Q2 2021 Umpqua Holdings Corp Earnings Call
Earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone please.
Please be advised that today's conference is being recorded.
You require any further assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker today, Ron Farnsworth Chief Financial Officer. Thank you. Please go ahead Sir.
Okay. Thank you Brandy and good morning, and and thank you for joining us today on our second 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.
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 second 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 Dotcom and 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 2 of our earnings conference call presentation.
As well as the disclosures contained within our SEC filings and I will now turn the call over to Cort flavor.
Alright, Thanks, Ron I'll provide a brief recap of our performance and then pass to Ron to discuss financials and Frank will discuss credit and then we'll take your questions.
For the second quarter, we reported earnings available to shareholders of $116 million. This represents EPS of <unk> 53 per share and inquiries from both for 49 cents reported last quarter and to 24 cents reported the second quarter of last year.
Our highlights for the quarter were record non P. P. P organic loan growth increased net interest income from the prior quarter and our recently announced authorization of a new share repurchase program.
Our previously stated optimism on loan growth due to our growing customer pipelines continued talent acquisition and brand momentum and our markets came to fruition. This past quarter as non PPP organic loan balances grew $650 million, representing a quarterly growth rate of 3.2% for.
<unk>, 12% annualized.
This represents record quarterly loan growth for the company and was balanced across all categories, including commercial real estate commercial loans and residential real estate.
And regards to P. P. P loan balances the decrease of $667 million was primarily related to forgiveness process during the quarter.
P. P. P forgiveness was accelerated towards the back half of the quarter and the SBA process approvals for PPP loans over $2 million at a faster pace than in the previous months.
On the balance sheet, a robust $650 million and organic loan growth was offset by the $667 million in PPP loan balance forgiveness.
<unk> and a small net decrease.
We are obviously very pleased to see the non P. P loan balances gross of substantially as we had previously guided.
Total deposit balances grew $267 million or 1% during the quarter or 4% annualized rate.
Recent deposit trends continued as interest bearing DDA grew $222 million.
Non interest bearing DDA balances grew $218 million and savings balances grew $112 million and as we continue to manage down higher cost deposits are time deposits decreased by $291 million.
Regarding capital and May we paid our shareholders a dividend of 21 cents per share consistent with historical payments.
Yesterday, we announced that our board of directors authorized a new program to repurchase up to $400 million of common stock and we intend to execute the program over the coming year through open market repurchases and a S R or potentially other methods.
And our healthy levels of capital, we are well positioned to be more active and our capital management.
Now for a quick update on Nextgen, 2 dot O initiatives first balance growth.
By leveraging the positive brand awareness of our P. P. P work and the market disruptions that have provided us opportunities to attract both customers and talent. We've built strong momentum for growth as seen on last quarter's result.
As mentioned on previous earnings calls, our customer pipelines were and remain elevated which resulted in very strong balance growth across our company this past quarter.
And we're excited about the future customer relationships, our recently on boarded bankers and new teams are developing.
On average their new loan book start to show significant momentum a couple of quarters. After they joined the bank, which we expect to support already strong pipelines.
Our human digital initiatives remain critical to our long term strategy as our customers continue to engage with us through digital channels at an accelerated pace as.
As we compare the first 6 months of the year compared to the same time period, a year ago, we have experienced increases of 18% more mobile deposit transactions.
63% more zelle transactions and 6% more daily sessions within our mobile banking App go to enrollments have climbed past 90000 and customer messages within the go to platform were up 5%.
On human digital initiatives all support also supported our commercial customer acquisition efforts. This past quarter, we launched a new small business Treasury management package called T. M Essentials, which provides key treasury manage treasury management products and small business services needed and their current operating environment.
Additionally, we launched our pilot of consolidated payments.
This will allow commercial and business clients to fully outsource their payments to Umpqua and <unk>.
Variety of formats, including checks a C H wires and commercial card complete with API is to cover over 160 different accounting platforms.
And regards to operational excellence we.
We accomplished quite a few initiatives this past quarter.
The sale of on for investments to store partners closed during the quarter and the reduction of noninterest expenses related to this business started mid Q2.
The consolidation of 12 store locations announced earlier in the year was completed which brings the total completed store rationalizations to 19.
