Q3 2021 Origin Bancorp Inc Earnings Call
Good day and welcome to the origin Bancorp, Inc third quarter.
Earnings Conference call today, all participants will be in a listen only mode should you need assistance during today's call police signal for a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. You May press start then one on a touchtone phone to withdraw your question. Please press Star then too. Please note that today's event is being recorded at this time I would like to turn the conference over to Chris Riggleman head.
Of Investor Relations. Please go ahead, good morning, and thank you for joining US today, we issued our earnings press release yesterday afternoon, a copy of which is available on our web site. All the slide presentation that we were referred to during this presentation.
Please refer to slide two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and use of non-GAAP financial measures.
But I was joining by phone. Please note. The slide presentation is available on our website at www Dot Org and Dot bank.
Please also note that are safe Harbor statements are available on page six of our earnings release pop with the S. E C yesterday.
All comments made during today's call are subject to the safe Harbor statements on a slide presentation in earnings really.
I'm joined this morning by ordering Bancorp's, Chairman, President and CEO drink milk, Chief financial officers see brawling, President and CEO of Oregon Bank, Lance Hall cheaper as cops or Jim Crotwell.
And cheap credit and banking officer Preston.
After the presentation will be happy to address any questions you may have now.
Now the call is yours drink.
Thank you, Chris and good morning throughout Texas, Louisiana, Mississippi, The economic outlook continues to be positive Ah bankers are highly engaged with our customers and prospects in driving growth for our company.
I'm I'm very pleased with our performance for the quarter and how we are positioned as we move forward Duluth.
Diluted earnings per share was a dollars 14 cents for the quarter with net income over $26.9 million net interest income was $52.5 billion in noninterest income was $15.9 million, our noninterest expense was $39.2 million in our efficiency ratio was 57.2%.
We released credit reserves, a $3.9 million for the quarter.
I'm proud of the growth we showed mellow portfolio this quarter with over 9% annualized growth excluding P. P. P and mortgage warehouse our focus on core deposit relationships has continued to be evident as non interest bearing deposits grew 6.4% in third quarter, we will get deeper into the numbers, but I want to spend a little time talking about strategy in the long term value work.
Creating as a company as a reflect on where we are strategically I am extremely pleased with the performance of our company and the key areas that our team has remained focused on over the past year.
Ganic growth has been one of our key areas of focus and this has been evident in our Texas market as we see I'm on a slide deck, each quarter or Texas market continues to mature and we're experiencing positive operating leverage and two of the largest fastest growing areas in the country. Our expansion strategy in D. F. W. In Houston and the success. We've enjoyed would lift asks creates tremendous opportunity to continue.
Strong organic growth another key area of focus for us, particularly coming out of the pandemic has.
Has been credit quality and it will get into later in the presentation or credit profile continues to strengthen we had been purpose swollen or F or surrounding class selection and maintained our focus on knowing our customers and expanding key relationships coupled with strong risk management. The profile of a company puts us in a strong position to take advantage of opportunities.
Efficient growth has been a focal point of our organization our strategy to be an elite financial performer drives us as we continue to create efficiencies invest in technology and use data to drive strategic decisions I am very proud of our company and the results for this quarter now turn it over to Lance.
Thanks strike.
Major darlie or Ah bikers have been highly proactive in a relationship focused process of providing value to our clients and driving results for the company.
Before I get into the details of our loan and deposit growth for the quarter I do want to draw your attention to slide T N, where we provided an update on P. P. P.
At the end of the third quarter, we had just over 72% a P. P. P. Lance forgiven with another 4% of the loans and the forgiveness process.
We've collected over $26.5 million in fees since the beginning of the program with $6.3 million in net fees outstanding.
I'm very proud of the bankers and how they continued to provide value to our clients throughout the P. P. P process.
Each quarter I discuss our focus on technology and our understanding that investments in this space will create automation that will improve efficiency.
Create more meaningful and actionable data.
Increased customer satisfaction and enhance longterm value.
I was very pleased with the rollout of our new origin Dot Bank website in the third quarter.
This website provides a more enhanced experience for our class and utilizes attribute of artificial intelligence to personalize the customer journey with products and services based on their browser behaviors.
I'm also excited about a new partnership with podium.
Technology companies specializing inconveniently connecting businesses to their collapse through mobile base conversations and interactions.
This will allow us to better engage with our clients try <unk> <unk> net promoter scores enhance decline experience and eliminate manual processes within our touch point plants.
