Q3 2019 Earnings Call
Good day and welcome to the Homestreet Inc. third quarter 2019 earnings Conference call.
Participants will be in listen only mode should you need assistance. Please take only conference specialist.
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After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
Please note this event is being recorded.
I would now like to turn the conference over to Mark Mason Chief Executive Officer. Please go ahead.
Hello, and thank you for joining us for our third quarter 2019 earnings call.
Before we begin I'd like to remind you that our detailed earnings release was furnished yesterday to the FCC on form 8-K and is available on our website at <unk> or dot Homestreet dot com under the news and events like.
In addition, a recording of the transcript will be available at the same addressable radar call.
On today's call, we will make some forward looking statements any statement that isn't the description of historical fact.
Probably forward looking and is subject to many risks and uncertainties.
Oh performance May fall short of our expectations or we may take actions different from those we currently anticipate.
Those factors include conditions affecting our financial performance. The actions findings are requirements of our regulators or ability to meet cost savings expectations order realize those cost savings at the pace, we expect in general economic conditions, such as a declining interest rate environment and flat or inverted yield curve.
Her that affect our net interest margin borrower credit performance loan origination volumes.
So you have mortgage servicing rights.
Other factors that may cause actual results to differ from our expectations for the may cause us to deviate from our current plans are identified in our detailed earnings release.
And then our FCC filings, including our most recent quarterly report on Form 10-Q , as well as our various other FCC filings.
Additional information on any non-GAAP financial measures referenced in today's call.
Including a reconciliation of those measures to GAAP measures may be found in our SBC filings and then the detailed earnings release available on our website.
Please refer to our detailed earnings release for more discussion of our financial condition and results of operations.
Joining me today is our Chief financial Officer, Mark Rupe in a moment Mark will briefly discuss our financial results, but first I'd like to give you a summary update on our results of operations and review our progress in executing our business strategy.
Well the streets third quarter results reflect the early success of our strategic changes.
Total assets declined in the quarter, primarily due to the closing the sale of the pipeline of loans remaining from our home loan center sale and an increase in loan prepayments as <unk> as a result of lower interest rates. The decline in total assets in conjunction with increasing deposits drove a meaningful decrease in wholesale funding, which helped offset margin pressure and.
The quarter.
Our retail branch network continued to perform well with total deposits of continuing operations, increasing 4% during the quarter and deposits in our de Novo branches those opened within the past five years, increasing 12% during the quarter.
In addition to close in the pipeline of loans from our second quarter home loan Center sale. We also completed.
Final transfer servicing deposits related to our first quarter mortgage servicing sales.
We now substantially completed these very complex transactions.
As a result of our strategic changes.
And our focus on efficiency and profitability or non interest expense decreased meaningfully during the quarter. This decrease was driven in part by decreased and fulltime equivalent employees of 7.3% during the quarter and we expect further reductions as we execute on the suggested changes in our operations being made by our efficiency.
Console.
Additionally, in the quarter, we consolidated or a lake Oswego, Oregon retail deposit branch into our nearby laid grow branch and we continue to analyze additional opportunities to reduce our office occupancy cost across the organization.
We also made progress toward our longer term goal of improving the efficiency and profitability of the company as we implemented the initial phases phases of the efficiency plan, we continue to develop with our consultants.
Based on the were completed to date, we continue to believe we can achieve the cost reduction goals that we established last quarter.
However, like our peers, we are experiencing the impact on our net interest margin of lower interest rates higher deposit costs and changes in the yield curve.
These changes negatively impacted our net interest margin in the quarter and while deposit costs are already declining the interest rate environment may continue to impact future results.
Notwithstanding the impact of the changing interest rate environment, we're pleased with our third quarter results and we're committed subject to the challenges presented by the current environment to achieving the profitability and efficiency goals, we establish last quarter.
In recognition of our progress at our strong capital position. Our board of directors has authorized a new common stock repurchase plan for up to an additional $25 billion in stock repurchases.
