Q4 2020 HomeStreet Inc Earnings Call
[music].
Good day, everyone and welcome to the Homescreen incorporated your in.
Fourth quarter 2020 earnings conference call.
All participants will be on listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
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Please also note today's event is being recorded.
I'd now like to turn the conference over to Mark Mason, Chief Executive Officer from Street. Please go ahead Sir.
Hello, and thank you for joining us for our fourth quarter 2020 earnings call before.
Before we begin I'd like to remind you that our detailed earnings release and an accompanying investor presentation for <unk>.
Filed with the SEC on form 8-K yesterday and are available on our website at IR Dot home Street Dot com under the news and events link.
In addition, a recording on a transcript of this call will be available at the same address following our call. Please note that during our call today, we may make certain predictive statements to reflect our current views and expectations about the company's performance and financial results. These are likely forward looking statements that are made subject to the safe Harbor stay.
Thats included in yesterday's earnings release, the Investor deck on the risk factors disclosed in our other public filings. Additionally, reconciliations to non-GAAP measures referred to on our call today can be found on our earnings release available on our website.
Joining me today is our Chief Financial Officer, John Mitchell, John will briefly discuss our financial results and then I'd like to give you an update on our results of operations credit performance.
Going forward John.
Thank you Mark good morning, everyone and thank you for joining us.
In the fourth quarter, our net income was $28 million or $1 25 per share with core income of $32 million or $1 47 per share and pre provision core income before income taxes of $41 million.
This compares to net income core income and pre provision core income before taxes of $26 million $28 million and $36 million, respectively. In the fourth quarter excuse me in the third quarter.
Our results included unusual activities that occurred during the fourth quarter, including.
As part of restructuring and consolidation of our space at our corporate headquarters in Seattle.
And to acknowledge the impact of the pandemic on the leasing office market, we recognized a $6 $1 million charge related to the impairment of our lease and related fixed assets on space, we have vacated.
We estimate that this will result in occupancy expense savings of approximately $1 $3 million per year through the next seven years.
We paid off certain fixed rate <unk>.
Advancers and incurred a prepayment penalty of $1 $5 million with the benefits expected to be realized evenly within our net interest income over the next five years.
We recognized a $1 $8 million reduction in our self insured medical benefit costs, which is due to lower usage of medical services by our employees. In 2020, we are not anticipating similar savings in 2021 and future years.
Continued decreases in our funding cost has had the result of increasing our net interest margin of 3.26 per cent.
As a result of the continuing strong performance of our loan portfolio and a stable low level of nonperforming assets.
Provision for credit losses was recorded in the third or fourth quarters of 2020.
Yeah.
Our ratio of nonperforming assets to total assets remained low at 31 basis points, while our ratio of loans delinquent over 30 days to total loans decreased to 68 basis points at December 31 from 76 basis points at September 30th.
Loans remaining in forbearance is in our commercial and CRE portfolios were $41 million at December 31, 2020, representing one two per cent of such loans Outstandings and you pull forbearance is granted in the fourth quarter for our commercial and CRE portfolio, where less than $7 million.
Yeah.
Single family and consumer loans remaining in forbearance, excluding those guaranteed by Ginnie Mae were $76 million.
In light of the recently passed Corona virus response and relief supplemental appropriation acts.
We anticipate that some single family loans may request, an additional forbearance in 2021.
Our single family loan originations and sales volume and profit margins remained strong in the fourth quarter driven by the ongoing mortgage refinancing boom.
The increase in non interest income in the fourth quarter was due to higher sales on multifamily loans, including Fannie Mae does multifamily loans and higher servicing income, which resulted from more favorable risk management results on mortgage servicing rights realized in the fourth quarter.
The increase in noninterest expense in the fourth quarter over the third quarter was primarily due to the previously mentioned restructuring charges higher lending commissions and management bonuses and the prepayment fee on the FHA advances, which were partially offset by reduced medical costs.
I will now turn the call over to Mark.
Thank you John.
From Street reported strong results in the fourth quarter, concluding a year in which notwithstanding the challenges presented by the global pandemic, we benefited from our diversified business model, our conservatively underwritten loan portfolio on the steadfast commitment of our employees.
To take a moment to recognize and thank all of our frontline employees as well as those working from home for quickly adapting to the pandemic last year and serving our customers and communities, but also each other and thereby helping the company to achieve these stellar results.
