Q2 2021 HomeStreet Inc Earnings Call
Okay.
Good day and welcome to the home Street.
Quarter.
'twenty 'twenty 1 earnings conference call all participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question.
Quarter Press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2 please note. This event is being recorded.
I would now like to turn the conference over to Mark Mason Chief Executive Officer. Please go ahead.
You May go and thank you for joining us for our second quarter earnings call.
Before we begin I would 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 IR Dot home Street Dot com under.
And events link.
In addition, a recording net a transcript of this call will be available at the same address following our call. Please.
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.
Under the new <unk> statements that are made subject to the safe Harbor statements 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 in our call today can be found on our earnings release and investor deck available.
Forward look 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 on our outlook going forward John.
Thank you Mark good morning, everyone and thank you for joining us.
On the second quarter of 2021, our net income was $29 million or $1.37 per share.
This comparison net income of $30 million for a $1.35 per share in the first quarter of 2021.
Our annualized return on tangible common equity for the second quarter was 17, 2%.
Our annualized return on average assets was 159% and our efficiency ratio was 63%.
Our net interest income increased 6% in the second quarter due to a higher net interest margin and higher levels of interest earning assets. Our net interest margin in the second quarter increased.
Percent, 345% as a result of lower deposit rates as our total deposit cost decreased to 18 basis points in the second quarter.
And $200 million of payoffs of PPP loans.
The net interest income from our PPP loans caused our net interest margin to be higher by 15 basis.
Kris touch in the second quarter.
As of June 32021, the amount of remaining PPP loans was $204 million with deferred fees of $5.6 million.
As a result of the continued favorable performance of our loan portfolio and improving economic conditions.
At this point ordered a $4 million of recovery of our allowance for credit losses in the second quarter of 2021.
Our ratio of non performing assets to total assets improved to 31 basis points.
Our ratio of ACL to total loans was 118%.
The 12.
We reached $2 million decrease in net gain on loan origination and sales activities in the second quarter of 2021 as compared to the first quarter of 2021 was primarily due to lower volume and price lower profit margins on our single family mortgage origination and sales.
The.
$2 million increase in loan servicing income was due primarily to unfavorable risk management results realized in the first quarter of 2021 for single family mortgage servicing rights.
The $3.8 million dollar decrease in noninterest expense in the second quarter as compared to the.
1 quarter was primarily due to lower payroll taxes, and a $1.9 million reimbursement of legal costs received from our insurance carrier.
During the second quarter of 2021, we repurchased 3% of our outstanding compensate common stock and an average price of $44.22 per share.
Fair and declared and paid a dividend of 25 per share.
I will now turn the call over to Mark.
Thank you John.
Home streets results for the second quarter continued our outstanding start to the year.
Each of our lines of business performed well continuing to meet or exceed our.
<unk> and the credit quality of our loan portfolio continued its strong performance, allowing us to begin to recover pandemic related allowances for credit losses and.
And given the positive outlook for the economies in our market, we may need to recover additional amounts of our allowance for credit losses going forward.
As expected our single family mortgage loan volume and profit margins decreased from the first quarter levels due to slower refinance activity.
This decrease was offset by higher net interest income a recovery of our allowance for credit losses, and lower noninterest expenses.
And despite high levels of prepayments.
<unk>, we grew our loan portfolio in the quarter.
Excluding the impact of the Paydown in PPP loans, our loans held for investment increased $278 million on.
<unk> rate of 23%.
I am, particularly pleased with the level and quality of our second quarter operating results since.
Many of the markets in which we do business have only recently lifted business restrictions relative related to the pandemic.
Government stimulus and normalization of economic activity should create a strong economic recovery on our markets and provide us with meaningful growth opportunities given our strong financial.
Actual position diversified lines of business growth markets and disciplined risk management I believe we continue to be well positioned to make the most of this recovery.
Based upon our strong financial results and positive outlook, we repurchased $25 million of our common stock during the quarter and paid a dividend.
