Q1 2021 HomeStreet Inc Earnings Call
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Good day and welcome to the whole Street first quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Mark Mason, Chairman President and CEO. Please go ahead Sir.
Hello, and thank you for joining us for our first quarter 2021 earnings call.
Before we begin I'd like to remind you that our detailed earnings release and on.
The accompanying investor presentation were filed with the SEC on form 8-K yesterday and are available on our website.
At <unk> Dot home Street Dot com under the news and events link.
In addition, a recording of the 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 that 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 statement included in yesterday's earnings release, our investor deck and the risk factors disclosed in our other public filings.
Additionally, reconciliations to non-GAAP measures referred to on our call today can be found in our earnings release and Investor deck are 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 an update on our results of operations our outlook going forward John.
Thank you Mark and good morning, everyone and thank you for joining us.
In the first quarter of 2021, our net income was $30 million or down $35 per share.
This compares to core net income of $32 million or $1 47 per share in the fourth quarter of 2020.
Our annualized return on tangible common equity for the first quarter was 17, 3% our annualized return on average assets was 165 per cent.
[noise] excuse me and our efficiency ratio was 60 per cent.
Our effective tax rate of 19, 3% for the quarter pending further benefited from tax advantage investments and excess tax benefits, resulting from the exercise or vesting of stock awards and the court.
For the remaining quarters of 2021, we're expecting to realize an effective tax rate of approximately 22%.
While our net interest margin increased to 392% $3 two 9% our net interest income in the first quarter of 2021 was lower than the fourth quarter of 2020 due to a lower level of interest earning assets.
Our net interest margin increased primarily due to the benefits of lower deposit rates.
The lower balances of interest, earning assets was due primarily to the prepayments on loans on our portfolios and the sale of multifamily loans.
Loan originations in the quarter totaled 769 million, which included $123 million of PPP loans.
Due to the SBA is focus on originating round two of PPP loans.
Actual level of PPP loan forgiveness in the first quarter of 2021 was minimal.
Because of the increased balances and lower levels of forgiveness.
The impact of PPP loans on our net interest margin was a decrease of approximately two basis points.
As of March 31, 2021, the amount of remaining deferred fees was $9 4 million $4 1 million from our first round of PPP loans and $5 3 million for a second round of PPP loans.
As a result of the favorable performance of our loan portfolio and a stable low level of nonperforming assets no provision for credit losses was recorded in the first quarter of 2021 or the fourth quarter of 2020.
Our ratio of nonperforming assets to total assets remained low at 32 basis points.
Outstanding loans in forbearance, and our commercial and CRE portfolios and decreased to 11 loans and $22 million as of March 31 2021.
Our ratio of ACL to total loans remained steady at 1.34%.
The $3 4 million dollar rate decrease in net gain on loan origination and sales activity in the first quarter of 2021 as compared to the fourth quarter of 2020 was due primarily to lower volumes of multifamily loans, so, including Fannie Mae does flow.
At 1.8 million decrease in loan servicing income was due primarily to unfavorable risk management results from the first quarter of 2021 for single family mortgage servicing rate.
The decrease in noninterest expense in the first quarter as compared to the fourth quarter of 2020 was primarily due to restructuring charges taken in premium prepayment fees incurred in the fourth quarter of 2020, lower occupancy costs due to reduction in rental space.
And lower information servicing costs related to renegotiating renegotiation of our core system processing contract.
During the first quarter of 2021, we repurchased 3% of our outstanding common stock at an average price of $44 56 per share and declared and paid a dividend of 2025 cents per share.
I'll now turn the call over to Mark.
Thanks, John.
On streets earnings during the first quarter of 2021 reflected strong underlying performance across all our lines of business.
Our first quarter, a great start to the year.
During the first quarter, our net interest margin increased as a result of ongoing improvements in funding costs. We continue to benefit from high loan volume and profitability on loans sold and we helped our customers and communities most at risk during the pandemic by originating $123 million of P. P. P loans during the quarter.
In particular, our single family mortgage banking loan volume and profit margins continued at the high levels, we have experienced since the second quarter of last year.
