image
Financial Services - Banks - Regional - NASDAQ - US
$ 30.88
-0.771 %
$ 6.47 B
Market Cap
13.31
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2017 - Q2
image
Executives

Ronald Farnsworth - CFO Cort O'Haver - President & CEO Dave Shotwell - Chief Credit Officer Tory Nixon - Head of Commercial & Wealth.

Analysts

Jeff Rulis - D. A. Davidson Jared Shaw - Wells Fargo Securities Steven Alexopoulos - JP Morgan Matthew Clark - Piper Jaffray Aaron Deer - Sandler O'Neill & Partners Jacque Bohlen - KBW Brian Zabora - Hovde Group.

Operator

Good day and welcome to the Umpqua Holdings Corporation Second Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth, CFO. Please go ahead, sir..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Thank you, Kelly. Good morning and thank you for joining us today on our second quarter 2017 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Dave Shotwell, our Chief Credit Officer; and Tory Nixon, our Head of Commercial and Wealth. After our prepared remarks, we will then take questions.

Yesterday afternoon, we issued an earnings release discussing our second quarter 2017 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 umpquabank.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 laws.

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 will now turn the call over to Cort O'Haver..

Cort O'Haver Executive Chairman

Thanks, Ron, and welcome to everyone listening in on the call. We reported second quarter earnings of $0.26, an increase of $0.05 per share from the $0.21 we earned in the prior quarter.

This improvement in our second quarter financial results was driven by strong loan and deposit growth, a 6 basis points expansion in the net interest margin and seasonally stronger mortgage banking revenues, which was consistent with the guidance we provided on the first quarter earnings call. Ron will cover the financials and more detail.

But first, I want to provide some additional information on our growth. When I assumed the role of CEO earlier this year, I outlined my top priorities for the bank starting with balance growth.

I said then that I believe our biggest opportunity going forward will be to make the most of our balance sheet and market position as a $25 billion bank in some of the country’s fastest growing markets and that’s what we’re doing.

Our focused on cultivating new multifaceted banking relationships that draw on Umpqua's size and expertise has been key to our strong growth so far this year and is an important part of strategy going forward.

By our aligning our products and services to meet their larger in more sophisticated needs of our customers, we're able to both provide a better overall customer experience and generate additional few revenue opportunities and operating efficiencies for the bank.

We’re now two quarters in and I am extremely pleased with the balance growth we have been able to achieve so far. Second quarter loan growth was just under $500 million or 11% annualized. This included strong growth across our commercial, multifamily and consumer loan portfolios.

Loan pipelines across the entire organization remain robust, and we are optimistic about continued strong loan and deposit growth for the balance of 2017. Starting with commercial. The port ended the quarter just under $4 billion, which represents a 20% annualized growth rate over the prior quarter.

This follows an 18% annualized growth rate in the first quarter. During our analyst call, we highlighted initiatives including the expansion of our corporate banking division, focused on growing the commercial loan portfolio, and I’m very pleased to report they’re working extremely well.

Much of our commercial growth this quarter came from larger middle market customers through our corporate banking group. We continue to see strong pipelines and production from Nevada and Southern California and are now starting to see traction in Seattle and San Francisco.

We recently added a corporate banking regional director in Sacramento to cover the Central Valley of California and in addition to our craft beer and wine group.

Our equipment leasing and finance business had another great quarter with balances increasing by just over $80 million, a little over half of that growth came from traditional bank leases with the remaining portion from our FinPac and vendor channels.

Multifamily loans grew by $80 million over the prior quarter level, which was the result of stronger production during the first quarter. We are comfortable with the geographic diversity, conservative underwriting and overall quality of this portfolio and it will continue to be a part of the balance growth story going forward.

The consumer loan portfolio increased by $210 million on a linked quarter basis, reflecting strong growth in residential mortgages which are typically jumbo 5/1 & 7/1 ARM's, home equity lines and other consumer loans. Turning to deposits. We had another strong quarter growing both consumer and commercial deposits.

