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Good day, everyone, and welcome to the Umpqua Holdings Corporation second quarter earnings call. Today's conference is being recorded.
At this time, I'd like to turn the conference to Mr. Ron Farnsworth, CFO. Please go ahead.
Thank you, Agesa, good morning and thank you for joining us today on our second quarter 2018 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 Rilla Delorier, our Chief Strategy Officer.
After our prepared remarks, we will then take questions.
Yesterday afternoon, we issued an earnings release discussing our second quarter 2018 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 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.
I will now turn the call over to Cort O'Haver.
Okay. Thanks, Ron. Let me start with a brief recap of our quarterly financial performance, and then I will provide an update on our Umpqua Next Gen strategy.
Ron will discuss the financials in more detail, and then we will take your questions.
Our financial results in the second quarter were solid and reflect our strength of our business model and footprint in high-growth markets along the West Coast.
For the quarter, we reported earnings per share of $0.31.
That performance was highlighted by strong loan and deposit growth, higher net interest income and stable credit quality.
As you saw highlighted in our earnings materials, second quarter results were negatively impacted by 2 key items; $8.2 million of restructuring charges related to the organization simplification and design and procurement phases of Umpqua Next Gen as we guided to last quarter, and a $5.4 million negative fair value adjustment to the MSR asset.
Ron will cover the financials in more detail in a few minutes.
Today, I'm going to focus on 3 of our most important initiatives for the 2018 operational excellence, balanced growth and human-digital initiatives.
Let's start with operational excellence.
As we discussed last quarter, we need to continue to adapt to customers' changing preferences. This requires evaluating every part of how we operate and evolve to deliver a highly differentiated and compelling banking experience.
Highlighted on Slide 4, our operational excellence initiative is about streamlining and simplifying our company so we add value for our customers and create a better associate experience while building a more sustainable and profitable company.
Phase 1 includes 2 key elements. The first is an organizational simplification and design exercise, which we completed towards the end of the second quarter.
Ron will discuss the financial impact, but we are pleased with the result so far.
Through this effort, we've streamlined and aligned like functions, flattened our reporting structure and optimized spans of control and collectively, this will improve communication and decision-making across the organization and bring associates closer to our customers.
The second key operational excellence effort in Phase 1 is procurement. We will be looking at enhancing all aspects of vendor management from start to finish and leveraging our size and scale as a $26-billion organization.
Together, these 2 Phase 1 initiatives combine for an annual savings of $18 million to $24 million.
We are starting to see good traction here and remain on pace to achieve 100% of the savings by mid-'19.
The Phase 2 initiatives are currently planned for 2019 after we complete the Phase 1 initiatives.
As outlined on the slide, those include real estate optimization, technology simplification and the end-to-end customer journey redesign. We are planning to pull the end-to-end journey redesign forward, beginning that work in the second half of 2018.
Turning to the balanced growth initiative within our Nex Gen strategy, we remain focused on generating new multifaceted relationships across the bank to deliver more consistent and diversified growth, driven by stronger, deeper and more profitable customer relationships. This initiative also continues to perform well and let me share a few highlights.
Second quarter loan and lease growth was very strong, especially considering how competitive today's loan origination landscape is.
Period-ending loan and leases increased by $379 million over the prior quarter level, which represents an 8% annualized growth. This growth was distributed nicely throughout the commercial, commercial real estate and consumer loan portfolios We continue to see strong results from our corporate banking group, which is driving a significant portion of the overall commercial loan growth. They're also starting to see nice traction in deposits and fees.
Overall, the commercial loan portfolio ended the second quarter at $4.5 billion, representing 11% annualized increase over the prior quarter level. Given that the composition of this loan portfolio is highly variable, we have been able to capitalize on the increasing interest rate environment to grow net interest income.
Loan production and pipelines remain robust and we expect loan and lease growth to remain strong for the remainder of the year.
Turning to deposits. The total deposits increased by $637 million or 13% annualized over the prior quarter level. This came from a combination of growth in DDA accounts and time deposits. Noninterest-bearing demand deposits grew by 2% over the prior quarter level, an especially strong growth number in light of the typical seasonal outflows experienced in the second quarter of the year.
Consistent with what we discussed on last quarter's call, we have yet to see any deposit attrition from the 31 store consolidations we completed during the first quarter. As we indicated last quarter, our plan is to continue with the original consolidation timeline with the next round scheduled for Q1 of 2019. We will continue to evaluate performance and plan to provide an update on the October earnings call.
