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Umpqua Holdings Corp (UMPQ)
Q1Â 2019 Earnings Call
April 18, 2019, 1:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the Umpqua Holdings Corporation First Quarter Earnings Conference Call. Today's call is being recorded.
At this time, I would like to turn the call over to Ron Farnsworth, CFO. Please go ahead.
Ronald L. Farnsworth -- Chief Financial Officer
Okay. Thank you, April. Good morning and thank you for joining us today on our first quarter 2019 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Torry Nixon, our Chief Banking Officer; Rilla Delorier, our Chief Strategy 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 first quarter 2019 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 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 Lane O'Haver -- President and Chief Executive Officer
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 Q1 2019 financial performance resulted in earnings per share of $0.34. This is down slightly from the $0.36, we earned in the prior quarter and the $0.35 reported in the first quarter of 2018. The decrease in earnings per share from the prior quarter is due to two items. First, we recorded a $14 million negative adjustment related to the fair value change of the MSR asset.
As noted in yesterday's release, we are exploring ways to reduce future income statement volatility of the MSR asset. It's important to note, however, that as a West Coast regional bank, offering mortgages and related products and services will continue to be one of our core offerings. Second, we recorded a $5.2 million fair value loss on debt capital markets swap derivatives. Both items were due to declining long-term interest rates in the period.
As we entered the second year of our Umpqua Next Gen strategy, we continue to focus on maintaining momentum across all parts of the Company and generating strong financial results. As depicted on slide four of the earnings presentation, a return on average tangible common equity of 13.17% for the first quarter represents strong improvement in our core business. This is particularly strong when considering that it includes a net impact of fair value losses and exit disposal costs for the quarter of 2.29%.
As also shown on slide four, we continued to actively manage expenses in Q1, as reflected in our efficiency ratio of 60.44% for the quarter. The Company's efficiency ratio continues to improve as we make smart investments to increase our operating leverage. Again, the core business' cost control is particularly strong when factoring the 3.65%, that's the result of the fair value losses and exit disposal costs.
Now I'll turn to loan growth for the first quarter. Whilst sequential quarter loan balances were flat, average loans on a linked-quarter-to-quarter basis increased to $337 million, or 6.7% annualized. As previously reported, in Q4 2018, we generated loan growth of $586 million, or 11% annualized, which is substantially higher than Q4s in previous years, due in part to customer request to pull forward some expected Q1 closings late into the quarter.
Higher than normal loan payoffs in our commercial real estate portfolio created some headwinds in the first quarter that offset production. It's important to note that today, our balance sheet is now $20.4 billion in loans and leases, which reflects a very healthy $1.15 billion, or 6% growth year-over-year. As a result, we felt positive about our loan growth over the past two quarters and where we will end the year.
Our strong credit quality metrics demonstrate the success of our disciplined approach to growing high-quality assets. Our non-performing assets to total assets ratio decreased to just 32 basis points, down from 36 basis points in the prior quarter. Net charge-offs were nominal at $13.6 million. Deposit growth on a linked-quarter-to-quarter basis was $106 million, or 2% annualized, and $1.1 million, or 5.6%, year-over-year. Both, our loan and deposit pipelines, are strong as we enter Q2.
Now a quick update on Umpqua Next Gen and our three strategic priority areas. Let me start with balanced growth. During the quarter, we continued to add experienced bankers on our core metro markets. We're focused on bringing additional Middle market relationships to the Bank. In addition, our emphasis on growing multi-faceted relationships in the C&I vertical continues to show positive results. I am pleased to see healthy diversified growth in our C&I loan balances, which increased $60 million, or 5% annualized during the quarter.
Human digital, our approach to creating a differentiated customer experience achieved a big milestone this week as we launched GoTo, the industry's first human digital banking platform to our existing and prospective customers across our footprint, with an integrated marketing campaign. Our pilot clearly demonstrated that customers who have selected their personal GoTo have a higher propensity for additional products and services.
So let me finish by updating the progress made within the operational excellence initiative. We reduced our store footprint during the quarter by 15 stores, consolidating 11 locations and selling four others. We will be consolidating an additional five locations by the end of Q2. This brings our total store rationalization number to 57 since Q3 of 2017. As noted on previous calls, these consolidations have gone very smoothly and we have yet to see any significant deposit attrition from those consolidations.
