Hilltop Holdings Inc. (HTH) Q2 2016 Earnings Report, Transcript and Summary

Good day and welcome to the Hilltop Holdings Q2, 2016 Conference Call and Webcast. Participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference call over to Ms. Isabell Novakov. Senior Vice President, Investor Relations. Ms. Novakov, the floor is yours ma'am.

Good morning. Joining me on the call this morning are Jeremy Ford, President and CEO of Hilltop Holdings; Alan White, CEO of PlainsCapital Corporation; Darren Parmenter, Principal Financial Officer of Hilltop Holdings; and John Martin, CFO of PlainsCapital Corporation. Before we get started, please note that certain statements during today's presentation that are not statements of historical facts including statements concerning such items as our business strategy, future plans and financial condition are forward looking statements. These statements are based on management's current expectations concerning future events that by their nature are subject to risks and uncertainty. Our actual results, capital and financial condition may differ materially from these statements due to a variety of factors including the precautionary statements referenced in our discussion today and those included in our most recent annual report and quarterly report filed with the SEC. Except to the extent required by law; we expressly disclaim any obligation to update earlier statement as a result of new information. And now, I'd like to hand the presentation over to Jeremy Ford.

Good morning and thank you, Isabell. The second quarter of 2016 net income was $31.1 million or $0.32 per share. Provision for loan losses was $28.9 million for the second quarter of 2016, primarily driven by a nonrecurring full charge-off related to one large loan, which had $24.5 million outstanding principal balance. Adjusted net income was $33.1 million or $0.34 per share when excluding transaction and integration costs related to the SWS Merger. In connection with the SWS Merger, during the second quarter, Hilltop incurred $2.3 million in pre-tax transaction and integration costs. For the second quarter of 2015 net income was $29.6 million or $0.30 per share. Our ROA was 1.05% in the quarter relative to 0.97% prior year. Our ROE was 7.07% relative to 7.12% in Q2 2015. Hilltop's four operating segments reported $58.5 million in pre-tax income. PlainsCapital Bank contributed $21.6 million, prime lending contributed $28.1 million, Hilltop Securities contributed $18.3 million and National Lloyds reported a $9.6 million pre-tax loss. Hilltop's common equity increased to $1.8 billion, up $34 million from March 31, 2015. And we remain well-capitalized with 13.18% Tier 1 leverage ratio. Hilltop's Q2 2016 results demonstrate the operating leverage for our platforms and strong fundamental trends in each of the company, particularly with the exceptional performance of our mortgage-related businesses. Moving forward to the next slide. Here are the financial highlights and I will talk to the items not previously discussed. Our net interest margin had modest improvement from higher loan yields and lower cost of funds, rising to 3.8% from 3.7%. Our total assets increased to $13.1 billion from $11.7 billion in the prior quarter. Our loans increased to $5.8 billion from $5.7 billion in the prior quarter and our deposits increased to $7.1 billion from $7 billion in the prior quarter. Hilltop's NPAs to total assets improved to 20 basis points and our Tier 1 leverage ratio improved to 13.18%. I will now turn the presentation over to Darren Parmenter.

Thank you, Jeremy. Moving to Hilltop's net interest income and margin. Our taxable equivalent net interest margin increased by 10 basis points in the second quarter to 3.8% compared to 3.7% in the first quarter. Higher loan yields and balances coupled with lower rates and borrowings drove the improvement. The cost of our interest-bearing deposits remained relatively flat. The net interest margin was 72 basis points greater due to purchase accounting driven mainly by the accretion of discounted loans by $17.3 million and the amortization of premium acquired securities of $900,000. Hilltop's net interest margin and taxable equivalent net interest margin was reduced by the Broker-Dealer's securities lending business, the net impact of this was 65 basis points. The Banks taxable equivalent net interest margin for the second quarter was 4.87% from 4.73% in the first quarter. Moving to noninterest income, our noninterest income for the second quarter was $346 million, up approximately 15% from prior year. Net gains from sale of loans, other mortgage production income and mortgage loan origination fees increased $24.7 million in the quarter. Investment advisory fees and commissions decreased $1.1 million or 1.5%. Net insurance premiums earned were down $1.6 million to $38.7 million in the second quarter. Other noninterest income increased $22.6 million or 102.4%. Moving to noninterest expense, our noninterest expense was $367.4 million in the quarter, up 4% from prior year. Compensation was $217.3 million versus $200.3 million in prior year, representing 59% of our noninterest expense. During the quarter we incurred $400,000 in employee comp expense related to the SWS Merger. This compares to $2.9 million we experienced in the second quarter of 2015. Loss in LAE policy acquisition and other underwriting expenses were down $4.5 million to $48.5 million in the quarter. Occupancy and equipment expenses decreased $3.9 million or 12.7% versus prior year. Other expenses increased $5.4 million or 7.7%. During the second quarter, we did incur $1.9 million in transaction and integrated related costs due to the SWS Merger compared to $1.5 million in prior year. Moving next to Hilltop balance sheet, our total assets grew by 11.5% in the second quarter. Loans held for sale increased $206.1 million or 15.3%. Gross non-covered loans held for investment increased to $106.4 million. Broker-Dealer and clearing receivables increased $887 million or 64.7%. Our Securities declined by $167.6 million. Gross loans held for investment covered and non-covered to deposits was relatively flat at 81.3% and our total deposits increased to $142.6 million or 2%.Our short-term borrowings increased $179.9 million or 21.6%. Our common equity increased $33.9 million, almost 2% primarily due to earnings. With that, I’d like to turn the call over to Alan white.