Total deposits increased by 293 million or 6% annualized over the prior quarter, and we will continue to invest in this area. We recently expanded our deposit industries group in our commercial division to focus on the companies that may not be in the market for lending relationships. We do have significant deposit and treasury management needs.

Our strong deposit growth combined with the six basis point expansion and our net interest margin increased net interest income by $5.4 million over the first quarter and $2.9 million over the same period last year.

Non-interest income increased by $10.9 million over the first quarter, this was driven by the higher mortgage banking revenues, reflecting a seasonally stronger purchase business as well as higher overall non-mortgage related fee revenues. We’re building good momentum on the fee revenue side of the house.

Through our growth and the corporate banking division, we have a growing base of sophisticated customers demanding treasury management and payment services. Treasury management revenue and card revenue increased 15% and 17% respectively year-over-year, which directly correlates to the growth and lending over that same period.

In addition, we’re in the process of creating an M&A capital markets division to support our corporate banking group. This division will focus on middle market M&A advisory and private capital raising, efforts in our key West Coast cities.

This will be instrumental and assisting our customers with the necessary expertise to support the investment, sale and purchase of businesses while diversifying the banks overall fee revenue stream. In addition to these highlights, I also want to provide updates on other key initiatives. Umpqua is in a unique position.

With the strength of our balance sheet, customer experience and culture, we have a tremendous opportunity to generate significant growth and profitability, drive stronger, more consistent financial performance and maximize shareholder returns.

Over the past six months, we’ve been building on our long-term strategy and together with specific initiatives that will help us get there. This is a multifaceted approach that will modernize the Company, diversify and increase revenue, and streamline expenses. We are organizing this initiative under the name Umpqua NextGen.

Umpqua NextGen is critical to Umpqua’s future and I’m very excited about it. So let me share a few points. Our goal is to modernize the Company to we become an even smarter or customer centric and more profitable bank. It represents an evolution of Umpqua Bank, not a change to its core strategy.

We’ll transform how we do business providing a unique customer experience, offered seamlessly across any delivered in a way that benefit customers, associates and shareholders. Umpqua NextGen is a long-term initiative with both short-and long-term components and what we believe will be significant financial benefits.

We’ll provide additional details over the coming months, but there are three key areas that I’d like to highlight today and they are company evolution, diversify balance growth, operational excellence and efficiency. So let me share a few details on specific areas for each of these. Number one, evolution.

Customer preferences are changing and we have an opportunity to modernize our company to both delivery and even better customer experience and operate more efficiently. A key element in Umpqua NextGen is utilizing technology to enhance our delivery system by giving our people new tools to communicate.

To communicate with and enhance the customer experience with the goal of personalized banking for all anytime, anywhere. Our Pivotus subsidiary has been building out this platform, and we're in the middle of a highly successful pilot of customers right now. Two, diversify balance growth.

As we’ve demonstrated over the past two quarters, we have a great opportunity to generate more consistent and more profitable growth by utilizing our size and range of offerings to expand and diversify our customer base. A perfect example of this is our corporate banking division, which focuses on larger, middle market customers.

We typically have larger credit facilities along with more sophisticated, deposit and treasury management needs. This means better service from the customer and a deeper more profitable relationship for the bank.

And while this example is specific to commercial banking, I want to emphasize, this is a major corporate-wide initiative, looking at strategies to drive core fee income and growth across all business lines of the bank.

To that end, we’ve expanded our core fee income team, led by our new core fee income director who has built at a bank-wise strategy to focus on core key revenue growth. This will include increasing the profitability of new relationships, as well as looking at opportunities within our existing customer base.

Our newly revamped core fee team has built a strong foundation, leading an effort focused on training all associates using a solutions based approach, meeting customer needs with products and services such as commercial card, merchant service, treasury management and international including FX.

Operational, excellence and efficiency, as we modernize our customer experience, we also have a tremendous opportunity to streamline and optimize our operations with updates that enhance the customer experience and reduce costs.

There are a number of key areas we’re focused on including optimization of all the Company’s real estate across our footprint to reflect how customers want to bank and how our associates can most effectively work and collaborate.