Lastly, on fee income, we're starting to see good early indicators that the initiatives and investments we're making are working.
Let me provide a few examples. Year-to-date 2018 gross treasury management fees were up 17% over the prior year level. Commercial card spend was also up 41% over that same period and merchant sales volume increased by 13%.
We also completed our first lead-syndication deal during the quarter, which is an indication of the kind of success our corporate banking teams have been able to achieve.
Lastly, human-digital. Human-digital banking is at the core of our strategy. It's a powerful approach to banking that reflects key insights and what customers need and value. While digital tools alone provide great self-service capabilities, customers need and want smart personal advice from real people when making important financial decisions affecting their lives and businesses.
Today's technology makes that possible and Umpqua's human-digital banking approach is about bringing us closer to our customers in meaningful ways. We're using technology to empower our associates to build deep relationships that add significant value to our customers' financial lives and to the bank. Through human-digital banking, we're building a differentiated value proposition that creates a competitive advantage and stands out in our markets.
We think of our human-digital strategy as a spectrum, spanning both the human and digital aspects of banking. We're making significant progress across all areas. So let me share additional information on some of our key investments.
First, on the technology side, the platform developed by our Pivotus subsidiary began enterprise rollout early this month. Based on the success of the pilot, we expect full implementation throughout our footprint by early 2019.
On our last call, we discussed our expanded technology capabilities, including new digital marketing efforts and an online account origination system. We're seeing really positive results from these digital investments so far, including these key metrics.
New consumer checking account acquisition has significantly increased in both the retail and digital channels. Year-to-date, we've seen a 30% increase in new customer -- new consumer checking accounts per location, including those originated online, which is a great sign our investments are working.
Website traffic has also increased by 55% over the same period last year, and our new online account opening portal has seen a significant increase in volume, which has led us to the generation of several thousand new deposit accounts.
Our people are an essential part of our strategy. So we're also investing in the human side of our human-digital strategy. These areas include in-depth relationship-based training company-wide. We completed this effort across our commercial, retail and wealth divisions, increasing the sophistication of how we segment businesses through an in-depth functionality assessment of our treasury management and payment systems that will help us create a roadmap to better support our corporate banking teams. We're still early in the process, but we're already starting to see some positive indicators coming from these investments.
Each of these investments are a critical part of our Umpqua Nex Gen strategy and each depends on the strength of our culture.
It is important to note that part of every one of these initiatives, we've also focused on evolving Umpqua's iconic culture so it reflects and advances our Nex Gen strategy. I'm pleased to report that our associates understand the strategy and direction and are excited to be a part of making it a reality.
So now back to Ron to cover the financials.
Okay. Thank you, Cort. And for those on the call who want to follow along, I will be referring to certain page numbers from our earnings presentation.
Turning to Page 6 of the slide presentation, which contains our summary P&L. At a high level, the $0.04 decrease from Q1 to Q2 resulted from a $0.04 swing in the MSR, which was a positive impact of $0.02 in Q1 to a charge of $0.02 here in Q2. A $0.03 drop related to higher expenses, as expected, included an additional severance and professional fees related to our operational efficiency initiatives.
When combined, these items accounted for a $0.07 decrease in earnings, which was partially offset by $0.03 of positive earnings impact from higher net interest income and higher noninterest income excluding the MSR change leading to the overall $0.04 drop in earnings.
Turning to net interest income and margin on Slide 7 and noted on Page 6 of the earnings release, net interest income increased 2% from Q1. Interest income increased $10 million or 4% from the first quarter reflecting continued solid loan growth and an increasing rate environment.
Our interest expense on deposits increased 15 basis points based in part on the growth this quarter among higher cost in deposit categories based on the recent Fed funds rate increases.
Our deposit beta, based on the Fed rate increases to date, has increased slightly to 22%, driven primarily by higher cost public funds and broker deposits. Over the trailing 2 quarters, our beta is now up to 44%, accelerating as expected.
For the first quarter, our net interest margin decreased 3 basis points while the margin ex credit discount decreased 6 basis points to 3.81%, based in part on the higher average interest-bearing cash position this quarter with the strong deposit growth.