<unk>, which today equates to a yield of over 2.5% on our common stock.
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.
In that regard and subject to our board of Directors review and approval.
And the non objection of our regulators, we plan on repurchasing $15 million of our outstanding shares this quarter.
We expect our net interest margin to continue to benefit through the remainder of 2021 from the forgiveness of PPP loans.
Looking forward with a.
Oval serve indicating that short term interest rates will remain low for the foreseeable future excluding.
Excluding the impact of the pay down of PPP loans, we expect our net interest margin to remain level as the benefit of our deposits continuing to reprice downward as expected to offset any decline in the rates on our loans.
As previously mentioned.
The increase in long term interest rates in the first quarter of 2021 affected our single family mortgage banking business in the second quarter.
Reducing the robust levels of volume and profitability that we have enjoyed since early in 2020.
This impact is reflected in the change.
Federal reserve position of our single family originations between refinancings and purchases as the percentage of refinancings decreased from 70% in the fourth quarter of 2020% to 45% in the second quarter of this year.
We continue to anticipate a slight decrease.
On the comps in our origination and sales.
Activities going forward.
As well as lower commission based compensation expense as we returned to what might be considered a more normal single family mortgage banking environment.
The pace of this normalization, however remains difficult to forecast.
Create 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.
While the expected again slight decline in mortgage banking profitability is likely to result in upward pressure on our efficiency ratio in the near term.
As I stated last quarter, we anticipate total noninterest expenses to decline in the second half of the year, assuming somewhat lower mortgage volume and related lower compensation expenses to levels, which we believe will result in an efficiency ratio in the low 60% range.
And still falling in future.
Years.
We continue to increase our commercial real estate loan originations, primarily multifamily for both sale and for portfolio.
The strong fundamentals and demand in our markets and our successful platform support this initiative.
Over time this increase in <unk>.
You should support net loan growth and higher net interest income serving to offset any decrease in noninterest income from lower mortgage banking income, which I just discussed.
As a result of the increasing levels of multifamily loan originations, we are contemplating utilizing securitization to.
To enable us to originate to our full potential.
On cap CRE concentration levels, and individual borrower lending limits and improve our capital efficiency.
Additionally, securitization of our loans will enable us to retain the servicing of these loans.
As opposed to whole loan sales, which.
Reduction just historically to manage capacity limitations and potentially provide improved execution metrics.
While the final determination to proceed will be based upon various factors, including market spreads. We are anticipating completing our first securitization before the end of this year.
To minimize.
We view impact of the cost of securitization, we anticipate 2 securitizations a year on a go forward basis in place of our prior whole loan sales, which may produce some quarter to quarter earnings volatility.
<unk> to reiterate my comments from last quarter.
<unk> the investments, we have made and the improvements on our efficiency and profitability have 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.
Excluding nonrecurring items, such as PPP loans and expense recoveries and of course subject to any unforeseen changes in the economy on our business. We believe we have the opportunity to continue to grow year over year earnings on a per share basis, both next year and going forward past the normalization.
Single family mortgage market.
We would also expect our profitability metrics to continue to compare quite favorably to our peers going forward.
With that this concludes our prepared comments today.
Of course, we appreciate your attention and participation today, Jonathan I would be.
Of this answer any questions you have at this time.
We will now begin the question and answer session.
To ask a question you May press Star then 1 unrecovered phone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Steve Moss with B Riley Securities. Please go ahead.
Be happy to good morning.
Basically Mike Steve.
Maybe just starting with.
Loan production and loan growth just given.
It sounds like a little bit of a change in strategy.
CT high origination levels, how do we.
Think about this maybe translating into.
Loan growth.
On a normal basis going forward here I think as far as thinking high single digits, we'd be seen take double digit type loan growth.
It's possible.
Our expectation is high single digits.
It could get into.
2 oh double digits, depending upon.