During the just completed quarter, our net interest margin once again increased as a result of improvement in our funding costs, we continued to benefit from higher loan volume and profitability in our single family mortgage banking business and we had record origination volumes of commercial real estate loans and higher volumes of commercial real estate loan sales.
These increased revenues along with the benefits of our efficiency and profitability improvement project initiated in 2019.
It resulted in meaningful improvement on our profitability and our efficiency.
I'm very proud of what we achieved last year for the full year 2020, our core results from continuing operations resulted in a return on average assets of one point to 3% a return on average tangible common equity of 13, 4% and our efficiency ratio of 61.
One 4%.
And for the fourth quarter, our core results from continuing operations resulted in a return on average assets of $1 seven 3%.
Turn on average tangible common equity of 19% and an efficiency ratio of just $56 one per cent.
These fourth quarter and full year results all meaningfully exceed the targets we established in 2019 for profitability and efficiency improvement following the restructuring of our single family mortgage business and we accomplished these results. Despite the challenges of the pandemic and the significant additional loan loss provisions we recorded in the.
First half of the year.
We also returned $73 million of excess capital to our shareholders. During 2020 via dividends totaling <unk> 60 per share and the repurchase of $2 2 million shares or nine 2% of total shares outstanding the day.
On average price per share of $26.31.
Substantially below.
Our tangible book value at the time.
Additionally, as a result of our repurchases in earnings for the year, our tangible book value per share increased 16% last year.
We're quite pleased that the combination of our strong operating results on our active capital management. During the course of the year resulted in our share is outperforming other regional banks by a meaningful margin.
Returning $1 four per cent compared to the negative eight 7%.
Total shareholder return of the K B W. A regional Bank index.
Looking forward with the federal reserve, indicating that interest rates will remain low for the foreseeable future. We expect our net interest margin to modestly expand as deposits continue to reprice downward and as we received pay offs from the initial paycheck protection program.
Single family mortgage volumes should remain robust for the foreseeable future as the low interest rate environment has not completely been priced into mortgage interest rates due to the industry's inability to absorb the massive amount of volume spurred by these historically low interest rates.
As capacity normalizes in the industry mortgage interest rates should decrease in line with their historical spread over long term treasury rates we.
We expect that this transition will reduce the very strong gain on sale margins. We are currently enjoying but maintained strong volumes for an extended period of time.
The transfer of our Fannie Mae Day U S multifamily lending business to home Street Bank from a holding company subsidiary announced last quarter has already resulted in higher levels of loan origination volume and should result in higher sales volumes going forward.
Despite the higher than expected mortgage loan volumes, we have continued to maintain discipline on the expense side generally using overtime and temporary personnel to aid in processing the additional volume.
We are also instituting more scalable technology solutions, which we believe will result in greater efficiencies when loan volumes return to more normalized levels.
In the fourth quarter we.
We finalized and executed an amendment to our core systems contract.
Effective this month.
As a result, we will begin to see the results of lower information systems expenses this quarter.
Beginning last week, we have been granted access by the SBA to begin submitting customer applications for the next round of PPP loans.
We are working with both first time applicants and existing PPP customers that are applying for a second draw alone.
For those commercial customers, we granted forbearance and early on during 2020.
Nearly all have completed their forbearance period and resumed making regular payments.
Our remaining forbearance is outstanding consists of a small amount of forbearance is granted in the fourth quarter and customers granted a second forbearance.
We are confident in the credit quality of our loan portfolio as it is primarily secured by high quality real estate and some of the strongest and previously fastest growing economies in the nation.
These loans were underwritten distressed levels generally more severe than the current conditions in our markets.
As a result, our loan portfolio is performing well despite the challenges of the pandemic.
Of course, there still exists some degree of uncertainty as to the ultimate impact of the pandemic on our loan portfolio.
However, given our strong credit performance to date in the pandemic and unless things materially take a turn from the worst we do not currently foresee a need to make additional provisions for loan losses at this time.
Conversely shut our loan portfolio continued to perform well and the economy recover more rapidly or to a greater extent than currently expected.
It is possible we may need to release some portion of the additions made last year related to the pandemic to the allowance for credit losses.
Our investor deck filed with the SEC yesterday contains detailed data on our underwriting standards on portfolio composition.