This includes, looking at average deposits for location, individual branch profitability along with commercial banking center distribution, along with square foot per FTE and organizational span of control. We’re also focused on process atomization that delivers in more streamline customer and associate experience while reducing cost.

We’ve developed the Umpqua NexGen initiative to both enhance the customer experience and deliver significant financial benefit to the shareholders. We will be prepared to quantify specific strategies and timing in October, but our goal is to increase our return on average tangible common equity of 13% to 15% range by 2020.

Now, back to Ron to cover the financial results..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Okay. Thank you, Cort. And for those on the call who want to follow along, I'll be referring to certain page numbers from our earnings presentation. Turning to Page 5 of the slide presentation which contains our detailed P&L.

Second quarter earnings were $57 million or $0.26 per share up from $46 million to $0.21 per share in the first quarter and also up from $54 million or $0.25 per share in the same period a year ago.

The $0.05 increase from Q1 to Q2 resulted from $0.02 from improved net interest income, $0.02 from improved home linear activity and $0.01 from higher other income and lower non-mortgage expense.

The fair value adjustments were fairly consistent from Q1 to Q2, noting longer-term rates declining by a similar amount to Q1, with the MSR fair value of loss of $8 million or $0.02 and the swap derivative fair value loss just under a $1 million. Turning to net interest income and margin on Slide 6 and also noted on Page 6 of the earnings release.

Net interest income increased by $5.4 million or 3% from Q1, this reflects the benefit of continued strong loan growth over the past few quarters. Credit discount accretion continued to drift lower at $5.9 million this quarter, down a $0.5 million from Q1.

As we’ve noted on prior quarterly calls, this accretion is expected to continue to decline modestly on a quarterly basis. Interest income from our investment portfolio, which is predominantly agency mortgage backed securities increased to a little over a million this quarter on a net basis.

This reflected about $2 million of higher coupon income based on the purchases made in February, partially offset by $1 million and higher premium amortization during the quarter. Deposit cost increased primarily related to higher beta public and broker funds and given seasonal fluctuations on deposits along with continued strong loan growth.

We had a small borrowing position during portions of the quarter, leading to the small increase in overnight borrowing cost.

As for the outlook on interest bearing cash, we expect higher deposit growth over the second half of the year to fund continued to strong loan growth with interest bearing cash in the quarter to a 0.5 billion range for the balance of the year and the bond portfolio around current levels.

For the first quarter, the net interest margin was 3.91%, an increase of six basis points from the prior quarter based primarily on continued strong loan growth and the lower level of interest bearing cash. Excluding the credit discount accretion on acquired loans, the adjusted margin was 3.78% an increase of seven basis points from Q1.

Recall, two quarters ago, we forecasted that our net interest margin had bottomed out and last quarter guided to an adjusted margin in the range of 3.65% to 3.75%. We ended Q2 slightly above that range that with the variance due to the lower average interest bearing cash this quarter.

Assuming no additional fed funds rate increases, we continue to expect our adjusted margin to be in the 3.65% to 3.75% range over the balance of this year. Sensitivity within that range will depend primarily on deposit betas.

We currently do not see pressure on deposit costs from the core portfolio, instead our deposit costs have increased 3 basis points here in Q2 related primarily to higher balanced public funds and broker deposits. Now on Slide 7, the provision for loan and lease losses was $10.7 million, down slightly from Q1.

As shown later in the deck on Page 13, net charge-offs were consistent to 22 basis points annualized. Our credit quality remains strong with our MPA ratio declining one basis point to 0.23% of assets at the end of the first quarter.

Continued slight improvement in the quality of the portfolio along with strong growth in the high quality and middle market commercial banking segment, led to the allowance for loan losses declining 1 basis point. Moving now to non-interest income on Slide 8, we saw an increase of 18% as expected from the first quarter.

I mentioned earlier, the negative fair value changes for MSR swaps and traps were consistent quarter-to-quarter given the similar long-term rate move.

Excluding fair value changes, we saw growth in mortgage banking activity, a small increased and gain on portfolio of loan sales and higher other income related to continued growth and customer swap fees. On the home lending front as showed on Slide 9 and also in more detail on the last stage of our earnings release.