The commencement of which is contingent on the receipt of approval or non objection from our regulators, which we expect to receive in the near term.
Asset quality remained strong in the quarter with nonperforming assets, increasing slightly to 21 basis point of total assets at the end of the third quarter from 16 basis points at the end of the second quarter.
Our markets remain some of the strongest in the country with large diverse economies. However, we're keeping a careful on fundamentals and remain focused on controlling credit risk.
[laughter].
As part of our work to prepare for the adoption of the current expected credit losses accounting standards or Cecil at the beginning of next year, we have been running parallel analysis to determine what the impact of adopting Cecil would be on our loss reserve requirements and capital ratios.
Based on our preliminary analysis and subject to final adoption of the standard. We're currently estimate the impact of adoption to be approximately 5% to 10% increase of our allowance for loan losses.
An immaterial impact to our capital ratios.
The ultimate effective adopting c., so will depend on the size and composition of our loan portfolio at the time of adoption.
The portfolios credit quality and economic conditions at the time of adoption as well as any refinements to our model methodology or key assumptions.
Also as the industry experience. This credit cycles, we anticipate more volatility under a life of loan reserving approach versus the incurred loss approach currently use.
And now I'll turn it over to Mark Rupe, who will share the details of our financial results.
Thank you Mark good morning, everyone and thank you again for joining us.
Our consolidated net income, which includes the result of both continuing and discontinued operation for the third quarter of 19 was $13.8 million were 55 cents per diluted share compared to net loss of $5.6 million or 22 cents per diluted share for the second COVID-19.
Net income from continuing operation for the third quarter of 19 was $13.7 million or 54 cents per diluted share compared to net income.
Regions for the second quarter of 19 of $8.9 million for 32 cents per diluted share.
The increase was primarily due to an increase in our net gain on loan origination activity driven by both improved volume and margin on commercial loan sales along with a decrease in noninterest expense.
Net interest income decreased by $2.1 million to $47.1 million in the third quarter of 19 from $49.2 million in the second quarter, primarily due to an increase in interest expense that higher deposit balances.
Late in the second quarter, we increased our CD balances some with promotional interest rate to funded transfer of servicing related deposits in connection with final transfer of servicing related to our first quarters sale of mortgage servicing asset not in the third quarter, we experienced a full quarter.
Interest expense on those higher rate CD balances.
We also experienced a decrease in interest income from at lower rates and volume of loans held for sale as we close out the pipeline loans associated with the sale of our Standalone home loan center based mortgage business.
Right and volume of loans held for investment also decreased during the quarter as a result higher prepayments in response to lower long term interest rate during the quarter.
These factors these factors contributing to the decrease in interest income were partially offset by our continued growth core deposits, which meaningfully reduced our volume of federal home loan bank advances during the quarter.
As a result of the foregoing changes our net interest margin on a tax equivalent basis decreased to 296 basis points in third quarter from 311 basis points in the second quarter.
Loans held for investment decreased 147.8 million.
Collars to $5.2 billion at the end of third quarter from $5.3 billion. The in second quarter, primarily due to commercial loan sales up $233.2 million and higher levels of prepayments previously mentioned.
Nonperforming assets increased to $14.2 million or 21 basis point of total asset at September Thirtyth.
Compared to $11.7 million or 16 basis points of asset at June Thirtyth.
The increase was primarily due to a small increase in nonperforming commercial loans.
We recorded no provision for credit loss in third quarter due to the reduction in loan balances during the quarter and continuing low levels of charge offs fully offset by recoveries.
Deposit balances from continuing operations were $5.8 billion at September Thirtyth, an increase of 4% from June Thirtyth.
The increase in deposits was primarily driven by our increase in CD balances previously described as well as increases in core consumer money market and non interest checking accounts.
Our trailing 12 month retail deposit beta for the third quarter, what 61% up from the second quarters Beta 38% note that we expect our increase in deposit beta trend to reverse in the fourth quarter as we have been proactively lowering our deposit rates in September and October .