On Slide 8, the provision for loan and lease losses was $13.3 million, down slightly from Q1 based on the decline in net charge-offs this quarter to 22 basis points. Overall, our credit quality remains very strong.
Moving now to noninterest income on Slide 9. The decrease in total noninterest income from Q1 to Q2 was driven primarily by a lower residential mortgage banking revenue from the MSR swing as mentioned earlier.
On mortgage banking, as shown on Slide 10 and also in more detail on the last page of earnings release, where sale and mortgage originations increased seasonally as expected from Q1 but declined 8% from the year-ago quarter.
Our gain on sale margin increased slightly to 3.35% this quarter. Absent the decline in rates, we expect a normal seasonal bell curve for 2018 in both mortgage originations and gain on sales margins, with total volume off 5% to 10% year-over-year.
Turning now to Slide 11. Noninterest expense was $195.6 million, up from $186 million in Q1 and just above our guidance range for Q2 of $188 million to $193 million. The bridge we provide on the right side details the major moving parts including seasonal payroll tax decrease of $2.2 million; lower direct retail store expense of $1 million, noted over the last 2 quarters it is down roughly $2 million based on the store consolidations completed; higher restructuring charges including severance of $4.7 million; an increase in other expenses, including an annual merit increase and technology and innovation related spend among other items; seasonally higher home lending direct expense of $2.6 million, as expected with higher volume; and higher marketing expense of $1.3 million to support our digital acquisition strategy. I'll say for the higher expense here in Q2 compared to our guidance range of $188 million to $193 million, the overage related primarily to $2.5 million of higher restructuring charges, of which 1/2 was higher severance and 1/2 was pulled forward from Q3 to accelerate planned savings; and $1.4 million of higher exit disposal costs as we opportunistically exited a legacy-acquired property that had been listed for several years.
Before I get into expense estimates for the remainder of the year, I want to mention we made good progress with the overall operational excellence initiatives as noted on Slide 4.
In June, we completed the organizational simplification portion and also started the procurement review, which will run through early Q4.
Recall that for these 2 Phase 1 levers, we estimated $18 million to $24 million in annual run rate saves, split evenly between org simp and procurement.
In the month of June, we're at $7 million in annualized saves and expect that to ramp up through Q3 to the $12 million annualized amount in Q4.
The procurement leverage only has a longer tail based on contracts but early feedback is positive.
Combined with org simp, we are comfortable we'll be in the estimated $18 million to $24 million range of annualized run rate saves by mid-2019, as discussed last quarter.
And as Cort mentioned, we are planning to pull forward the Phase 2 end-to-end commercial journey redesign lever from 2019 into Q3 and Q4 of this year. With those moving parts, we now expect to have restructuring charges of roughly $3 million to $4 million for Q3 and Q4 this year.
Incorporating these updates, we expect our overall GAAP expense to be in the range of $186 million to $191 million for the third quarter, declining to be in the range of $178 million to $183 million by the fourth quarter of 2018.
Note that the fourth quarter amount does not include any exit disposal costs related to the anticipated store consolidations early next year. We'll update you all on any changes to this in our October call and Q3 results.
Turning now to the balance sheet, beginning on Slide 12. Both loan and deposit growth were strong this quarter at 8% and 13% annualized, respectively, leading to the increase in interest-bearing cash closer to $0.5 billion. Also, our tangible book value per share is $10.02, which when you account for the dividend to shareholders increased 11% over the prior year level.
The mix of loans and deposits are shown on Slide 13. Loan growth was split pretty evenly between CRE, commercial and residential. Note that the decline in consumer loans was driven by the wind down in our indirect dealer auto portfolio as discussed back in January.
Within deposits, we saw a nice increase in demand of balances, driven by market share gains and growth of new households. We also experienced a continued shift from money market to time as interest rates continue to increase. The majority of this shift was driven by public and broker deposit flows, which we expect to run off and be replaced by strong core deposit growth throughout the remainder of the second half of the year.
Lastly, on Slide 15, 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 10.8% and total risk-based capital at 13.7%.
We repurchased $8 million of stock this quarter and when included with our $0.20 per share common stock dividend, our total payout ratio was 77%.
Our excess capital was approximately $200 million and as discussed earlier, we expect this to decline moderately over the coming 3 years.
To conclude, our focus is on executing all aspects of our Umpqua Next Gen strategy, improving financial results and generating solid return for shareholders over time, including a healthy dividend.