Great. Thanks, Darren. Quarter 2, 2016 had an ROE of 66 -- 0.66% driven by an elevated provision substantially due to the loan that Jeremy was referring to a one-time charge-off that we had. Let me just stop there and give you a little background. That loan originated in 2014. We had it on our books for about 18 months. It was amortizing monthly. Never missed a payment. Around the 1st of May, we got some intelligence that we might have some issues on documentation. As we began to investigate that documentation, we suspected fraud. On 15th of May, when they did not make the payment, we called the note. We demanded payment from the borrower and the guarantors. On or around June 15, we sued the company and we sued the guarantors. So this has moved pretty fast. About 30 days ago they received service and we're in the process of aggressively suing them and going after collection of our debt from that standpoint. So this is a big surprise for us. I want to assure you that there are no other surprises if you look at our loan quality. We are about a 11.46% in classified loans. That’s down from 14% in the first quarter. Our past dues are way less than 1%. Our total nonperforming assets to total assets is 0.20%. Our total nonperforming loans to total loans is 0.33%. When you look at our energy credits, we’re down to 4.2% of total loans, our energy. That’s $233 million, 34% of that is stocks, bonds, and cash. We’ve paid down in this quarter $15 million in the energy side. That all came off -- basically off a classified loans. They reduced from $38 million to $28 million. So we feel good about where our energy portfolio is. We do not have any national shared credits and we continue to monitor that and to do well. And we do not see any contagion in our other markets. So that’s a little bit about our portfolio that might be help you have a little better feeling about what happened and it was a surprise and it surprised all of us, but we’re visibly trying to collect it. Our interest margin for the quarter was 3.83 after purchase accounting. That’s quite good. We still remain in that 3.60, 3.80 of range on our net interest margin, which is strong. Our loan growth for the quarter was about 5.5% annually. That excludes the warehouse loan and the stock loan line at Hilltop Securities. If you look at where we're year-to-date, we’re 15% annualized year-to-date. We still think we’re going to end the year in that 10% range that I had been telling you all along. So we still feel good about our growth. Our actual top line went up from $1.6 billion to $1.8 billion in the quarter, $200 million increase. That’s primarily real estate commitments that we made and we anticipate they will fund up. So we feel like we had a pretty good month or pretty good quarter in loan growth, especially with the increase in our unfunded commitments. Our noninterest bearing deposits still remain very strong at 0.32%. We’re operating 63 branches. We did dispose of a branch in The Woodlands, in the third -- in the second quarter and currently we've five new branches planned over the next year, that will be coming on. As far as PrimeLending, we had a really good quarter. June was the best month we’ve ever had at Prime. Our loan volume increased to $4.2 billion for the quarter, up 8% over this time last year. Purchase volume was 79% in the quarter versus our -- in the industry which is about 54%. So, we are a strong purchase lender. When the MBA comes out and tells you it's going from a three and three to three and six, part of that’s going to be purchase and we’re going to get our share of that. So, that’s good news for us. Our gain on sales margin actually improved from quarter one -- quarter two, '15 and quarter one. We have a committee, an optimization team that works on fees and rates and they’ve done a really good job of keeping that net gain on sale margin in there, and we’re doing very well. Our overall market share is 0.81% in quarter two. Low rates have fueled the industry volume growth through refinancing, but PrimeLending has continued to improve its purchase business. Our purchase market share is up 8 basis points to 1.19% of the total market. We continue to see -- receive nice recognition from the industry. They were recently named Above Average originator or jumbo loans, both residential mortgage loans by Moody's, which is very well thought of and as well we rank number two in Fortune's best workplace in finance and insurance. So, we’re proud of that. Hilltop Securities continues to make good progress after integration costs. They made $19.1 million pre-tax income in quarter two, which is a great improvement. Pre-tax margins continue to improve including integration. Over the last five quarters, this is nothing, but get better. Our capital markets is doing well. Our clearing is really starting to show good results and that’s been well received, because that’s going to generate more deposits for us that we can use in the bank side and we continue to had strengthened the TBA housing business and the public finance business. So the business lines drove about a 25% increase in net revenue in the second quarter versus second quarter of '15. That’s what we’ve been looking for. Our compensation to net revenue ratio was 58% in quarter two compared to 72.8%. So you can see there is a significant reduction. There has been a reduction in staff, which has reduced compensation and with the increased revenues and shift to the revenue mix, we’re seeing good results from there. National Lloyds, it's been spring and that’s our time where we have our most difficult seasons. We had storms in April and May and continued to mirror last year's first quarter activity, bit an earlier than anticipated, the end of spring storms after an early start, allowed a strong finish in June that resulted in a loss and LAE ratio of 19.1% versus last year, where it was 102.3%. So we’re coming out of that and coming out of in good shape. Quarter two is seasonally the toughest weather in Texas with LAE ratio of 96.1% is below the averages. Quarter two average over -- below the average over the last three years. The expense ratio is 33.9%, remain relatively flat to quarter two, '15, which is a result of continued process improvement and reduction in variable expenses. Direct premiums declined year-over-year to $42.7 million in quarter two, compared to $46.6 million in quarter two '15. This has continued because of the efforts by management and past initiatives to lower geographic concentrations and risk and offset by moderate increases in rates. So this is the design by us and the results are showing less risk in trying to flatten us out a little bit. So, overall the companies had a good quarter. If we could take that one item out of there, we had a great quarter. And we will continue to progress as we’ve done. So with that, I will turn it over to John.