How successful we are.
On the utilization of securitization as I mentioned earlier.
They support higher levels.
The market is.
As.
Is very very strong still particularly in the markets on which we do.
<unk>.
And our market share is still relatively small when you consider how large these markets are.
Even the multifamily market, which we focus on in the West Coast of course is very very large so we.
We think that.
Our initiative to increase production, obviously is working so far.
Business I think we have a lot of.
A lot of room to grow.
On cap in the balance sheet, we think is the right thing to do at this time.
Got it and then maybe just in terms of.
The expansion in loan growth, So I guess, maybe 2 parts 1.
Is the level of originations you think sustainable.
Well at the current core level and.
Are you guys hiring additional people just kind of curious as to how think expenses there too.
We will compensate he will probably add a small number of producers.
We are still realizing.
<unk> from.
<unk>.
The restructuring work that we did so we are still not expecting.
A material addition to personnel.
For the foreseeable future.
Okay and is the kind of $900 million type level, we saw for originations.
Perhaps.
On a sustainable level or just kind of curious on on that.
We think so yes, yes, we think so we hope to improve on on that number but yeah and that's included in the originations of loans held for sale Thats just for the held for investment. So we do have additional origination is beyond that.
Okay. Okay. That's helpful and then just maybe on the.
Potential for a $50 million buyback in a step down here, just kind of curious capital levels call it relatively steady.
Is this just reflective of your expectations for higher growth or just kind of how do we think about this going forward.
Yeah.
We're leaving a little capital for growth right.
The if you think about what we're making per quarter.
We are paying a dividend thats, a little in excess of $5 million per quarter.
This quarter.
It's a little higher because net income is a little higher.
<unk> the reversal of ACL right. So if you back that out.
With a $15 million repurchase was $5 million of dividends, leaving a little capital for growth that should kind of make sense.
Okay.
Okay.
That's helpful. And then just in terms of 1 last.
Because I mean, just in terms of loan price seems just kind of curious as to what.
What you guys are seeing for rate briefly states.
Okay.
Yes.
It is not much different than last quarter frankly.
<unk>.
Okay.
The note.
Question for Us on.
On new production.
Construction is still on the <unk>.
Mid to high 4% range.
Single family is in the low threes multi.
Multifamily low threes.
C&I is 4 to 4 and a half.
Those are those are the major numbers on Newark.
Relative to rates.
Alright.
Well great. Thank you very much for I'll call. It next quarter.
Great. Thanks, Steve Thanks, Steve.
The next question comes from Jeff <unk> with D. A Davidson. Please go ahead.
Good morning.
Hey, Good morning, Jeff question on the on.
On the Mark.
Wanted to circle back to the loan growth a little bit I think you guys had kind of talked about targeting larger relationships, particularly in multifamily I wanted to kind of for.
Follow up and say it was that a factor in this quarter's.
And part 2 of that is with any any purchase loans in in in what you characterize this growth in the quarter.
Second question first no purchase loans.
The closest we get to purchase loans are some.
Syndications and participations on the C&I.
Ni book, but it's quite small because this is all on originations.
Large borrowers didnt really impact this quarter, we did a few loans for larger borrowers, but I wouldn't say it was.
Beyond the average per quarter the decision to consider a securitizing going forward.
Growth portion of the loans has some benefit to larger borrowers and I think I mentioned in my comments that.
We have borrowing relationships that we would very much like to do more with but we have house limits on loans to 1 borrower plus we have legal limits as well right and securitization as a way.
2.
To go beyond those limits.
Hey, 1 other thing Jeff is I think when you heard in the past is talking about on larger loans, we were specifically referring to the dust program, because we changed our structure to airline to do bigger loans, but those are loans held for sale.
Yeah, Okay fair enough.
Thanks, John.
And.
I guess, John while I have you on the.
On the margin.
They have missed at the beginning there kind of rattling through the PPP impact Pete.