We have again included a few slides further disaggregate any information and providing additional detail on the parts of our portfolio most at risk today.
Okay.
As we look forward into 2021 and beyond we plan on maintaining and building on the cost efficiency gains we have achieved over the last two years.
Our focus will be on profitable growth and maintaining our strong infrastructure and risk management.
These activities will include an evaluation of our real estate space needs in a post COVID-19.
Operating environment with a more dispersed workforce and implementation of initiatives that will allow us to serve our customers better and work more efficiently.
Most of our primary business units have rebuilt their pipelines and are reporting pre pandemic levels or greater levels of business on a retail deposit branch network is located in large densely populated markets that can support this growth with the growth in core deposits.
This gives us great optimism for the future.
Finally, we plan to continue to actively and prudently manage capital to support growth and return excess capital to our shareholders through dividends as well as potential share repurchases.
As I close my remarks today I.
I admit it's difficult for me to overstate the achievements, we have made in the midst of this unprecedented global pandemic.
It gives us great pleasure to have guided the company to what appears to be a higher and more consistent level of profitability.
This of course is the result of the hard work of many.
And our strategic actions initiatives far before the start of 2020.
As we contemplate our next steps, we anticipate that the successful implementation of our strategic and efficiency improvement initiatives are ongoing efforts to improve the composition and deposit costs.
And our ongoing efficient capital management will have an enduring impact on our profitability and efficiency through the economic cycle spin.
Specifically, we believe we have the opportunity to continue to grow earnings per share through the normalization of the single family mortgage market.
And finally.
2021, Mark Home Street Centennial as a company.
We were incorporated on August 18th $19 21.
At that time, incorporations, where either delivered by horse back steam Wheeler or training.
On the nearly 2900 incorporations filed in Washington that year, only 33 exists today.
Things have changed much during the past century, but home Street has always served as communities with the highest standards of care.
Survived the Great Depression wars, the thrift crisis, the great recession on the current pandemic.
We don't know what challenges, we will face in the future, but with our culture employees and loyal customers. We feel confident we will continue to thrive despite the challenges.
With that that concludes our prepared comments today, we appreciate your attention.
So on that I'd be happy to answer any questions you have at this time.
Thank you Sir we'll now begin the question and answer session.
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Your line is your question has already been addressed on move yourself from queue. Please press Star then two.
Today's first question comes from Steve Moss from B Riley Securities. Please go ahead.
Hi, good morning, guys.
Good morning, Steve.
Good quarter.
Maybe start off with the margin here kind of curious as to.
Where you're seeing new money loan origination yields and you know what the impact on <unk>, what's the margin per quarter.
But why don't we start with a ladder John what was the impact last quarter PPP. It was less than one basis point. It was about a half million dollars in terms of income. So we still have most of it to be recognized in 2021.
Okay. That's helpful.
And on the loan yields and production.
New originations Steve <unk>.
We are down about.
16 basis points in yield in the fourth quarter.
Yeah.
Not happy, but that's the reality Fortunately deposit costs are down more.
Right.
In terms of the business mix you guys are seeing coming up I mean, obviously good growth in multifamily and that probably continues going forward I'm just kind of curious you know.
How is commercial business doing in.
Relative to CRE, if you will.
Well I mean I'm sure. This is true of everyone loan growth and the general C&I area is slow.
Right I mean people are generally focused on maintaining or reestablishing business volume.
And are generally not making new investments in their business people are also generally not switching banks, having said that.
We had a reasonable origination quarter in our commercial business area.
I think the reality for us though is.
For the foreseeable future that line of business will continue to be smaller than.
Our single family mortgage and commercial real estate businesses, the bulk of the balance sheet growth.
Going forward at least in the next year or so.
As expected to be in multifamily loans.
Our multifamily originations, we expect to grow or we hope to grow meaningfully this year and beyond that is a focus for us that is an asset class that has through the economic cycle performed extremely well and during the pandemic still extremely well.
I think it's important to remember that where we land and where.
On our borrowers properties are located pre pandemic were the strongest markets in the country.
And if you look at national numbers of multifamily performance.
You might.
Get the wrong idea about performance, particularly looking at areas like the northeast, which is really struggling with the delinquencies Remo delinquencies that are often twice what you see in our markets.
And some people might wrongly assumed that some of the lower quality properties would perform worse I mean, we do land on some b and C quality properties and some of the largest.