Our third quarter 12 month held for investment loan beta with 41% also up from the second quarters beta 31%.
Noninterest income increased $4.8 million from $19.8 million in the second quarter $19 million to $24.6 million in the third COVID-19.
The increase was primarily driven by an increase in volume and margin of commercial loan sales during the quarter.
Non interest expense decreased $3.1 million to $55.7 million in the third quarter of 19 from $58.8 million in the second quarter, primarily due to $1.7 million FDIC assessment credit.
Lower proxy solicitation related costs, and lower salaries and occupancy costs related to our cost savings initiative.
These decreases were partially offset by an increase in DNA expense due to seasonal marketing costs, along with the temporary increase in IP costs, resulting from transitioning servicing and origination system as part of our long term cost savings initiatives.
Our effective income tax rate of 14.6% for the third quarter of 19 differs from our combined federal and state blended statutory tax rate of 23.6% primarily due to the benefit we receive from tax exempt interest income and its proportion to total net income.
Net income from discontinued operations was $162000 net third quarter of 19 compared to a net loss of $14.5 million in the second quarter of 19, primarily due to the absence of additional restructuring charges in the quarter and recoveries of previously recorded estimate.
The restructuring charges and compensation related costs $2.3 million net of tax going forward. We expect some net loss from discontinued operations in the fourth quarter as we finalize the wind down and transfer of discontinued Standalone Homeland Center based mortgage banking business and related.
Servicing.
Thank you for your attention and I will now turn it back over to Mark.
Thank you Mark.
Our second quarter call, we laid out a plan.
Established by management and informed by our efficiency consultants to improve our operating efficiency.
And reduce our cost structure to reflect our simplified business model and lower growth expectations.
The plan identified a range of expense reduction opportunities many of which involve substantial technology organization and personnel changes. These include.
Simplifying the organizational structure by reducing management levels and management redundancy.
Consolidating similar functions currently residing in multiple organization.
Renegotiating were possible major contracts primarily technology.
Identifying and eliminating or possible redundant or a necessary systems and services and adjusting staffing to recognize the significant changes and worked volumes and company direction.
Our third quarter results include the implementation of the initial phases of our efficiency improvement plan.
Assuming that we are able to realize the expense reductions currently planned by management and projected by our consultants and absent continuing negative impacts to our net interest margin beyond current expectations or as a result of changes in the interest rate environment or other changes in the business environment that would negatively impact our ability to account.
Which our goals, we continue to expect to achieving efficiency ratio in the low to mid 60% range return on average assets exceeding 1.1% and return on average tangible equity exceeding 11% by the end of the third quarter 2020.
Timing of future expense reductions will vary depending upon the nature of the expense, although a meaningful amount is expected to be realized in early 2020.
We expect these expense savings to be primarily centered in continued decreases in salaries over the near term.
Potential decreases in occupancy over the middle to our medium term.
And decreases in information services over the longer term as contracts expire or are replaced.
Our financial targets are based only on expense savings and without any additional share repurchases beyond the $25 billion repurchase plan announced this week.
Or the possible establishment of a regular quarterly dividend in the future.
For the remainder of this year next year, we expect ongoing runoff in our single family loan portfolio offset by growth in our commercial loan portfolios, resulting in a flat to slightly increasing balance of loans held for investment.
Over these periods.
Additionally, assuming the ongoing flatness in the yield curve, we expect our net interest margin to experience additional downward pressure as higher yielding loans are replaced by lower yielding market rate loans.
Mitigating this impact somewhat is lower cost of funds from the continued growth of our consumer and business deposit balances as de Novo branches continue to mature and our commercial deposits continue to grow.
This concludes our prepared comments, we appreciate your attention today market I would be happy to answer any questions you have at this time.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Jeff Rulis of D.A. Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Jeff.
I wanted to add a question about kind of mapping the 2.3 million in recovery of restructuring comp expenses is that just an offset to comp was it in other line.
Trying to figure out where that was embedded.
It's in the discontinued operations line and so its offsetting.
