Q1 2021 Umpqua Holdings Corp Earnings Call
<unk> com after the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you wish to remove yourself from the queue. Please press the pound key.
I will now turn the meeting over to go on spine switch Chief Financial Officer.
Great. Thank you Larry.
And thank you for joining US day on our first quarter 2021 earnings call with me. This morning are Cort o'haver, the president and CEO of Umpqua Holdings Corporation.
Tory Nixon President of Umpqua Bank, and Frank Namdar, our Chief Credit Officer.
After our prepared remarks, we will then take questions.
Yesterday afternoon, we issued an earnings release discussing our first quarter 2021 results. We have also prepared a slide presentation, which we will refer to during our remarks. This morning.
Both of these materials can be found on our website at Umpqua Bank Dot com in the Investor Relations section.
During today's call, we will make forward looking statements, which are subject to risks and uncertainties and are intended to be covered by the safe Harbor provisions of federal Securities Law.
For a list of factors that may cause actual results to differ materially from expectations. Please refer to page two of our earnings conference call presentation as well as the disclosures contained within our SEC filings.
And I have and I'll turn the call over to Cort o'haver. Okay. Thank you Rod excuse me I'll provide a brief recap of our performance and then p<expletive> to Ron to discuss financials, Frank will discuss credit and then we'll take your questions.
For the first quarter, we reported earnings available to shareholders of $107.7 million and this represents EPS of <unk> 49 per share and reflects the strong start to our year.
First quarter, earning highlights include both customer and balance sheet sheep growth.
Loan balances grew $381 million or one 8% the components of loan growth included $84 million of organic non P. P. P loan balance growth and a net increase of P. P P balances of $297 million.
As mentioned on our last earnings call and throughout the Investor conferences, we participated in the past quarter, we feel very opportunistic about loan growth in 2021.
Total deposit balances grew 1.3 billion or five 1% during the quarter, we generated strong growth in noninterest bearing DDA of 806, 865 million or 9% driven by continued customer acquisition and P. P. P brown to production.
All deposit product categories showed growth during the quarter with the exception of C DS down $374 million or 13% as we continue to manage down higher cost deposits.
Regarding capital, we announced to our shareholders in February a dividend up 21 cents per share consistent with historical payments and expect an announcement on the timing of our second quarter dividend soon with.
With our healthy levels of capital we are consistently analyzing the best methods to enhance shareholder returns and have multiple options available to us it's premature to announce anything today, but we are well positioned to be more active in our capital management.
Now for a quick update on Nextgen, two dot O initiatives, which are progressing very nicely.
First balanced growth. This is a central part of the Nextgen two dot O and we are making great progress.
P P P and the economic uncertainty <expletive>ociated with the pandemic created significant disruption, particularly for businesses.
Following the strategic transformation, we implemented through next John Nextgen, one Dato Umpqua is uniquely positioned to provide the kind of personalized banking experience companies are looking for to help them navigate ongoing change and we're seeing very very strong results.
We're already we've already been able to leverage the positive brand awareness of our P. P. P work and market disruption opportunities to attract both customers and new talent on.
Our proactive P. P. P outreach programs focused on both companies. We helped directly were brand new to the bank as well as others that had had a negative P. P. P experience elsewhere.
There are close to 5900 customers, whose very first product with us with the P. P. P loans and to date, we have converted over 2000 of them are 36% to full relationships consisting of additional loan and deposit products.
In addition, we've made nearly a dozen strategic customer facing hires this year across our middle market community banking and commercial real estate teams. We're.
We're looking to add additional positions this year and will focus on talent acquisition in the Greater Bay area, Seattle, Portland, and Southern California markets.
Our human digital technology initiatives also remain an important piece of our strategy and our customers are engaging with us through digital channels more and more frequently including year over year increases of 35% more mobile deposit transactions.
76% more zelle transactions and 16% more daily sessions within our mobile banking app compared to the first quarter of last year and.
In addition go to enrollments have climbed past 80000 customer messages within the go to platform and they were up 49% this quarter.
Another important aspect of our human digital strategy, that's how we empower our <expletive>ociates with best in cl<expletive> tools to give them an advantage in creating positive and memorable customer experience.
One recent example is how we utilized our new loan origination system Encino to execute the second round of P. P. P. Both improving the customer experience on operational efficiency.
Average leveraging this new technology allowed us to process. The P. P. P request with 75% less FTE compared to the first round and deliver funding to operating accounts more quickly and seamlessly.
We're looking forward to implementing this new alloy west to the rest of the bank later this year.
On the commercial innovation side, we continued to execute on our ambitious roadmap launching integrated receivables, adding Apis to our catalog implementing enhancements to our commercial card solution and upgrading waves of customers to a new and enhanced online banking experience.
