WSFS Financial Corporation
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the WSFS Financial Corporation Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct question-and-answer sessions, and instructions will follow at that time. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's conference call Mr. Rodger Levenson, Chief Financial Officer. Sir, you may begin.

[Rodger Levenson:]

Thank you, Kevin. And thanks to all of you for taking the time to participate in our call today. With me on this call are Mark Turner, President and CEO; Paul Geraghty, Chief Wealth Officer; Steve Clark, Chief Commercial Banking Officer; Rick Wright, Chief Retail Banking Officer; Jeff Ruben, President of Array Financial and Arrow Land Transfer; Ira Brownstein, Senior Vice President of Array Financial, Similar to our last two earnings call, the format of today’s call has been modified to allow us to provide the third in a series of topical discussions. Following our traditional earnings call, comments and Q&A, we will provide a brief presentation and question-and-answer session regarding the WSFS Mortgage business led by Jeff and Ira. Mark will introduce this segment at the appropriate time. Before Mark begins with his opening remarks, I would like to read our Safe Harbor statement. Our discussion today will include information about our management’s view of our future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties including, but not limited to, the risk factors included in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission. With that read, I’ll turn the discussion over to Mark Turner.

[Mark A. Turner:]

Thanks, Roger and thanks everyone for your time and attention. WSFS reported fundamentally strong results for the second quarter of 2015. The bottom-line results of $12.2 million in net income, $0.43 in earnings per share, a return on assets of 98 basis points and a return on tangible equity 11.2% were hampered by the cost of one problem loan. This $9 million loan was previously classified as substandard and as a trouble debt restructuring and based on new information was moved to non-accruing status in the quarter. As a result, we provided $3.6 million for potential loss on this loan in this quarter amounting to an $0.08 per share negative impact. Regarding the non-accruing loan and its provision, we’ve indicated in the past that credit cost can be uneven. The previous four quarters were unusually low by historical standards. We believe that this one loan was an isolated circumstance, but the kind that will occur from time-to-time even in a good economy and that it is not indicative of a larger trend. In fact, even including the setback, major credit metrics and ratios improved meaningfully in the quarter including for total non-performing assets, delinquencies and classified loans, Rodger will provide more detail on the one-off problem loan and other credit metrics in the Q&A session. The quarter also included modest security gains from ongoing investment portfolio management and corporate development cost for our pending acquisition of Alliance Bancorp, which gains and costs mostly offset each other in this quarter. Most importantly as a result of both expected seasonality and healthy organic growth positive trends in the quarter continued including for our total revenue, net interest income and fee income, loan growth and core deposit growth and operating leverage inefficiency, in many cases the positive trends accelerated. More specifically total core revenue increased 16% annualized in the quarter and 12% over this time last year. As a part of that net revenue growth, core net interest income that is excluding a special Federal Home Loan bank dividend received in the first quarter 2015 increased a 11% annualized in the quarter and 10% over this quarter last year. As another component of that strong revenue growth, core fee income that is excluding securities gains in all quarters increased 26% annualized in the quarter and 14% over the second quarter of 2014. Increases in fee income came in all major business divisions including traditional banking, wealth management and ATM services through our Cash Connect division. WSFS fee income is well diversified and now represents a robust 36% of our total net revenue. As reported these net revenue increases when combined with prudent expense management produced two percentage points in positive operating leverage and an improved efficiency ratio of 62.3% in this quarter. This resulted in over $3 million of quarterly growth in pre-tax pre-provision net revenue over the same quarter last year that equates to a very healthy 15% increase in pre-tax pre-provision net revenue. Further enhancing prospects for future results, we had the best quarter of organic loan growth in our 183 year history with total loans increasing $108 million or 13% annualized in the quarter. This was on the strength of commercial loans which are over 80% of our loans growing at a 16% annualized rate, almost all subcategories of loans saw nice improvement including our consumer and small business lending units, which saw their best quarterly production in my recent memory. Furthermore, much of the total loan growth came in the second half of the quarter, so its positive impact won’t be fully realized until next quarter and thereafter. This growth came from continuing to take good market share and also noteworthy most of the increase came from extending credits to existing clients as a result of their growth plans. Moreover our commercial loan pipeline entering the third quarter continues to be at all time high, and finally supporting our lending core deposits grew in the quarter at a 9% annualized rate. In the quarter, we also continued to be innovative and rollout new products and services to meet the needs of our customers and a changing marketplace. These new offerings included with WSFS Business Mobile Banking, which meets the on-the-go banking needs of small to medium size businesses. WSFS Everyday Pay a digital product for easy person-to-person payments, WSFS Mobile Cash which combines mobile technology and the latest in ATM technology to allow for faster safer access to cash. And our now strategic alliance with ZenBanx who offer a multi currency deposit account which combines technology for mobile, social networking, easy exchange among currencies and simple peer to peer payments. We are testing the ZenBanx’s product now and hope to introduce it in the early in fall. Next as part of our ongoing capital management and the quarter, we repurchased 455,000 shares of WSFS or over 1.5% of our outstanding stock at an average price of $25.81 per share and last as shown in this quarter and past quarters we continued to make fundamental progress in our goal of getting to 1.2% core sustainable ROA by the end of this year and are committed to doing so. Again, thank you for your attention and at this time we’ll take questions. As mentioned, after the general Q&A we’ll continue our series of short special presentations. Operator.