I'm also pleased to report that phase one of our back office work is mostly complete, with $22 million of savings already in the run rate. We expect an additional $2 million to $3 million of annualized savings to be in the run rate by the end of Q2. Phase two of the back office work, which includes a redesign of our commercial lending and consumer deposit journies, as well as real estate optimization is progressing nicely, and I look forward to sharing results on future calls.
Now back over to Ron to cover the financial results.
Ronald L. Farnsworth -- Chief Financial Officer
All right. Thank you, Cort. And for those who are on the call, who want to follow along, that we are referring to certain page numbers from our earnings presentation.
Turning to page seven of the slide presentation, which contains our quarterly P&L, GAAP earnings per share were $0.34 this quarter, a $0.02 decline from the fourth quarter, driven primarily by fair value losses on the MSR and CVA valuations, stemming from a decline in treasury yields at the end of the period. Ex the fair value swings, as compared to Q4, we had a $0.02 benefit from lower expense and a $0.01 benefit from a lower provision for loan losses, offset by a $0.03 drop in lower net interest income, and a $0.03 drop in non-interest income.
Turning to net interest income and margin on slides eight and nine, net interest income decreased $9.7 million, or 3.9%, from Q4. Interest income decreased $4.5 million. Interest and fees on loans and leases, however, increased $4.7 million, but were offset by a decrease of $7.4 million in taxable investment income. This was primarily driven by increasing bond prepayment fees with lower rates, leading the bond premium amortization of $1.6 million in Q1, as compared to the bond premium recapture of $6 million recorded in the prior quarter.
Discount accretion was $5.2 million and is expected to continue to modestly decline over the coming quarters. Our interest expense increased $5.2 million, or 12 basis points, based on continued average balance growth. Our cumulative deposit beta based on the Fed increases to-date was 32%.
As reflected on slide nine, our net interest margin was 4.03% this past quarter. The margin excluding discount accretion was 3.94%, a decrease of 15 basis points over the fourth quarter. The majority of the decrease resulted from bond premium amortization as compared to the recapture recorded in the prior quarter. The premium recapture credit in Q4 was 11 basis points of margin compared to the bond premium amortization this quarter of 3 basis points. We expect the margin ex-discount accretion over the next quarter to be in the 3.8% to 3.9% range, with anywhere from 2 basis points to 5 basis points of additional margin for discount accretion.
On slide 10, the provision for loan and lease losses was $13.7 million, down from Q4, related to a decrease in net charge-offs.
Moving now to non-interest income on slide 11, total non-interest income declined this quarter related primarily to the non-recurring gain on sale of the Pivotus asset in Q4, plus the negative fair value marks for the MSR and CVA assets resulting from the sharp decline in rates. We're disappointed with the continued fair value volatility on the MSR asset, and we'll be looking at ways to reduce that over the coming quarters.
For Mortgage banking, as shown on Slide 12 and also in more detail on the last page of our earnings release, for-sale mortgage originations decreased 17% from the prior quarter. Our gain on sale margin increased 12 basis points to 2.95% as lock pipeline increased at the end of the quarter.
And turning now to slide 13, non-interest expense was $171.6 million, a decrease of 8% from the first quarter a year ago, and down 4% from the prior quarter. This was also below our guidance range of $176 million to $81 million. The first quarter amount includes continued operational excellence savings, as well as $2.8 million of lower incentives, $2.4 million of lower restructuring-related charges, $2.1 million of lower group insurance, and $1.6 million in lower retail expenses. As expected, these decreases were offset by the seasonal payroll tax increase of $2.7 million.
Note the efficiency ratio was 60.4% on the face of the P&L for Q1, and dropped to 56.8% when adjusting out the MSR and CVA fair value charges discussed earlier.
With the operational excellence we're continuing, we expect to incur another $2 million to $3 million of restructuring costs in Q2. And for the program to-date, we've now reached $22 million in annualized savings through Q1. And with the additional procurement savings expected in Q2, we will be at $24 million to $25 million of annualized savings, at the high end of the phase one range we laid out with our operational excellence initiatives. With this, phase one is now complete, and we're working on remaining phase two initiatives expect an additional savings later this year.
As we look ahead to the second quarter, we expect our overall GAAP expense to be in the range of $174 million to $179 million, with our efficiency ratio excluding any fair value changes in the mid-to-high 50% range. This reflects primarily higher seasonal mortgage production in the second quarter along with annual inflation increases, offset by a seasonal reduction in payroll tax and the remaining procurement saves just discussed.