Additionally, our noninterest expenses for the quarter reflected meaningful reductions in information services occupancy and general and administrative and other expenses as a result of our ongoing focus on cost reduction and profitability improvement.
And despite high levels of prepayments, we grew our loan portfolio in the quarter.
Loan portfolio continues to perform well with low levels of problem assets and low levels of borrowers on forbearance.
John mentioned, we do not we did not record any provision for loan losses in the current period.
However, given the current low levels of problem loans and our positive outlook for the economies in our markets. We may need to release some of our allowance for credit losses going forward, perhaps as early as next quarter.
I'm, particularly pleased with the level and quality of our first quarter operating results since many of the markets in which we do business are operated under a sustained business restrictions since the beginning of the pandemic compared to many other parts of the country.
The pace at which the members of our commodities are becoming vaccinated bodes well for easing restrictions and the return to normalized economic activity.
Government stimulus and the normalization of economic activity should create a strong economic recovery on our markets and provide us with meaningful growth opportunities.
Given our strong financial position diversified lines of business.
Growth markets and disciplined risk management I believe we are well positioned to.
To benefit from the recovery.
Based on our strong financial results and positive outlook, we repurchased $25 million of our common stock during the quarter.
And paid a cash dividend, which was 67% higher than the prior quarter.
We plan to continue to manage our capital efficiently retaining capital for growth, while returning excess capital to our shareholders through dividends and share repurchases.
Looking forward with the federal reserve, indicating that short term interest rates will remain low for the foreseeable future and with long term interest rates, having moved somewhat higher we expect our noninterest margin to modestly expand as deposits continue to reprice downward and we recognized deferred fees from the forgiveness.
For PPP loans.
As we would expect the increase in long term interest rates, which gained steam throughout the first quarter is beginning to affect our single family mortgage banking business, reducing the robust levels of volume and profitability that we have enjoyed early in 2020.
Accordingly, we anticipate lower origination and gain on sales activities as well.
As lower commission based compensation expense as we return to what might be considered a more normal single family mortgage banking environment.
The pace of this normalization, however remains difficult to forecast for example, the 10 year Treasury yields have recently declined nearly 20 basis points off the interim high of 176% seen in late March.
Where rates move from here is anyone's guess, but we have plans for the continued normalization of single family mortgage banking volume and profitability over the remainder of this year.
On our call with you last quarter, we discussed on we discussed our investment and more scalable technology solutions.
Some of these projects are commencing this quarter, so the benefit from lower compensation expenses will be offset.
Somewhat by the cost of launching these projects and the cost of returning to more normalized levels of marketing and other expenses as we emerge from the pandemic.
While the expected decline in mortgage banking profitability on additional technology and marketing expenses is likely to result in upward pressure on our operating efficiency ratio in the near term.
We anticipate total noninterest expenses to decline in the second half of this year.
Assuming that lower mortgage volume.
And related lower compensation expenses to levels, which we believe will result in an efficiency level in the low 60 per cent range and falling in future years.
Going forward, we plan on increasing our commercial real estate loan originations both for sale and for our portfolio.
We feel we can do this given the strong fundamentals and demand in our markets.
Our CRE business is primarily permanent multifamily lending that we originate most of the CRE Park property types.
Over time this increase in production should support net loan growth and higher net interest income.
Offsetting the expected decrease in noninterest income from lower mortgage banking income, which I just discussed.
As such.
Subject to unforeseen changes in the economy and on our business I will repeat my comments from last quarter.
As our markets return to normal the investments we have made and the improvements in our efficiency and profitability has provided us with the operating leverage that will allow us the opportunity to grow revenue and in turn earnings without meaningful additions to personnel or other operating expenses.
And while quarter to quarter earnings May show, some degree of volatility from a year over year standpoint, we believe we have the opportunity to continue to grow earnings per share next year on going forward past the normalization of the single family mortgage market.
Additionally.
As the result of the diversification of our business.
And the improvements in operating efficiency and overall profitability over the last two years.
Subject to unforeseen adverse changes in economic conditions, which may have a more significant impact on our business.
We believe we can consistently produce annual returns on assets intangible common equity at or above our peers going forward.