[Operator:]

[Operator Instructions] Our next question comes from Catherine Mealor with KBW.

[Catherine S. Mealor:]

Hey, good afternoon everyone.

[Mark A. Turner:]

Hi, Catherine, how are you?

[Catherine S. Mealor:]

I’m doing great. I wanted to ask about expenses, your expense base has hovered around $37 million; $38 million for the past couple of quarters, even the revenue growth has been really strong to point earlier mark. How should you think about the expense criteria moving forward, in light of your continued strong loan growth and growth in fee income initiatives?

[Mark A. Turner:]

Yes, so Catherine, I appreciate you asking the question and I’ll answer it may be in a different way than you were expecting, because we are continuing to grow strongly in almost all segments of the bank and obviously we have an acquisition pending coming up. I think it’s more realistic, important and relevant to talk about in terms of what our efficiency ratio trend and goals are and for our organization and given where we are and our investment stage which is very mature at this point we are still continuing to add things like acquisitions that are immediately accretive. As we've said because we’re a highly service focused organization and have a lot of fee income businesses both of which tend to increase our efficiency ratio relative to our peers, we believe to get a high performance for that business model and where are at efficiency ratio in the low 60s is our gal. We've produced 62.3% this quarter, we see improvement in coming quarter giving the operating leverage we achieved, the strong tailwinds at our back of not only that operating leverage, but the strong loan growth which hasn’t yet fully kicked in and the pipeline we have in our lending businesses, our deposit businesses, our fee based businesses. So low 60s we’ve achieved now and trending down a little from here.

[Catherine S. Mealor:]

So that’s actually - sounds great, you did answer really differently that was really helpful, thank you. And on the margin the loan growth has been fantastic, the margin was down just a little bit, what’s your outlook for the margin for the back half of this year, is the gross coming at the expense of the margin until we get a bump in rates or can you hold that margin flat a little bit even with this growth.

[Rodger Levenson:]

Hi, Catherine its Rodger.

[Catherine S. Mealor:]

Hi, Rodger.

[Rodger Levenson:]

How are you doing? There was a little decline in our margin, three basis points when you normalize out the one-time FHLB impact that we had in the first quarter. That was primarily due to a modest pressure we had on our loan yields and a little bit in our investment portfolio, as we look forward into next quarter and our forecasting we anticipate to stay right around the same range about 370.

[Catherine S. Mealor:]

Okay, great. So a fairly positive outlook for revenue or spread income growth with a stable margin and really strong numbers in the back half of the year.

[Rodger Levenson:]

Correct.

[Catherine S. Mealor:]

Okay, great. Thank you very much. Congrats on a great quarter.

[Mark A. Turner:]

All right. Thanks, Catherine, we appreciate it.

[Operator:]

Our next question comes from Frank Schiraldi with Sandler O’Neill.

[Frank Schiraldi:]

Good afternoon.

[Mark A. Turner:]

Good afternoon.

[Frank Schiraldi:]

Just on let’s say on the provision, if I think about the provision taken for the C&I loan in the quarter, it’s very little in terms of provisioning left. I think about 100,000 or 200,000. So I just wanted how we should think about unallocated reserves going forward and if there is continual room to perhaps reduce the reserve to loan ratio.