Turning now to the balance sheet, beginning on slide 14, we increased our interest bearing cash this quarter to $600 million simply to increase our own balance sheet liquidity, through both the net deposit growth over loans along with a small increase in term borrowings. Our total available liquidity remains strong at $11 billion, including off balance sheet sources. Also included in other assets was a new $109 million right of use asset for the new lease accounting change.
The mix of loans and deposits is shown on slide 15. Commercial and residential real estate loans grew in the period, offset by the higher than usual payoffs in our commercial real estate portfolio. The decline in consumer loans continues to be the target of wind down of the indirect dealer auto portfolio. Within deposits, we had a seasonal outflow of public deposits, mostly in the money market category, offset by a similar increase in brokered time deposits, along with the net $100 million of core customer deposit growth.
Slide 16 reflects the repricing characteristics of our loan and lease portfolio. Noting our floating rate loan mix continues to increase with C&I growth. And on slide 17, we have highlighted the geographic diversification of our loan portfolio across the footprint. We also provide some selected loan and underwriting characteristics for each of our major portfolios.
Slide 18 reflects our credit quality status. Noting the strength of our portfolio is supported by the continued decline in classified loans shown in the upper right chart, now down to 0.66% of total loans, or 7.4% 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% for the last year. Keeping mind that the weighted average yield of this portfolio is 10%.
Lastly, on slide 19, 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 10.7% and total risk-based capital of 13.5%. With our quarterly common stock dividend of $0.21 per share, the total payout ratio was 63% this quarter. Also, our tangible book value per share is $10.44, which when you also account for the $0.21 in dividends to shareholders last quarter, increased 4.5% over the prior period, or 18% on an annualized basis.
Our excess capital declined slightly to approximately $162 million as a result of balance sheet growth. And as discussed earlier, we expect this to continue to decline modestly over the coming few years. 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 a healthy dividend.
And with that, we will now take your questions.
Questions and Answers:
Ronald L. Farnsworth -- Chief Financial Officer
(Operator Instructions) And we'll first hear from Jeff Rulis of D.A. Davidson.
Jeff Rulis -- D.A. Davidson -- Analyst
Thanks. Good morning.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning, Jeff.
Jeff Rulis -- D.A. Davidson -- Analyst
So, you guys outlined the phase one. You said $2 million to $3 million run rate cost saves by Q2 end. Do you have a number for the phase two remaining?
Ronald L. Farnsworth -- Chief Financial Officer
Phase two, we are estimating at $6 million to $8 million, and we'll have more details on that over the coming quarters, granted that gets to be a smaller amount on a quarterly basis, but phase one is complete. We're really excited with where we're at with that.
Jeff Rulis -- D.A. Davidson -- Analyst
And the expectation that those are captured by year-end, I can't remember that.
Ronald L. Farnsworth -- Chief Financial Officer
In the run rate in the fourth quarter looking into 2020.
Jeff Rulis -- D.A. Davidson -- Analyst
4Q run rate. Okay. Got it. And then, Ron, I guess included in your guide on expenses to increase next quarter with seasonal mortgage activity. I guess, can we bake in a seasonal uptick in the mortgage banking volume in gain on sale, or I guess more plainly the fee income line there, or really just the balance of the year, your expectations updated on mortgage?
Ronald L. Farnsworth -- Chief Financial Officer
Yeah. We expect a seasonal bell curve on that. So yes, I would expect on an increase in volume and revenue from mortgage activity in the second quarter.
Jeff Rulis -- D.A. Davidson -- Analyst
And in the second half?
Ronald L. Farnsworth -- Chief Financial Officer
It will be strong again in Q3 and then assuming no change in rates, all else being equal, generally see a seasonal drop-off in Q4.
Jeff Rulis -- D.A. Davidson -- Analyst
And then, on your margin guide, does that include -- is the assumption that what you saw last quarter, or excuse me, last year in the second quarter with -- you accessed higher cost borrowings and some margin compression that bake in similarly, that that phenomenon happens again in the second quarter of this year?
Ronald L. Farnsworth -- Chief Financial Officer
Not expecting any additional borrowings over the balance of this year. Loan to deposit pipelines are strong, the key there is, deposit pipelines are also very strong going into Q2. I think what that reflects is a more normalized look at the bond premium amortization. So in that 3.8% to 3.9% range, ex-discount accretion, is our near-term guidance, and that's what the more normalized again bond premium amortization level, similar to maybe early back in 2018 on the bond side specifically.