In regards to operational excellence the sale of Umpqua investments to Steward partners scheduled to close officially tomorrow, we consider Stuart a strategic partner and are looking forward to partnering with them on referral agreements in the future.
Earlier this quarter, we also announced plans to consolidate 12 store locations by the end of Q2.
These 12 locations plus the store sales that were completed last fall bring our total nextgen two dot O store rationalizations, so far to my team we remain on track to hit our 30 to 50 store rationalizations by the end of 'twenty 'twenty two and are confident we will come in at the top end of that range.
<unk>.
As we've mentioned previously as part of the reinventing of our go forward Umpqua workplace of the future. We're working to consolidate back office space to fit both the new working habits of our <expletive>ociates and reduced noninterest expenses.
When those plans on the timing of additional expense reductions become official we'll provide additional updates.
And finally this quarter, we're sharing a change in our segment reporting and we've highlighted in both the earnings release and presentation.
This change aligns with how we manage the bank and also provide greater transparency into the financial contribution of mortgage banking activities.
While our mortgage banking teams had a great year in 'twenty 'twenty. It took advantage of favorable market conditions, we did not want their success to cloud the terrific results, we're seeing from our core bank.
As a brief recap the core banking segment includes all lines of business, except mortgage banking, but includes wholesale retail wealth management as well as the operations technology and administrative functions of the bank and holding company.
As a revolt result on Nextgen, one dot O initiatives managing through the pandemic successfully and opportunistically in the beginning phases of Umpqua Nextgen two dato, we're reporting solid financial trends within the core bank, including loan portfolio growth and increased noninterest income and lower noninterest.
That's the.
The core bank was responsible for 81% of our reported earnings this quarter.
The mortgage banking segment includes the revenue earned from the production and sale of residential real estate loans. The servicing income from our service portfolio. The quarterly changes to the MSR <expletive>et specific expenses that are related to those activities, including variable Commission expenses revenue.
Revenue and related expenses related to residential real estate loans held for investment are included in the core banking segment just discussed.
And it's an anchor product for our consumer channels and the origination of those portfolio loans and such can vary such as private bank originated mortgages and permanent financing, resulting from our construction deferred products.
That's a mouthful one current comment before p<expletive>ing to Ron I'm incredibly enthusiastic about growth prospects within our markets the momentum from our banking teams our options for capital deployment and all the results still to come from our next Gen. Two dot O initiatives and with that Ron take it away.
Okay. Thank you Cort and for those on the call when a fall along I'll be referring to certain page numbers from our earnings presentation.
Page eight of the slide presentation contains our summary quarterly P&L.
I'm going to talk at a higher level on the top of the house items spend more time on our new segment disclosures, and then wrap with Cecil and capital.
Our GAAP earnings per share for Q1 was 49 cents lower than Q4 as expected due to lower P. P. P fee recognition.
Lower seasonal mortgage banking with he and a normalized tax rate offset by the expected reduction in non interest expense.
Excluding MSR input in CVA fair value adjustments, our adjusted earnings were 46 cents per share this quarter.
For the moving parts net interest income declined due mainly to lower PPP fee recognition offset partially by lower bond premium amortization and a continued reduction in our cost of funds.
We had no provision for loan losses this quarter and.
Noninterest income reflected a decline in mortgage activity, although not as much as expected a quarter ago.
Also we recorded a fair value gain on the swap derivative as long term interest rates increased this quarter.
Non interest expense declined to below Q3, 'twenty 'twenty levels and our tax rate normalized this quarter as expected at 24 five per cent.
As for the balance sheet on slide nine we are intentionally holding higher levels of interest bearing cash given the volatile environment.
And in the quarter at $2 $9 billion, noting the average balance was up 20%.
This higher level of cash cost, our NIM four basis points, but gives us significant future optionality for funding loan growth or deleveraging certain liabilities.
We increased the bond portfolio and 8% as longer term rates increased during the quarter into similar duration agency investments.
And our total available liquidity, including off balance sheet sources at quarter end was $14 billion, representing 47 per cent of total <expletive>ets and 55 per cent of total deposits.
Given us ample liquidity to fund future loan growth and continued to reduce higher cost deposits and term borrowings.
Okay now to a refresh segment disclosures on pages 10, and 11 of the presentation or pages 15, and 16 other release we've.
We've simplified our segment disclosures by separating out the core bank from the mortgage banking segment to give investors more transparency on the underlying profitability.
Fans and some other more volatile items over the past year, along with reference rates that lead to fair value changes.
So now within the core banking segment on page 10 of the presentation or page 15 other release.
Net interest income declined sequentially, primarily related to the $9 million decline in P. P P fees.
Later in the presentation, we have the traditional net interest income and NIM slides, which provide more detail on the moving parts at a consolidated level.
But I'll point out our cost per screen deposits continued to decline, which we expect will continue over the coming quarters as liabilities reprice lower.
