Q2 2022 Primis Financial Corp Earnings Call
Dennis Zember: Our mortgage solution is brand new and I believe the timing on our decision is pretty ideal. Our price was small, I mean really negligible, and while the market activity is slowing because of higher rates, I have been around this business long enough to know that volumes will return.
Right now large mortgage companies are shedding support, eliminating marketing resources, trimming assistant positions, and looking to reset for today's reality.
That's put a lot more really good teams and originators in play than were a year ago. The market for mortgages have slowed but the market for originators and good teams is noticeably better.
That put a lot more really good teams and originators in play than were a year ago.
The market for mortgages have slowed but the market for originators and good teams is noticeably better.
One last thing weighing on our market value is our operating performance. Incremental improvement here, like you saw this quarter, is critical and so I'm looking for signs that the discipline and the desire to achieve it is present. Our internal communication aligns with this unquestionably. What we celebrate at premise, and what we are incenting is also aligned.
Incremental improvement here like you saw this quarter is critical and so im looking for signs that the discipline and the desire to achieve it is present.
Our internal communication alliance with this unquestionably.
What we celebrate at premise and what we are in same thing is also aligned.
I see positive moves in the net interest margin, in checking accounts, and pipeline. I see that core revenues have grown twice as fast as core expenses. So while I want the operating performance at our company to be wow, right now, I am confident that we are doing what is necessary and that we are just a few quarters away from putting that value overhang to bed as well. Matt is going to be more specific about where the growth came from this quarter, but let me say something about the lines of business.
I see that core revenues has grown twice as fast as core expenses.
So while I won't the operating performance at our company to be Wow, right now I.
I am confident that we are doing what is necessary and that we are just a few quarters away from putting that value overhang to bed as well.
Matt is going to be more specific about where the growth came from this quarter, but let me say something about the lines of business.
These businesses are meant to augment our core bank, our growth rate, our credit quality, our profitability, they're not designed or meant to gut it or replace it. An honest review of this industry would say that the industry has changed and it's still changing. I challenge anybody to show me a community bank strategy that can punch out 150 ROAs with good credit quality and with reliable growth. I just mathematically don't think it's possible. I feel like you have to augment what you're doing with something new and creative. Finding that balance in a small bank is not easy; where to invest, where to pull back, how to transition, how fast, but let me illustrate the power of this concept.
Our growth rate or credit quality or profitability.
They're not meant because they're not designed or two or replace it.
An honest review of this industry.
Would say that the industry has changed and you still changing.
I challenge anybody to show me a community bank strategy.
That can punch out 150 <unk>.
Good credit quality and with reliable Greg I, just mathematically don't think its possible I feel like you have to augment what youre doing with something new and creative finding that balance and the small banks not easy.
Where to invest where to pull back half transition how fast.
But let me illustrate the power of this concept.
Our company was founded in 2005. Since then we've done everything that good community banks are supposed to do. We've built relationships with professionals in our market, we've built branches, we've hired bankers, we've bought other banks, integrated them, we've advertised aggressively, we've negotiated, we've been downright street fighters to build our company and build our brand. But right now a review of all of our customer data and relationships shows that we're banking 50% more doctors [inaudible] in our footprint through the payments to your franchise than we do in our core bank after 17 years. Paying a fee is only 18 months old, barely 18 months old. They are barely breakeven right now and we are investing hard in that business with the founders to continue harvesting this easy opportunity.
Since then we've done everything that good community banks are supposed to date, we've built relationships with professionals in our market. We built branches. We've hired bankers, we bought other banks integrated deal.
We've advertised aggressively we've negotiated we've been downright street fighters to build our company and build our brand.
But right now our review of all of our customer data and relationships shows that we're banking, 50% more doctors.
And Dennis.
In our footprint.
Through the payments to your franchise.
Than we do in our core bank. After 17 years paying a fee is only 18 months old barely 18 months old.
They are barely breakeven right now and we are investing hard in that business with the founders to continue harvesting this easy opportunity.
The point here is not that the corp bank is unsuccessful because it's not. The point here is instead to illustrate that we are more than twice as present in the pockets of doctors, vets, and dentists in Virginia, Maryland, and DC as we were 18 months ago and that we've got here with a resource-like strategy with seemingly unlimited scale. The power on a community bank with something like that is fantastic. I mean, with that good news I will turn it back to Matt for some details.
