Good morning, and welcome to the Umpqua Holdings Corporation fourth quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. At this time, I would like to introduce Ms. Jacque Bohlen, Investor Relations Director for Umpqua, to begin the conference call. Ms. Bohlen, please go ahead.
Thank you, Ren. Good morning and good afternoon, everyone. Thank you for joining us today on our fourth 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 fourth quarter 2021 results. We've 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 differ materially from expectations, please refer to slides two and three 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.
All right. Thank you, Jacque. 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. Excuse me. For the fourth quarter, we reported earnings available to shareholders of $88 million. This represents EPS of $0.41 per share compared to the $0.49 reported last quarter and the $0.68 reported in the fourth quarter of last year, with this linked quarter decline due primarily to $15 million in merger-related expenses and last quarter's sizable provision recapture. The decline from the prior year period reflects a more sustainable level of mortgage banking income in the current quarter as volume and margins normalize from the 2020s historical high levels as well as the previously mentioned merger-related expenses.
Once again, the focal point of the quarter was organic loan growth, which contributed to increased net interest income from the prior quarter when PPP related fees are removed. Non-PPP loan balances grew $930 million in the fourth quarter, representing a quarterly growth rate of 4.4% and an annualized growth rate of 18%. Notably, the quarter's organic generation significantly offset continued declines in PPP loan balances, enabling total portfolio expansion of 2.7% or 11% annualized during the fourth quarter. Expansion during the quarter and for the year was balanced across categories.
Though pipelines are lower today than when we spoke in October, given the fourth quarter's heightened production and seasonal trends, we expect continued loan growth through 2022 as our multi-year initiatives, which include successful ongoing talent acquisition and brand momentum in our markets, enabling us to take market share and drive value for our customers. With PPP remaining balances at only $380 million or 1.7% of the portfolio, the majority of our anticipated net organic growth in 2022 will result in net portfolio growth for the year. Any favorable movement in line utilization, which we have not seen to date, would provide additional tailwind. Regarding capital, in November, we paid our shareholders a dividend of $0.21 per share, consistent with historical payments.
As we previously discussed, we did not repurchase any shares given our pending combination with Columbia Banking System, which we announced on October 12. Well, while our usual Next Gen slide has been replaced with the information and updates related to our pending combination, we continue to make strides as a standalone entity. I'm going to provide a quick update on a few notable items. As planned, we consolidated 15 stores early in the fourth quarter, bringing our total rationalizations under Next Gen 2.0 to 34 and moving us within our original 30-50 store consolidation goal. We consolidated 99 stores under Next Gen 1 and Next Gen 2.0, which represents the rationalization of one-third of our footprint over the past four years.
During that period, the number of non-CD accounts has grown by 2.7% as the number of demand accounts has grown by 4.1%. Since we launched our original Next Gen plans in late 2017, our deposit balances are up $6.7 billion or 34%, and non-CD balances are up $7.7 billion or 45%, driving efficiency improvement in our core banking segment. Our human digital initiatives remain critical to our long-term strategy as our customers continue to engage with us through digital channels at an accelerated pace. Notable achievements here include a steady pace of increase in Zelle transactions, which were up 7% for the quarter and up 48% for the year. Additionally, we crossed a new milestone with Go-To users as we passed the 100,000 mark in the quarter.
One final comment before passing to Ron. I've been talking about the growth opportunities ahead for Umpqua for a number of quarters, and our strong performance in the fourth quarter provides continued support for these remarks. The past few months' production is a tremendous accomplishment in its own right, but it is all the more noteworthy as it demonstrates the intentional and successful separation of our growth initiatives from our integration planning activities related to our pending combination with Columbia. As we have previously disclosed, the Integration Management Office was established to lead our integration, and the IMO leadership team includes senior executive leadership from both Umpqua and Columbia.
The IMO enables Umpqua's bankers to have undisturbed focus on generating business and serving customers, and I remain highly enthusiastic that the growth prospects within our markets and the momentum from our banking teams will drive continued growth in 2022 that enables us to deliver shareholder value over the long term. With that, Ron, take it away.
Well, 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 12 of the slide presentation contains our summary quarterly P&L. Our GAAP earnings per share for Q4 were $0.41. Excluding MSR input, CVA, and other fair value adjustments, along with merger expense and exit disposal costs, our adjusted earnings were $0.44 per share this quarter. For the moving parts, as compared to Q3, net interest income decreased less than 1%, reflecting the $6 million decline in PPP fees, mostly offset by continued organic loan growth and a reduction in our cost of funds. We had to recapture a prior provision for loan loss of less than $1 million, with improving economic forecasts offsetting the provision required for new loan growth, down $18 million from the prior period recapture.