I'll talk about Cecil and the provision in detail on a few minutes, but you'll see here, we had no provision nor recaptured this quarter.
Two lines down is the gain on swap derivatives related to the increase in long term interest rates. This quarter, which is also noted at the bottom on the page.
Noninterest income declined sequentially related to a gain on store sales back in Q4.
Our focus continues to be on growing commercial fee revenue.
And non interest expense declined $23 million as expected from the fourth quarter.
Pretax income for the core banking segment increased 9% this quarter to $115 million.
And the tax rate normalized this quarter, resulting in an $87 million from net income for the core banking segment.
The efficiency ratio on the core is 56% a few ticks slower than the past few quarters.
Turning now to page 11 of the presentation or page 16 of the earnings release, we show the mortgage banking segment five quarter trends.
To start we had just over $1.6 billion on total held for sale volume this quarter a change of eight per cent from Q4.
This was better than the 20 per cent decline, we expected a quarter ago.
The gain on sale margin was 382% inline with previous guidance.
These two items resulted in the 62 and a half a million dollars of origination and sale revenue noted towards the top left on the page on.
Our servicing revenue was stable, but did receive higher than expected pay down activity earlier in the quarter.
For the change in MSR fair value. The p<expletive>age of time piece remains stable as expected while the change due to valuation inputs with a loss of $2 million due mainly to the higher pay down activity earlier in the quarter.
Non interest expense totaled $42 million per the quarter again. This represents a direct held for sale origination costs.
Servicing costs, along with administrative and allocated costs.
The direct expense component of this was 31 and a half million dollars as noted on the right side of the page.
And represented 1.90% of production volume.
In prior calls I talked about a 225 to 250 basis point all in costs for home lending, but that included the entire group, including the categories I just discussed.
To project expense here in the future. This is a good trend level on basis points for the direct origination component.
Pretax income for the mortgage banking segment was $27 million and net income was 20 million both down 34 per cent from the fourth quarter and within the range of our expectations.
It is important to note here the mortgage banking segment represents only 19% of our pretax income compared to 28 per cent in the fourth quarter and 32% in the third quarter as our core banking growth initiatives take hold.
For the near term outlook on our mortgage segment, <expletive>uming no significant change in interest rates, we expect held for sale volumes to decline over the course of the year with best estimates of around $1 billion to $1.1 billion for the next two quarters in the mid $4 billion range for the full year.
Gain on sale margins should normalize into the low to mid three per cent range later this year.
The MSR p<expletive>age of time should be pretty consistent and the change due to inputs should be relatively low again, <expletive>uming no significant change in interest rates.
And direct held for sale expense levels in basis points on production should remain fairly consistent with the five quarter trend.
Okay I hope the segment discussion was helpful to understanding the moving parts and potential future drivers on profitability.
I spent most of my time discussing the segments and note. There are several slides later on the presentation to on consolidated trends for net interest income margin and expense, but hopefully that's helped give some greater insight into the company.
Couple of final items before I turn it over to Frank.
Let me take your attention forward to slide 23 on Cecil and our allowance for credit loss.
As a reminder, our Cecil process incorporates a life of loan reasonable and supportable period for the economic forecast for all portfolios.
With the exception of the C&I.
Which uses a 12 month reasonable supportable period reverting gradually to the output mean thereafter.
Hence these forecasts incorporate economic recovery in 2021 and beyond.
As most economic forecasts revert to the mean within a two to three year period.
We use the Moody's baseline economic forecast again this quarter updated in February instead of moving back to the consensus as we thought a quarter ago due to a closer approximation of the move in long term interest rates.
Overall, the forecast showed improvement in several key areas as the economy reopens.
However, Moody's also updated their investors theory forecast late in the quarter.
Which included deteriorating forecast related to several investor CRE portfolios, such as hotel office and retail as compared to the prior quarter see CRE forecast.
With that update the Recaptures expected earlier in the quarter were reduced and our model has resulted in an approximately $10 million recapture here in Q1.
Given the uncertainty in expectations for more clarity as we progress throughout the year, we overlaid the model result, ending with no provision for the quarter.
Net charge offs for Q1 remained low at $17 6 million much lower than the models from last year's suggested.
And the majority of net charge offs this quarter related to small ticket leases that were past due fallen rolling off their deferral period, which.
Which we expected and discussed with you last quarter.
The ACL at quarter end was 1.49%, noting this ratio was 1.65% excluding the government guaranteed PPP loans.
As they are these are economic forecasts driving the reserve it will simply take the p<expletive>age of time to see if net charge offs follow as modeled but to date. The models are simply overestimated. The actual net charge offs given the at least the lag of four quarters.
And lastly on slide 21, I want to highlight capital.
Moving on all of our regulatory ratios remain in excess of well capitalized levels.
