Q1 2020 Earnings Call
Good morning, and welcome to Umpqua Holdings Corporation's first quarter Twentytwenty earnings call.
I'll now turn the call Overdrawn Farnsworth Chief Financial Officer.
Okay. Thank you Sheryl and good morning, Thank you for joining us today on our first quarter 2020 earnings call.
With me remotely this morning, <unk>, the president and CEO All these corporation.
40, Nixon, our chief banking officer.
Dave Shotwell, or chief risk officer, and freight and our Chief credit Officer.
After our prepared remarks, we will then take Washington.
Yesterday afternoon, we shouldn't earnings release discussion or first quarter 2020 result.
We have also prepared a slide presentation, which we will refer to during my remarks. This morning.
Both of these materials can be found on our website at <unk> Dot com any investor Relations section.
During today's call, we will make forward looking statements, which are subject to risks uncertainties and are intended to be covered by the safe Harbor provisions of federal Securities Law.
So with the factors that may cause actual results could differ materially from expectations.
Please refer to page two of earnings conference presentation, as well as exposures contained within our filing.
Now I'll turn the call over to corporate here.
Okay. Thanks, Rod before jumping into financial results for the quarter want to spend a few minutes dressing that go with 19 global pandemic.
We're living through an extraordinary period of disruption in uncertainty as a company we've been focused on protecting the health and safety of or associates, while continuing to deliver the a central service back into our customers.
I want to acknowledge our credible associates, who have adapted quickly and courageously to minimize disruption to our customers and our communities.
Proud to lead institution that showed uniquely able to service in a moment like this.
I also want to acknowledge the bravery and service those on the front lines, particularly our country's healthcare workers are risking their lives dailies protect and care for so many.
What do you in the quarter Encore began implementing our pandemic response plan to adapt our operations as a cobot 19 crisis accelerate.
The first phase with stabilization and our top priority was protecting the health and safety of our associates and customers.
It is an essential service, we probably modified operations took a black comply with state level and CDC guidance.
As a result of modernization efforts of the past few years, we implemented our remote workforce plan across our footprint quickly deploying 90% of our non store associates to work remotely.
In addition, we've adjusted our retail store operations moving to a point only and enhancing the scope and frequency of store cleaning.
As a result, we've been successful keeping more than 95% of our locations opened at any given time during the past 90 days.
To support our associates, we created a pandemic pandemic payback, that's providing additional paid time off or those impacted by cobot 19.
We're also providing supplemental frontline pay it quick we activated at flux work program, that's making it possible for higher risk associates to continue working and contributing to our overall efforts.
In addition, we've put in place a customer relief program and I've been working with customers to defer payments replicable and necessary.
Slide three in her presentation deck as our most recent statistics as well as detailed or other customer support programs.
Oh, well has also taken a proactive approach and supporting our communities during these challenging times.
We've committed more than $2 million, a combined grandson investments to organizations, providing cobot 19 community relief and small business micro loans.
We've also introduced a new virtual volunteerism program as part of our industry, leading connect volunteer network and have automated augmented our associate giving program to a three to one match for all associate donations made to cobot 19 really organization.
As we transition to our recovery phase, we're working with associates and customers on multiple levels.
Most pressing the supporting the small businesses that are the life what are the U.S. economy, and a vital source innovation diversity in commerce new communities we serve.
I couldn't be more proud of how our company has responded to the payroll protection program. That's a part of the cares.
As it was signed into law, we put a team of associates together to build out a process for Operationalizing the program.
They worked around the clock and as a result, we began accepting applications on the very first day of the program that went live on April Threerd.
Since then we've had shifts the teams working an eight hour increments to process applications 24 hours a day.
Because of their extraordinary commitment and hard work as it. This morning, we were approved and received S.P.A.P.L.P. numbers.
To be able to for more than 6700 loans for a total aboard a 1.4 billion and balances under PPP.
To put that production in the context and he normal year I'm quite generates approximately $140 million in ASP Halo.
Less than two weeks import produced more than 10 times a typical years production.
And our communities are starting to take notice I truly believe reputations are built in time such as these our relentless commitment to small business is being recognized in business communities opened down the west coast, creating powerful opportunities for unquote to grow and attract new customers in the future.
In addition, our encore go to application was developed to deliver human digital approach to banking that connects people through technology.
In this period of social distancing is provided a unique and safe way for customers to continue banking with a human connection.
Our go to enrollment numbers continue decline it daily message by volume is up three X during this period compared to a quarter ago.
As we look ahead to recover to recovering together and transitioning to a post cobot 19 operating environment I'm pleased with the progress we have made through our nexgen strategy thus far.
