Frank Namdar: No. This is Frank. Yes, during the quarter we had really an extraordinary situation develop pretty quickly in which a C&I relationship self-discovered a pretty complex and significant internal fraud which drove the company quickly into a bankruptcy situation. And so given the nature of the fraud, the uncertainty surrounding the true collateral, various pending investigations going on presently and really future potential litigation, we took the, I would say, decisive, quick, and conservative move to charge off the outstanding balance now and really look to recover any proceeds as we move through the process. And given what’s going on, I think that’s probably really all I can talk about with regard to the subject right now. But that’s really what drove that.
Operator: Thank you. One moment for our next question and our next question comes from Chris McGrady of KBW. Your line is open.
Chris McGrady: Great. Thanks. Clint, maybe the disclosure in the deck about a couple billion of loans that you don’t view as long-term strategic but the rate environment doesn’t lend to moving them. I guess what is it about these loans and I guess what would it take for you to kind of flip the switch on those and dispose of those or look to sell them?
Clint Stein: Well, that kind of plays into the earlier question about CRE levels and where we see those over the long run. A checking account, a wealth management relationship, an operating account, anything of that nature would change how I view the segment of the portfolio that we’ve kind of highlighted there in the slide deck. Those are predominantly the multifamily division portfolio and Tory shuttered that about a year ago. So that’s a wind-down portfolio. The other one would be single-family resi loans that we don’t have any other relationship with and that’s kind of a legacy product from when the home lending group was structured more like a mortgage company as opposed to how we have it structured today or how it was restructured just shortly before the merger closed, which is truly a mortgage division of a bank that supports our customers and their activities and needs.
So that’s some of the initiatives that I know Chris and Tory are working on is the rate environment affords them time to go out and we have loans with these individuals and organizations and so can they convert them into a relationship and if they can, then great. That helps us on the deposit front and it would be something we would keep. But if they can’t, then when market conditions are right, well, then we’ll take a very hard look at exiting those out of the portfolio, which then would also lower that CRE concentration level.
Chris McGrady: Okay, great. And then as I follow up, Clint, if we just zoom out, like normalized charge-offs, right, you’ve got the FinPAC book that’s running higher but normalizing. How do I think about normalized charge-offs in this environment for the bank on a consolidated basis?
Clint Stein: Yes, I think that’s one of the things we talk about even internally is that the normalized level for FinPac is what, 3.5% roughly? I would say 3.5% to 4%. And it was running what, 5? 5.5%. 5.5% or so. And so we see that kind of coming back, but then it skews the overall bank number. So as we move forward, we’ll do a better job at trying to bifurcate so you can see kind of where FinPac’s at on a normalized level, as well as where the bank’s at. I think from an expectation standpoint, correct me if I’m wrong, but I mean, what we’re seeing in terms of credit, what we’re seeing in terms of the output of our CECL model, probably, look at that normalization in FinPAC and then just carve out, what the bank’s experience has been over the last three or four quarters. If I was running a model, that’s probably what I would model going forward. That’s fair. I would say that’s a fair representation of what you should do. Yes.
Operator: Thank you. One moment for our next question. And our next question comes from Jon Arfstrom of RBC Capital Markets. Your line is open.
Jon Arfstrom: Hey, thanks, everyone. Question for you guys that maybe the other thing that hasn’t been touched on is C-income and your expectations there. I know it’s a smaller revenue contribution, but I think maybe that’s the only thing we haven’t touched on from a P&L. What kind of expectations do you have there? And I guess I’m, somewhat interested in the wealth business and mortgage in particular.
Tory Nixon: Hey, Jon, this is Tory. I’ll kick it off and then turn it over to Chris on the wealth side. You know, I think when the two banks came together, there were a few places where there were a lot of places we were excited about, but there’s a few places we were really, really excited about. And one of them is the fee income side, because there were some products and some capabilities that I think Umpqua Bank brought in that the Columbia Bank customers had a need for and just not a product set to kind of serve it. So, we are our pipeline on the fee income side. It just continues to grow every single month. And it’s a it’s a byproduct of a lot of hard work by all the folks in the bank, whether it’s retail or commercial or anywhere else.