Our tier one common ratio was 12, 6% and our total risk based capital ratio was 15, 9%.
The bank level total risk based capital ratio was 14, 9%, which is the basis for our calculation of $611 million in excess capital.
That is excess over our 12% in house floor.
And with that I will now turn the call over to Frank Namdar to discuss credit.
Thank you Ron I will also be referring to certain page numbers from our earnings presentation for those who want to follow along.
We have placed all relevant credit credit quality information in one section of the presentation starting on page 23 to display our Cecil information normal presentation of credit quality ratios deferrals and portfolios of interest for a comprehensive view of our credit quality.
Slide 24 reflects our credit quality statistics, our nonperforming <expletive>ets to total <expletive>ets decreased five basis points to 0.19% on.
Our annualized net charge off percentage to average loans and leases decreased two basis points to 0.33%.
Included in that charge off number this quarter was $16 million of the previously disclosed pool of.
Fin pack leases with borrowers who elected deferral, but were unable to resume.
Regular payments, we expect this impact portfolio to return to more historical levels of three to three 5% in the coming quarters.
Slide 25 shows the total loan balances that were on to firm and at the end of the quarter at 1.4% of the loan book.
For deferrals on a portfolio basis were reported.
3% deferrals on commercial one, 4% and commercial real estate, 1.4% and pin pack, 0.4% in consumer and two 9% and residential real estate.
We have excluded one.
$166 million in Ginnie Mae repurchases from the deferral numbers as those loans are guaranteed by FHA VA book.
Our USDA rural development.
On slides 26, and 27, we continue to highlight the same portfolios of interest, which all continued to perform very well.
I would like to again point out that hospitality represents only two 6% of our portfolio. There are no imminent issues. However, we continue to watch this space very closely.
Occupancy levels have increased and are now in excess of 60% on average with our extended stay in limited service properties continuing to perform above this level.
As I've stated previously this portfolio is of low leverage.
With very strong overall sponsors sponsorship to borrowers we have history with the rest of these portfolios are represented with air transportation at 0.6% with no deferrals.
Restaurants at 0.5% with only limited deferrals and finally gaming at 1.8% of our portfolio with no current deferrals.
We remain confident in the quality of our loan book and look forward to future growth I'll now turn the call back over to court. Okay. Thanks, Frank and Ron for your comments, Laura we will now turn over to questions.
Okay. Thank you.
I would like to remind everyone in our day to ask a question. Please from five.
Five on the number one on the telephone keypad.
About five on the number one on with telephone keypad. If you would like to provide a question with impactful part of cool.
Your first question will come from the line of Jackie Bohlen from <unk>.
Your line is going up.
Good morning.
Alright Jackie.
Great.
About <unk>.
Obviously, there's a lot of moving parts there and thank you for splitting out on.
Service charges parcels.
That was helpful on.
I think about me specifically looking at the composition of other income commercial product revenue I know you've got a lot of moving pieces in there on some of that equity swaps.
On the happen to rebound to pre pandemic levels.
Jackie Let me ask Torry answer that says, it's near and Dear to his heart and then I'll I'll backfill on on towards comments.
Jackie This is Tory I think there there's certainly the pandemic kind of.
Put a halt on just general activity and in some of the the transaction space in and we're seeing a rebound in that today as an example.
One thing that we watch very closely and are our middle market and community banking segments is commercial card spend and March was the single largest commercial card spend in the history of the company, it's up 17% year over year.
And that is really without any travel and entertainment that historically had been a big part of of commercial card spend. So it's one indication we're seeing activity and increases in N T M and some other things so merchant services. So there's a lot of activity that's starting to.
Starting to happen in our markets and I I think we're just a quarter or two away of of having that all that activity kind of show up in the in the bank's P&L.
Jackie one last thing you know as you've heard us talk about balanced growth in the past you know what.
Just looking for a single vertical growth items in other words, we're looking for customers, who borrow deposits and have an opportunity for us to create fee revenue opportunities for the company and that's been a big mission around here for the last three or four years and you're seeing that activity in the results coming out of commercial banking.
Sure.
17% growth.
Is that reflective of customer development, that's been taking place over the past year on prior but maybe.
We didn't see it because of the pandemic on now at normalized then.
Initial pop could be higher than it otherwise would have because you've got from run rate to make up for is that a fair <expletive>essment.
I think so I think I'd say, there's slightly different way I the debt the commercial CNI customer.
Umpqua bank is different today than it was two to three years ago, which is much higher much bigger lot more activity and so just to the idea of of transactions and the economy kind of moving again, it will absolutely create some opportunity for us in in our.
<unk> income space, certainly in commercial and community banking.
Okay.
And those.
Customers are.
Does that 36% that you referenced in terms of converting P. P. P customers over or are these separate customer acquisition no effort that average.
