Q2 2023 Primis Financial Corp Earnings Call
Good morning, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the premise financial Corp. Second quarter earnings call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session if you'd like to.
Ask a question during this time simply press the Starkey followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one once again, thank you Matthew Sweatshirt, Chief Financial Officer, you May begin your conference.
Good morning, and thank you for joining us before we begin please note that many of our comments. During this call will be forward looking statements, which involve risks and uncertainties there.
There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward looking statements further discussion of the company's risk factors and other important information regarding our forward looking statements are part of our recent filings with the Securities Exchange Commission.
Our recently filed earnings release, which has also been posted to the Investor Relations section of our corporate website.
It's bank Dot com, we undertake.
No obligation to update or revise forward looking statements to reflect changed assumptions the occurrence of unanticipated events or changes to future operating results over time.
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'll now turn the call over to our President and Chief Executive Officer, Dennis <unk>.
Thank you, Matt and thank you to all of you that have joined our second quarter Conference call.
This is a noise and noisy quarter, but I really want to stress how excited I am for how we position the bank going forward. The cost savings initiative is pretty hard, but will make us much leaner and more profitable right away.
Credit charged to move the NPA has positioned us to have best in class credit quality with tiny concentrations in office or retail CRE.
Our digital platform has gone from 50 basis points over wholesale money to about 50 basis points below wholesale money in just six months.
And lastly, a while a lot of the industry is implementing.
The needed cost saves and branch reductions to offset revenue headwinds I think we can offset all of ours with our move to the gain on sale strategy, Let me give a little more color on all of that.
First the cost savings initiatives.
I came here in 2020, we have consolidated quite a few branches and worked pretty hard on our sales culture. After this recent consolidation is finished we'll have 24 branches.
With core bank deposits of $2 5 billion.
In the last three years, we've grown checking accounts in the core bank by about 12% annualized.
And we have completely 100% run away from all brokered Cds.
The quality and value of this community bank's deposit portfolio, especially in this rate environment has never been higher than it is right now.
And consolidating that value into fewer branches with the best salespeople in our region is something to be excited about Matt is going to give more color about the cost savings initiatives in his remarks, but I believe this can be transformative moment for us and I have seen over and over in my career have this discipline.
Ultimately yields more savings and long term better results.
Still on the value of the community bank, our NPA levels work concentrated in just two relationships, but it still damaged.
It's still damage to our ability to distinguish ourselves.
Focusing on excuse me so closing that one loan sale that we did in the quarter and taking contracts on the others position us to have only 13 basis points of nonperforming assets.
We have never chase long maturity hyper competitive commercial real estate in our region, we've always focused on profitable owner occupied or C&I deals in the core bank and medical professionals and cash secured loans and lines of business.
I think we're very well positioned for whatever is ahead in this lower level of NPA will allow us to experience the value from that.
On the digital platform, we all questions at the outset honestly, if we could find a pathway to real value and profitability in the digital customers.
And we are working very hard to make sure.
That value proposition becomes a reality using all of the community bank and relationship skills that we have.
In just six months, we've been able to add to be able to move almost 100 basis points from 50 basis points ahead to 50 basis points below wholesale money.
Lastly, we've had virtually no account attrition from our peak and we rebuild almost every service platform, we have to make sure our servicing experience adds to our efforts.
Touching on our gain on sale, our pivot to the gain on sale model. Our digital platform was meant to fully fund life premium finance and panacea and produced 325 basis points of margin.
The loan businesses were meant to lessen we went into the lung businesses simply to lessen the pressure we had to book every CRE deal that we looked at and to push higher crop higher quality credits into our book. There is no question, we have done the ladder.
The inverted yield curve means that on balance sheet, we're only getting about 200 to 210 basis points of incremental margin.
No thats too thin to keep leveraging but I also know the yield curve will ultimately come back.
Instead of shutting down production and Whiting and having to maybe rebuild the platforms. We've been instead building interest and commitment to sale these higher quality loans and as I sit here right now I believe this strategy can completely neutralized all of the net interest income shrinkage.