I'll move to slide 12, with a presentation to talk to you about a deposit profile.
That's right you mentioned earlier are bikers have been extremely focused on driving core deposit relationships.
Our average non interest bearing deposits grew $128 million in the quarter, which now represents 31.7% of total average deposits.
This great significant future opportunity to drive growth and value for our company.
Reducing their total cost of deposits has been a priority for us and I'm pleased with how we've continued to stay focused over the past year. Our cost of total deposits has declined 50% and we remain committed to finding additional opportunities.
Ah strike mentioned earlier, we saw very positive alone growth in the third quarter with over 9% annual growth excluding P. P P and mortgage warehouse.
New load a production is up 21% through the first nine months of 2021 compared to the same period in 2020.
And loan fees were up 15% year over year.
We're seeing strong growth in Houston, Dallas, and North, Louisiana with increases for the quarter across C. N owner occupied commercial and development and owner occupied commercial real estate excluding P. P. P.
I continue to be encouraged by our pipelines and what we're hearing from our clients. The new hires we mentioned last quarter are off to a great start and we expect to see them ramp up more throughout the four quarter and enter 2022.
On the mortgage warehouse front any balances for the quarter was $713 million, which is in line with our expectations and what we discussed last quarter.
As I look at what our bikers were able to accomplish in the third quarter I'm optimistic about how we will finish the year and the momentum we have going into 2022.
We have the right teams in place to take advantage of opportunities and as always we continue to focus on the areas of dislocation that we can capitalize on.
Now I'll turn it over to Jim to go through our credit quality metrics.
Thanks Lance.
We continue to be extremely pleased with the performance and credit quality of our loan portfolio.
It's reflected on slide 14, we experienced reduce levels of past dues nonperforming loans and classified loans during the quarter.
Past due loans reduce the 0.52% and that a P. P. P loans, while nonperforming loans reduced 2.49% also need a P. P P loans.
Classified loans reduced $8 million for the quarter and totaled 1.52% of average loans held for investment net a P. P. P loans, while net charge off remain stable at 0.24% annualized as.
As mentioned on previous calls the resiliency of our portfolio is a direct result of our focus on relationship banking, which has delivered a well diversified loan portfolio.
Based on continued improving credit metrics and forecast that economic conditions are allowance for loan credit losses reduced by $7 million to $69.9 million, which represents 1.35% of loans held for investment and 1.63% net a P. P P and mortgage warehouse loans, we can.
Changed to closely monitor economic forecasts, particularly the impact of inflation labor pressures and continued supply chain disruption as well as the impact of Covid again.
Again as we have shared previously we are extremely pleased with the performance and resiliency of alone loan portfolio I'll now turn it over to Steve.
Thanks, Jim.
With the forgiveness with P. P P loans and a normalised level of mortgage warehouse lives. Our loan portfolio has tried it towards a more historic mixed in the yield <unk> total loans held for investment has stabilized for.
For the last three quarters of a total loon yields without P. P P loans, where approximately four per cent.
We decreased our cost of phones, one basically point this quarter.
Going forward, we believe we can continue to reduce the total cost of deposits as higher cost C. DS replace lower and a continued focus would reducing overall costs mom charity deposit accounts.
It's 515, you see are fixed and variable loan composition.
The F O M. C has signaled that they are prepared to taper their bond purchases later this quarter assign a future interest rate hikes.
In September the F O M C. Dot plot indicated that nine of the a T members expect the rate hike in 2022.
As a massive sensitive bank with approximately 60 per cent of our loans floating.
Increased interest rates will be beneficial for origin.
Slide 16 shows or a recent net interest income and Nimbed trends.
Grabbed on the left shows are five quarter Transit then come in and and you can see that the large impact a quarter one quarter to the P. P. P loan for goods had one both income and then.
As anticipated interest income for mortgage warehouse portfolio has normalized from the recent patent activity.
We were able to offset the decrease in growth in other areas within our portfolio.
Excluding P P P and mortgage warehouse or net interest income increased from $41.3 million to $42.9 million quarter over quarter.
As the majority of our loan growth occurred in the latter part of the quarter. We believe that our net interest income will continue to improve and quarter for.
Bottom graph shows her name quarterly changes with excess liquidity contributing to the largest negative impact similar to our loan growth. The majority of our investors security purchases were during the latter part of the quarter and it's September 30th a total cash balance is more of a normal level excess liquidity should be less of a headwind tour name in queue for.
<unk>.
