Q4 2019 Earnings Call

Hello, and thank you for joining us for our year-end and fourth quarter 2019 earnings call before we begin. I'd like to remind you that our details earnings release was furnished this morning to the agency on form 8-k and is available on our website at I are under the news and events Link in addition a recording a transcript will be available at the same address following our call.

on today's

All we will make some forward-looking statements any statement that isn't a description of historical fact. It's probably forward-looking in the subject too many risks and uncertainties our actual 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 were requirements of our Regulators off our ability to meet cost-savings expectations, or to realize those cost savings at the pace. We expect our ability to pay or increase future dividends or Implement features on a purchase programs. The novelty of the recently adopted current expected losses or Cecil accounting standard which replace the allowance for loan and Lease losses accounting standard package with our relative inexperience with the newest standard and general economic conditions such as declining interest rates and flat or inverted yield curves that may affect our net interest margin.

Borrower credit performance loan origination volumes and the value of mortgage servicing rights.

Could cause actual results to differ from our expectations or the may cause us to deviate from our current plans are identified in our detailed earnings release and in our SEC filings, including our most recent quarterly report on Form 10-Q as well as our various other SEC filings additionally information on any non-GAAP Financial measures referenced in today's call included a Reconciliation of those measures to gaap measures may be found at our SEC filings and ended 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 grew and a moment. Mark will briefly discuss our financial results. But first I'd like to give a summary update on our results of operations and review our project and execute our business strategy HomeStreet produce solid results in the fourth quarter of 2019 capping off a year of significant change during the year after thoughtful consideration by the board of directors. We executed on the board's decision to substantially reduce our mortgage banking business following that decision. We planned and executed the choice of our stand-alone home loans that are based mortgage origination and business and related service.

other factors that

the successful

Please show this downsizing avoided significant cost of the liquidation and most of our employees associated with these centers were transferred to the acquire of the home loan centers. We also the majority of the mortgage servicing rights related to loan originations associated with those home loan centers. Finally during the fourth quarter of 2019. We completed the sale of ownership interest in our former mortgage joint venture WMS series LLC. We've also made progress to our goals of improving efficiency and profitability with organizational and operational changes, which are resulting in substantial reductions in operating costs and headcount with FTE and continuing operations decreasing 6% off from 1109 at June 13th, 2019 to 1048 at December Thirty One nineteen.

And are expected to further decrease 8% to 1020 by February 1st of this year.

Including discontinued operations total of full-time equivalent employees decreased 12% from 1221 and June 30th, 2019 to 1071 at December Thirty One two thousand and nineteen and are expected to decrease some 16% to 1027 by February 1st of this year.

We made these reductions without materially impacting our ability to compete for business during the fourth quarter. We originated 675 million dollars of commercial real estate loans a quarterly record. We also increased business core deposits by 38.1 million dollars or 2.4% and consumer core deposits by 71.8 million dollars or 39% during the quarter while we were making meaningful progress toward achieving our efficiency and profitability Improvement goals the lower interest rate environment and persistently flat yield curve. I've had an adverse impact on the balances of loans held for investment and our net interest margin and certain operational technology and real estate cost reductions will occur later than originally anticipated challenging that they the pace of our Improvement.

That's a quality remains strong.

Throughout the year with non-performing assets, totally 21 basis points that total assets at the end of the fourth quarter.

Our markets remain some of the strongest in the country with large diverse economies. However, we are keeping a careful eye on fundamentals and remain focused on controlling credit risk.

October of 2019 we added Nancy Pellegrino to our board. She brings over thirty years of wealth management and private banking experience.

This morning. We also announced the appointment of Jim Mitchell to our board. He is the former founder and chief executive of Puget Sound bank with over 40 years of Commercial Banking experience.

We added these very experienced individuals to our board as part of our board refreshment activity and in anticipation of expected retirements by our next annual meeting. We are making progress toward our board diversification goals, and we look forward to the contribution and fresh perspectives of our new board members.

The board recognizes that our shareholders have supported the development of the company and the recent significant changes to our strategy all of which were pursued with the goals of reducing earnings volatility and improved profitability and ultimately enhancing shareholder value.