Yesterday, we announced internally our plans to consolidate and another 16 locations by the end of the year, which will bring the total rationalizations under Nextgen 2 <unk> to 35.
Our goal of 30 to 50 locations by the end of 'twenty 'twenty 2 remains a key target and we will continue to work on initiatives to bring us closer to the top end of that range by the end of 2022.
During the quarter. We also recorded some exit and disposal costs related to the exit of certain back office leases as we continue to rationalize our office space the.
And the moves made this past quarter are a component of our overall plan to reduce space and save noninterest expense and the future periods.
On slide 3 of the earnings presentation, we show the cumulative saves accomplished so far under Nextgen, 2 <unk> program and what we expect to accomplish by the end of.
Of the year.
1 final comment before passing back to Ron and I remain highly enthusiastic the growth prospects within our markets and the momentum from our banking teams will continue to spur growth and will deliver shareholder value over the long term.
We were expecting a strong finish here in 2021, and as we head into 2020.2.
And with that factor on.
Thank you Cort and for those on the call and want to follow along I'll be referring to certain page numbers from our earnings presentation page.
Page 8 of the slide presentation contains our summary quarterly P&L.
Our GAAP earnings per share for Q2 were 53 cents up from the prior quarter with the lift and net interest income and recapture on prior provisions for loan loss.
More than offsetting the reduction and noninterest income.
Excluding MSR input and CVA fair value adjustments, along with exit disposal costs, our adjusted earnings for 56 cents per share this quarter.
And pro forma excluding the provision recapture was 48 cents per share.
For the moving parts net interest income increased 4%, reflecting the combination of higher average loan balances with the growth along with a continued reduction and our cost of funds.
We had a recapture of prior provision for loan loss of 23 million with improving economic forecast compared to no provision and the prior quarter.
And noninterest income reflected a lift and card based fees the expected decline in mortgage banking revenue along with a flip and the swap derivative fair value and our gain on sale of Umpqua investments.
And non interest expense reflected lower mortgage banking activity offset by an increase and exit disposal costs related to continued can store consolidation and lease impairments as part of our nextgen to that zero future expense reduction programs.
As for the balance sheet on slide 9.
Interest bearing cash ended the quarter at $2.7 billion. During the average balance was up 14% from the prior quarter.
This higher level of cash cost per NIM for basis points, and Q2, but gives us significant future optionality for fun and continued loan growth or deleveraging and certain liabilities.
We increased the bond portfolio, 10% as longer term yields were higher early in the quarter into similar duration and agency investments.
And Cort mentioned previously our significant non PPP loan growth. This quarter was offset by a PPP loan forgiveness, while our deposits increased another quarter of a $1 billion and we used excess liquidity could do to continue to reduce term debt as advanced as mature.
Our total available liquidity, including off balance sheet sources at quarter and increased to $15.6 billion.
Representing 51% of total assets and 60% 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 our segment disclosures on pages 10, and 11 of the presentation.
Or pages 19, and 20 of the release.
Recall last quarter, we simplified our segment disclosures by separating out the core bank from the mortgage banking segment to.
To give investors more transparency on the underlying profitability trends and some of the more volatile items over the past year.
Along with reference rates that lead to fair value changes.
And this discussion will provide high level guidance for the balance of this year and the ranges were estimating currently for fiscal 2022.
So now within the core banking segment on page 10 of the presentation or page 19 of the release.
Net interest income increased 4% sequentially driven by the strong non PPP loan growth and continue to decline and cost of funds.
I'll talk about seasonal and the provision and detail on a few minutes, but you'll see here, we have the $23 million recapture this quarter again from improving economic forecasts.
2 lines down is the change in fair value and swap derivative noted it was a charge of 4 and a half million dollars here in Q2 as long term interest rates declined this quarter compared to a gain of $12 million back in Q1 as rates increased and the first quarter.
And noninterest income increased 57% or $18.5 million.
Which included the nonrecurring for $9 million gain on sale of Umpqua investments.
Along with a lift of $3.9 million and gain on SBA loan sales.
A 2 point and $9 million increase and card based fees.
A $2.3 million dollar increase and swap fees.
Along with a $2.3 million dollar increase and M&A advisory fees.
Our focus continues to be on growing commercial fee revenue.