Thank you, Alan, and good morning. Pre-tax income at the Bank was $21.6 million in the second quarter. That’s compared to $45 million in the second quarter of 2015 and that was largely due to the $24.5 million charge-off that both Alan and Jeremy have discussed. The increase in net interest income was a result of growth in our non-covered loan portfolio and improved net interest margin pre-purchase accounting. Noninterest income decreased compared to the second quarter of '15 primarily as a result of lower exchange fees and lower ORE income attributable to the FNB transaction. Noninterest expense decreased from the second quarter due to reduced occupancy expense resulting from industrial branches, lower professional fees, and lower repossession and foreclosure expenses. We fund a line at PrimeLending, which had a 1.5 billion authorized at the end of June and 1.4 billion was outstanding. Our Tier 1 leverage ratio was 12.72% versus 12.7% at the end of the first quarter. Our loan portfolio of $5.8 billion is about 50% real estate, 12% construction and development, and 28% C&I. On the deposit side, we’ve a strong noninterest bearing percentage of 32%. Alan has talked about our energy exposure. We do not have share national credits in the energy portfolio, and we continue to have relatively small balance of loans in Houston and the surrounding region. Our unfunded energy commitments are all subject to borrowing basis, and credit review prior to draw downs. The energy portfolio did increase in the first quarter and that was driven by one large revolving line of credit to an existing customer that was secured by cash and marketable securities. The energy portfolio continues to decline and was about 4.4% of our total loans at the end of the quarter. On the credit quality, Alan just talked about that, it continues to improve. The nonperforming assets were down to 20 basis point and the absolute dollar value is also improving. Capital ratios do show a flattening out, in decline -- a small decline, and that’s a result of growth in the loan portfolio, and in particular in growth in the higher risk weighted assets. Our loan portfolio classification, the covered loans is largely real estate, 91% of the PCI covered loans are real estate and the non-PCI covered loans is 95% real estate. When you get to our non-covered portfolio, on the PCR side, we had 73% real estate, but when you get to the rest of the portfolio, its more 47% real estate and 30% C&I. The purchase credit impaired loans that -- loans from which is probably dull, contractually required payments will be collected and includes covered and non-covered loans. The covered loans coming from the F&B transaction, PCI loans had a total discount of about $179 million, $161 million of that was related to the covered loans. The weighted average expected loss of the PCI loans associated with the price capital F&B and SWS merger were 32%, 18% and 15% respectively. On non-PCI loans the portfolio we carried -- our non-PCI loans is about 98.6% of the unpaid principal balance. PrimeLending as we discussed a few moments ago had a strong credit -- strong quarter with free tax income of $28 million versus $21 million in the second quarter 2015. Our origination volume was $4.2 billion, and that was $317 million greater than the second quarter of 2015 and largely attributable to the growth in the purchase business which increased to 78.6% in the second quarter versus 76% in the second quarter of 2015. Refinance volume actually decreased compared to the second quarter of ’15. Non-interest income increased $24.7 million or 14.7% due to the higher sales volume and higher revenue both gain on sale and average origination fees, the corresponding increase in non-interest expense of $17.7 million or 12% compared to the same period of 2015 which reflects increased salaries and benefits, branch location and technology initiatives that we’ve had. PrimeLending retained approximately 25% of the loans or retained servicing approximately 25% of loans that were originated in the second quarter and we ended the quarter with a servicing asset of about $33.5 million. With that, I’ll turn it back to Jeremy on Hilltop Securities.

