Good day, everyone. Welcome to the Umpqua Holdings Corporation Second Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Ron Farnsworth, Chief Financial Officer. Please go ahead, sir. .

Okay. Thank you, Alan. Good morning and thank you for joining us today on our second quarter 2019 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, our Chief Banking Officer; Dave Shotwell, our Chief Risk Officer; 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 2019 results. We’ve 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 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 will now turn the call over to Cort O'Haver..

Okay. Thank you, Ron. Let me begin by providing a brief recap of our quarterly financial performance, and then, I'll provide an update on Umpqua Next Gen. Ron will discuss the financials in more detail. And then, we'll take your questions. Our Q2 2019 financial performance resulted in earnings per share of $0.51.

This is up from the $0.34, we earned in the prior quarter and the $0.30 reported in the second quarter of 2018. The increase in earnings per share from the prior quarter reflects several strategic moves to enhance the Company's long-term profitability.

This includes the gain on sale of $81.9 million recorded from the Visa Class B transaction, we executed during the quarter. We were opportunistic in the timing of the sale and used the proceeds to strategically rebalance our securities portfolio and continue to invest in efficient revenue-generating businesses.

Also included in this quarter's financial result was a $24.7 million negative adjustment related to the fair value change of the MSR asset. This adjustment was primarily driven by the reduction of long-term interest rates that occurred during the quarter.

As previewed before, we are implementing tactics to reduce the quarter-to-quarter volatility resulting from the MSR fair value changes. We are currently executing a sale of up to 25% of our mortgage servicing rights. We also improved our financial disclosures regarding the components of the fair value changes, which Ron will cover in his remarks.

As I stated last quarter, mortgage-related products and services are and will continue to be a core business for us at Umpqua. Now, I will highlight our strong balance sheet growth for the second quarter. Deposit growth for the quarter of $575 million represents a strong annualized growth rate of 10.8%.

Our initiatives that are focused on growing deposits will continue to be a priority as we go forward. We also generated loan and lease growth of $547 million, which represents a robust annual growth rate of 10.7%.

Our emphasis on diversified loan growth is showing positive results, highlighted by growth of $208 million in our C&I vertical during the quarter. Now, a quick update on Umpqua Next Gen. We are at the halfway point in our Umpqua Next Gen strategy. I am pleased with our performance so far and optimistic about what lies ahead.

Specifically, with the strong performances we are seeing out of our core businesses. I'll start with balance growth.

Within our commercial, corporate global payments and deposits groups, we've added over 20 experienced customer-facing associates this year as we continue to build out teams that are focused on bringing multifaceted relationships to the bank.

We will continue to add new associates and new teams to Umpqua in the coming quarters, as we continue working to meet our growth initiatives. We've also made terrific progress with our human digital strategic priority. We launched Umpqua Go-To, the industry's first human digital banking platform, this past quarter.

We currently have more than 27,000 customers enrolled on the app and more are joining every day. In addition, this quarter, we are implementing a predictive analytic tool for use within our commercial and corporate teams.

The tool uses algorithms to inform our bankers about the future products and services our customers are likely to need, based on their current activity and is a very powerful tool to help our teams continue building robust relationships. I'll finish by updating the progress made within the operational excellence initiative.

We have successfully completed the store consolidation work on five locations we highlighted on the prior earnings call for a total of 20 year-to-date. We have also identified an additional eight locations for consolidation by the end of this year. This will bring our total store rationalization number to 65 since Q3 of 2017.

I'm also pleased to report that phase 1 of our back office work is complete. Since launching the initiative, we have achieved $24 million in annualized savings.

I want to highlight that due to this work and the store optimizations previously mentioned, our year-to-date non-interest expense in 2019 is 8% lower than it was in the same period a year before. Phase 2 of the back office work continues as we continue create opportunities to operate the Company in efficient and effective manner.

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

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 first to page six of the slide presentation, which contains our quarterly P&L. GAAP earnings per share were $0.51 this quarter, up from $0.34 in the first quarter.

Notable items impacting earnings this quarter were the combined security gain lines benefit to EPS of $0.26, more than offsetting the continued negative fair value effects of declining long-term interest rates. With fair value losses of $0.08 for the mortgage servicing right assets, $0.01 for the swap derivative.

Additionally, prepayment speeds in the bond portfolio have increased, resulting in a $9 million increase in taxable bond premium amortization this quarter, which is about $6 million higher than we expected, negatively affecting earnings per share by $0.02. Ex these items, adjusted earnings were $0.37 per share.