As I close my prepared remarks on behalf of the board of directors and senior management I want to thank our employees once again for their dedication and courage in serving our customers communicate communities and our company in the face of unprecedented challenges and delivering on these outstanding operating results for that this <unk>.
Our prepared comments today. Thank you for your attention and John I would be happy to answer any questions you have at this time.
Thank you Sir well now begin the question and answer session.
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Today's first question comes from Steve Moss of B Riley FBR. Please go ahead.
Good morning.
Good morning.
Just maybe starting just on on loan demand here.
Mark you hinted at a the pipeline improving here just kind of curious how you're thinking about loan growth in the aggregate going forward and also where is our loan pricing.
Low growth I think it's still consistent with our prior quarter comments, we're expecting total loan growth this year in the <unk>.
Single digit high single digit percentage overall.
We've been stymied a little recently by very high continue on levels of prepayments.
That's starting to slow we hope but.
You know that expectation is subject to to prepayment expectations. We know loan demand is there and not just for multifamily loans, but across all of our lines of business.
But that loan demand is also related to the prepayment activity. So it's a matter of effectively outrunning prepayments.
John do you want to speak to other rates in terms of the commercial side.
Both CRE and commercial were in the low to mid threes in terms of rates on those and then construction is still in the high high force and the single family portfolios in the low threes.
Okay.
That's helpful. And then just in terms of E. On the funding cost side. Another good step down in terms of cost for kind of curious as debt you know your expectations for funding costs going forward here, how much lower that could go.
Well I think as I mentioned on my comments for the cost we.
Are currently expected to continue to decline we still have.
CD rollovers, we recently price down again or money market funds that was not fully reflected in the quarter and borrowing rates continue at almost absurdly low levels.
On a component of noninterest bearing deposits continues to increase was obviously helps our overall costs also so in terms of numerical expectations I think.
Still you know lower single digit basis points, John over the past couple of quarters Yeah.
Okay.
That's helpful. And then just in terms of capital here and the buyback.
Capital going up even with the buyback here just kind of curious as to you know should we expect to see more of the same in terms at $25 million per quarter repurchase.
Hum.
To avoid from running my Board I'll say, yes, that's our expectation.
Our timing has gotten a little reset on making those decisions.
We have gone back to announcing earnings about a week earlier than we had been.
I think most people appreciate however.
Our earnings release date now precedes our board meeting date at the end of each quarter and so our board will be meeting Thursday to consider.
You know the important questions of declaring a dividend.
Dividend of course, and further stock repurchases. So so as not to front run their decision I can simply say, we'll be discussing that.
Okay.
Nice quarter. Thank you very much Mark Johnson.
Thank you Steve.
And our next question today comes from Jackie Bohlen with <unk>. Please.
Please go ahead.
Hi, good morning.
Alright Jackie.
I don't know.
Let's start with liquidity deployment and I understand there's a lot of moving pieces here with it.
But just how youre thinking about deploying some other funds you'll get from P. P. P loans, because as the forgiveness process hopefully accelerates this year.
Well the first thing we do is pay down borrowings, but longer term, we have lots of liquidity and lots of capital.
Plenty to continue.
Continue.
On our program of <unk>.
Efficient capital.
Return to shareholders and still to fund the balance sheet growth than we're currently anticipating so I think that you know our playbook really hasnt changed.
<unk> retained sufficient capital for appropriate levels of capital ratios.
But not access and to try to return excess through.
Hopefully opportunities to grow dividends going forward and share repurchases.
Okay.
And Mark how are you thinking about sorry, John did I cut you off.
No not at all.
Hi, Mark how are you thinking about potential acquisitions. These days.
Oh, that's a that's a more timely question.
We took a couple of years off of.
Considering M&A, though I think we did a small branch deal on the last couple of years.
In order to really focus on improving our efficiency and profitability.
And we feel we've done that well and we've recently began looking.
At M&A opportunities.
Ranging from just acquisitions of deposits.
To.
Pulled back for a company acquisitions, obviously, we haven't done anything yet.
But we are we have started looking at things again, what would we look at.