Do you have debt.
Key contribution to margin in the first quarter versus the second quarter <unk>, Inc.
Had a core margin with that stripped out.
But actually if I, if I strip out the PPP loans there for total impact.
Both the balances and the revenues that we had in the first quarter. It actually had a negative impact of about 2 basis points in the second quarter had a positive impact about 15 basis points.
So when you look at the study data for you to PPP loans, we are expecting.
A flat rate if you exclude their impact on that margin for that margin excuse me sorry.
And John that 2 basis points in 2015, respectively that was tier the margin not earning asset yields correct yes.
For the net interest margin Thats correct. So if you pulled out the balances and the income and the reason in the first quarter was negative is because.
We put on a lot of balances that were earning 1%.
Checking around okay, yeah, yeah, yeah yeah.
Mark sorry, 1 more.
On the so if we're talking about high single digit or low double digit loan growth.
Sure.
Stable credit.
<unk>.
Your comment that it may continue.
Have a reverse provision here.
Is there maybe just bigger picture kind of comfort maybe that.
Through the end of the year and then you stabilize on on the reserves, if you could kind of ballpark kind of where.
For that.
Base level is where that kind of settles in.
Sure.
It's hard to comment on what the actual pace will be I mean, we.
<unk> added $25 million to the ACL in the first and second quarters of last year specifically.
Pandemic.
We <unk>.
Since that time, our portfolio has continued to perform well even better. So there was going to be pressure on the ACL.
Without the pandemic.
If you look at our loan coverage from.
<unk> for the TL pre pandemic.
I think we were around 87 basis points I believe.
Given improved performance and a greater composition of multifamily loans in the portfolio are steady state ACL fully passed any.
Pandemic recovery.
The ACC is likely to be 87 basis points or lower if that helps now how quickly we get there.
<unk> is a little unclear, though at this juncture I would still expect to recover based upon all the trends more of this year.
Okay.
Covering pace.
Of.
Maybe.
Drift down as up to some review, but that falling at some point sub 1% of loans is not a.
Okay gear that you cant guess.
Out of the question.
No.
For.
So better yardstick.
No.
Got it so hard to know if you had just recovered it evenly through the end of 'twenty 3 I'm, sorry, 'twenty 2.
That might not be a bad estimate, but I can't.
I can assure that thats going to be the pace.
But.
A lack of them.
We have to plan somehow also right I mean, we have the same internal problem.
And for lack of a better yardstick that might be a good way to consider recover here.
Jeff we're still as everybody else is learning to seize on modeling in the process of the implications of it and how it works and it's.
It's very involved process and you don't have a ton of history with it so.
As Mark said.
That's a reasonable assumption going forward, but when it actually happens will kind of go through each quarter and have to evaluate whether it makes sense right I mean, we could recover it faster than that potentially.
Potentially right.
If there are any indications of an elongation of risk could be slower we surely don't anticipate that today.
So I don't know if thats helpful or not.
Yes. It is.
I get the gymnastics of book.
The process here I just was part of the question is.
As your loan growth and you talk about.
Lowering reserves versus kind of growing into it and if you keep this pace.
Kind of doing.
Eating it from both sides.
Hello for otherwise I appreciate the comments thanks.
You bet.
Question comes from Matthew Clark with Piper Sandler. Please go ahead.
Hey, good morning, guys.
Environment.
Maybe just first on the.
The share repurchase another $15 million in the upcoming quarter here.
What are your thoughts beyond.
The second.
<unk> in terms of share repurchase you get to a point where.
Given all you've bought back that the float starts to become.
Concern or an issue or do you feel like you can continue the buyback beyond this quarter.
I feel like that would be a high class problem, let me start with that.
Right I mean, if we.
If we are so successful in managing our.
Our capital.
<unk> enable to return.
On capital, but that becomes a float issue.
We would split that.
Mark first.
From a share so because I would assume the stock price would be going up commensurately right.