Population areas.
Their performance on delinquencies as often.
Better than <unk>.
B quality properties of the better B's.
Cause these tenants are typically.
Multi income tendencies, often multi generational families in the same unit and they've been able to weather the storm from a relative delinquency standpoint at least much better.
Okay, that's very helpful.
Then on capital here I realize the board meetings.
Meetings, two days out, but just kind of curious you know you had very profitable this past quarter, probably carries over into this quarter from mortgage banking kind of curious as to how big the potential buyback could be on what you guys think about capital levels here.
Sure.
Have to make sure I say knock on the frontline on the board or or art or are appropriate corporate governance process right I mean before the board.
We'll make this decision we will review with the board completely.
Completely on the status of our loan portfolio on credit.
Our current forecast.
For results of operations.
Our recently completed annual capital stress test.
Two to aid them in making the decision.
Having said that I think that we have been fairly consistent in the size of the authorizations that we have proposed over the last year and I think you can expect the same going forward.
Alright, great. Thank you very much.
Thanks, Steve.
And our next question today comes from Jeff <unk> with D.
Davidson. Please go ahead.
Hey, good morning, Hey.
Hey, Jeff Good morning.
Wanted to ask about the Mark about the just checking in on the expense front I think a lot of low hanging fruit from from the restructure.
Kind of exiting the bulk of the mortgage business or or shrinking that.
I think the technology.
On the systems conversion was one of the last at least from visibly.
For me in terms of kind of pieces to it.
Go in and.
You kind of alluded mark to their systems improvement when when mortgages or that volume normalizes.
To get a sense for what the expense line and just the general strategy.
Is it is it more kind of efficiency through growth at this point is there where is there more costs to trim that are structural.
Relative to what we've seen.
Oh I.
I think that we are coming to the end of what we have come to the end.
Significant structural changes.
Having said that we have a few things we're trimming.
This quarter.
Art Super material.
I think going forward, what you will see is.
Operating leverage right on expectation that revenues will grow.
But non interest expense will not grow at the same pace.
Because we have established.
Levels of productivity.
And we believe that we have capacity.
To grow revenues.
Without commensurate growth in noninterest expense.
I think one of the things we mentioned as we continue to look at our occupancy cost and space needs in light of a.
Changing landscape.
For space and there is the potential to further reduce those costs.
Can't predict that.
The magnitude of that yet, but there is that potential.
But there's also the reality that.
Some costs will increase right basic inflation, we all fight.
And Theres, a certain amount of technology spending that we will have to do going forward to stay current on functionality for customers.
<unk> said that I think my my first comments are still the most important we are expecting.
Operating leverage going forward.
And that's what we hope to see the statistical efficiency gains primarily.
Okay got it and then I guess more specifically just to double back the.
Systems conversion is.
Is that a is that a more of a day.
On the kind of operating leverage or will we see one another.
Another maybe structural expense.
Savings following this conversion in.
In the first quarter.
Yeah, Jeff it's not a system conversion, it's a it's a renegotiation of the base core systems contract not a change in systems.
I apologize that renegotiation the savings there is data is that a meaningful number in <unk>.
<unk>.
It is it's about two and a half million dollars a year, but of course there are some offsetting increases each of these these other contracts have escalators and we have some added functionality. So.
You won't see the entire $2 5 million as a straight reduction I think the prior guidance. We've provided is roughly.
Savings of 3% to 4% compared to this year in terms of the cost.
Overall that contemplates all of the items on Mark mentioned.
Alright. Thanks.
And then just a housekeeping on the on the margin did we get did we capture the full impact of the <unk> prepayment.
And I guess secondarily, just sort of a margin outlook post that.
But that's kind of a balance of the year.
Okay.
The FHL prepayment penalty was actually incurred at the end of the quarter. So it's not reflected in the quarter's margin at this time, so that will be a benefit going forward and as I said it was spread out over five years or so.
You can calculate the benefit.
The benefit in terms of going through that.
And so I think that it's a big answer.
Okay, but the but the core outlook I guess ex P. P benefit.
You cited some of the puts and takes on.
On the new loan yields.
But also the deposit cost still the outlook is.
Flat to up.
Right flat to moderately up yep.
Okay.
I'll step back thank you.
Thanks, Jeff.
And our next question today comes from Matthew Clark with Piper Sandler. Please go ahead.