That would be it would be minimal in that so that's not really represented at all day. This is just traditional growth in our middle market segment over the last two to two and a half years.
We used to.
A different looking customer today than it was a couple of years ago.
Okay, and then I guess my follow up question and then I'll step back what you see.
What kind of growth are you seeing from the new relationships with P. P. P M and you've got a pretty good conversion rate going there.
Yeah. So this is Tory again, so I think as Cort mentioned, we had about 6000 or so loans PPP loans that we made to non Umpqua bank customers roughly 2000 of those we have since turned them into full fledged relationships with the bank.
They become they vary in size for for from companies that have.
$100 million or 200 million revenue to a small small company and our community so kind of across the spectrum to date most of our activity to bring them into the bank has been deposit generation and certainly getting them set up on T Almond and commercial card in integrated payments and all of those things that we talk about.
That's really occurred over the last three to four months the way I look at it is we have we have another 4000 to go so there's a lot of opportunity for us just in that book, but I think Cort also mentioned that you know where we're taking a very aggressive stance on prospecting and kind of highlighting and promoting the brand of Umpqua bank and what we've done.
What we continue to do on our communities to to attract talent, new bankers and and attract new customers.
Okay.
Okay, great. Thanks for all the other color I appreciate it.
Awesome.
Thank you ma'am you on.
Next question will come from the line of Jared Shaw from Wells Fargo.
Your line is now lifestyle go ahead Paul.
Hey, good morning, everybody.
Richard.
Yes, you know looking at this.
The loan growth outlook and specifically C&I.
How much how much do you really have to burn or how much did the customers related to burn through all that liquidity on the balance sheets before they come back into a.
Net borrower position or start seeing growth.
I guess, how should we be thinking about that.
The dynamics between you know needing to see a higher loan to deposit ratio before loans start start really increasing.
Jared This is Tory Nixon again, I think there's a couple of ways that I would answer that.
Youre absolutely right, obviously there is a.
Businesses have a ton on liquidity as does the bank and the use of that liquidity is kind of first and foremost for them.
One other things we watch is utilization rates in lines of credit for our middle market and community banking.
<unk> segments and year over year, those have gone from the low forties to.
The low thirties in terms of utilization so so companies just aren't on.
Our leveraging there.
Debt to fund their company. So that's just a process that's going to have to change.
Change over the next three to six to nine months I would say.
On the loan growth front and the pipeline for US I think I said at our last call that we had are we had reached a pipeline that was pre pandemic and size and that was about $3 billion and today, we've actually grown that this quarter to three and a half billion. So our loan pipeline is mostly.
For our prospects new would be new to the bank and quite honestly, it's the highest pipeline loan pipeline I've seen since I've been to the company at the company on in five years, so feel very good about the activity.
From our folks on the line and our kind of view for the future on the loan front.
Okay and then.
Is there any plan.
Sure conjunction with the next Gen 2.0 on some of the closures of branch space, What's the hiring plan to go out and is there a plan to target.
Our relationship managers or grow the.
Actual lending personnel base.
Absolutely I mean, we have we started on that I think are two and a half three years years ago in earnest and and we continue to do it and we've added quite a few folks in our middle market space. Some of them have just been replacements of people that we wanted to upgrade talent as we kind of moved up in terms of size of company and complexity of company that we.
Wanted to bank and then many of them are just net new adds to the company debt or are in markets that we feel we have a lot of growth opportunity I think we're very optimistic about our major metropolitan markets as it relates to the core middle market business. So we will we constantly and consistently have.
We're looking for talent and we have a pipeline that we are trying to bring into the company. So we will continue to do that.
Okay. Thanks, and then just finally from me.
Ron you were talking about the opportunity to roll off some higher cost bonds maturities, what's the maturity schedule.
<unk> deposits and potentially.
Potentially I guess borrowings look like over the next 12 months.
Yeah. The majority of the time deposits will have on more of a tail within 12 months and then borrowings. The same so I think that would be quite a bit opportunity for continued debt reduction.
The reduction on those to helping support the NIM.
Okay. Thank you.
You bet.
Thank you Sir your next question will come from the line of Matthew Clark from Piper Sandler. Your line is now likely go ahead Chris.
Hey, good morning.
Were met.
Maybe just start on.
On the margin outlook.
Trying to get a sense for maybe weren't near a trough level.
Given the opportunity to remix some some excess liquidity can.
Can you just give us the kind of weighted average rate on new loans and securities. So we can try to get a sense for.
You know where that margin is headed.
I think what.
Yeah. Matt. This is this is Tory again that day.
Interest rates on our new originations are depending on the line of business are between you know low.
Low threes to for low force really so yeah. It's it's been fairly consistent actually over the last couple of quarters. So really haven't seen any change there on on new originations and Matt. This is Ron on the bond side of the upper ones, maybe to two depending on the day and where the general.