The point here is instead to illustrate that we are more than twice as present in the pockets of doctors and dentists in Virginia, Maryland, and DC as we were 18 months ago and that we've got here with a resource like strategy with seemingly unlimited scale the power on a community bank with <unk>.
Something like that is fantastic.
I mean with that good news I will turn it back to Matt for some for some details.
Matthew Switzer: Thank you Dennis. As a reminder, a full description of our second quarter results can be found in our earnings release and second quarter earnings presentation, both of which can be found on our website.
As a reminder, a full description of our second quarter results can be found in our earnings release and second quarter earnings presentation, both of which can be found on our website.
Earnings from continuing operations for the second quarter were $5 million or 20 cents per basic and diluted share versus $4.6 million or 19 per basic and diluted share in the first quarter. Excluding one-time items, earnings in the second quarter were $6 million or 24 cents per diluted share versus $4.7 million or 19 cents per diluted share in the first quarter.
Quarter.
Total assets were $3.24 billion at June 30, up slightly from March 31. Excluding PPP loans and loans held for sale, total loan balances grew 10.5% linked quarter or approximately 42% annualized.
Growth came from all parts of the organization in the second quarter, including almost 20% annualized growth in the corp bank while payments [inaudible] and life premium finance both had growth accelerating from Q1. We have a lot of momentum currently and are anticipating that approximately 31% loan growth rate for the first half of 2022 to continue for the rest of the year.
We have a lot of momentum currently and anticipating the approximately 31% loan growth rate for the first half of 'twenty two to continue for the rest of the year.
Deposits were essentially flat in Q2 while the mix continued to improve. Non-interest-bearing deposits are 24.3% at quarter-end and continue to be a focus while CDs have declined to 12.3% of total deposits. [inaudible] deposits were flat at 35 basis points in the second quarter and the cost of funds increased one basis point from Q1.
The deposits were flat at 35 basis points in the second quarter and cost of funds increased one basis point from Q1.
As expected, our robust business lines have consumed the excess liquidity, we were carrying through last year. Growing low-cost corp deposits is a significant focus of the bank as we look to fund this growth going forward.
Net interest income saw strong growth in the quarter, increasing to $24.6 million from $22.9 million in Q1, or 7.7% linked quarter.
Our reported margin was 3.33% for the second quarter or 3.35, excluding the effects of PPP up 37 basis points, and 39 basis points, respectively from the first quarter, driven by strong loan growth and a better earning asset mix.
Non-interest income increased to $2.6 million from $2.1 million linked quarter due to the addition of Primis mortgage company late in the quarter. Primis mortgage originated $27 million in June, down slightly from May as the company transitioned to Primis.
Primis mortgage originated $27 million in June, down slightly from May as the company transitioned to Primis.
As previously discussed, our goals for Primis mortgage in 2022 are to grow production and invest in talent versus a meaningful contribution to earnings this year. We expect mortgage to be a more meaningful contributor to earnings in 2023.
Non-interest expense included a number of items this quarter, including branch closure costs, merger-related expenses, and the addition of one month of expenses for Primis mortgage.
Excluding these items and recover your expense for unfunded commitments, non-interest expense was down slightly to $18.5 million from $18.6 million last quarter.
The provision for credit losses was 422,000 in Q2 versus 99,000 in Q1. Combined with net recoveries of 408,000 in Q2, the allowance increased by 830,000 for the quarter.
While economic outlook weakened, loan growth in the quarter was concentrated in categories with lower modeled reserve requirements. As a result, the allowance for credit losses to gross loans, excluding PPP balances and loans held for sale decreased to 1.16% at June 30 versus 1.24% at March 31.
Loan growth in the quarter was concentrated in categories with lower modeled reserve requirements.
As a result, the allowance for credit losses to gross loans, excluding PPP balances and loans held for sale decreased to one 6% at June 30 versus $1 two 4% at March 31.
Non-performing assets net of SBA guarantees increased $5 million in Q2, primarily due to one $8.5 million relationship on a residential property that has struggled to service the debt, but offset by the payoff of a non-accrual development loan of $4.6 million.
The LTV on the residential property is less than 50% and we aren't expecting any losses.