Thank you, John. Well Hilltop Securities had an exceptional quarter, and the pre-tax income was $18.3 million versus a pre-tax loss of $1.9 million in the second quarter of ’15. After adjusting for the pre-tax integration related cost, the pre-tax income would have been $19.1 million. Our next revenue increased 25% to $110 million. This is primarily due to a $23 million increase in income earned from derivatives and trading portfolio activities. The non-interest expense increased by only $1.4 million to $92 million in the second quarter, and a broker-dealer segment provided the banking segment with $850 million of core deposits representing 38% of the total available FDIC insured balances. Moving forward to National Lloyd, is had a typical seasonal pre-tax loss, but improvement from last year. The pre-tax loss was $9.6 million relative to $12.5 million in the prior year. We had seasonally normal severe weather in Texas during the first half of ’16, though the clienteles reflect an earlier start and to the anticipated storms that help drive the 2016 improvement. Our reinsurance limited the retained losses from these sub-catastrophic events of the weather. The direct premiums written declined relative to the second quarter of ’15 which reflects continued efforts to reduce concentrates into agent management initiatives and competitive pressures. And that concludes our prepared remarks.

Thank you, sir. We will now begin the question and answer session. [Operator Instructions] The first question we have comes from Brady Gailey of KBW. Please go ahead.

Hi. Good morning, guys.

Hi, Brady.

So maybe we'll start with this charge-off. So, I guess, Alan, you gave us a great rundown on kind of what happened. But maybe just share what type of loan this was? And roughly $25 million, was this one of your larger loans or just talk about how big individual credits are?

It's a pretty good sized loan obviously. I mean, it was a surprise obviously. It was a commodity trading loan that was supposedly what it was here in, Dallas.

And did it have anything to do with the energy downturn that took it down?

No -- no. It suspected fraud, and I can’t go out, I’d love to tell you all about it. But right now we’re in litigation and investigation and everything else and I just can’t go much further than what I see it. And I’m not trying to be difficult. I’m just doing what I’m told.

Yes, I understand.

You understand where we are. We took the hit, we got out of it. We’re pursuing the guarantors vigorously and time will tell, but it's behind this and hopefully we can get some of it back or all of it back.

How large are your largest loans?

Brady, we’ve got some that are -- we got one that's $90 million, and they vary. I would tell you, most of our loans are in the $25 million -- $10 million to $25 million range, would probably be our sweet-spot down the middle, but we do have some to go a little bit higher. We don’t like to make loans like the $90 million, but it's such a good deal and such a good customer and there’s limited risk. We’ve had that one for quite a while.

So, on the flipside, mortgage, record earnings there that really helped offset a lot of the increased provision. So, when you look at mortgage volumes for the first half of the year, they're around $7 billion. Do you think that's repeatable in the second half or do you think we'll see a slowdown?

Well, third quarter will all be good. Second quarter was really outstanding, and if clients continue to go the way they are third quarter will be good. We don’t anticipate fourth quarter being as good, and that's normally the cycle. But normally the cycle is the first quarter not being good, it was good. So I think we’re looking in the range, we did $13.5 billion last year. I think we’re looking in the range of $14 billion plus this year. And with the MBA coming out with increased forecast of three and six, we’re going to get our share of that market. Now, it just depends on what happens. Everybody thinks we will, because the rates went down, it's all refi, well, it's not with us, it's purchase. And of course with rates going down, people are buying houses. And our markets that we deal in are strong, Texas, California, up the East Coast, Washington and Oregon have really come on for us. So our markets are strong. So it ever finds studies of what it is, and we should have a good last half of the year.

