Q2 2019 Earnings Call
Good day and welcome to the Homestreet Inc. second quarter 2000, Nineteens earnings call.
All participants will be in listen only mode. So you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity tax questions.
You asked a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mark Mason Chairman and CEO . Please go ahead.
Hello, and thank you for joining us for our second quarter 2019 earnings call before we begin I'd like to remind you that our detailed earnings release was furnished yesterday to the FCC on form 8-K and is available on our website at IR Dot Homestreet dot com under the news and events link.
In addition, a recording of the transcript will be available at the same address following our call.
On today's call, we will make some forward looking statements any statement that isn't a description of historical fact is probably forward looking and is subject to many risks and uncertainties.
Our actual performance May fall short of our expectations.
Or we may take actions different from those we currently anticipate.
Those factors include conditions affecting our financial performance the actions findings will requirements or regulators, our ability to meet cost savings expectations or to realize those cost savings at the pace we expect.
And general economic conditions that affect our net interest margins borrower credit performance low origination volumes and the value of mortgage servicing rights or other factors that may cause actual results to differ from our expectations or that may cause us to deviate from our current plans are identified in our detailed earnings release and in our SEC filings, including our most recent quarterly report on Form 10-Q , as well as our various other STC filings.
Additionally, information on any non-GAAP financial measures referenced in today's call, including a reconciliation of those measures to GAAP measures maybe found in our SEC filings and in the detailed earnings release available on our website.
Please refer to our detailed earnings release for more discussion of our financial condition and results of operations.
Joining me today is our Chief Financial Officer, Mark Rupe at a moment Mark will briefly discuss our financial results, but first I'd like to give a summary update on our results of operations and review our progress in executing our business strategy.
The second quarter 2019 marked a significant milestone in achieving our long term strategic goals.
We completed the sale of substantially all of our Standalone home loan centers and transferred most of our related personnel to home bridge financial services.
The remaining offices that were not sold were closed during the quarter.
As a result, our employee count decreased from 1937 at the end of the first quarter to 1221 at the end of the second quarter. Much of this activity took place in June So our consolidated results of operations included and up almost the entire quarter of historical mortgage banking activities.
As part of our decision to reduce our exposure to mortgage banking.
In July we entered into a non bout binding letter of interest to sell our ownership interest in WMS series LLC.
The successful completion of this transaction will further reduce the single family mortgage banking volume, we generate going forward.
For perspective during the second quarter, we originated $166 million of held for sale loan volume and $5.3 million of held for investment loan volume from WMS.
At the beginning of the second quarter, we announced our board had authorized the $75 million share repurchase program.
As of the end of the quarter, we repurchased 963600 shares in the open market at an average price per share of $29.40.
Subsequent to quarter end upon receiving federal reserve bank non objection.
We purchased Blue line Capitals, 1.7 million shares representing 100% of Blue line capital and its affiliates ownership position at a price per share of $31.16, which price represented the five day volume weighted average price prior to the date of our 2019 annual meeting.
We are pleased to reach this amicable amicable relays resolution with Blue line capital, which will allow us to focus completely on that business going forward.
Asset quality remains strong and improved during the quarter with nonperforming assets declined to 16 basis points of total assets at the end of the second quarter from 23 basis points at the end of the first quarter.
Our markets remain some of the strongest in the country, where the large diverse economies. However, we are keeping a careful eye and fundamentals and remain focused on controlling credit risk.
Total deposits on our continuing operations increased 8% during the quarter deposits on our de Novo branches. Those opened within the last five years increased 25% during the same period.
During the quarter, we announced the consolidation of our Lake Oswego, Oregon retail deposit branch into our Lake Grove, Oregon Branch, which will take place in September of this year and we are dedicated to making this a seamless transition for our customers.
And now I'll turn it over to Mark who will share the details of our financial results.
Thank you Mark good morning, everyone and thank you again for joining us.
In the first quarter, we announced that we would sell our home loan center based mortgage banking business and retain a substantially smaller bank location based mortgage banking business.
As a result, the historical results of our mortgage banking segment were reclassified as discontinued operations.
Beginning in April 2019, and going forward the assets liabilities revenues and expenses of the retained bank location based mortgage banking business are included in continuing operations.