Jeff Rulis -- D.A. Davidson -- Analyst
Got it. Thank you, I'll step back.
Ronald L. Farnsworth -- Chief Financial Officer
You bet. Thanks.
Operator
We'll go next to Steven Alexopoulos with JPMorgan.
Steven Alexopoulos -- JPMorgan -- Analyst
Hi, everybody.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning, Steve.
Cort Lane O'Haver -- President and Chief Executive Officer
Good morning.
Steven Alexopoulos -- JPMorgan -- Analyst
I want to start on expenses. So first looking at the bridge, Ron, your references to this $2.8 million reduction in incentives, what was that?
Ronald L. Farnsworth -- Chief Financial Officer
Partly because we had a very wrong late 2018 and so, there was an incentive catch up in Q4 of '18, I wouldn't say there is a market change in the incentive structure for 2019, compared to 2018, just reflects lesser activity early in the year.
Steven Alexopoulos -- JPMorgan -- Analyst
Got you. Okay. And then, on the store closures, I know you mentioned this, but you guys went too fast, at least exceeded my ability to write. How many stores closed in the current quarter and what's still in the pipeline to be closed?
Ronald L. Farnsworth -- Chief Financial Officer
Yes, we had 15 in the first quarter, 11 were consolidations, four were on a sale, and we have five additional occurring here in the month of April.
Steven Alexopoulos -- JPMorgan -- Analyst
But you have additional stores beyond April, don't you Ron? I mean in the pipeline?
Ronald L. Farnsworth -- Chief Financial Officer
Looking out into 2020, those are still under consideration.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay.
Ronald L. Farnsworth -- Chief Financial Officer
But none expected for the balance of 2019.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay. And then, in terms of exploring options for the MSR asset, is the sale one of the options you are considering or is that off the table?
Ronald L. Farnsworth -- Chief Financial Officer
There's a handful of options on that, including that, or a portion of along with hedging as well.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay. And what -- I mean we could look at the revenue booked, what are the actual earnings that you're getting from the asset? If you were to sell it, like what would the hit look like?
Ronald L. Farnsworth -- Chief Financial Officer
Well, you can take a look at the last page of the earnings release, it shows the gross servicing revenue at $10 million a quarter. There's always a normal (multiple speakers)
Steven Alexopoulos -- JPMorgan -- Analyst
Yes.
Ronald L. Farnsworth -- Chief Financial Officer
Amortization, which will knock that down and there's expenses on it, but we'll have more discussion on that in the next quarter.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay. Thanks for taking my questions.
Ronald L. Farnsworth -- Chief Financial Officer
You bet. Thanks Steve and again the key is, we want to reduce the volatility, just given where it's been the last couple of quarters.
Steven Alexopoulos -- JPMorgan -- Analyst
Yes. Okay. Fair enough.
Operator
We will move next to Matthew Clark of Piper Jaffray.
Matthew Clark -- Piper Jaffray -- Analyst
Hey. Good morning. On expenses, the $174 million to $179 million for the upcoming quarter includes that $2 million to $3 million of restructuring charges. I guess how does that third and fourth quarter run rate look as of now? I think you've given guidance on more than one quarter in the past. Just curious what the run rate might look as we progress through the year?
Ronald L. Farnsworth -- Chief Financial Officer
Is your question specific to the fourth quarter 2019 expense run rate?
Matthew Clark -- Piper Jaffray -- Analyst
Third and fourth?
Ronald L. Farnsworth -- Chief Financial Officer
Third and fourth. Third will probably be similar on the mortgage side, so it will probably be around that range, and then, fourth, depending on what happens with seasonal volumes, could be down slightly. I'd like the phrase in more in terms of efficiency ratio ex the fair value squarely in the mid '50s now and that's our target.
Matthew Clark -- Piper Jaffray -- Analyst
Okay. Great. And then, on loan growth, up 6% year-over-year. It sounds like you feel good about that type of growth for the full year with some catch-up here for the balance. Can you just speak to the pipeline specifically? I know you said it was strong, but how does it compare to a year ago? And then if you could give any color around the payoffs this quarter, the basis for those payouts. Whether or not they were competitive sales or business is selling and so forth?