We experienced in the quarter.
Which is important because I think that means the cost savings that that Matt is going to discuss about our more bottom line oriented than just replacement for temporary revenue declines.
Mortgage for US this quarter was a standout right now we are slowly and methodically, adding a couple of producers here in there who are very reasonable about signing bonuses and have been producing and have been producing solid levels in this environment.
We've grown from a $200 million shop to a $700 million shop and were profitable all three months in the second quarter.
Being profitable right now in this industry is honestly is noteworthy but doing it as youre growing in at these lower levels or is even is even more noteworthy I'm really proud of what our team is doing here and I cannot wait for the day that we have an industry normal industry.
The operating room.
All of that takes me to page five in our slide deck, where Matt Matt has outlined the current quarter with the impact of all these changes.
Importantly, our non branch savings have already been completed as of just nuts. So a good portion of that will be in our third quarter run rate.
The math doesn't include is about 800000, a quarter of expenses related to bank operations that will result from tweaking some responsibilities in risk management and we honestly. Both believed this loan sales strategy is bigger than $1 million.
With that loan sales strategy in place to provisioning will fall as well further improving the bottom line. So everything we've done here is just recalibrating the bank to be able to produce a minimum 1% ROA in this environment.
Before I turn it back over to Matt I want to say something about the employee fraud.
First I want to stress that I am confident that the vast majority of this is coming back from our insurance, but given the timing of when we discovered it and our investigation, we did not book that receivable.
I believe in short order, there will be only minimal financial impact from this event.
God knows I am not trying to spin this.
But the fact that he spent a decade originating bank clients.
And stopped three years ago.
Illustrates how important good controls and procedures are and for the need to have experts and administrative roles to maintain quality.
For the last three years. He is basically just service the existing fraudulent loans.
With cash proceeds until our credit and regional staff noticed a few unusual things and dug in to discover this.
I expect that Matt in our forensic cabinet will be done with their work shortly will file decline and work through the recovery process quickly alright.
Alright with that Matt I'll turn it back to you.
Thank you Dennis.
I'll provide a brief overview of our results before we turn to Q&A, but as a reminder, a full description of our second quarter results can be found in our earnings release second quarter earnings presentation, both of which can be found on our website.
Operating earnings for the second quarter were $1 million or <unk> <unk> per diluted share versus $6 million.
Or <unk> 24 per diluted share in the first quarter.
Total assets were $3 8 billion at June 30 versus $4 2 billion at March 31, the reduction in total assets was due to the sweep program. We instituted at the end of the quarter that moved approximately $350 million of excess deposits off the balance sheet at the end of the quarter.
Excluding PPP loans and loans held for sale loan balances grew 17% annualized growth was driven by life premium finance and panacea in the second quarter.
Anticipate loan growth to moderate in the near term as we execute on our loan sale strategy, particularly for higher growth business lines.
Deposits were essentially flat in Q2. If you include the funds that were swept off the balance sheet at June 30.
We intend to continue growing deposit relationships, while managing overall liquidity through the sweet program.
Excluding accounting adjustments related to third party managed portfolio net interest income declined to $25 6 million from $27 5 million in Q1, largely due to funding cost pressures.
And interest margin adjusted for excess cash on the balance sheet in Q2, and Q1 that is now being slipped off was 3% down from 338% in the first quarter a.
A couple of thoughts on margin and net interest income.
Pressure on the margin largely cured occurred earlier in the in the second quarter with a noticeable slowdown in deposit repricing later in the quarter.
As you look at our press release and Investor presentation, We detailed the difference in cost between the community bank and the digital platform or.
Our community Bank beta has been approximately 23%, which we believe is very strong.
We have an ability to raise incremental funds out of market has allowed us to be measured in our local markets without pressuring the entire bank.
We also will be launching our new digital business accounts in the third quarter and will allow us to raise incremental funds at a lower rate in consumer and sweep off higher cost deposits still on the balance sheet.