And with that, we will now take your questions.
[Operator Instructions] We'll go first to Michael Young with SunTrust.
I wanted to start just with the margin and the deposit build this quarter. Obviously, pretty heavy in the CDs looks like brokered CDs area that you mentioned. But it sounds like the plan would be in the second half to kind of let these balances dwindle as seasonal inflows come in. And so should we expect kind of margin expansion to reaccelerate potentially at that point?
It is. Yes. Let me back up a second. So generally, seasonally, we're weaker in Q1 and Q2, stronger in Q3, Q4. That is our expectation that we'll have stronger growth on the customer side in Q3 and that were to occur, we would run down the brokered with maturities scheduled in Q3 and would see positive impact on the margin. I will also point out if you go back to Q3 last year, our total deposit growth was in the range of $350 million to $400 million. We were actually down about $200 million in brokered and public back in Q3. We were up a little over $500 million on the customer side in Q3 last year. I look for that to be a bit higher than that here this third quarter.
And can you kind of frame up the magnitude of the public funds that you all have? And maybe what you're seeing in just deposit pricing there specifically?
Yes. I mean really the pressure has been more on the higher balance and in investment money. I mean given our 5-state footprint, we are a main bank, regional bank for our public funds customers. With that includes operating accounts plus our investment accounts. So the public funds and the brokered have been really leading the beta for us on that front. This past quarter actually, we saw a small drop in public funds, which we offset with some brokered flows, including movement out of money market into time. So I'd say in total, public fund deposits are just under 10% of total deposits and brokered is in the range of 6% to 7% about -- consistent with where it was now 4 years ago when we closed the Sterling deal.
Okay. And one last one for me. Just on the small share buyback this quarter, that's not really indicative of something larger you plan to do going forward, that was just opportunistic? Or is that to offset dilution? Just walk me through kind of how you're thinking about capital deployment?
Yes, I appreciate it, I definitely want to focus on a strong healthy dividend in terms of the majority of our return to shareholders. But this was -- we're purchasing net share issuance under equity comp plans. Generally, that's stronger in the first half of the year. Expect smaller amounts over Q3 and Q4. But if you look back over the last couple of years, there was that surge in Q1, Q2, nothing different here this time.
Our next question will come from Jeff Rulis with D.A. Davidson.
Ron, I wanted to follow-up on the expense. I just wanted to confirm that you're -- that $178 million to $183 million expense run rate in Q4, that does include the restructuring charges?
It does include restructuring charges. It doesn't include anything yet on exit disposal cost. We'll see if there are or not if we have to recognize any losses on sale or lease disposal. Not thinking of any right now, so ideally that will hit in Q1. But we might see some of that pull-forward from Q1 to Q4, it'd be onetime of course in relation to the consolidation. So as of right now, the $178 million to $183 million does include the $3 million to $4 million in restructuring charges. And that's really the change from what we talked about a quarter ago.
That triggered another question. I guess the exit disposal costs, those are kind of one-off and they keep sort of trickling in. This is just legacy business that can pop up from time to time? Is there any range on potential exit or disposal costs that come up? Just any guidance on that number.
You bet. And I appreciate it. So with the store consolidations, what's going to represent is going to be everything from severance to lease exit to if we have any loss on disposition of buildings. I'm not expecting much of that if any on owned real estate, but sometimes there are at lease exit costs in there and then, of course, we have severance. This past quarter, there was around $2.5 million of exit costs. I mentioned earlier about $1.5 million of that was not related to store consolidations, it was just a legacy property through an acquisition that we had the ability to hit the bed and opportunistically did hit that bed to exit the property versus continuing to carry it, from that standpoint this quarter. So I'd expect very little in Q3. If we have any in Q4, I'll talk about in October, it'd be a function of pulling forward any lease charges out of the Q1 consolidations. And in total, I'd expect roughly $5 million in connection with the consolidations annually. If you look back at Q1 and Q2, Q1, Q2 this year and late Q4 last year it'd be in that range for the stores we did expect similar amount for the Q1 '19 consolidations.
And then if I could circle back to that run rate then on -- if you were in that range in Q4, take the midpoint of $180 million, I guess annualized that's $720 million for the year. Just wanted to make sure I have this right? The delayed Phase 1 savings and your anticipated range in Phase 2 savings would suggest about $20 million combined. That would be a base of $700 million for the full year. And then we could just assign a run rate of cost growth. Is that in the ballpark of your thinking?