For sale mortgage originations increased 22% to $918 million. This seasonally expected trend combined with the previously guided to Q2 gain on sale margin of 3.53%, resulted in revenue from the origination in sale of residential mortgages increasing 31%. Our lock pipeline remain strong and total pipeline is 1.1 billion, up as expected from March 31st.

Assuming long-term interest rates remain relatively consistent, we expect another strong origination quarter in Q3 and the seasonal paper in Q4. The same seasonal bell curve applies to our gain on sale margin, expecting it to be around 3.5% in Q3 then dropping slightly to around 3.75% in Q4.

Turning now to Slide 10, non-interest expense was $184 million, up 1% from Q1. The bridge we provide on the right side of the slide details the major moving parts.

These moving parts were in line with expectations and prior guidance and included the decline in favorable taxes of 2.8 million and a decline in occupancy costs of $1.7 million, offset by increased home lending costs of 2.8 million related to the higher production, other comp and incentive increases of 1.8 million related mostly to the annual merit cycle, and higher merger exit disposal and other cost of 1.2 million.

After the rest of the year, we expect slightly higher home lending expense in Q3 with seasonally higher production then tapering lower in Q4 to match production flows.

A decline in payroll taxes of 1 million to 1.5 million a quarter, and as discussed last quarter, a wrap up of merger expense in Q3 of $4 million to $5 million related to cleanup work needed from our prior non-customer-facing system conversion.

And also, I'd expect exit or disposal cost to continue around recent levels given some additional consolidation plan in Q3 and Q4.

Turning now to the balance sheet, beginning on Slide 11, our tangible book value per share is $9.71, which when you also account for the dividend of $0.16 was at 10% year-over-year and up 12.5% annualized this past quarter. On Slide 12, you see details of our loan and deposit portfolios.

Our loan and deposit ratio ended the quarter at 94% and we expect that to remain around this range for most of the year. And lastly on Slide 14, I want to highlight capital, knowing that all of our regulatory ratios remain in access of well capitalized levels with our Tier 1 comment at 11.1% and total risk based capital at 14.1%.

Our access capital was approximately $250 million, this past quarter we repurchased $4 million in stock and we’ll plan on continue to repurchase net new share issuance to hold the share count about flat. We plan to continue to employ excess capital in a prudent and thoughtful manner.

Our focus is not on M&A, but on generating continued strong organic growth, achieving improved profitability and looking at higher dividend distributions overtime. And with that, I’ll turn the call back to Cort for wrap up our prepared remarks..

Cort O'Haver Executive Chairman

Okay, thanks Ron. Let me close with the few additional comments on Umpqua NexGen and then we’ll take you questions. On the January earnings call, we outlined Umpqua vision and top priorities for 2017. During the April call, we provided high level details on the key strategies that would be aligned under each of those top priorities.

Now today, we have announced Umpqua NexGen, and I discussed the three key areas of focus that will help us achieve our 2020 return on tangible common equity target of 13% to 15%.

Building on that transparency, during our third quarter earnings call on October, we plan to provide more granular details on the financial impact and timing of each of the key areas under Umpqua NexGen. Now, we’ll take your questions..

Operator

Thank you. [Operator Instructions] And we’ll take our first question from Jeff Rulis with D. A. Davidson..

Jeff Rulis

Cort, on the commercial loan picking up, I think you cited that the corporate banking has been a key part of that success. But more specifically, I guess a portion of that net new growth coming in, is that a function of less payoff activity, stealing some share, growing demand.

If you could apply any color to that?.

Cort O’Haver

And I’ll let Tory add some color to this. I'm going to make a couple of comments. It’s highly directly correlated to the investments we’ve made in people last year, Jeff, and an increase activity. We’re taking market share from some of our competitors and it’s directly related to that. And I’ll let, Tory, add some additional details to that..

Tory Nixon

Okay. Hi, Jeff, this is Tory.