Lastly, we entered into an interest rate swap in the middle of the second quarter if in place for the whole quarter net interest income would've been approximately $300000 higher.
Combined we think we have an opportunity to mitigate a lot of the pressure on net interest income in the short term.
Excluding accounting adjustments noninterest income was $7 3 million in the second quarter versus $6 6 million for the first quarter.
Largely due to an increase in mortgage activity mortgage originations were up 50% in the quarter in the face of limited housing supply. The locked pipeline also ended Q2 at $61 million up 15% from March 31, suggesting strong momentum into the third quarter.
Lastly, noninterest income included a gain of 103000 from a small Tennessee alone sale. We expect this activity to increase materially in the second half of 2023.
Core noninterest expense, excluding accounting adjustments nonrecurring items and mortgage was $23 5 million for the second quarter versus $21 5 million in the previous quarter.
Much of this increase was due to FDIC insurance data processing expense and debit card restocking costs with a total of approximately $2 million in the quarter and there were artificially high due to the high volume of accounts opened late in Q1 early Q2.
FDIC insurance in particular will decline due to the deposit sweep program.
Dennis also discuss a variety of operational changes that will benefit expenses going forward.
We also announced a cost save initiatives, including broader administrative reductions and the consolidation of eight branches that will reduce noninterest expense by approximately $9 4 million annually.
Annual administrative saves are approximately $6 $5 million with two thirds of the run rate expected to be in the third quarter and full run rate in the fourth quarter.
Annual branch consolidation saves are expected to be $2 9 million and will be effective starting October 31.
The provision for credit losses was $4 3 million in the second quarter versus $5 2 million in the first quarter $1 4 million of that provision was due to accounting for our third party managed portfolio, which is offset by noninterest income.
Also included the provision is approximately $2 $3 million of impairments related to nonperforming loan relationship that we expect to be fully resolved in the third quarter.
As Dennis highlighted including an approximately $8 million NPA resolution in the second quarter total npa's would've been less than $6 million in npa's assets would've been very low at approximately 13 basis points as of June 30.
Core net charge offs were all at 200000 in the quarter and the allowance for credit losses to gross loans. Excluding PPP was 121% at June 30 versus $1, one 8% last quarter largely due to specific reserve build for the NPA sale noted above.
Lastly, core pretax pre provision earnings were $5 6 million in the second quarter.
After a $2 million reduction in net interest income and various expenses that hit this quarter as discussed above but that we expect to be lower going forward.
Dennis discussed we believe our gain on sales strategy is on the cusp of producing results and we will mitigate this reduction in net interest income and then some.
Our cost save initiatives will also begin adding to earnings in Q3, and Q4, and we'll rightsize our expense base for the current environment.
Combined we believe we have a much better path to profitability in this quarter would indicate and are optimistic for the future.
Operator, we can now open the line for Q&A.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster. We will take our first question from Casey Whitman with Piper Sandler Your line is now open.
Hey, good morning.
Good morning, Jason.
Just starting off with your comments around that.
And sell model loan growth could we see loan balances shrink or are we just talking about slowing the growth here.
Okay.
No I don't think that would shrink I think there is a lot of everything that.
Panacea in life premium.
Would produce would get sold I think the vast majority would but.
Panacea is consumer production, we like that I don't think that we're looking to sell that I do know that the activity in the core bank honestly has picked up a little.
Yes.
While we're able to do in the core bank.
The fact that we even can loan money.
Border distinguishes us and some of the yields we're seeing are in the mid <unk>. So I think probably just concentrating.
More of our lending efforts there.
Probably just see single digits or low single digit increases in loans as opposed to what you saw this quarter.
Thanks, Tim you can be pretty nimble there I mean, how quickly can you kind of shut this off with the yield curve changes and you want to portfolio more.
I think I think very fast I mean really what we're talking about is more are more float.
Arrangements and flow agreements.
