Q2 2020 Umpqua Holdings Corp Earnings Call
Okay. Thank you Ryan and good morning, Thank you for joining us today on our second quarter 2020 earnings call.
With me. This morning are Cort Ohaver, the president and CEO of Uncle Holdings Corporation, Tory Nixon President of Umpqua Bank, Dave Shotwell, or chief risk officer, and frankly, and our or Chief credit Officer.
After our prepared remarks, we will then take questions.
Yesterday afternoon, we issued an earnings release discussing our second quarter 2020 results. We have also prepared a slide presentation, which we refer to during our remarks. This morning.
Both of these materials can be found on our website, an uncle bank dotcom and the Investor Relations section.
During today's call will make forward looking statements, which are subject to risks and uncertainties in 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 page two of earnings conference call presentation.
As well as the disclosures contained with interest to see filings, having now I'll turn the call over to Cort Ohaver.
Okay, Thanks, Robin and good morning, everyone.
Second quarter presented a unique set of challenges as well as opportunities that I couldn't be prouder of the resilience our associates demonstrated supporting each other our customers in our communities.
Our stores have remained opened an operational adapting quickly as needed to the changing local and state requirements and our back office teams have adapted smoothly to remote working maintaining strong productivity.
Our commitment to our customers a community is was evident and I'm cause early in active participation in the paycheck protection program.
Cross functional team of associates worked in shifts around the clock to get these much needed dollars into the hands of small businesses across the west coast as quickly as possible today, we've produced more than 15000, PPP loans totaling more than $2 billion. We estimate our efforts help these businesses protect more than they.
He 5000 jobs in the communities we serve.
This included serving both existing on core customers as well as noncustomers with approximately 20% of our PPP loans going to businesses that work yet encore customers.
We will be converting those customers into full relationships throughout the remainder of the year.
Business communities up and down the West coast have taken notice of our associates extraordinary commitment through PPP and I firmly believe their work will create a powerful opportunity for encore to grow and attract even more new customers in the future.
At this point, our digital PPP forgiveness portal is operational and we are ready to assist our customers through the forgiveness process.
Based on customer conversations we anticipate that a majority of these business owners will apply for forgiveness and the second half of this year.
We have also been working diligently with customers who qualify for payment deferrals as a result of Corbett 19 impacts.
As it earlier this week, our current deferral totals equate to approximately two 5.7% of our portfolio.
Frank will discuss deferral trends and portfolio distribution later in the call as well as other important credit quality metrics.
I'm pleased to report their portfolio continues to perform well despite the economic upheaval.
Our digital initiatives, including Unquote go to continue to be leveraged as a unique and safe way for customers to bank digitally and safely while preserving a human connection.
This is particularly valuable to customers given the current combination of required social distancing and economic uncertainty and our go to adoption makes that Claire.
Two enrollment has now reached more than 63000 customers and go to usage increased 48% from the prior quarter levels.
As we operate in a low interest rate environment for the foreseeable future. In addition to the increased adoption and usage of digital tools. We are finalizing our analysis for additional store rationalization.
We will provide a full update on next quarter's call, but I do want to highlight that our transaction to sell three stores in eastern Oregon will close this quarter.
Now onto the financial results for the second quarter of 2020, we reported earnings of 24 cents per share.
Due to cobot nineteens continuing impact on economic forecasts, we recorded an $87 million provision for credit losses charge.
Two consecutive quarters of sizable provisions grew our allowance for credit losses to over $383 million or 1.69% of our total portfolio X P. P. P loans the allowance for credit losses would be 1.85% of our total portfolio.
Turning to the balance sheet items, we had a strong quarter of both loan and deposit growth fueled by the PPP work previously mentioned.
Loan and lease growth for the quarter was 1.4 billion or 7% deposit growth for the quarter was 2.1 billion or 9%.
Deposit growth in non interest bearing DTA afforded us the opportunity to again reduce higher cost time deposits in the quarter.
These moves assisted us moving out our cost of interest bearing deposits from 103 basis points to 67 basis points and improvement of 36 basis points from their prior quarter amount.
Regarding capital our capital levels improved from the prior quarter and remain well above regulatory well capitalized levels and internal policy floors.
Before I pass back to run I want to close by saying we are working diligently with each respective regulatory agency on obtaining the necessary approvals prior to declaring our dividend off our second quarter earnings.