I will be highlighting the impact from these changes in the presentation of our financial results during the quarter and now regarding our second quarter financial results.
Our consolidated net loss, which includes the results of both continuing and discontinued operations for the second quarter of 19 was $5.6 million or 22 cents per diluted share compared to a net loss of $1.7 million or six cents per diluted share for the first quarter of 19.
The share repurchase from Blue land capital and affiliate on July 11th caused us to reclassify $52.7 million or equity to temporary equity as of quarter end.
This reclassification caused us a hold temporary equity for the last 10 days of the second quarter, resulting in a slightly dilutive effect to both income from continuing operations and loss per common share of approximately one cents.
One time items included in net income for the second quarter of 19 were comprised of $9.6 million of restructuring charges from the exit or disposal of our home loan center based mortgage banking business and $33000 of acquisition related recoveries net of tax.
This compared to one time items in the first quarter of $9.6 million of similar restructuring expenses net of tax and $290000 of acquisition related expenses net of tax.
Net income was adversely impacted during the quarter by the timing of the sale of our home loan center based mortgage business.
We recognize the full quarter of expenses on close loan volume.
But only a partial quarter of revenue on interest rate lock volume.
When single family interest rate lock volume is lower than closed loan volume any given quarter net income was reduced because the majority of mortgage revenue is recognized at interest rate lock well most of the origination costs, including commissions are recognized upon closing.
This imbalance reduced net income during the quarter by approximately $3 million.
This adverse effect will continue during the third quarter of 19th we expect to recognize limited revenue.
Interest rate lock and forward commitment volume, but we'll continue to close the remaining loans from the pipeline that was sold.
Net income from continuing operations for the second quarter of 19 was $8.9 million compared to net income from continuing operations for the first quarter of 19 of $5.1 million.
Of this increase $3.2 million is due to the inclusion beginning in April of the revenues and expenses from the retained bank location based mortgage banking business previously included in discontinued operations.
Excluding this impact the increase was primarily due to a decrease in the provision for credit losses.
And an increase in noninterest income from increases in gain on sale from debt Securities and prepayment fees received on the path of commercial loans.
Net interest income increased by $1.6 million to $49.2 million in the second quarter of 19 from $47.6 million in the first quarter of the increased $1.2 million was due to the inclusion beginning in April of net interest income from the retained bank location based mortgage banking business previously included in discontinued operations.
The remainder was due to higher average balances in loans held for investment during the quarter.
Our net interest margin on a tax equivalent basis remained at 311 basis points in the second quarter compared to the prior quarter.
Compared to the first quarter of 19, the benefit of growth in non interest bearing deposits was offset by higher interest bearing deposit costs.
Loans held for investment decreased $59 million or 1% to $5.3 billion at the end of the second quarter from $5.4 billion at the end of the first quarter.
Sales of commercial real estate and single family mortgage loans during the quarter offset net increases in the portfolio from new lending.
Nonperforming assets decreased to $11.7 million or 16 basis points of total assets at June thirtyth compared to $16.7 million or 23 basis points of assets at March 30 Onest.
The decrease from March 30, Onest was primarily due to the payoff of a 4.7 million dollar SP fiber for construction loan that had been previously downgraded to non accrual during the first quarter.
We recorded no provision for credit losses in the second quarter compared to a $1.5 million provision in the first quarter.
This decrease in provision versus the prior quarter was primarily due to the reduction in loan balances and a slight recovery on loan losses during the quarter.
Deposit balances excluding those related to discontinued operations were $5.6 billion at June Thirtyth.
An increase of 8% from March 30 Onest.
The increase in deposits was primarily driven by an increase in consumer time deposits.
We raised generally less than nine months CD deposit in anticipation of a decrease in servicing related deposits associated with the final transfers of mortgage servicing rights this month and in August .
Subsequently, we reduced our rates on these deposit products.
We also had strong growth in non interest bearing business deposits.
Our trailing 12 month deposit beta for the second quarter was 38% up slightly from the first quarters deposit beta up 31%.
Our second quarter 12 month held for investment loan beta was 31%.
Noninterest income increased $11.7 million from $8.1 million in the first quarter of $19 million to $19.8 million in the second quarter of 19.
$10.4 million of this increase was due to the inclusion beginning in April of non interest income from the retained bank location mortgage banking business previously included in discontinued operations.