Below this we had an increase in eggs and disposal costs up from 1.7 million last quarter to $4.8 million this quarter.
About 1 third of this related to lease exits on recent store consolidations and 2 thirds of this related to a right of use for lease asset impairment as we execute our return to work plan.
Our goal is to significantly reduce back office square footage and shift our workspace around to be closer to where our associates live.
Utilizing a hybrid workspace for the majority of support groups, resulting in inefficiencies both in terms of cost and associate work life balance.
The main noninterest expense category for the core banking segment increased 1% this quarter related to several smaller items.
And pretax for the core banking segment increased 25% this quarter to $144 million.
Excluding the recapture and prior provisions the pretax income for core banking increased by 5% from Q1.
And represents 92% of the consolidated total.
And the efficiency ratio on the core was consistent at 56%.
For the balance of this year, we expect continued non PPP loan growth with the overall NIM around 3.3% and the NIM X P. P P and the $3, 1% to 3.2% range.
Turning now to page 11 of the presentation or page 20 of the earnings release.
We showed the mortgage banking segment 5 quarter trends.
To start we had 1 and a quarter billion dollars and total held for sale volume this quarter a bit better than expected drop of 24% from Q1.
The gain on sale margin was 3.3% again down from Q1 as expected given the slow and mortgage market.
About 20 basis points of the decline and gain on sale margin resulted from a lower locked pipeline with the balance of the decline from market pricing.
These 2 items resulted in a $41.3 million of origination and sale revenue noted towards the top left on the page.
Our servicing revenue was stable.
And for the change and MSR fair value the passenger time piece remains stable as expected.
While the change due to valuation inputs was a loss of $1.7 million due mainly to higher pay down activity earlier in the quarter.
Non interest expense totaled $37 million for the quarter again. This represents direct held for sale origination costs servicing costs, along with administrative and allocated costs.
The direct expense component of this was 25 and a half million as noted on the right side of the page representing 2.03 per cent of production volume.
Pretax income for the mortgage banking segment was $10.6 million and net income was $8 million, both down 61% from the first quarter and within the range of our expectations.
It's important to note here the mortgage banking segment represents only 7% of our pretax income.
Per to 19% and the first quarter and 28 per cent and the fourth quarter.
As our core banking growth initiatives take hold.
It's 8%, excluding the recapture of prior provision for loan losses.
For the near term outlook on our mortgage segment.
No significant change and interest rates, we expect to held for sale volumes to decline over the course of the year with.
With best estimates of around $900 million, and Q3 and $800 million and Q4.2.
And the year and the mid $4 billion range.
Gain on sale margins should remain in the low 3 per cent range for the balance of the year.
And the MSR passage of time should be pretty consistent.
The change due to input should be relatively low again, assuming no significant change and interest rates.
And direct held for sale expense levels and basis points on production should remain in the low 2% range.
Given the lower volume for the balance of the year.
Given we're at the midpoint of 2021, and we have several initiatives in flight and on a next gen..2.
Along with the normalization of the mortgage lending market and uncertainty with Cecil and I'm going to give some high level target ranges for fiscal year 2022 that we are currently planning for on select areas of the business.
For the core banking segment, we expect non P. P P loan growth to be and the high single digit range next year.
The next day and 2 day zero cost savings will start to show and reduced overall expense levels later this year and.
And on and overall expense, we are targeting $582.590 million for the core banking segment and 2022.
For the mortgage segment and 2022 based on the current interest rate outlook, we are forecasting a range of conventional for sale volume around $3 billion.
With a gain on sale margin of around 3.25% and direct expense and the 2.7 to 2.8 per cent range.
Moving the direct expenses higher based on certain fixed costs with lower volume, which we will work to manage lower.
Fully allocated expense is estimated at 110 to 120 million for full year 2022.
Combined with the core banking segment. This was this would result in total noninterest expense and the $690 million to $710 million range and will reflect realization for many of the nextgen initiatives lower mortgage banking activity continued inflation.
And additional investments and the business.
Okay I hope this segment and 2022 update discussion was helpful to understanding the moving parts and potential future drivers on profitability.
Spent most of my time discussing the segments and note. There are several slides later in the presentation on consolidated trends for net interest income margin and expense.
But hopefully this helped give some greater insight into the company.