High on our list as always.
Good deposit franchises, whether that'd be individual branches that might help create greater density in some of our markets or create greater efficiency and consolidation.
Or complementary smaller financial institutions.
Those are those are at the top of our list.
And thank you are there any parts of the footprint that you're more focused on than others or are you looking I know you other broad geography.
Now to play that one just wondering how you're thinking about bad in terms of priorities. If there are any.
Our focus is to create greater density in our primary markets, So greater Puget sound odd.
Obviously greater Portland.
On the White islands, or southern California, and that's where our focus is we're not going to pioneer any new regions.
And we're unlikely to two <unk>.
Branch to other locations currently other than where we're currently branched.
Okay. Thank you that's a really helpful update.
Want to say, thank you for the and these slides on the deck I think they were slides 12, and 13 and they were really helpful for understanding the corner. So thank you for that.
And you can take get hard for that he pushed it.
Okay.
And our next question today comes from Matthew Clark of Piper Jaffray. Please go ahead.
Yes.
Hey, guys.
Hey, Matt Hey, Matt.
Maybe starting on a gain on sale margins.
Up.
Linked quarter, which had you know I think has gone against what most of the industry has seen.
How are you thinking about gain on sale margins for the year on a percentage basis year over year between S. F. Orange theory, just order of magnitude.
That's a great question.
And there's a lot that we don't know yet right I mean in my comments I talked quite a bit about the.
The normalization of the mortgage market, but the timing of that and you know the what the trend will look like is pretty uncertain I think my expectation is the single family profitability.
Margins are going to be kind of volatile right. I mean, we've seen that from the first quarter, where margins declined somewhat in March and gave us the indication that okay. We're starting to normalize.
Those margins are up slightly in April.
But of course, if you think about what's happened with long term rates for the 10 year in particular, it kind of follows what happens right.
So.
Our expectation is.
Is that single family margins will normalize this year.
Something could always happen to change that.
If if the market begins believing that we're not going to experience the kind of inflation that many had begun expecting you may see long term rate soften again, which will help.
Elongate that normalization trend, but right now we're currently planning for it to fully normalize by the end of the year.
Commercial real estate margins if similarly.
Somewhat volatile.
Quarter over quarter, they were down a little bit.
This quarter.
So that generally has to do with lower levels of Fannie Mae dust originations and sales typically the first quarter is the lowest seasonal quarter for Fannie Mae originations and sales also it was a pretty tough quarter competitively for Fannie Mae and Freddie Mac products right the agencies.
Got new marching orders on their origination limits and they already had big pipelines they needed to close and so they were almost out of the market in the first quarter, we expect that to change over the remainder of the year and the Fannie Mae portion of our business to improve.
Additionally.
Subject to my earlier comments, we are working to increase our multifamily perm loan originations and in turn that would mean sales as well.
And.
We are.
So we hope that that will have a positive impact on the year I'm not sure about margins I mean the.
Margins are wholly dependent on the pace of rates to the extent that we originate loans.
Into falling rate market Thats, great for margins of course were trying to be a different trend right now and so unclear. If we were going to see improvement or deterioration from here in CRE sales margins.
Okay, and then just on on.
On loans sold.
For this year.
Stepping up commercial.
And you know single family residence, I guess, it'll be what it'll be but.
You did $2 9 billion of loan sales last year to two two per one six and our 700 million in theory I guess, how are you thinking about.
The amount of loans, you might be able to sell this year and are so far in theory.
We are generally speaking our single family volume.
Will be.
In total for the year.
Similar to maybe slightly lower than last year.
The.
Of course debt subject to a lot of the.
The same comments on normalization right.
So they may be slightly lower whether thats, 5% to 10% that could change easily.
In both directions.
Commercial real estate, we are expecting.
Somewhat better year, and Fannie Mae does business with obviously, that's going to happen over the next three quarters and it will probably be.
Second half loaded.
In general.
CRE originations.
Portfolio quality loans that we sell originations will be up we.
We may hold sales to similar levels of last year, we're not sure yet.
Trying to grow the balance sheet, a lot depends on prepayment speeds and so we are still considering what amount of those loans, we might sell I think if you folks.