Although much of still a no well continue to grow our customer base and a balanced manner by providing strong relationships continuing to innovate and deliver our unique human digital approach to banking and effectively managing cost through operational excellence initiatives.
So now to the financial results.
For the first quarter of 2020, we reported a loss of 13 cents per share. This is compared to 38 cents earned in the previous quarter at 34 cents earn the first quarter of 2019.
The most significant item that impacted this quarter's financial results was the $118 million provision for credit losses charge.
This is the direct result of adopting the new Cecil accounting standard during the quarter, which incorporated a cold at 19 economic forecast.
The shape of an economic recovery is still a no. Howard. This is a strong level of provision grew our allowance for credit losses to over $312 million or 1.47% of our total portfolio.
In addition, primarily due to the sharp reduction in long term interest rates that occurred during the quarter.
We recorded a 25.4 million dollar negative adjustment related to the fair value change of the MSR asset and a $14.3 million negative adjustment related to the swap derivatives.
The combined total of the increased provision for credit losses.
MSR and swaps CB, a fair value charges equated to 47 cents per share of impact this quarter.
Turning to the balance sheet items, we had a strong quarter of deposit growth our customer deposit growth in commercial retail a wealth of $459 million a lot has the opportunity to reduce our cost public and broker deposits ultimately leading to growth of $218 million or about 4%.
Deposit growth came primarily from the non interest bearing category, which was a combination of new customer acquisition and growth in average balances of current accounts.
We also grew loan balances by $56 million or 1% annualized primarily in the see an eye portfolio.
Regarding capital, we entered this crisis with capital ratios, well above regulatory well capitalized levels and internal policy floors.
Our tier one common ratio of 10.9% in total risk based capital a 14% will be important advantages going forward.
Our liquidity isn't the strongest position it's been in since I took over as CEO in 2017 and with the cash on our balance sheet plus additional liquidity sources. Our total available liquidity was $11.2 billion at quarter end.
Before I pass back to Ron I will close by saying, we forecasted our capital and dividend payout ratios for the remainder of the year end with what we know today about current and forecasted economic conditions, we remain comfortable maintaining our dividend at its current level subject to normal regulatory approval.
Now I'll turn it back over the long to cover additional financial results.
Okay. Thank you court and for those on the call a windfall long I'll be referring to certain page numbers from earnings presentation.
Before I get into the numbers there are two items I want to cover up front.
Based on market volatility consensus forecasts for a prolonged low interest rate environment, coupled with the drop in price with the company's common stock during the quarter. We are completing the impairment evaluation of goodwill with our auditors and do expect significant impairment.
It's important to note that well any potential goodwill impairment would be material to reported earnings and it'd be a noncash charge would have no impact on cash balances liquidity handle book value or regulatory capital ratios.
We expect to complete the impairment analysis before filing our quarterly report on form 10-Q, with yes, you see in early May.
And second given the dramatic turnaround for the past quarter and extreme economic volatility we remain focused on expense management to help offset expected revenue pressure.
We continue to make good progress on expense containment priorities.
Forward looking statements made on the January call are no longer applicable.
It could provide detailed estimates later this year, assuming we start to see recovery on the back end of this pandemic.
With that now turning to page 12 of the slide presentation.
Which contains or summary quarterly piano.
Our GAAP loss per share for Q1 was 13 cents.
Compared to net earnings per share 38 cents from the prior quarter and 34 cents from the same quarter a year ago.
Most significant item this quarter was an elevated provision for loan loss of $118.1 million of which approximately $100 million was directly related to economic fallout from the coven 19 pandemic.
In addition, the decline in interest rates led to the 25 million dollar fair value loss on the MSR asset.
Along with a 14 million dollar fair value loss on the swaps TV a derivative.
Turning to net interest income on slide 13.
Net interest income decreased 4% from Q4, driven entirely by the 150 basis points of fed funds rate declines in March.
As reflected on slide 14.
Our net interest margin declined to 3.41% this past quarter.
The margin excluding discount accretion was 3.36%.
Obviously, the quarterly amounts were impacted by the decline in rates and the second half the quarter.
For expanded visibility.
Our margin for the month of March.
It was 3.28%.
With the yield on loans held for investment at 4.41%.
Our cost of interest bearing deposits a 0.94%.
Moving now to non interest income on slide 15.
The decline this quarter was driven by the fair value of awesome MSR asset along with the swap derivative.
At the bottom of the stage, we detail out the various commercial fee income component within other noninterest income.
Moving our commercial product revenue increased 56% compared to the first quarter your again.
Which is reflective of the great work our teams have accomplished as part of our next gen initiatives.
For mortgage banking as shown on slide 16.
And also in more detail on the last page of earnings release.