Well some of these actions and specifically the current initiative to improve operating efficiency are obviously still a work-in-progress. It is clear to the board that the foundation for improvement has been laid.

As such the board is pleased at this time to reflect the accomplishments to date with the initiation of a quarterly common dividend for the first quarter of 2020 payable on February 1st, 2020 to shareholders of record as of the close of Market on February 5th, 2020 in determining this fact in the board considered numerous factors, most importantly, we acknowledge that both the consistency and absolute level of the company's current profitability continued to have much room for improvement at the same time. We believe we have now greater visibility of these measures and the path to Improvement than we have had in the past.

because we anticipate

Paid internal Capital generation in 2020 to exceed the capital required to support growth and meet a sustainable common dividend payout. We are supplementing the capital return to shareholders money via dividends with share repurchases taking everything into consideration. The board is set the initial quarterly dividend at fifteen cents per share representing a 66 cents per share annualized dividend which currently results in a dividend yield of approximately 1.8% on the closing price of our shares last week notwithstanding factors that may affect Capital planning on an ongoing basis the board intends to periodically evaluate the quarterly dividend as the company pursues are opportunities for improving efficiency and profitability.

In addition to the Declaration of a dividend the board also authorized the repurchase of up to an additional $25 billion dollars of our common stock underscoring our confidence in Homestead Mutual performance and long-term value-creation for shareholders. And now I'll turn it over to Mark will share the details of our financial results. Thank you. Good morning every day and thank you again for joining us are Consolidated net income which includes results of both continuing and discontinued operations for the fourth quarter of nineteen with $11 or $0.45 per diluted share wage compared to net income up thirteen point eight million dollars or $0.55 per diluted share for the third quarter of nineteen. Net income from continuing operations for the 4th of nineteen was 13th, 1 million dollars or $0.54 per diluted share compared to net income from continuing operations for the third quarter of nineteen and thirteen point seven million dollars or a $0.54 per diluted share.

for net income

Any operations for the fourth quarter of nineteen was fourteen point nine million dollars or $0.61 per diluted share compared with cornbread income from operations for the third quarter of 1914 point three million dollars worth 57 cents per diluted share excluded from core. Net income from continuing operations for the fourth quarter of nineteen were approximately $120,000 of restructuring related expenses net of tax.

The decrease in net income from continuing operations was primarily due to a decrease in net interest income and a decrease in non-interest income offset by decrease in non-interest expense and the reversal a provision for credit losses during the fourth quarter of nineteen next interest income decreased by one point six million dollars to 4445.5 million nineteen from 47.1 million dogs in the third quarter primarily due to a decline in our net interest margin and a decrease in loans held for investment the rate and volume of loans held for investment decrease during the quarter despite record commercial real estate loan origination as a result of higher loan prepayments driven by operating in a lower interest rate environment during the quarter.

loans

Bethan decreased sixty six point seven million dollars to Five Point 1 billion dollars at the end of the fourth quarter primarily due to approximately $450 of three payments and two off 95 million dollars with printers who held for sale.

Lower short-term interest rates result in a decrease in the cost of interest bearing liabilities primarily as a result of lower balances of broker deposits and lower rates on our federal Home Loan Bank advances and money market deposit.

Deposit balances were five point four billion dollars at December 31st a decrease of 8% from September 30th. The decreasing deposits was primarily driven by a $472 reduction in our broker deposit as Federal Home Loan Bank advances were priced more attractively during the quarter. The decrease is offset by increases of 109.9 million down for deposit comprised of thirty Point 1 million dollars or 2.4% of Core Business deposits and 71.8 million dollars or 3.9% of core consumer deposit.

as a result of the

We're going changes our net interest margin on a tax-equivalent basis decrease to 287 basis points in the fourth quarter from 296 basis points in the third quarter of non-performing assets increased slightly to 14.3 million dollars, but remained at 21 basis points at 4 last at December 31st.

We had a reversal of provision for credit losses in the fourth quarter of nineteen of two million dollars compared to no provision during the third quarter of nineteen. The reversal was due to the reduction in loan balances wage higher net recovery during the quarter and reflects our level of allowance for loan losses through December 31st, nineteen.

