Q2 2019 Earnings Call
Hello, and welcome to the Banc of California second quarter 2019 earnings Conference call.
All participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask a question you in press Star then one on your telephone keypad.
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Please note today's event is being recorded I now would like to turn the call over to your host today Giard Wolf Mr. Wolfe. Please go ahead.
Good morning, everyone.
Welcome to Banc of California second quarter 2019 earnings Conference call.
With me today is banc of California, CFO John Vogler.
I'm very pleased with the results of our second quarter delivering net income available to common stockholders of 11.9 million and diluted earnings per common share of 23 cents.
John will talk in more depth about the quarterly results shortly but before I hand, it over to Jim I'd like to take a few moments to highlight some progress we've made on our business strategy.
As I mentioned on last quarter's call.
Tasked our management team with focusing on three key areas of the business, which will have short and long term benefits for our community banking franchise.
First.
We're taking meaningful steps to reduce our funding cost generally.
And more specifically our cost of deposits.
We undertook several initiatives to accomplish this quarter.
Including the run off of some higher costing deposit accounts, which did not fit within our relationship banking centered approach to business.
In addition, we lowered our rates on consumer Cds.
And reduced brokered Cds to further trim, our interest expenses for those products.
And in combination this resulted in a five basis point decrease in average cost of total deposits.
The first sequential decrease since Q3 of 2015.
Overall funding costs decreased by four basis points during the quarter as we further reduced our reliance on FHLB advances.
I expect those balances to continue declining in the near term.
And John will have more to say on that shortly.
We took additional actions during the quarter to enhance the value of our franchise by moving more of the lower margin products off our balance sheet.
We reduced the size of our securities portfolio balance was 21% from the first quarter.
And sold $178 million multifamily loans in June .
Furthermore, we reclassified an additional $574 million of multifamily loans as held for sale.
In anticipation of an upcoming Freddie Mac securitization that will close in early August .
We are pleased with NIM, improving five basis points as a result of our efforts to reduce funding costs.
By allowing high cost Cds to runoff, while maintaining healthy loan yields.
Lastly.
We need to ensure that our expenses are aligned with our size and footprint.
I was delighted to see that our non interest expenses in Q2 decreased by 30% from the prior quarter to 43.6 million.
Although this was driven in part by a benefit from some onetime items.
This will probably be a low point for the year.
And we should see a more normalized run rate in the second half.
As such we will continue to be surgically focused on areas, where we can create efficiencies and enhance the client experience.
We executed on some very important initiatives. These past three months, making great progress on our business strategy.
Our community banking franchise has been strengthened and our focus on relationship banking has already shown positive results within our business.
I'll go ahead and turn the call over to John to give you some more detail on our quarterly operating results and then I'll return to highlight a few other initiatives.
Go ahead John .
Thank you Jared.
Our total assets in the second quarter were 9.4 billion, a $500 million decrease from the prior quarter.
Driven mainly by our strategy to optimize our balance sheet.
We reduced our securities balance to 1.2 billion at quarter end through the disposition of $298 million of close.
In addition to the $178 million in multifamily sales Jarrod mentioned.
We also sold $131 million of single family loans.
The multifamily and single family loans that were sold were longer duration tended to be lower coupons and were not central to our relationship driven approach to lending.
Jared also touched upon the upcoming multifamily securitization through the Freddie Mac Q program.
In preparation for that we move $574 million in multifamily loans from Hfive to Hfcs and we expect this to settle in August .
The loan pool and the related hedge was structured to achieve an overall breakeven position and has a weighted average coupon of approximately 3.80%.
The proceeds from the sale will be used to improve our funding profile by paying down overnight advances, which currently cost 2.49%.
We placed an economic hedge against the peer interest rate movement, which resulted in a onetime accounting loss of $9.6 million for the second quarter.
However, this will be offset by the realization of the increase in the fair value of the loans at the completion of the securitization.
The overall loan portfolio yield increased four basis points to 4.80% during the quarter.
Although we did see some pressure on yields from a decline in LIBOR during the quarter. The activities, we took to dispose of some of our lower yielding asset farm and multifamily loans more than offset any negative impacts from the LIBOR move.
Preparing for the securitization along with the previously mentioned multifamily and SFR sales.
Drove the decline in HFI loans to $6.7 billion from $7.6 billion in Q1.
Currently see Eni and SP, a balances at 30% of our total hfive portfolio up from 26% in the prior quarter.