In the 10 year.
And I'd say overall for near term outlook, we expect.
The margin would be relatively stable at this level.
And then longer term will be.
Benefiting from deploying that excess liquidity back into loans and Christian on loan deposit ratio, but for near term pretty stable.
Okay, Great and maybe just shifting gears to capital I think you guys were revisiting the buyback last quarter.
We're in the.
Process of looking at it and seeking on maybe approval I guess can you give us an update on where that stands and what your appetite looks like.
So you know with.
With the amount of excess capital. We've got you know, we're looking at all of our capital opportunities and I'll get to your direct question. Your second including you know is there an opportunity to pull I call plug and play some small opportunity, where we have an adjacent opportunity to increase.
On a fee category or into a loan expertise that we've got so that would be always the number one.
Objective with the amount of excess capital, we've got and we are being very opportunistic there and then relative to a buyback you know it does take regulatory approval after our impairment of last year and there will be more to come on that fairly shortly.
Okay.
Then your commentary around you know small fee generators are <expletive>ets generators any any desire to do whole bank M&A to the extent you know.
Multiple can afford it.
Yeah I mean.
I mean, we're always look I mean, we've always been opportunistic you know obviously, we've messaged you all that operating the company like we have for the last three or four years producing better prop.
Profitability has been the number one and we've proven that we've been opportunistic debt looking at all.
All the deals that are out there I think right now today, where we can accelerate our success against our core strategy of becoming a business bank of choice is more slanted towards a plug and play type and I call. It plug and play and nothing is plug and play guys, a plug and play type of opportunity, where we can execute very quickly and integrate in and go on down the road.
But that's how we look at.
Okay and last one on just a housekeeping one.
Ron do you happen to have the remaining net P. P. P fees left with around two.
Yes, I do it's approximately in total total PPP fees, roughly 44, and a half million to be recognized.
Round one of that would be just around $12 7 million ran two would be around 31.7. So the majority of for round two but.
We do expect the forgiveness to continue throughout the year.
Okay. Thank you.
Beth.
Thank you Sir your next question comes from the line of Michael Young from Chile.
Your line is now likely that go ahead.
Hey, good morning. Thank you for the question I wanted to start with the segment breakout I appreciate the extra disclosure color. There I think it's helpful.
I just wanted to make sure I kind of got the message, though you know it seems like if we sort of normalize for P. P P fees and provision.
The bank is kind of representative of the value of the stock and maybe the mortgage business is relatively free.
Or inexpensive to investors, but is there anything in the.
If we kind of rewound it back into prior years, where maybe mortgage volume wasn't as strong were you on the mortgage business was losing money on frequently.
Hey, Michael This is Ronnie I wouldn't say the mortgage business was losing money anytime that occurred might've been related to a significant downdraft on interest rates and so you had an MSR fair value charge that.
It wasn't quickly followed by increase in volume, we actually didn't experience that last year Q1 of last year, you'll see in the mortgage segment did show that MSR hit, but then obviously you know record earnings over the following two or three quarters, but absent MSR fluctuations now the profitability remains just at lower levels.
Okay, and then I guess you know so the valuation on the bank is pretty reasonable it seems like in the plan is to kind of March that Ford I didn't know if there was any additional color you could give maybe Ron at this point.
Now that there are some more defined I guess portions of the expense savings and timing around kind of an expense guide maybe into <unk> or at the end of the year as you've done in the past with Nextgen one.
Yeah, Great question, and you're right I mean, the goal with the mortgage with the segment change and we talked about these moving parts every quarter for the last several years, but it actually seem on paper and helps just from a transparency standpoint. So that was most definitely the goal to see the underlying.
Profitability and value trends of the core bank versus out of mortgage on page three of the presentation that we do lay out on the right side, you know theres nextgen to net zero initiatives and I'll point out here in Q2 will see a reduction in expense related to the sale of Umpqua investments. We've got additional store consolidations here in Q2 might also see some.
An extra disposal costs related to lease exit Q2, Q3, but then that facility side save will start kicking in later in Q4, that's really the more back office type stuff. So we'll start seeing here pretty quick.
Okay, and then maybe one last one if I can I don't know if this is for CT or Torrey, but just sort of curious about the reopening in your markets more broadly and customer activity you saw some some loan growth this quarter, but just the outlook as we move through kind of the summer in Rio.
And just thoughts high level there.
Our micro gauge story.
I as I said earlier I think debt.
Certainly impressed by the or our ability to continue to prospect and to continue.
Work with our customers virtually.
Over the past year.
Obviously as the World starts and begins to open up there is some kind of pent up.
Demand for activity in in our our folks or are just chomping at the bit to get out and in and.