Okay.
Hey, good morning.
Good morning, Matt.
Maybe we can circle back on the noninterest expense run rate I think coming into the quarter the expectation longer term was $53 million to $54 million.
With the normalization of mortgage and the.
Re investments you need to make on the tech side and inflation is that still the thought or has there been a change there.
Yeah, I think that that is is <unk>.
Roughly true.
Except for the impact of single family mortgage.
To the extent that when we're talking about those numbers that sort of the core expenses. If you remember the discussion right as a core run rate subject to higher levels of mortgage volumes, which we are expecting.
To extend through this year.
And our view of that extension since that last discussion.
Has elongated.
So what does that mean for this year, we're expecting on noninterest expense, including inclusive of the impact on mortgage to be a little above that number.
With commensurate revenues increase and with commensurate revenue of course right.
Okay.
And then.
In terms of the gain on sale.
Margins this quarter up in S F R and down in <unk>.
Commercial I guess what are your thoughts on.
It sounds like the single family Resi will kind of continue to normalize a little bit lower.
Based on kind of a bell curve throughout the year, but how should we think about that.
Gain on sale margin for commercial was there something unusual that caused that to come down maybe a little bit more.
That kind of a good.
Got it.
It is dependent upon several things one of them being mix right. What is the mix of Fannie Mae dust sales as opposed to portfolio quality loan sales Fannie Mae dust sales are typically higher gain.
Gain on sale margin.
We're in the the.
Three and a half plus percent range.
The portfolio loan sales that profit margin is typically one on one we want on one or two in between those two right depending on what you have and obviously selling into a declining market and we'll give you a little bit a little bit more juice. So as we go forward, we expect it to kind of get.
Back to more normalized levels on the multifamily side, which would be in that one on one one on one and a half or something right. Yeah right meeting one to one 5% price right yeah, Brian just to be clear yeah. So it's a mixed question and the mix is going to jump around during the year right.
I'd love to give you a mixed number that you can count on each quarter, but there is seasonality, particularly.
Particularly on the Fannie Mae does business.
Somewhat in the portfolio quality business, so second half of the year tends to be more active for whatever reasons.
Okay, and then in terms of the volume of commercial loans sold this quarter four O seven.
How should we think about volume going forward.
Yeah, you know more than double last quarter.
Right.
I think we indicated at the end of the third quarter to expect the fourth quarter to be higher.
It was higher than we expected which was great.
I would.
Expect that volume to be lower this quarter.
Okay.
How much lower.
Here's a little foggy at this point.
But.
Our volume will be at least half.
And might be meaningfully better than half of last quarter, John is that fair.
That sounds reasonable and obviously again driven more by the dust.
That's phones, we did have a large non does sale in the fourth quarter that we expect not to be recurring in the future either net size at that size right now.
The biggest day one.
One of the biggest.
Bonus to the change yeah, typically first quarter is one of the lowest quarters.
Yeah.
Yes, Okay and then on the.
The $1 30 reserve.
How do you think about that ratio post C. So I think coming into the year last year when you adopt it.
You stepped it up from the Eighty's up to 115 or so should.
Shall we.
Think about you know if we send them the economies continues to improve modestly.
How low would you be willing to let that ratio go.
That's a great question Matt.
[laughter].
With a lot of variables right.
Of course, one of the variables.
Post pandemic some normalization.
As expected loss rate.
Which continues to fall I mean, if you look at our credit numbers over the past.
Of the eight nine years, we've had very very few charge offs.
Which is reflective of the post great recession.
Change in portfolio composition credit culture.
Post.
Turnaround of the company change in the business and so on our expected loss component of that calculation continues to fall.
Which means that the preponderance of our allowance is is post pandemic expected to be qualitative factors again.
Like it was pre pandemic pre pandemic I think at least two thirds of the allowance the.
The seasonal allowance was qualitative reserves.
And so we're expecting to go back to that kind of profile.
But perhaps with a lower expected loss component.
And with the changing composition of our portfolio being a little heavier on multifamily, which has a zero expected loss factor.
Your post pandemic.
Coverage allow.
Allowance coverage.
Could fall below the 87 or 89 basis points. It was pre pandemic Todd is that fair that is fair.
How far down it's a little tough.
<unk> two.
Two to project right now but.
As we think about post pandemic coverage.