We would probably split the stock I would also assume are our multiple would go up as well.
Because that would mean an ever improving return on equity on EPS.
Status.
I haven't really considered that potential profit from yet, but I guess, if we got there that would be.
Good problem to deal with.
Okay. So it's fair to assume that buybacks will likely continue.
Beyond this quarter.
Yes.
That's our working assumption.
On.
On 1 perspective.
And Youll understand it's biased.
If the market is not going to appropriately value our shares.
1 of the best investments, we can make is buying it back to the benefit of our remaining shareholders.
And if we have enough capital that we're generating on top of that return of capital to shareholders to satisfy our growth needs.
Absolutely the best thing for us to do.
Okay got it and then just on expenses I think you've talked in the past about a run rate.
You've given some.
For the next 2 to 3 quarters, which is obviously helpful.
But you've also talked about the normalization of mortgage gain on sale.
With some offset so.
Do you feel like.
Net run rate of.
50.455 million.
Some guidance.
Can come down next year or do you feel like even with <unk>.
Maybe gain on sale revenue.
Declining net debt run rate might be able to come down.
I think.
I think thats a good run rate.
It'd be some volatility within quarters, particularly because of the seasonality.
Of the normalized mortgage business.
There when you get farther out let's say to.
Late 'twenty 2 'twenty 3.
No.
Inflation.
Will impact us somewhat.
Right.
<unk>.
Just think about annual merit increases debt for our industry have averaged about 3% a year.
There will even with the steady state FTE count.
There is some inflation in expenses and so there might be on some small increase in that number.
As you get out, let's say to 2023.
But I think the important thing to remember here is as the operating leverage so as we're going through this and keeping our expense is pretty relatively flat we have the potential with our growth in our loan portfolio to really start getting increased revenues to get better operating efficiencies right. So.
Regardless of.
Whatever inflation might do to expenses, we are expecting revenue increases of a multiple of whenever that is.
Understood Okay.
And then just on.
Yes.
For the for sale originations.
Coming down.
So little debt from where they were.
This quarter.
You feel like I think you did 2.16 billion.
That's it for loans sold last year.
And about $713 million on the CRE side.
I guess, how do you feel about both of those.
Or do you feel like you can.
Come close to matching that type of for sale production on that so far side.
And what are your thoughts on the commercial side as well.
We think in the single family for sales production.
Bucket, if you will that this year.
We will be similar to last year.
They just it's just going to come in different quarters.
The the Fannie Mae dust business.
We think will be higher this year.
Our multifamily.
Buddy.
Loan sales.
If we do end up securitizing this year.
Whole loan sales of course will be down.
Sales through securitization.
We'll be up.
The total.
Family.
May not be.
Much different.
This year.
Then last year, it kind of depends on the volume of securitization.
We don't securitize.
We'll likely do whole loan sales.
Sometimes for the end of the year.
Just a little unclear right now.
Okay, great. Thank you.
You bet.
The next question comes from Jackie Bohlen with <unk>.
Please go ahead.
Hi, good morning.
Good morning Angie.
Total debt had about deposits.
Yeah, just really nice growth in the non interest bearing accounts. This quarter I just wanted to see what some of the internal trends may have been there.
A lot of business deposit growth.
In the quarter.
And sort of across all markets.
<unk>.
We are adding relationships.
And more deposit only relationships, we have a specialty deposit group that we've been building over the last couple of years, that's starting to get some traction.
That has helped a great deal.
On the existing customers we're banking.
Have retained so much more somewhat more cash as well I think thats true across the industry right now.
We wish they are borrowing more but they are retaining more cash.
I think the trends you see with our peers.
We're also true here, but we.
We saw an acceleration this quarter very happy with it.
Okay.
And that's that.
You also had CD decline, which those in combination obviously a great. Thanks for the mix in the quarter is that more a factor of repricing you intentionally run people out.
Ron people out, but reduce Cds or is it more people as their.