I said, actually -- we expect to have $12 million in annualized saves in Q4 this year. And so the incremental component we pick up by mid-'19 would be in that $6 million to $12 million range around procurement to give you the total $18 million to $24 million range. So by mid-'19, we're targeting having that incremental piece in place. But the base layer of that first half will be in place in Q4.
Got it. And maybe one last one. Just on the auto portfolio, could you remind us that the current size and then the number that -- is it a total run it to 0? Or -- the pace of that, I guess is it could potentially cannibalize net growth going forward. So the size and just the expected rate?
It's about $400 million within the consumer portfolio. It's running down around $45 million to $60 million on a quarterly basis for the last couple of quarters.
And the pace -- no change in that pace expected?
None expected.
We'll go next to Aaron Deer with Sandler O'Neill.
A question on the -- you guys continued to see pretty good commercial loan growth. I'm curious, where the pricing is on that currently. And are the yields that you're getting on that accretive to the current margin? And then I also have a question on the relationships that you're picking up with that and the fees tied to those?
Sure. Aaron, this is Tory Nixon. Yes, the market -- this scene on market continues to be competitive, but we're seeing margins and we're seeing all-in yields that are accretive to our overall bank margin. Well over 80% of what we're bringing in is full banking relationship. So there is a deposit -- the deposit and treasury business in addition to core fee income. And so we're seeing that and it's kind of a win through this acquisition of people that we've done over the last 1.5 years.
Okay. And then I guess tied to that then, Cort, you'd mentioned that the growth that you've seen in the treasury cash management, bank card fees and merchant sales and such that's up year-over-year. Is that in the -- are those categories spread both in the deposit service charges in the other line in your published income statements? Because the deposit service charges year-over-year are down, and I'm sure that there is an element of analysis credits and that sort of thing affecting that. But maybe you can give some color on just what kind of fundamental growth you're seeing in those sorts of service charges?
This is Ron. I'll point out that, yes, those amounts are split between service charges and the other income. And a better chunk of those are in other income. Tory, you want to go over what you're seeing in terms of trends?
Yes. So, I think as Cort mentioned, it's Tory again, as Cort mentioned, we've got gross TM 17% year-over-year, commercial card spend 41%, up year-over-year and merchant 13%. And we're seeing some nice activity levels across the bank. We're seeing net new commercial households and just full banking relationships from either expansion of existing relationships or net new relationships through corporate banking.
We'll go next to Matthew Clark with Piper Jaffray.
First one, just on the third quarter noninterest expense guidance of that $186 million to $191 million, I know you talked about the fourth quarter around disposal costs. But are there any disposal costs included in that $186 million to $191 million?
No.
Okay. And then just on the NIM outlook, I think in the past, or at least last quarter, you talked about relatively range bound. Wanted to get your updated thoughts there, maybe over the second half?
Yes, definitely, when talking about NIM, ex credit, of course, I'd probably say plus or minus 5. If we're successful growing core deposits in Q3 as we expect, we could be in the upper end of that range. If we have to maintain the brokered or bring any others in then we'd be on the lower end of the range. But probably plus or minus 5 over the course of the third quarter into fourth quarter.
Okay. And then just on the accretion, a little higher this quarter, some those -- some earlier payoffs, should we assume that normalizes back to the kind of low 5s?
Yes. I would say anywhere from 2% to 5% at this point. That was just a function of a loan or 2 from a payoff standpoint. I think that $1.7 million increase in credit accretion was a rounding error if that on the loan yield.
Yes. Okay. And then just on the CD promotional side. I know you talked about the brokered CD. Maybe just give us a sense about where that pricing was in the quarter and maybe currently? And then what your -- whether or not you're looking to extend the promotion in the third quarter, if you aren't already, and at what kind of rate and duration?
You bet, it's roughly right around 2% on the brokered side and that's spread between call it 3 to 18 months, pretty even across the tenures. We have been testing some larger balance consumer in commercial CD promos, just to test elasticity curves, not a lot of traction on that. Still, the majority of customers are either short on CDs, or keeping the money market but starting to take peeks up to 12 to 18 months there and just see if we can walk in some money as rates continue to increase.
We'll go next to Jackie Bohlen with KBW.
