Q1 2022 Primis Financial Corp Earnings Call

to reflect change assumptions, the occurrence of unanticipated events, or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

Occurrence of unanticipated.

<unk> events or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures a reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

I will now turn the call over to our President and Chief Executive Officer, Dennis

I will now turn the call over to our President and Chief Executive Officer, Dennis timber.

Thank you, Matt. And thank you to each of you that have dialed in this morning or later choose to listen to this on the replay. I'm very grateful for your interest in our company and what we're going to discuss today.

Thank you, Matt and thank you to HIV that have dialed in this morning, or later choose to listen to this on the replay very.

Very grateful for your interest in our company and what we're going to discuss today.

There are several things I'd like to highlight today in our announcement and in our press release. The first is our mortgage announcement.

There are several things I'd like to highlight today in our announcement and in our press release.

First is our mortgage announcement.

We have not been too coy over the last couple of years about the fact that we want to add a mortgage solution to our company to help boost operating returns and earnings growth.

We have not been too coy over the last couple years about the fact that we want to add a mortgage solution to our company to help boost operating returns and earnings growth.

<unk> Trust was a great option for us for several reasons. Most importantly, the purchase price is small the intangible associated with this is really almost negligible.

Tetrust was a great option for us for several reasons. Most importantly, the purchase price is small. The intangible associated with this is really almost negligible.

The company, C-Trust, is operating at better-than-break-even, with just $25 million of monthly volume, and their recruiting pipeline promises that we'll be able to ramp that production to the levels that we need. Our short-term goal with

The company see trust is operating at better than breakeven with just $25 million of monthly volume and their recruiting pipeline promises that we will be able to ramp that production to the levels that we need our short term goal with <unk> renamed premise mortgage.

renamed premise mortgage is to build production to a level that we can expect about a billion to a billion to in 20 2023, which we expect would add 20 basis points to our return on assets and about 25 cents to earnings per share.

Is to build production to a level that we can expect about $1 billion to 1 billion too in 2000, 2023, which we expect would add 20 basis points to our return on assets and about 25 to earnings per share.

Secondly, we've had very strong growth in loans in the first quarter, which is normally a slow quarter for us.

Secondly, we've had very strong growth in loans in the first quarter, which is normally a slow quarter for us.

One of our bank's biggest overhangs over the last few years has been really slow to no growth in the balance sheet. And I believe we're just another quarter or two from putting that behind us for good.

One of our banks biggest overhangs over the last few years has been has been really slow to no growth in the balance sheet and I believe we're just another quarter or two from putting that behind us for good.

We issued pretty strong guidance for what we expect on loan growth this year and given the kind of start we had and our pipelines and momentum I feel very good that we're going to impress our investors with what we accomplished this year and we're going to redefine ourselves as a growth company.

We've issued pretty strong guidance for what we expect on loan growth this year, and given the kind of start we had and our pipelines and momentum, I feel very good that we're going to impress our investors with what we accomplish this year and we're going to redefine ourselves as a growth company.

Our growth in loans was across the board our lines of business are complementing the core bank very well paying.

Our growth in loans was across the board. Our lines of business are complementing the core bank very well. Panacea has built a real brand that is producing good deal flow and growth at the pace that we need to hit our target.

<unk> has built a real brand that is producing good deal flow and growth at the pace that we need to hit our targets.

Right now, we're tracking towards about 1,000 doctor applications a month from all 50 states that we expect sometime in 2022. And with our new mortgage solution, I believe that's a real possibility. Most importantly, Panacea has turned profitable, even with the build in staff and marketing costs. And I think 2022 is going to end up being a great year for this division.

Right now we're tracking towards about 1000 Doctor applications, a month from all 50 states.

That we expect some time in 2022 and with our new mortgage solution I believe that's a real possibility. Most importantly, panacea has turned profitable even with the build in staff and marketing costs and I think 2022 is going to end up being a great year for this division.

The Life Premium Finance Group is just as impressive. They've onboarded dozens of insurance carriers and just as many top-tier brokers and agents.

The life premium Finance group is just as impressive they are onboard of dozens of insurance carriers and just as many top tier brokers and agencies. Our turn times are hovering around 20 days with systems that are technology oriented and digital at the end of the quarter. We saw weekly applications more than triple what they were.