We feel confident with our capital levels, our liquidity position our forward looking earnings projections and ultimately the credit quality of our loan book.
We plan to issue a press release soon to discuss declaration and record date timing.
Now back to Ron to cover additional financial results.
Okay. Thank you court, if you listen to the call when a following I'll be referring to certain page numbers from earnings presentation.
Page 11 of the slide presentation contains our summary quarterly pinedale.
Our GAAP earnings per share for Q2 is 24 cents compared to the net loss from the first quarter driven by the goodwill impairment, resulting from the pandemic driven economic fallout.
Our provision for credit loss remain elevated but dropped 26% from Q1.
While our higher non interest income was fueled by strong mortgage banking results given the low rate environment.
Excluding the MSR and CBVA fair value adjustments, our adjusted earnings were 26 cents per share this quarter.
On the PPNR front, excluding the Q1 goodwill impairment and fair value charges for both quarters or PPNR was 153 million in Q2, an increase of 26% from $121 million in Q word.
Turning now to net interest income on slide 12.
Net interest income decreased 3% from Q1, driven by the impact of a full quarter of fed funds rate declines back in March.
Shown here is the quarterly interest and fee recognized from the PPP loan program.
Taking that to slide 13, our net interest margin declined to 3.09% in Q2.
The margin, excluding discount accretion and PPP effects was 3.03%.
The bottom of the page shows the impact from the expected higher bond premium amortization, which was up $7 million and led to 10 basis points of the NIM contraction this quarter.
Also our higher in spring cash balances compared to year ago is reducing the current NIM by seven basis points.
But we feel that has proved to have more rather than less on balance sheet liquidity in this environment.
Also in the quarter, we lowered interest bearing deposit cost from 1.03% in Q1 to 0.67% in Q2.
Noting that amount was 0.59% in the month of June.
We expect continued reductions in funding costs in the second half of the year.
Moving now to non interest income on slide 14.
Home lending has been an absolute home run this year posting record noninterest revenue of $84 million in Q2.
Ex mortgage the other big moving part this quarter was a much lower swap derivative loss compared to Q1.
And for more on mortgage banking as shown on slide 15, and also in more detail in the last two pages of earnings release.
For sale mortgage originations increased 59% from a strong Q1 and were up 162% from the second quarter year ago.
This reflects our positioning to capitalize on higher refinancing demand lower long term interest rates.
For sale mix increased to 87% this quarter, the second consecutive quarter at or above or 80% target.
And the gain on sale margin increased to 4.75% above our long term trends of the low to mid 3% range based on better pricing with constrained industry capacity and rising log pipelines.
We expect mortgage activity remained robust in the second half of Twentytwenty, but would expect the gain on sale margin to be lower than realized in Q2.
As of quarter end, we service $12.7 billion of residential mortgage loans and the MSR is valued at 76 basis points.
Turning now to slide 16.
Non interest expense was wondering $81.9 million in Q2.
Q1 of course included the goodwill impairment index. This our Q1 expense was 177.7 million.
This includes homeland dredge expense, which based on the significantly higher than expected volume just discussed.
Was $42 million or $10.4 million higher than Q1.
Also we had a 3 million dollar increase this quarter on pandemic related costs and a smaller increase in FDIC assessments.
These increases were mostly offset by higher deferred origination costs lower medical costs and lower other expense.
As mentioned earlier, we will remain focused on expense management moving forward and provide updates for the next year on our October earnings call.
Turning now to the summary balance sheet beginning on slide 17.
We are intentionally holding higher levels from sprint cash given the volatile environment and in the quarter at 1.9 billion.
The increase in cash was driven by much stronger deposit growth exceeding loan growth in Q2.
Loans increased $1.4 billion net for the quarter.
Within this PPP loans were 1.9 billion, leaving the rest of the book down 500 million related to our purposeful slowdown and portfolio resi.
Commercial line of credit Paydowns, and lower new originations given the recession.
Deposits increased $2.1 billion or 9% this quarter.
Driven by a combination of PPP loan funding.
Seasonal factors economic slowdown and an extension of tax payment timing.
Within total deposits, we also had a reduction of $270 million and brokered deposits.
$57 million and public funds.
And of the $1.9 billion and PPP loans funded we estimate a little over 1 billion of that remains in deposit accounts at the bank.