Non-interest income reflected the expected seasonal decline in mortgage banking revenue ex the MSR, more than offset by a lift in the MSR fair value with the increase in longer-term interest rates. Non-interest expense included merger expense recognized to date for the Columbia combination. As for the balance sheet on slide 13, interest-bearing cash decreased to $2.5 billion this quarter, driven by the asset remix into loans with the record non-PPP growth this quarter. We also added $150 million to the bond portfolio later in the quarter as longer-term yields increased. The $2.5 billion in cash, along with expected future forgiveness and payoff on the remaining $380 million of PPP loans, will give us significant future optionality for funding ongoing loan growth.
Our total available liquidity, including off-balance sheet sources, ended the year at $15.3 billion, representing 50% of total assets and 58% of total deposits. Moving to page 16 of the presentation, our NIM decreased six basis points in total to 3.15% in Q4, and we present the waterfall on the margin change on the right of the page. The NIM, excluding the impact of PPP loans and discount accretion, was flat, 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 11 basis points in Q4. The next two slides include information which investors may find helpful as the market is pricing in the potential for Fed funds rate increases in 2022.
First, on slide 17, we have expanded the detail provided on repricing and maturity characteristics of our loan portfolio. The first table on the upper left breaks down the pricing drivers on loans, noting that as of year-end, 33% of the portfolio is fixed, 2% is in remaining PPP balances, 32% is in floating rate, and 33% are in adjustable rates over time. The lower left table shows the maturity schedule by category. The upper-right table shows the loan rate floor buckets for floating and adjustable rate loans, noting 39% of the combined total are at their floor, meaning 61% have no floor or are above it.
For the $5.7 billion in floating and adjustable rate loans at their floor, the lower-right table breaks down the balances by rate change band, along with the weighted average rate change required for these loans to move above their floor. Hopefully, investors and analysts will find this information useful in assessing the beneficial impact on net interest income of future potential rate hikes. Next, on page 18. On the left, we've included our projected net interest income sensitivity for future rate changes, in both ramp and shock scenarios over two years. This is a simulation we run and backtest quarterly and assumes a static balance sheet. Ideally, we'll continue to see an asset remix with cash skipping bonds and flowing down into loans, which will benefit our net interest income absent any rate change. This is not included here.
The deposit betas used in this simulation range from 43%-45% on interest-bearing deposits. For sensitivity on our model results, every 10% change in the beta is ±1.3% on the +100 basis point shock results. The table on the right shows our deposit beta from the last rising rate cycle, starting Q3 2015 and running through Q3 2019 to catch the lag effect. Our beta then was 42% on interest-bearing deposits. Okay, now to our segment disclosures, starting with the core banking segment on page 21 of the presentation.
Net interest income was flat sequentially, driven by the strong non-PPP loan growth and continued decline in cost of funds, offsetting most of the PPP fee decline. I'll talk about CECL and the provision in detail in a few minutes, but you'll see here we had an under $1 million recapture this quarter from improving economic forecasts. Four rows down is the change in fair value on loans carried at fair value at a loss of $2.7 million here in Q4, as long-term interest rates increased this quarter compared to fair value gains over the last two quarters. Non-interest income of $42.8 million increased 23% from Q3, related primarily to higher swap and syndication revenue as our commercial fee initiatives advance.
In the non-interest expense section, you'll see the merger expense recognized to date on the combination, along with exit and disposal costs related to lease exits on 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 increased this quarter, primarily related to higher loan production incentives, given the record growth discussed earlier. The efficiency ratio on the core increased to 64% reflective of the merger expense, noting this would be 57% ex the merger and exit disposal costs. Turning now to page 22 of the presentation, we show the mortgage banking segment five-quarter trends. To start, we had $871 million in total held-for-sale volume this quarter, down seasonally 12% as expected from Q3.
The gain on sale margin was 2.71%, again down from Q3, as expected, given the slowing mortgage market and decline in the lock pipeline. These two items resulted in the $23.6 million of origination and sale revenue noted towards the top left of the page. Our servicing revenue was stable, and for the change in MSR fair value, the passage of time piece increased slightly, while the change due to valuation inputs was a gain of $15.4 million due to the increase in long-term interest rates in the second half of the quarter. Non-interest expense totaled $26.6 million for the quarter. Again, this represents held-for-sale origination costs, servicing costs, along with administrative and allocated costs.