Slide 17 is our net revenue distribution.
The top graph shows our net revenue growth since our I P O and the Q3 21 over Q2.
21 increases of $1.7 million.
The bottom graph details were noninterest income lines.
Mortgage banking revenues have stabilized coming off of historic.
Nationwide mortgage production and the refinance boom.
During the quarter, we reported swap fees at $727000, which was 700000 dollar increase from two Q2021, and represents an approximate increase of $250000 of our quarterly average swap fee income of 475000 dollar suits or Ikea.
In other non-interest income, we reported $3.1 million an L. P N com or 2.3 million higher than two 221.
The majority of this income this quarter was due to fair value increases in two of our five LP investments.
Over the last 10 quarters, we have averaged $600000.
Income per quarter will that average has increased to $1 million for the last six quarters as we were approaching they expect the termination of these funds beginning.
Four 221.
518, or noninterest expense analysis.
We reported total noninterest expense of $39.2 million, which was in line with the expected 38 million to 39 million quarterly range for the year.
The largest variance compared to two Q was a 1 million dollar increase in our medical self insurance costs related to a one time large procedure deductible that was required to be paid prior to the stop loss coverage.
We continue to focus on efficiencies to support our loan growth and bottom graph represents our quarterly operating leverage and efficiency ratio trends.
Now I'll turn it over to drink.
Thanks, Dave through the first three quarters, we've executed a high level on our strategic goes putting us in a great position to finish the year strong R capital position support our strong organic growth, while allowing us to continue to take an opportunity to stick approach to building partnerships do him a day I mentioned in my closing comments last quarter that we were working on the insurance.
Acquisition I'm very pleased to announce that we assign a purchase agreement to acquire the remaining 62 per cent in Lincoln Agency, which gives origin full ownership of that agency combined with our other agencies, we will increase current insurance revenues by approximately 20%, while reducing operating expenses in 2022.
Strategic partnerships have been and will continue to be key components of building noninterest income.
As we close I will say that I'm excited about the position we were in moving into 2022 were in the best growth markets in the nation Wow, we enjoy stable core market growth, allowing our team to leverage low cost rule deposits to fuel the dynamic growth markets in D. F. W. Houston, we've created a flat expense structure with while enhancing tech.
<unk> and the customer experience, we continue to build market presence in value to our list out strategy and we are well positioned for future margin expansion based on our asset since the profile.
You know if you remove the noise from across the industry. That's on banks' balance sheets income statements from P. P. P. The effects right have on the mortgage origination of mortgage warehouse business the excess liquidity throughout the system and you look at the core fundamentals of our business. We're very bullish on our ability to continue to drive organic loan growth and.
Poove loan yields, especially magic expenses and enhance net interest income thank.
Thank you for being able to call a day and we will open it up for questions.
We will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been address can you would like to withdraw it Please press star.
Two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from that call me with Stevens. Please proceed thanks.
Thanks, Good morning, guys.
More than that.
I want to start on loan growth it sounds like the growth you saw it in the third quarter was weighted towards the end of the quarter is there anything we should read into the timing of that growth being more weighted toward September I mean any change in <unk>.
Realisation rights or or confidence in borrowers just trying to appreciate it there was inflection there and a quarter or is it more just coincidence based off something else.
Yeah, Hey man good morning. This Lance no. It was really coincidence actually if you look at it it was really strangely split from the very beginning of the quarter and then the end we booked.
Uhm, a really nice C N I put book of business almost the first day or two of the quarter that we thought was gonna come in the queue to which was.
A big cloud of ours here in North, Louisiana, and the timber business and.
And then we had you know not nice production I think I. Even commented then the right up if you'd look through.
New loans and lines that we've booked for me were up 21% first nine months of this year over last year.
And then we.
Pushed out one assisted living.
Peace that was about $30 million, which kind of hid some growth in the middle of the quarter and then we saw something really nice growth at the end. So it really was just a little bit of Quirkiness and Tommy.
Okay. Thanks for that Lance and then any more thoughts on.
Lone pipelines for here I think you've talked about that.
High single digit loan growth is that still a fair outlook. Once you think about the the footprint in some of your your recent investments since I'm your new hires yeah.
Yeah, we we feel really positive obviously as we talked about last quarter seven new hires uhm.
Almost all of the Texas markets, but where folks focused on production Ah really kind of spread out between private banking and commercial banking, we'll have to that will amount next quarter, one being a really strong private banker. Another one in the Houston woodlands market coming from another Big Bank competitor.