All right. And then finally from me, you announced the buyback, $50 million last month. I don't think you repurchased any stock in the second quarter. How are you thinking about the buyback with the stock over $22 million?

Well, we did not do any repurchases in the second quarter, and the buyback is out there and we’re going to evaluate it and be prepared to repurchases as we see.

Is that something you think you'll actually do by the end of the year or its more wait and see?

I think that we will do some of it at the least, and just depending on the market I think one of our goal is to offset any equity dilutions from -- sorry any share dilution from equity awards, so that -- we will do some component of it.

All right. Thank you, guys.

Thanks.

Next we have Michael Young with SunTrust.

Hey, good morning.

Good morning.

Good morning.

I wanted to start on the net interest margins. It seemed like it was a little stronger, I understand higher loan yields. But was there a fee income component maybe in that, that jumped up or do you see that sort of level holding from here?

Michael it is -- there was a little noise in it, but not much, that it should be maybe a little lower than what it was, but not significantly.

Okay. And along the same lines, Jeremy I think in the past you had said the broker-dealer receivables were going to maybe maintain a little bit lower balance, obviously those jumped up to kind of record levels this quarter. So just curious about your outlook going forward there, any change in your thoughts on that business?

No, it really ramped up towards the end of the quarter, so that's north of $2 billion range. And we’re still at the lower margin business, and we still want to have that running about $1.5 billion. So, I would go back to sticking about $1.5 billion of the stock rolled out.

Okay. And one last one on the broker-dealer, obviously better pre-tax margin contribution this quarter, really good actually. With that continued kind of mix-shift towards the higher margin businesses like TBA that drove that, and then maybe just kind of your outlook for the back half?

Sure. There were certainly mix-shift to the higher margin businesses and that had a big part of it. I think the underlying part is there is lot of improvement and several of the businesses as Alan mentioned, and all of that's revenue. And also we’re starting to see the benefit of the cost saved and all the restructuring work that we’ve done.

Okay. That's great. I’ll hop out for now.

Okay. Thanks.

The next question we have comes from Matthew Olney of Stephens.

Hi, guys. Good morning.

Good morning, Matt.

Hey, I want to go back to that large charge off that was discussed earlier. I'm just trying to figure out in hindsight, do you feel like the loan officer was doing the appropriate due diligence. I'm just trying to understand that if you think you need to restructure any kind of controls or procedures you guys had there internally.

Obviously we looked at it and we tried to put some things in place, but now that's all hindsight. When you look at it, and when it's suspected fraud and to the level this was, it's really hard. And this was brought into our bank by our relationship, and we were trusted in that relationship maybe too much. And then the thing got sideways, and I really can’t get into all of it. I would love to once this thing goes, but we just got to do, Matt.

And originally, Alan, was there any collateral on this loan?

Yes. Well, we thought there was. That loan wouldn’t have took the loss because anything that we thought we had wasn’t there other than the guarantors. And that's really all we had to hold our hat on and that's what we’re assuming for.

And is there any more exposure these same guarantors?

No. To us? No, we had no more exposure other than going after the money.

Okay. And then shifting over, I guess, Jeremy, can you just kind of talk higher level about the variable cost structure of the various segments. I mean, obviously revenue was very strong this year. I'm just trying to make sure that the associated expenses with the strong revenue was all taken in 2Q, and could we see a mismatch into 3Q?

Are you speaking to the broker dealer?

Yes, broker dealer and mortgage.

Okay. Well, it's -- I don’t see -- I don’t -- maybe help me on, I think we had a mix-shift. I don’t see any like or you’re saying something is going to develop into the third quarter?

Well, I’m just obviously with a higher revenue in some of the variable commissions, it's -- you take higher expenses. I just want to make sure that 2Q captured some of those higher expenses or if we could see some of that into 3Q?

No, I think Q2 captured the higher expenses appropriately. And I think that with every quarter where we have like seasonality and other things in the market that you’ll have some mix-shift in these businesses and the broker dealers that will impact the underlying profitability.