I mean, where we would want to honor that honestly, but.
Payments is probably only producing 40% 50% of what they could produce just because of how hard we dial them back.
We've not been recruiting producers I think if we get good flow arrangements in place we could hire more producers produce more.
And really exhaust the.
Named that they've built for themselves and just feel like this yield curve.
And incremental funding.
For us and honestly, our limited capital, we're not going to burn off all of our capital on that has made a sort of slow down there. So so really this is such a welcome this is <unk>.
Very welcome news for <unk>.
Paint a C and probably what they can do they might be able to double.
Production levels, if we get.
And when we start getting these in place.
Okay, but maybe just start out with I think it was $1 million assumption for gain on sale that you have in your slide deck and we'll go from there.
I would probably start with that I think we yes, we would start with there were confident.
That we can do more but I think for this quarter, that's probably a good number.
Okay.
And then just the cost initiatives you're undertaking.
It sounds like some of that was driven by by the rate environment or would you probably have made these moves regardless, but can you just kind of accelerating the efforts I'm just kind of walk us through that.
Hi.
High quality decisions.
Chime in.
I mean, I think every single day, Matt not come to work and we look at what's happening and we calibrate a pathway to the profitability levels we want.
And I mean, it's been decades really since the industry faced.
10% declines in net interest income in a single quarter honestly I think all of that's going to moderate a better a year from now if rates stay light vehicle will be getting some of that back but it doesn't matter right now the industry's got net interest income headwinds.
If you can't even you can't even conceivably grow through that.
And it was just it's just the right time to do it I mean, we've needed to consolidate some branches for years.
The opportunity to consolidate our management team and.
And other positions.
Yes.
Every chance that we have to.
I mean, Matt and I are not always looking for cost savings and reduced staff levels were not.
But every chance we have to.
<unk> R.
Our our staffing levels in our NR.
Pathway to a profit.
We're going to take every pathway, we can and honestly through the quarter, probably going into the second quarter aren't really we just look in <unk>.
It is going to be tougher to push a 1% ROA. If we have a little shrinkage in net interest income.
If we don't fix.
If we don't build confidence into credit quality with non performers.
Most of that Thats, I think what Jim no.
No I completely.
We.
The dentist that are always looking for efficiencies.
But.
Probably more.
More critical in this environment, particularly as we're trying to not grow the balance sheet. It correctly as we had I mean, you can carry higher expenses, if you're growing the balance sheet grow in spread income, but in this environment.
More challenging.
We want to make sure we get the right.
Expense base for the sized balance sheet, we're going to have in the near term.
Yes.
Ultimately do you think 24 is the right.
Branch network size could we see more branch reductions in the future or.
Yes.
I mean never say never it's going to depend on the certain extent the environment and consumer behavior.
But I think we feel pretty good with the number of branches. We have for right now with the incremental over time, but I don't think youll see another large consolidation like we just did.
<unk>, we don't talk about this that much but I mean, we're adding probably $25 million a quarter.
Two our delivery service, Bob our delivery service.
And.
Some of that is out of our core network, but a lot of it is not.
We're adding.
And places that we are kind of close to but not right on top of.
So I mean, we would for sure add more branches.
In larger markets around where we are in say north again.
In Virginia Beach, and all that but for right now we are that's not on our radar.
Okay.
Maybe can you help us out then.
And we're all good.
US equipment quarterly range, we expect expenses to run when all said and done with the cost saves.
It can be a wide range, but just to help us out modeling.
Yes, I think.
Obviously this will all be in the run rate until later this year.
But rob.
Probably in the 18% to $18 5 million, excluding mortgage, which obviously mortgage kind of fluctuate dramatically based on seasonality.
But the core run rate would be in that lower <unk> range.
Okay.
Thank you for taking my questions and let someone else jump on.
Next we will go to Russell Gunther with Stephens. Your line is now open.
Hey, good morning, guys.
Morning.
I wanted to.
Follow up on the gain on sale model discussion and just get your thoughts about how you see that maturing as we as we look into 'twenty four.