[Rodger Levenson:]

So this is Rodger, I’ll take that. Again Frank, so I would tell you that the low part of the provision when you ex-out one large credit is reflective of both the credit stats that we've addressed in the release and Mark alluded to during the call. So we continue to see improvement, our delinquency is down to 48 basis points, our classified loan ratio is just over 18% significant improvement and we saw a decline in NPAs as well. So as you know when we’re putting together all that information into model that’s impacting future reserves, I would tell you that we still believe longer term that the guidance that we’ve given of $2 million to $2.5 million a quarter, we’ll hold for the rest of the year, but it’s obviously subject to future events and it can always as it was impacted this quarter, can be impacted by one-off credit moves.

[Mark A. Turner:]

Let me add a little bit to that. Rodger mentioned $2 million to $2.5 million that’s in total credit cost and not just provision but OREO and workout and other legal cost associated with credits. That’s one clarification, but just in a broader basis. We recorded about 98 basis points, well, exactly 98 basis points of ROA in a quarter. As you know, every quarter we do a page on our path to high performing which normalizes for kind of unsustainable positives and negatives if you will for things that we don’t believe our core to show our path to get to that 120%. As we look at this quarter, we peg using the same methodology as we have for the last 10 quarters now. We peg our core sustainable ROA at 1.11. Actually if you took out $3.6 million for that one credit and normalizing out for securities gains and corporate development cost which almost exactly offset so more or less just where that $3.6 million provision of one problem loan, you have come to ROA of closer to 1.15 we get our 1.11 because obviously the recording $100,000 in a provision in a quarter is unsustainably low. We get to that number by averaging how much we normalized out accounting for a provision that would be about the average of the provision for the last 10 quarters. And so if you take that provision of the average last 10 quarters adding several $100,000 for related credit cost you get to about $2 million a quarter which we think is where are in the cycle about what we should be viewing as normal credit cost for us in our organization. Hopefully that wasn’t too much information to help.

[Frank Schiraldi:]

No. Thank you.

[Mark A. Turner:]

Yes.

[Frank Schiraldi:]

And then, just on the wealth management business, I know depending on I guess and how you look at it if you include spread income I think growth is somewhere around 25% year-over-year. If I’m looking at just the fee income line item fiduciary and in investment management income is a little over 30% growth year-over-year. I always think about it as sort of year-over-year growth when I model this, but just wondering in terms of the back half of the year would a reasonable expectation be to just sort of look at second quarter and expect that to be the base line for that fee income line item going forward?

[Paul D. Geraghty:]

Frank, this is Paul Geraghty. Yes, I think that would be fair to consider that the base line. When I look at what drives our business certainly the mortgage market and the - MBS flow through helps us will have real strength this year in our retail brokerage business, so everything feels like that growth will continue at about the same rate in the second half of the year.

[Frank Schiraldi:]

Great. Okay and then just wanted to ask on the one credit that you highlighted in the release and the larger size provisioning, if you could just give anymore color on that C&I relationship in terms of the industry collateral behind and sort of what was the impetus for moving from I guess performing TDR into non-performing in the quarter?

[Rodger Levenson:]

So Frank it’s Rodger again. So the credit as we identified was little over $9 million. It’s a locally C&I credit, I would call broadly in the healthcare industry space and the dynamics that have been going on with this credit and why the company has been experiencing in cash flow issues is kind of a combination of two factors. One, the revenue is being impacted much more than anticipated by Affordable Care Act and secondarily they went through a very large merger which did not perform as anticipated. So that has been putting the pressure on the financials and why we made the decision that we did this quarter. The loan is secured by business assets and that was all factored into the calculation on the impairment. I did want to make sure and point out that we’ve done an analysis of that segment of our portfolio and we believe as Mark said this is a one-off issue, we only have four other exposures ranging from $1.2 million to $2.1 million in individual exposure that operate in that same segment of healthcares and while they’re all being somewhat impacted by the Affordable Care Act none of them have had a merger that they’re dealing with as well. So based upon that analysis and where we’re at now, we feel fairly confident that this is a one-off event.

[Operator:]

Our next question comes from Matt Schultheis with Boenning.

[Matthew C. Schultheis.:]

Hi good afternoon. My questions have actually been answered. Thank you.