You know we have the.
The individual that we've talked about probably the most that we hired in the woodlands. Her production has really been strong for us.
The the other six and two two and Q3 really just starting to ramp up so will we see that production starting in Q4, and then rolling into next year.
What loan pipeline is as good as has been this year and.
You know so I would say.
You know promote thinking through what Q4 looks like I think it'll be you know comparable to what we did in Q3, but probably a little bit stronger.
And Lance you <unk> you mentioned you you pushed out another alone it sounds like it was pretty decent size in terms of credit clean up I think that was something you you started doing last year and earlier this year just to update on where we are on that credit cleanup process at this point.
Yeah, you know at the beginning of the year, we really talked about high single digit gross did when we were thinking through it I.
I I I didn't foresee that we would have the real strong opportunity to do some of this clean up and again, we talk about clouds selection in a big way, we talk about our ability to kind of find clients that are interested in our value proposition wanting to be strong deposited.
Partners wanting to have Treasury management with us and.
And so you know on top of the what $40 million. We did in queue too we took the opportunity to do another 30 billion around one assisted living and when we've been telling the market for two years now that assisted living was the one area that we were wanting to sort of shrink from that was in our portfolios. So that's consistent with the message we've been delivering.
So.
Again this year for US has been an awesome opportunity to have both right or ability to drive growth our ability to hold onto yield because of our clients election, and then at the same time ability to be really really cleared up our credit portfolio. So I'll feel awesome about it.
Okay.
Thanks for the kind of Lance and then I guess switching gears over to the fees.
Mortgage banking pretty flat sequentially I think in the second quarter, we we talked about mark that when when it went against you guys any color on the the third quarter, which banking and any canal you can provide thanks.
Oh, Matt This is Steve that Mark I think you're referring to was the mark to market when the hedge and that was 2 million and.
Two Q.
This quarter that was a million Oh 46, and that's really related to two reasons. We did have a decrease in our pipeline on a volume basis and also our gain on sale as the whole industry did decreased a little bit.
Going forward into the fourth quarter, we really think that's going to be either a negative or slightly positive. So.
We hope to pick up that $1 million that we had in the third quarter into in the fourth quarter.
They may add this this is strike I also want to respond to the first part of your question about.
Really production and it saying.
Saying that written a couple of times that is we fair to get a star southwest peers I'll take something this important for the for the market to understand is that our our current production.
Put print is heavily weighted towards Louisiana, Mississippi at this point. So as you look at Levi are eight more south eastern peers Varsha southwestern peers, I think we look a lot like that and so if you take a million dollar club.
Members for the top five or in Louisiana, Mississippi now.
On the other hand, we're making big Tom progress own recruiting at a V. F. W. In Houston M. L. O is that I think are significantly gonna change that in the next couple of quarters, but I just want to remind you that this is this is an issue that we deal with when we start looking at production volumes of that had a strong impact not only on.
Production volumes widow pipeline hedge moving forward and and pipeline size, but I think we'll see some you know I I would call. It stabilization, where we are right now and and certainly war Bardwell, Carmen Jordan and Ross.
Chase or making some significant progress in recruiting M L O's and change in the profile of our mortgage production more slight it toward the southwest.
Okay. That's that's good commentary drag things thanks for that I, just just laughing for me.
Uhm get on sale margin within them or which business any any color you can provide as far as what you saw in the third quarter and an hour from here.
The gain on sale margin did decrease from second quarter to third quarter and there's a couple of different ways to look at this so if we say one number and you look at another <unk> bank they may net.
Commissions out and so.
Generally you went down a roughly.
20%.
And actually in our forecast we have it going up next quarter and that's partly because of the <unk> the right.
Great move and also the mixture between refinancing purchase so we think going forward, it's going to increase and last quarter. When we look to the third quarter. We actually did have it going down and we were almost spot on with their production both the production.
Value and also the gain on sale, so I'm pretty confident that we're gonna be picking up some in the fourth quarter.
Okay, guys. That's all for me it all back in the queue. Thank you.
I came at.
The next question comes from Brady Gaily with K B W. Please proceed.
Alright, Thanks, good morning, guys.
More than Brady.
<unk>, maybe if you could just talk us through some of the accounting and packs for the <unk> for you guys picking up the rest of the insurance agency you know I know, if you look and insurance or you've been doing around $13 million a year.
Uhm, maybe talk about your the incremental revenue that you're picking up from this acquisition and the incremental expense and any sort of impact tangible book value.