On January first twenty we adopted the current expected credit losses referred to as Cecil Accounting Standards Cecil replaces the allowance for loan and Lease losses incurred loss model in a generally accepted accounting principles with an allowance for credit losses methodology that reflects expected credit losses and requires consideration of a broader range of reasonable forecast information to inform credit loss Reserve estimates the adoption of Cecil resulted in an increase in her allowance for credit losses of approximately 3.7 million dollars at January 1st, 2018 or 9% as compared to our December Thirty or nineteen aggregate Reserve levels. This adjustment will be recorded and retained earnings and will not impact net income Northern material impact regulatory Capital ratios.

the newly adopted

Will be reflected in our first quarter $20 Financial results non-interest income decreased two point six million dollars from 24.6 million dollars in the third phone number eighty-two twenty one point nine million dollars in the fourth quarter of nineteen. The decrease was primarily due to a decline in the volume and margin of commercial loan sales during the quarter.

Non-interest spent expense decreased 2.5 million dollars to fifty three point two million dollars in the fourth quarter of nineteen fifty five point seven million dollars in a third-quarter loss due to a two-million-dollar recovery a stock based compensation expense and reduced salary expense on Lower headcount. This decrease was partially offset by 2.3 million dollars of restructuring expenses related to our corporate efficiency Improvement plans and included. I've used occupancy costs associated with releasing cost as we reduce our office space.

our effective income tax rate of 14

6% for the fourth quarter of nineteen differs from our combined federal and state Blended statutory tax rate of 23.5% primarily due to the benefit you receive from tax-exempt interest income and bank-owned life insurance income.

Finally as we completed the exit of our home loans center-based single family Mortgage business net loss from discontinued operations was 2.1 million dollars in the fourth quarter of nineteen compared to net income of $162,000 in a third quarter of nineteen for merely due to reversal in the third quarter of two point three million dollars of estimated restructuring and compensated combination related cost. No tax which had been previously accrued going forward. We expect that there will be no material revenues or or fences associated with the continued operation and that the disclosure of discontinued operations Financial results will end with the fourth quarter nineteen results.

thank you for

For attention, I will now turn the call back over to Mark Mason.

Thank you, Mark on our second quarter 2019 call we lay 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 simplify business business model and lower growth expectations. The plan identified a range of expense reduction opportunities many of which involve a substantial organization operational technology real estate and Personnel changes these include simplifying the organizational structure by reducing management levels and mayonnaise redundancy consolidating similar functions currently residing in multiple organizations.

Renegotiating where possible major contracts primarily technology identifying and eliminating or possible redundant or unnecessary systems and services at a job Staffing in turn to recognize the significant changes in work volumes and Company directions.

Spacey's expense savings to be primarily centered and continued decreases in salaries over the near-term potential decreases in occupancy expense over the medium-term and decreases in Information Technology package cost over the longer term as contracts expire or are replaced based on that plan. We established targets for return on average assets return on average tangible Equity wage and efficiency ratio by the third quarter of this year. These targets were made with the assumption that our net is margin and the size of our loan portfolio would remain relatively stable given the unanticipated decline in the size of our loan portfolio and ongoing reduction in our net interest. Margin. We no longer feel confident that we will produce the revenue on which package targets were based.

The targets also assumed expense Cuts would occur as initially projected by our Consultants as headcount was reduced office space was repurposed and I T contracts renegotiated. However, now that are Consultants have completed a more detailed analysis of major functions. We no longer believe that we will be able to achieve these expense cuts at the pace. We had originally forecasted in part because real estate releasing timelines have been extended and significant technology vendors have not to date been willing to restructure existing agreements prior to maturity.

We can change the believe that we will be able.

To achieve all of our originally planned profitability Targets in mid 2021. We are amending our previously issued guidance for the timing of achieving those targets off.