The remainder was due to an increase on the gain on sale of investment securities during the quarter and an increase in prepayment penalties received on the path of commercial loans.
Noninterest expense increased $11 million to $50.8 million in the second quarter of 19 from $47.8 million in the first quarter.
$7.6 million of this increase was due to the inclusion beginning in April of expenses from the retained bank location based mortgage banking business previously included in discontinued operations.
The remainder of the increase during the quarter was due primarily to proxy solicitation other annual meeting costs offset by $672000 of legal expense reimbursements recognized in the first quarter of 19.
Our effective income tax rate is 14%.
For the second quarter of 2019 differs from our combined federal and blended state statutory tax rate of 23.6%.
Primarily due to the benefit we received from tax exempt interest income and its proportion to total net income.
Net loss from discontinued operations was $14.5 million in the second quarter of 19 compared to a net loss of $6.8 million in the first quarter of 19.
The increase in net loss from discontinued operations was due to an AD due to the adverse impact of the imbalance between the volume of interest rate locks and the volume of closed loans that was previously discussed.
Thank you for your attention I will now turn the call back over to Mark Mason.
Thank you Mark now that Weve completed most of the asset sale portion of our mortgage banking restructuring plan.
We have turned our focus to improving our operating efficiency and reducing our cost structure to reflect our simplified business model and lower growth expectations. In addition to the expense reductions to date and planned by management.
Dan Davis and CVC for profits our cost efficiency consultants have identified a range of additional expense reduction opportunities, which involves substantial technology organization and personnel changes. These include simplifying the organizational structure by reducing management levels and management redundancies.
Consolidating similar functions currently residing in multiple organizations within the company.
Renegotiated where possible major contracts primarily technology.
Identifying and eliminating where possible all redundant or unnecessary systems and services.
And adjusting staffing to recognize the significant changes in work volumes and company direction.
Despite the challenges of the yield curve and assuming our strong credit culture maintains our low level of problem assets.
And assuming we realized the expense reductions currently planned by management and projected by our consultants.
We expect to achieve an efficiency ratio in the low 60% range.
Return on average assets exceed exceeding 1.1%.
And return on average tangible equity exceeding 11%.
Within the next four quarters.
With additional improvement after that time.
The timing of these expense reductions will vary depending upon the nature of the expense, although a meaningful amount is expected to be realized in early 2020.
These return targets are based only on expense savings without additional share repurchases or the possible establishment of a regular quarterly dividends.
Additionally, revenue enhancements such as improvement in our cost of funds in fee income would improve these return targets.
Going forward as we implement the expense reductions identified by our consultants, we will be better able to forecast the timing of their expected impact on our financial results.
In future quarters, we will be providing detailed numbers on expense reductions to date.
And more specific timing of efficiency ratio return on average assets and return on average tangible equity targets in the future.
As a consequence of the change in business strategy. We are also updating our growth expert expectations for the near term.
For the remainder of this year and next year, we will be replacing run off in our single family loan portfolio with growth in our commercial loan portfolios, resulting in no net growth in loans held for investment over these terms.
Additionally, assuming no change in the current yield curve, we expect the net interest margin consistent with our just concluded second quarter.
This concludes our prepared comments.
We appreciate your attention today, and Mark and I will be happy to answer any questions you have at this time.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys. If anytime your question has been and Jesse you will like to withdraw your question.
Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Luke <unk> of KBW. Please go ahead.
Thing.
I just wanted to start off with just some questions on on what you just touched upon on the the strategic initiatives and just kind of wanted to see in terms of.
Some of the technology renegotiations in systems consolidations that relate a lot that are heavily to the kind of information services lines and if you could just touch on that a little bit more.
For the forward guidance.
Sure.
It touches several categories of expenses.
Of course, the technology line item, which.
Was comprised not just of inside I T personnel in costs, but more substantially.
The cost of.
Software systems.
That provide the backbone of our operating systems and.
We have.
A lot of systems here.
We have some very specialized.
Loan products at a fairly wide menu of products.
And we have.
Identified a certain amount of duplication of services among those products.
We are.
Analyzing those areas of potential duplication and consolidation.
In conjunction with the need to renegotiate many of our contracts as a result of substantially reduced volumes subsequent to our sale of.