For sale mortgage originations were flat from the fourth quarter, but up 74% compared the first quarter a year ago.
Total volume of $1.4 billion.
This reflects our positioning to capitalize on higher refinancing demand lower long term interest rate.
The for sale mix increased 80% and this quarter as discussed back in January.
And the gain on sale margin increased to 3.43%.
As of quarter end, we service $12 billion of residential mortgage loans and the MSR is valued at 75 basis point.
Potential sale of 3 billion in service loans discussed last quarter was terminated in late March by our counterparty due to the extreme volatility in the secondary market.
Turning now to slide 17.
Non interest expense was $177.7 million down 3% from Q4.
This concludes home lending direct expense, which based on a significantly higher than expected volume discussed was 31.6 million.
For $12 million higher than expected when we last spoke in January.
I'm pleased to report this higher expense came with 24 million of higher non interest revenue compared to earlier expectations.
Excluding the home lending surge above expectations, our total expense would've been 165 million.
Were $660 million on a full year annualized basis.
Which reflects the company's focused on operational excellence efficiency.
As mentioned earlier, we will remain focused on expense management moving forward.
The bridge on the Rightside shouldn't the moving parts from the fourth quarter.
The only higher category is expected seasonal increase in payroll taxes.
Turning now to the summary balance sheet begin on slide 18.
We intentionally research spring cash on balance sheet in March and in the quarter at $1.25 billion.
This increase was driven by additional term borrowings under year.
Along with deposits increasing more than one.
Our goal available liquidity, including off balance sheet sources at quarter end was $11.2 billion represents a 38% of total assets and 49% of total deposit.
I want to highlight the total deposits increased 32 million in the first quarter or 7% over year over year.
Within the quarter, we saw a reduction of $173 million and broker deposits.
Along with reduction of $69 million than public deposits.
Meaning total commercial well in retail customer deposits increased $459 million.
Frank will cover the loan book in a few minutes, but when you take your attention back to slide six on Cecil.
And our allowance for credit loss.
We adopted Cecil US point on January 1st increasing the allowance to 1.02% of loans as noted in the table at the bottom of the page through any retained earnings adjustment.
Understates, what we were using consensus economic forecast through the month of February.
And then the pandemic hitting full force.
The economic projections have worsened each week since then.
And our Q1 allowance calculation and result in provision for credit loss.
Based on the end of March Moodys updated baseline forecast.
This updated forecast included a 18.3% drop in GDP in the second quarter 2020.
Along with unemployment increase in the near 9%.
With full year GDP down 2.2%.
Our Cecil processed incorporates a life of loan when reasonable insupportable period for the economic forecasts for all portfolios.
With the exception of C and I, which uses a 12 month reasonable unsupportable period.
Reverting gradually to see output mean thereafter.
It's these forecasts incorporate some level of economic recovery and 2021 and beyond as most economic forecast revert to the mean within a two to three year period.
Based on the recessionary near term forecast our allowance for credit loss increased to 1.47% as at quarter end in 90% increase from year end 2019.
This resulted in the $118.1 million provision for credit loss in Q1.
Oh this amount $100 million again is related to live in 19 pandemic.
Broken down as an 80 million dollar increase for estimated future credit losses, not yet incurred.
8 million for a specific coven 19 related impairment.
And 12 million to increase the reserve for unfunded commitments.
As these are economic forecasts driving the reserve it will simply take the passage of time to see if net charge offs follow as model.
Two final comments on Cecil.
[laughter] future provisions or recapture.
Our unexpected credit loss, we based on changing economic forecasts, which could worsen or improved from the quarter end forecast used.
And second we will elect the full five your regulatory kit capital transition option for seasonal.
Lastly on slide 24, when I look like capital knowing that all of a regulatory ratios remain in excess of well capitalize levels.
As Curt mentioned, our tier one common ratio was 10.9%.
And our total risk based capital ratio is 14%.
We've broken out the mix of each ratio with regulatory well capitalized minimums.
Our in house policy floors incorporated a cushion overbought capitalize levels and what we consider excess capital.
That excess capital increased to $280 million quarter, providing heightened stability in these volatile times.
As Curt mentioned, we constantly forecasts and stress excess capital and with what we know today based on the economic forecast, we're very comfortable maintaining our current quarterly dividend of 21 cents per share.
Our excess capital to an $80 million would afford us to $400 million a pre tax loss before we dipped below our in house policy floors, which by themselves incorporates an additional cushion or regulatory well capitalized levels.
The key items I want to reiterate the wrap up my prepared remarks include first the significant available liquidity, we have more than 11 billion.
Second our increased allowance for credit loss at just under 1.5% of total loans.
And lastly, our significant little of excess capital with our tier one common ratio at 10.9% and total risk based capital ratio at 14%.