A couple of final items before I turn it over to Frank.
Let me take your attention and forward to slide 23 on.
On Cecil and our allowance for credit loss.
As a reminder, our seasonal process incorporates a life alone reasonable and supportable period for the economic forecast for all portfolios with the exception of C&I.
Which uses a 12 month reasonable and supportable period reverting gradually to the output mean thereafter.
Hence these forecasts incorporate economic recovery in 2021 and beyond as.
As most economic forecasts revert to the mean within a 2 to 3 year period.
We used the consensus economic forecast for this quarter updated and Mei.
Overall, the forecast showed improvement and several key areas as the economy reopens.
We included an $18 million overlay for various theory portfolios to hedge against and a potential near term slow down or negative turns with the pandemic net.
Net of this overlay, we recognized a 23 million DAU a recapture on our provision for loan loss.
Net charge offs for Q1 remained low at $13.6 million.
<unk> lower than the models from last year suggested.
And the majority of net charge offs this quarter related to the small ticket lease portfolio.
The ACL at quarter and was 1.33 per cent.
And in this ratio was 1 point for 2%, excluding the government guaranteed PPP loans.
And these are economic forecast driving the reserve it will simply take the passage of time to see if net charge offs follow as modeled.
But to date the models and simply overestimated the actual net charge offs, given the lag or at least for quarters.
Our day, 1 and seasonal level was just over 1% on the a C L, which is about $80 million lower on the ACL for non PPP loans and we are at currently.
All else equal this excess ACL will either be charged off in future periods. If the models are eventually proven correct.
Or be recaptured and are used for providing for future loan growth. If the economic forecasts continue to improve time will tell.
And lastly back on slide 21, I want to highlight capital millions on all of our regulatory ratios remain in excess of well capitalized levels are.
Our tier 1 common ratio was $12.4 per cent and our total risk based capital ratio was $15.4 per cent.
The bank level total risk based capital ratio was 14, 5%, which is the basis for our calculation of $548 million and excess capital that is excess over our 12% and house floor.
The share repurchase we announced yesterday.
To be executed over the coming year.
Represents approximately 180 basis points of risk weighted assets.
10% of our current market cap.
And when completed and is expected to add approximately 150 basis points to a return on equity.
And with that I will now turn the call over to Frank Namdar to discuss credit.
Iran.
We'll also be referring to certain page numbers from our earnings presentation for those who want to follow along slides.
Slide 24, and reflects our credit quality statistics, our nonperforming assets to total assets ratio decreased 2 basis points to 0.1 and 7%.
And our classified loans to total loans remained consistent at 0.7 and 4%.
Our annualized net charge offs percentage to average loans and leases decreased 5 basis points to point to 8% and as we indicated earlier the fintech port for portfolio began to return closer to historical levels of 3 to 3 and 5% during the quarter.
So this equates to $13.3 million attributable to Fintech and 300000 to the bank.
Slide 25 shows the total loan balances that were on deferment at the end of the quarter at 0.7% of the loan book for deferrals on a portfolio basis.
We are reporting less and 1 basis point deferral, and commercial plus 6% and commercial real estate.
Less than 1 basis point, and fin pack, 0.1% and consumer and other and 1.9% and residential real estate.
Consistent with last quarter, we have excluded $151 million and Ginnie Mae repurchases from the deferral numbers as those loans are guaranteed by the FHA VA or USDA Rural development.
So to wrap up we are obviously very pleased with our credit quality metrics. This quarter, we remain confident and 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, we will now take your questions.
And if he would like.
And the number 1 on your telephone.
Keith.
Thank you.
For 1.
Your first question comes from the line.
Jeff.
Yeah.
From.
Yes, good morning.
And Oh.
Just a question on the on the pipelines do you have the loan pipeline as of.
Kind of quarter and versus the sequential quarter.
Hi, Jeff This is Tory Nixon pipeline total pipeline for all lines of business is up about $450 million from the end of.
Q1, and we sit today and.
Just over $4.5 billion and total loan pipeline.
Great and.
Ah I think cort alluded to the <unk>.
Hires and and.
I guess as you bring folks on and when you get kind of a fall through of actual net production just trying to track.
If you could kind of point us to where hires were made if it had been a pretty steady higher rate and then trying to also track the fall through and 1 that shows through in and growth is there a figure you get.