At this point, we’ve got a middle market corporate banking team from basically the Canadian border to the Mexican border in all of our major metropolitan markets, and we’re up and running with teams, and we’re just starting to see a lot of activity that is essentially market share driven through kind of a core relationship balance growth, targeting companies from 30 million of revenue to 400 million, 500 million, so kind of in that real middle market space..

Jeff Rulis

The timing wise, it seem like thing sort of picked up in Q1.

Is that a function of these teams really being in place to start the year and I guess leading the expectations for the second half of the year? I guess in the timeline was everybody in place at the beginning of the year or whether there will be expectations for continued ramping?.

Tory Nixon

This is Tory again. I mean, much of the teams were put in place prior to the end of the year. But we’ve added some focus in the first half of the year. So I think that of course remarks, we’ve just starting to see some traction in Seattle and San Francisco despite some movement there..

Jeff Rulis

And then, Ron, thanks for the detail on mortgage expectations for the back half of the year.

I guess anything preliminary on ’18 in terms of volume direction again on sales margins, if you characterize it versus ’17?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Good point, what rates were going to go next year? It’s going to be as anything also on the rates, obviously there is a very strong market.

But what we’ve seen with depreciation assuming those no change and confirming loan limits, I would expect another probably moderate decline and for sale originations, which will be replace with portfolio originations daily, we’ve seen increase in those conforming limits over the back half of this year, early part of next year.

Big picture, MBA forecast are relatively flat down slightly, that’s why more function to supply. This year, we guided to down 15% for the full year. We’re seen that just slightly, but better in the back, which just more market share gain than we’ve had compared with some of the larger banks.

So I think estimating wild on rates, I’d expect consistency maybe down slightly next year production, maybe a bit more shift add or conventional into jumbo, but conventional will still be the best majority..

Operator

We’ll take our next question from Jared Shaw with Wells Fargo Securities..

Jared Shaw

Maybe just on the, as you're starting to look at larger loans and larger relationships.

How does that impact the thoughts around provisioning and the allowance that's you're signing those new credits? Is that thing to the methodology at all? And should we expect to see the allowance as a percentage of loan start to grow from here as those bigger loans come on?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

I think, this is Ron. And then I talk about this in the comments. Our allowance was loan loss was relatively flat here this past quarter. So, as we bring on this higher quality commercial middle market loans, actually carry at lower reserve and the 0.75% on the face of the balance sheet.

In terms of looking at over the next two years, I mean, absent any type of recessionary environment, we’ll still be under the incurred loss model through 2019. And I’d expect just big picture or reserve as a percentage to be flat maybe up slightly in terms of basis points.

And then seasonal of course kicks in 2020, which we’ll talk a lot about in 2019..

Jared Shaw

And then on the NextGen initiatives, I appreciate getting to that little more as we go through the year. But are you going to be realigning incentive comp structure for that.

And then with that also anticipate potentially seen more store closures?.

Cort O'Haver Executive Chairman

So we’re going to look at everything, Jared, as it relates to compensation, and so we’re in the process of looking at departments, locations, geographic locations, looking at profitability as a measurement of where we are going to make critical moves.

And you mentioned stores and as I’ve mentioned in my remarks it doesn’t necessarily mean it’s just going to be stores, if there is an opportunity that provide consolidation and do some that may see better customer experience that where we can team up associates in a common area and then provide better efficiencies and better profitability to the banks.

So, I guess what I’m saying is nothing secret..

Operator

And we’ll take our next question from Steven Alexopoulos of JP Morgan..

Steven Alexopoulos

I want to just start first on the margin. Ron, you kept the guidance right that 365 to 375, even though the adjusted NIM was a few bps above the upper end of the range.

Why are you expecting modest margin pressure in the second half?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

As I talked about, I believe -- so this past quarter, we were three bps above that range based predominantly on the drop in interest bearing cash with some seasonal outflows on the deposits. I expect deposit growth will be stronger in the second half of the year. So, just all else being equal, that will put it 375 and 378.

We’re not currently seeing anything on the deposit beta side and nor do I expect it to kick in over the balance of the year. So with continue grow, we’ll be on the upper end of that range and ideally exceeded, if deposit betas kick in probably in the middle or the lower part of that range, but we’re not seeing at this point.