I'll now turn the call over to Frank named our 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.
We have been diligently working with our customers on any needed loan payment deferrals. The average timeframe as these deferrals has been in the 60 to 90 day range.
All of our lines of business.
On slide three to be transparent.
We've lifted deferral information by line of business, highlighting the percentage of accounts electing deferment.
Payment amounts deferred and the percent of those amounts in comparison to the total payments amounts for loans and leases and each line of business. This information is as of April 19th.
I do want to point out that the cures act, including the personal stimulus dollars and programs such as PPP.
Well, obviously play a critical role in supporting our small business portfolios.
On slides five and six we show specific segment totals and associated relevant underwriting characteristics.
Overall, our entire loan portfolio is very granular and that holds true within these segments.
Operationally, we have enhanced our credit monitoring on the entire loan and lease portfolios.
And have chosen to highlight the following five segments for you today.
Hospitality, a 2.3% of our portfolio.
Air Transportation at 0.6%.
Oil and gas with essentially no exposure restaurants at 0.7%.
Finally gaming at 1.7% of our portfolio.
On slide nine.
We indicate our line of credit line utilization statistics across the entire product set including commercial lines of credit small business lines and home equity lines of credit.
Given the inherent granularity of the portfolio combined with the high caliber credit quality of some of the larger relationships within the portfolio utilization has remained stable over the past 90 days.
Most of these credit facilities have characteristics associated with asset base line has specific advances are backed by qualified accounts receivable and inventory.
Slide 21 depicts our loan portfolio, its geographic diversification and select underwriting criteria for each major area.
We're pleased with the composition of our loan book, along with our conservative and disciplined underwriting practices.
Slide 22 shows unconscious storage really strong credit quality by comparing.
Our ratio of annualized charge off to total loans and leases to the entire FDIC insured population covering more than 5000 institutions.
For the past 10 years I'm caused net charge off rates have averaged 86% lower than the FDIC insured institution average.
Slide 23 reflects our credit quality statistics.
Ron covered the provision and its Cecil comments and I would like to point out that included in the provision and the net charge off numbers for this quarter was a single 8 million dollar impairment attributable to an air transportation less or that was covert 19 related.
I will now turn the call back over to court.
Okay, Thanks, Frank and Rod for your comments and now we will take your questions.
Thank you if you would like to ask a question at this time. Please press star one the are you telephone handset.
My first question comes from Michael Young Suntrust Robinson.
Please go ahead your line is open.
Everyone. Thanks for the question.
Good morning, Mike Mike.
Oh I wanted to maybe just start on the seasonal reserve. The the date to reserve build was maybe a little bit higher than what we've seen for other banks and it looks like CRD was maybe a big component of that he can you I don't know if you can compare and contrast, what you guys did I know you gave some detail, but you know maybe what you did versus what.
Here's the did you guys just take the street Moody's for cast and you feel like other people have taken kind of blended forecasts or any any contrasts you can draw there.
This is Ron Yeah artist speak specifically to what other banks are doing on that I will point out that within theory.
Where she's got multifamily that owner I cannot or I can multifamily was very low it's still low but it was a larger a piece of an increase.
In terms of that reserve build a and no. There were no. We've actually had about $4 million of additional reserve, we booked over and above what the model suggested on some of the smaller categories like consumer and he like where the sensitivity wasn't moving as much as we expected. So no no downward adjustments to the model results and I guess that gets back to.
And one of the issues with diesel and banks, you all be compare and economic forecast fuse because they're all going to be slightly different but ours, a straight up at that in a month Moodys you know updated baseline.
Okay. Thanks, and then just maybe moving over to the leasing equipment finance portfolio, There's a 6% reserve against that portfolio now how does that compare to maybe historical losses, maybe to the last cycle and.
Should we kind of consider that as a co bit impacted portfolio as well. In addition to the five relatively small portfolios you guys outline.
Hey, good question, the 6% reserve, obviously, we feel comfortable with it.
No for the last couple of years that reserve level has been in that probably 2% to 3% range and keep my thinking about little over half that portfolio is in the traditional b and C quality paper space. So.
Back during the last recession, there their loss levels were probably upper single digits.
But but the other half the portfolios in the Moray quality staff, which will have are lower than 6% reserves. So no feel pretty good about where it is compared to prior recession.
Okay, Great and maybe just one last one I think Greg you mentioned the line utilization. Obviously was you know we didnt see big uptake like we've seen in other.
Thanks, and it sounds like that was just because a lot of either secured so borrowers weren't able to increase their line utilization is that the right characterization or is there something else that we should infer about you know maybe the the durability aware with all of your your clientele based on that statistic.