The direct expense component of this was $18.2 million as noted on the right side of the page, representing 2.08% of production volume, up slightly in basis points from the last few quarters with the lower volume. A couple final items before I turn it over to Frank. On slide 25, we've included a new quarterly loan balance roll forward. The record quarterly non-PPP loan growth was driven by a record $2.3 billion in new originations, offset by $1.4 billion in payoffs. Next, let me take your attention to slide 27 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 2022 and beyond, as most economic forecasts revert to the mean within a two to three year period. We used the consensus economic forecast this quarter updated in November. Overall, the forecast showed improvement in several key areas as the economy works through the latest variant. We included a $17 million overlay for various CRE portfolios to hedge against any potential near-term slowdown or negative turns with the pandemic. Net of this overlay, including providing for the strong loan growth, we recognized less than a $1 million recapture on prior provisions for loan loss.
Net charge-offs for Q4 remain low at $7 million or 13 basis points of loans, much lower than the models from last year suggested, and the majority of net charge-offs this quarter related to the small-ticket lease portfolio. The ACL at quarter end was 1.16%, noting this ratio is 1.18% 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. To date, the models have simply overestimated the actual net charge-offs, given a lag of at least six quarters. Our day one CECL level was right at 1% on the ACL, which is about $40 million lower on the ACL for non-PPP loans than 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 forecasts continue to improve. Time will tell. Lastly, I want to highlight capital on page 29, noting that all of our regulatory ratios remain in excess of well-capitalized levels. Our Tier 1 common ratio is 11.6%, and our total risk-based capital ratio is 14.3%. The bank-level total risk-based capital ratio was 12.9%. With that, I will now turn the call over to Frank Namdar to discuss credit.
Thank you, Ron. I will also be referring to certain page numbers from our earnings presentation for those who want to follow along. Slide 28 reflects our credit quality statistics. Our non-performing assets-to-total-assets ratio held steady at 0.17%, and our classified loans to total loans ratio declined by 10 basis points to 0.71%. Our annualized net charge-off percentage to average loans and leases was 13 basis points in the quarter, reflecting below average net charge-off activity in the FinPac portfolio. The FinPac portfolio's ratio came in at 1.75%. Notably below its historical 3%-3.5% range for the second consecutive quarter, reflective of higher levels of customer liquidity, improving economies, and the favorable impact of strategic credit tightening implemented last year. Excluding FinPac, annualized net charge-offs were just two basis points.
Obviously, we're very pleased with our credit quality metrics. We remain confident in the quality of our loan book, and we look forward to continued high-quality growth. Back to you, Cort.
Okay. Thanks, Frank and Ron, for your comments. Rence, we will now take questions.
Thank you, sir. At this time, we would like to take any questions you might have for us today. Again, as a reminder, if you would like to ask a question over the phone, simply press star one on your telephone keypad. We have our first question from the line of Jeff Rulis with D.A. Davidson. Please go ahead.
Thank you. Good morning.
Morning.
Cort, you mentioned the pipeline down a little bit, makes sense as you've had a strong production quarter. Just wanna kind of get a sense for the 2022 outlook. Then, you know, on a related question, how do you view loan officer hires, given the news of the pending merger? Do you kind of take that as, hey, we're combining with another bank here and just the recruitment process that you would do, if that changes any. To narrow that down, the expectations for 2022 growth and then how you approach the hiring. Thanks.
Hey, Jeff. Let me. I'll have Tory answer in detail. Let me just give you a kind of a historical global answer, too. You know, we've, you know, we've been, as we've talked about, I think you've asked me before, kind of a, we have been a bank of choice by bankers over the last, c ertainly since Tory's been here in all the attracting of C&I lenders. Then maybe prior to Tory, when I created the real estate group. We've been a great shop for people looking to get out of bigger banks, banks we compete with now today as we've gotten to be over $30 billion. I don't see that changing after our combination with Columbia.
In fact, I think you probably heard Cort and I talk about we seem to be an employer of choice as opposed to people are gonna flee from here because, oh my goodness gracious, we're going through a merger. I don't see that changing from our historical perspective on the talent that we've been able to attract. We had a great Q4, and I'll let Tory talk about it more in more detail. You know, hats off to the lenders. They did a fabulous job, and we're continuing to see that pipeline grow. Let me give it over to Tory to answer in a little greater detail.