Throw at us on that.
And I don't know if I could give you a figure I would say debt.
Hiring for us has been ongoing.
For the last several years.
For relative obviously, we're choosy and and who we want in terms of the talent and to be accretive to the company and the culture of Umpqua Bank.
On our hires in Q2 have been spread out throughout our footprint and our businesses. So we've got some and real estate, we continue to hire and middle market, we've hired probably more and middle market in the Pacific Northwest.
On this quarter than in previous quarters, we've hired quite a few and our community banking business throughout the Pacific Northwest. So you know where we continue to look for talent continue to bring them into the company and and you know as as Cort mentioned and it takes a quarter or 2 for.
For them to start to really build the pipeline and get that get that across the finish line, but feel really good about our our our hires our ability to continue to hire and continue to bring in new customers and and build pipeline.
Got it and so last 1 for me a toy or maybe Cort just.
Trying to peg the impact of the reopening of businesses, and Oregon, and Washington, particularly but but given the numbers would suggest that a pretty good pickup and net growth.
If you would care to kind of color, what you saw and if youre seeing that impact on the ground level of those economies reopening.
And Jeff Cort.
Relative to Oregon, and specifically, our our our footprint just want to make sure I answer your question.
Sure I mean, Oregon and Washington.
Those restrictions.
<unk> lifted kind of on a go.
Wade standpoint, California, a bit different but just yeah.
Is it becoming I guess would you called Q2 growth.
Heikki garners, a broader kind of reopening.
I guess, how has it impacted specifically gross prospects as you've seen it from their lenders.
I would say generally.
Our business isn't and borrowers don't necessarily just do business and Pacific Northwest, where the Pacific rim, which and which includes all of the states we operate.
I you know.
There's no question that the West coast is probably trailed the eastern seaboard and parts of the Midwest and and opening and in some cases.
Places are kind of moderately taken a step back.
It's a slow and steady kind of progression as people get kind of get their heads around their business as stores reopen and businesses continuing manufacturer. If they can hire all the things you hear about certainly certainly are affecting our customers, but we're very optimistic you talked to customers and their enthusiastic they're happy to be open again, and they're happy to be selling.
Goods and services. So we continue to feel very very good about the pipeline and our ability to grow outstanding book of business and new businesses.
Okay fair enough, thanks, I'll step back.
Your next question comes from the line of Matthew Clark with Piper Sandler.
Hey, good morning, guys.
Okay.
For first just on the.
The buyback you know the prior 1 that you had out there for a long time, and just kind of hung and hung out there it sounds like you're looking to get this fully.
<unk> fully completed within the next 12 months I'm, just trying to get a sense for the.
And the cadence that we might see in terms of activity how price sensitive you might be.
Or not.
Good morning, Matt. This is Ron Yeah, I mean, our base cases rely on this and over the course of the next 12 months, but.
But we will be opportunistic you know through ASR and other means if possible just based on volatility the real key with this is as you know the buildup of excess capital.
Over the last year strong mortgage results and as rates decline pushed.
Pushed or excess capital from the.
Hunter for the $200 million range up close to $600 million here over the last quarter or so.
The key on that is to return that capital to shareholders and thereby increasing our return on equity by roughly 150 basis points, which now from that standpoint, its price agnostic.
Got it and then.
And I don't think this is in your segment disclosures are and your disclosures anymore, but how much single family residence did your portfolio. This quarter just trying to get the overall.
And in terms of what your portfolio, we can see what you sold but I'm just curious what you did on top of that.
And that's the story.
About 200 million is what we portfolio.
Some of that came from.
Our home lending and some other came from our private banking segment.
Okay.
And then Ron.
Ron can you just remind us how much you have and the way, it's net fees left and for round, 1 and round 2 P. P T.
Yeah, you bet $38 million would be the balance currently deferred.
Yes.
Okay, Great and then last 1 for me just on the the reserve.
I think in prior calls you've talked about 3 to 4 years of coverage on normalized net charge offs.
Correct me, if I'm wrong, but 25.30 basis points.
Is that still and I assume that's still the view, but I mean do you feel like 1%.
And it's kind of a bottom in terms of your reserve and kind of a normalized environment.