Our total available liquidity, including off balance sheet sources at quarter end was $11.7 billion represented 39% of total assets and 47% of total deposits.
Frank will cover the loan book and a few minutes, but I want to take your attention back to slide nine on Cecil and our allowance for credit loss.
Our Cecil process incorporates a life of loan reasonable as supportable period for the economic forecasts for all portfolios with the exception of Cnine, which uses a 12 month reasonable and supportable period reverting gradually to the output mean thereafter.
Hence these forecast incorporates some level of economic recovery in 2021 and beyond as most economic forecasts revert to the mean within the two to three year period.
As noted we use the June Moody's consensus economic forecast.
Total provision for the quarter was $87 million with the Hcl for the series segments, increasing 50% this past quarter.
Driven by continued high unemployment.
Net charge offs for Q2 remained low at $16 million much lower than the models from our success.
The sale increased to 1.69% in Q2 million. This ratio is 1.85%, excluding the government guaranteed PPP loans.
As these are economic forecast driving the reserve it will simply take the passage of time to see of net charge offs follow as modeled.
The two final comments on seasonal.
First future provisions or Recaptures on expected credit loss will be based on changing economic forecasts, which could worsen or improve from the quarter end forecast used.
And second we have elected the full five year regulatory capital transition option for Cecil.
Lastly on slide 22.
To highlight capital moving that all the regulatory ratios remain in excess of well capitalized levels.
And all the regulatory ratios increased over the past quarter.
Our tier one common ratio is 11.1% and our total risk based capital ratios 14.4%.
The bank level total risk based capital ratio was 13.5%, which is the basis for our calculation of 330 million Maxus capital.
That is excess over our 12% in house floor.
Which in itself as excess over the well capitalized tenant at 5% level.
We constantly forecast and stress excess capital, both and base and severe scenarios.
And with what we know today based on the economic forecasts, we're very comfortable with our capital and liquidity position given uncertainties over the near to intermediate term horizon.
He items I want to reiterate as I wrap up my prepared remarks include first the significant available liquidity, we have of just under $12 billion.
Second our increased allowance for credit loss at 1.85% of non PPP loans.
And lastly, our significant level of excess capital with our tier one common ratio of 11.1%.
And again total risk based capital ratio at 14.4%.
Now I'll turn the call, referring nambiar to discuss credit.
Thank you Ron I will also refer to certain page numbers from our earnings presentation for those who want to follow along.
As noted on the prior call Weve been diligently working with our customers on any needed loan payment deferrals, we have updated our deferral information as of July Twentyth on slide six.
Total loan balances that are currently on deferment represent 5.7% of the loan book within the quarter deferral requests picked up in velocity in April and the first part of me subsequent to that time period.
For all requests have slowed substantially starting in early July.
Our first deferral agreements expired and we experienced normally scheduled payments, which dropped total loan amounts on deferral from their mid June peak of about 9%.
On a portfolio basis, we are reporting 2.8% deferrals in commercial 5.9% in commercial real estate, 16.8% and finpac, 1.3% and consumer and 6.2% in residential real estate.
On the Finpac portfolio, it's worth noting that during the July one and July 15 build cycles, we have seen more than half of the customers that were under for Omega regularly scheduled payments and are working with customers, who may need to apply for an additional 90 day deferral.
On slide seven and eight we continue to show specific segment totals and relevant characteristics for portfolios that have been impacted by coated 19.
Following five specific segments are highlighted hospitality at 2.4% of our portfolio Air transportation at 0.6% oil and gas with essentially no exposure.
Restaurants at 0.6% and finally gaming at 1.8% of our portfolio.
App applicable deferral information is also highlighted within these segments.
The associated PPP loans granted to these segments are not included in the portfolio percentage calculation, but on our highlighted at the bottom on each section for visibility.
Hospitality remains directly tied to the various economies opening up and people traveling for business or leisure that being said occupancy remains at general generally 50 ish percent.
Overall with extended stay and limited service higher and full service hotels lower than that.
The majority of our portfolio is in the limited service were extended stay space. This sector will just take some time to recover but our portfolio as stated previously and depicted on the slides here is of low leveraged with very strong overall sponsorship to borrowers we have history with.
As to gaming operations.