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
Sure. Matthew, this is a Torry Nixon. I'll start with pipeline. So the pipeline. I think as was mentioned, couple of hundred million in production kind of moved from early Q1 into Q4. That's what our customers requested. So we were able to do that for them and we've had steady growth in acquiring people in our middle market business and been able to increase our pipeline in our corporate banking business about $600 million over the quarter. So a really nice bump. That is for relationships that we're looking to bank. So pipeline there that's really strong. And is stronger in other parts of the Bank as well, but just kind of highlighting the corporate banking space.
On the pay-offs we had about $200 million in real estate payoffs that were higher than a normal run rate for us and those are broken into two sections. The first half of that being just people selling their buildings and paying off their loans, and then, the other half being just matured loans that end up going -- being refinanced through the life company. So a normal general course of business this time of year.
Matthew Clark -- Piper Jaffray -- Analyst
Okay. And then just on the margins guidance of 3.80% to 3.90%, if you could just offer some color around what your assumptions are that might get you to the lower end of the range? And then, a related question just around the spot rate on interest bearing deposit costs at the end of March, if you had it?
Ronald L. Farnsworth -- Chief Financial Officer
Sure. Interest bearing deposit costs for the month of March were up a couple of bps from the full quarter run rate, so that's obviously reflects in the Q2 estimate. I'd say the bigger piece though is going to be on the bond side. I expect the taxable bond yield to be in that 2.5%range for the balance of the quarter. So that will put the premiumization probably at somewhere closer to $5 million, give or take, compared to the $1.5 million we had here in the second quarter, and that taking into that 3.8% to 3.9% range. Could very well be on the upper end of that range just given discount accretion will be there for, like I said, anywhere from 2 bps to 5 bps on top of that.
Matthew Clark -- Piper Jaffray -- Analyst
Great, thank you.
Ronald L. Farnsworth -- Chief Financial Officer
Thank you.
Operator
We'll move next to Aaron Deer, Sandler O'Neill.
Aaron Deer -- Sandler O'Neill -- Analyst
Hey. Good morning, everyone.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning.
Aaron Deer -- Sandler O'Neill -- Analyst
You mentioned the normal MSR amortization level, what was the level of that in the first quarter ex the valuation adjustment?
Ronald L. Farnsworth -- Chief Financial Officer
Roughly $7 million, I don't have the exact number off the top of my head. But it was in the -- right around that level.
Aaron Deer -- Sandler O'Neill -- Analyst
Okay. And then the reserve ratio ticked up just a touch in the quarter, the first time that that's happened in a while. Is that reflective of just as the portfolio transitions more to commercial and what might we expect for any sort of reserve build ahead of CECL implementation?
Ronald L. Farnsworth -- Chief Financial Officer
I don't know if I would call it as a reserve build ahead of CECL. Again, we will have a more formal sense on reported disclosure later this year, specific to CECL, but I think what you see with the reserve specifically over the last two years is exactly what we show in that top right chart on page 18 of the slide presentation. The classified to capital under the incurred loss methodology continues to decrease, the portfolio continues to get stronger. So it's been -- their reserves have been hanging in this 70 bps to 75 bps range, and I expect it will be somewhere in that range through the balance of the year, assuming no significant downturn in the economy over the next nine months.
Aaron Deer -- Sandler O'Neill -- Analyst
Okay. And then, with the growth that you have been putting on in the C&I book, can you talk about what kind of rates those are currently coming on at? And to the extent that you are getting floors on those, where the floors are relative to the stated rate?
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
Yes. Hi, Aaron. Torry Nixon again. No real floors in the -- on the rate side with these, but there are -- they range very typical traditional C&I pricing in the marketplace. So we're seeing everything LIBOR adjusted from 1.75% to 2.25% over somewhere in that range. So yes -- so it's kind of in that space.
Aaron Deer -- Sandler O'Neill -- Analyst
Okay. Great. Thanks. Thanks for taking my questions.
Ronald L. Farnsworth -- Chief Financial Officer
You bet. Thank you.
Operator
From KBW, we'll go to Jackie Bohlen.
Jackie Bohlen -- KBW -- Analyst
Hi. Good morning everyone.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning.
Cort Lane O'Haver -- President and Chief Executive Officer
Good morning.
Jackie Bohlen -- KBW -- Analyst
In terms of deposits movements in the quarter, if I'm recalling correctly, that's a pretty typical seasonal flow in terms of brokered maybe coming up a bit in the first half of the year and then down in the second half. Was there anything unusual in that or any smaller or larger flows than you would have anticipated?
