has been a major acquisition or deal for Umpqua [Technical Issues] acquisition, but I was wondering if there is any lessons learned from the integration process with Sterling and what you could potentially take over and use that with the integration of the Columbia Banking System?

Cort Lane O'Haver -- President and Chief Executive Officer

Yes, we had quite a few, and we learned some things and will certainly incorporate those into our integration planning. And there's always something you learn when you do something. Good and bad, to be quite frank, but yes, we do something as we wouldn't do again and there are some things that I think we did very, very well relative to Sterling. Our focus on our customers, making sure that they were well served as always the key, the retention of customers is always very, very important. But yes, and there was probably 27 acquisitions and prior to that, but there's a lot of knowledge within this building that we will lean on heavily as we move forward.

Brandon King -- Truist Securities -- Analyst

Okay, thanks for answering my questions.

Cort Lane O'Haver -- President and Chief Executive Officer

Yes. Thank you.

Operator

[Operator Instructions] Your next question is from Matthew Clark of Piper Sandler. Your line is open.

Matthew Clark -- Piper Sandler -- Analyst

Hey, good morning.

Cort Lane O'Haver -- President and Chief Executive Officer

Hey, Matt.

Matthew Clark -- Piper Sandler -- Analyst

First one from me is around mortgage expenses. I guess first, how much of that mortgage expense was variable? And what I'm trying to get at is the mortgage come to closed volume, I think, remained relatively steady in the -- around 2%. I think there is an expectation that was going to step up pretty materially next year maybe in the 2.7%. And I just want to get your updated thoughts there?

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

Yes, Matt, this is Ron. Actually, the 2.7% to 2.8% range was around the total expense including the allocated as you see on the P&L, but from the standpoint of the direct held for sale expense 2.02%, you might see some lift, because this annualizes at $4 billion if we think we're going to be closer to 3% next year. It might go up slightly, but probably not all the way up to that 2.8% range. And all of that competency -- of that expense, roughly two-thirds of it is going to be commission-based. There is some fixed in there as well, but the majority is still commission based.

Matthew Clark -- Piper Sandler -- Analyst

Okay, got it. And then just thinking about your California-based franchise relative to Colby. Obviously just getting into Northern California. What are your thoughts around what might need to change or what might need to be added to kind of go about the way Colombia also does business going after kind of small, middle-market relative to what you guys do today?

Cort Lane O'Haver -- President and Chief Executive Officer

So your question around -- and what we've got with our presence in California, what would it take to incorporate that they do in those locations, Matt, is that where you're going?

Matthew Clark -- Piper Sandler -- Analyst

Yes, I'm just saying about legacy, Colby, and the way they go about winning business in their markets relative to how you guys go about winning business on that -- in that same space the small middle-market business customer. In terms of what kind of capacity you guys have currently and what you might need?

Cort Lane O'Haver -- President and Chief Executive Officer

Like we said on the investor presentation, we view there's a lot of revenue synergies will provide some additional clarity as we move forward. We're only in the beginning phases of that Matt of having the teams work together as we get into our approval process in many eventual close. But we -- I think we're planning on having an update call, a joint call later this quarter, and to provide some additional clarity around that.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then Ron any updated thoughts on the core margin outlook at least in the near-term? I may have missed it in your prepared comments.

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

Good point, I think it will be around this level, and again the subjectivities will be continued deposit flow and loan flow if we have another quarter, our cash balance to see the impact, but again very excited about announcing the fee loan growth outlook. And we'll probably have another quarter of PPP forgiveness and have a relatively smaller balanced heading into 2022.

Matthew Clark -- Piper Sandler -- Analyst

Yes. And do you have the remaining net fee amount for PPP?

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

$21 million. Yes, $21 million.

Matthew Clark -- Piper Sandler -- Analyst

Okay. Thank you. Got it, thanks.

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

You bet.

Cort Lane O'Haver -- President and Chief Executive Officer

Thanks, Matt.

Operator

[Operator Instructions] I'm not seeing any more questions, I would like to turn the call over back to the management.

Jackie Bohlen -- Investor Relations Director

Thank you, Joanna. And thank you for your interest in Umpqua Holdings Corporation and participation on our third quarter 2021 earnings call. Please feel free to contact me if you would like clarification on any of the items discussed today are provided in our presentation materials. This will conclude our call. Good-bye.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Jackie Bohlen -- Investor Relations Director

Cort Lane O'Haver -- President and Chief Executive Officer

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

Frank Namdar -- Executive Vice President and Chief Credit Officer

Torran Nixon -- President of Umpqua Bank

Jeff Rulis -- D.A. Davidson -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Brandon King -- Truist Securities -- Analyst

Matthew Clark -- Piper Sandler -- Analyst

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