Our turn times are hovering around 20 days with systems that are technology-oriented and digital. At the end of the quarter, we saw weekly applications more than triple what they were at the beginning of the quarter. And so we're expecting a really big second quarter and a strong second half of the year, really when the majority of insurance premium finance occurs.

We're at the beginning of the quarter and so we're expecting a really big second quarter in a strong second half of the year really when the majority of insurance premium finance occurs.

We're so close to being live to the public with our digital bank and because of that we've ramped up our efforts at finding ways to leverage that platform.

We're so close to being live to the public with our digital bank. And because of that, we've ramped up our efforts at finding ways to leverage that platform.

Obviously, we intend to market the solution in our existing markets and more broadly. But the faster approach that we are chasing is to find other fintechs and financial concepts that need a progressive banking solution for their customers.

Obviously, we intend to market this solution in our existing markets and more broadly, but the faster approach that we are chasing is to find other fintech and financial concepts that need a progressive banking solution for their customers.

We've got several of these concepts on the hook, and using our panacea blueprint, we believe we can be up and going quickly for these firms, and then profitable for our shareholders very fast.

We've got several of these concepts on the hook and using our panacea blueprint. We believe we can be up and going quickly for these firms and then profitable for our shareholders very fast.

We hope to have some good news on this soon, maybe by the end of the quarter.

We hope to have some good news on this soon maybe by the end of the quarter.

Lastly, a quick comment about our results before I turn it over to Matt about our operating ratios. I see our ROA and I see our efficiency ratio and the only thing that keeps me cool and calm when I'm in Matt's office is knowing what we're building.

Lastly, a quick comment about our results before I turn it over to Matt about our operating ratios ICR ROA and I see our efficiency ratio and the only thing that keeps me cool and calm win in Mats office is knowing what we're building.

The fact is we're a $3 billion bank, we're not $30 billion.

The fact is we're a $3 billion bank. We're not $30 billion. At our size, anything more than a new branch in an obscure location in some tertiary market is going to be a noticeable drag on earnings.

At our size anything more than a new branch in an obscure location and some tertiary market is going to be a noticeable drag on earnings.

Our stock price just won't allow us to buy our way into profitability and EPS growth, so instead we've built some very impressive growth engines on our own.

Our stock price just won't allow us to buy our way into profitability and EPS growth. So instead, we've built some very impressive growth engines on our own.

I fully expect that as we move forward both of these lines of business and anything else. We do is going to contribute significantly to earnings and at maturity. These two lines of business should be operating in the high <unk> low <unk> on efficiency ratios and contributing about 50 per share annually to earnings of.

I fully expect that as we move forward, both of these lines of business and anything else we do is going to contribute significantly to earnings. And at maturity, these two lines of business should be operating in the high 30s, low 40s on efficiency ratios and contributing about 50 cents per share annually to earnings.

Of course, both of these lines of business produce superior asset classes that will change our credit risk profile materially. So I'm energized about what we're building and the future impact it should have on earnings and operating ratios. So with that, I'll turn it over to Matt for a discussion on our results.

Of course, both of these lines of business produced superior asset classes that will change our credit risk profile materially so so.

<unk> energized about what we're building and the future impact it should have on earnings and operating ratios. So with that I'll turn it over to Matt for a discussion on our results.

Dennis.

As a reminder, a full description of our first quarter results can be found in our earnings release and first quarter earnings presentation, both of which can be found on our website.

As a reminder, a full description of our first quarter results can be found in our earnings release and first quarter earnings presentation, both of which can be found on our website.

Earnings from continuing operations for the first quarter were $4.6 million or $0.19 per basic and diluted share versus $7.7 million or $0.31 per basic and diluted share in the fourth quarter. Excluding one-time items, earnings in the first quarter were $4.7 million or $0.19 versus $7.2 million or $0.29 in the fourth quarter.

Earnings from continuing operations for the first quarter were $4 $6 million or <unk> 19 per basic and diluted share versus $7 7 million or <unk> 31 per basic and diluted share in the fourth quarter, excluding onetime items earnings in the first quarter were $4 7 million or 19 versus $7 2 million or <unk> 29 in the fourth quarter.

Total assets were $3.22 billion at March 31. Gross loans increased to $2.39 billion in Q1 from $2.34 billion, as strong core loan growth offset the decline in PVP balance.