So the majority of our mortgage banking activities.
Okay. That's helpful. Thanks, and then just switching over to where you were just touching on the loan growth you said that.
Offsetting the commercial contraction that that loan growth is going to be relatively flat through the end of the year is that how I should interpret it.
Offsetting the runoff in the single family mortgage portion of our portfolio right understanding our mortgage origination volume as the decline pretty dramatically those balances, particularly in this interest rate environment.
Our going to decline more quickly than in the past substantially.
But we expect to offset that run off with greater.
Levels or greater composition of.
Various commercial loans.
Okay. That's helpful and then I'll just touch one more on the margin just.
Trying to get a sense of.
If we do get a rate cut here in the next in the next well it looks like in the next couple of days, but.
Just through the end of the year, which how much of your.
Commercial loan is floating to prime or LIBOR and given that cut how do you see those those yields trending.
Oh, a meaningful amount of our portfolio is.
Is adjustable.
In rough numbers I believe about a third of it is monthly adjusting right roughly.
And.
The remainder of the adjustable portion of the portfolio is.
Is the hybrid nature right short term structure and then floating.
Okay.
And then just given given it kind of how do you see the yields on that I mean, I imagine do you have any kind of guidance for the impact of the NIM or is it kind of just to be assumed that that through the end of the year, if theres, a cut or two that would be down.
Modestly.
We're pretty balanced.
And when we look at the potential for a cut at the short term of the curve.
That's going to have offsetting impact in our funding cost today, given our level of loan.
Advances and Folly deposit beta.
Okay. That's helpful. I'll step back thank you for your answers.
Thank you.
Our next question comes from Jeff Rulis.
<unk> Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Jeff.
A question on.
The income statement and trying to get into.
And okay approach to to Rightsizing, what things look like post Q2.
It's a good.
Place to start maybe fair to back out the 10.4 and seven six and fee income expenses from the discontinued ops I understand.
Going forward and then understanding efforts made to build that fee income and reduce cost is that a is that a fair starting point.
No actually the reverse.
The change in the quarter was reclassifying those that portion of mortgage origination and servicing that we'll be continuing.
Out of discontinued operations in the prior quarter into continuing operations and so you should expect to going forward see those higher levels of revenue and expense.
Okay, and then on the the stranded costs I think you identified 8.3 previously what of those have been captured as of the two Q run rate and and I suppose what what's left.
Yeah, and I apologize for not calling that out but if you look on page 25.
Of our earnings release under the non-GAAP financial measures at the end of the first.
Page it shows.
The second to last line on that page the stranded cost numbers for the quarters historical in most recent and the 8.3 million has declined to $6.2 million in the second quarter and still falling of course.
Okay and are the exit and disposal costs is that complete I eat no further charges anticipated in future quarters.
In terms of restructuring type charges, that's substantially correct. We may have some miscellaneous items that come through however, we will still have some operating loss in discontinued operations.
It is the in the third quarter as we finished closing the pipeline of lock loans that existed when we transfer the offices and personnel those loans are being closed with the assistance of that personnel that were transferred under the transition services agreement with home bridge and while.
The economics of that agreement, we think our.
Our favorable to the company.
We are not anticipating net income.
Probably some smaller net loss in discontinued operations.
Okay, and and additional balance sheet adjustments post second quarter, you spoke about a $133 million in deposits.
Set to transfer to them.
The mortgage fire and then you know you had an elevated loans held for sale could you talk about just structured deposits and loans that may.
That are planned to go away.
So right, including the expected reduction in deposits loans held for sale.
Should fall.
Alternately to less than $100 million.
Two two things driving that one of course, the completion of the closing of the discontinued pipeline.
And then ultimate sale of those loans, but also the.
Sale of our interest in.
Would it be a mortgage services.
Which.
Provides currently 70 $75 million, a month and originations to us maybe larger last month.
So all of those will create decline ultimately in loans held for sale.
Over the next.
Six to nine months, the most the largest part of that.
Being in the third quarter.
The.
Deposit number.
We previously discussed and of course this temporary equity number that is existing temporarily at the end of this quarter.
Right.
Okay, I will step back thanks.
The next question comes from Steve Moss of B. Riley. Please go ahead.
Good morning, guys.