Yeah, I mean, the wildcard here is what's normalized right, but as I think about normalized yeah. Our day, 1 seasonal was 1.0% to 2% and if.
If you look at the $1.42 today X P. P. P. That's a delta of about $80 million that.
Now I'd like to thank our will be in a normalized world here at some point and that ACL should be down around 1% theres been nothing structural within the portfolio of composition that would have shifted compared to our day 1 balance for you.
Net pack.
Okay, great. Thank you.
You bet. Thank you.
Your next question comes from the line of Jackie Bohlen with K B W.
Hi, good morning, everyone.
Greg.
And they get a little bit for flight.
Glenn on them in terms of debt the expense reductions that you have.
Read the slide and look at.
And then you're expecting to realize $31 million and cost savings on.
The original guidance was for roughly 50%.
And in 2021, and if I just simple.
Double that it puts me at 62 and I know there's other factors at play here, but to me I read this is youre going to come and likely at the upper end of your range and possibly even exceed it and I just wanted to see if I'm properly interpreting that.
Hey, Jack and good morning, this is Ron yet.
35 would be and annualize go forward amount.
And so we look at the second half of this year and roughly 50% and that would be in 2020.1.
But what I really think about that from a go forward annual amount and that was of course also and.
Incorporate into the 2020.2 and.
Arrange guidance I gave earlier as well.
Okay.
Alright, and I didn't fully understand the explanations alright, and so it's not a free.
$35 million, yeah, it's not that there's 35 million that's been <unk>.
Recognized as a reduction here in Q2, it's we've executed on those saves and and here through the end of Q2 that as a go forward annual amount of save that we expect.
Specific to those initiatives.
And looking at it and so with that number.
Pretty well into the range that you still have more to recognize in 2020.2 and it sounds.
And like basically I'm trying to say it sounds like you're doing and good job and reaching towards the upper end of the original target range is that share that is our goal that is very fair.
Okay. Thank you.
And then just in terms of them.
Margin guidance for Q3, 1 to 3 point Q on a core basis.
And just wondering.
Looking at the overall balance sheet and mix assumptions, because you mentioned and.
You might also deploys and excess cash and to liability paydown such as China.
About net balance sheet growth.
Yeah, and there's a couple of other moving parts, obviously, we have assumptions around noon and any potential attrition firm continued store consolidations and real.
The balance of the year, we are expecting non PPP loan growth over the balance of year I'd say in total and the balance sheet should be relatively static maybe up slightly and and total assets over the course of the year, but really it's more.
In terms of the mix and I would expect more of that coming out of and spring cash into higher yielding non PPP loans.
The PPP balance fluctuations you know should still we should still see continued forgiveness over the balance of the year, but.
The real juice is going to come from taking the cash out of 10 bps at the hub 15 bps at the fed into loans north of 3%. So.
Long winded way of saying I think the balance sheet, probably stay relatively static and total over the balance of the year and just continuing to work on.
Shifting the deployment on the left side of the balance sheet.
And your and the loans.
Okay.
Okay. Thank you.
You bet. Thank you.
Your next question comes from the line of Brandon <unk>.
And with Truest Securities.
Hey, good morning.
And so core deposit growth was strong and the quarter and I wanted some other thoughts going forward and expectations of growth and second half of the year and the source of that growth coming from either new customers or greater wallet share and penetration.
Brandon Tory Nixon.
I think it's it's a that's a great question and I will I will tell you that I think the teams are doing a terrific job.
And we and our bounds growth initiative and we're looking at customer growth loan growth deposit growth and fee income growth and and we had really strong deposit growth from our middle market business from our community banking business from retail.
Down even from a real estate group. So we continue to pull in good core deposits both from existing customers.
Further and further you know penetration from P. P P loans.
Loans that we made to non Umpqua bank customers and then just share of new of new names into the company, so kind of across the board and across all lines of business.
Okay.
And also noticed card fees were up pretty nicely and in quarter of 3 million sequentially is that for more activity or is that a function of new customers.
Hey, Brad and this is Ron that that's going to be a combination of new activity and customer as part of the reopening component of it as well there was <unk>.
Probably a little over a million dollars of there that was specific to the merchant in terms of and overall program. That's more of an annual number I would not expect that that component of it to be you know.