Total assets were $3 2 billion at March 31, gross loans increased to $3 9 billion in Q1 from 234 billion as strong core loan growth offset the decline in Pvp balances excluding.

Excluding PPP loans, loan balances grew 4.4% linked quarter or almost 18% annualized.

Excluding PPP loans loan balances grew four 4% linked quarter or almost 18% annualized growth.

Growth came from all parts of the organization in the first quarter, including almost 11% annualized in the core bank.

Growth came from all parts of the organization in the first quarter, including almost 11% annualized in the core bank.

Panacea and Life Premium Finance had particularly strong starts to the year and accounted for approximately 40% of our loan growth in the quarter. We have a lot of momentum currently and are anticipating continuing this robust growth through 2022.

P&C and life premium finance had particularly strong starts to the year and accounted for approximately 40% of our loan growth in the quarter. We have a lot of momentum currently and are anticipating continuing this robust growth through 2022.

Deposits decreased slightly in the first quarter to $2 69 billion largely due to mortgage related deposits that shrunk by a little over $100 million in the quarter and is expected to refund in the second quarter.

Deposits decreased slightly in the first quarter to $2.69 billion, largely due to a mortgage-related deposit that shrunk by a little over $100 million in the quarter and is expected to refund in the second quarter.

Excluding that decline, we would've seen further core deposit growth noninterest bearing deposits are almost 21% of total deposits at quarter end and continue to be a focus while Cds have declined to 12, 6% of total deposits.

Excluding that decline, we would have seen further core deposit growth. Non-interest bearing deposits are almost 21% of total deposits at quarter end and continue to be a focus, while CDs have declined to 12.6% of total deposits.

The deposits declined to 35 basis points in the first quarter from 39 basis points last quarter.

Office of Deposits declined to 35 basis points in the first quarter from 39 basis points last quarter. While we continue to have excess cash on the balance sheet, we believe our momentum on the lending side will consume this liquidity in the near future and continue to prioritize core deposit growth.

While we continue to have excess cash on the balance sheet, we believe our momentum on the lending side will consume this liquidity in the near future and continue to prioritize core deposit growth.

Credit quality remains solid with non-performing assets, less SBA guarantees, roughly flat in the first quarter, while substandard loans declined materially, largely due to the upgrade of one relationship.

Credit quality remains solid with nonperforming assets less SBA guarantees roughly flat in the first quarter, while substandard loans declined materially largely due to the upgrade of one relationship.

Net recoveries were 175000 for the first quarter robust loan growth and to a lesser extent slightly weaker economic outlook led to a provision for credit losses of roughly 100000 versus recovery of $1 3 million in the fourth quarter.

Net recoveries were $175,000 for the first quarter. Robust loan growth and, to a lesser extent, slightly weaker economic outlook led to a provision for credit losses of roughly $100,000 versus recovery of $1.3 million in the fourth quarter.

The allowance for credit losses to gross loans excluding PPP balances decreased to 1.24 percent at March 31 from 1.29 percent at December 31.

The allowance for credit losses to gross loans, excluding PPP balances decreased to $1 two 4% at March 31 from 129% at December 31.

Our reported margin was 296% for the first quarter down four basis points from the fourth quarter, but excluding the effects of Pvp net interest margin increased 17 basis points to 296% in the quarter. As noted above we are excited to see loan growth materialize and fully expect operating leverage to be meaningful as we deploy this liquidity.

Our reported margin was 2.96% for the first quarter, down 4 basis points from the fourth quarter, but excluding the effects of PVP, net interest margin increased 17 basis points to 2.96% in the quarter. As noted above, we are excited to see loan growth materialize and fully expect operating leverage to be meaningful as we deploy this liquidity.

Noninterest income was down quarter over quarter to $2 1 million from $2 $3 million last quarter. Excluding a one time gain we are excited for <unk> to join us in the second quarter and look forward to higher noninterest income levels moving forward.

Non-interest income was down quarter over quarter to $2.1 million from $2.3 million last quarter, excluding a one-time gain. We are excited for CTRUST to join us in the second quarter and look forward to higher non-interest income levels moving forward.

Non-interest expense increased $83,000 length quarter, excluding the expense for recovery and reserve for unfunded commitments.

Noninterest expense increased 83000 linked quarter, excluding the expense for recovery in reserve for unfunded commitments.