So that’s our best estimate at this time..

Steven Alexopoulos

Okay.

So, it’s mostly a cash impact though?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Correct..

Steven Alexopoulos

Than a yield issue..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Very little P&L impact, right..

Steven Alexopoulos

Right, right. Okay.

And then just following up on the strong C&I growth, how many bankers do you now have in this corporate banking team?.

Tory Nixon

Steve, this is Tory again. We have about 25 at this point and that are new hires to the bank since we started this initiative..

Steven Alexopoulos

Okay.

And what were balances like where they stand at the end of this quarter and kind of change this quarter?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

We had growth, the C&I growth in the group was about a $129 million for the group. And that was all in this kind of middle market space..

Steven Alexopoulos

Got you.

And Tory, are you getting the working capital accounts from these larger companies as they come over too?.

Tory Nixon

Yes, we definitely. This is an all-out initiative on a solution base relationship management process, which is -- includes loans, deposits and core fee income. So, that definitely is part of what we’re doing..

Steven Alexopoulos

Okay.

But you’re getting that at the outside, it’s not a loan first?.

Tory Nixon

Yes, no..

Steven Alexopoulos

Hope you get the other stuff later. Okay..

Tory Nixon

No..

Steven Alexopoulos

And then finally just, okay. For quarter, are you guys using an external consultant to help with this efficiency program? Thanks..

Cort O'Haver Executive Chairman

It’s a great question. At this point to be honestly, we have not, we have been looking at things internally, we’ve been doing actually systems round -- MIS system about how we evaluate some of the stuff, and we have not use the consultant.

Does it mean that, I won’t, but I have not at this point, I clearly believe we need somebody to run it, I currently believe that the executive need to own it and but between now and October that it could be that we use somebody to help us out. But I have not yet..

Operator

We’ll take our next question from Matthew Clark with Piper Jaffray..

Matthew Clark

Just I'll ask my quarterly question in terms of how much.

Could you give us the specific amount of expenses tied to mortgage and how much of that was variable this quarter?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

You bet. So the direct was right around 31.5 million and then, again that's 2.8 as we show in the slide from Q1. And the vast majority of that is going to be variable with comp, easily three quarters, variable production..

Matthew Clark

Roughly, you’re saying 75% of that is variable?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Right..

Operator

We’ll take our next question Aaron Deer with Sandler O'Neill & Partners..

Unidentified Company Representative

So just wanted to inquire about the levels of charge-offs. So those been running now, I guess over the past five quarters or so kind of around this 20 basis point level or so.

Is that given where we are in the credit cycle? Is that, is just kind of a study run rate at this point given the types of credits we’re doing in the credit profile change as we continue to add the larger corporate credits?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

This is Ron. Overall, our expectation is for the balance will be bouncing around the same levels that we had over the last few quarter. So, long-term like 20-year average is anywhere from 25 to 35 bps. We’ve definitely seen though with the middle market growth, very much higher quality balances.

So, I would expect we're probably on the lower end of that long-term range. Also point out that, roughly two-thirds of the charge-off amount comes from our leasing portfolio. So, again small ticket, small business leasing portfolio, so that’s been a pretty steady run rate over the last year in terms of that spit between leasing and everything else..

Aaron Deer Executive Vice President & Chief Strategy & Innovation Officer

And then the other non-interest income lines being gradually ticking up, I suspect that might come from some of the traction getting in FX and card such.

Is it intended some point into some of those individual items start growing, which is break more that detail out so we can kind of see where you’re getting attraction versus not?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

And this is a true statement, also, I’d say customer swap activity continues to move up nicely, and yes, we will break that out in future periods when we get to be more significant amounts. You'll hear us talk quite a little bit about that in October too..

Operator

We’ll take our question from Jacque Bohlen with KBW..

Jacque Bohlen Head of Investor Relations

Ron, looking at the movement from DTA to DTL this quarter, was there anything from accounting nature or just anything unusual that happened or whether just general business flow?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

General business flow, and again, so we still have a small amount of NOL DTA that’s excluded from regulatory capital. But also note that, we do have a fair value adjustments from years back related to the trust preferred, which is really driving the net DTL division.