We have been collecting high level data from properties as it becomes available that revealed positive results. Many clients are reporting seeing increases and gaming revenues post reopening attributable to pent up demand or lack of other and entertainment venues being open.
Liquidity positions for these borrowers also remained very strong.
Generally speaking about half of the portfolio is operating at pre co bid levels with the other half at or above breakeven due to the effective expense reduction measures.
Slide 20 depicts our loan portfolio, its geographic diversification and select underwriting criteria for each major area.
The loan book remains granular in nature, and we are confident in our conservative and disciplined underwriting practices.
Slide 23 reflects our credit quality statistics.
Our nonperforming assets to total asset ratio decreased six basis points to 26 basis points.
Our classified loans to total loans decreased seven basis points, 2.68% and finally, our annualized charge off percentage to average loans and leases decreased 12 basis points, 2.29%.
Within our Finpac portfolio specifically.
Our annualized charge off percentage was within our historical range at 3.05% down from 3.33% last quarter.
I will now turn the call back over to court, Okay. Thanks, Frank and Ron for your comments, we will now turn to questions.
And it is time if anyone does swish asked a question you can press star one on your telephone keypad again that star one for any questions.
Pause for just stockpile, we would trade questions to commit.
And we do have some fresh questions coming in our first question is from the line of Michael Young from Suntrust.
Hey, Thanks for taking the question.
Wanted to maybe just start with the kind of bigger picture question Court on on capital you earn the dividend basically every quarter, it's up for the goodwill impairment.
She is noncash and one Q the outlook looks decent with the reserve built up to pretty high level now and mortgage still.
Taking a long pretty fast so just just wanted to see if you had any updated thoughts on the dividend level and what we should expect.
We see that announcement, maybe this quarter.
I'd like I mentioned in my.
Opening comments will be covered our historical dividend over the last.
Eight quarters yourself and feel highly confident about our ability to continue to cover that over the near term.
Obviously, we're still in the beginning of.
This recession and potentially an economic.
Credit cycle and I'd be is first to tell you that I think a lot of the stimulus deferrals and other things that were necessary.
Probably potentially kick the can.
On issues at all banks not just on quality will see relative to credit performance. So I can tell you on a near term basis to answer. Your question is is clearly as I can with as much as I know today that we feel comfortable.
But you know until we get beyond deferrals and.
Enhanced unemployment benefits and other things that do trickle into our credit portfolio, it's hard to be for me to give you.
Guidance more than that which you don't give guidance on but hopefully you can appreciate my position. So we feel comfortable today with what we see but theres a lot on no.
Okay.
It makes sense and then maybe Ron more specifically just on the net interest income outlook, obviously, a lot to moving pieces and we had the premium amortization pretty high this quarter.
Should we kind of assume based on current CPR speeds thats going to drop back down to more normalized fourish million.
And then maybe kind of outlook on PPP fee recognition through and I.
Hey back more Michael I'd say, it's specific to premium amortization keep in mind, there's usually a probably two month lag from when you see the replay occur on the mortgage to when it.
Yes, the bonds, so, we'll probably have another quarter or at least.
Relatively I premium and based on speeds and there's a strong Q3 that might actually also extended into Q4.
As I did say, though we do expect funding cost to construct key new drop and it's good to see the month of June.
Roughly 10, bips lower than the second quarter on that front for PPP fee income.
Yes, if we do see significant level.
Forgiveness in the fourth quarter than will accelerate the remaining.
On the amortize fee income.
At that point right now Thats all set up to.
Accrete into interest income you over the life of the two year loans, but what we see again, we see a big level forgiveness. In Q4, then there'll be a pop therefore it.
And then maybe just a follow up on YY relative to kind of balance sheet size, you mentioned, Ron I think in the prepared remarks that you do want to maintain higher levels of liquidity and I imagine.
Selling and securities isn't that attractive right now, but but maybe just on the loan growth side are there any areas that you think will be.
Growth drivers over the next couple of quarters or is it really just kind of hold what you've gotten batten down the hatches right now.
Hey, Michael This is Tori next and I think.
In late Q1 in throughout most of Q2, we turned the attention of all of our our Atms in word to focus and help our customers work on deferrals worked through the PPP program and towards the end of quarter to we started to kind of pushing back out again, so we've seen it and.
Uptick in pipeline.
In commercial and corporate banking actually 350 million or so over the last month, which is a really good sign there is some activity.