Cds are maturing putting them into other accounts.
Well I think it has more to do with the runoff of much much higher price money.
Because we have.
Reduced our rates.
Farther than we would have historically we're trying.
And our customers somewhat.
We were always.
Not just a premium rate payer, but.
At times, we've let our markets when we were growing at 20% a year and we needed to grow deposits at a much higher rate wells since we changed our growth expectations. We have also.
To reach from lowered.
On the our rates to be a lot closer to our peers and for some.
Deposit CD deposit customers, who are only shop at absolute highest rates there are better rates available.
Whether it's online or otherwise and so I think that that is.
So as helped us lower our CD balances.
In an effective way for what we would consider core customers.
And 1 other aspect Jackie as we do have some wholesale CD deposits that we utilized from time to time in the past it's been a larger proportion of our balances for some of the decrease has been in the wholesale side.
GAAP overseas that's true too.
Okay.
And like for setting aside.
Sorry go ahead.
Just the.
Adding on to that.
Since they are substantially borrowings as our deposits grow we reduce the need for overall borrowings.
Okay.
Brokerage.
Setting aside kind of the unknown about customer liquidity behavior on how that's going to fluctuate in the coming quarters would you expect kind of the core trends of having rate shopper shift our business customers on lower cost deposits shifted.
Will that continue.
That's our plan.
Okay.
Everything we're doing it is.
Trying to grow the number of relationships.
Gross.
The proportion of the relationships that we have.
Look we we have been working for.
Gosh, I guess I can.
Plan on many years too.
Convert which.
Once it was a very traditional thrift to a full service commercial bank and this ongoing.
Change in composition of deposits.
As a primary part of that ongoing initiative.
Okay.
See now also I think on on the consumer side I think we are developing a really strong core base of customers that are less price sensitive.
Then may have been historically in the past for this bank. So I think thats another positive benefit on the consumer side is more stable customers that won't be leaving you for a couple of basis points.
Okay, Okay, great Thats fair.
Hi.
And then 1 last 1 for me and I apologize. If this is on mute question, but just wondering if you could provide an update on kind of where you stand with any sub leasing plans that you might have I know, there's obviously a number of factors that that influenced thought if youre still looking to do any of that activity, but just wanted an update there.
Well, thank you for asking that question.
You may remember in the fourth quarter of last year, we took a pretty substantial charge.
About $6 million to accelerate our sub leasing efforts.
There were still a hangover from our downsizing of the mortgage business.
That.
Successful, we have led the market I guess, you can use that term as the lowest price class a footage available in Seattle since that time and I'm happy to report that we have substantially completed that subleasing effort.
Having said that.
It was very.
We are in the process of.
Restructuring expectations.
How much time are people spend on the office versus working remotely.
And moving some number of people to non permanent workspace hotel in workspace.
And we are expecting that.
Process will ultimately create some more excess space that we will have to sublease.
Please don't ask me the metrics of that yet.
It's definitely unclear, but we may have a little more to do going forward.
Okay. Okay.
Space update and I mean, I would assume debt when you think about the run rate that we discussed earlier on the call that all of this for taking into consideration for that barring no debt.
Kind of features that we think.
Correct.
Okay.
Thank you for taking my questions. Thanks, Jack.
The next question.
That's a good comes from Tim Coffey with Janney. Please go ahead great.
Thanks, Good morning, gentlemen.
Hey, good morning, Tim Yes.
Mark if I can just kind of give more color on this potential securitization.
1 for before year end, what's the probability that happens.
Today, I would say it's very.
Good.
Yes.
But.
I am not a predictor of interest rates nor spreads.
Interest rate spreads can be volatile and it can change quickly so I'd say it looks good.
Right now our folks are doing a lot of work on it of course, the first securitization.
<unk> takes a great deal more work in establishing structures relationships on all of that.
But.
Remains to be seen so.
We are hoping.