Turning to net interest income on slide seven. Net interest income decreased $10 million or 4% from Q1. Interest income was steady with the growth for interest on loans and leases offset by lower investment interest. Within the loan interest increase, the majority was related to healthy growth leading to higher average balances during the quarter.

Discount accretion on acquired loans remained flat at $5 million this quarter and is expected to decline modestly over the coming quarters. For the taxable investment income line item, premium amortization was $10.4 million, up from $1.6 million in the first quarter due to increasing prepayment speeds on the underlying MBS investments.

This is a retrospective adjustment and was about $6 million higher than we would expect moving forward, assuming no further change in prepayment speeds. Our interest expense increased $9.5 million or 19 basis points based on continued average balance growth and rising short term rates over the past -- over the last several quarters.

Our cumulative deposit beta, based on the Fed rate increases to-date, was 40%. As reflected on slide eight, our net interest margin was 3.7% this past quarter. And the margin excluding discount accretion was 3.61%, down a bit more than expected from the first quarter.

The majority of the decrease resulted from increased bond premium amortization just discussed along with the increase in cost of deposits. Normalizing the bond yield of roughly 2.5% with $4.5 million of premium amortization would add 10 basis points back to the margin.

On slide nine, the quarterly provision for loan and lease losses increased to $19 million, which is primarily a result of strong growth we had on the balance sheet this quarter as net charge-offs were relatively consistent. And moving now to non-interest income on slide 10. We generated total non-interest income of $122 million for the quarter.

And this included net security gains of $75 million, more than offsetting lower mortgage revenue. As a result of lower long-term interest rates this quarter, we took a $25 million fair value loss on the MSR asset in mortgage banking revenue, along with a $4 million customer swap derivative fair value loss and other income.

For mortgage banking, as shown on slide 11, for-sale mortgage originations increased 43% from the first quarter. As expected, our gain on sale margin increased 37 basis points to 3.32% based on higher pricing and an increase in the lock pipeline with the higher volume.

The MSR asset reflecting lower long-term mortgage rates and associated increase in prepayment expectations is now valued at 88 basis points on the $15.8 billion in service loans. We have provided additional detail of the total quarterly change in balance here and on the last two pages of the earnings release.

Note, new volume offset by the change due to collection of expected cash flows over time along with changes in valuation due primarily to interest rate fluctuations. This last row is the one which correlates most closely with the change in long-term interest rates.

And the $17.8 million change for inputs this quarter reflects the approximate 50 basis-point drop in long-term bond yields during Q2. We've been impacted by the reduction in long-term interest rates over the past year with a higher origination volume one would expect to see with lower rates not coming close to making up for these fair value hits.

We are currently in the process of selling up to a quarter of the MSR portfolio and expect to complete that in the fourth quarter. With this and another potential sale of a similar amount late this year or early next.

We are repositioning the asset and allocated capital to focus on more full relationships carrying deposit balances, which will improve the overall profitability of the business and reduce potential future volatility to the P&L from these rate-related changes. Turning now to slide 12.

Non-interest expense was $180.4 million, a decrease of 8% from the second quarter a year ago and up 5% from the prior quarter. This was slightly above our guidance range of $174 million to $179 million, related primarily to $5 million of higher mortgage banking production costs and a loss on OREO, partially offset by favorable variances elsewhere.

The bridge on the right side of slide 12 shows the moving parts from the first quarter. And in addition to the two items just discussed, the other expected cost increases seasonally in Q2 were offset by expected reductions in payroll taxes and lower group insurance costs.

Note the efficiency ratio was 51.6% on the face of the P&L for Q2, but our internal measure was 59% when adjusting out the security gains and MSR and CVA fair value charges as discussed earlier, higher than expected but reflective of the lower investment interest income.

Regarding the operational excellence program, as Cort mentioned, we've now reached a healthy $24 million in annualized savings and it finished phase 1 and continuing the work for phase 2. Turning now to the balance sheet, beginning on slide 13. We increased our interest-bearing cash in this quarter to just under $700 million.

And Cort mentioned earlier the higher loan and deposit growth. We mentioned the gain on Visa stock sale earlier. We also repositioned a portion of the investment portfolio by selling roughly $300 million of higher premium mortgage-backed securities and reinvest into longer term bullet agency securities.

This trade was done to reduce our asset sensitivity to future rates and scenarios and reduce future bond premium amortization volatility, and resulted in the $7 million plus loss on sale of debt securities reflected on the income statement. The portion of the proceeds were also used to reduce term borrowings with the federal home loan bank.