I think it's I think it's as I said I mean, I think that the majority of our facilities are true asset base.
Lending facilities, we do not have a lot of.
Liquidity.
Focused facilities, so so on unsecured uncontrolled facilities or.
Facilities secured by the the total asset base of the company, thereby remaining thereby being on controls as well. So most of its formulaic and I think that's truly a main reason why.
We have not seen the surge and.
Wanting utilization that some of our other peers math.
Okay. Thanks for all the color I'll step back.
Thanks, Michael.
Thank you. Our next question comes from Jared Shaw from Wells Fargo Securities. Your line is open.
Hi, good afternoon, and good morning.
Morning Gerard.
Yeah with the yet with the MSR sale.
In postponed or delayed or terminated in March I guess, what are your thoughts for future MSR.
Potential sales there.
Hey, Joe This is Ron Yeah, we'll say opportunistic on that but for the time be we don't we don't see that Ah lisanti.
Particularly counterparties come back and just given the extended volatility, but the fed has done over the last month was helped with some of that secondary mortgage market volatility, but it's not going to take some time.
Okay, and then on the on the TPP loans that were funded.
What was the average.
Blended fee on that.
So Jerry this is Doug Tori next and.
Last quarter mentioned, we had just over 6700 applications approved by DSP, a well money was still available for about a roughly a billion 460 million in the average loan size. There is about so it makes about 250 $215000 defeat the fee generators roughly around that.
3%.
Looking at the kind of the scale that was provided.
Okay.
Great. Thanks, Thanks for calling.
Thank you and our next question comes from Stephen I'll, let Alex a populous from JP Morgan.
Your line is open.
Hi, everyone.
Weren't Phoenix team.
At the start just to follow up on the deferrals could you guys provide the balance of the loans in each of the segments, you're calling out on slide three let's say you have the payments that were deferred but can you tell us the balances associated with those payments.
Hi. This is this is right now and our.
The as of as of April 19th.
In the commercial space.
35 million.
Commercial real estate.
About 201 million.
Consumer about 10.3.
Finpac 125 million.
And residential.
340 million.
Okay and those are the balances of loans associated with these.
That is the that is the book balance those loans.
Okay.
Okay.
Outside of 915 million.
Okay.
On Finpac.
Which seemed to have the most request from for deferment can you walk through which segments were seeing the greatest pressure within impact.
Yeah Yeah.
So we've seen we've seen a lot of activity in the the freight hauling space.
So finpac Scott some smaller trucking operations and those have been impacted.
Just it's really just more difficult to find loads to hall for for some of those smaller operators at this point in time.
Doctors.
Dentist offices.
Obviously any any of the verticals that we cited in the slide presentation has also carried over into Finpac and I would say that those are the main areas.
Present.
Okay do you have the aggregate size of those.
These will be these will be in aggregate balances if you will.
As opposed to payment amount yet.
Looking.
Trucking space.
So 53 million.
Doctors dentists.
So the health care space.
The out.
36 million.
Restaurants about 20 million.
And I think that said about covers it that's it okay. That's helpful.
Appreciate that to shift directions, a bid for Ron if we look at the goodwill impairment I mean, all banks are under the same pressure as you guys are and I've not heard of anybody else talking about appearing goodwill.
Is there something unique Tom <unk> that you're considering this year.
Yeah.
Yes, Steve Good morning, there was actually one yesterday announced a as well and I think it's something that just came on so fast late in the quarter that my guess is if you're not going to see in Q1.
The regional Bank space, you might see it later in the year, depending on the economic forecast.
Okay.
And then I'm sorry, just one final one follow up on Frank's comments about P.P.P., helping your small business customers. If you look at your 1.4 billion that was approved how much of that are you finding is actually going to your most distress customers.
Seems like there's a bit of a crowding out.
Going on.
Yes, Stephen this is a tori next and again you know we.
If you look at what we have funded a as of this morning.
Roughly 95% of that is to uncle bank customers at about 5% of it is to not Alco bank customers and we were we were very.
Strict in the.
The ability to process and.
You know support the customer base through a kind of first in first out mentality. So we we have just been very.
A broad based supportive in in the the PPP process.
And have not broken it out by a distressed industry or any kind of other risk.
Classification. It is been strictly those that have applied we have been working diligently to get them through the process and get them funded.
Yeah, that's what I figured okay towards hey, Tory, therefore steel hangs up it might be worth a lettings even know what we've got since the money ran out in a kind of pending applications for the next round of stimulus, it's probably worth mentioning.
Yeah. So so we have as we've talked about earlier, we are we actually did 6784 before right. The money was exhausted and we have today about 4000 additional applications that we've received that we have process as far as we could process and what we're ready to go.