Reflecting our efforts to transform the mix of our balance sheet to a more relationship based portfolio.
Moving onto deposits brokered Cds decreased by $916 million or 71% to 379 million by quarter end.
Additionally, higher costing money market and savings accounts fell by $98 million and 90 million respectively.
Overall, our targeted efforts to reduce our cost of deposits reduced the average cost by five basis points.
From Q1 to 1.62%.
We further reduced our wholesale funding by 88 million in Q2, which left us with an ending wholesale funding mix of 24% flat from Q1.
When the multifamily securitization closes and we apply the proceeds toward overnight advances this ratio should drift lower towards 20% to 22%.
Core deposits or non brokered deposits.
Now account for 92% of total deposits up from 81% last quarter.
Turning to the income statement net income available to common stockholders for the quarter was $11.9 million or 23 cents per diluted common share.
The quarterly results were impacted by net noncore benefit items totaling $5.6 million, including 6.2 million of legal and identification expenses, which was more than offset by a $12.6 million insurance recovery related to the same line item with an additional $158000 reversal of the restructuring charge recorded in Q1.
After adjusting for these non core items, along with the amortization expense associated with our solar tax equity program.
Our operating expenses for the second quarter were $49.5 million.
Normalizing our tax rate to 20% operating earnings from core operations were 29 cents per diluted common share for the second quarter with reconciliations located on slide nine and 10, respectively of today's deck.
The banks net interest margin increased by five basis points during the quarter to 2.86%.
This is mostly due to a lower average funding balance and lower cost of funds combined with a smaller asset base from loan and security sales and mixed with a slight negative impact from rate resets.
Average interest, earning assets decreased from the prior quarter to 9.1 billion with an average yield remaining flat at 4.59%.
Since this CLO investments are indexed to the three month LIBOR and reset quarterly the securities portfolio average yield decreased by 30 basis points to 3.83%.
The Cibolo book largely reset at the end of April and will reset lower again towards the end of July based on LIBOR rates from 90 days prior or about 20 basis points from the current level.
Net interest income decreased by $3 million from the prior quarter to $64.8 million.
Loan interest income decreased by $1.4 million in Q2 due to a 269 million decrease in average balances somewhat muted by four basis point increase in the average yield.
This was partially offset by a decline of $5.4 million in interest income on securities on lower average balances, including the LIBOR rate reset previously mentioned.
Loan interest income and commercial loan interest income now comprises 86% and 64% respectively.
Of total interest income in the quarter up sequentially from 82, and 59% respectively.
On the liability side.
Interest expenses on deposits decreased by 2.8 million on lower average balances and a three basis point decline in the average cost of interest bearing deposits.
Interest expense on FHLB advances fell by 792000 from the first quarter also on a lower average balance and with a sequentially flat average cost.
The overall average cost of interest bearing liabilities fell by three basis points in Q2 to 2.09%.
With respect to potential reductions in the fed funds rate or other indices are modeled interest rate risk position is slightly liability sensitive over the first 12 months, assuming a 100 basis point parallel shift down.
And more asset sensitive in months 13 to 24.
Slides 14, and 15 included in todays deck presents information regarding the indices.
Rate floors, and timing of rate resets for loans investment securities deposits and FHLB advances.
The provision for loan losses in the quarter was impacted by our balance sheet optimization, resulting in net reversal of $2 million.
Included in that is $2.4 million in net charge off activity and a $900000 increase in specific reserves due mainly to one impairment.
This was offset by $6.3 million decrease mostly driven by a balance reduction than multifamily portfolio from the sales and the pending securitization.
The triple well balanced coverage ratio of nonperforming loans is 207%, while the overall a triple ratio was 89 basis points.
Total non interest expenses for the quarter were $43.6 million, which included the previously discussed noncore benefit of $5.6 million and a 400000 benefit from solar investments.
Adjusting for non core expenses Q2 core operating expenses were $49.5 million or 2.06% of average assets annualized.
Q2 benefited heavily from the previously mentioned insurance recovery.
And as we continue to align run rate expenses with our size and footprint, we should see a more normalized run rate expense level over the coming quarters.
Our capital position improved during the quarter, mainly due to a reduced asset base. The common equity tier one capital ratio was 10.4% and tier one risk based capital totaled 13.9%.
Lastly, let's move onto credit and asset quality metrics.
Our nonperforming asset ratio for the quarter was 31 basis points up two basis points from the prior quarter.