We also we have 3400 PPP.
Customers, who are not Umpqua bank customers and guys Court mentioned earlier, we're going to we're making very strong effort to approach and discuss and bring those folks into the bank to become uncle bank customers and certainly some of them will be borrowers and some of them will be not will not be borrowers, but good activity for us starting to kind of creep up here.
And just one last quick one just retail theory loan exposure have you guys disclose that or could you provide that information.
Retail retail retail exposure.
485 million, so I think that is about.
Fiveish, 5% to 6%.
Of the portfolio a lot of that retail is grocery and drug anchor.
These court.
Big box right, because yes, we don't have a lot of big box, mostly grocery and drug.
Okay. Thanks, all for me that thank you.
Thanks, and yes, we do have more questions for the last question comes the line of Jeff Rulis from D.A. Davidson again, Jeff Your line is open.
Thank you good morning, everyone.
Question on of the.
Good deferral chart in the slide deck.
Great.
Picture I wanted to get a sense for.
The.
Amount or low percentage deferrals that have yet that reach exploration is any figure that you've got on it.
Roughly roughly about we've got about roughly half ago.
That have not that have not yet run their course.
But.
We are seeing a great deal.
Thus far of those deferrals that have expired.
Borrowers resuming regular.
Payment.
Regular payments. So we are encouraged by that thus far.
Got it and the I guess the mix of.
If you look at risk or those is it a pretty.
I don't know if you put deferral timelines on different segments, but the half still see exploration any thought that those are any riskier than the first half that you saw.
No I would not make that statement now okay no difference.
Gotcha.
And in Court you had mentioned.
Sort of the expectation for the second half of PPP or the second half of the year to see forgiveness any finer tune on that in terms of.
80% forgiveness by year end or anything that you signed is Q3.
A step up and then the bulk is in Q4 any thoughts on how you think that plays out.
Great question, Jeff We talk about all I can remember talking about the first week PPP rolled out.
Yes, I think you'll see a step up in Q3, you'll probably see the bulk in Q4, there's going to be some that are going to take it is.
As non pp eligible forgiveness and use it as long term, 2% debt I mean, there's going to be a percentage I. Just don't know I can tell you. This there's a lot of small businesses in Portland that have all new shiny equipment at them. So that they may not be encore customers. So I really don't know I I think you know I'm, assuming it's all going to.
Forgivable. This year is probably not accurate I just can't give you a total percentage.
Got it Okay, and then lastly, just the.
I guess, what's left on the next Gen expense saves or is this sort of molded or shifted into a general operating efficiency focus you touched on this store closures, but is there any tangible numbers to assign still.
What you've achieved are still to come.
Hey, Jeff This is Ron Yes X home lending you can see we've we've achieved more than our goal from originally laid out three plus years ago, but we will talk more about that in October as we.
Finalize plans looking in 21 and give some targets at that point.
All right. Thanks.
Thank you.
Yes, and at this time, we do have more questions on online next question comes from a line of Jackie Bohlen from KBW.
Hi, good morning, everyone.
Good morning project.
Well, Brian during the last interest rate cycle I.
You Didnt want to reinvest that low interest rates and so you held a pretty high cash position.
Have you changed your viewpoint on that at all this cycle.
Well I think the cash position versus analysis, given given that.
A quick move and timing I think it makes more sense than sticking them into 1%, yielding mortgaged backed securities still some wildcard in terms of how much of that billion dollars of.
Estimated PPP deposits.
What's left on that looks like over the balance of this year and early next so.
As of now I'm comfortable with as level, the cash and maintain somewhere in that $1 billion to $2 billion range on balance sheet.
Second half of the year and now we if we see it keep above that and yes, we would look at potentially put them into bonds, but as you heard.
Toy talk about we're starting to see some more activity on the Neil and finding sites that be the first spot for it.
Okay.
And our there.
Yes, some of that liquidity does take around.
Would you look at potentially reducing.
Other sorts of higher cost funding for say rather than deploying it antibody or would you be more inclined to.
Deployed the bonds and just keeps an elevated cash.
Yes, no actually that's where we've been doing here over the last six months early in terms of reducing brokered deposits still resulting in higher cash balance on cash balance on the balance sheet. So no I would definitely look at reducing higher cost funding sources Bam.
It would be it's like deposits and our borrowings versus sticking to bonds.