Our total available liquidity remains strong at $10.5 billion, including off-balance sheet sources. The mix of loans and deposits, as shown on slide 14. Our strong long balance growth this quarter was centered on C&I and residential real estate.

The decline in consumer loans continues as a result of our targeted wind-down of the indirect dealer auto portfolio. And within deposits, we had strong growth in non-interest bearing demand, supported by roughly 3,000 new customer accounts along with money market deposits.

Broker deposits were down $190 million, offset by a like amount increase in public deposits. Slide 15 reflects the repricing characteristics of our loan and lease portfolio, knowing our floating and adjustable rate loan mix remain consistent over the past few quarters.

And on slide 16, we have highlighted the geographic diversification of our loan portfolio across the footprint. We also provide some selected loan and underwriting characteristics for each major areas. As mentioned on previous calls, we are happy with the granular nature of the loan book.

Slide 17 reflects our credit quality stats and highlights the strength of our portfolio as shown by the low level of classified loans on the upper right chart, just 7.6% of capital.

In the bottom right chart, we break out our FinTech Leasing Group net charge-offs from that of the rest of the bank, noting the leasing component has been fairly consistent around 3% to 3.5% for the past year. Keep in mind that the weighted average yield of this portfolio is a very healthy 10%.

And lastly, on slide 18, I want to highlight capital, noting that all of our regulatory ratios remain in excess of well-capitalized levels with our tier 1 common at 10.9% and total risk-based capital of 13.7%. With our quarterly common stock dividend of $0.21 per share, the total payout ratio was 42% this quarter.

Also, our tangible book value per share is $10.97, which when you also account for the $0.21 of dividends to shareholders last quarter increased 7% over the first quarter. Our excess capital is approximately $210 million and will provide us with several opportunities, no matter the economic or rate scenario over the intermediate term horizon.

To conclude, our focus is on executing all aspects of our Umpqua Next Gen strategy, improving financial results and generating solid returns for shareholders over time, including the healthy dividend. And with that, we will now take your questions..

[Operator Instruction] We'll take our first caller, Michael Young with SunTrust..

Michael?.

Your line is open, please go ahead. You may be on mute. Okay. We'll move to our next caller that will be Steven Alexopoulos with JP Morgan..

Hi.

Can you guys hear me?.

We can, Steve. Good morning..

Okay. Hi. Good morning. I wanted to start, Ron, with the margin. There’s quite a few moving pieces to the quarter.

Assuming the Fed cuts by 25 basis points in July, what do you think the NIM has to do in 3Q?.

Good question. Well, assuming the Fed doesn't cut, I expect our margin will be at 10 bps, assuming relatively flat rates prepaid, stay relatively unchanged and our bond yield would be closer to 2.5%. We are slightly asset-sensitive. That of course, includes on the downside we are making moves to reduce that asset-sensitivity on the downside.

So, might be a little bit of pressure, but it’d be within the range of plus or minus 5 bps. We've been talking about for the last couple of quarters. We do have quite a bit of higher cost borrowings and deposits that as we continue to generate lower cost deposits, we're able to refund the lender there to help battle the impact on the downside..

Got you.

So, roughly speaking, for every 25 basis points on the Fed, it would be 5 basis-point or so impact to margin, right?.

A lot of other moving parts in there?.

Yes. But that's what you're saying. Okay. And on the sale of the mortgage servicing asset. Can you give us a sense, if you do get that 25% done in the fourth quarter, what's the revenue give-up? And I'm trying to get to the net impact.

Are there any material cost saves?.

Right. There will be cost saves, but the majority of the change you'll see there is a reduction in the volatility. So, again, on the last few pages of the earnings release, we break out not only the mortgage revenue in detail, but also the changes in the MSR.

So, if you take roughly a quarter of the servicing revenue growth, that's going to be right around $2.5 million to $3 million. If you take a quarter of the passage of time, charge on the MSR, that's going to be close to $2 million.

You can see pretty quickly it's pretty small impact on pre-tax and that's before we talk about changes in rates affecting volatility and the fair value changes..

Okay. Got it. And then, just finally, you guys continue to put up good long growth numbers. Can you talk about what's the competition now for C&I, talk about price and structure? And are you walking away from any deals? I know in that you're showing good growth. I’d love to hear more on the competitive environment. Thanks..