And the 1% ROA bogey I hear you on the near term gain on sale expectations.
But how do you think that scales as we move forward.
I think payments that you have produced what 45.
This quarter.
I think I think paying a fee a 45 and commercials, Matt I'll look it up.
<unk>.
I think Panther Theres no question in my mind, they could hire we can our two or three more anchors and probably.
Maybe even double that.
So.
Now finding buyers for all that I think we've got.
Quite a few wind up.
And several better.
Nearing the very end.
Yes paint a phased commercial production.
On a floating rate basis is kind of right on top of prop.
And so these are these are high high quality.
Commercial loans to medical professionals with.
Strong credit metrics any way you look at it.
I mean, yes, I think there is a lot of interest in this.
They originate about $75 million in the quarter low less than half of that actually funded in the quarter. Okay.
With $75 million in the quarter.
I mean, it's a good problem to have happen.
Having something this.
Robust.
But it's just so I think it's a good opportunity I think it's a real good opportunity for us to stay.
Jeff out and planned.
Something like this but.
Right. Now is just is this is not something we can do even if yields were great in the yield curve was right.
Tyler and his staff and Matt now, we all understand we just don't have the balance sheet.
Or the.
Or the capital to do that so this is I think this is a real good opportunity again.
We got $1 million in there.
I think it's yes, I think it can be a lot more than that.
<unk>.
And careful.
And frankly, I mean, we talked about this last quarter, we thought there was going to be more gain on sale income in Q2.
A little bit longer to.
Due to the finish line with some.
These buyers but.
That's why we think we're pretty confident about the third quarter.
Understood I appreciate that guys and then is that just kind of marry that with the balance sheet expectations.
Thank you said core loan growth in the single digits kind of on an aggregate basis near term sort of.
Still thinking of what that could look like in 'twenty four again as we.
The gain on sale model mature how are you guys thinking about total loan growth going forward.
I mean, if we stay in the environment, we're in right now that it will.
We'll target.
That low to mid single digit loan growth next year as well.
But with.
Like we're not with these loan sales it's not.
Our requirement to sell everything we produce so.
The curve changes, we have the flexibility to hold more we have the flexibility to bring funding back on balance sheet out of the sweep program. So we can manage balance sheet size.
Basically quarter to quarter.
So by a quarter.
We're sitting in 24 like we are right now.
<unk> will be.
Vantage balance sheet and maximize spread as much as possible I don't want to have and I don't want to overplay this but it's.
It's probably obvious I mean, we are unique really especially in our region.
Burke for having some money to.
To land.
And we have not completely pulled our horns in and we're getting looks at some pretty decent deals on the community Bank side I think in fact that the place where we're raising money on the community bank side on the deposit.
From a deposit standpoint.
Compared to where we are.
Able to put some money out on really good customers as he probably the widest spreads we've had on the community bank side.
Probably yes since I've been here.
And honestly getting some looks at customers that we probably wouldn't get to normally look at it now we're not trying to.
We're still on the on the National platform.
We're still be cautious we are still in.
The romance stage, where we're making these customers as core as we possibly can before we get very confident about investing at all and just being prudent there.
<unk> helps us because we are positive on the spread there.
The whole platform, but.
But I mean, I really like the momentum that we're starting to see on the core banks at the community Bank side.
And.
Yeah, I think I think mid single digits.
Is it going to be pretty profitable on the on the for the bank.
Okay I appreciate that both of you for the color there and then just switching gears a number of steps were taken this quarter to support NII and the NIM going forward.
Sweep for the swap.
Hoping you could tie all that together gives us a sense for where you expect consolidated margin to trend in the back half of the year.
Okay, Let me, let Matt can dig the.
Swap part on the sweep.
This week.
As important to us because really we can grow and I am just stating the obvious here, but we can just grow almost infinitely.
And really not have any impact on our capital ratios on our on our margins or anything like that everything we do incrementally on the digital platform has positive spread to the suite.