And the growth has been, I think I’d probably point out three areas in particular, treasury management, commercial card, and then international banking would be kind of the three that I would see followed probably closely by merchant. And again, the pipeline is ten million bucks and it’s moving it’s moving up every day. And, it’s a it’s a really good thing for the company and for our customers. And so we feel pretty confident about where we are and where we’re going with it.
Chris Merrywell: Yes. Jon, it’s Chris. Yes, I would say in the mortgage where we’re where we’re at, if you look back over the past couple of quarters is a really good spot. It’s kind of settled into that range over the last couple of quarters, focused much more on help for sale. And as Clinton mentioned, taking care of our customer base, we still have portfolio product and we’ll do that for customers. But the mix is definitely, definitely shifted on there. You know, as we move into the summer season, when you’re looking at it’s predominantly purchase business, there is a bit of refi in there still. But as you start moving into the summer a little bit, we may see a bit of an uptick in the overall production second quarter, third quarter and all things being equal with rates as they are today.
The wealth business, if you recall, we we did our platform conversion during the fourth quarter last year in October. And I’m pretty happy to say that that’s settled in extremely well. The advisors understand the system. They’re communicating with their customers. The customer experience has improved dramatically from the system. We were the broker dealer we were with before. And so I think that shows some real signs of upward mobility as we continue to move beyond that conversion. And then on the trust side, we’re getting more and more opportunities working with our partners in within the bank, especially within the commercial side where we’ve got business sales, we’ve got lots of owners. And that is really becoming a part of the teams working together.
And the pipeline there is better than it’s been in the past. So pretty exciting there. We’ll look to move into some of our newer markets in those spaces. It’s a matter of finding the talent.
Jon Arfstrom: Thank you. Thank you on that. And then maybe, Clint, one last one for you. You know, you seem pretty laser focused on top quartile type performance. And I would just ask, what do you look at specifically for that? And I know you’re frustrated with evaluation, but, as analysts, we look at return on tangible and how that, how your price to tangible book looks. And if you can continue to put up these kinds of ROTCs, your stock price should clearly go up. But, what are you looking at? How do you measure that success? And, how do you think that stuff looks, by the end of the year when the sufficiency program is fully kicked in?
Clint Stein: Yes. Well, we certainly do look at, our return on tangible. And that has been, on a peer comparison level, it has been favorable. But, we also have a lower ratio. Our view is, and I think in my prepared remarks I said across all financial metrics, our view is pick a metric because from time to time things will look different. You know, there’s things that are in focus at different times, as you know. But, wherever our peer set is, then we want to screen in the top quartile. And if it’s on return on tangible, if it’s ROA that somebody is looking at, if it’s deposit mix, composition, pretty much anything along those lines. And so that’s, I guess, where we’re focused is the franchise that we thought we could create with this merger is here.
It’s in front of us. We’ve been running it for a year. And now what we’re doing is internally we talk about its, operational excellence and what are the things that we can do to improve those operations and right sizing the expense base. We were an outlier. You know, if we looked at the expense ratio, we were an outlier. We knew that. You know, we had year one, which was, keep our people, keep our customers and drive value across the organization. Now we’re in year two. The IMO is shut down. We’re focused on now delivering the full capabilities and the full financial performance and earnings power of this company. It’s a difficult environment. It’s difficult for everybody. But that’s okay. That’s one of the reasons that we did this merger was to give ourselves additional scale and resiliency to navigate through any type of business cycle.
So probably more than what you wanted on this, but I would say pick a metric. And if we’re not there, we’re looking at how do we get our company into that top quartile. Okay. All right.
Operator: Thank you. I’d now like to turn it back to Clint Stein for closing remarks.
Clint Stein: Thank you, DeeDee. And thanks for joining us on this afternoon’s call. We hope you have a good rest of your afternoon or evening, depending on where you’re at. Goodbye.
Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