Yes. Steve, this is Tory Nixon. The competitive nature really hasn't changed over the last seven or eight quarters. Where a lot of our growth has been in this lower, mid-market business that is a part of our corporate banking strategy that we launched a couple of years ago.

We continue to add bankers, we continue to fight to win business, but we definitely are walking away from business that doesn't make sense from the bank's overall profitability number.

So, competition is fierce in the west and we're winning our fair share, but we're definitely being choosy on what we bring into the Company and how we price it, both on the deposit side and on the loan side..

Okay. Terrific. Thanks for taking my questions..

Thank you..

[Operator Instructions] We'll next go to Jeff Rulis with D.A. Davidson..

A follow-up on the -- well, I guess, on the expense side, you talked about phase 1 being complete, and I think the last quarter you talked about phase 2 savings at that run rate of $6 million to $8 million by the end of the year.

I guess, how much is captured of the phase 2 expected savings in the second quarter rate, and what could be coming in the back half of the year?.

Hey Jeff, it's Ron. Yes, very little in Q2. We would expect to see that start to pick up by Q4. We'll talk more about that on the Q3 and Q4 calls. That component too though is pretty small on a quarterly run rate basis, but making good progress on it..

I guess, the implied $1.5 million to $2 million kind of run rate of that figure, is that still expected to feather in by the end of the kind of Q4?.

Correct..

Okay. And, Ron, you've laid out some expense -- non-interest expense ranges in the past, didn't hear one. I don't know if we can look at the kind of the OREO and marketing costs.

Are you comfortable with the range for the third quarter putting that out there?.

Yes, definitely. Didn't want to give a specific range, but I would definitely back out the OREO as you look into Q3. And then the only other real moving part of the balance of the year is going to be on the home lending production side. Generally, it's a bell curve through the year Q2, Q3 higher amounts; Q1, Q4 lower amounts.

So, I expect it'll be pretty static in Q3, absent the OREO..

Got it. And just on the loan side, your consumer runoff was about half the level the previous quarter and it’s been running down auto.

Has the planned, I guess consumer runoff, is that largely complete or is there some to go, kind of just looking for that outlook on the consumer segment going forward?.

Yes. The majority of that consumer segment is that indirect dealer auto portfolio, and that will continue to run down and probably another year and a half, two years of consist amounts on a quarterly basis..

But at diminishing run off?.

Right..

All right. I'll step back. Thanks..

You bet. Thank you..

All right. We will next go to Matthew Clark with Piper Jaffray..

Good morning. I wanted to hone in on deposit costs. Looked like the rate of increase stepped up here this quarter. I'm assuming the Fed cuts at the end of the month.

I guess, how should we think about the progression of deposit costs? I mean, do you feel like they can peak here in the third quarter and start to trend lower with the Fed cut or do you feel like there's going to be some lag effect for a couple more quarters?.

That's my expectation that they would peak in Q3 and then start to run down, again consistent with what we're seeing on core lower cost deposit growth..

Okay, great.

And then, on the -- as we look into 2020, the branch closures being, call it, 65 out of the targeted, 99, 100, is there still a plan to close those additional 35 or so branches in the upcoming year, any change there?.

Hey Matt, Cort. So, couple of things I'd say. It has -- our performance on our stories has changed fairly dramatically since we rolled this out in late ‘17 or specifically our average store deposits are up 12% in that period of time. Our new customer generation per store is up 50% in the last five or six quarters.

So, we're seeing better performance out of our stores. And reason to tell you that is we look at our stores all the time and kind of balance them against production metrics, opportunities to grow market share, et cetera, et cetera.

And then get to the answer to your question, and then with the increase in our -- in the borrowing costs, with the lift that we've seen, there's a different math, if you will, looking at the incremental cost if we had a wholesale borrower to replace additional consolidations into 2020.

So, I guess, I'm going to tell you, if we look at rationalizing our stores on a continual basis, but we're balancing it against better performance, and then the cost that -- kind of looking at the cost, if we had a wholesale borrower compared to organic growth.

So, we're going to continue to rationalize, and I know we told you guys, we reduced our store exposure. And if we see that it makes financial sense, we will continue to rationalize those stores in the 2020..

Okay. And then, just thinking about the 2020 goals that you, I think, you originally laid out a while back for Next Gen. I think, you had two scenarios in there, one was for flat rates, one was for up rates. We've obviously gotten the opposite scenario here.

How do you feel about those financial goals? I assume, it's really the downside just being the NIM, which is updated thoughts there on the overall financial goals?.