And there are some degree there is some amount of that that ultimately is going to pay for the whole platform.
So it's important for us to.
Continued growing that like we have been.
And especially now as the fed keeps moving we are incremental spreads is continues to improve.
Sure.
Most of that goes to noninterest in all of that goes to noninterest income.
Except for the fortunate offsets.
Deposit interest expense.
That that added about 35 basis points to the margin in the quarter.
And to the degree that we raised funds in the core bank.
Which we're raising those funds at very healthy.
Margins at substantially less than the national platform.
That means we can sweep more of the expensive money.
And save cost of deposits and our margins improved.
Yes, I mean just to.
Put a finer point on that last bit there Russell maintenance.
Yes.
And this is sometimes a little hard to appreciate.
I mean, it's obvious on the loan side, we sell loans.
And we can book the gain on sale and then we can replace those with potentially loans at a higher yield and pick up incremental spread while keeping the loan portfolio flat, let's say.
We can with this suite.
One way suite, we can actually do the same thing on the deposit side less so life gains in the near term but.
We've got about $500 million.
What's on balance sheet at that higher rate debt, we raised to Matt.
Late in the first quarter, so around 5%.
Every dollar that we raise of deposits either in our local markets with our new digital business accounts that come on.
Or even through checking accounts all of the digital platform.
That every dollar we raised lower than 5%, we can keep those deposits on our balance sheet and sweep off the $500 million that's at the higher rate.
It doesn't cost us anything because the rate we're getting through the sweep.
<unk> is basically at the same rate.
So we can move them off with no incremental cost.
But we pick up incremental spread on the balance sheet that we get.
When we talk about managing the balance sheet.
Through loan sales and through the sweep we're really talking about both sides of the balance sheet. We can we've got an opportunity.
Maybe average up loan yields on the loan side, and then average down deposit costs on the liability side. This is all incremental stuff, so I'm, not saying that we're going to suddenly.
Reverse all of the net interest income pressure, we saw last quarter.
But as we think about the next couple of quarters.
We feel confident that we're going to be able to pull some of these levers.
<unk>.
Mitigate some of the pressure that we've seen here recently.
Ill say is.
Yes, I want to I don't want to give specific guidance on margin because it's been so hard to predict but I will say if we look at the.
Quarter.
Margin compression that we saw was heavily weighted to the first half of the quarter.
June was much much lower.
So it feels like we may be.
I can't say that there won't be any pressure in the third quarter, but it should be very incremental versus.
Some of the step changes we saw in the first and second quarter.
Okay. Thanks for that Dennis and then.
That doesn't necessarily mean net interest income would decline again.
But the percentage.
Okay understood and then thank you.
Last one tying it all together a lot of proactive steps to improve profitability this quarter.
Could you just update us on what you think the glide path is to that 1% ROA from here.
Well I mean, it's probably.
First quarter at the earliest the next year, because we got to get all the cost saves in place from the branch closures or consolidations in the rest of the <unk>.
Largely administrative saves are in place.
But all those movements plus some of the other reductions in operating costs, we talked about.
Most of the way there and then the.
The rest of the way it comes from these loan sales.
To get there.
That $1 million of loan sale revenue doesn't get us there.
But.
I think thats, probably the variable.
It comes out hotter.
If that comes on hotter, that's probably going to move us from call. It <unk> 70 80 basis points.
Closer to one or over one that's probably the variable.
Great. Thank you Bob Thanks for taking my question.
Okay next we'll go to Christopher <unk> with Janney Montgomery Scott Your line is open.
Thanks, Good morning.
Dennis and Matt just wanted to go through kind of the cost of funds and should we think of it kind of maybe bottoming here given that youre going to get a benefit from the sweep program and then that kind of covers.
This last fed move that we just saw this week.
Somewhat good way to think about it.
As.
I hope so I think so I mean, we are we are what Matt the point, Matt just made about <unk>.