Okay. So just want to I want to start on them on the mortgage banking side, assuming the sale of WMS here I guess, it kind of fair to think about originations on an annual basis, probably in something like the 750 million to $1 billion range annually.
That's fair as seasonal still right right.
Right, Okay, and then just in terms of.
You know as you as you're thinking about expenses here.
You know.
Yeah about how long do you think it'll take to implement.
The bulk of the consultants and your own plans recognition should we think about over the next.
Six months or is it really longer over a 12 month period.
Well I.
Just stated in my.
In my comments that we're expecting to realize the lions share of this over the next four quarters right.
With a meaningful amount in early 2020.
Right now, it's a little hazy right I mean, we are just.
Investigating the potentials and beginning planning.
And so it's a little hard to be more specific but we feel good enough to make.
To provide this guidance and unfortunately right now it's kind of as good as we can provide.
But beyond.
The first half.
Or the first three quarters of.
Of next year there are still.
There's still more to come right.
Additionally, if you think about.
Limiting loan growth the continuing deposit growth we are.
We are planning on improvement in our cost of funds as well, but that these numbers don't include any of that.
Right.
And then I guess on the CD special that you guys ran just kind of wondering.
Where was that in and where are your CD rates today versus perhaps current cost funds that we see to 26.
Well the down substantially we had a hole to fill.
Right very temporary one to plan for with the.
The transfer servicing deposits.
And.
Relative to.
Advances and with liquidity considerations.
We felt the right thing for us to do was to float.
Certain amount of short term Cds and.
You know to raise them pretty quickly you pay a slight premium.
But the rates on those products are down very substantially bees.
Yes, 40 basis points right now.
Okay. That's that's helpful.
And then you know I guess is the balance sheet here is more or less stable.
The.
How should we think about you talked about commercial loan growth.
How should we think about that underlying mix between cnine CRT and construction.
You know if you look at past volumes I would expect consistent relationship generally go our see an island Dean has been increasing quarter over quarter. If you look at the trend over the last five quarters or so.
Residential construction lending has declined somewhat consistent with a slowdown in that market and so I think you'll see that.
Construction.
Volume decline somewhat.
Commercial real estate general commercial real estate lending, we expect to be very strong perhaps grow slightly during this period.
We will be holding all of that on our balance sheet, though.
While originations have grown sales are growing as well.
And we effectively use that product type.
To balance our balance sheet needs. These days.
And we continue to work in growing our C.I. business as I previously stated.
Okay, and I guess more of like guide.
No Mark I guess housekeeping item, if you will and it looks like you guys did disclose proxy expenses and some severance and looks like that came through continuing operations I was wondering.
If you could quantify those items.
We haven't specifically.
But the.
The delta between the items that we have described primarily not exclusively relates to those items, we did have severance and conduit operations because as.
We've been discussing we've been pared down corporate services and personnel.
And.
In total.
Those those numbers.
Could you have been meaningful salaries and related costs for the quarter about $1 million of that Delta if that helps.
Okay.
Okay, that's helpful and.
I think thats everything for me at the moment, thanks very much guys.
Thanks, Steve.
The next question comes from Tim Tim O'brien of Sandler O'neill and partners. Please go ahead.
Thanks first question I have for you guys can you talk little bit about capital management plans and needs here going forward, obviously with slower loan growth planned.
That that's a factor in this but and also where you see.
Capital ratios key capital ratios kind of settling out.
With the share buyback pending and stuff.
Sure.
All of our current buyback activities have been concluded right we.
We first suspended in and we'll soon terminate.
The $75 million.
Board authorized repurchase plan, given we filled that and a little more.
With the repurchase of the Blue line shares we.
By strategy.
Quickly authorized.
After the end of the first quarter and the completion of our servicing sales.
Our $75 million buyback.
With the intention of completing the home loan center sales and.
Then after second quarter, assuming the completion of those sales reevaluating our capital needs going forward and it is our expectation that the board will.
Authorize additional future share repurchases and ultimately a regular quarterly dividend.
We're very early in the stabilization of the company.
If you think about what we just went through in the first and second quarters and what we will be going through for the next several quarters in efficiency improvement.
I don't expect.
That we will wait.
Too long.
Before the board.
Authorizes additional adjustments to our capital.
But I don't want to front run their decisioning, but I expect that that will happen.