Total delinquent loans declined by $7.3 million or 12%.
We have a strong credit culture at the bank and the credit performance of the portfolio is in line with expectations.
We do not see any indication abroad deterioration in our portfolio.
Nonperforming assets to equity continues to remain strong at 3%.
Delinquent loans decreased $7.3 million during the quarter, resulting in a delinquent loans to total loan ratio of 78 basis points.
With that summary of our second quarter financials, I will now turn the call back over to Jarrod.
Thank you John .
This is my second occasion reporting banc of California is quarterly results.
And over that time, I've had the opportunity to really see our employees in action.
During a community bank is more than just being a depository institution for our clients.
It's really about building relationships with our clients and through exceptional service and execution being their most trusted banking partner.
It's about having professionals and colleagues that coming to work every day focused on what they can do to help create a better company.
And provide a better experience for our clients.
We provide premium service and execution of businesses entrepreneurs and individuals within our local footprint.
As I've said before we don't have to do everything just a few things really well.
And our dedication to being a relationship focused community bank is creating positive effects on our business as this quarter's results indicate.
We're also bringing in talented new executives.
In the second quarter, we welcome the Ido ton as our SVP and General counsel.
As well as Lynn Sullivan, as SVP and Chief risk Officer.
Both of these individuals have excellent backgrounds and extensive experience in the areas of corporate law and risk management.
We have both had meaningful impacts on the company since joining the bank around two months ago.
I'm confident they will make meaningful contributions going forward.
As we continue to execute on the strategy. We have laid out generally speaking you should see our asset size continue to shrink through the rest of the year.
As we stay focused on reducing lower margin assets, which not enhance franchise value.
To that end assuming markets cooperate.
I confuse ending the year with under 9 billion in total assets.
We're also going to stay focused on keeping our expenses aligned with our asset size and footprint.
As I mentioned earlier.
I see our non interest expense.
Excluding exceptional items.
Normalizing through the back half of 2019.
That should be approaching 50 to 52 million in the fourth quarter and that should be reflective of our expense base for 2020.
We will continue to endeavor to minimize our deposit costs by aggressively managing our high cost deposit balances and seeking deposits, which are centered on building relationships rather than just transactions.
Heading into the second half, we will maintain our commitment to deploying our stockholders capital into areas, where we feel confident we are achieving the highest possible return balanced with an appropriate level of risk.
To that end.
We commenced today a preferred stock tender offer for up to 75 million aggregate purchase price of the preferred D and E class shares.
We expect to execute the tender offer over the third quarter and anticipate an immediate bottom line impact for holders of our common shares.
This action is the start of Rightsizing of our capital stack and in future quarters. We will continue to look at other options to deploy capital, including share repurchases acquisitions and other initiatives to stimulate organic growth.
Please note that in today's deck, we present, the pro forma impact to Q2 capital ratios, assuming the full tender Matt is executed and the pending securitization were both completed as of Q2.
To wrap things up.
We had a successful second quarter banc of California.
We saw the first sequential reduction in our cost of deposits in almost four years.
We took very important steps with our balance sheet by disposing of noncore assets.
And we reduced expenses to an adjusted level that is more closely aligned with our earnings profile.
We also have numerous technology initiatives in flight that will improve the customer experience.
As we enter the third quarter.
We remain focused on enhancing the value of our banking franchise for our clients.
Our employees and our shareholders.
And being a superior relationship focused community bank.
Thank you for your time today and I look forward to reporting next quarter's results to you in a few months.
Now, let's go ahead and open up the line for questions.
All right well, we're compiling some items for the questions I want to remind everybody that today's call is being recorded and a copy of the recording will be available later today on the company's Investor Relations website.
Today's presentation will also include some non-GAAP measures acquired information, including reconciliation is available in the earnings release.
The reference presentation is also available on the company's Investor Relations website.
We would like to direct everyone toward the Companys Safe Harbor statement on forward looking statements included in both the earnings release and the earnings presentation.
Operator, we can now move to questions. Please.
Yes. Thank you.
We will now begin the question and answer session.
To ask a question press Star then one your telephone keypad.
If you are using a speakerphone please pick up the handset before pressing your case. So you time. Your question has been addressed and you would like to withdraw. Please press Star then too.
At this time, we will pause momentarily to assemble the roster.
And today's first question comes from Matthew Clark with Piper Jaffray.
Hi, good morning, guys.
Good morning.