Cort, earlier in your prepared remarks, you'd mentioned competitive pressures on the loan front. I guess how have those changed if at all from the first quarter? And maybe if you could provide just some added color on whether it's pricing or underwriting or what you're seeing?
Jackie, let me have Tory update you on that. Tory?
Okay. Jackie, it's Tory Nixon. I don't think the competitive landscape on C&I has changed much in the last 2 quarters actually. I think the CRE side -- so it's been consistent for us over the last 2 or 3 quarters. The CRE side has the pricing and margins have thinned a little bit. There is a lot of capital still chasing the market from a -- an underwriting standpoint or a credit quality standpoint. And we are holding very firm on the quality of our asset acquisition. So we're staying within the Umpqua Bank guidelines on underwriting and pulling in good solid assets for the bank.
And are you seeing loosening of underwriting standards from others?
From time to time, yes, more so I think on the real estate side than the C&I side.
Okay. And is that at all impacting volume for you?
Not to this point, no, pipelines for us look good, they're healthy, they're up a tick from last quarter, there's a lot of activity. So no, it seems that's not really impacting us at this point.
Okay. And then just last one on mortgage. If I was looking at my notes correctly from last quarter, it looked like the 10% decline was changed to a 5% to 10% decline. So I would guess and correct me if I'm wrong on that, the volume may have been a little bit stronger than what you were looking at it a quarter ago for the second quarter. And if that's the case, if you could just provide an update on that? And also purchase volume was really strong in the quarter. So kind of what you're seeing throughout your market?
Yes. Jackie, this is Ron, I'd say, I'd expect Q3 volume to be pretty similar to Q2. Again, that seasonal bell curve when you take a step back and look at the whole year by quarters. In total, we think we'll be down 5% to 10% year-over-year and then that really -- that hasn't changed over the last couple of quarters. We're down 8% this quarter from Q2 a year ago. Purchase is definitely the driver in Q2 and Q3 every year just seasonally. I think those gain on sale margins, we -- with higher competition could be closer to where they are now versus 3.5% in Q3. But it's going to be somewhere in that range of 3.25% to 3.5%. And also just recognize on the expense side, as we talked about our overall direct costs on home lending was roughly 250 bps this past quarter, down from 280 bps in Q1, I expect that to drop in basis points over the year to end in that 250 bps range in total for the year.
Okay. That's helpful. And just broadly speaking on 2019, given that -- assuming that the 81% purchase volume holds or sticks around there. Is it fair to say that you could see an increase in volume in 2019, now that most of the refinance activity has been weeded out?
I think that's going to be a better picture story about new supply addition into the market. Right now, we're thinking, it's going to be range bound around current year levels to potentially down slightly. But that's what we had incorporated within our 3-year forecast we did and we gave you all a couple quarters back.
We'll go next to Tyler Stafford with Stephens.
Ron, just maybe to clear the air on the expenses, there's lots of numbers being thrown out for Phase 1 and Phase 2, the back office, the branch closures. Just for 2019, can you just give us the total cost savings number that you'd expect to realize for 2019?
In the year 2019, if we continue with the roughly 30-store consolidations, that's probably going to be around $7 million to $8 million for the year, given those consolidations will occur between January and March of 2019. If you go back to Page 4 then on our slide deck here, we talk about $18 million to $24 million in annual run rate saves. Coming out of 2018, we'll have $12 million working our way up to that $18 million to $24 million. So let's take half of that delta of $18 million to $24 million off of a $12 million, you're looking at probably another $4 million. So that's $16 million off for the full year '19. And then just in terms of the end-to-end journeys, I'm going to have to defer that commentary probably for our October and January calls. That's because we have yet to dive into it specifically. We do believe it's in the range -- that component is -- a component of the Phase 2 saves. But we don't have a specific amount isolated.
Okay. So but beyond that, it would be $16 million total at the midpoint coming off '19?
Correct. Absent anything else moving including mortgage and merit and all those other things.
Sure. Sure. Okay. What is the average deposit costs of the $1 billion of deposits associated with the 31 branches that had been closed so far? Are you having to pay up more to keep those deposits? Or are those betas staying roughly the same as the rest of the core deposits?