Yeah, I think variety of thought with with this Ah.
Addition, and I'll go back and make sure I have those numbers correct, but I think this will take us a total revenue insurance annually around 22 million.
So this this is about a 20 per cent bulb.
R. A 346 $5 million in additional revenue so let's go back and make sure my numbers are accurate when you say 13 million.
<unk> F I feel at this point I think what's important about this insurance acquisition, it's not that it's.
It's a significant.
A dollar impact to what where do at this point, but from a strategic standpoint, what we did with this 62 per cent.
Is allow us to take our agencies will thank will complete this in the first quarter and consolidate the three agencies, we have and we also have with the owners of the link and I, you say management that will manage the entire insurance.
Network, so where.
We're very pleased with our with what we see his ability to create a more efficient model overall, plus we have a couple of acquisition opportunities that will add to this that what could potentially clothes first quarter.
22, and and and and maybe even get both of them in but this will give us some some additional revenue and start to focus. So this be in 10 to 20, you know 10% to 15% of our Oh, a total revenue again the strategy that were taken with insurance, we now have significant market.
We have significant infrastructure, we have great management with succession in built in we now can it can go out and bring also smaller insurance agencies. In this strategy is going to take us as we begin to cross 10 billion, it's gonna take us give us an opportunity to replace lost revenue.
I understand come through the insurance business I really liked this this model the impact from a tangible book standpoint, Steve Let me see if I have this.
A tangible book if you were looking at the very very immaterial transaction. So we weren't putting a lot of information out there, but tangible book, Unlike a bank, where you'd expect possibly a three year payback insurance companies are usually little longer and so.
I'm Gonna say, that's about double the normal bank that you would see but again insurance is a little bit different animal because it's really driven on.
Your commission revenue that you have and and and because it's such a small piece to our total.
Balance sheet and income statement, we didn't go through a lot of that map.
Yep, So Steve <unk> the impact the tangible book value from this acquisition I mean would you consider it kind of minimal.
Yes.
Alright doesn't that that's great.
Grady what I was saying, it's it's so minimal that I mean, it may take a couple of more years in a bank, but it's so small.
That it's not it's not really worth talking about I mean, it's it's very minimal piece.
Got it understood.
And then see that you know you you guys made a lot of movement send the bond portfolio I know a lot of them happened kind of near quarter and so next quarter, we're gonna see a larger impact there I was just wondering if you look at your combined your tax bill of non taxable bond book I think the yield was about 107.
Five basis points and the three <unk> in the third quarter, Yeah with with you guys, adding so many balance so many balances here what what do you expect the bond yield to be going forward I'm guessing that's gonna come down a descending I'll just what these new purchases.
Yeah. So the half a billion dollars we put on was about 112.
And so it could be about 150 total bond portfolio now that 112 <unk> cause we went short.
What we didn't want to do is have that 600 million, there's 500 million extra cash getting seven and a half basis points. So yeah. It it'll help us cause it's not in cash and hopefully during next year, we'll convert that into loans and and more than double the 150, they were getting for security.
Yep. So it's all in the bond book, Yeah, what would you consider a kind of a temporary increase in not not likely to see this amount of addition to the bond book again, but you know hopefully the Thorn Buckler shrink every time and you can put it in and higher yielding one does that the way to think about it over the next couple of years.
Yes, the only difference is seasonality, we normally get a lot of our north Louisiana public funds come in towards the end of the year December and January and instead of having a lot of cash we may go out and purchase a couple of security in the.
Latter part of the fourth quarter, but after that we're not gonna be increasing security as it should be running off in the runoff is roughly 18 million a month.
So where we are today.
Okay, Alright, and then last for me just on the million dollars I'm kind of one time compensation slash slash benefits medical costs. So that that I mean, you had 23.6 million in that line I mean, <unk> is it safe to assume that could come down by about a million Bucks next quarter.
Yes, that's the one time and we may have some procedure costs, but that 1 million I really do expect to come down next quarter.
Okay, alright, great well thanks, guys.
<unk>.
Our next question comes from Brad Millsaps with Piper Sandler. Please proceed.
Hey, good morning, guys.
Good morning, right Yeah, yeah.
Yup size may just gonna do their.
Just had a question on loan yields it looks like you know fairly stable in some cases, maybe up a bit in some categories linked quarter, let's thanks for talking to or seeing pressure today I noticed you guys noticed stability, but also Lance mentioned the impact alone fees, just kind of curious you know what you're seeing out there and if this was an outsized <unk>.