As we discussed last quarter talent acquisition costs and startup costs for new initiatives moderated in Q1 as expected, but were offset by planned expenses for growth initiatives.

As we discussed last quarter, talent acquisition costs and startup costs for new initiatives moderated in Q1 as expected, but were offset by planned expenses for growth.

Our operating efficiency ratio this quarter was approximately 76%. There are a number of reasons why we feel confident that this ratio will be materially lower in the near future.

Our operating efficiency ratio this quarter was approximately 76%.

There are a number of reasons why we feel confident that this ratio will be materially lower in the near future.

Panacea in life premium finance are approaching breakeven.

Panacea and Life Premium Finance are approaching break-even faster than anticipated. Panacea in particular was pre-provision profitable in March, and we expect Life Premium Finance to be the same early in the second quarter.

Faster than anticipated.

Panacea in particular was pre provision profitable in March and we expect life premium finance to be the same early in the second quarter.

As discussed, we have planned for branch consolidation this year, with six branches planned to close in the second quarter and another two in the third quarter.

As discussed with plans for branch consolidation this year with six branches planned to close in the second quarter and another two in the third quarter.

This should generate on a run rate basis, roughly $3 million in savings with about a $1 million half of that realized in 2022.

This should generate, on a run rate basis, roughly $3 million in savings, with about a million and a half of that realized in 2022.

If we adjusted for the impact of Panacea licensing finance and our digital bank and recognize our full expected branch cost saves are Q1 efficiency ratio would've been approximately 60%.

If we adjusted for the impact of Panacea, Lightroom Finance, and our digital bank and recognize our full expected branch cost saves, our Q1 efficiency ratio would have been approximately 60%.

Lastly, we have seen good margin expansion as sustained loan growth changes our earning asset mix, and we expect this to continue and benefit the efficiency ratio going forward.

Lastly, we are seeing good margin expansion of sustained loan growth changes, our earning asset mix and we expect this to continue and benefit the efficiency ratio going forward.

Pre-taxed, pre-provisioned operating ROA was 77 basis points in the first quarter. Similar to the efficiency ratio discussion, we are confident pre-taxed, pre-provisioned ROA will see meaningful improvement in the near future.

Pre tax pre provision operating ROA was 77 basis points in the first quarter.

Similar to the efficiency ratio discussion, we're confident pretax pre provision ROA, we will see meaningful improvement in the near future.

With the same adjustments as noted before related to business lines and branch savings pre tax pre provision ROA. It would've been approximately one 2% in the first quarter. This does not include any ROE pickup as Dennis highlighted from our new mortgage acquisition.

With the same adjustments as noted before related to business lines and branch savings, pre-tax pre-provision ROA would have been approximately 1.2 percent in the first quarter.

This does not include any ROA pickup, as Dennis highlighted, from our new mortgage tax.

With that, we are excited by the momentum we have in the bank and the substantial upside we see from our strategic initiative.

With that we are excited by the momentum we have in the bank and the substantial upside we see from our strategic initiatives. We believe we are on the cusp of strong earnings growth through 2022 and thereafter.

We believe we are on the cusp of strong earnings growth through 2022 and thereafter. With that, operator, we can now open the line for Q&A.

With that operator, we can now open the line for Q&A.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

First of all your question. Please press Star then two.

Time, we'll pause momentarily to assemble our roster.

And the first question will come from Casey Whitman with Piper Sandler. Please go ahead.

Hey, good morning.

Good morning.

Maybe if we could start with just digging into some of the details around the mortgage company.

Maybe if we could start with just digging into some of the details around the mortgage company. How big is the current team there and is it largely through hiring on that team you expect to drive? I think you mentioned like a billion in volume in 2023. I guess how big of a team do you just be getting to?

How big is the current team there and is it largely to hiring of that team. We expect to drive I think you mentioned like $1 billion.

Volume in 'twenty, three I guess, how big of a team did just thinking too.

Right now right now they have about 70 employees, they've got probably 25 or 30 producers.

Right now, they have about 70 employees. They've got probably 25 or 30 producers. You know, the bank that they've come from or that we're buying them from have...

The bank they've come from or that we're buying them from have.

It has really put the brakes on recruiting and so they have a pretty so thats, what I was sort of referring to they have a substantial.

It has really put the brakes on recruiting. And so they have a pretty, that's what I was sort of referring to. They have a substantial.