Okay.
And then understanding there's a lot of question, Paul and a lot of unpredictable items, such as the timing of PPP.
Related deposit outflows and everything else, that's impacting the balance sheet size.
I mean, how are you thinking about.
Temporary Allen Chief science versus what longer term growth.
Sorry, just to clarify temporary balance you size you mean.
So do.
Half of this year, maybe walk on the second to have this year will be how much of the remaining billion dollars PPP deposits run out and get utilized.
That's probably the larger balance we do expect to see continued strong deposit growth non PPP related generally Q3 is very strong on that front. So.
But but not.
We're not well positioned to say, we think assets will be acts by the end of year, just given some moving parts.
Yes, yes, no definitely understood.
And then just one clarification question that I had mentioned in his prepared remarks that there is some stores in eastern Oregon that we're closing on can you provide some added detail on that sorry, if I Miss that tomorrow.
This is Ron you actually court mentioned there was actually three we have under contract to sell so that $100 million and total deposits will have that sale completed in the third quarter and then again, we'll talk on the October call about plans as we look into 21.
Okay great.
Thank you.
Thank you.
And we do have more question from the line before we take next question just as a reminder, star one for anyone else, who does have a question again star one and our next question does come from the line of Jared Shaw from Wells Fargo Securities.
Hi, good morning.
Good.
I guess this falling back up on the under deferrals. When you look at the loans that are coming due and will likely stay on deferral.
Are you approaching that are you able to get any concessions from from borrowers.
Are you able to get any any type of sort of restructuring and to your advantage over you. Just you know if there if they are under pressure, you're just giving them the second round.
And then I guess.
Follow up to that when you look at some of the most troubled loans that are on deferral is your thought that you'd be comfortable keeping a longer term deferral. As you go into 2021 or would you really look to try to do more of an official restructuring.
End of the year and have a new avenues structure going into 21.
Yes, good good question.
We.
Second deferral is not an automatic there as a there is a defined process and analysis, we go through among other things.
Cash burn analysis, a survivability analysis and at the end of that analysis, we do absolutely look for.
Shoring up our position by a payment reserve guarantees, where we might not have them initially.
Yes, some some some form of credit enhancement in return for the for the second deferral and we have had good luck with that.
Initially, thus far and to the second half of your.
The second half of your question.
No we would we would not simply just grant the deferral, we would we would look to structure a.
A workout that is both to the benefit of of the bank and also the benefit of the customer realizing that in a lot of cases. If you. If you if you kick the can down the road, it's just going to get more difficult to worked out of any situation both for the bank and for the customer. So that's that's the strategy we're employing here.
Okay. That's great color. Thanks, and then obviously Portland has been in the news a lot lately can you comment on how that's impacting.
Our day to day operations of either the bank or your customers or is that really more bigger headline issue than it is a day to day issue on the ground.
It's not a day to day issue Jared here I mean.
Yeah, we're downtown headquarters is and it's not.
And our buildings so it's.
It's an issue, but it doesn't affect operations in the bank.
Okay.
I think thats.
Thanks.
Thank you.
And we do have more questions on the line. This next question comes from the line of Steven.
Hi.
Please go ahead with your question.
Hi, everyone.
Hi, good morning.
The first follow up on the dividend can you comment on this shift in timing to declare the dividend.
Yeah, well based on AK, we put out about a month or so back based off of the goodwill impairment in Q1 retained earnings are negative even though the.
The credit that led to goodwill sitting up in the common stock account, but with that under.
Fed FDIC and state rules, we have never go through a process to seek approval or non objection on the level of dividend.
And so that is why the dividend was not announced mid June but we're looking to do it here following earnings for the quarter announcement should run at this one time or is this will this be an ongoing practice.
This would be an ongoing quarterly cadence.
Okay. Okay.
That's helpful. And then if we look at the reserve build this quarter how much of that was purely model driven.
Do you have a material amount of qualitative overlays now built into the reserve in addition to what the models telling you.
The vast majority this is model driven in the unemployment rate.
Increase in the June forecast compared to the March forecast was really had more outsized impact on the commercial real estate.
Component of the portfolio, which is what you see in terms of our presentation Hi, This increase in reserve on that front. So.
Not net charge off based.
Okay.
And then if we look at Finpac deferrals are very high there.