Visit with customers and meet with prospects in and to get back into the growth part for the company I mean, we're really excited about the momentum that we've built over the past year, how we kind of stood up for our communities and in in what our real potential and opportunity in the company is so our loan.
And as is significant our activity.
Throughout the company I think is very significant and we're excited to to see what we can accomplish here over the next several quarters and Michael It's Cort. So let me also add on you know we operate in five states. The majority of our businesses in three states and they took a fairly aggressive approach to the pandemic and closed early in a lot of communities that we serve.
If we were sitting here in Portland are still operating at a very modest level of normal operations pre COVID-19 and we're showing like Tory has mentioned.
Quite a high level of exuberance from customers, both consumer and commercial are getting back to business. We did show some loan growth and it kind of goes back to even jurors question on windows that cash going to be redeployed into their businesses and when are they going to borrow we're starting to see activity in some communities where on a 50% open. So I guess my reserve from the comment is is that we've done a good job.
Within the economies, we serve on they haven't even begun to hit their full stride. So we are very enthusiastic about the Tories point, but the pipelines, we're seeing of bringing new customers and then you're seeing some of that cash come off the balance sheet into businesses and watching those commercial loans earn out back into the low forties at 50% utilization. So I day work, just a great spot relative to.
Unless there's a pandemic COVID-19 twenty-seven or something which I wouldn't wish on anybody, but I don't think it's going to happen we felt very enthusiastic.
Okay. Thank you.
Okay.
Thank you Sir your next question will come from the line of Steven Alexopoulos from JP Morgan. Your line is now live.
Body.
Steve I wanted to start on the mortgage side and I appreciate the new disclosures are actually very helpful.
First on the gain on sale margin maybe for Ron just given the recent dip in the 10 year. So far we've seen this quarter have gain on sale margins held in there.
I hear the longer term guidance, but I'm, just wondering if near term they might holding pretty steady with where they were in <unk>.
It hasn't and that's more related to the fair value change on log pipeline over time with the pollsters, but yeah I'd say so here near term over the longer term later this year, we do expect it to continue to glide lower glad lower as we've discussed previously but it was good to see that high three range still in Q1.
Okay.
Then if we look at the efficiency ratio on the new disclosures to its crept up.
Every quarter at least where you're calling out Ron how do you think about a normalized efficiency ratio for the segment.
For the mortgage segment specifically yeah.
Yeah, Yeah, I'd say, probably in the upper 60 to 70 per cent range again based on the main drivers being net gain on sale margin in the low to mid threes in the direct cost of originations being on the.
On one nine to two range.
But but at the end of the day to recognize that's also a much smaller percentage of our overall.
Our pretax income.
When that does occur.
Okay. That's helpful and then.
Then on on all of the store consolidations that you've had can you talk about deposit retention trends number one and number two I know digital transactions are up a ton, but what feedback are you getting from your customers on all of the branches that you've closed.
Care about branches anymore.
Yes, that's a good a it's cort first of all you know our trans transactions and traffic is down over the last year.
Over 30% so to your last question do they not care or are they just retrain themselves not the care, we're not seeing the traffic so with the consolidations that we've had this year I would say I'm not as much noise, there's always going to be noise R. R. R.
Our normal run off has been negligible to actually zero runoff when we take one store in combining with another one on duty outreach that we do have that we're so good at we've actually seen aggregate combined balances go up we may lose some customers. Steve you know, what let's just be honest and on that we're not going to make everybody happy but because of what we do in in kind of pre positioning.
These consolidations by reach out to customers have been fairly I'll use the word satisfied I don't know whether anybody is always completely thrilled with closing your your retail store operations.
But yes, we can clearly see now that the store experience, which we're famous for is not as important as a robust digital hence the reasons. We've made the investments we have over the last three years and will continue to consolidate and we are looking to be more aggressive on the announced 30 to 50 between now and the end of the year, we see there's opportunity that we didn't even see.
See you know two quarters ago.
Hey, Steve This is Tory I'll, just add one piece into that which was which would be our go to platform and we message a customer base. That's on co. Two is now over 84000 and it continues to grow that's a big part of our store consolidation for us as it is these customers still have.
The connection to the company through through go to and it's serving us very well as Cort mentioned.
Alright, I'm curious on Umpqua Bank to go are you finding that customers are engaging more frequently with the bank given that feature or is it the same frequency just a different format.
It is it it depends on it's more frequent in general.
And the use of the App is is changing a little overtime a lot of it is is servicing related debt E. Geeky kind of makes sense I need I need to do something and either I don't want to go to a store physically or there is no store around the corner for me.
I can I can accomplish what I need to have done for Mike consumer banking need through through the App and that that's probably the that really the vast majority of of how it's used and leveraged and.
You know I think once you do it which I do it and others here do it for sure. It is it's it's it's a great.
Great App, and it's very useful and you kind of get.