You know as minute then the minute that money is available again, and so you know the and the numbers or you know from the dollar amount or relatively close to me. It's I think it might be a little bit less than on an average of 215, but relatively close.
Well, we can see today, so there's that theres a healthy.
Pipeline sitting there today, just and we've done what we can do and we're moving forward as soon as we can.
Hi, Thanks for taking my questions there. Thank you.
Thank you and her next question comes from Tyler Stafford from Stephens. Your line is open.
Hey, good morning, guys.
One of my daughter.
I wanted to start on credit here that there seems to be a lot of focus on the charge off this quarter.
Well, which I'm a little bit surprised about considering that the now new reserve is over seven times your nonaccruals and I think well in excess where are the other banks are but it was a little surprising that there was a kobin related charge off. This quickly. So I was wondering you just talk a little bit more specifically about what drove that so.
Early was it already having problems or any any details you could give us.
Hi, This is Frank named our it was it was a weaker it was a weaker credit to begin with.
And had some add some exposure to some smaller.
Airlines that were out there.
It was a shared national credit as well.
And.
There was a defined workout in place.
But.
In March once the once you pandemic accelerated if you will like so many of these.
Types the situation.
The workout plan as that was in place.
And I fell apart.
And you know I'm quite as it has historically been extremely aggressive in there and they're workout strategies and recognizing risk and we.
We viewed the situation as one the in which we had to take an impairment at this time.
Got it okay [laughter] I appreciate that and just going back to Finpac for for a moment, Brian can you just go over again, what those losses were last cycle, a I think I missed it and just thinking about it in relation to the 6% reserve you have on that book.
You bet on it again at the time last cycle was Oh, it's all made up of the BC quality paper and that would've been a high single digits met 7% to 9% charge off rate range keep in mind of yield is you know on a b C. SAP is in that kind of high teens or twentys.
And so when I characterize it back to the 6% reserve <unk> they have to portfolio a little over half the portfolio now is in a paper so much higher quality lower yield probably closer to 10% deal that also lower losses.
Perfect Okay.
And then just going back to the expense comments you made I think you said the higher mortgage expense drove.
The run rate or the expense absolute expense level. This quarter up 12 million. So it would've been 165, I believe expenses for the quarter. So how are you thinking about I guess, one mortgage production for the near term and for full year 20, and then how we should be thinking about the run rate expenses as well in relation to that.
[music].
Yeah.
Mortgage is gonna stay strong, obviously, just given where Volvo rates, what I tried to back into though was ex that surge compared to the prior commentary yeah. We were targeting in that 660 range for the year so absent that.
I would expect mortgage remained strong, but then again to where we're pulling guidance if people for the full year, Matt So when we know that.
Okay and.
Maybe just purely on that last comment just about guidance I fully appreciate the ROTC guidance is impossible to predict at this point just given provisions in charge offs unknowns, but I was hoping you could comment maybe just around how you're viewing de efficiency ratio. Obviously, we've got the <unk> 150 basis points, if that got since January.
But any color you can share on how you're getting in that mid fiftys prior efficiency ratio guidance.
Yeah. It again I'm happy to fall back on that prior guidance. We after we have to withdraw just given the environment in.
Arranged potential economic forecasts.
Fair enough. Thanks.
Thank you.
Thank you and our next question comes from Jeff Rulis from D.A. Davidson. Your line is open.
Thanks, Good morning.
Well, Jeff morning, Ron on the on the on the margin similar maybe a discussion here.
Old math goes out the window, we rushed to zero on the on the.
Said cuts pretty quickly you know previously I think you kind of outline for every 25 basis points, but you know there was a five to seven basis point back to margin.
Helpful to know the March 328.
You know some puts and takes there right.
Set of specific guidance, what do you how do you think that the balance of that.
Further pressure and or I guess, he could layer in if there's PPP pressure on that a yield any.
Any readjusted kind of comments on margin be helpful.
Maybe just a couple without providing again detailed guidance.
Yeah that on the PPP loans, assuming the vast majority of the turn into grants or forgiven. The net fee would be recognized that quarter net interest income and the 1%.
Coupon, if you're going alone will be reversed so you'll see a search I really do PPP fee income recognition for all banks.
Well.
The net effect from that the other Adam we're obviously focused on is reducing the cost deposits. It was down to 0.94% in the month in March which.
Shows you that extend to the mood late in the quarter.
Got it okay. So the.
My to interpret the deposit work is you hope to climb back some efforts on the margin or.
The puts and takes on earning asset yields versus on costs.
Did you peg that 328.
I I would say I've, given the fact that Richard zero, there's room to move lower on the customer deposits.
Okay great.
And.
On the C. So the election did did delay that.