Plan for sales similar to last year that might be a good number.
We might exceed it or might be less dependent upon.
Our experience with prepayments.
Okay.
And then.
Just on the on the noninterest expense coming down potentially in the second half as mortgage volume.
Normalizes or slows and related gain on sale.
On the variable comp is going to come down, but having not knowing what that variable comp component is no idea I guess.
Consider the order of magnitude in terms of the relief in expense is there anything you might feel that bad there to help us.
Think about a run rate in the second half of the year.
Historically that number has.
Ranged from 100 basis points to 115 to 120 basis points the variable component.
Yeah, and one other problems that we haven't just giving you a flat rate Matthew excuse me.
Is that as.
As you look at it we basically pay on loan officers kind of a base rate and then their commissions are.
Pay it on top of that and if they have a lower levels of commissions you may have a higher level of fixed compensation to them. So it's not a straight yeah and also the commission structure is a tiered structure based upon each loan.
Loan officers individuals' volume and so you can have a decline in volume that it creates a much greater decline in comp expense rates, Let's say you go from <unk>.
90 basis points to 80 basis points on everything big change because as volume and rate picture quality.
Yeah.
Okay.
Okay, and then just lastly, a couple of housecleaning items P. P. P contribution to net interest income this quarter on won't be the end of period P. P. P balance on it.
Our loan book.
Yeah. So in terms of the numbers and we said that we have basically about $9 million of deferred fees.
So from the perspective of the PPP, we kind of anticipate recognizing that is through the end of this year either through forgiveness or through the amortization.
We expect the benefit probably evenly throughout the next three quarters of that number.
A couple of million dollars plus per quarter, because some of the normal amortization that you would have.
But that's the we figure that the first round is going to be.
Forgiven in the first couple of quarters second and third quarter and then the second one I'll probably be forgiven in the fourth quarter impact on margin.
I think youre going to last quarter. It was down two basis points because of that because we didn't get the forgiveness on we expect that to have a positive benefit over the next three quarters.
Okay, and then the end of period AR PDP balance on the loan book.
I believe and I don't have that number right in front of me, but it's roughly I think about $250 million to $260 million.
Okay. Thank you.
Okay.
And our next question today comes from Jeff Lewis with D. A Davidson. Please go ahead.
Thanks, Good morning, I wanted to follow up on that just the expense.
Mark he covered kind of the variable pretty well I just want a day you know that.
The contract renegotiation and and the occupancy decline I guess, it's there.
Anything more structural that's that's kind of coming out of the expense line.
No.
Variable if that were to drift with.
With mortgage slowing but have you largely captured some of the structural cost savings that have been identified for for quarters too.
Oh go.
Well, Jeff we have I mean, there is still the prospect of.
Potentially further occupancy reductions.
Some of those coming from a change in where we allow people to work frankly.
Not sure how many quarters that will take to figure out and and recognized and the sublease market.
As I'm sure you know is worse than it has been as a consequence of the pandemic, having said that we've caught up or.
For the process of catching up pretty quickly on.
On our sublease inventory as a consequence of the charges that we took in the fourth quarter.
And we reduced what we're asking for the space. We are trying to sublease on here in Seattle, and we've had a lot of great activity.
Because of being a price leader Augustine sublease rates.
But we have more to do and so theres potentially future activity there.
We continue.
To work on personnel efficiency.
Oh, you ever really done with that.
But as an example, where in the process of consolidating.
On our deposit operations.
<unk> here.
Historically has had a separate commercial.
Deposit operations group in a separate retail.
Pause on operations group.
And we're in the process of consolidating those activities some of which are redundant and duplicative.
And I'm not sure where that's going to produce yet there'll be a few FTE here and there you may notice if you've been tracking our FTE that we've actually.
Decreased a little.
We're going to be adding a couple more right. So you'll see a few FTE volatility.
But we.
We don't we think that we can grow our revenue without meaningfully adding to that FTE total and that's really the best news for us.
It's really on an operating leverage story.