Sweeping more of the digital deposits that have a higher rate as we replace them with core bank community bank deposits that have substantially.
Substantially lower rates I mean, we are we are.
Working tirelessly on that effort, so yes that that probably.
Tom.
Altogether.
Put a cap on where we are on the cost of funds and probably help us on net interest margin.
Okay and then they are side of that question was really just the ability to continue to push through both loan and earning asset yields and thats not done evolving in your favor.
Correct.
Got it okay.
And then if we go through the fraud situation. This is not the first time, you've seen and dealt with these things can you just remind us all the things you've done internally since you've been at the bank and kind of where that positions you going forward and maybe just the cost that you've already put in for some of the systems you've done to kind of avoid future incidents like this legacy problem.
Oh, My God I wish I would have prepared better for that I make us.
Does it ought to be concise.
Yes.
I mean.
Put in new Chief Credit Officer.
But in a fully staffed.
Credit administration team.
Lowered the level four.
Look substantially lowered the level four.
Or analyst and underwriter independent analyst an underwriter.
Approvals.
Put in a full I would say this but this is the fact, putting a put in a regularly occurring.
Process.
Our improving lives in other words, we don't just approved loans randomly one off here and there.
I mean, we have a team of experts.
Get packages that review loans and that approval.
Sounds very basic but we've had to do that the amount of loan systems.
And monitoring.
That we've put in extraordinary I mean, when we focus when we say no.
I mean, just learning how to say no to a lot of customers when they want it.
Extensions.
This or renewals of that win.
When we.
Not being not being so dependent.
This is everybody every banker that suits will know what I'm, saying, but when you don't have to.
Yes to every single loan demand every single loan request.
Because you have other options.
I just.
Processes for renewals processes for.
Extensions.
How do you actually still have D. How hard do you look at renewals and extensions or do you just sort of quickly approve those to get through we don't do that anymore.
It's pretty extensive honestly in a lot of that happened right out of the gate because.
As soon as I got here.
Tail into Covid.
We had the hospitality book that wasn't performing very well.
And a lot of other customers that are stressed and so it was really in that we just instituted.
A lot more detailed review of lot more detailed understanding of of every time.
And Chris.
Chris I don't want to go into a whole lot of detail but.
We are very confident that this was a one off issue.
Rogue employee.
We've been conducting this for.
Quite a while taking advantage of.
His knowledge of policies and procedures and controls.
<unk>.
And basically leveraging relationships.
And his tenure at the bank to avoid a lot of those and get around them.
But.
What Dennis was just describing is what caused it all unwind I mean, he has built a house of cards that he was able to manage.
Manage.
Under the previous.
Policies and kind of how things are structured.
But with those changes or Dennis.
Talked about it made it untenable for them to keep all the balls in the air and Thats, how it sort of <unk>.
All fell apart.
Sure.
No. That's all helpful background. Thank you very much for all that.
Just a quick final question for me just on the on the mortgage business does the seasonality both in Q3 and Q4.
Jeff that you can still make a little bit of pre tax income now and to have a small loss in Q4 or do you think it can be better than that.
I think if we can make up.
Q3 should probably look a little bit like Q2, especially with what Matt was saying about the pipeline. So I think Q3.
Q3 should look mostly like Q2 may be a little better I don't know, but Q4, I think we probably need to be somewhere around 1 million pre tax profitable.
We don't dip into negative territory in the fourth quarter.
Im hopeful that the fourth quarter fall off in production and and and.
And pipeline and all of that our goal is to just get it get it.
Above breakeven for the fourth quarter.
Sure.
Very well. Thank you both I appreciate all the background.
Alright, Thank you Chris.
Hey.
And I show that there are no further questions at this time I'll now turn the call back over to Dennis <unk> for any additional or closing remarks.
Thank you all for again for calling and hope you have a good week and if you have any questions or comments or want to discuss anything further Matt Matt are available and happy to get on the phone with you all right. Thank you and have a good weekend.
This concludes today's conference call you may now disconnect.
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