Other comp and costs that were incurred in discontinued operations during the quarter.
Okay. So the 162 income was that net.
It was in that line item.
Exactly.
Fair enough.
And Mark you mentioned kind of the balance of the year I don't know if that on the on the loan side, if that kind of carries us into early next year, but any anything further out in terms of net growth outlook for for 20.
By chance.
Okay.
Consistent with the comments I just made we expect.
Net growth.
Over the period.
Consistent with what our current strategy is the growth is not going to be significant but there will be growth.
We we havent guided a percentage at this juncture.
Given we're not sure about prepayment speeds quite honestly.
But we're expecting that growth.
Okay.
And then just circling back on the expenses if you were to appreciate.
Out of the timeline of salaries I guess then.
I guess occupancy and then IP.
Is there a way you could.
Like a percentage or.
Segment out.
What amount of cost saves would come from each area.
That makes sense.
Access salaries, 50% error expected yes.
The majority of the savings is going to come from personnel.
Yes, because if you just look at our cost structure.
I think that the relationships and the cost structure are going to be consistent with the relationships and savings.
That helps.
Okay.
And then one just last one for Mark grew on the tax rate than expectations lot of moving pieces, but what would you say for for 2020.
Yes, let me give you ought to.
For the fourth quarter does that help element more we're looking probably about a 40% to 70% effective tax rate and for 2020 I'd use in the 18% to 20% band the year.
Great. Thank you.
The next question comes from Steve Moss of B. Riley FBR. Please go ahead.
Morning, guys.
Dave.
Okay.
Back on expenses just.
Wanted to see if you could quantify the trap costs you had this quarter and win when you're talking about the I.T. costs in.
And other things there I'm not sure if you mentioned, but if I missed it but once you start there.
By trap costs are you referring to the.
The description we used a couple of quarters go stranded costs exactly yes.
You know, we're not calculating that number these days because once you have separated the groups.
We and started to reduce expenses and consolidate departments and so on it gets a little hard to track I mean, if you look at I think you should look at.
Our expense level today versus that which will get us to our targets.
And part of that's going to be efficiency improvement part of Thats going to be simply climbed back those what we will previously called stranded costs.
Okay.
And then on the CD repricing in deposit repricing here and the fourth quarter is kind of wondering how much do you expect to see in the next over the next two quarters.
And basis points.
In terms of total reduction in deposit cost yes.
That's a little hard to estimate given everything else going on I mean, we have.
Relatively short duration deposits, but there is some duration in them.
There is one lump of nine month Cds that promotional Cds that we.
Raised couple of hundred million in the third quarter that rolls in nine months for sure Thats a discrete piece.
You could track.
But our normal.
CD rollover, which you can you can get a few of our 10-K right Theres a.
Duration table in there.
If you think about that rollover rate and.
CD.
Values and money market values coming down somewhat I think you can estimate what role in the next couple of quarters. Okay.
And then on the repurchase announcement here just wondering about the timing of repurchases and your capital deployment plans.
Any additional color on capital deployment longer term.
We are waiting for approval or non objection from our regulators to commence the repurchase plan I would expect it.
To commence in the next.
Few weeks, because obviously we have application in.
It will take some time to accomplish.
Youre familiar with the restrictions on repurchase activity you can really by only about 20% for the daily activity on average so do you think about.
We are trading currently that will take.
A few months to accomplish probably.
The second part of that question future capital utilization, obviously, we need less capital for growth and we used to.
Given our strategic position today.
I would expect the board after accomplishing this share repurchase to consider a new authorization.
The board is expected to also.
Discuss the possibility of initiating a regular quarterly dividend.
Next year sometime.
Okay. That's helpful. And then one last thing just on the leverage ratio restriction wondering.
You have any updated thoughts there.
Yes, that's a good question I'd, Steve I think what you're referring to is our informal agreement with the FDIC to maintain 9% tier one at the bank level is that yes.
I think that that's an important conversation that we expect to have.
With our regulators.
Probably.