And then sticking.
My turn on the within other expense question.
So on that.
On that page it looked like about $6.2 million thereabouts on page 25 for shared cost reduction so $2 million reduction.
If I'm reading it right.
Yes.
And then.
The work that Mr. Davis is done and the consultants and stuff are the cost savings that Dave.
Those opportunities been identified and quantified in are they separate from these shared costs targeted share cost reductions.
You know it.
I wouldn't say they are necessarily separate.
In that the.
Classes of potential savings.
Across many aspects of the company, which would include.
Corporate services.
All right and then.
I guess a different way to look at where you guys ended up.
Finishing the second quarter from an expense standpoint, and kind of on a go forward basis do you have a sense of.
Ballpark range or where.
Total non interest expense might for it acts one timers and extraneous cost and things like that.
The core number here in the third quarter is that going to be.
North South 60 million do you think.
Well this last quarter's total expense rose.
Sorry.
Memories.
47.
50, 50, 58 50 million yes.
So.
I don't.
I don't expect it will be higher than that number right. If you think about.
The things that are going on at the company, including continuing reductions in personnel.
And the fact that the second quarter is really a peak quarter for mortgage loan originations even in our ongoing.
Business.
That.
We would expect the number.
Generally not to exceed that number.
Now that.
I will warn you we could have nonrecurring write offs restructuring severance.
And we will.
Right related to.
Some of these cost savings initiatives I am speaking to core numbers.
In that second quarter number the 59 million core number that did include.
Retention of the mortgage business of those that personnel and stuff there there.
Compensation is reflected in that number in the second quarter that 58 million 59 million correct.
That is correct.
And.
Can you quantify what the savings are from.
From that severance here going forward.
In continuing to operate the patients I think that I, just mentioned that we had about a million dollars of.
Personnel.
Really that this was the restructuring charge was <unk> million dollars right, but thats, what as we have the but you wouldn't bring annualized run rate, but higher.
I don't think I can give guidance on forward similar numbers yet.
Alright.
Fair enough I'll step back thank you.
All right Tim appreciate it.
The next question comes from Tim Coffey of Janney. Please go ahead.
Right. So you want to gentlemen.
Good morning.
But as we look at kind of the view forward run rate for the gain on sale line.
Would the composition would you anticipate the composition will look a lot like it has in the last two quarters, where mortgage banking is a sizable portion of that component.
Followed by commercial real estate.
I think I think thats going to be true in terms of the size of the numbers.
The the efficiency of those two operations is dramatically different right. If you think about the relationship between the revenues and expenses.
Right our efficiency ratio in commercial real estate is is in the.
Mid to high 30% range right.
But single family retail mortgage.
Is.
Running in probably mid 70 range right.
So.
I remember and remember there is seasonality still in mortgage revenue.
Second quarter being a relatively high.
Point for the year.
So that relationship.
For the composition of that non interest income will change during the year, perhaps meaningfully Additionally, commercial real estate loan sales and in turn gain.
Is historically higher in the second half of the year than the first half of the year in particular.
Fannie Mae DUS loans sales are typically higher.
In the second half of the year and so you can see a material change in the composition of that revenue line through the year.
Okay.
A word about the absolute dollars fall into that line.
Not sure I understand yes.
Well, we expect to gain on sale line item to come down.
I would expect it to be seasonal with respect to each of the operations and.
I think it's a little unclear at this point.
How much will be offset versus.
A decline.
Okay.
All right and then kind of flipping over to the mix of earning assets if the loans that the commentary on the loan portfolio going forward.
Combined with your expectations to grow deposits would you anticipate that securities would become a bigger part of that earning asset mix or do you think it can stay calm in the low teens on an average basis.
Oh, we carry a securities for liquidity and collateral purposes.
And so.
They will vary.
Generally around 15% of assets roughly.
Less if we can right.
But you should generally see that balance is very in relation to the size of the balance sheet.
Around those numbers say, 13% to 15%.
Roughly.
Okay.
And then what the exit from a substantial portion of the mortgage business.
Would it be correct to two started thinking that Youre. Your average borrowings will start to decline.
Yes, as the balance sheet.
Stabilizes.
We do expect deposits to continue to grow.
If you assume that our loan portfolio.
Stabilizes around this number for the near term and deposits continue to grow those will.