Being at least down to the 80 789 basis point range is probably in order.
And again I think our view is is that we're probably not going to be reaching that level till 2020 late 2022 or 2023, right. We think that next year and a half is still going to be pretty uncertain and so we intend to hold reserves.
Okay, Okay, great and then.
Can you just remind us how much you have in the way of net P to P fees left.
To be realized boy, my guess is probably about $6 million to $7 million on the old one not counting the new stuff that's going out now.
Right.
Okay, and then maybe just a geography question I think you mentioned tier.
The occupancy savings.
Coming through net interest income is that what I heard if I heard you correctly.
No it goes through on it.
Non interest expense I'm, sorry, the FHA Ob prepayment benefit would go through the net interest income.
The savings on the occupancy would go through the occupancy line.
On a go forward basis on a $1 $3 million a year.
Okay, Great and then just at nine and a half million of G&A.
Is that where.
If you you know.
Is that where that does higher health care costs, where I'm just trying to isolate that.
Sorry.
Yeah, Yeah that that was in the compensation and benefits line.
On the one $8 million saved and that was what I tried to professors at that happened in the fourth quarter, but that's not going to be on a run rate going forward, where do you expect that not to be recurring.
Okay, and then on the G&A side that $9 5 million anything unusual there or is that just nine.
<unk> nine and a half you were talking about are you talking about the $6 one.
I'm sorry, you had nine.
Yeah, No no no the the G&A line.
Oh, yes.
Okay. Its DNA line, yes that includes that includes the $1 $5 million prepayment fee. So that's probably the other thing other than that I don't think theres any unusual items in there.
Okay. Thank you.
Okay.
And our next question today comes from Jackie Bohlen with <unk>. Please.
Please go ahead.
Hi, good morning good.
Good morning, Jackie.
Mark I wondered if you could provide an update on your thoughts for the on balance sheet single family portfolio just in light of your expectations for volumes to remain high.
Hi, Andy in terms of what you intend to sell so just wondering what your expectations on the balances in the past.
Yep.
I think they are going to stabilize.
So you want me to be a forecaster.
No I want from professional expertise.
[laughter].
I think that.
We are nearing stabilization.
I mean I think that's.
The Big statement, John what would you say in terms of timing of stabilization I think it's in the first half of this year as we would expect that because because basically this is consistent with our volume Inc.
<unk> estimates on the single family side as we see the prepayments starting to slow down in the second half of the year. So we think our portfolio would start growing because we'd have less less levels of prepayments I think our origination volume had been pretty consistent in terms of the loans held for investment.
But I think going forward.
We will have start to see that stabilize and start growing as prepayment levels start to decrease slightly.
Okay. Thank you.
And then in terms of on slide 19 on you referenced the anticipated increases in theory and I know you gave a really great color on multifamily and what Youre looking to do there does that encompass the CRE comment where are there other CRE balances that you're also looking to grow this year.
No. That's that's the primary growth area, we do finance other property types.
But on some property types, we're just out of the market we're not as.
As a general matter doing retail properties office properties.
We are watching closely.
And not lending actively on self storage in many markets is another example of <unk>.
Maybe an overbuilt situation in some markets and so there are certain CRE types that we are just not lending on today.
But we obviously do a lot of owner occupied C&I fine financing, we continue to be active there.
<unk>.
It will end up doing.
Some amount of sort of each property type, but there are special situations, they're typically very deep.
<unk>.
Net worth sponsors.
Large portfolios with portfolio cash flow very low loan to value is a <unk>.
Hopper types that have the extra risk.
Okay.
No understood.
And then just lastly on.
You know kind of rounding out the loan book, how is demand for construction loans and.
Surprisingly stronger than I would have expected.
We are only financing.
Multifamily construction today.
Some of those projects have some mixed used component of some small amount of retail typically but.
Those are the only projects that.
We are actively considering today outside the residential construction.
Alright outside of homebuilding, sorry, thinking about commercial construction, we do obviously have a homebuilding lending unit.
That had slightly.
Lower volume last year, not because homebuilding is not active we all know it's incredibly active but our builders rent starting to run out of land to build on and so our portfolio is going to go through a dip this year at the beginning of the year and then.
Growth through the end of the year.
That is a robust market in a very profitable market today.
Single family residential construction.
Okay, great. Thank you for all the other day cab.