Impact on regulatory capital do you have an estimated impact.
You can share.
Yes, ballpark 10 to 15 bit.
And to 15, okay.
Great and then just a housekeeping.
Just wanted to confirm that net charge off was was out of the Finpac Division correct.
No that was out of the core bank.
It's Nick Okay.
Got it right that's it for me thanks.
Thank you.
Thank you. My next question comes from Jackie Bohlen from KBW. Your line is open.
Hi, good morning, everyone.
Jack Ron Ron in terms of that Threetwenty margin of that core or gap.
Oh that would be the GAAP number I I'd say that that delta between GAAP and core isn't there I'm pretty small it's going to be a bit for two pretty pretty quick.
Okay. Thank you.
I wondered if you could just provide some color on your remaining snake exposure on if there's any industry exposure and there I'm you know that maybe included in some of the other just closures that you provided and just how you're you know how you're thinking about the rest of that portfolio.
We've got about one point.
2 billion in that portfolio remaining and all of that is a pass rated.
None of it is an issue.
Stable overall.
Nothing yet I think I've sort of industry.
Nothing it doesn't have industry. Okay. That's really helpful. Thank you one Larry.
Sorry, just one thing real quick on the domestic pieces from France comment I would say that our commitments are you know the number he gave her outstandings are about 750 or so million. So.
Just as a from a book balance.
Oh, Okay. Okay. That's helpful. Thank you.
And then just lastly that 95, five break down between customers and non customers in terms of the PPP. It's that's function of specifically prioritizing your existing customers, meaning that did you get a lot more inquiries from non customers that aren't included in that number.
Did you I did you process that you know as they came it.
Hey, a jacket, let me just score let me answer that so we made a decision early on that we weren't going to exclude like Tory said in that first in first out.
No sense or the way, we handle that we working to exclude non customers from app from applying here at the bank. We felt some what are the moral obligation to the communities. We serve a two process applications. Most people want to their primary bags, we didn't get a lot of it but I was a decision that I'm quite made to make sure we're serving.
All of our communities.
So that 95 side is that indicative of the 67 84 that have been process or is that the overall almost 1100, but you've received.
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Yeah, I know the sad, but with the additional 4000, yes. So this is this is Tory again, so it the the 95 five is actually as of this morning, what we have actually funded a which is just over 850 million of the 1.460 billion. We you know from.
What we see though that 95 five will stay should stay fairly close to that led to those levels as we fund the remaining balance of the original billion for 60 took two courts point as you know we as as the process. It grew and we were.
Try very hard to to support a non customers as well as customers, but as you know made that at times. It you know decide to support our existing customer bases best that we could so I might.
My gut instincts tell me that as we kind of gets to the remaining 4000, which then will you know equal or roughly 11000 total or so.
We we should stay close to probably the 95 and five split.
Okay and.
And I guess, where I'm getting out with my line of questioning and understanding that you know on a relative basis, 5% at very low, but when you look at the sheer volume of applications, 5% of 11000 is not an inconsequential number I know how are you viewing this in terms of relationship development and might you see associated deposit growth from new customers.
Alongside it.
Well, let me start and its Oregon put on the backend you know.
Once again, if the decision was made mostly by me that that because we were seeing some non customers.
In the intake process the on my intake process at Torrey created three four weeks ago.
And.
Truly believing in the <unk> that the foundation that the small business segment provides the economy.
We made the decision to support.
Those businesses as the primary reason for making that decision.
As opposed to we were going to try to cross sell them products and services and I'm, not saying you're saying.
I will tell you that.
Yes, I have not what the percentages story can tell you those customers when those P.P.P. loans or grants were funded opened a deposit accounts here, which we welcome and clearly I think unlike in my opening comments, where you know I'm quite from my perspective, as one of the few banks and maybe on being somewhat naive.
This statement one of the few banks that has.
Take it in some noncustomers is a bit it's been pretty open about that that maybe there is an opportunity to gain some customers in the future, but I want to be clear that we did it mostly or primarily to support these businesses and the fact that they rule and the economic livelihood of all the communities. We serve we're pretty much store.
Rural Bay remote a lot of our stores a lot of our customers are non metro market. So we feel a strong obligation to support these communities and toward if you want to add something on there again.
No I don't think there's there's a lot to add I mean, the the idea of how we would love to be able to do all of everyone that we possibly.
Can in capacity as you just have you reached its reach a certain limit and there's just some that we won't <unk> customers hopefully not customers, but there'll be some non customers. We just won't be able due to assist but you know we're doing the best we can help as many as possible certainly for those that that we supported through the PPP that are not uncle bank costs.
First today, you know, we hope that they will be called <unk> <unk> Umpqua bank customers tomorrow, but there's no outward reach in that regard.