As mentioned previously, we had net recoveries in the quarter and have now had recoveries in four of the last five quarters.
Our operating efficiency ratio was approximately 70% in the second quarter down meaningfully from 76% in Q1.
Fantasy in life premium finance continued to experienced substantial revenue growth and increasing operating leverage as profitability of those business lines accelerate.
We consolidated six branches late in Q2 with another two branches plan to consolidate in Q3.
We've also identified several opportunities that could generate $3 million to $4 million of additional savings on an annual basis that we are pursuing.
Combined with continued revenue growth, we believe we can drive the operating efficiency ratio to the low sixties as we finish 2022.
Pre-tax pre-provision operating ROA was 100 basis points in Q2. If you exclude PPP fee income, which was a temporary source of revenue, pre-tax pre-provision ROA is at the highest level since Q3 of 2020.
If you exclude PPP fee income, which was a temporary source of revenue pretax pre provision ROE way is at the highest level since Q3 of 2020.
Over that time period, we've invested heavily in new business lines and offerings and are starting to see the returns from those investments. Similar to the efficiency ratio discussion, we're confident pre-tax pre-provision ROA will continue to see meaningful improvement in the near future.
Similar to the efficiency ratio discussion, we're confident pretax pre provision ROA. It will continue to see meaningful improvement in the near future.
We are pleased with the progress we've made and are excited by our momentum. We're confident profitability will continue to improve in the near future as we drive towards top quartile results. With that, operator, we can now open the line for Q&A.
With that operator, we can now open the line for Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
Pause momentarily to assemble our roster.
The first question comes from Andrew Terrell with Stephens. Please go ahead with your question.
The first question comes from Andrew <unk> with Stephens. Please go ahead with your question.
Yes.
Andrew Terrell: Hey, good morning, Dennis. Good morning, Matt.
Multiple speakers: [Dennis Zember] Good morning. [Matthew Switzer] Good morning.
Andrew Terrell: Maybe just to start, I think it was really good to see the deposit growth come in this quarter. It seems like you were able to [inaudible] kind of a more negative trend across the industry. I was hoping you could just speak to kind of pipeline on the deposit side and just expectations for deposit growth in the back half of the year and then as part of that, I saw you went live with the digital bank this quarter, just deposit growth expectations within that division specifically. And then can you remind us do you have any kind of deposit account opening goals or any kind of metrics that you're targeting for that business?
I think it was really good to see the deposit growth come in this quarter.
It seems like you were able to kind of a more negative trend across the industry.
I was hoping you could just speak to kind of pie.
Pipeline on the deposit side and just expectations for deposit growth in the back half of the year and then it's.
Part of that I saw you went live with the digital bank this quarter, just deposit growth expectations within that division specifically.
And then can you remind us do you have any kind of deposit account opening goals or any kind of metrics that you're targeting for that business.
Dennis Zember: I'll start from the back of that question. I think our metrics are and what we'd really like to see is checking accounts keep moving higher up to the 30% range. Now I mean that's probably of all the goals we have around here, the ratios that we measure and sort of answer to the board on, that's clearly the hardest and I think especially in the current environment, it's not going to be easy but I think it's critical. I think that's where our whole franchise value comes firm, so we're focused there.
Sure.
And what we'd really like to see is checking accounts keep moving higher.
Up to the 30% range now I mean is that that's probably of all the goals we have around here.
Ratios that we measure in sort of answer to the board on that clearly the harvest and I think especially.
In the current environment.
Not going to be easy but.
I think it's critical I think that's where our whole franchise value comes firm so were focused there.
As far as the strategies to get there, I mean, I would tell you yes, the digital bank no question about it is something we're hoping is going to move us there. The digital bank [inaudible] Primis banking offers the exact same products and services that the corp bank offers, so there's really no differentiation there, but when we market it in our corp footprint and really beyond, it's easy to market it as the most convenient solution out there. We're going to market that has not been run by box and that there's still access to bankers.
Is something we're hoping is going to move us there the digital bank.
His ninth premise banking offers the exact same products and services.
That the core bank offers.
So theres really no differentiation there, but when we marketed in our core franchise in our core footprint and really beyond.
it's easy to market it as the most convenient solution out there. We're going to market that has not been run by box and that there's still access to bankers.