Recruiting pipeline that they've sort of been nursing a long waiting for this announcement. So that's one of the reasons, we have a little bit of confidence.

Recruiting pipeline that they've sort of been nursing along waiting for this announcement. So that's one of the reasons we have a little bit of confidence

As to as to growing production base.

as to growing the production base.

<unk>.

They really operate mostly in North Carolina and Florida.

They really operate mostly in North Carolina and Florida.

And Tennessee.

and Tennessee. And so, you know, we think right now we every month we probably pass off.

And so we think right now we every month, we probably pass off.

you know, somewhere between, you know, six to ten million dollars of mortgage opportunities that we find in panacea, we probably pass off another five or six million.

Somewhere between $6 million to $10 million of mortgage opportunities that we find in panacea, we probably pass off another five or 6 million maybe.

Maybe $10 million out of our core bank.

maybe $10 million out of our core bank, and those we pass along to Southern Trust, who's been a fantastic partner for us.

And that as we pass along to Southern Trust, who has been a fantastic partner for us.

And I mean the folks at Southern Trust are not surprised at all that we're doing this so

And I mean, the folks at Southern Trust are not surprised at all that we're doing this so.

So I think between what we can do out a panacea and out of our core bank plus some of the recruiting.

So I think between what we can do out of Panacea and out of our core bank, plus some of the recruiting.

<unk>.

that's sort of been on hold, that's sort of what powers our enthusiasm on this case.

That's sort of been on hold.

That's sort of what powers our enthusiasm on this Casey.

Got it.

Is CTrust largely a purchase shop and maybe help us out with kind of what gain on sale margins look like? I guess just sort of trying to get to what the sort of revenue expense contribution would be even in the near term when you're sort of break even in that business.

As Steve just largely a purchase shop, and maybe help us out with kind of what gain on sale margins look like I guess, just sort of trying to get to what the sort of revenue expense contribution would be even even the near term when you're when you're sort of breakeven in that business.

You mean thereabout.

I mean, they're about 70% to 80% purchase volume right now. And they have been designed or set up in their short history to focus on purchase. So that's been their.

70% to 80% purchase volume right now.

And they were they have been designed or set up in their short history to focus on purchase so thats been there.

Predominant source of volume.

Their gain on sale margin, including hedges, is low three.

Their gain on sale margin.

Hedges as low threes.

And that has not included the benefits. So they are Fannie Direct approved and they just got their FHA approval. So that's all really brand new. So they haven't gotten the full benefit of those margins yet. So we should see a little bit of margin expansion here in the.

That is not included the benefits. So they are they are Fannie direct.

Approved and they just got their FHA approval. So that's all real.

Brand, new so they haven't gotten the full benefit of those margins yet so we should see a little bit of margin expansion here in the in the short term.

Okay.

Okay.

Okay. Switching gears, just thinking about the deposits, just given all the efforts you've made to sort of transform the deposit base, the launch of the digital bank, et cetera, how should we be thinking about your deposit beta and how that might fare with the rising rate cycle and just more generally about your asset sensitivity here?

Switching gears just thinking about the deposits just given all the efforts you've made to the transfer of the deposit base launched the digital bank et cetera, how how should we be thinking about your deposit data and how that might fair with the rising rate cycle and just more generally about your asset sensitivity here.

We are definitely asset sensitive in the short term, especially with all the cash on the balance sheet.

We are definitely asset sensitive in the short term, especially with all the cash on the balance sheet.

<unk>.

As opposed to.

relative to deposit betas. I can circle back with you on the assumptions we've got by deposit type.

Relative to deposit betas.

I can circle back with you on the assumptions, we've got Bob deposit type.

When we feel.

We feel pretty confident that we're going to be able to lag the profit costs, like most of our peers, for the first couple of raises.

You can be confident that we're going to be able to go to <unk>.

Lagged deposit costs like most of our peers for the first couple of raises and then it's going to be.

We'll have to see if depending on what the fed does.

We'll have to see if, depending on what the Fed does, the back half of the year.

Back half of the year, but.

Okay.

Understood.

Okay, understood. I'll ask one more and let someone else jump on, but just given where the stock's trading today, weighing this against all your growth expectations, I mean, is there any appetite or potential to buy back your stock here?

One more and let someone else or Bob, but just given where the stocks trading today weighing that against sort of your growth expectations. I mean is there.