Early to mid next year.
We want to make sure that we have a solid view.
Recurring earnings and that we.
Get our earnings into the range of our peers. So that we can have a productive conversation on that point.
Alright, Thank you very much.
The question.
The next question comes from Tim Obrien of Sandler O'neill and partners. Please go ahead.
Good morning, Thanks, guys for taking my questions.
First question that I have and.
Tell me if you've already answered this did you have.
I'm, assuming there was no revenue from discontinued operations generated in the third quarter is that correct.
There was some revenue in that we were closing the pipeline of their loans.
And.
And there was some interest income.
In the because the warehouse of loans held for sale right.
But is there any.
Hi.
Our crew is there any chance you could kind of give me a ballpark of what that.
Revenue number might come in around.
I'll answer that for Mark.
Good.
We haven't disclosed detailed but it will it be in the queue well, we don't we don't disclose any detail in discontinued operations.
In the 10-Q, but as we.
Mentioned that the script I mean, essentially in a wind down to discontinued operations center in the quarter. So there should be no no revenue I mean, no revenue there, we don't know future there'll be no future revenue quarter now there will be expense however, as the wind it down, but they're really be no material revenue.
Material revenue going forward I guess.
Theres a.
Going in a direction with my question is fits leading someplace else and that was kind of incidental, but what I'm trying to get out is X any revenue that you had plus the 2.3 million recovery.
And then looking at what the net.
Discontinued operations was that gives us a sense of what the cost were and my question is was what was that cost number from discontinued operations.
Ex the recovery in any associated revenue what was that ballpark number was it a few million bucks.
Well look we'll say this would look we haven't disclosed the detail one because we don't think it's material right. It doesn't speak to future earnings it's a cleanup operation the revenue.
Was not significant most of the activity was expense offset by the recoveries great. Okay. That's it that's helpful and obviously that cost number from discontinued operations is going to most likely be lower in the fourth quarter. Then it wasn't that third quarter. That's a good assumption to correct.
General generally correct.
It's it it should be lower but it's not going to be not exist.
Understood.
And until we get dressed way through the quarter and see what the final cleanup of a couple items are we can't be sure and that's why we're being a little abate I'm sorry, no that's okay Mark.
And then another question is on the in the topline 32.8 million this quarter.
Can you.
Provide.
What piece of that was variable rate tied to gain on sale.
Or kind of give me a ballpark what that number was.
Okay.
[laughter].
If we were going to disclose all those numbers, we provide a schedule. So I don't think we should do it piece meal.
Yes, I'm just trying to get at what kind of the fixed rate comp number was in the third quarter kind of as a baseline core comp fixed rate comp here and to work off of that ultimately my intent Dennis just I.
Again that Tim I do get a I understand your challenge and that the forecasting need but.
Again.
If we do it this quarter than we fill obligation to do it next quarter and then we have to start creating schedules and that's kind of so if I promise you I want ask again.
Hi.
Dr. I'll, just say no but I appreciate your challenge it's okay, Yeah, I thought I try yeah, I'll step back now.
Thank you said.
The next question comes from Jackie Bohlen of KBW. Please go ahead.
Hi, everyone. Good morning.
Thank you.
Yeah, Mark right, Dan in terms of the identification as anticipated cost savings.
Are you close to identifying most of everything or is there still more that the consultants are working on.
You know that that's a fascinating question.
There is different levels of identification, let me start with that right. We have had identification of the areas of cost savings in the type of cost.
Since.
The middle of the second quarter, essentially right now taking those areas of cost savings translating them to plans, which may involve consolidation of activities consolidation of and elimination of multiple software systems things like that.
You go down to a level. Okay now we need to executable plan for that consolidation and we need to identify individuals who will be staying versus leaving in terms of positions in individual people.
So we have identified all of the areas.
Some of the error and we have a calendar.
On which we at our consultants are working each piece.
I would say we are about.
Halfway or more through the pieces in terms of plans and specific identification all the pieces are not equal, though so as you would expect we're attacking the largest opportunities first.