<unk> for one fee that that was something that was sort of property nose up I just kind of want to think about you know kind of what you know new <unk>, New you know new loan yields are coming on you know versus the current book.
Yeah, Hey, there's somebody that's all I'll take that and maybe see wants to jump in I I think we've got a really nice job of of.
Really this constellation that we're talking about holding lone yields as flat as we can there's there's no doubt that the environment is very very competitive, but I think if you go back through the last three or four quarters, we've been right. There at about 4% on loan yields you know, we're we're seeing some some tougher competition around I dunno occupied real estate you know so I would.
Think that will see a few basis points decrease in and load you'll just reset your competitive to fight off for you know the relationships. We wanted the relationships for bring it in.
At the same time, I think bikers I've done a great job on the fee side now.
Now I will say, we had one really large swap fee and in Q3 hard to determine if we'll be able to have clothes that opportunity again in queue for around the similar dollar amount, but just the traditional wooden fees and then continue to to do really well for us.
Yeah, [noise] and that swap fee is not and then that's below the line. So I agree with Lance that are fourthquarter will have a little bit of a challenge. So we may have one or two basis points decline there.
Yeah I was.
I would say at the same time I don't think we've quite bottomed out on deposit cost yet I mean now that is at this point, obviously, it's hand to hand combat uhm.
Uhm, but I know our bankers are working hard we've taken a fresh look at our pricing across all of our platforms and going through our markets and looked at any variance price and we have on money markets. Obviously C. DS pricing is coming in our favor so.
I would expect us to be able to get another basis point or so on the deposit causes.
Great and Uhm, Steve I think he mentioned that 60 per cent of the loan portfolio is is is variable rate uhm can you just talk about you know kind of how you feel the margin would react if we got you know 25 50 basis points you know from the fed late next year early twenty-three just wanted to get a sense of the you know.
The impact of force them. They just kind of how you feel about you know what what Ah move in short term rates would do to the to your margin.
So when a <unk> a 25 basis points increase we would overall good about 19 basis points of that because of the some of the loans that are in floors.
And then if it goes up 50 basis points, that's closer to 40 base 40% of that.
Well, not 40%, but 40 basis points and then if it at 75, that's where we're closer to 100. So we do have we still have a couple that are between 50 and 75 below floor, but if again if it goes up the first 25, we should get 19 of the 25.
Great. That's helpful. And then and then finally for me I don't want to belabor the insurance thing too much just kind of heard several different numbers, there and they're prepared remarks, you said basically at a 20% increase to revenues.
Which I think run around 13, only a few guys is that basically a push with the partnership income it sounds like you're gonna lose in in 2022 I think.
You said that was about a million dollars a quarter normally and that's those are gonna go away in the fourth so is that did those two items kind of all set.
Yeah, Yeah, they do and I I realize now that <unk> hard to work. The number 13, something new you know revenue because of the third of the ownership with 38% of the Lake and agency, where won't book in that revenue. So actually instead of the 62 per cent of their revenue will be bringing out 100 per cent of their revenue, which is running about $6 million.
Okay got it but then you'll bring on 100 per cent of their expenses as well right.
Jack.
Okay, and do I need to think about that of a normal kind of like 75 or 80% efficiency ratio type you know insurance business.
Yes.
Okay, great. Thank you.
As a reminder, if you do have a question. Please press star It had one on your Touchtone phone.
The next question comes from Kevin Fitzsimmons with D. A Davidson. Please proceed.
Hey, good morning, everyone.
More than Kevin.
Well I did a lot of questions I've been asked and answered already but one thing I wanted to ask about Drake was mortgage warehouse and we're kind of trajectory you expect and were settling point uhm for those loans as we look out over the next several quarters.
Yeah, you know I I.
I've said from.
The last couple of years that we played on moving we're running mortgage warehouse between 10 and 12% of Outstandings, we're down to 14%. So we're tracking pretty close to what we expected and still think that that number we talked about for for core 600, a day you would be.
Pretty close to where we think we're gonna end up the fourth quarter as far as outstanding we're up to 48 class. So we've got to clutch that we're in the process of booking nail about 50% of our club to use us as our primary and and when you look at our strategy around how we prize we've been we've been we haven't.
We've been very aggressive at trying to hold a pricing and and and price at top of market. We're not the cheapest out there. We certainly could have brought all some additional transactions. If we would have reduced you know had an impact margin, but we have stay focused on this being 10, 12% of our business and and and.