Most convenient.
Solution out there we marketed that is we're going to market that has not run by box.
There's still access to.
To bankers.
Now when we start marketing that outside of our footprint, clearly that market or that idea will change, but that concept, that digital bank concept in our footprint will make us a better bank here in our footprint. Outside of that, I think internally, we're focused on changing incentives or enhancing incentive we already paid. The biggest incentive we paid here is still on a checking account.
Here in our footprint.
Outside of that I think we're internally, we're focused on changing incentives or enhancing and saying is were already paid the biggest concern if we pay here.
On a checking account.
I think on the deposit pricing, like I said, we've moved cost of funds, our cost of deposits down aggressively. I think we probably could have gone a little further but just knowing what the pipelines look like on the asset side and the opportunity we have sort of stayed a little aggressive and I think we would continue to stay aggressive there. That really drives home why the checking account strategy is so important sort of to augment or make the growth a little more reasonably priced. Does that answer all the questions there?
We have like I said, we've moved cost of funds our cost of deposits down aggressively.
I think we probably could have gone a little further but just knowing what the pipelines look like on the asset side and the opportunity we have sort of stayed a little aggressive and I think we would continue to stay aggressive there.
That really drives home want the checking account strategy is so important sorted augment.
Or make the growth a little more reasonably priced.
Does that answer all the questions there.
Andrew Terrell: Yeah, no that's helpful. Just overall kind of deposit growth expectations for the back half if you have them.
Kind of deposit growth expectations for the back half if you have them.
Matthew Switzer: I would answer it this way Andrew, at our current loan-to-deposit ratio, that's about as high as we want to take it. So we're looking to fund dollar for dollar the loan growth for the rest of the year, so that will be, call it $300 million growth we're going to need to have on the deposit side.
At our current loan to deposit ratio, that's about as high as we want to take it.
So.
We're looking to fund dollar for dollar the loan growth for the rest of the year, so that will be.
Call it $300 million.
Growth, we're going to need to have on the deposit side.
Andrew Terrell: Got it, okay. Perfect, thank you. Maybe just sticking with Matt, it was good to see in the release and then you discussed it briefly in the commentary the $3 million to $4 million of potential cost savings that you discussed, it was really good to see. Can you just elaborate a little bit more on kind of where those sales are coming from and then is it fair to think that timeline for recognition is kind of fully loaded in the back half run rate and then just overall expectations for expenses in 3Q?
Perfect. Thank you.
Sure.
Maybe just sticking with Matt.
It was good to see in the release and then you discussed it briefly in the commentary the $3 million to $4 million of potential.
Cost savings that you discussed that it was really good to see.
Can you just elaborate a little bit more on kind of where those sales are coming from.
And then is it fair to think that timeline for recognition is kind of fully loaded in the back half run rate and then just overall expectations for expenses in <unk>.
Matthew Switzer: Sure. It'll come from a variety of areas: branch consolidation, some of which we've talked about some additional ones. So additional ones above what we've talked about would be in that number, some back office restructuring, and consolidation of some positions that we can have some visibility too. And then some other operating efficiencies contracts and stuff that we can renegotiate that we see some opportunities to reduce costs. In terms of run rate, I would say so this is going to be excluding any one-time costs related to branch closures et cetera, and excluding Primis mortgages, so it's apples to apples with what we reported the last couple of quarters. So we were at $18.5 million, this quarter that should be probably closer to $18 million in Q3 give or take.
Come from a variety of areas.
Branch.
Consolidation some of which we've talked about some additional ones.
So additional want above all we've talked about would be in that number.
<unk> back office restructuring and consolidation of some positions.
That we can.
Have some visibility too.
And then some other operating efficiencies contracts and stuff that we can renegotiate that we see some opportunities to reduce costs.
In terms of run.
Run rate I would say so this is going to be excluding any one time costs related to <unk>.
Branch closures et cetera, and excluding permits mortgages. So it's apples to apples with what you reported the last couple of quarters. So we were at $18 5 million.
This quarter that should be.
Closer to $18 million in Q3 give or take.
Andrew Terrell: Okay, got it. And then for this $3 million to $4 million kind of assays that you've identified kind of once we work past the back half of this year do you think there's kind of any more potential cost-cutting efforts as you look into 2023 or is it more just going to be on kind of tweaking things here and there and reinvesting in the franchise?