And I'm curious one did they did the deferrals and Finpac follow the same trajectory that you're showing it was at peak I think it was in June and maybe can you give us a little bit of a deeper dive in terms of what you're seeing in that book. Thanks.
Yes, first I mean, if the the Finpac deferrals.
Have.
They are at about what market is in that.
Tiny ticket leasing space that being said.
It is following the same cadence so about 60% of those customers that had the first round of deferral have resumed making payments some portion of the first round small portion.
Have actually paid off their leases and the remainder we're currently working with really to ascertain whether or not they need and other deferral or.
When they can resume.
They are regular payments.
As structured.
And the great majority of deferrals in that space were centered around the transportation medical.
And restaurant space and.
We are seeing those numbers come down.
As the economies have opened up thus far.
We are seeing transportation improve we're seeing the restaurants base improve and we're seeing more elective procedures in the medical spaces, which is therefore, resulting in.
A lot of those medical related deferrals resuming back to regular regular payments.
It's a good story really at Finpac to this point okay.
And maybe just one final one.
Or I know, you'll give updated thoughts on expenses next year and next Gen. I'm curious what are your learning from this period in terms of efficiency improvements.
You can potentially apply longer term.
How much time do you have me it's been interesting I think it's moved around demean. The initial thought that we all could work virtually which we can the bank is doing exceptional job of working virtually.
However, the loss of some.
I'll I'll productivity by not being in a same room.
Have to kind of value that so there will be savings there and we're already looking at how we can work virtually permanently with people that can work remotely and then doing a long term kind of forecast and how we can stair step down our hard real estate costs I would tell you originally I thought maybe the whole bank work virtually I'm not so sure it can work.
That virtually any more our stores.
I think we're really.
Proving to ourselves at our digital nexgen or investment in our digital product delivery was the right move that we made 345 years ago and it will set us up very very well both right now and clearly as we go into 21, you've heard from all the banks you cover about.
The amount of traffic Thats down it's continuing to be down.
For me actually the value has been as that customers are self training themselves to become digitally and mobily.
Functional and bear and get used to the technology, sometimes has been a challenge in some of our communities to get our customers to find value using our motor digital type application, because quite frankly like coming in our stores and our people are really good they enjoy seeing them, but now they are forced to use technology with our investment in technology.
I think as an exceptional delivery for banks, our size Theres, a real opportunity here to continue to invest in our digital Nexgen, which we'll talk about in October and then really look more at our store delivery and how we do it and some of that has changed I'll be honest with you we rolled out three years ago that we would reduce our store by 30% or one.
Hundred and we're probably slightly behind that but I'm, okay with that because some of the things that we thought to an after years ago are not is obvious now with what we've gone through with which the pandemic. So we will have more color for you in October so great question actually it's a lot of fun in a good way to talk about how we are customers are changing the way they shop.
How we serve in how we function as a fairly large employer here in the state Oregon.
Thanks for all the color.
Yes.
And we do have one last question on Atlanta is a follow up from Michael Young from Suntrust.
Hey, Thanks for the fall, we Didnt touch on the base revenue driver mortgage this quarter. So just wanted to Ron get kind of an outlook on the gain on sale margin.
I think that usually tracks with the highest volume quarters, which likely was this quarter. So should we expect that to kind of trail off.
Through the back half the year or is it will be more of a step function down and.
Yes.
Hey, Michael Yes, we expect a home lending volumes remain very robust and the second half of the are probably more so in Q3 drop off a bit in Q4, just from typical seasonal factors in.
In terms of the gain on sale margin that it doesn't make a comment earlier, we don't expect it to be that 475 level over my guess is it'll be just slightly above our.
Most recent historical levels in that low to mid 3% range should probably this is a bit above those in the third quarter.
Okay, and sorry, if I missed it was there anything.
One off or special in Twoq, you that drove increased gain on sale margin or was it just wider spreads on originations.
Wider spreads on originations the ability to price for it and you know obviously capacity within the industry has been constrained just given the level rates and an increase in volume. So we press forward, we're really good at it.
Yeah.
Okay, great. Thanks.
Okay. Thank you.
Thank you Ryan any other questions number one.
One other questions at this time.
Okay, well, thank everyone for their interest in uncle holdings and attendance on the call. Today. This will conclude the call goodbye.
Again, this does conclude email and now disconnect.