Those betas are the same as the rest of the core, very low. Again the driver this past quarter of our overall cost deposits was on the brokered side. I will say that of the 30 stores -- 33 stores we consolidated earlier this year, our deposits are actually up north of $60 million year-over-year within the combined stores. So we're not seeing any change in terms of attrition. We've been very pleased with the initiatives we've had to retain and grow those deposits. Obviously, building that initiatives ahead of next year's consolidations including the go-to launch, as Cort talked about. So nothing with what we did here on the brokered or public side here in Q2 was related to the store consolidations.
Okay. And how much total core deposit growth would you expect to see in 2018?
When we talked about, again, over those 3-year goals, we were targeting mid- to upper-single digits total deposit growth. So that's still in the range of what we're shooting for.
We'll go next to David Long with Raymond James.
Cort, in the past, you've talked about the number of lenders that you've hired since you've really established the middle market C&I growth path that you guys are taking. I have the number about 22 or 23. Where does that stand now? What does the pipeline look like?
Let me bump that over to Tory because he's closer to it. So Tory?
Okay, thanks. David, Tory Nixon. We've kind of held steady the last 2 quarters. So we're still around 23 or 24 in corporate banking that are new hires. We will continue to be opportunistic. So we're always looking, we're recruiting and having discussions with folks. And when we find the right person that fits what we're looking for and fits the bank's culture, we'll do our best to kind of bring him on board. The pipeline for the corporate banking business continues to grow. And as I said earlier, I feel good about where we are today with that. And I think -- not really much more to say about it. It's a business that continues to expand for us and do well.
Excellent. Kind of jumping around here. Ron, the excess capital, I think you pegged at about $200 million. I think you said that will likely build over the next couple of years. Is that accurate? And then I was under the impression that you may be running down some of your excess capital over the next couple of years. And maybe just comment on the thoughts there? And if there was a change, what drove that?
Yes. Actually, I just mentioned couple of minutes ago in my prepared remarks, again, consistently, we expect that to decline slightly over the next few years. I think when CECL comes into play, that is the way our excess capital is calculated. It's based off the lowest regulatory capital ratio compared to our in-house floors. It happens to be their bank level total risk-based capital above our 12% in-house floor. So loan loss reserve is baked into there. I think if we see a pop on the reserve-related to CECL. You might see an uptake in the excess capital at that point. But between now and then, I expect it to continue to run down slightly.
Got it. Okay. And then last question that I had. It relates to your assumed deposit beta, what you guys expect over the cycle? And I think in the past I've heard the number 65%. Did anything in the quarter change your outlook for where you think your deposit beta will go over time?
No.
We'll go next to Jared Shaw with Wells Fargo Securities.
Just a couple of quick follow-ups. You said that there was not going to be any exit disposal costs in Q3. But what about any planned restructuring expenses? Anything like that included in your guidance on expenses?
Yes, apologies, I didn't mention that in prepared remarks. I expect to be in the range of $3 million to $4 million for Q3 and Q4, that's incorporated in those estimates we gave.
Okay. And then on the loan side, are your -- where are current origination yields compared to where we saw portfolio yields for the quarter?
For the quarter, they're pretty close. Pretty much right on top of them.
And next, we'll take a follow-up question from Tyler Stafford with Stephens.
Just 2 more for me. Ron, if you realize the level of core deposit growth that you'd expect to see and then the associated runoff of the public and brokered runoff, what percentage of total deposits would those public and those brokered be at the end of the year roughly?
That's of course going to be dependent upon what we see with loan growth, which we expect to be strong in the second half of the year. I might hold on to them and we might end up still at that, call it, 10% public and 6% to 7% brokered with core customer deposit growth accelerated. So we'll be on the upper end of that mid- to upper-single digit range. So stay tuned. But that's -- I'd be perfectly fine with over the course of the year, we're still in that 6% to 7% range on brokered because that would be roughly flat with where we were 4 years ago. And we've got cash on balance sheet in that call it $0.5 billion to $0.75 billion range.
Okay. And then what is -- excluding the brokered and the public, what's the incremental deposit cost for the rest of the core deposits right now?
With the overall increase of $5 million, it's going to be right around $1 million, ex the brokered and public.
We have no other questions at this time. I'd like to turn it back to Mr. Farnsworth for any additional or closing remarks.
All right. I want to thank everyone for their attendance in Umpqua Holdings and being on the call today. This will conclude the call. Goodbye.
That does conclude today's conference. Thank you, all for your participation. You may now disconnect.