Hey Matt, this is Ron. Yes. So, right now, we're probably in between the two, just with the performance and what we're seeing for Fed increases today.

We'll provide more updates later in the year or January looking at the 2020 specifically, just there is too many potential ranges of outcomes on rates for 2020, at this point about updated guidance, still feel good about obviously Next Gen initiatives and organic growth strategies and more importantly, the capital allocation.

But the one big moving part of that would be the margin being sensitive. But we will provide updates on that as we get closer to the end of the year..

Okay. And just one last one if I could, on the reserve ratio. You guys had strong growth here and you provided for it.

Should we assume that that coverage ratio continues to bump up here ahead of CECL or maybe not?.

We're really not seeing anything on the early cycle delinquency side. Just very incredibly good credit quality. I'd expect it to be around these levels for the balance of the year when we get to CECL.

We are planning on a SAB 74 disclosure in our third quarter Q with a better estimate of CECL for 1120 adoption, but I expect to see it around these levels, for the balance of the year..

Okay, great. Thank you..

You bet. Thanks..

And next we'll go to David Long with Raymond James..

I had question regarding CECL.

Just curious if you guys have discussed how would the CECL may change your appetite to make certain types of loans?.

We are discussing that. Obviously, CECL has more of an implication for longer term, fixed rate assets. I think, there's an awful lot of discussion going on in the industry on that that if anybody gives you a sense of what specifically it will be today, it's probably a bit early on that front.

So, let's talk more about that as we get into year-end and adopt CECL 1120. Could be some changes, but nothing of clarity at this point..

Got it. Okay. And then, as far as loan growth goes, it's been pretty good here. It sounds like you've got a pretty good pipeline. Most people would agree that we are late in the cycle.

What gives you comfort in continuing to grow the loan portfolio this late in the cycle?.

Dave, this is Tory Nixon. I think, there's a couple of things. We continue to adhere to the bank’s quality and underwriting, the standards we have set. So, as we progress forward and kind of expand in the different lines of business, we're doing it under a lens of extremely strong credit quality.

And we're seeing our markets in the west are still -- are doing well, there's no signs of significant issue really in kind of any asset class. And when you kind of match those up together, we're finding opportunity to continue to expand the business on the lending side, including -- and that lending is really about full banking relationships.

So, we're doing it with loans, deposits and core fee income. So, that's the plan and we've kind of been sticking to that for long time..

Got it. Okay. Last question for me, regarding the loss on the fair value of the debt capital market swap.

Geographically, Ron, where would I find that on the income statement? Is that in the other fees?.

That's buried in other non-interest income and it purely moves up and down the opposite of long-term bond yields..

Okay. Got it. Just wanted to confirm….

And we’ve also historically disclosed that on the bottom of the first page of the release....

Great. Thanks, guys..

Thank you..

All right. Our next question comes from Jared Shaw with Wells Fargo Securities..

Just looking at the MSR and the 25% sale on the potential for another 25%.

I guess, how did you come at that level, and why not just sort of get out of the whole mortgage servicing business, I guess at that point?.

Mortgage is very much a core component of our product offering, has been for several years and will be for several years going forward.

So, as we look to size, we look through the composition of the portfolio and how it's been built up over the years, and really in line with everything you' heard Tory and Cort talk about over the past two years, Next Gen strategy and for a very balanced approach with deep customer relationships.

So that portfolio roughly half of it has flowed the positive relationships, the other half is more traditional in nature.

And then, I saw that as a good line in the sand to reduce volatility in addition to the enhanced disclosures we've included this quarter, and reallocate that excess capital into the higher, sustainable fee revenue initiatives that Tory has been talking about..

Okay.

So that 50% that you look to retain, those are more full service relationship customer?.

Correct..

Okay.

And I guess, looking at the gain on sale margin this quarter, is this level sustainable here, or was there something that caused that to be elevated in the second quarter, and should we expect to see that may be to back down?.

There's probably 5, 10 bps in there of lock pipeline increase, and I expect that'll be relatively consistent into the third quarter. And then, lot of wildcards there. But, let's assume, rates stay flat. You would expect to see a seasonal drop off in volume in the fourth quarter.

So, I expect that margin probably to be closer to 3 back in Q4, just drop on lock pipeline. But the performance over the past year has been in line with what we've been expecting and talking about the last couple of quarters. And we're happy to see that..

Our next question comes from the line of Luke Wooten with KBW..

Just a couple of quick questions, as most of mine have been asked. Just on the 20 new customer-facing associates.