You know, I just think the combined organization of being a $50 billion behemoth here in the Pacific Northwest that has not existed, you know, in the last 25, 30 years is just a great opportunity for us to attract talent as opposed to be a place where people would flee and try to go down tier. So, Tory?
Sure. Thanks, Cort. Jeff, this is Tory. I'll start with the banker question. I think, to Cort's point, we believe we have a very strong value proposition for bankers. We have seen talent come into this company over the last, you know, several years. That will not. We will continue to do that. We are aggressively searching for good quality bankers. We're hiring folks in Phoenix for our Arizona team. We're hiring bankers throughout our footprint, California, Oregon, Washington, and continuing to have a lot of success. So we will continue to do that. On the pipeline, as mentioned, it's down a little bit from where we were a quarter ago, but that's for obvious reasons.
We had just an outstanding Q4 in all lines of business. You know, my expectation is that Q1 will certainly not be what Q4 was just because we had some business that we originally thought would be a Q1 production that ended up kind of getting pulled into Q4. The pipeline is still healthy and still strong and continuing to grow. We've got a lot of great bankers out there talking to customers, talking to prospects, and building the pipeline. I feel very confident that 2022 will be a strong loan growth year for us, at least, you know, mid to high single digits. I'm excited to continue to see progress in the bank.
Hey, Jeff, one last comment. I knew you guys were gonna ask this. I think when Clint and I were out in late December talking, we got asked this question quite a bit, and I know exactly why. What we've been saying, and I think as evidenced by our fourth quarter results, hold us accountable for the growth. I mean, if you wanna see how we're retaining and attracting talent, hold us accountable for the growth in the balance sheet and the growth in earnings. That's the way to look at it. You know, we will lose people, and we lose people, and we retain the people what we want to retain. But ultimately, it's how we continue to grow with our customers.
That's where I think you should look for our true retention efforts. Our efforts to retain quality talent should come in the form of growth in the balance sheet.
Got it. Thank you. Switching gears a little bit on the expense side. It sounds like maybe Next Gen updates are gonna maybe slide to the kind of the back burner a little bit. Not that you'd back off, but disclosure of that. I just wanted to get a milepost of checking in on perhaps, you know, if we're in the expense run rate of $100 million-low $180 million range ex the merger exit cost, what's left to take on cost saves for this initiative? I think it had a tail into 2023, even if you could detail that.
Hey, Jeff, this is Ron. I'd say, you know, no change to our prior guidance for 2022. We're looking at $690 million-$710 million of expense. That hasn't changed, and those are still our internal targets. Now, also that incorporates a decline in overall mortgage held for sale volumes, which, you know, can be a wild card from time to time, depending on what happens with rates. But with that, I'd say that, you know, the tail end of the impact of the stores recently consolidated here in Q4 is gonna be really more around, you know, smaller amounts in the aggregate around, you know, lease consolidations, back office benefits from right-of-use lease impairments, et cetera, which are incorporated in that guidance for the overall year expense.
Okay. Fair enough. Then just one quick one, Ron, housekeeping. The PPP fees, I think you mentioned down $5.9 million. What were those in the fourth quarter specifically?
Yeah. In Q4 it was $9.6 million. There's a little over $11 million left going forward. 99% of that is gonna be around round two, only a couple $100,000 left related to round one.
Great. I'll step back. Thank you.
Yep. Thanks.
Yep.
Thank you. Our next question is from the line of Matthew Clark with Piper Sandler. Please go ahead.
Hi, good morning.
Matt.
Can you specifically quantify the loan pipeline coming out of the quarter just to give us a sense, you know, on a comparison for comparison reasons?
Sure. Matt, it's Tory. At the end of Q3, the pipeline was about $4.4 billion in total, and today it's about $3.5 billion-$3.6 billion, somewhere in that range. That's the mark between last quarter and this quarter. Again, I feel that we had a lot of business that booked in Q4. We had a phenomenal Q4 in terms of loan growth. I feel very good about momentum and the prospects for us to build the pipeline and to have a very strong, successful 2022 in loan growth.
Okay. It sounds like there's a lot of opportunities to hire producers out west given all the disruption that's taking place. Can you give us a sense for what percentage or however you wanna measure it or quantify it, what percentage of your producers are locked up with the deal?
Unlocked? Yeah.
Yeah, explain locked up, Matt. I mean, with
With the acquisition
What do you mean by that?
In terms of retaining producers, so they're, you know, it would
They don't leave? It would hurt them to leave.