We feel we're gonna be able to hold up pretty well, but yet have decent pricing compared to the marketplace. So about like I said 50 per cent of those our our primary we like these clients to have multiple uses and and be able to the maneuver through.
You know.
Bulges in those type of things, but well, we got up to 20 per cent of outstanding said the majority of that was the bulges did most of those bulges of rolled off to this point so as those bulges finalize we'll we'll see is probably come down the second court around 12% of Outstandings, where we expected to be.
Okay, Great very helpful and if you could just you.
You know.
Thinking about gross there's obviously organic growth from just what you have in in place and in the markets. There's future team lift out if and I'd imagine there'd be some especially with a very large deal about to close [noise] yeah.
In the Texas region.
And there's M Annette, which in and you guys have senior multiple improve.
Although I sense that you're you're haven't been that hasn't been his front of a R. R. R. As top priority as it seems like it has been in the past in terms of what you guys were looking for so can you kind of between those three.
Variables can you talk about where your priorities for growth and with team lift out I would imagine.
There could be you know tremendous opportunity, but you also want a balance it you don't want to take too much on it. Once you wanted maybe let that got the guys brought in in recent quarters get up to a certain point before you bring new one job, but just how how you're looking at all that those expansion.
Uhm bullets. Thanks.
Kevin.
<unk> thanks for that because that's that's great.
Opened her for really how I closed my conversation today.
Before we went into questions is that.
We are in a significantly strong position.
N D F W. Houston continue to have opportunities to follow.
Who we are from an organic growth strategy and continue lift out strategies and and I'm gonna.
I'm Gonna congratulate why bardwell in North, Texas grape they have been significant and and focus at O clock selection and we keep talking about clubs selection I Wanna stop for just a second and talk about.
You know this could've been a year that we would've had double digit growth without a doubt, but we're here for the long haul where an organic grower. We have had opportunities this year and I'm I'm not going to use the word clean up our portfolio.
But really focus on the strengths of our portfolio and exit things that we might not want to be longterm players in and and we have been highly successful that and thank goodness, we've had a straw market with a lot of liquidity because there's a lot of players out there looking flora.
We have to stay focused on attempting to do the best we can manage and <unk>.
Low yields I'm proud of where we are we have passed though a number of credits that I don't think really fit the club selection profile, but would've been good credits they would've been transactions, but they would have certainly impacted our margins negley. So I think our growth we start looking at a credit quality down the road the quality of the people that were bringing in and you'll.
We talk about class selection, but when I look at our problems from the past. There was also a component in there it was around a lender in relationship manager selection. We have done an excellent job of of ratcheting up the quality of the people that are representing us and the lows at the bring it on the books. So we will continue to focus on our <unk>.
Strategy around.
Organic growth lift asset quality people that fit our portfolio client selection and attempt to continue to to manage yields and throw that we see high single digit growth and maybe you know getting back into the low double digit growth in 22, and 23, but right now we're focused on quality qual.
The quality and we're focused on trying to maintain some form of loan yields and I think we're doing an awesome job.
Great. Thanks strike one one last one for me the the allowance ratio now adjusted for P. P. P and warehouses I think it's not a 163, where do you what do you have sort of a longterm settling point for that when we think about the credit leverage that's ahead and.
But yet you're gonna be grubbing loans.
You know at a decent clip too, but when we take that ratio down over time, where do you think it kind of settles longterm. Thanks, yeah.
We're gonna have to balance methodology with growth coming in and and Kevin When you take back in I think is $80 million would credits we've pushed out that that necessarily we did we wouldn't have lost money one oh that that I think there was an earlier question how much more that's out there I don't think there's a tremendous amount of that left but.
Cause we we we are where we want to be with assisted living for the most part now.
Uhm so.
It as we look at methodology I would love to take a very conservative approach and allow us to grow into some of this I think that we're gonna be pushed to release, but on the other side as I've I've had a conversation with our people from a conservative perspective, there are still significant unknowns in this economy out there and the impact of supply chain.
Labour inflation, a number of different things you were looking deepened the portfolio, where we feel credits potentially could be impacted through those issues feel very good about a credit I I've never felt better about our overall credit the trajectory of our credit quality and current credit quality. So I I I'd, we'll see <unk> you will see some further release probably because.
That's it I'll just go to the forces, but I'm, hoping these guys continue to see significant pipeline grows in that we can start applying some of that to growth instead of a relief, but that's that's where I feel like we are today.