Yeah. So it sounds like you know and you mentioned the technology some of that spend is there some offset there, but I guess the general Big picture efficiency comment is really that shift for that kind of more commercial oriented business over time.
That's kind of where your comments lie in terms of.
Movement from here Mark is that safe to say that.
That's fair.
Typically.
Larger customers less expenses to service.
And businesses that we already have completed infrastructure and Brian.
Year to grow revenue.
Okay and John I.
You took from your comments I didn't get on actual P. P. P balanced, but you said forgiveness was minimal your does that mean your.
I guess activity in the round two P. P. P was pretty modest or do you have do you have a separate balance sheet whats remaining and go on.
Yeah, and then in round two we have about at March 31st ran $123 million amounts, we're continuing to originate some but it's not very large amounts under the PPP program through may.
On the deferred costs related to that there's about $5 million.
That will be recognized both through amortization, and then forgiveness and going through and probably the forgiveness, mostly in the fourth quarter of this year is the expectation for Honda Yeah for round two for round, one we still have AR balances.
I don't have right in front of me, but I believe it's about $130 million and we had about $4 million on deferred fees related to that.
And so and those we expect to recognize over the next couple of quarters, some of which will be amortized on some of which will be accelerated forgiveness.
Okay.
That's helpful. Thank you.
And our next question today comes from Tim Coffey of Janney. Please go ahead.
Thank you good morning, gentlemen.
Hey, Jim Hey, Tim Hey.
Yes, Mark so if we look at kind of gain on sale on a single family residential piece for next quarter I'm, just kind of looking at where rate locks ended the first quarter is it possible, we could see a gain on sale number lower in second quarter versus a year ago.
A year ago back a year ago.
$3 15.
So absolute.
Yes.
I don't think you'll see a percentage mark.
Margin that's lower than.
Two Oh, then <unk> on <unk>.
I tell you two of last year right I think gain on sale was $28 three.
Then just looking at rate locks for the first quarter of this year were lower than they were the first quarter of last year.
Right because of the impact in March because it was just yeah rates dropped out they just through the roof on that one month right.
Two Q last year.
On that.
The margin the profit margin was the highest we've had right.
I mean, it was over 500 basis points, almost 550 payout points, we are not going to see that again.
Didn't exactly its not next quarter guidance for two years.
Now a dollar.
Volume.
Of locks was a little over $500 million right now, which is what we had which was about this quarter.
That's a that's an interesting question I.
Okay.
I think it's possible.
It may be that.
Down.
Somewhere between.
I think at least 10% based upon what we're seeing now it could be.
Higher than that you know, we're only not quite a month in.
And.
Yeah, that's kind of what we're thinking it could be 10% or more.
Okay.
But we also are experiencing it's one of the reasons ive kind of hedging my comment we're experiencing strange things in the buying season, obviously, you've seen the home price numbers the home price depreciation numbers.
Hello was one two or three I think for last three months.
In terms of leading the nation on home price appreciation that's.
In part a consequence of extremely low levels of inventory.
Part of that obviously is the pandemic and people's willingness for unwillingness to have people tromping through their houses we are seeing that starting to thaw inventories improving so we could see a greater surge in purchase transactions.
But as.
As we sit here and not quite a third of the way and it's hard to make solid predictions on the quarter.
Okay. That's fair that's fair.
And then you can get it done a great job trimming the cost and be able to buy back stock and you know as you kind of look forward to transforming the bank.
Little bit do you have like a targeted ratio of where you'd like gain on sales revenues to be to say total revenues.
I think thats, a moving target because we very intentionally to Ms. Youll remember reduce the size of.
Of the production of the single family.
Our mortgage business by 80% right when we sold our Standalone network with home lending centers.
[laughter] offsetting that was a completely unexpected increase in effectiveness of the group we retained.
This business when we sized it was supposed to originate 800 million to a $1 billion in loans per normalized a year right.
We now believe that business is going to normalize originate.
About $1 $5 billion or more.
So the composition of the business we sized it for.
Is somewhat better now that's kind of good news bad news, because it's substantially more profitable.
Normalized than we expected.
But that's going to add a little more continuing.