Despite our disappointment and not meeting the timing of our original profitability expectations. We still believe we will make substantial progress toward our goal of reducing expenses and increasing profitability by the third quarter of this year with more to come 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 be on current expectations or as a result of changes in the interest rate environment changes in Capital management or other changes in the business or credit environment that would negatively impact our ability to accomplish our goals. We now expect to achieve an efficiency ratio in the low seventy percent range return on average assets of approximately 95 basis points and return on average tangible Equity of approximately 11% in the third quarter of this year.

even though we

Now only expect to achieve an efficiency ratio of the low 70% range by the third quarter of this year due to the various factors that I've mentioned. We are pleased to have the results in Rome on average tangible Equity Target remain at 11% Thanks to favorable balance sheet and Capital Management more importantly. We are left with ample opportunities to Thursday our efficiency ratio into 2021 and Beyond which will lead to additional Improvement to our return on tangible equity.

By mid 2021 we believe we can achieve an efficiency ratio in the mid sixty percent range a return on average assets of approximately 110 basis points off and return on average tangible Equity approximately 12%

For the first and second quarters of this year, we expect ongoing run off in our single-family loan portfolio offset by growth and our commercial loan portfolios resulted in as flat to slightly above-average balances loan held for investment over these periods for the same periods. We expect average deposits to decrease as we continue to replace broker deposits with more attractively priced fhlb advances and the maturing of CDs with promotional interest rates used to fund the transfer of services related deposits.

We hope to offset these.

decreases by continued growth of business and consumer core deposits

additionally, assuming the ongoing flatness in the yield curve. We expect our net interest margin to begin increasing in the first quarter of this year slightly reflecting lower deposit cost and the stabilization of the size of our loan portfolio and asset yields.

This concludes our prepared comments. Thank you for your attention today Mark and I would be happy to answer any questions you have at this time.

Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using the speaker phone, we ask that you please pick up your handset before pressing the keys to enjoy your question, please press Start into today's first question comes from Jeff ruthless with d a Davidson, please go ahead real good morning. I guess congrats on the addition of Jim Mitchell to the board certainly a a well-respected banker in the region. I guess I'm curious as to the conversation with the board since since we're nearly a year since that kind of the undergoing a significant strategic change and and really the chairman in the in the release kind of signal to the next stage in the company's Evolution and you could just what you can't share on that conversation with the board and and maybe how that has evolved.

Talk more specifically. What is your what is your

Question Jeff the conversation about the status of our change in strategy. I just want to make sure I answer your question. Sure. Yeah, the you reference kind of a board refresh. I know there's some retire there but but in the in the framework of the release on the gyms appointment again entering the next stage, I just you know, it's it's a high-level. How is the conversation shifted from say a year ago today with the board sure. If you look at the makeup of our board we over the last year and this year have the the anticipated retirement of several directors wage. In fact, all three of the directors who otherwise would have been up for renomination and re-election all dead.

Feed our maximum.

Age limit and accordingly are not anticipated to be re-nominated as a consequence. We have been actively involved in a search for new directors to refresh our board to further our diversification goals and are busy and if you look at the directors that we have added over the last two years and most recently with Jim Mitchell. We have addressed with many of those goals with these appointments one with the appointment of Mark Patterson a little farther back strong investor by side life experience in particular with with HomeStreet from two most recent additions with Sandy Kavanaugh and Nancy Pellegrino. Helping address are dead.

versity goals both ended

Those with strong executive Bank management experience and with Jim Mitchell increasing the banks of Commercial Banking experience and in particular Community Commercial Banking experience in our primary market. And if you look at the individuals who we anticipate retiring at the end of their terms, we are losing substantial expertise Commercial Banking General business and and and and real estate development experience. And so the board is very focused on the skill sets and it's refreshment and we're pretty happy to have attracted these really high quality individuals in particular tickled by the addition of Jim Mitchell recently. Not only

Is it is it does it speak well?

The board's search and decisioning process, but I take it as a personal compliment that Jim is willing to take on that assignment and and help us continue to develop the company. Appreciate the color maybe a question from our crew on the on the core expenses this quarter. There were some puts and takes what would you assume that the base level for the fourth quarter? And then if you could kind of give us some guidance on kind of the trend line into twenty understand, I got some seasonal perhaps mortgage influences, but trying to narrow it down your comments about some some cost savings have shifted a little later in the calendar, but what's the base level this quarter and and what we expect as we proceed through 20. Thanks.

But you can you're looking for the corn on interest expense.

What you're looking for, is that correct?