Ronald L. Farnsworth -- Chief Financial Officer
Nothing unusual. Again, expected seasonal public funds drop-off that we balance with the brokered for total. So that would be the goal over the balance of the year, again with the stronger deposit pipeline heading into Q2 to see a reduction in brokered over the course of the year.
Jackie Bohlen -- KBW -- Analyst
Okay. I mean I realize that we're only on April 18, so it's not very far from actual tax day, but were there any change in trends in terms of outflows you may have seen that were a result of some of the new tax laws?
Ronald L. Farnsworth -- Chief Financial Officer
Again, early to see, but so far nothing significant.
Jackie Bohlen -- KBW -- Analyst
Okay. And then, a quick question on expenses, the $24 million to $25 million that you gave in terms of the phase one savings that you expect by the end of Q2, that's comparable to the original $18 million to $24 million guidance. Correct?
Ronald L. Farnsworth -- Chief Financial Officer
Correct.
Jackie Bohlen -- KBW -- Analyst
Okay. And then, just lastly from the sale of the four store closures, was there any significant financial impact from those?
Ronald L. Farnsworth -- Chief Financial Officer
Small gain, roughly a $1 million. Good premium, again small balance (ph) and deposits, but reflected in other income.
Jackie Bohlen -- KBW -- Analyst
Okay. Thank you.
Ronald L. Farnsworth -- Chief Financial Officer
You bet. Thank you.
Operator
Next, we'll hear from David Long of Raymond James.
David Long -- Raymond James -- Analyst
Hello, everyone.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning.
David Long -- Raymond James -- Analyst
Wanted to ask you about deposit betas and what you're seeing. Now, with the Fed likely on hold, has deposit pricing eased some in your markets? I've been hearing about fewer promotional deposit opportunities and just curious what you're seeing in your markets on that end.
Ronald L. Farnsworth -- Chief Financial Officer
It has start ease, I would expect we'll see a continued just slightly increase next quarter or two. Of course, that'll feed off of any further Fed announcements later in the summer.
David Long -- Raymond James -- Analyst
Got it. And then switching gears, second question I had was, for Tory. In regard to the pipeline that you have for hiring veteran bankers from other institutions, do you expect more along the mid-market or the large corporate side? And are you seeing more opportunities to attract people from some of the larger banks or more of the smaller community type banks?
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
So, hey, David. So we've had the same strategy for the last couple of years and that has been to add a talent base in the Company that we just historically have not had and that's more in the true middle market space. Defined -- one way to define it -- the way we've defined it is, revenues of $50 million to $500 million. And to-date, through the last couple of years we've hired about 35 people, most of them are RMs, are bankers, a handful are support staff, underwriters and others. And they predominantly have come from larger institutions across our footprint.
David Long -- Raymond James -- Analyst
And how is that pipeline today versus maybe three and six months ago?
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
Yes. So, as I mentioned earlier, the pipeline, as we look at it, has seen a lot of growth. We've got strong loan opportunities, strong deposit opportunities, and some good core fee income as a result of it. I mean the plan here is that to absolutely go after the market in a way that we're doing full relationship banking. So this is not a not a snick player or anything like that, it's a full relationship banking process. So it looks very good.
David Long -- Raymond James -- Analyst
Got it. Thank you.
Operator
Next, we'll hear from Michael Young of SunTrust.
Michael Young -- SunTrust -- Analyst
Hey, everyone.
Ronald L. Farnsworth -- Chief Financial Officer
Good morning.
Cort Lane O'Haver -- President and Chief Executive Officer
Good morning.
Michael Young -- SunTrust -- Analyst
I wanted to start actually on some of the reinvestment that you've been doing on the technology front as you've been bringing down the branch network. You had initially guided to I think about a third of that cost save reinvested. I'm just curious kind of where we are on that front? And as that's gained kind of more attention in the industry as a whole, I mean can you just maybe describe a little bit more in terms of where those dollars have been reinvested into within the organization?
Ronald L. Farnsworth -- Chief Financial Officer
Sure. This is Ron. Overall, reinvestments to-date through the saves have been pretty much right in line with plan. There's a little bit of give and take on a quarter-by-quarter basis, but we're in that range of roughly a third. I'd say those reinvestments have been around digital initiatives, product strategies, marketing, additional commercial products and services in line with what you've heard Torry talk about year over the past year, year and half, just as we've worked more and more into that lower-middle market and middle market space. So pretty much right in line where we expected.