And so I would say that we are.
Car to put a number on this substantially more than half way through the specific identification process.
And.
And that's why we continue but but 100% through the process of identifying where the savings will come from and I hope that doesn't sound too vague, but it's it's quite a process of organizational change.
Technology change and the like and.
Because of where we're at we still feel comfortable saying, we believe we're going to achieve our targets.
And you know the unfortunate.
Part of that is most of the realization of that change.
Is going to occur in future periods right, we're going to see some more progress in the fourth quarter.
Mostly personnel.
Reduction.
And then the substantial more.
In the first quarter again, mostly personnel, but some technology.
And in occupancy.
And.
And then the remainder over the remainder of the year next year, there's also meaningful.
Savings on the technology side that will occur after 2020.
And that's unfortunate.
In that we'd like to get all the savings we can right away, but we have some longer term technology contracts great. Examples our core system right with that by us, which don't mature until 2022.
Which are very challenging to renegotiate when someone has contractual revenues already in their plan right. So.
That's kind of the the prob progression from here and.
We feel good about where we're at I mean thats the feel of what you all to take away from this call.
It's still a lot of work.
And.
The economic environment provides some uncertainty still.
Hope that helps.
Yes so.
Actually you fully identified the areas Q coal cost that adds.
Roughly around 50% little more in terms as figuring out how you're going to accepts it savings on what micro areas might come from and then so you still need to continue to figure out where you're going to be anikas total cost and then that I've been execution.
That's all for that I am I understanding correctly.
I think thats right I mean, the fact that we may not have a fully detailed plan for certain areas doesn't mean, we haven't looked at them and don't know where that the savings are going to come from we do.
But getting down to execution dates.
Personnel things like that.
On some of the lesser areas.
Not done it again, all the areas are not the same magnitude.
It is important.
Understood and I would get you know you're executing on the easier items.
First.
Among them are challenging items, what will come over time.
Not necessarily true.
We will.
Most significant magnitude first.
Okay.
If there's things that are easy to do at apparent today, we're asking the leaders in those areas to work on them immediately, but they're not going to have help from senior management or consultants yet right. So we are expecting our people to be doing whatever work they can independent of our process and that path.
And one of the areas.
That is most easily identifiable is in attrition.
And when we have attrition in areas and I'm talking substantially in non revenue.
Areas.
We're asking our managers to first ask themselves.
If the process or work being done by that position can be absorbed within the remaining group.
And I'm, so happy with the work that our folks are doing they are really stretching and being creative to.
To do that right to absorb into existing resources.
The work that some attrition position might create now that's not going to be too and every position we will not starve our people for appropriate resources, we will not change our risk management profile, but.
Our business has changed a lot and in some areas attrition you'll be turned into savings.
Okay.
And then just one more for me on that completely separate topic. I know you mentioned that the single family portfolio well run down I know we've discussed that that's what do you have kind of a general target in mind for aware that portfolio retrench shutting down to at the percentage of called alone.
That's a fair.
I think that's.
It over and just trying to think about the magnitude of decline.
I can check this but I would say.
My sense of the numbers were looking at could be about a 20% decline in balances over the next 18 months and those are thats very rough.
And I might have to correct.
But I think that.
That that order magnitude could occur and Gerhard can follow up with you.
But no.
Well I don't know at rates are going to continue to decline right I mean these.
Environments so uncertain.
Yes, yes, definitely understood that where we're operating in that fluid environment. That's okay. Great. Thank you for taking my question.
[noise] jacket again, if you have a question. Please press Star then one.
The next question comes from Tim Coffey of Janney. Please go ahead.
Thanks Mark.
Yep.
We'll see the drop in rates.
I got to imagine there's been an increase in refi activity within your branches.
I wanted to do you anticipate the volume of the refi activity to kind of lift your per year or so.
Sold volume office 300 million that we saw in the third quarter.
Third quarter volume remember is impacted by closing.
The pipeline the home loan centers.
But.