Jared you talked I think previously about getting that margin back up to 3% I know, there's a lot of moving parts here in the upcoming quarter.
With the securitization.
Paying down FHLB.
And obviously a rate.
Potentially next week.
Hi. This is how you think about the trajectory of the margin given.
The remix that you plan to continue.
We had a lot of.
Deposit changes late in the quarter.
And I think.
We're going to see the benefit of that.
This quarter. So there was some stuff that came off we didn't get the full quarter benefit of it.
We've held our loan margins.
Our loan yields at a pretty flat level.
And.
The repricing that's going on in the market.
At least what we're saying.
We're trying not to compete at the lower end of the range and obviously, we're rebalancing our portfolio on the multifamily side, we're trying to do more front end lending, where we get paid more instead of the backend kind of commodities commodity type Lenny.
So I think all of those things are going to help.
Protect our margin and drive it higher John what do you think I agree and the piece I'd add to put some numbers behind that Matthew we had roughly $630 million of broker deposits that we ran off.
A combination at the very end demand very end of June .
Split kind of evenly between those two periods and so thats what geofencing, we should begin to see that benefit the full quarter benefit in the third quarter.
Okay and then.
Just on the on the balance sheet size.
With it being slightly below 9 billion at year end.
Soon the shrinkage will continue into next year and.
And does that expense outlook.
Being in the 50 to 52 million dollar range.
Reflective.
Being in that range in 2020 does that contemplate further shrinkage in the balance sheet or would you reassess that expense base.
No we would reassess that I mean, we got to get to a Nick.
What we've said before is.
Theres not a specific size that we're targeting what we're trying to find its equilibrium for this company between kind of the earning assets and the right amount of expenses to run the company with a solid ROI.
We got to get to good before we get to great and so we're trying to find that equilibrium now and looking at all the pieces if all the sudden we start generating.
Really good loan volumes from a particular unit at good spreads and we're comfortable with the credit than that that affects things.
So right now, it's just kind of.
We're figuring it out as we go in terms of where that equilibrium is that I think we have a size in mind, we would reevaluate our expenses if.
We got lower in that target is based on.
Being around nine.
And if we if we get lower than we'll have to figure out the expense side, unless earning assets or.
Our producing at a much higher level, even though were lower asset base.
Got it okay, great. Thanks.
Thank you Matt.
Thank you and the question comes from Gary Tenner with da Davidson.
Thanks, Good morning, guys.
Just wanted to.
Couple of questions.
I think John you mentioned that you see the margin at an inflection point and obviously we saw.
Some positive move this this quarter when it comes to net interest income though.
Given the.
Shrinkage of the balance sheet over the next quarter or two if not more.
We're probably a bit of a lag on on the side of things I want to make sure I'm thinking about that.
The same way that you guys are.
That is correct, yes, we should see that have a little bit of downward movement as well.
Okay, and then great great detail on the on the funding outlook on the maturity side of things. There can you give us a sense of how much.
Ability you think you'll have assuming we get a rate cut.
Upcoming here next next week too.
Actively reduce your non non TV or your retail CD deposits.
Yes, I think there will be some good opportunities we have some depositors in that historically have been.
Rate sensitive and so as rates went up.
They were looking for higher rates and so I think as rates go down we will have the ability to reset those deposit rates.
Once the fed funds rate decrease comes through if it comes through.
We have we have three buckets of deposits that we really look at.
Specialty which are.
Kind of rate based institutional deposits with companies that kind of.
We bought some volume.
Periods back and have it on or as part of our funding.
And I guess you could.
Come up with another bucket for FHLB, putting that aside we.
In terms of funding we have our Cds.
And then we have everything else.
And so to John's point, we've been prioritizing.
Dropping the rates on on Cds, because they mature.
Annually, and we're taking the opportunity to reduce those rates and.
And we've been watching retention retention has been between 15 and 20%.
As weve dropped rates and so that's been that's been pretty good.
And then as it relates to everything else, we're trying to maintain those relationships and put people in the right in the right.
Product for for their needs.
There was a huge volume of product here, we had many many different types of products and it was kind of a convoluted menu.
And so we've been shrinking that.
Making it less complicated and trying to get the clients and the right product for their needs.
We instituted a pretty.
Attractive earnings credit rate for our clients and so that's something that's going to be helpful going forward as we.
As we roll it out so we're trying to think very strategically about the deposits and the other thing that I've mentioned in the past carrier, we're not doing any loans without deposits and so.