Thanks Jackie.
And ladies and gentlemen, as a reminder, if you have a question. Please press Star then one.
Our next question today comes from David <unk> with Wedbush Securities. Please go ahead.
Hi, Thanks, a couple questions for you and since.
You don't give yourself enough credit for your forecasting ability I'll ask another question along those lines.
So on mortgage volume you mentioned about it.
It's staying elevated on the single family side. So in 2020, you guys did $2 1 billion.
Of originations for mortgage banking I'm, assuming when you say you know stay at elevated that it'll be somewhat lower than the kind of booming taste that we had in 2020 as we look out and so if 2021 is still kind of in the elevated category. What would you expect if we look out even further.
To say 2022, what a kind of normalized sort.
Mortgage banking volume.
You would think is reasonable.
Well thanks for that question David.
Had you asked me that question a year ago.
You said about $1 billion.
One 1 billion 1 billion won.
Which is what the volume that we.
Built or restructure our mortgage business to produce in a stable rate environment.
However, what we've seen is that the unit, we built is actually far better than that and the loans per loan officer or greater.
Our efficiency in operations is better.
And we think that stabilized volume for that unit may actually be in the <unk>.
One five or one $6 billion range.
Depending upon on a lot of factors, including competition. So that's.
That's a good answer for us.
The one thing that we are doing in that unit.
Is restricting.
The growth in personnel.
So those numbers I'm, giving you that are 50% to 60% higher than we expected are essentially with the same FTE or maybe a couple of operations people.
Added.
Which means that the efficiency.
Of that operation is 50 or 60% higher than we planned which is a great.
On a great thing the person we have running that group, Eric and has done a extremely good job at building efficiencies.
Quality into the group.
Really pleasantly surprised.
And picking up on that last point about efficiency.
I have a question about expenses as well so you mentioned a little bit higher this year for $53 million to $54 million. So lets call. It 50 $455 million, but as we look out to 2022 are there levers to pull to bring that that.
That pace kind of lower as the mortgage volumes kind of pulled back. So you won't have the commission expense could that be in the low fifties or even lower than the low fifty's that you were already kind of pointing to for 2021 as we look out to 2022.
I don't think so while we expect to realize some additional efficiencies.
If you were paying attention to my answer to the question that Jeff rule is ask.
The greater improvements in efficiency, we expect from operating leverage and growing revenues without the commensurate growth in.
Our material growth in operating expenses.
So we our plan.
Planning to grow the balance sheet going forward.
For example, but and grow originations, but not meaningfully grow operating expenses.
Yes that makes sense and we think we have the kind of nature.
And the nature of warehouse going with that is you know your in your prepared comments you mentioned about that you should continue to grow EPS, even with you know a essentially a slowdown in mortgage banking decline to it it sounds as if it wouldn't be unreasonable to actually see in <unk>.
EPS decline in 2022 versus 2021, given the dynamics and how frankly, how profitable the mortgage banking operation is when volumes are high.
And I really understand your logic, that's sort of conventional wisdom logic. We just at this juncture believed that we have the opportunity to continue to grow earnings per share.
Through those periods consequence of growth in our portfolio.
Duction in our shares.
And the greater efficiencies.
Growing revenue and growing expenses at the same pace.
That's why I, specifically made that comment on my prepared remarks, I really appreciate you pointed it out.
That's helpful. And then the last one from me is more housekeeping you mentioned about PPP round two.
How much are you expecting to come through would it be roughly half of what you did in round one.
The count.
He is likely to be half or a little better I mean to date.
We have some 85 million in the Q 617 loans and obviously, we're just in the first week of taken applications.
The average loan size is.
Obviously smaller Reits $85 million divided by 617 is about 130 130000.
As a little lower than.
Then last time, but we are actually surprised at the level of demand we were not expecting demand to be this high.
And we'll see where it settles out.
Great. Thanks very much.
Welcome. Thank you.
And ladies and gentlemen. This concludes the question and answer session I'd like to turn the conference back over to Mr. Mason on the management team for any final remarks.
Okay.
We don't have anything further to say, we really appreciate your attention, particularly too.
Our views on our future profitability.
We believe that we have made a substantial change in our durable core profitability and we're enjoying obviously great period in a mortgage loan refinancing, but we think the real story here is how we exit that period and we appreciate your time today. Thank you.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.