Yeah.
You know, percentage-wise, I don't know if I got a percent off the top of my head. I'll tell you know, we obviously with key employees, you know, look at all types of retention, opportunities, whether it's just cash or stock or the way we pay out incentives and yada, yada. You know, we feel, like I mentioned before, very, very good, about our retention prospects with our current staff, the ability to continue to attract.
I think we've shown in more tumultuous hiring years or have been years in the last four or five since Tory's been here, and I know you've been on the calls, Matt, where we've been able to attract a lot of talent on some of the banks, some of our larger competitors, because like Tory mentioned a few minutes ago, we have a great value proposition. I'm not naive to your question. Clearly, there's disruption potentially with a merger. Once again, we are at $50 billion. There aren't a lot of generalist commercial banks. In fact, there's none in the Pacific Northwest that will be able to do what we do. Between that and then, yes, we do have retention tools in our back pocket that we will use.
We feel very, very good about our ability to retain. Once again, hold me accountable for the growth. Hold me accountable.
Great. Thank you. Then, maybe Ron, on the core NIM outlook, I think the expectation coming into the quarter was fairly stable, which it was. What are your thoughts on the kind of the asset yield outlook, and any update on the weighted average rate on new loans this quarter?
Yeah, good question. I'd say just in terms of overall asset yields looking into Q1, really it's gonna be a function of continued loan growth and that cash waterfall and remixing down into loans, securities, and bonds. I'd say on the bond side, you know, with the sell-off in longer term rates, prepayment speed assumptions are slowing down, so there could be some lift in terms of lower amortization looking forward, just as those things extend slightly. You'd expect that to occur with higher rates. Aside from that, on the loan yield side, our yield on loans ex PPP was up four or five basis points in the month of December compared to Q4, so that bodes well looking into Q1 as well.
Okay. Thank you.
You bet.
Thank you. The next one, we have the line of Brandon King with Truist Securities. Your line is now open.
Hey. I first wanted to touch on the merger cost savings of $135 million. Seems that you remain confident in achieving that or even above that amount. I was wondering what kind of inflationary pressures could affect that number and if that has gone into any of the potential execution of achieving those cost savings.
Yep. Good morning, Brandon. Good question. Overall, the $135 million remains our target. Internally, we're targeting a number higher than that. But I'd say this, you know, on inflation, it's not new this month, this quarter. We've been dealing with inflation for the last year and a half on the back end of the pandemic. You know, when I look ahead into the future and I think about estimates and accretion and the model math, et cetera, one of the benefits of having that higher internal target that we're working towards would be to help offset if we do see continued outsized inflation, you know, running over the balance of the year.
Okay. I also wanted to touch on deposit growth. I know deposits declined due to anticipated outflows. The first part of the question, could you please quantify, if you can, the amount of deposits that were related to the Umpqua investment? I wanted to get a sense of where you see deposits growing from here and when there'll be a seasonal inflow based off of seasonal outflow in four Q. Overall, the impact of the Fed potentially hiking rates and what that could do to the trending deposits.
Kind of a loaded question, but let me take it in parts, Brandon.
Okay.
You know, the first component there would be it was a little under $200 million, just in terms of the UI balances that were out. I also point out, you know, any given quarter, there might be timing just in terms of, you know, month-end or quarter-end ACH timing. The number is probably about $150 million that fell into January that in prior years might have been 12/31. So that's just more a function of the calendar when you're looking at the point-to-point number. When we look into 2022, obviously still very confident about deposit growth. Our expectations internally are loan growth will exceed deposit growth in 2022. I think the big wild card for all banks, not just UMPQ, is gonna be, you know, what occurs as the Fed raises rates.
Do overall DDA mixes drop and move back into interest-bearing or do balances flow out? I'd say the benefit, you know, we have on that front compared to past potential rise in rate cycles is just the larger balance of core commercial deposits in our book based off what the team's done over the last four or five years. You know, there's other fluctuations during the year just in terms of tax timing Q2 or maybe public fund inflows in Q4. But traditionally, over a long time horizon, we've been more of a seasonal bell curve there as well with stronger growth in Q2, Q3, a little less in Q1 and Q4, mostly offset by those tax, you know, timing nuances.
Okay. Thank you for the answers.