And then for this.
$3 million to $4 million kind of assays that you've identified kind of once we work past the back half of this year or do you think there's kind of any more potential cost cutting efforts as you look into 2023 or is it more just going to be on kind of.
Tweaking things here and there and reinvesting in the franchise.
Matthew Switzer: We're always looking for efficiencies, but I think it'll be more tweaking things here and there. And look, that's kind of a net number, right? We still have some investments we need to make in [inaudible] and life premium finance and maybe some more to do on the digital side, so it's really trying to reallocate resources.
We're always looking for efficiencies, but I think it'll be more tweaking things here and there.
And look we still and Thats kind of a net number right level, we still have some investments we need to make in P&C and life premium finance.
And maybe some more to do in the digital side. So.
It's really trying to reallocate resources.
Andrew Terrell: Okay. If I could sneak just one more in for Dennis, I heard some of your comments on kind of the dislocation in the mortgage market and maybe that provides you an opportunity to kind of capitalize from a talent perspective. Can you just discuss your outlook for hiring within the mortgage division and then I know that the mortgage backdrops changed quite a bit over the past few months, what do you think is kind of an achievable target for mortgage production in 2023?
If I could sneak just one more on.
For Dennis.
I heard some of your comments on kind of dislocation in the mortgage market and maybe that that provides you an opportunity to kind of capitalize from a talent perspective can you just discuss your outlook for for hiring within the mortgage division.
And then I know the mortgage backdrops change quite a bit over the past few months.
What do you think is kind of an achievable target for mortgage production in 2023.
Dennis Zember: I think the 30 year mortgages now kind of 6% maybe come off that just a touch. I mean, yeah, that's going to slow mortgage volumes, has slowed mortgage volumes. I mean we'll reset and the American homeowner mindset we will reset and volumes will come in at some level.
30 year mortgages now kind of 6% maybe come off that just a touch I mean, yes, yes, yes, that's going to slow.
Mortgage volumes have slowed has slowed mortgage volumes.
We set and the mindset the American homeowner mindset.
We will reset and volumes.
<unk>.
Come in at some level.
Right now, there are just so many mortgage companies and I'm not faulting anybody. I mean, the volumes were mind blowing and you just had to staff up and now that reset is sort of changing the day to day for a lot of originators. I remember when we started looking at this and we were looking at some other strategies, I mean, we talked to some decent sized team that wanted a $1 million to make the move. Back then you probably could have justified it. I mean, we're doing doing enough volume couple of hundred million dollars of volume, you're may be paying them six months of bottom line profitability, that's changed right now. I mean, again, for us, that's good because I think even back then I don't think Matt and I wanted to be cutting a lot of $1 million checks for new teams given you really only have one month of sight on what mortgage will do. so I think that's a positive for us.
Just so many mortgage companies and I'm not faulting anybody I mean, the volumes were marred blowing and you just had to staff up and.
And now that reset.
Changing.
The.
The day to day for where a lot of originators I remember when we started looking at DST when youre looking at some other strategies I mean, we talked to some decent sized team that wanted a $1 million to make the move.
And we could probably hit.
Back then you probably could have justified it.
Doing enough volume couple of hundred million dollars of volume you may be paying them six months of Bottomline profitability, that's changed right now.
Does that I mean again for us that's good because I think even back then.
Thank Matt not wanting to be cutting a lot of $1 million checks for new teams given given.
You really only have one month of sight on what mortgage will do so I think that's a very that's a positive for us.
There are teams out there. There are definitely teams out there that maybe the culture where they are isn't good, the enthusiasm for mortgage is built different in their company, and the enthusiasm for mortgage here is very high, steeper pitch. Matt and I both know this business and I think that that sort of helps to when we start talking to bankers.
Definitely things out there that maybe the culture, where they are isn't good.
The enthusiasm for mortgage.
In their company and the enthusiasm for mortgage here is very hot steeper pitch.
Yes.
Matt and I, both know this business.
And.
I think that that sort of helps to when we start talking.