[Rodger Levenson:]

All right. Thanks Matt.

[Mark A. Turner:]

Matt, I assume your question was answered if not feel free to drop back on in the next Q&A session after this special presentation. Kevin any other questions in the queue?

[Operator:]

I’m not showing any other questions at this time.

[Mark A. Turner:]

Okay, great. Thanks again and at this time I would like to turn the call over to Jeff Ruben and Ira Brownstein, they lead our Mortgage Banking unit and joined us to our 2013 combination with Array and Arrow Financial, Jeff, Ira and the team will also be available for additional questions after the presentation. Jeff?

[Jeffrey M. Ruben:]

Thank you, Mark. I would also like to thank all the participants on this call for taking the time to hear about our operations and our unique approach to mortgage lending. During this brief presentation we will discuss how we have grown our businesses in a contracting market consistently generating fee income while minimizing on balance sheet risk and our plan to continue to scale the businesses. Before moving directly into how we operate, there are some numbers that will help identify what sets us apart from our peers. As we all know 2014 was a challenging year in the mortgage market. However, this has not reflected in our financials in our mortgage banking activities revenue line. In 2014, we experienced revenue growth in a market that contracted nearly 40% according to data published by the Mortgage Bankers Association. Other financial institutions in our markets with similar asset size saw mortgage banking revenue declines from 40% to 60% in 2014. The first half of 2015 has been robust and we have originated $160 million of residential mortgage loans as compared to $107.4 million for the same period in 2014 representing a 49% increase. Our mortgage banking activities revenue has increased 79.2% in the first half of 2015. Mortgage banking activities revenue for the first half of 2015 was $3.3 million increasing from $1.8 million for the same period in 2014. Our pretax income excluding interest income from loans held for investment and servicing related income and cost for the first six months of 2015 increased 170% to $2.1 million from $778,000 for the same period in 2014. 2015 and 2014 are consistent with Array’s track record. Array has experienced record growth in years of market expansion while avoiding a single year contraction. So how do we do this and why were we able to reverse the trend in a severely contracting market. The success of our unique model is based on the diversified relationships that we have built and growing over the last decade along with our relentless commitment to doing the right thing. Ira Brownstein and I started this mortgage business over 10 years ago. At that time, we knew we would be not be able to compete with the big national mortgage providers on marketing alone. We recognized early on. That our industry suffered from a bad reputation, there were very few people who truly were satisfy with the mortgage experience and these unless were comfortable with friends and relatives to the mortgage professionals that assisted them. With this understanding we quickly realize that we can compete against the larger companies on the fulfillment experience rather than the marketing appeal. We knew if we can make the mortgage process smooth and efficient, it will become its own marketing campaign. We also quickly realized that for most consumers, the purchase or refinance of their home was likely the largest financial transaction they would undertake therefore our approach has always been driven by providing professional wise and consultation. This unique approach quickly became effective not only of our clients but also that’s to a advanced relationships, the key professionals that are now major drivers of our growth, who are these key professionals? They are financial advisors, accountants, lawyers and other professionals who are often looked upon as trusted advisor and are frequently the first stop for consumers that are seeking advice and direction on financing or refinancing of their homes. They reports from these professionals were priceless to our operations. Our associates often hear me say that for everyone of our loan transaction, there are always two clients. One the actual borrower and two the referral source, it’s our job to make an impression on the borrowing such a way that he or she will go back to their trusted professional and thank them for making the introduction to us. The financial benefits of this approach to mortgage lending are obvious. There is virtually no marketing budget, usually the largest expense in a mortgage operation and also a much less dependency on commission mortgage loan originator which also lowers the cost to originate a loan. Finally this approach allows, finally this approach also provides the more consistent and reliable source of loans. Our dedication to this business model has allowed us to grow every year and what has been a very volatile and challenging market for our competitors. Highlighting our ability to adapt, 58% of Array’s 2014 originations were purchase many mortgages. In our originations continue to be well balanced between purchase money and refinanced mortgages. We have been instrumental and significantly increasing the banks footprint in the highly desirable South Eastern, Pennsylvania market. Today over 45% of our mortgage originations are derived from Pennsylvania, 37% from Delaware and 8% from New Jersey. Our market niche attracts a higher net worth and more sophisticated consumer. These followers are typically seeking jumbo mortgages and divide a high touch, higher than banking approach to mortgage lending which our model delivers. In 2013, 2014, 2015 year-do-date, our jumbo mortgage business represented approximately one third of our mortgage production. This has been a rapidly expanded portion of the banks business since we've joined in 2013. Finally our strong professorial relationships have not only benefited our businesses that have spread across additional channels throughout the bank. On the consumer loan side, we have referred and closed in excess of $9 million year-to-date. Additionally small business, commercial, cash management, private banking and wealth have also [indiscernible] our clients. With that as a general overview, I would like to turn the call over to Ira. He can briefly give you some further details and final points as to how we approach and execute on our model