Any appetite for potential to buyback your stock here.

We.

If we did not have.

If we did not have, if we did not have such.

If we did not have such.

I have to say that if we didn't have as much confidence as we do about life premium finance and panacea.

I hate to say this. If we didn't have as much confidence as we do about life premium finance and panacea...

I think yes, we would probably do that I think our core bank.

I think, yeah, we would probably do that. I think our core bank.

Our core bank in the markets. We serve is probably I mean could probably grow 10%, 12%, but when you add panacea in life premium finance, we have $1 billion visions on both of those.

Lots of business.

Yes, I just I, just don't think it's prudent to be.

Dialing back our capital levels.

I think Thats one thing Thats, one reason, Tim yes, we like the mortgage company because what it does for return on assets, we don't want to be a mortgage company with a small bank but.

We don't want to be a bank with the.

Average sized mortgage company and we like the earnings contribution in the capital Bill and Matt and I are sitting here right now knowing that.

We've got these two lines of business and we've probably got a week doesn't go by that we don't have.

A good fintech idea.

Call us wanting to sort of duplicate what we've done with panacea in like premium finance and so on.

I, just think it's prudent to hold onto the capital.

100%, we would be buying the stock all day long if we didn't think we were going to need that capital here pretty soon but.

Yep.

Expensive to issue capital, even though we know it will be at a higher price when we get there.

Yes.

But it's.

We need to keep that capital for now.

Understood. Thank you Bob.

Alright, Thanks Casey.

The next question will come from Freddie.

Freddie Strickland with Janney Montgomery Scott. Please go ahead Sir.

Hi, good morning.

Good morning.

Quick question, so P&C as being pretty steady growth.

The past several quarters here and I know you guys talked about pipelines and the lease but just kind of wondering where do you see.

That overall business in the next 18 to 24 months, what's kind of a realistic size for the portfolio.

Yes.

For panacea specifically.

Yes, just for panacea.

Yes, so in our last quarter, we had guided for panacea. They ended 2021 out of roughly $50 million portfolio than we had guided to their loan growth. This year of 125 to 150, so that would put them at 200 for the end of this year and everything we're seeing right now.

We feel very confident that they're going to be at the upper end of that range.

There is a very good chances there'll be higher than that.

Yes, one thing too.

The the paint C. A concept I mean, we started out with just one small consumer line and sort of unsecured loan and then we constantly are adding more products and more services and of course everything is digital everything is geared towards.

Quickly identifying a customer.

Processing under providing clothing funding.

It's super rapid fashion building the brand, but really we just keep adding products and services. The fact that.

I mean tower to his credit is uncovering enormous opportunities I think we don't even have a mortgage solution.

<unk>.

<unk> I mean, we're about to.

And I think towers I think Tyler could once tower has this mortgage solution I have theres no telling what the tower can do with it we don't have SBA.

In.

Panacea towers out looking for.

For SBA solution. So so really when Matt giving you. These got this guidance is really on products and services that we already have.

And I think as we keep adding another product or another service and we get the same kind of engagement and customer adoption that he's been getting on commercial and consumer.

I think the Sky's the limit on this.

Got it.

And then on the deposit side, how much of overall deposits are related the panacea.

Right now its not right now its not big I think in the press and Matt's presentation in the Investor presentation, I think we talk about.

Customer adoption or adoption rates on checking accounts on the commercial side.

It's really good I think when we are selling something were putting in treasury and as such in getting decent deposit on the consumer side I think we're getting good adoption, but I don't know that we have.

The balances there have have not grown.

As much and again, the consumer or the consumer side of <unk> is really geared towards.

<unk>.

Fourth year medical students Fellows residents. So it's not doctors and medical professionals that are in their financial prime yet.

I think at March 31, they had funded about 10% of their balance sheet.

And thats with good penetration in terms of deposit accounts and increasing penetration on treasury services. So we think that that.

Funding percentage for them, specifically should go up over time.

Got it and then just one last one for me.

I'm just wondering if you could elaborate a little bit more on what kind of opportunities you see I know you just joined the USDA consortium, but.

Just kind of what opportunities you see there and how that could help the bank.

Yeah. So I mean, I don't know how familiar folks on the phone or with USDA, but.

It is.

This is really early stage.

Technology is a blockchain based.