Okay. Thanks very much.
Thank you Kevin.
The next question is a follow up from that only with Stevens. Please proceed.
Thanks, Guy just a few clarifications on the P. P. P side and I think you mentioned around $6.3 million of remaining.
Fees any estimates are guesses on on how much of that could be recognized in the fourth quarter versus versus next year.
Matt it's about <unk>.
One and a half million of the 6.3 for.
For the fourth quarter.
The second quarter was 4.2, when the third quarter with three and that's because of a lot of the forgiveness.
And we will still have some forgiveness <unk> this quarter, but we think it's gonna be majority first and second quarter.
Okay.
Got it and then I guess going back to the insurance acquisition drank what what did you mentioned that the timing of that clothing would be.
12 31.
Got it.
[noise] and then I think you also sit on the insurance piece. The acquisition is gonna give you a chance to consolidate other.
Other agencies as well and I guess, you've taken a step back it sounds like.
Insurance, it's gonna be an important part of the.
Origin strategy and and I guess, we haven't heard we have a talk too much about insurance of Lassie or don't send these calls so any any more call you can give us an insurance and and and how important that is to the overall origin strategy in the next few years.
Oh Man I think it's a significant part of our strategy because what we're trying to do is continually drive this company to a better Ah.
A higher mix of noninterest income to total income. This is a business that I understand you know before I was a banker I was actually a license PNC of life and health agent. So I have that background, but what I enjoy about this business as low risk.
It's not Catholic tents, we have significant management in succession in these agencies, it's a hand in glove fit with our.
Business and through the Lake and you say, we feel like their significant more relationship to be able to pick up there, but what I really have enjoyed about it recently has taken the model very similar to what we do with the bank.
We take a rule approach of the smaller agencies that have a lot of consistency, it's allowed us to ramp up.
<unk> Commission right Commissioner pay outright also or.
Lost revenue law share revenue is is enhanced because of the consolidation of these markets. When we take a large agency like Thomas and foreign raised Conan Thunderbird and now the Lincoln Agency combine those three agencies, there's gonna be some reduction in the back in so all those things start to bill some efficiency, allowing us to have the infrastructure.
A mile to go out roll up some of the smaller rule agencies in our market place and then allow us to put significant agent relationships in the metro markets and not have to pay up.
To get some of those books that by the way as in the Metro Marcus they'll take that book and and and move on them and you've got a blue. So I mean impairment situations. So we like the fact that we're gonna use a rule model to go into the metro markets with significant market representation and be able to drive.
Have some real value we've already seen that happened start happening in Dallas, Our next move is Houston.
Okay. That's that's perfect. Thanks for that drink and just lastly on on the operating expenses, Steve you mentioned that the salary line was a little bit heavy this quarter I guess, taking a step back just overall nine interest expense, where would you point us towards.
More in the short term for the fourth quarter Steve.
About 39 famous we we had said 38 39. Prior so we think it would be closer to 39 this quarter.
Okay, great. Thanks, guys.
I want to talk about.
We are working diligently to to to continue to manage a a very flat expense structure and this is I think an important component to garnering efficiency and still drive in what we think is a significant growth engine as I said with enhancing and the customer experience enhancing technology. This is.
One of the strong focus of this institution and we're seeing some real progress with it.
Okay. Thanks for that drink I appreciate it.
At this time there are no further questionnaires in the queue and this concludes our question and answer session I would now like to turn the conference back over to <unk> for any closing remarks.
My <unk>.
<unk> true appreciation. Thanks for each one of your time day, and I will say is open to today.
That I've never felt more bullish about this organization as a whole when you look at the quality of the people entirely succession the organization to capital position. We're in the opportunities we have in the footprint the dislocation and it put print the asset sensitivity of this institution all the things line up to put us in a significant position and we.
We have impacted 2021 from a gross standpoint slightly to improve the overall quality of the institution. So as I put all these things together and I sit back and start playing a strategy for 22 and 23, we've never been in a better place I think our growth project trajectory in profile and 22 23 is gonna be.
Significant we are in markets that are going to continue to hold we're making some strong moves in Houston from a mortgage standpoint. So all again all these things put together bullish very pleased to have each one of you as investors and supporters and thank you My phone's always open to four three <unk> 31824, 325 25 calls.
Me, if you have any answers I mean questions and I'll give you the answers but anyway. Thank you again for your time.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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