[Ira M. Brownstein:]

Thank you, Jeff. As an investor or analyst I would want to know the source of our business and our execution strategy for the asset. Our business is 100% retail, we do not originate loans to mortgage brokers nor do we purchase loans from corresponding lenders. We strive to port relationships with clients then take us through lifecycles. We do not view our business as transactional and insist that we are a resource in the perpetuity and extend well beyond the segment table. Our current business model is to originate and sell residential mortgage loans on a servicing lease basis. This market delivery strategy mitigates risk for the bank because the mortgage loans are sold, we've recognized fee income and we eliminate the complex regulatory environment associated with servicing residential mortgage loans. Our reputation of originating and selling high quality mortgage loans has resulted in a wide investor base with a constant demand for our product. This allows us to maximize the value of the asset in the time sale and provide a wide range of mortgage products. Currently we actively sell to more than 10 investors which range from national aggregators to smaller regional institutions. Jeff and I are very proud of the fact that we have never had a loan repurchase or entered into an indemnification agreement in over 10 years of operating. This period of time spend is the most active repurchase and indemnification environment our industry has experienced, unless most of our peers bruised or knocked out. Up to this point, we have not mentioned our title insurance business, which operates as Arrow Land transfer and as a license title insurance agent in Pennsylvania, New Jersey, and Delaware. Arrow has also benefited from the increased originations, because its primary source of business is providing title search and insurance services to the bank’s mortgage clients. Arrow has also recognized in increasing revenue from commencing business in Delaware in the fourth quarter of 2014. At this time, we plan to continue to operate Arrow principally as a captive business and would expect its revenue to principally shadow the mortgage business. However, there is opportunity to capture more business from the bank’s commercial clients. Why do we believe in the scalability of our businesses? It is simple, there is a lot of opportunity in the marketplace, the barriers to entry had never been greater, the bank has great brand recognition in Delaware and a meaningful online presence. We determine to again market share in market. We are continuing to focus on harvesting more mortgage loans in the bank’s investment and its growing branch network in part with the acquisition of Alliance Bank in Delaware County, Pennsylvania. We have had a tremendous amount of success with the banks rapidly growing wealth group. Finally our lending platform allows us to service our clients and professional network nationwide. This is instrumental in growing and servicing our valuable relationships and allows us for the scalability of our model. The housing market is the cornerstone of our economy; it has operated at a very unhealthy pace for several years. Markets are cyclical and we will be ready to capitalize as the industry continues to rebound. The bank’s leadership shares its view and is committed to make the investment to continue to grow is important and possible division of the bank. Our unique business model with a solid foundation of purchase money lending, high touch service, and referral network has proven successful in both expanding and contracting markets. We fully expect the next five years to be bullish in the housing market as it recovers from a 17 year low point in 2014. Now our opinion a normalized mortgage market is between $1.5 trillion and $2 trillion. We have the infrastructure and systems in place to capture more than our share of this increase which yields approximately $450 million in annual originations without consideration of our performance in expanding markets. At this time, we would like to open it up for any questions.

[Operator:]

[Operator Instructions] Our first question comes from Catherine Mealor with KBW.

[Catherine S. Mealor:]

I just have a question on [indiscernible] margin, what kind of trends have you seen in your margins over the past couple of years and what’s your outlook for begin on fair margin moving forward?

[Rodger Levenson:]

Sure. One of the benefits unfortunately with the contraction on market has been a reduction in competition a large extent, many of our competitors have fallen away and out of the market which at first may seem counterintuitive but it actually has resulted in an execution that has been growing in the performance, the gain on sale has actually grown nicely over the last couple of years. I think the market has differentiated between lenders and originators that can produce good loans with a strong long track record and they’re willing to pay-off for those originations and we’ve experienced that. So we feel that kind of trend into a market that we’ll be expanding hopefully will continue and allow for our margins to hold up.