You know, we're helping ourselves by making sure that we have all the deposits we can from everybody that borrows from us.
Thank you and just one last quick question if I can the 800000 dollar adjustment on the occupancy line what did that relate to.
That was some technology initiatives that we had previously undertaken and we opted not to pursue those initiatives any further and so we just wrote off the capitalized cost.
Thank you.
Thank you.
And the next question comes from Andrew Liesch with Sandler O'neill.
Hey, guys just a couple follow up questions on the size of the balance sheet here with the securitization planned for next month.
Beyond paying down some some borrowings and what's the.
Is there any other use for the for the cash that comes in there and then how should we be looking at the size of the securities portfolio. I mean, if I just take out the securitization looks like they are in the total asset base is going to fall below 9 billion. This quarter. So just kind of trying to get a sense of how these parts are all working together.
Yes. Thank you Andrew So if you start with where we are today and obviously take out securitization where in the height 8 billion range.
I would think about that as kind of being the the level that will be at for the balance of the year.
There are some other variables that will come into play we did see an uptick in the rate of repayments in the multifamily portfolio.
If interest rates decline that may stay at an elevated level, we did not see an uptick in repayments in the single family portfolio, but if rates persistent and lower level, we could see an uptick there.
We are seeing some decent production coming out of our Cnine book, which should help to normalize it.
So overall, we're looking more to remix within the loan book and then in terms of the securities.
We've largely been dependent upon what the market will give us in terms of our ability to reduce our exposure to close.
So if we were to see some spread tightening and some opportunities to further reduce our exposure to see how those we would take advantage of that opportunity.
But that really is market dependent.
Okay, Thats adjacent to Johns point, and we have a couple of levers to pull on the loan side we saw.
The rate of repaying multifamily.
For loans that paid off was doubled with previous quarters. So.
Okay.
$600 million of production in the 128 was.
With single family, we obviously don't expect that to continue.
We're trying to.
Look at both rate.
We are looking at both rate and credit as we make decisions on what loans to originate but we have.
We could at Amp up our volumes, if we wanted to but we're just trying to balance it with.
With the right yields right now because the.
Youre getting pretty low and a long term, it's probably not.
US play to to put those on our books so.
Well just have to see where the market goes.
Great you guys have covered all my other questions.
Thank you and the and also again, we will do that if youd like to ask a question. Please press Star then one on your Touchtone phone.
And the next question comes from to remember, though you're with Wells Fargo Securities.
Hi, good morning.
Maybe just following up on that Siloed question. So to the extent that there is incremental reduction in that portfolio is that going to be reinvested I guess, how should we be thinking about securities to total assets.
Relative to kind of that 15% level that had been thrown out in the past.
Yeah, I think as we go forward and we simplify our balance sheet and remove some of the choppiness from it.
We're a little bit more comfortable having a lower mix of investment securities to assets. So if we're in that 10% to 15% range is probably a little bit more.
We are probably a better way to think about it here in the near term.
And so to the extent that we do have a reduction in CLL balances I think you'll start to see us build out a much more traditional securities book of business.
So that's something that I think that will start to take place.
On the latter part of this year and then into next year.
Okay. That's helpful and then in the press release.
I think I mentioned that the period and reduction in DDA balances as a bit transitory and you expect that to rebound I guess, one would have DTA balance is done thus far in the third quarter and what gives you the confidence I think that youre going to get that rebound back from the second quarter reduction.
Most of the growth that we saw in the first quarter came in very late in the quarter and then reverse back out at the start of the second quarter. So if you look at the average balances are in IB.
It was actually up quarter over quarter.
And in terms of kind of our confidence that those have returned it's much more based upon our relationship and knowledge of the clients in how they operate and so thats, where our belief is that that those deposits will return.
Okay, and then switching to credit the charge off the $2 million seen I charge off this quarter is that related to the two leverage loans that were put on NPL last quarter or is that something different.
Know something totally different than it was a loan originators.
A couple of years ago actually and so it just went south and and we just.
Look at off on the leverage loan side that we have three.
Three direct leverage loans, we did.
And one one got out of this quarter so.
Which which was which was great we'd like to get out of the other two but there.
They've got some hair on them.
But we did take the opportunity to get out of one of them which was.
Which we were pleased to do that was refinanced out and we just didnt participate.