Just wanted to see if the expense run rate for those new associates was baked into the 2Q salary line or if we should expect that to increase later in the year?.

It's baked into the 2Q..

Okay. All right. Thank you. And then, just on origination volumes, I know, you touched briefly on it in the last question.

But just how do you see that going forward with lower rates and kind of into 2020, just broad level?.

So, Luke, it’s Tory Nixon.

So, you're referring to home lending or just originations across all loan products?.

Apologies. I meant to -- referring to home lending..

Okay. Yes. Home lending is kind of as we're talking about, kind of full bank -- full relationship banking. I mean, the migration really is around portfolio growth in the home lending business to be customers of the bank. So, we'll continue to be competitive and continue to [technical difficulty] the product itself with our customers.

So, kind of depending on continued rate movements and where we see that product is going to serve our customers and the bank well..

[Operator Instructions] We'll go back to Michael Young with SunTrust..

Hey, guys. Sorry about earlier. Cort, I wanted to start off maybe just on the Go-To Banker initiative. I know it's pretty early in terms of rollout broadly at this point.

But, is there a point at which you think you'll have some updated implications of what that means for the bank after kind of the test phase? And do you think that that can have some offset versus maybe less branch rationalization going into 2020?.

It's a great question. So, yes, we will. I think, we've told you all that once we get further into the -- it's not a rollout anymore as we continue to kind of penetrate and pick up customers and develop ways to hold ourselves accountable, we’ll avail that information to you. It's kind of still too new, to be quite honest with you.

It won't be about four months. So, I’ll make a commitment to get you guys some information, visibility on what we're doing with it. But, you hit on a very good point. It goes back to the question I got earlier about store rationalization. We're seeing good lift in Go-To, we're seeing customers use it. I know we all use it here in the room.

And it does allow us a different way to look at our store rationalization combined with the better performance.

Just to give you an example, if you were going to combine some stores into a community or even potentially leave a community, but you kind of leave the Go-To Banker behind and do other thing with other -- offer products with other FIs, it does completely change your rationalization of your stores. It's a great question.

And as we get further into the rollout, development of what we do with Go-To and provide products and services to analytics, to our bankers and all the things we do, we'll give you that information..

Okay. And maybe just another big picture one for you Cort just on the Next Gen initiative overall, just kind of a macro backdrop against where you initially started this program and kind of where we are now, especially from a rate perspective has shifted.

So, is there any update in terms of how far or how fast we can achieve some of those goals?.

Well, I mean, going to the first phase goals, just financial goals, we delivered on those, quite frankly, quicker than I thought we would. And I was pleased about that, one of the reasons we actually kind of held tight in Q2 on stores because we had delivered on those savings and it delivered on that efficiency ratio until rates moved against us.

So, I'm very pleased with the progress we made on the first phase. I'm pleased in all aspects, the balanced growth, which you heard Tory talk about, the expense savings in the human digital, what we're doing to use Go-To as a very unique offering. The phase 2, which we are getting into right now, I think we will be successful.

Like we've told you before, we always deliver on these numbers when we give them to you. We are looking at things as we go beyond the Next Gen, the three-year Next Gen, we're halfway through it, we're getting into the second half pretty substantially.

As we get into the end of year three, we will come up with another set of kind of initiatives around where we want to take the Company. So I'm very, very pleased with what we've done. We're going to be successful with the next phase. And things have changed over the last three quarters, as you guys have all asked.

It does maybe change some of the things that we do, maybe haste and quickens those, maybe it -- we have to change what we're doing. But, yes, we will continue to execute on the second phase of Next Gen, and we're really pleased..

Okay. Thanks. And, Ron, maybe just one quick follow-up on the mortgage line item. I think, you guys called out a little over $4 million and kind of seasonally higher expenses there, gain on sales kind of improved.

So, is there less likely a chance that you guys are going to kind of pull back some of the fixed or variable costs in that business now?.

Well, I guess, that question is more about drastic changes in volume looking forward, which should be driven a lot by rate. I think, really near term, I'd expect to see similar levels in the third quarter and then tapering off seasonally in the fourth..

Okay. Thanks..

You bet. Thank you..

All right. It looks like we have no further questions at this time. So, I’d like to turn it back to our speakers for any additional or closing remarks..

Okay, thanks. Thank you for your interest in Umpqua Holdings and your attendance today. This will conclude the call. Goodbye..

And once again, that does conclude today's conference. We thank everyone for their participation..