[Catherine S. Mealor:]

Great. Thank you.

[Operator:]

Our next question comes from Frank Schiraldi with Sandler O’Neill.

[Frank Schiraldi:]

Yes just a question for Jeff or Ira and then couple of questions for Mark and company as well, but just in terms of the outlook assuming let’s assume modestly higher rates for next year, what are your thoughts on mortgage production, thoughts on gain on sale margins and also thoughts on the breakdown between purchase and refi, if there is sort of a more normalized accommodation, you expect in terms of percentages?

[Ira M. Brownstein:]

Frank this is Ira. I think it’s a great question, we truly believe that the industry bottomed out in 2014, I mean if you look at historical information, we don’t believe a trillion dollars or really about trillion dollar mortgage industry healthy for the country and for the overall economy and we certainly are seeing a lot more demand on the purchase money side. I would actually argue that we’re at a point where it’s certainly more of a seller’s market than a buyer’s market and we expect that trend to continue and I think that kind of similar analogy to the overall stock market there becomes concern that someone is going to miss out on something. So it becomes for selling proposition. So we expect increased demand, I mean I think it’s going to be slow and gradual, we also are expecting similarly what we've seen a gradual increase in rates, we do believe frankly the Federal Reserve is not going to allow rates to bump up in such a quick fashion that will stall the housing market, again we just think about the housing market too large of a cornerstone to the overall economy. I think with respect to the overall margin again I think we’re seeing very strong demand for mortgage originations and especially on the aggregator side I think that those engines need to continue to run and run pretty robustly. Anytime we generate seeing kind of a dip in production, you see the aggregators kind of scrubbing the pencil to pay production, so we really don’t anticipate a pull back in margins. and the one comment that I think Catherine one question - to kind of touch on Catherine’s question is that our business is not driven by marketing, so we just don’t feel that we have the same execution pressure that some of our peer group has where we’re out there our marketing advertising that we’ve pricing pressure because of really the trusted resource in which the way the business is coming into us which is going through the bank’s investment in its retail branches, through the financial advisory network that we have had and developed over the last 10 years.

[Frank Schiraldi:]

So it might be helpful guys, what are current margins now and how they trended over the last six months or so, where do you see them going and then to that purchase money versus refi, give some of little bit of detail on that?

[Jeffrey M. Ruben:]

Sure. So if we were to look historically going back three or four years, we always have targeted the execution, the growth execution on the sale loans at about 1.8% and since the shake-out in the market, we see that 1.8% wise over the last several quarters to where we were realizing 2.2, 2.25 on the execution of our loans which is a very, very healthy execution especially in light of Ira’s comment that we are a lower expense originator of loans, we don’t have the marketing budgets and the cost associated with that. Those margins have held up whenever you enter a volatile interest market there can be short-term variations that can impact us but over the long run it’s been a very smooth and kind of a gradual growth in the execution on the gain on sale. Yes, I would just say at a on as far as, in the past, you look at originations and the growth and were a lot of financial institutions benefit it from the refi market. We obviously did as well but we continued to and today it becomes even more important to remain very active in the purchase money market as I mentioned, going and right back to 13, 14, 15 we’ve always had a very, very healthy exposure and solid business in the purchase money market. So as a rates increased in the future as everyone expects those refi opportunities will become less but the purchase money market will hopefully will continued to grow it as and we will continue capture, more of that business and be well balanced as well.

[Ira M. Brownstein:]

I mean in currently our pipeline coming in as probably around 55% purchase money business, 45% refinanced business and we do expect that trend to continue trend up. We think a healthy market is somewhere between 60-40, 65-35. We often had a conversation, there always be need in the market for refinances. It always be a segment of the market to clearly proportionally smaller as, as we kind pull out of a, in the financial crises.

[Jeffrey M. Ruben:]

And then just one final comment on the macro level with regards to purchase money market we do see there is a pent-up demand that is waiting to be released is the first time home buyers the millennial. I have delayed the purchase comp, I think coming out of financial crises being a little gun shy and from the trigger in, buying that first home and also there is a quietly growing group of borrowers who are reentering the mortgage market from, being not down of it in the recent financial crises. So those as well as, just a general recovery of the job market should generate good, strong, purchase money business for us in the future.