Yeah.
To get this accomplished we think that it's an important.
Structure.
Actual maturity.
In our business and gives us a lot more flexibility.
At times.
Gain on sale that you might recognize in securitization is larger than the whole loan market at times. It is not right and so that's a that's a significant consideration but the retaining.
Gaining the servicing is a very very positive aspects of the securitization, it's very important the ability to retain our customers.
The ability to sort of.
On cap CRE concentration concerns loaded on borrower concerns to be able to do as much business as possible with the for.
For large.
Borrowers that.
Do you feel most comfortable doing business with.
These are great opportunities.
No there's a ton of benefits for the program.
You also mentioned potential earnings volatility in the quarters. Once the Securitizations are completed whats the magnitude of that volatility.
Well you can think of it this way.
You look at last year's home loan sales.
We did them in each quarter not exactly the same amount, but we did some in each quarter. If you took that total let's say on only put it in let's say second and fourth quarters right. You would have volatility between the first and third and second and for us.
Okay.
And this.
Kind of how you're thinking about when you would secure you do a securitization would it be something like I say, the first and fourth quarters when the residential mortgage market is seasonally weak.
I think we're thinking more second and fourth quarters, but is.
That may not turn out that way.
Inc.
If we.
Let's say we were to close a securitization by the end of this quarter.
More likely we would securitize in the first quarter of next year.
And then 6 months later.
Okay. Okay. Thanks, guys I'll try to get a handle on the timing of that.
Mark.
Precise.
Now we'll figure it out as you start doing them.
And then John just looking at the investment portfolio.
But it's been coming down I average balances period imbalances, you know for the last 3 quarters its at a relative range, whereas historically bad is there anything that you're seeing.
Thanks for the inverse.
<unk> market that you.
You don't like that potentially you could see a buildup in cash or is it just really dependent on the normal things like increasing deposits and loan growth.
I think it's more dependent on the ladder in terms of our investment portfolio, we utilize that almost exclusively as a liquidity portfolio to.
In the energy requirements. However, we have do a very good job of on a relative basis generating earnings out of it.
But I think going forward youre going to see a relatively stable percentage of balance sheet and our investment portfolio. So as we grow I would expect that to grow slightly consistent with the growth in the balance sheet just.
Luckily in our liquidity requirements and go ahead, just a footnote to that though inside of that portfolio is.
Actually a collateral portfolio right because we do we have a fairly large derivatives book because of our level of hedging.
Many of our agreements of course.
To meet our collateral.
And so inside of that book is.
Sub portfolio, if you will.
As collateral qualifying under these various agreements.
But in terms of total.
John's right, we're generally targeting on a percentage.
Yeah.
But sometimes we grow it a little we've been lucky to grow it.
While rates were a little higher.
Which has been nice.
But I don't think youre going to see.
US focus on growing that as a percentage of assets.
Okay, Alright, great those are my questions.
As you have at the time thanks, Tim.
And we have a follow up from Jeff <unk> with D. A Davidson. Please go ahead.
Just a housekeeping the PPP loans outstanding as of 630, and if you could John if you want to comment on the pace of forgiveness through year end.
Yes.
I can tell you disclosed a little bit we have about 200 logo over $200 million worth of loans in about a little over $5 million worth of deferred fees.
Our expectations and we haven't always been right because we're not share with the SBA does all the time our expectations is that majority of those will be forgiven by the end of the year and so.
So that's kind of our working model, but that depends on 2 things the SBA processing, which seems to have picked up and also our customers filing.
Forgiveness, which sometimes they tend to wait till last second and going through that process. So our expectations is that most of it will be gone by the end of the year.
And Thats and then John.
John.
Does that answer I think that's the best answer we've got right now.
Got it thank you.
Okay.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mark Mason for any closing remarks.
Thank you again for attending.
Joining our call and for the great questions and we look forward to speaking to you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Okay.
[music].
Hum.
[music].