Yes, okay. I mean, okay, we're going to we're going to continue to see I mean as we marched towards the efficiency goals that we don't I'm going to connect you to see a mug for March down right in salaries and related costs certainly obviously as we cut ftes occupancy expense as well as we rationalize the office space. Again, we had a lease on life in Paramount that we just recognized and then there for going forward we're going to have a lower lower cost on that. Um, and you know again just the other all the other costs associated with having those extra people off company are going to continue to climb as well. You know, GNA Etc legal was certainly expensive in the past that that's completely expect stability in that as we move forward. So and I think our biggest cost that you're going to see again our salaries continued kind of a March down and you could look you could correlate that to the number of people that we have in the guidance that we just gave you that ten twenty-six number that we put up.

on February and between kisses

Going even lower into next year, you know, you know marching towards under a thousand which is where we're headed. Um, and then finally I T we have we did mention that our home of medium and longer-term goals. The longer-term is we're going to we're going to crack the nut on this on these it expenses. But again, we do totally for a couple of quarters now that that's harder than we anticipated in the same line is longer than we anticipated, but we will crack the nut on that. So that's really longer-term Jeff. This is Mark Mason. I would just add to that thought if you look at the bank reconciliation of non-GAAP disclosures in the back of the earnings release, there's a calculated number for non interest expense from continuing operations core right off that is just over fifty million dollars. You should really be adjusting that for other unusual or non-recurring things that we've disclosed in the press release to get to what you would call log.

Call a Baseline.

For the fourth quarter. What what would you assign the core number in the fourth quarter? And then the question remains in 20 20, what are the quarterly sort of ranges that we can expect to see? Well, I would take the, you know, just above fifty million dollars and makes some adjustment not a hundred percent but some adjustments for the reversal of stock compensation expense which was which was somewhat unusual you will be will always have stock compensation expense. I'm assuming but we had to adjust it because the company's performance over the 3-year performance. Wasn't going to make the targets originally established. And so the issue is not going to invest it had to be reversed those. That is the the primary adjustment. I would make this quarter last quarter birth.

adjust FDIC Insurance all

A Community Banks received a nice won't call it a dividend a credit on our deposit insurance which unusually reduced our operating expenses so often go through what we've disclosed adjust our core continuing number and the non-GAAP exposure disclosures to get a Baseline and then start reducing the various expense categories consistent with Mark's comments as we continue to decrease headcount real estate and Technology expenses.

Yeah, what is that number?

Okay. Thanks.

Next question today comes from Steve Moss would be Riley Ser please. Go ahead. Good morning guys. Good morning, Steve Thursday. We think about number ft's and the overall reductions you're looking at for the upcoming year. Should we think about the the decline off that 52.9 million dollar range to be wage ten to fifteen percent range by the time we get to the fourth quarter just kind of curious as to we quantify that a little bit.

You know.

Like you calculate that. Um, we're giving pretty good guidance on margin and I think that you can reasonably project forward. Um not it's just income adjusted for seasonality and given the the the targets on return assets and Equity, You'll be able to drop in those numbers. Okay, and then on on loan growth here, you know, you good commercial real estate multifamily growth and then obviously the pay Downs on pass by by ready mortgage. Just kind of wondering what the pipeline looks like and you know, what are your thoughts about the you know loan balances throughout the year here.

We did give some guidance on loan balances that we expect single family mortgage balances to decline continued to decline being replaced with commercial real estate in General commercial lending with a slight increase in overall loans held for investment balances over the year.

Okay, so I take it a commercial loan pipeline Still Remains strong. Oh, yeah, I'm sorry. I didn't answer that question at the pipeline itself. Typically, this is a week long. Of the year, right? There's like rush to closing transactions at the end of the year particularly the fourth quarter and we have historically start out with relatively weak pipe off that is not true this year. I think that is due in part to the low-rate environment. I think the recent changes from the 10-year will will accelerate that some of what and we enter the year with stronger than typical pipelines in every lending area including single family mortgage. The um while refinancing is at a higher than typical rate. The application pipeline for purchases is higher than normal at this year long.

The I will caution you.