Okay understood and then just one last one for me it seems like the FCC Levy to charge last month that was and related related to some of the 2017 headlines I'm glad to see that the bank was not mentioned at all and there is does this close the chapter on that part of the story or I guess any color that you can provide would be great.
So.
I've gotten up to speed thoroughly on all the open legal matters.
As I mentioned last quarter, I think they're getting better for the bank not worse.
Hi.
The thing that you're mentioning in terms of the charges were not.
You know directed at the bank. So I don't have any comment about those.
But we are making progress and hopefully that we can.
Resolve our open legal matters soon there.
Covered by insurance.
And so obviously, it's a little bit lumpy in terms of the reimbursement of expenses.
But we hope to be out of them soon.
Theres nothing Ive seen that makes me think it's going to get worse. It's as I said, I think it's going to get better and.
Sooner rather later hopefully.
Great appreciate the color. Thank you.
Thank you.
Thank you and the next question comes from Myles Walton with KBW.
Hi, Good morning, guys morning, Luke.
Just wanted to kind of dig in I know you talked about it a little bit with the.
Tender offer just kind of capital management going forward.
You did.
You talked a little bit about repurchase hopper opportunities and just kind of wanted here I know that Theres. The series D is is redeemable in Two Q2 0, but just kind of wanted to see what you are thinking about up to that point.
And going forward through 2020.
Yes, Thanks for the group will continue to evaluate and.
Obviously, the board asked to be part of this decisioning process and continue to look at options, but as you indicated probably our next focus is going to be on.
Being able to call the series D. In the Twoq of next year.
If there are other opportunities that come up in the meantime that we think are.
Appropriate to take will obviously evaluate those and move forward as appropriate.
Okay. That's helpful and then.
Just on expenses, a little bit I know, there's a lot of moving moving pieces in the professional fees.
Line item, but do you have a good run rate for us to kind of use going forward.
Assuming that there aren't insurance recoveries.
Coming down the pipe.
Youre, saying, if we take out the indemnification related recovery.
Yeah, I think we're still going to have a little bit of an elevated level here in the third quarter and then as we get to the fourth quarter will be down to a level that I think is a good run rate for us.
I'm hesitant to give any sort of kind of guidance on that at this time, just simply because we have a lot of things in motion internally.
And we'll just have to let that play out through the third quarter. Yeah. I mean, I think I think we got.
More movement faster than we expected, it's just a whole bunch of things cooperated, but as we said last quarter.
We want to be in a position so by the end of the year, we've been able to take the actions on expenses that we want to take so that we start 2020 with the right run rate.
Theres, so many things in flight and some of the things, we just can't pull the trigger on yet because.
In other technology initiatives or other things that are not yet complete.
And we know what those numbers are and that's why we have confidence that we're going to get there by the end of the fourth quarter.
If.
But it's going to be lumpy before then and we maybe we'll have another good quarter, but were just not it's going to be very hard to predict.
Okay, Yeah, no no understandable.
And then just touching on a question that was briefly asked.
Just on deposits I know that the noninterest bearing deposits. The average balances were up while the ERP was.
It was a little bit skewed.
Just on total deposit growth.
Should that kind of follow the asset growth coming down as as you kind of get out of those wholesale.
Wholesale deposits and.
And just kind of how should we look at that number towards the end of the year just on it on a total deposit basis.
I know you said the assets will be below nine and we can kind of get.
Somewhere close with that with the loans running off but just wanted to see how we should look at deposits well in terms of the mix.
We're looking at obviously, increasing our noninterest bearing and low cost DTA.
As a.
As a higher percentage of our overall deposits.
And so that's that's the that's the thing that I'm looking at mostly is what the mix is.
We started a whole bunch of initiatives I mentioned.
Last quarter that there are a whole bunch of components to growing.
Good core deposit base you need the training.
You need you need the right people.
You need the right products and you need the right incentives.
And we have all those things in place we spent.
A good part of it since I've been here training people and putting in place the right products and making sure people understand and partnering in teams and then about two and a half months we added.
You know close to 800 accounts and almost 50 million in low cost deposits from new money from new clients.
That's excluding the money that is with existing clients that we don't have that we should have.
And so.
We're making good progress as I said before it's a process not an event and so.
Very hard to predict kind of what those volumes are going to be although I know from my own experience that momentum really does pick up after a couple of quarters because people have laid the groundwork necessary to start bringing stuff in and it becomes more.
Systematize and the culture is changed to kind of.
Everybody.