Recurring every quarter, but great to see activity up with reopening.
Yeah, I'll, just 8 brand as Torry I'll, just add 1 thing to that I mean, when I look at our Treasury management fee business, our commercial card business our international banking.
Business are Elon card business I mean, all of it continues to grow we had record months record quarters, and T M and and commercial card.
For us.
Okay and D C and 10.
$10 million run rate.
The nice base going forward of side potential day.
I'd say ex the probably millions of millions and 5 I talked about on the merchant side.
Okay.
Thank you very much.
Thank you.
Your next question comes from the line of Jared Shaw with Wells Fargo.
Hey, good morning.
Later it.
And I guess for following up on the question about.
Deposit growth and outlook and as we as we go through the end of the year are you expecting it all sort of a normalization or a reversion and the loan to deposit ratio with with customers utilizing some of that cash.
Are you you know what you see so far you know the deposit growth trends will still be strong enough that we could see.
The loan to deposit ratio sort of stay where it is as loan growth picks up.
Hey, Jerry this is Ron it you know.
Here too as we talk about loans, we need to incorporate as a non P P or non PPP or with Pvp.
And what I don't expect here near term and to see us back and more low to mid Ninety's, but I do expect to see a continued march higher over the coming years.
And you get the combination of PPP loans declining from the continued forgiveness, but also you know high single digit non PPP growth next year, so along with other way of saying I do expect to.
And eventual March higher and our overall loan and deposit ratio, but youre going to have some near term no.
And I was just in terms of the PDP flows.
Okay, and then you know going back to I guess, the nextgen targets that were.
You know really more discussed earlier and are at the end of last year.
And with the expectation for <unk>.
High single digit loan growth this year.
And then as you pointed out with Jackie the you know the ability to probably come in at the higher end of the expense savings range should we expect or could we expect to see and update to maybe call. It next gen 3 porno or and updated.
Guide overall for expectations, maybe being a little better coming out of Nextgen to Plano with them for.
Some of the actual results, even being able to put up.
And Jared Cort.
Yeah, and we get this off the top of my head here, but we get closer to delivering on the next Gen..2 dato certainly sooner than we had originally discussed with you all almost a year ago now.
Yeah, we would probably give you and nextgen 2 dot 1 dot O for 2 types or 3 dato. So great question and we I'd just tell you that we're very pleased with the progress we're making on on 2 dot O and and I appreciate the question and.
We've done on the past will continue to give you.
Good guidance on where we're continuing to kind of manage the bank on the most efficient and profitable way we can.
Okay, great. Thanks restaurants from a sixth.
Your next question comes from the line of Steven.
Alexopoulos with J P. Morgan.
Hi, everyone.
Hey, Steve I wanted to start first on C&I.
So we're about midway through earning season, and we've had quite a few other banks comment that theyre seeing commercial customers draw on credit lines, despite carrying very elevated deposit balances.
What are you guys seeing and how much of your C&I loan growth is coming from share gains versus.
Listing customers drawing on lines.
Steve This is Tory Nixon and I'll give you a couple of answers to that the first on line utilization on our middle market business is up about 2%.
And utilization to 29% in Q2 from from Q1, however that debt debt utilization in Q2.2021 is identical to Q2.2020, so really kind of flat year over year. So we're not seeing it there.
And in aggregate kind of the same thing on our community banking business, so kind of year over year relatively flat at some point I.
Back to the conversation and the comment around the economy and in the success of businesses and the west loved.
Love to see that that kind of grow so.
And so most of our loan growth business is coming from either existing existing customers with some sort of term debt or new new names into the company new relationships that are borrowing either either term debt or lines of credit okay.
That's helpful. Okay, that's good and.
And maybe for Ron you guys have been pretty active and the first half for the year, adding to the securities portfolio, given the step down and rates here, what's your appetite to add to the securities book the way you've been doing it.
And as much as it was earlier in Q2 or in Q1.
Okay.
Does that mean and it should be pretty flat and securities portfolio.
And that's where we're modeling internally, yes, okay got you.
That's helpful. And then maybe for court on the Tam Essentials rollout is that for small business customers in your markets or are you targeting fairly broad and small business customers with that.
Above that 1 detore this story again.
And that product is essentially a T M solution for small business and business banking.