Okay.
Thank you for the added color appreciate it.
Thanks Jackie.
Thank you and our next question comes from deep It shovel Reni from Wedbush. Your line is open.
Hi, Thanks, I had a follow up question on credit and your gaming portfolio. There's been some concern by investors. This earning season for banks that have a exposure to you know gaming companies that particularly you know tribal customers and 80% of your gaming portfolio.
He is traveling granted it's pretty small portfolio exposure for you at less than 2%, but could you walk through what if they came to that what a workout would entail.
And some of the measures you could take.
Interesting question.
Yeah. It obviously it would it would it would involve.
A lot of attorneys.
Yeah.
Workout working through.
The tribal attorneys.
As a on both sides.
Yeah.
Our portfolio is.
At the time of underwriting a extremely strong still as displayed in a in a slide presentation.
The great majority of them out or 12 months of liquidity so.
Have we have great confidence in the in the strength that portfolio.
And.
Date.
We have only received.
One request for deferral.
Right.
Great. Thanks for that and then shifting gears to.
Expenses it sounds like it's a you know good news Kinda story, given that you guys are trending at the lower end of that prior guidance, but I was little surprised when you said that you kind of pulled the guidance for it as opposed to just adjusting it if need because usually that's a line item that you know banks have the most control over could you discuss.
Yes, just what why you pulled the guidance on that.
Hey, David This is Ron Yeah, I mean, obviously mortgage is gonna be a wildcard over the course of the year strong in Q1, we expected to be strong again in Q2 based on market conditions.
So but underlying that the nice thing about yeah. The next initiatives is really market specific drivers of the drops in cost we've done so feel good about.
Yeah. It makes the mortgage surge which comes with.
Non interest revenue expectations that will be in that range I think it just in terms of overall guidance, there's enough moving parts of it of course of the here that I'm thinking about I can tell you what Q3 or Q4 going to look like a specifically just given the range of outcomes.
Hey, David Court, we've continually driven down or core operating expenses.
Over the last couple of for years, maybe did in the quarter I understand your question you know obviously with the pandemic hitting as fast as it did our primary focus is not serving our customers and we have already taken initial initiatives and the company to to restrict expenses and we're looking at.
Right now how to how to how to future in the future reduce oh expenses, but to cross point, it's kind of.
Happened so quickly folks on the customer and we'll get to the expense saves we've shown the street or are we control expenses, we get it and we'll we'll get that information to you as soon as we kind of higher not exactly how we're going to deliver on that.
That's helpful makes sense, thanks, very much <unk> like you.
Thank you.
Our next question comes from Michael Young Suntrust Robinson. Please go ahead. Your line is open.
Hey, Thanks for the follow up question just wanted to touch on the mortgage banking business real quick just gain on sale margins. Obviously were were quite strong good to see this quarter are obviously with the high volume, but could you maybe just talk about what you're seeing in terms of how much volume youve been able to process versus.
You know kind of the pipeline and should we expect a continued surgery in a larger surgeon to Q I'm, just kind of what you're seeing in terms of activity levels and then what that may mean for for gain on sale margins.
Yeah. Michael This is Ron historically, it was like a bell curve through the air rights. They typically had higher purchase activity Q2, Q3, but we'll see how that plays out in light of a pandemic, but we've been able to obviously manage the volume significant levels of wind, though also with better pricing, hence the gain on sale margin wasn't that the 3.43% ran.
With the increase in locked pipeline. So we feel good about yeah utilizing that as Oh.
Clutch if you go all the managed volume.
Okay, but no comments or updates on what you've seen late and one Q or into early Twoq. You. In terms of you know have you had to delay closings or anything like that that may further increase or sustain kind of the the surge in volume.
No nothing significant outside of that historical pattern I mean other than Richard zero. So we're starting to see more at refi activity, but the mortgage rates spreads on mortgages haven't actually gapped out compared to the moving the tenure right. So.
It's not a re Fi Bonanza as one would expect you could just fall the tenure.
Okay, and then one last one night, let's be true for anyone but just on the servicing side you know there's some a lot of chatter about you know people servicers basically having to fund payments, even if there's forbearance for maybe up to four months or does that you know can you talk about any impacts that would have on you all.
Hey, this is wrong again, yeah, we've got significant liquidity. So we don't see that as an issue here over the course come in couple of quarters.
Okay. Thanks.
You bet. Thank you.
Thank you and that concludes the questions in queue turn the call back to management for closing remarks.
Okay, well this is Ron I want to thank you all for your interest holdings in your tenants on the call. Today. This will conclude the call goodbye.
Thank you for joining us today, ladies and gentlemen, you may now disconnect.
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