I think as far as what we can expect, I would say probably, I think comfortably I would say maybe $500 million just what I know now. I think we bought probably $300 million. I think comfortably I can say $500 million knowing that there was kind of even at these levels there'll be a reset, there'll be some activity, there'll be some recruiting. I think if we can get--I don't really want to say lucky--I don't know what the word is but if we can be successful on some of the recruiting that we're doing, if we can get some reasonably priced teams and negotiate well and exploit our position here and kind of one of the few offensive mortgage company, maybe we can get that to $1 billion.
I would say probably I think comfortably I would say maybe $500 million just what I know now I think we bought probably $300 million.
I think comfortably I can say $500 million, knowing that there was kind of even at these levels there'll be a reset there'll be some activity.
There'll be some recruiting.
I think if we can get I don't think.
I will say Lucky I don't know where it is but if we can be successful on some of the recruiting that we're doing if we can get some reasonably priced teams and negotiate will again.
Exploit our position here.
And kind of.
One of the few offensive mortgage company, maybe we can get that to $1 billion.
Matthew Switzer: And just to add to that, I mean Primis mortgage was a purchase focused shop, they were not refi heavy at all. And the markets that they're in are still seeing robust purchase activity. And then you combine that with what should continue, I mean, there is still a lot of housing demand even at these mortgage rates. And then we highlighted in the release, a gentlemen that joined us as a regional executive came from a much larger shop and ran a very large region. And he is excited about what the team at Primis mortgage is building and he's already hit the ground running on the recruiting side. And he gets it I mean, we're looking for teams that are purchase oriented not refi oriented so that they can still generate volume in this market. So we're highly confident we're going to get volume going into 2023.
And the markets that they're in are still seeing robust purchase activity and then you combine that with what should continue I mean, there is still a lot of housing demand even at these mortgage rates.
And then.
We highlighted in the release.
Gentlemen that joined us as our regional executive.
And from a much larger shop and ran a very large region.
And he is excited about what the team at premise mortgages building and he's already hit the ground running on the recruiting side.
And he gets it I mean, we're looking for teams that are.
Purchase oriented not refi oriented so that they can still generate volume in this market. So we're.
We're highly confident we're going to get.
Volume going into 'twenty three.
Andrew Terrell: Great. Okay, I'll step back. I appreciate you guys for taking my questions and congrats on a good quarter.
Matthew Switzer: Thanks, Andrew.
Operator: Again, if you have a question, please press star then one. Our next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead with your question.
Christopher Marinac: Hey, thanks, good morning, Dennis and Matt, I wanted to kind of start with credit. The information you gave in the release, that was very helpful. So I just kind of want to extend beyond the one loan that you talked about, what other credit indicators are you seeing on classified and criticized, any early warning things at this point in the cycle?
The information you gave in the release and that was very helpful. So just kind of wanted to extend beyond the one loan that you talked about what other credit indicators are you seeing on classified and criticized any early warning things at this point in the cycle.
Dennis Zember: I mean early warning signs, weaknesses in credit, or underwriting terms coming through, I don't think we're seeing that. I think anything that exhibits a little bit of weakness we are probably moving harder on right now I would tell you that, but is that wholesale across the footprint? No. I mean if there's one thing I would say, the values of anything that shows up a little weak, the collateral values are strong and resolvable. I think they are at resolvable levels, that's probably something that's different.
I think we are.
Anything that exhibits a little bit of weakness.
We are.
<unk>.
We will be moving hard around.
Right now I would tell you that but are there is that I'll hold is that wholesale across the footprint.
I mean I think the.
Values, if there's one thing I would say the values of anything that.
Shows up a little weak.
The collateral values are strong.
And.
Resolvable I think they are resolvable levels.
That's probably something that different.
Where we are right now people want to know what's different now than back in 2007, and I think that is a big difference. Collateral values right now are resolvable on credit. Credit might exhibit a little bit of cash flow weakness, but the collateral values are there.
Credit credit, Mike exhibit a little bit of cash flow weakness, but the. Collateral values are there I think the one loan that Matt was talking about.
Collateral values are there I think the one loan that Matt was talking about.
I think the one loan that Matt was talking about that went non-accrual, I mean, we're at like a 40-something percent loan to value, there are two or three mortgages behind us. I mean there is no loss in that. It kind of contaminates your asset quality story, but there's just no loss there. It's just a cash flow problem. And this is a famous person. They just don't have the cash flow to support the mortgage and I think we probably could have worked with them like this or worked with them like that, but I just think right now it's not in our best interest to push off any kind of credit problem, especially right now when asset values are resolvable. I think it's in our best interest to deal with something--I don't know.