We were just rolling it out I think it gives us a great opportunity to provide the solutions for for smaller.
Companies that we bank today, but it also will be a part of the offering for our prospecting efforts and I think going.
Going back even to our R. R. P. P. P. Non umpqua bank customers that are on the smaller and and business banking or small business is a perfect product for them and we have a.
I think our community banking business, we have about an 18% penetration rate of Treasury management into those company. So there's a great upside for us and I think part of that is just the size of our T. M solution for middle market companies compared to this new Treasury management solution for smaller companies.
So we will use it internally with existing customers as well as for prospecting.
Okay and.
And then last question sorry to ask so many questions, but and this is.
1 is for you it's been I don't know 7 or 8 years. Since Umpqua has done an M&A deal is this still part of the strategy and focus are you know purely organic growth focus. Thanks.
And what we.
When I took over almost 5 years ago, we were clearly and we were outward, but that focused on just operationalized and doing a better job of running the bank post that.
The Sterling merger I mean today, you know with the currency levels. We've got we're still going to be focused on continuing to increase the currency to give us that optionality and you're talking about we've always been opportunistic Steve you know to be quite Frank.
And we've looked more at I'll say plug and play, which I think I've mentioned before at verticals or products and services that could serve our existing customer base.
And.
But as it relates to you know.
F I kind of act.
Acquisitions.
Until we get that currency level up to where.
The financials around our strategic decisions like that makes them better sense. We're just going to continue to operate but where that does not necessarily mean, we're not opportunistic. It just means right now we've got a little bit of work to do and I think we're making great progress we really are.
And and we are excited do with our prospects of growth and the opportunities that we see going forward, both internally and externally.
Okay.
Great. Thanks for all the color.
Thank you.
Your next question comes from the line of Brett Brent Brett.
Brett Robinson with feed group.
I wanted to make sure I understood the guidance clearly I think.
I think Ron on the guidance around mortgage banking was 900 million for the third quarter 800 for <unk> and I just wanted to understand the dynamics around the expectation levels from the back half of the year on production.
And so obviously on people talking about constraints in terms of housing supply, but I know at 1 point you guys had mentioned that you felt like if mortgage was down 25%.
The volumes were down 25% from and MBA perspective.
And we're hoping that your number and we'll be down less due to some other things you talked and you thought you could do to gain share and so I'm just hoping you could walk on that dynamic.
Yeah, Your bank of Marin and Brent and Yeah, We're obviously internal forecast based off what we see with pipelines and activity and interest rates. So overall, though mortgage activity much.
Decreased from year back we do expect you know around give or take $900 million and Q3, and 800 million and Q4.
And that's coming off 1 and a quarter here in Q2, right. So put total ear and the 4 billion dollar and mid $4 billion range and.
And our best estimate and right now assuming no significant change and rates.
Or supply.
It would be and the $3 billion.
Right around $3 billion for next year.
Okay.
Dynamic and the back half of the year a function of just lower refi or what can you talk maybe a little bit about for the next.
And what you're seeing from the pipeline.
Yes, lower refi this is a bit lower activity just given the significant lift and activity here over the last 4 quarters and generally in Q4, you get a seasonal bell curve and there's some drop off from Q3.
Okay.
And and the other question and I was just.
I wanted to see about current production and in terms of the new growth that youre seeing versus your existing portfolio yields.
And how does that dynamic work.
So Brad this is Tory are you on which makes you understand the question you're talking about.
Loan yields compared to previous.
Right.
And I know, it's going to vary between commercial real estate and C&I and on various loan components, but just was hoping to get maybe.
And what turn on production wise versus the existing portfolio.
Yes, so current so current production actually over the last 2.
2 to 3 quarters has been relatively constant and not not a ton of movement down a little bit and our commercial real estate book on new production, but interestingly enough our community banking business is up a little bit so.
And take all in all it's been relatively stable over the last 2 to 3 quarters.
Okay.
Great appreciate the color.
Okay. Thank you Brett.
And there are no further questions at this time I will turn the call back over to the speakers for any common.
Closing remarks.
Alright, Thanks, Randy and I want to thank everyone for their interest and uncle holdings and and tenants on the call. Today. This will conclude the call goodbye.
This concludes today's conference call you may now disconnect.
And.
And.
Okay.
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