Basically method of moving money either for payments or PDP.

The business et cetera. So.

We think if you look at what merchants are paying to accept visa Mastercard amex, etc.

If you look at the slowness of ACTH rails et cetera.

There is a lot of disruption that's taking place in the payment space and moving money around.

And we think it's all right for change and right for opportunity. So we're excited to be part of USDA.

We think the underpinnings of it will.

When we get it stood up and launched.

And our first use case, we're targeting the payment side other banks that are in the consortium or targeting PDP or other use cases, but.

Scott <unk> in terms of how it could be deployed but we want to focus on.

We've talked a number of times about our small business offerings and strategies there.

We think using something like this to lower the cost that merchants absorbed.

Accept payments.

Would be a real competitive advantage. So we're racing hard to get that incorporated into our digital banking offerings.

We have made it just for.

Illustrated.

So if a merchant is paying 300 plus basis points to accept.

Payments at the Register for example.

With this system that could be as little as 100 basis points and it clears instantaneously.

All real time.

So we think it's.

Really fascinating technology.

Could lead to a real advantage for us when we go talk to the small business customers.

Trying to commit them to bank with us so.

Again. This is all early early stuff, but we're excited about the possibilities of it.

Got it thanks for taking my questions.

Alright. Thank you. The next question will come from Todd border with premise. Please go ahead.

Okay.

Hi.

God quarter, My wife is Georgia Derrick.

We are the.

Founders of the bank, which became premise.

Together, we owned 456000 shares outright and control another 100000.

And as a result, we.

Total Luiz.

On premise.

Then the board as a whole.

Add concerns.

Talked about with.

Dennis.

And we kept quiet opening the bank will turn.

Turn things around.

And our principal concern is that.

There does not seem to be being any attention paid.

Yeah.

Our next question will come from Samuel Largo with Stephens. Please go ahead.

Good morning, guys.

Good morning.

Hello.

Pardon me it seems that Samuel has disconnected. Our next question will come from Brody Preston with Stephens, Inc.

Yes.

Hey, guys. Good morning, how are you hi, Brian .

Good.

So.

I thought it was a pretty strong quarter guys as it relates to growth.

Thank you.

Clearly on track to achieve the things that you want to achieve and.

In the back half of this year in 2023 as it relates to improving profitability.

So I guess, Dennis I wanted to ask you.

Within the within the press release, you mentioned the recruiting ops on the mortgage side I mentioned, the significant earnings and ROE contribution you expect in 2023, So let me ask a couple of questions here.

Are we talking team lift outs and what production levels are you targeting for 2023.

We yes, we.

But the answer would be yes on team lift outs, if we could do that.

<unk>.

But I think onesies and twosies, we'd be happy with that as well.

Here are in the early stage.

Yes.

Sort of a little cognizant to walk before we run.

And the platform, we bought at $25 million is breakeven because they've been very.

Careful and cautious with.

Building the back room, so I don't want to sort of outrun them, but I think as we get through the year.

And have the platform built out.

And GAAP some recruiting success in sort of establish our name I think bigger team lift outs.

We'll probably come probably through next year.

The the.

Idea that we could get to $1 billion 1 billion to I feel pretty good about that on total production for next year and.

And I am conservatively thinking that we can get 60 basis points of that after tax bottom line, given the given Fannie and FHA and some of the.

Some of the controls cost controls we have here. So that's kind of how I get to 25 basis points and the ROI and how.

Excuse me, 20%, ROA and 25 basis points.

From an earnings per share standpoint.

Got it and maybe just just given that you were one of the primary architect of a highly efficient.

Operation at <unk> Bank.

Do you have an efficiency ratio target in mind for premise mortgage Dennis over the next couple of years.

I think I mean, I'd like to see it sort of low sixties.

As we again, yes, you have to be diversified we're going to have to.

Be good it's observed at servicing or sub servicing we're going to have to be good at portfolio products.

There's a ways to go but I think between here and there I think we're probably.

We're probably going to be upper $60 or low seventies, probably until we get to.

1 billion or two.

But I think and I like the question because I think when you combine what we have here with.

With what we're doing in panacea in life premium finance.

It's from an efficiency ratio I think the company consolidated would still be something that we would still be punching out impressive numbers.

Got it.

Got it Okay, and then are there any synergies between panacea in premise mortgage I know those integrated within 2023, 1% to $1 2 billion.