[Frank Schiraldi:]

Okay, thanks and then. I guess just one follow-up on [indiscernible] sale margins. I always see such a large spread between different banks in terms of their, reporting that number on any given quarter and I’m wondering what in terms of an analyst looking in for me outside, what is the best way to sort of estimate gain on sale margin which where they are moving quarter-over-quarter and is there more depend on just the way the banks presenting that margin do you think and then what we you sort of, what expenses they’re including in or non-including in that?

[Jeffrey M. Ruben:]

That’s a tough on because I don’t know if I can comment on of those financial institutions are doing and with the reporting you apply in a better position there, kind of analyze that my guess is you probably on the right then I’m, I guess struggling with how to answer that question with regards to our presentation. I know we’ve applied a very consistent FASB| based presentation that has to be done and it hasn’t really varied, there are clearly items that will change or gain on sale depending on market movements and that may be where your challenge live and in the way rates are moving can affects those marks on those assets.

[Richard M. Wright:]

This is Rick, there for instance this last quarter we had a 100,000 negative adjustment to the gain on tail based on reassessing the mortgage servicing raise to the International bank of white holdings, mortgage portfolio that we purchase so with that we would had another 100,000 in gain so that’s one of those types of things that sort of happened behind the same on the reporting based

[Frank Schiraldi:]

Okay, let me I guess I think it’s just has been difficult to estimate these things on a quarter-over-quarter basis but I guess it’s really on a bank-by-bank basis as well. Okay and then just back to if I could have a couple of questions I was unable to get in before the presentation Rodger asked about, we have been talking little bit the specific credit and thanks for that detail. I just missed, it sounded like there is a particular segment, in healthcare that has been negatively impacted by the affordable care act and sounds like you don’t have much exposure to that, what was that exposure again, if you could just give me that detail.

[Rodger Levenson:]

Sure. So in that segment, we have four credits that are between $1.2 million and $2.1 million in exposure in addition to that one individual credit.

[Frank Schiraldi:]

Gotcha. Okay.

[Mark A. Turner:]

That was $1.2 million and $2.1 million per individual credit.

[Frank Schiraldi:]

Per credit. Sure.

[Mark A. Turner:]

So obviously something in the $5 million to $6 million range overall.

[Frank Schiraldi:]

Okay. And then just, thinking about the collateral again or you mentioned business assets, would it be - I mean should we assume something along the lines of medical equipment or is there a decent size real estate component to that.

[Rodger Levenson:]

I would just broadly say it does not have a real estate component to it. Just traditional business assets. Its medical equipment will be a piece of it.

[Frank Schiraldi:]

Sure. Okay. And then, just finally just wondered if there is any update on the permanent CFO search and sort of give a little bit if you could timing on that.

[Mark A. Turner:]

Yes. Thanks. I appreciate the question. So we’re about three to four months depending on [indiscernible] ended the process of searching for an next CFO. We said at the outsets and we now traditionally experienced for an Executive Vice President, high level main executive officer position like this has taken us and we seem to take others about six to nine months, we’d receive a lot of great candidates. A ton of people come knocking at our door either directly or through our recruiter that we have engaged. And we’re still continuing the interviews. To date, we haven’t found the right fit for such an important position for us all though we have seen some, well, they say tremendously strong candidates. We expect at this point based on the flow of candidates and what we are seeing that will probably take us to full six to nine months to complete the search. So another two to five months is our current expectation.

[Frank Schiraldi:]

Great. Okay. Thank you.

[Mark A. Turner:]

Thank you.

[Operator:]

And I’m not showing any further questions at this time. End of Q&A

[Mark A. Turner:]

All right. Well, again, thanks everybody. We appreciate your time and your additional time you gave to us today and hopefully you were informed by not only what we said ,but informed in press by Jeff and Ira them and their business model, they have done great things with us and for us. And so thank you and I just say that Rodger and I will be at a large investor conference in New York City early next week. We know we had many one-on-ones lined up, I hope to see many of you there and if you are there and are not lined up for one-on-one, please do so we would be happy to squeeze in some extra stay over and squeeze in some extra. So take care and have a great weekend.

[Operator:]

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.