Gain on sale revenue to the mix it has to be sort of outgrown by the growth in the remainder of the commercial businesses right.
So we look at it in terms of sort of.
Percentage of production.
And that contribution should decline over time.
But it's going to normalize in terms of production at like one 5 billion this year will be more.
Right right based upon our comments I mean, this year's we did $500 million in for school age at 500 million I mean, we're probably headed toward something.
Well.
Roughly two roughly two maybe.
Or minus who knows right. So we're still going to have extra revenue this year.
So I don't know I'd have to work out the percentages on normalized margin and normalized volume.
But what I do know is wherever that would normalize today, that's going to decline over time.
By our expectation if we hold the size of that production and grow the remainder of the businesses.
So I don't have debt.
Target percentage per se.
Yeah, No no no I understand that.
You know the one aspect to it and coming into this business and not having it before is it's really hard to turn away revenue just because it happens to be a really hot market. So from a from our perspective, we're benefiting and trying to leverage the extra capital we're creating knowing that this is not going to continue to go on forever in terms of these high levels of activity.
Yes, so it's been great rate has allowed us to buy back more stock right.
That allowed us.
To increase our dividend and.
It's been fabulous, but it's going to return to normal here soon.
Okay.
And then my last question is on the outlook for the the allowance going forward.
On the decision to you know are you at.
At least.
<unk> suggests that they're my allowance.
On a dollar amount might come down lots of same time, youre growing commercial real estate loans.
Is it just nothing simpler than looking at the reserve ratio, saying its been kind of flat, but yet your credit quality and your COVID-19 related deferrals have just been improving throughout the south for last several months or quarters.
It's probably a little more complicated, but not much beyond that if you think about.
Normalized loss rates for different asset types.
Multifamily loans permanent multifamily loans are among the lowest of any asset type and banking.
And.
If you look at the ACL levels of company's debt.
What that may have an even larger composition of multifamily originations. There ACL is tend to be meaningfully lower than that 130 basis points and I think what youll see.
From us going forward is that our ACL will normalize I know, we use that word a lot today.
To a level that will be.
At or probably below our pre pandemic.
<unk> levels right. So if you look at the ACL.
As adopted January one of 2020.
That was about.
What was once a day 80 basis points.
No.
Sandy.
I think it was 80 687, yes.
So that's where our expectation start right because we don't believe any of our other.
Asset types have increased risk needs.
Excluding the pandemic impacts.
<unk>.
We think that.
Other than the construction.
Line items, which generally carry a higher ACL.
Youre going to see ACO levels.
Return to those levels and below.
So, yes, I think 87 basis points lower so.
Today, that's our sort of general expectation.
<unk> to post all of the pandemic impacts and I'm not sure when on being able to say that but.
Some quarters out right, maybe two years out on that.
Absent changes in the composition of the portfolio, which if you listen to our comments means should augur for lower ACL, if we have higher per multifamily.
Balances.
That's where we're headed we believe.
Okay great.
It was a super helpful answer Thanks, Mark that was where my question. Thank you.
And ladies and gentlemen, as a reminder to ask a question. Please press Star then one.
Our next question for me as a follow on for Matthew.
Please go ahead.
Hey.
You know what.
I completely blanked on my question I had it on.
[laughter] I'll follow up on your bathroom, sorry about that okay.
And ladies and gentlemen. This concludes the question and answer session I'd like to turn the conference back over to the management team for any final remarks.
Great. Thank you I'd, just like to close by reiterating something that I touched on at the end of my prepared comments.
I want to make sure that the discussions we've had about the impact of the normalization of the mortgage market.
Don't obscure.
What I've said about our expectations for performance.
We believe that we will mitigate the impact on our earnings going forward by the loss of.
Yeah, Hi cycle mortgage banking revenue.
With improved margins improved efficiency and growth such that our earnings per share will not decline.
On an annualized basis and that we will consistently produce.
Returns on assets and returns on tangible equity very competitive with our peers.
And I don't want to our discussion on changes that we may go through quarter to quarter or cyclically, our seasonally obscure my statement on our expectations anyway. We appreciate your attention your tenants today look forward to talking to you next quarter.
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.