Create a reduced need for home loan advances and other borrowings and so you should see the composition of funding change.
Okay, great. Thank you that was my question.
Thanks, Jim.
Again, if you have a question. Please press Star then one our next question comes from Jeff Rulis of D.A. Davidson. Please go ahead.
Thanks, just a couple of housekeeping follow ups, maybe for mark through the expected tax rate going forward do you have an estimate on that.
Yes, good point, you're going to be closer to what we reported the combined federal and state statutory tax rate. So it was a little bit low this quarter, but as we have.
Larger income basically be.
Our Bob.
The portion that we attribute to Tacttthree securities will be less so it's going to climb higher I mean, typically you seen in the past it's around 20% to 21% I mean, when we started having corridors, where we start earning again on a net basis, you're going to see it you're going to see converge towards that towards that combined federal and state tax statutory rate, but again, we've been look typically.
We were running 2021 is what you will see.
This was an odd quarter because net income is very low.
Right right Okay.
And then the.
Any just to peg on the on the Q3 average diluted share count it.
Just some moving pieces there.
We can do the math on what what's coming out but.
Do you have a number theres some.
Averaging in there.
Don't yes, I don't have I don't have it that really small effect that we talked about that happened in the second quarter. If there may be a very very immaterial effect due to that and in the first 11 days of the third quarter, but.
It'll be tiny I mean, you guys really won't even see it.
I mean, I think as far as the diluted share count you could expect that the only shares we're going to be bringing honest due to shares that it would be issue due to employee grants, which is generally a pretty small number but you do have to remember that we're losing the 1.7 million shares that were repurchased the blue line. So those will those will drop off after the first 11 days of July and then so our diluted share count will change due to that so just think about it as well as the open market purchases you just repurchases will those or you see those already those are done that those are done there and they finish we finished that up in June you up or down to that.
There was there was no tail of a buyback July okay.
All done in June .
Got it great.
And then maybe last one Mark Mason.
Just to confirm those.
Financial.
Numbers, you rolled out a 60% efficiency ratio or low range or away, 1% ROTC, 11%.
Your expectation is to get to those numbers by this time next year. So.
When reporting is that.
Am I reading that right.
Yes, there was actually in excess of 1.1% on assets in excess of 11%.
Return on tangible common just to be specific.
Our expectation is that we would.
Be able to get to that run rate.
A year from now.
Right, meaning in the third quarter.
Okay.
Third quarter of 2020 is youre right on those estimates okay right right.
All right so.
Sort of a lag when you accomplish the Cotter you take the action right.
I didn't catch that last bit.
There is there is a lag between taking the action right and getting the benefit in the piano.
Right. So all these things happening to get the sort of annualized benefit of all those things.
That is what we are currently targeting.
For four quarters to up.
Right exactly yes exactly.
Thanks.
Our next question comes from Jordan Hymowitz of Philadelphia Financial. Please go ahead.
Hey, guys. Thanks for taking my questions well, if you're saying your loan portfolio stabilizes here and securities you're about 15% would you say your total assets. So bottom around 656 7 billion is that a good number.
They're going to decline slightly six five I believe.
Is is low.
I think that you know.
A higher number is more reasonable.
We should be quite similar to where we are now.
So what you're saying that you got 200 million of available for sale and a little Unsecure is lets just say its 6.7 billion, which you may be its higher and you said, 1.1% on assets that 73 million without any additional buybacks.
That's about a 280 any P.S. number is that math right.
No, we're not going to get.
The math is the math right.
Okay, and there's a possibility for not everybody is just.
I'm, sorry, not to be Saudi that's just right you're right that's the math.
And they get the share count right.
Well, there's a possibility for additional buybacks a possibility correct.
Yes.
Hi would you say, it's a fair statement that now that you've got rid of the mortgage business and you probably the hottest market in the country you'd be more of a desirable candidates itself.
Well to be bought rather.
I would assume that's true.
Thank you very much have a great day.
Thanks Jordan.
This concludes our question and answer session I would like to turn the conference back over to Mark Mason for any closing remarks.
We appreciate all the great questions and your patience on the call today look forward to talking to you at the end of next quarter. Thank you.
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The conference has now concluded. Thank you for attending today's presentation you may now disconnect.