Gets it somebody's got to only make a mistake wants to bring the loan to loan committee without deposits to.
Story spreads pretty fast so that's not happening anymore.
And.
Culturally things are changing here pretty pretty quickly in terms of understanding what we're about.
Serving the businesses in our footprint.
Very relationship oriented way and making sure we have a complete relationship with all of our clients.
That process will is very important I think it's going to pay dividends in quarters to come and it will build but its going to be hard to predict what those volumes will be but thats why im looking at the mix because I know the volumes will be there, but from a mix perspective, we need to get higher than we are today in terms of our.
Non interest bearing balances and then obviously, our low cost mills this as well.
And I'd say the other thing there as we shrink down to the balance sheet. The first movement is going to be the securitization. So all of those proceeds will go to reduce overnight advances so that'll be the first movement on the liability side is to reduce the overnight.
And then it will be a continuation of what we've described previously as we'll be looking at those term deposits, whether their broker to retail and as they mature will reset or run out.
And then it's more of a balance of.
Lower cost deposits coming in and being able to continue to reduce the higher cost deposits.
Okay. That's super helpful and thank you guys for also putting that slide in on the variable rate loans I thought that was that was really interesting to kind of look at the distance the floor. So thanks for that but thank you for taking my questions.
Yes of course, thank you.
Thank you and the next question comes from Tim Coffey with Janney.
Great Good morning, gentlemen.
Hey, good morning, good morning, you've taken.
Good whack at those feel of the last two quarters and I'm wondering if that's kind of the run rate that you would like to see those balances reduced.
No its not to our ability to reduce the siloed, it's much more dependent upon what the market is going to give us.
Late last year, we saw significant spread widening and and there was not an opportunity to get out of any of those securities because they were all under water.
So as the spreads tightened it gave us opportunity to exit them without taking any losses.
So it's our intent to continue to look for opportunities to exit where we don't have to take losses and so right now were probably 10 to 15 basis points wide in terms of the spread before we'd have another another chunk that would come.
Get back to kind of our cost basis, and give us an opportunity to exit.
We think there is a place for the Sia lows are on our balance sheet. We were just trying to de concentrate but.
As is an issue with.
As you are running off assets, you've got to have somebody to replace them with and we're not looking to decimate our earnings power completely.
We got to.
Find.
The REIT the REIT replacement for them and we do feel that they are safe, but we want to de concentrate circumstances permitting and we got to have one alternative.
Altered security to put them into to keep a an appropriate mix of.
Make sure secures portfolios appropriate mix of our total overall assets.
Okay. Okay.
And I'm not sure I might have missed this in your prepared comments, but I'm wondering where you think the overnights might be at the end of next quarter.
Target.
Not so much a target, but I would say that will take roughly 600 million out of the overnights.
As we've said in the past, we will use the overnight as a bit of a buffer so to the extent that we.
Have Cds that mature and we don't have any asset proceeds in order to utilize against those maturing Cds.
We'll use FHLB advances and then subsequently has we have asset proceeds.
Or incremental low cost deposit growth then we'll reduce the overnight advances so the overnight so a bit of a buffer.
Sure Okay, well thanks for the rest of my questions have been answered. Thank you. Thanks, Tim appreciate it.
Thank you and the next question is a follow up from my Gary Tenner with D.A. Davidson.
Thanks, just quickly on the multifamily securitization one in the quarter is that expected to actually close.
Gary said it say that again I was just wondering on the omni obviously duration the timing within the quarter one that is expected to close.
At the very beginning of August .
Weve, we went out this past Monday with the.
The prosep so all the bonds have been.
Circled and taken down as of yesterday, and so now they're working through the I O piece and then there'll be a final settlement that takes place at the beginning of August .
Okay, Great and then just.
The loss on the alternative energy partnership investments.
What's the.
Kind of normalized run rate you expect there or is that now behind us.
No. We previously entered into two large transactions and our commitment on those has been completed.
As we've said we wanted to manage our effective tax rate down to something closer to 20% and during the second quarter, we had an opportunity to take down a small.
Solar tax equity.
Investment and so that will create some expense as we go forward and there will be some additional expense from the prior program.
But I would expect it to be relatively small.
Quarter to quarter.
Okay. Thanks again.
Thanks, Gary.
Thank you.
And that does conclude the question and answer session as well as today's conference call. Thank you. So much for today's presentation first seen todays presentation. You may now disconnect your lines.
Okay.