Michael Young -- SunTrust -- Analyst
Okay. And a follow-up just on sort of market share take opportunity. I have heard more commentary potentially out on the West Coast in particular in terms of an acceleration in client attrition from some of the larger or largest institution out there. Have you guys seen that either in the consumer or commercial space, or even on the hiring side in a more meaningful fashion lately?
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
Michael, it's Torry again. I don't know that it's changed dramatically over the last six months to nine months. I think it's been fairly consistent. You're finding bankers across all lines of business at the end of any year or the beginning of the year much more open to the idea of switching institutions and moving to other companies. And generally there is definitely a flow from larger banks into more regional banks that I've seen and we've got a good story to tell. So we've been very successful, I think, in telling that story and getting really solid talent into the Company.
Cort Lane O'Haver -- President and Chief Executive Officer
Michael, it's Cort. We provide a great opportunity for bankers that Torry has brought in to bring customers to Umpqua Bank. We now understand upper middle market, the Small corporate type borrowing and because of that reputation that Torry has building over the last three to four years, the pipeline for talent has increased. Torry has been somewhat modest. And so we offer great opportunity for people to come and bring their customers with them.
Michael Young -- SunTrust -- Analyst
Okay. And last one, maybe just on capital. I know -- I'm sorry to ask the question again, but I know in the past you've been sort of against share repurchase, but just given where valuations are, the lowest level we've seen for you all in about 10 years, I mean is there any more interest in at least having something out there available just in case things get volatile and shares are trading at big discounts?
Ronald L. Farnsworth -- Chief Financial Officer
But we have it available, we will be opportunistic. Historically, and I expect for the near term, it will be continue just to repurchase shares -- share increases under equity comp plans to hold the share count flat. Keep in mind too, we have a very healthy dividend with now a roughly 5% plus yield with the stock price where it is and $160 million of excess capital is not an egregious amount of access, it's something that we plan on utilizing to help fund continuing organic growth.
Michael Young -- SunTrust -- Analyst
Okay. If I could sneak just one last one in on the bond premium amortization. Is there something I mean other than just watching 10-year yields and refis that we should watch for that would be telling in terms of where we're going to end quarter or a year in terms of that dynamic going forward.?
Ronald L. Farnsworth -- Chief Financial Officer
That's correct. You can probably do a correlation going back over the last several years by quarter and it tracks pretty well on the 10-year. There will always be a little bit of play in terms of the spread, but generally I use the 10 year as a proxy internally.
Michael Young -- SunTrust -- Analyst
Okay. Perfect. Thanks.
Ronald L. Farnsworth -- Chief Financial Officer
Yes. Thanks.
Operator
(Operator Instructions) Next, we'll hear from Tyler Stafford of Stephens.
Tyler Stafford -- Stephens -- Analyst
Hey. Good afternoon. I wanted to follow up on the last third of the store consolidations in 2020. Ron, I think you said those are still under consideration. So is there -- potentially, you may not close that last round of stores that were originally laid out?
Cort Lane O'Haver -- President and Chief Executive Officer
Hey, Tyler. It's Cort. So I think when we announced the store closures, some 18 months ago, we are exactly on track with what we told you all when we started the initiative. Like, I think, we've mentioned on prior calls, we do rank all of our stores and look at particular attributes. We have seen some of the stores a year and a half ago perform better than they were originally. So that's been actually good to see as we continue to assess these stores. Like Ron said we have nothing scheduled between now and the end of the year. And that does not mean though we wouldn't consolidate or potentially entertain a sale, if so approach, based on what we see are the opportunities. So what I'm saying is, we're on track with what we told you all. We continually assess all of our stores, but nothing planned between now and the end of this year.
Tyler Stafford -- Stephens -- Analyst
Okay. Thanks. Cort. I apologize, if I missed this earlier, but just on the potential that we discussed last quarter to rationalize the home lending expense, last call you said that the gain on sale margins out of the mortgage business were in the high 2%s, you'd be bias to rationalize the expense base. You guys are at 2.95% gain on sale margin this quarter. So, just curious if you had any updated thoughts or comments related to that?
Ronald L. Farnsworth -- Chief Financial Officer
Nothing new on that front. Again, we're heading into Q2 seasonally stronger. I do expect an increase in that gain on sale margin on the face of the P&L and the overall cost of the production is roughly 250 bps. So you get a sense of the spread and then the return on the bottom line, but we will talk about that more over the course of the coming couple of quarters as we see things change and ideally continue to see improvement like we saw in Q1.