At least in our Market here in Puget Sound home new home and resale home inventories are dropping again, which means home prices will be moving up again. And I'm a little concerned about this is sustainability of a higher than normal purchase pipeline commercial real estate quite active. You saw we had the the largest origination order in our history that is dominated by permanent Landing, but we are making a few new construction loans from that market continues to be very very active and we are looking for a stronger year this year than even last year. So we feel great about commercial real estate Home Building am still a strong pipeline that business is is is driven by entitlement pacing and land pacing but we are in great markets and while they're young.

hello in the middle of last year the

As pipelines are quite strong as well and a never strengthening pipeline in the in the cni area. We had a substantially better year in RCN. I grew somewhat better in volume, but substantially better and profitability and while we don't break those numbers out. I can tell you it was meaningfully better with more to come back this year as we continue to improve the efficiency of that business as well.

Okay, that's helpful. And then you given the strong, you know commercial loan demand here, you know any thoughts around commercial gain on sale for the upcoming year. I mean just pretty good year this past year that you expect that to increase again in 2020. Well, if we increase the volume that will increase we we don't have any reason to believe that gate on sale numbers will change materially but until we get further in the year, of course, we're not going to know we are both active in that market already this year with we've already completed our first significant sale of the year. And so I feel good at least get this junk sure that we're going to continue at this pace of better.

All right.

Thank you very much.

Thanks to you on next question today comes from Jackie Bola jbw please go ahead.

Hi, good morning. Good morning, Jack wanted to start off with the buy back on you know, you had really good activity through the year and in the fourth quarter and just looking at the level of repurchases in the fourth quarter and then the new purchase authorization that you have outstanding. I'm absent meaningful asset growth. Is this a good level for us to look to going forward for repurchases?

That is an excellent question.

We we are still analyzing. What are we purchase activity will look like going forward we have in our internal plan continued repurchasing.

Part of the reason. I'm I'm hedging a little is we we have a a conversation to have still with the FDIC about what our Baseline a tier one minimum should be at the bank for many years since before and since the the IPO. We have maintained by non formal agreement with the FDIC at least in nine percent tier one level at the bank and that of course is driven our Capital planning for the bank off.

given

The much more simplified a business plan of the company the substantially reduced volatility of results the improving results and our strong Capital position. We may be making changes to our Baseline assumptions which can only improve potentially Capital return to shareholders. Even at the current levels though. We we hope to at least

Get an additional $25 authorization from the board after completion of the current most recent authorization, which should take us through a couple of the year and we think that the prospect for improving profit and results of operations also should be accompanied with a prospect for increasing dividends in the future and so taken together. I'm optimistic that assuming continued Improvement in profitability and a consistent credit environment all these things. We we think about that return of capital will continue off at this or similar cases for some period of time.

Okay, thank you. That's that's helpful. And then looking to the single-family portfolio and understanding that, you know, you said you're going to have contraction.

Through the first two quarters or so if that are you expecting expansion then in the latter half of the year or are you only looking to predict, you know, given a fluid environment what balances would be like in the first half of the Year single-family portfolio. There's going to be a stabilization at some point right given the downsizing of our origination activity and the low-rate environment you you're seeing a natural run off that exceeds new origination and that portfolio should stabilize. We think somewhat later this year fourth quarter or so again with all the caveats on rates and everything, right? So you should see that kind of pattern towards the end of the year.

Okay, so is it?

To say that the low-rate environment has accelerated some of the natural going off. You would see given the change in the business operations. And so that enables you to stabilize sooner than you otherwise would not I think that's fair stabilization is a I'll give you a bit of a caveat because we're experiencing higher run off on every thing and so until those the absolute level of runoff stabilizes. I can't say for stable, right? I mean, all right. Yeah. Yeah. No and I mean, I I fully understand how fluid everything is right now and how much you have going on how many different moving pieces and and then that know just when dead one for me, I you know, I understand that it's difficult to predict the timing of when you can do a lot of the initiatives that you have and you are dependent on the responses from the others that you're worth.

With you know, what?

What are some events that you've looked to that could either you know, we accelerate some of the cost savings do you expect or potentially further delay them beyond what your new expectations are also great question because we are so much farther along as we sit here today in analyzing the opportunities presented to us by our Consultants. We have greater clarity about the size of the opportunity in the timing so our forecast, you know, we believe at least for the near-term are substantially stronger.