Hey, Brandon. Hey, Brandon, this is Tory. Let me just add one thing on the kind of the banker front. If you think about, we talk a lot about loans, but, you know, we have a lot of bankers that are in all different lines of business, whether it's retail, whether it's the middle market, community banking, our real estate group. I mean, their goals and their incentives are equally distributed between lending and deposit growth and fee income growth. I mean, those things are, all of them are very important, and it's a very balanced scorecard, and it's how they're compensated. You know, all those things are important to us, so obviously. We continue to monitor and push and are successful in growth in all three areas, not just on the lending side.
Okay. I guess following up on that, what is the ratio you internally expect when you grow, for instance, C&I loans, and what will be the ratio of deposits coming with those C&I loans? Just to get a sense.
This is Tory. I think that's kind of impossible to answer, because it depends on the type of customer, the industry that they're in, what they're borrowing for, and just how flush they are with cash. You know, I think if you look at the different businesses, our community banking business has about a one-to-one ratio of loan outstandings and deposit balances. Our middle market business has a little more on the lending side than it does on the deposit side. Our real estate business for sure is gonna be more lending than it is deposits. Our retail bank is predominantly a deposit base for the company. It really just kind of depends. You know, I can't really answer probably any more detail than that at this point.
We could go in and dig out some information maybe, but that'd be my off-the-cuff comment.
Okay. Thanks for all the answers.
Thank you.
Thank you. Again, as a reminder, if you would like to ask a question over the phone, simply press star one on your telephone keypad. Our next question is from the line of Mr. Jared Shaw with Wells Fargo. Please go ahead.
Hey, good morning, everyone.
Good morning.
Maybe, you know, I think you'd mentioned that the growth outlook doesn't assume any type of normalization of the line utilization rate. What happens if you do see a utilization normalization there? How much of an impact could that be to balances?
Jared, hi. This is Tory again. If I look at the utilization rate going back a couple years in kind of Q4 2019 in our C&I business, it is about 35%. Today, at the end of Q4, it was about 26%. If we got back to the 35% level, kind of a historical level, it is about $260 million-$270 million in outstandings. You know, more outstandings for the company.
Okay. That's great. Thanks. On the mortgage banking side, you know, the gain on sale margin obviously declined through the quarter. Where was that sort of at the end of the year? What's sort of an expectation as we go into first quarter and potentially higher rates on the gain on sale margin?
Hey, Jared, this is Ron. Yeah. I also point out, though, that the real impact in Q4 was the drop in the lock pipeline. At a loan level, it's still firing off, you know, right around 3%. So, depending on market dynamics, you know, that could fluctuate during the year, but my assumption would be roughly 3% to, you know, maybe 3.25% at the outsized edge. The trajectory of that over the year would be, again, higher in Q2, Q3, lower in Q4, Q1, just given the fact that we've had a fair value of the effect of that lock pipeline change.
Okay. All right. That's good. Thanks. Finally for me, just as we look at the integration timeline and, you know, you have your integration office, what are some goalposts we should be looking for as analysts and investors, whether that's events and timelines or metrics to, you know, sort of indicate a successful integration?
Well, first of all, Jared. So, you know, the guidance we had given when we made the announcement, we still feel comfortable with that guidance of closing the deal, I think in the second quarter, late second quarter. You know, I mean, guidelines, guideposts, I mean, obviously, the shareholder vote for both companies is the middle of next week. That would be one. Then ultimately regulatory approval. Like I said, my opening comment, we're still more than comfortable with the timeline we've given. We've got great relationships with our regulators. Things are going great. We anticipate, you know, getting the deal closed by, you know, mid-second quarter. If any changes, we'd tell you.
I guess I'm thinking. Thanks for that. I guess I'm thinking maybe even after closing, in terms of, you know, integrating the franchises, whether it's, you know, growth targets or retention targets or things like that.
Yeah. I think after we close, you know, we would, you know, whether we have a, you know, a NDR or some type of a roadshow or at the first earnings call we would provide that guidance. You know, clearly other, you know, mileposts would be core conversion and things of that sort that are normal in mergers. That is a great question. We are working on that, so we will be providing some of that clarity after we close the deal.
Okay, great. Thanks a lot.
Yep. Yep.
Thank you. Again, as a reminder, if you would like to ask a question over the phone, simply press star one on your telephone keypad. There are no further questions at this time. Ms. Bohlen, please continue.
Thank you. Again, this is Jacque Bohlen, and we would like to thank you for your interest in Umpqua Holdings Corporation and participation on our fourth quarter 2021 earnings call. Please feel free to contact me if you would like clarification on any of the items discussed today or provided in our presentation materials. This will conclude our call. Goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.