Origination target.

Right now I mean, right now towers, passing all of his mortgage opportunities onto another bank.

And those are those are kind of the opportunities that he stumbles on those arent.

No worries out marketing and.

I mean, nothing on our panacea website or anything on our promotions.

<unk> our talks about mortgage. So these are just kind of stumbles that we that we find that I think once tower starts marketing it and.

And this is an active product I think tyler's not just given what he has already done.

I don't even want to say a number but I think tyler can be a meaningful contributor to to what we do on mortgage.

Got it.

Okay, and then just while we're on the panacea.

I think you've had pretty good penetration as it relates to DBA and Treasury management could you give us a sense for what the Treasury management fees. It looked like from the panacea.

The phase from Panacea Ware.

On the Treasury management side, specifically events.

Yes.

That's not going to be very impressive because.

Because we have no no infrastructure no bricks and mortar.

We sort of are passing a lot of those savings on to the customers. So the fee structure I mean, there will be some fees priority, but it won't be it will not be a material driver of their results.

Got it okay.

And on those tendency of consumer applications is it split pretty similarly to what the <unk> origination looks <unk> originations looks like in terms of like 50, 50, and what is the average putting look like for each product.

So of course, they can see the heat.

As consumer applications, if we track to 1000 consumer applications I think yes, it's mostly going to be the.

We are in loans I think probably by the time, we get to a 1000 I'm betting that there is 100 of those that are.

Mortgage.

But yes, I mean, the the average the average loan there I'm not sure of is probably in the $30 to 50000 range. The yields are probably seven or 8% or so.

We do some I guess I'd say PRN theres probably.

It would probably be 10000, it'd probably be 10% to 20% would be mortgage.

Probably 20% would be student loan refi and then the rest would be the.

PR inline.

Got it Okay and then do you have any line on some line of sight on what premium finance growth could look like in the second quarter.

Yes, Matt doesn't want me to say.

The.

And let me just take a minute and I'm not I'm not.

Yes, im not too irritated with.

I'm not too irritated here, but this like premium Finance division the Panacea division the other things that we've been working on for two years to build.

Energetic culture and in our growth engine.

I think this life premium Finance Division is a perfect example of that.

I'm sitting here right. Now. This is this is a lot of business that I can.

I'm not going to guarantee anything but the level of confidence I have that this division can get to $1 billion.

Punching out of one five or better ROI on risk list assets.

I mean, why in the world with this company being able to recruit something like that to build something like that.

That's the kind of organization we're building.

I mean, we're not buying it right now we're building it from scratch I mean, if you think we can build organizations like that something thats got that much promise in that much potential.

And if not have a quarter or two drag I mean, it's not like I said, we're not $30 billion.

And I'm not trying to go on and on here, but.

That is a division that can be $1 billion punching out a one five ROI right now they're going to I think they can probably get to.

I think we're looking at the pipelines if things close if we have the success, we want I think that could maybe get to.

$70 million to $80 million in the second quarter.

I mean, it'll be cumulus it'll be cumulatively profitable probably by June .

That I'm, sorry, that's pretty bad <expletive> .

Six months, one in Oregon on a on a product like that.

And so I think we can be there by June I think second half of the years when the majority of life premium finance is underwritten and books. So I think where we're going to finish the year on that and panacea, we're going to get to the end of the year and whatever whatever reputation. This company had as a no growth slow growth company.

Absolutely be behind us.

It feels like you've kind of set me up for that question and so thank you.

[laughter].

I guess turnarounds turnaround efforts take time.

Yes completely.

Understand understand that especially given what you inherited.

My last question would just be on the branch closures one of basket if any of that was going to be falling to the bottom line in the near term are not efficient plan on those getting reinvested.

No we expect that to.

<unk> falls to the bottom line largely in the back half of the year, but yes.

As we guided to last quarter.

The first half of the year will be a little bit heavy.

Until those consolidations occur, but then we will see expenses moderate in the back half of the year.

Awesome. Thank you very much for taking the question guys great quarter.

Alright, thank you.

This concludes our question and answer session I would like to turn the conference back over to Mr. Matt, Switzerland for any closing remarks. Please go ahead Sir.

We appreciate everybody's time and attention this morning.

Follow up questions feel free to reach out to Dennis run have a great weekend.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

[music].