I mean, we're.
We're at like a 40 something percent loan to value there are two or three mortgages behind us.
I mean there is.
There is no loss in that.
<unk>.
Kind of contaminate your asset quality story, but theres just no loss. There is just a cash flow problem person.
And this is a famous person.
It's just they just don't have the cash flow to support the mortgage.
And.
And I think we probably could have worked with them like this or worked with them like bad are done, but I just think right now it's not in our best interest too.
Push off any kind of credit problem, especially right now when asset values are resolvable.
I think it's in our best interest too.
Deal with something.
I don't know.
Christopher Marinac: No, that's all very helpful.
Dennis Zember: Chris, I mean, we see stuff moving around but nothing that we would characterize as systemic. You're in the business of allocating risk so stuff is going to go bad, so we've had some movements in and out but nothing earth-shattering at this point.
Characterize as systemic.
You are in the businesses.
Allocating risk so it's that's going to go bad.
So we've had some movements in and out but nothing.
First shattering at this point.
Christopher Marinac: Great. And then I had a related question on Tennessee, just sort of remind us on kind of how the business is being built from a guardrail perspective, and just how you sort of think of credit as you expand and as they continue to have success.
Sort of remind us on kind of how the business is being felt from a guardrail perspective, and just how you think of credit as you expand and as they continue to have success.
Dennis Zember: I mean each quarter the offerings are a little more varied. I mean commercial is probably-- It wasn't commercial. I mean commercial right now is 67% of volume production. [inaudible] I mean the commercial production is so right down the line. The commercial production, what we're doing in the bank, underwriting style if it were to come through the bank versus coming through Panacea, there's really no difference there, not at all. In fact, our commercial production, the people doing our commercial production, reviewing the commercial production, approving it are all Wells Fargo, TD Bank, big bank, I mean, our strategy is that.
Each quarter the offerings are a little more varied.
I mean commercial is probably was commercial.
Commercial right now 67% of volume production.
Good day 85, okay, but trend impact the commercial production is so right down the line.
Commercial production, what we're doing in the bank.
Underwriting style, if it were to come through the bank versus coming through Panacea, Theres really no difference there.
Not at all our commercial production.
The people do in our commercial production better doing the commercial production reviewing the commercial production of proving it.
Wells Fargo TD Bank.
A big Bank.
Yes.
Our strategy is that.
On the consumer side, which is what really got us started here and I think what differentiates us, I mean, we're banking fourth year medical students, residents, fellows. I mean, the fact is, I think a lot of those fellows don't have the proven credit background that you--Look, I mean, if you're trying to bank those doctors on a 750 beacon or 8 beacon you're probably going to--That's just not how you think those doctors. Most of them don't have established credit. They may be 30 years but they just don't have established credit yet.
What differentiates us.
Hi.
I mean, we're banking fourth.
Fourth year medical students residents fellows.
I mean effective I think a lot of those don't have.
The proven credit background.
Look I mean, if youre trying to bank those doctors on a 750 bacon youre probably going to.
Or a bacon youre probably going to.
That's just not how you think those doctors most of them don't have established credit they might be 30 years. All they just don't have established credit yet.
Yes.
And that doesn't mean, absolutely does not mean that we are slowing in consumer credit to unqualified borrowers, period. Our credit trends there are fantastic. Nothing has gone wrong in [inaudible], we got 2000 doctors and allocate past due ratios to charge off ratios losses, credit problem indicators there are fine, maybe as good as what we expected or better.
Slowing in consumer credit.
To unqualified borrowers period.
Our credit trends there are fantastic.
Nothing has gone wrong in P&C, we got 3000 doctors and allocate a past due ratios to charge off ratios losses.
Credit problem indicators there are.
And maybe as good as what we expected or better.
Matthew Switzer: On the consumer side, I know the focus right now given the economic outlook, we're not offering consumer loans to technicians or nurses, it's doctors, vets, dentists. These are folks that are at the upper end of the income bracket when they get out of school. So these are bridge loans basically to very high earning people and that's how they are underwritten.