It happened maybe a quarter two earlier than I expected, given the flip, but it’s been a nice trend..

Jacque Bohlen Head of Investor Relations

And then turning over to the disposal cost and understanding that you expect those to happen for the next quarter or two.

What are some of the future benefits that you expect from those?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Well, predominately in occupancy expense, but then again, I’d say for overall expense, that’s been more centered around the initiatives and the more detail we’ll give in October for the next three years. Historically, over the past three years since we close the merger, it's been centered around store consolidation predominantly..

Jacque Bohlen Head of Investor Relations

Okay..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

But some to say that’s all going to be in the future it'd be a mix..

Jacque Bohlen Head of Investor Relations

Okay. Thank you. And then just, oh, sorry go ahead..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

I just said. Yes, you bet far away..

Jacque Bohlen Head of Investor Relations

Okay. Great. Not hearing that well.

And then just one last quick one, I am curious about what your appetite would be for any outflow of public or broker deposits just given the higher beta and nature of them?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Yes. And we managed that pretty static and we’re pretty static in terms of overall flows. But again also, we’re largest community banks in the Northwest. And so, we have great relationships with those public entities in total. It’s right around 9% of overall deposits between those two buckets.

Key is to remain that pretty static and I think that will continue for a quite while..

Operator

We’ll take our next from Brian Zabora with Hovde Group..

Brian Zabora

Just question on those sales that you had at very small amount, it looks like there are at least some leases and some portfolio and mortgages.

Could you just talk about your thoughts around selling, if the loan to deposit ratio does inch up, is that something that may increase or is that really not a factor?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

If the loan to deposit ratio were to increase significantly then it'd be more of a factor. What we did here this past quarter were just some small targeted sales to open that new channel, more in the flow basis. We might have another small portfolio of sale on some of the more transactional required jump resi here in Q3, nothing significant.

But, yes, right now the 94% loan deposit ratio, now ideally, we’ll see that in the low to mid 90s as we’re talking about that except that were to above 100, but we don’t extract that..

Brian Zabora

And then just a question on the corporate, the middle market group.

How are the yields and how the for new originations and how does this -- as the group growth, is just, how this impacts your assets into sensitivity?.

Ronald Farnsworth Executive Vice President & Chief Financial Officer

In terms of assets sensitivity, it's actually positive just given the highly floating net nature of it of that activity versus term real estate overtime.

So, this quarter I would expect our overall asset sensitivity remained fairly consistent now we did have a small drop in just bring in cash fitting on the balance sheet from point-to-point Q1 and Q2, but we had an offset increase and flow in the rate loans. So, it should be relatively consistent..

Operator

We’ll take a follow-up question from Matthew Clark with Piper Jaffray..

Matthew Clark

I may have missed it during your prepared comments because I dropped off, but just around the efficiency ratio, you had previously targeted gain under 60% by year-end obviously new news coming in October might change that, but is that still of a plan as you see it right now?.

Cort O’Haver

Hi, Matt, this is Cort. So, we had good movement and efficiency ratio in the quarter and we continue to believe, we’ll get it down from to the 60% range by the end of the year.

Like, we talked about prior quarters, getting it under 60 and maintaining it on a consistent go forward basis is the goal, and we’ll give further information around that in October..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Hi, Matt. this is Ron. I'll point out that the efficiency ratio this past quarter when you backed out the fair value maybe switch, so it’s in the control over what’s 61% and change, so moving in the right direction..

Operator

And we have no further question in queue at this time. I would now turn the conference back over to our speakers for any additional or closing remarks..

Ronald Farnsworth Executive Vice President & Chief Financial Officer

Okay. Thanks, Kelly. And thank you all for your interest in Umpqua Holding and your attendance today. This will conclude the call. Good bye..

Operator

This does conclude today’s conference call. Thank you all for your participation and you may now disconnect..

ALL TRANSCRIPTS
2024 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-3 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-2 Q-1
2014 Q-4 Q-3 Q-2 Q-1