The with respect to things within our control.

The the things that could change the pace of further Personnel reductions are really within our hands off to complete analysis and acceptance of changes by the remaining functions of the company wage. Um those processes we have been very careful with because remember this is a functioning bank and take the risk management and control aspects of making significant changes need to be handled carefully incorrectly to date. We have not made of errors or created the central control lapses and it's important that we move thoughtfully and carefully with things that challenge people to think different birth.

reduce resources

For work that has been done similarly, but in efficiently and make technological changes and all of these things are happening at a relatively Fast Pace off on the heels of a big restructuring. So pacing is based upon adopt adoption and acceptance rates. There is further analysis that we are doing that has not been completed on several areas of the Bank corporate overhead and corporate operations. There's only so many days in a week and Thursday. We have somebody as consultants and members of management with extra time. And so I think there's a pacing issue we feel we feel reasonably good about the opportunity. The timing has been challenging.

With respect to real estate that is a market issue and how quickly we can release space as an example. We are trying to release 3 floor office building here, you know in a strong Market but a market that has competition and we've been somewhat successful but not completely successful. And so that timing is somewhat out of our hands and technology has been a very frustrating area of of opportunity for us. We we know the cost will decline meaningfully.

We we we are unable to get our partners. I'll call the partners for the moment technology providers in particular our core service provider to enter into any meaningful discussions for renegotiation.

And yet we know that the the levels the volumes and the rates in those in those in those agreements in particular are course service provider agreement wage are above musically above the levels. We should be paying today. Now. Look it's a contract we entered into all of these are more responsible for living up to them, but it's quite frustrating to us. And so it's going to drive the need to consider changing technology.

Upon maturity in order to get the cost in line with where they should be. And unfortunately one of the largest numbers in technology is our core service provider of a track which doesn't mature until 2022. And so this is part of what we had hoped we could renegotiate earlier based upon the experience of our Consultants, but that is not as not occurred yet. I hope that's somewhat helpful. Yeah. No. No, it is very helpful. I don't know if this is something you're able to answer but with regard to the changes you want to make with your course servicer and understanding that that contract doesn't expire until 2022, big of a chunk of your expected cost savings. Does that comprise just generally

I don't think I can answer that in part because of the confidentiality Provisions in the contract. I'd love to ask him to answer that question. So they say this it's meaningful.

But and and of course at some level would change your ultimate outcome before then, but we've given you guidance.

To the third quarter of this year and mid next year and mid next year. We believe we're going to be in the mid sixty percent efficiency range, right, so it is not going to that's 51 not 20-22, right? So that contract itself is not going to prevent us from hitting those twenty Twenty-One numbers. Okay. That was my next question was his name is it? Yes. Thank you. I'll set back now. Thank you for John all the time. I appreciate it. You're welcome. Ladies and gentlemen, as a reminder. If you'd like to ask question, please press star the one at this time.

It looks like we have a follow-up for Steve Moss. It'd be right. Is it for Biryani Str. Please please go ahead a couple of things just a follow-up guys on the march here in particular loan. You'll just wondering where you know today is moving out with staying where where were new money yields for the quarter.

Well, let me let me give you some examples are in the single family mortgage area off. We're we're booking things and in the very high three's like the 390s in the fourth quarter commercial real estate fix stuff in the 450s. I'm sorry. I'm just going to something. Those were arms on single-family single-family fixed about four hundred ninety-two.

Business Bank

15 in the low-to-mid 4% range

on on on floaters and then fixed stuff c r e as I said in the sort of high three's too low wage Wars.

That help but that helps and then in terms of just we're single family commitments for the quarter.

You know, I don't think we're disclosing those currently Steve.

Okay, and I guess the last thing what are you guys thinking for tax rate for 2020?

I use a effective section 19 and 1/2 to 20 and 1/2 to be arranged. I'd advise is 20

All right. Thank you very much. Thank you know further questions. I'd like to turn the conference back over to. Mr. Mason for any closing remarks. We appreciate your attendance and patience listening to us today. I appreciate the great questions. Look forward to talking to you next quarter.

Thank you, sir.

Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.