And it's elevated somewhat.
Bye.
Extra refinancing.
On a level state, we're expecting that business to originate about $1 billion, a year and thats excluding.
The joint venture with WMS that we have which.
Yes.
So we're running probably 20% higher than a non rifai period would suggest but that extra refi volume we expect to continue.
Somewhat in the fourth quarter subject to seasonality.
And and into the first part of next year.
But again that any forecast is just subject to a lot of uncertainty with rates.
Sure sure enough understaffed.
Do you anticipate that additional volume to have any creating additional volatility within your expenses.
Flusher Commission revenue of course, I think yes.
Okay.
Okay.
And then.
The commercial loan sales in the quarter of 270 million is I think that a good run rate.
That you're looking at.
And so it can be a little seasonal.
Fourth quarter is typically pretty strong.
And we are expecting.
Again.
This year.
If you look at.
Last years fourth quarter.
The commercial loan sales were actually a little less than third quarter. This year, so third quarter.
Was surprisingly good.
I would expect.
A.
A reasonably strong fourth quarter.
Will it be as large as the third quarter kind of remains to be seen.
Okay.
And then was there anything in the margins on the gain on sale of either the loans commercial or single family residential that we should keep an eye on.
The margins on.
The single family loans will improve.
Dramatically after we sell our interest in WMS, because think about the correspondent margin on purchase loans being about half the margin on retail originated loans of course, the volume will decline but.
The margins will increase also.
The business, we have today the retail mortgage business is substantially.
Better controlled and at the margin more profitable than the very large business. We had we are.
Much more stingy and price exceptions.
And.
The absolute volume is not as important to us as profit margins and expense control as you would expect and so the consistency of our margins going forward on the retained business should be substantially better than they have been.
I know there, but the pure margin the pure composite margin. This last quarter on our retail originated business continued business.
Was.
Well above 300 basis points somewhere that Asia Threetwenty.
It hasn't been that good for quite awhile.
Before that.
Yes.
And I know you under entered into an agreement to sell your ownership interest in WMS give any idea when that's going to close.
We hope this quarter it should close this quarter.
Yes.
And just following up on the earlier question about CD maturities schedule.
It doesn't sound like you have anything material repricing and the next two quarters or was it just more of a kind of but to the because the scheduled mix use in case to really get better answer.
Yeah, I think it's the regular rollover.
The one promotional piece that I mentioned is that going to roll for another couple of quarters right 200 billion that we promotions.
Ladies we raised to fund the servicing transfer in the third quarter, that's going to take awhile, but the regular rollover is going to continue.
Okay, I guess years, calling out the nine month promotional.
Yes, that's all I called out right. Okay. All right are those all my questions. Thanks, a lot. Thanks, Thanks, again, and we have a follow up from Jeff Rulis of D.A. Davidson. Please go ahead.
Thanks, just a couple others on the in the credit side.
That's a deterioration.
Partial nonperformers could you itemize with that by geography, or just any color on the increase in non accruals. Thanks.
You know there's not much distinction there there's a few smaller credits that.
Went to non accrual.
We don't expect any.
The material losses, we have good collateral coverage and.
Yes.
Some of these will hopefully be upgraded.
Was there any geographic.
Specifics to that.
Not really I mean, you know our concentrations are in Puget sound in Southern California.
And there's a little above.
And then mark on the.
You said earlier the efficiency goal is low to mid 60%.
The previous call you had low 60% just curious as to the shift is that.
An updated revenue projection or is that.
Less cost savings as we wrap your hands around.
Thanks, you've got it.
Well.
The last time, we mentioned it was probably low to mid and we described it as low right. If it's not 60% right. It's somewhere between 60 65 right.
I think right now we've just provide a little uncertainty because of the interest rate environment on the impact on revenue.
All right.
Thank you.
Thank you Jeff.
This concludes our question and answer session I would like to turn the conference back over to Mark Mason for any closing remarks.
Thank you again for your participation at attention today, we look forward to speaking to you again next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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