Tyler Stafford -- Stephens -- Analyst
Okay. On the revenue synergy side under Next-Gen, the original $30 million to $40 million, Ron, can you just remind us if you've recognized any of these synergies so far, and just remind us of the expectations for the timing of those over the next, I guess, two years?
Ronald L. Farnsworth -- Chief Financial Officer
You bet. And again, I will probably call your attention to last quarter's presentation. We had a chart in there showing the impacts in 2018, the lift we saw, which was a little over a third of the target of $30 million to $40 million incremental by 2020. Looking at Q1 here, we had a drop in more transactional swap activity, I think that was just more a function of rates, but we'll see that movement from quarter-to-quarter. Obviously, back to what Torry mentioned earlier in terms of continued customer growth in the lower-middle market and middle market space, we do expect those core fee income items or revenue items to continue to increase over the balance of the year. And that it will be in that range of plus 30 to 40 for 2020 compared back to 2017, but obviously we'll talk about that quarterly going forward.
Tyler Stafford -- Stephens -- Analyst
Got it. Okay. And then just last one from me, you originally set the Next Gen targets under both a flat rate outlook and then the moderating -- moderately increasing rate outlook. So, since you guys originally set the targets, we've gotten four, five rate increases. So I'm just curious how we should be thinking about the go-forward longer term margin and efficiency and profitability targets you laid out? At this point, the Fed now is on pause, should we be thinking about it somewhere in between that, or what are your thoughts there?
Ronald L. Farnsworth -- Chief Financial Officer
Great question, and also remember that those targets were laid out ex any fair value changes, right, and the MSR and swap -- as the long bond continues to move around. And here in the first quarter, we are at 15.5% return on tangible, if you back out again the swap and CVAs. So I'd best characterize it as probably between the two, if the Fed stops here at this point. Still, that's a big if looking out over the next year, year and half year, but if that were to occur probably between the two and on any number of those measures we laid out, which we're obviously very happy with our progress a year and half or so in.
Tyler Stafford -- Stephens -- Analyst
Okay. Thanks. That's it from me.
Ronald L. Farnsworth -- Chief Financial Officer
You bet. Thank you.
Operator
Next, we'll hear from Jeff Rulis of D.A. Davidson.
Jeff Rulis -- D.A. Davidson -- Analyst
I've just got follow up on the service charges on deposits down linked quarter, you had less days in the quarter, but wanted to see if there's any correlation during quarters of these branch closures that I don't know if some charges are waved for customers that are impacted by close branches or is there any -- if there's not, could you speak to any expectations on the service charge line item?
Ronald L. Farnsworth -- Chief Financial Officer
Yes, nothing material. I think the start of your question nailed it on the head, less days in the quarter.
Jeff Rulis -- D.A. Davidson -- Analyst
Seasonally again expectation to pickup?
Ronald L. Farnsworth -- Chief Financial Officer
Correct. If you look at year-over-year Q1, we're up 2% in the service charge area, so that obviously has been some good traction and earnings to cover there and in our initial story talked about, granted the revenue initiatives are across several of those line items, but specific to service charges, that 2% year-over-year would probably be the better corollary to that specific line item versus Q4 to Q1 just again for the number of days.
Jeff Rulis -- D.A. Davidson -- Analyst
Okay. Thanks.You bet. Thank you.
Operator
And it appears there are no further questions at this time.
Ronald L. Farnsworth -- Chief Financial Officer
Okay. I want to thank everyone for their interest in Umpqua Holdings and attendance on the call today. This will conclude the call. Goodbye.
Operator
Again, that does conclude today's conference. Thank you all for your participation. You may now disconnect.
Duration: 42 minutes
Call participants:
Ronald L. Farnsworth -- Chief Financial Officer
Cort Lane O'Haver -- President and Chief Executive Officer
Jeff Rulis -- D.A. Davidson -- Analyst
Steven Alexopoulos -- JPMorgan -- Analyst
Matthew Clark -- Piper Jaffray -- Analyst
Torran B. Nixon -- Senior Executive Vice President and Chief Banking Officer
Aaron Deer -- Sandler O'Neill -- Analyst
Jackie Bohlen -- KBW -- Analyst
David Long -- Raymond James -- Analyst
Michael Young -- SunTrust -- Analyst
Tyler Stafford -- Stephens -- Analyst
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