Fitted about just you know I can send a text message and get something done that I need done so.
Our customers are really enjoy enjoy it.
I could say that customers would like it is it more cost effective for you.
<unk> engaged with customers that way to solve these service issues.
It's it's cort actually it is because even though we get periodic you know OS splurge of people, we're having an issue maybe a reset or something like that normally you don't engage with your go to application every day, so even though it may appear as if well how many.
Umpqua Bank Associates do you need to do to manage 80000.
Over a period of time, it's you can manage hundreds and thousands of accounts because it kind of goes in spurts. You may have periods of time, when you've got a particular customer was having an issue on their usage may go spike in a particular day or a corp, but most of the time at the base back down to negligible to zero communications. So it is highly scalable.
In fact, we find to be more scalable than our store experience because people want to use it when they really need it as opposed to walking into a store getting a cookie and cashing the check in.
So we've we're still kind of looking at that data and maybe it will provide it on a future call, but we find it to be a lot more scalable.
Okay. Thanks for all the color.
Yes.
Thank you Sir your next question will come from the line of Charles <unk>.
D. A Davidson your line is now let's say go ahead.
Thanks, just wanted to circle back on the expenses is the fine tune, where we are on sort of the progress on on Nextgen.
Ron I think you mentioned, obviously the sale of Umpqua investments and the consolidation in the second quarter are going to be kind of lumpy.
I guess, if the midpoint of this year's projected of 'twenty, three 'twenty 4 million call. It kind of how much was in the <unk> run rate.
And if you could kind of give us a progress on that throughout the year. It sounds like theres, some exit disposal costs that'll add on.
Offset that but just a little more refined on kind of what we've captured and how you see it captured throughout the year.
Yeah, you bet I there was a couple million dollars in Q1, just based off from facility exits we had late in the year, but youre right. We will see two of the three months in Q2 on.
Related to the Umpqua investment save.
A little bit of a tail on on store consolidations in Q2 really see that in Q3.
And then I say on on the extra disposal costs, we would see those those costs, probably Q2 Q3, followed by in Q4 start to see some saves on the lease side for additional back office.
As laid out on page three of the presentation.
Sure.
Okay, but I mean, it's.
If you look at for 50% of the 39% to 56.
Certainly that debt target you said you're on track that's that's a by the end of the year, we will still there.
Yep.
And then just I wanted to clarify the net charge offs make up in the within the pin pack I think you guys should.
Well to identify that pool that debt.
Of leases that you.
Knew was coming but.
The return to historical level.
Can we expect that in the second quarter I think that's largely cleaned up now.
It looks like the rest of the portfolio was in driving much loss, either but I just wanted to make sure I heard that correctly.
You did you did I do expect the Fintech number to drop down to a more long term averages.
Here on the second half of this year and at least at this point, we don't see it on the.
Bank exit impact side, and again that gets back to the.
The fees from commentary it earlier.
Been a continuing trend over the last four quarters at least we haven't seen the charge offs.
Got it thanks.
You bet.
Thank you, Sir and again at this time I would like to remind everyone in our day to ask a question you can p<expletive> on them.
One on your telephone keypad I'll talk about side on the number one on your telephone keypad. Your next question will come from the line of Tayo from Stephens. Your line is now live.
Yeah.
Hey, Thanks, good morning.
Brian I appreciate the guidance on the direct home lending expense.
Yes.
I did want to ask just on the indirect mortgage expense.
Generally averaged about $5 million a quarter, but it stepped up to about $10 million this quarter or was there something unusual on that in that number and should that 10 million kind of step back down to the five 5 million run rate or so.
I'd say.
It was probably more a function of.
Allocations internally around portfolio production.
But I'd say it should be pretty stable with the last couple of quarters looking out over the balance so there there's nothing.
Within the servicing or administrative areas of our mortgage segment that we expect to see significant increase or decrease the majority of the nextgen to that zero saves related to the core banking segment.
Okay.
And then I just wanted to ask we've seen a couple of bigger MSR sales across the industry. This quarter I know there might've been some for Umpqua.
On the table pre pandemic is there any appetite.
Moving forward.
At this point no, we're pretty comfortable with where we're at with it obviously the valuations were much reduced from where we were a year plus back in a great connection with customers and.
We hope to see continued profitability from the mortgage segment.
Okay. Thanks for taking my questions.
You bet. Thank you.
Thank you from an organic this time I would like to remind everyone on.
Quick question you can press Star then the number one on your telephone keypad.
So I'm not seeing any further questions from the phone line at this time. Please continue with your closing remarks.
Thank you, Larry and I want to thank everyone for their interest and uncle holdings and attendance on the call. Today. This will conclude the call goodbye.
Thank you Paul Thank you from as presented on again. Thank you everyone for participating. This concludes today's conference you may now disconnect.
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