<unk>.
The focus right now given the economic outlook.
Offer consumer loans to <unk>.
Technicians or nurses or.
It's doctors.
Dennis.
These are folks that are at the upper end of the income bracket when they get out of school. So these are bridge loans basically too.
Very high earning people and Thats, how they are underwritten.
Christopher Marinac: Great. And then I guess one more question for me just to go back to slide 12. The deposits you've been driving in at Lps in Tennessee, is there anything unique you have to do on rate for those deposits as we move through this environment in the next couple of quarters?
Driving in Lps in Tennessee is there anything unique you have to do on rate for those deposits as we move through this environment in the next couple of quarters.
Dennis Zember: I would say no. Those deposits probably are maybe more reasonably priced than the rest of the bank.
I would say those <unk> those deposits, probably or maybe more reasonably priced.
The rest of the bank.
Matthew Switzer: I mean, likely with the finance it's immaterial at this point. The only have I think less than 3 million of deposits tied to life premium finance. And then for [inaudible] I think it's $10 million to $11 million and a lot of that is coming on the commercial side. So when we make a loan to a practice or what have you we require an operating account. Some of it is consumer for our consumer borrowers, but I think most of the dollars are tied to those operating accounts, so it's again low interest rate.
I think less than 3 million of deposits tied to life premium finance and then.
For P&C, I think it's $10 million to $11 million.
And a lot of that is coming on the commercial side. So when we make a loan to a practice.
What have you we require an operating account.
Some of its consumer for our consumer borrowers, but I think most of the dollars are tied to those operating accounts. So it's again low interest rate.
Dennis Zember: We do have room to be more aggressive on the price side, pricing those deposits and probably sort of move the deposit flows up in those businesses.
We do have room to be more aggressive.
On the price side.
Pricing those deposits and probably sort of moved the deposit flows up in those business businesses. So.
Christopher Marinac: Right. And I presume you can do that within kind of how you want your data to look at as you bring in new money, but that all makes sense.
Matthew Switzer: Exactly.
Christopher Marinac: Great. And then I guess, I know you covered a lot on expenses on the prior question, but just curious if you have any longer-term goals about where you'd like to see the expense ratio to assets or efficiency in general that's not a guide for next quarter as much as it is just kind of big picture goals for the organization.
Prior question, but just curious if you have any longer term goals about where you'd like to see the expense ratio to assets or efficiency in general that's not a guide for next quarter as much as it is just kind of big picture goals for the organization.
Dennis Zember: I mean, we had a Board meeting yesterday, and we told the Board right now the goal is to get to the low 60s as fast as possible. The ROA, our ROA Matt and I want is probably in the 135 range and moving higher but 135 probably short term, efficiency ratio in the low 60s and moving lower and margin being driven by good yields and good deposits is critical as well. So I think the first go I would tell you Chris is to see low 60s and then as we do that let these lines of business that I think banks are going to operate with, I mean, I didn't say in my comments, but I think both of these lines of business are going to ultimately operate probably 20s and 30s in the efficiency ratio, sort of let them pull us down a little lower into the 50s.
I mean, we want.
We had board meeting yesterday, and we told the board right now the goal is to get to the low 60% as fast as possible.
The other way.
Wade wants.
<unk> 135 range.
And moving higher but 135, probably short term.
Efficiency ratio in the low 60, and moving lower in margin being driven by good yields and good deposits is critical as well. So I think the first go around I would tell you Chris just to see.
Was <unk> and then as we do that.
These lines of business that I think banks are going to operate with.
I mean, I didn't say in my comments, but I think both of these lines of business are going to ultimately operate.
Probably twenty's and Thirty's and the efficiency ratio sort of let them pull us down.
A little lower into the 50%.
Christopher Marinac: Great, Dennis. Thank you for all the background this morning, we appreciate it.
Multiple speakers: [Dennis Zember] Alright, Thank you, Chris. [Matthew Switzer] Thanks, Chris.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dennis Zember for any closing remarks.
Dennis Zember: Alright, thank you, I appreciate everybody on the call today. If you have any questions or comments, feel free to reach out to me or Matt anytime. We appreciate it, have a good weekend.
Feel free to reach out to me or Matt anytime. We appreciate it have a good weekend.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.