In the mortgage business we have fixed cost in there. We have increased our fixed cost obviously to handle the volume. But with the first cost, because increased revenue which conjure increased expense because we’re paying out more commission. So, obviously if the commissions drop off, those fixed costs should come down some too, but this was fully loaded second quarter. Second quarter was huge in the mortgage business, and June was the biggest month we’ve ever had. So, July looks pretty good.

Okay. Thanks, guys.

Okay. Thanks.

Next we have Brett Rabatin of Piper Jaffray.

Hi. Good morning.

Hi, Mr. Rabatin.

Wanted just to go back first to the mortgage banking and you mentioned strategically increased loan pricing that helped the gain on sale margin in the quarter. I guess, question on that is does the gain on sale margin kind of hold up where it was and ...?

It actually increased, Brett. And not only did we -- we're able to [multiple speakers] processing. We were also able to affect fees. So both of those aspects were able to bump up our gain on sale, and we’ve had a lot of fluctuation in rates. As you know 10-year bounced around and we’ve been able to hold on those rates and not have to come down when they drop. So that's where this team has worked very well and not to have to adjust rates down as they drop significantly on people’s commitments, we didn’t give into them in drop. So that's why our gain on sale margin held in there and was even actually better than last quarter.

I guess my question is, is that going to hold going forward in terms of your gain on sale margin?

Yes, I don’t see any reasons. It's held for the last eight or nine quarters. It ought to continue to do so.

Okay. And then you mentioned, Alan, that the loan pipeline looked pretty good for the back half of the year. Was just curious, what you're seeing in growth and then the opportunities that ...

Well I would tell you, 80% of our growth is coming in real estate and 20% is in C&I. And that's what we’re seeing and that's what’s in the marketplace.

Okay. And then just lastly, I was curious about your views on the M&A environment currently, and if you guys have any authorize on that you'll be able to do support bank acquisition over the next few quarters?

Well, I think it's similar to what we’ve said for several quarters, but just we continue to pursue M&A opportunities and we’re actively evaluating several opportunities and, but at the same time being patient. And I think that we review the -- our excess capital, the primary purpose for it will be M&A.

Okay. Thanks for the color.

Thanks.

Next we have Jesus Bueno of Compass Point.

Good morning. Thanks for taking the questions. Just very quickly, it was great to see such a strong quarter in mortgage banking even with a $6 million MSR market, so record quarter. Just in terms of taking market share, it looks like you did make meaningful progress in gaining market share in the purchase market. I guess, going forward have you brought on new loan officers or have you looked to bring on additional capacity to further improve market share, or I guess what are your ...

We’ve got 35 new loan officers on the work since first year. We’ve got six new branches -- now we’ve got 15 new branches since second quarter of last year. So yes we have spread out footprints. But you got to remember, when we’re running 79% purchase volume and the rest of the country is running 54%, we’re going to gain market share. And that's why we’d like to see these numbers go up because that's our bread and butter its purchase mortgages. And people are buying houses, and they like the rates.

Sounds pretty big [ph]. And just on the outlook for accretion, and could you have any -- I guess, since the guidance for next quarter, what to expect there?

Jesus, we’re expecting to stay in range of $15 million to $16 million a quarter for the next couple of quarters.

Okay, that's great. And lastly, just jumping back to insurance. So obviously it was -- year-over-year the loss ratio was down, but again last year was also a pretty bad season for storms and I know this year it started in March and like you said ended early. But I guess, my question is in terms of -- was there any bleed maybe from the first quarter into the second quarter that made that loss ratio higher given the fact that June was pretty benign. And just in terms of possible bleed into the third quarter, should we expect that or should we just expect that to revert back so that -- I guess, historically the insurance sale back would be profitable in 3Q?

Okay. So, we didn’t have any bleed into the second quarter from the first, didn’t have any adverse development to speak of. And we’re I think we hope and expect that we’ve contained the losses in the second quarter. And I think also that the -- because we said the early kind of start and into the spring season of storms, we had a really strong June. And so, we’d hope and expect from that, that we wouldn’t have any bleed into the third quarter. I think we’d have a real strong third quarter or remainder of the year.

Okay, great. I’d like to slip one more in. Just on provision, obviously the charge offs impacted this month's provision. But I guess, going forward, how should we think about provision just essentially kind of ex the one loan charge off this quarter, use that as kind of a run rate?

I think that would be good.

Great. I appreciate you taking my questions. Thank you.

Thanks.

Seeing no further questions, this will conclude today's conference call. We would like to thank the management team for their time today, and we thank you all for attending today's presentation. At this time you may disconnect the lines. Thank you, take care and have a great day everyone.