Luther Burbank Corp (LBC) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Luther Burbank Corporation's First Quarter 2018 Earnings Conference Call. (Operator Instructions)

Before we begin, I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. The company's Form 10-K for the 2017 fiscal year, its quarterly reports on Form 10-Q and the current reports on Form 8-K identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning.

The company does not undertake to update any forward-looking statements as a result of new information or future events or developments.

The company's periodic reports are available from the company or online on the company's website or the SEC's website.

I would like to remind you that, while the company's management thinks the company's prospects for continued growth and performance are good, it's the company's policy not to establish with the market any earnings, margins or balance sheet guidance.

I'd now like to turn the conference over to John Biggs, President and CEO. Please go ahead.

Thank you. Thank you, everyone, for joining us this morning.

I'm doing this a little bit differently in that I've included the executives that joined me on the IPO roadshow. So in the room with me here this morning, I have Laura Tarantino, our Chief Financial Officer; John Cardamone, our Chief Credit Officer; and Robert Armstrong, our Director of Business and Online Banking.

I'd also like to remind everybody that Laura and I will be attending D.A. Davidson's investor conference in Denver in May and Piper Jaffray's in West Palm Beach, and of course, KBW's in New York in July and August. And we will be available for one-on-ones at all 3 of those investor conferences for more in-depth Q&A.

I'd like to start with the business environment that we have been experiencing in the first quarter of 2018. It really has been very strong. Our footprint from Seattle to San Diego has been an extremely strong market in the first quarter, very competitive, but also extremely active. This is represented in our growth in the first quarter, first time in history, we're over $6 billion in assets, and we achieved 6% growth in Q1 alone. That's a pretty large growth for just 1 quarter.

And looking at loans in the CRE portfolio, we originated $262.6 million in the quarter. In the month of December '17, we were originating CRE loans at a weighted average coupon of 4.17%. In Q1 of '18, the originations were at 4.41% weighted average coupon.

In PRL or single family, we generated $215.2 million. Again, December of '17, weighted average coupon was a 4.02%. The first quarter of '18 weighted average coupon is a 4.45%. This equates to $477.8 million in originations for the quarter, approximately $200 million in payoffs for net loan growth of about $282 million.

I would direct the listeners to the initiatives; if you were part of the roadshow, we went through -- management went through several initiatives that we are undertaking to improve weighted average coupon on loans as well as the cost of deposits on the loan side. For CRE, we were looking to expand into more extended core, noncore and commercial credits. And on PRL, we were looking to do more niche credits and less non-niche.

With the earnings release, we posted a slide deck, I'll go through a couple of numbers on Page 14. We have some more in-depth numbers relating to these initiatives.

If you look at the slide on 14, multifamily core originations in 2017 were 87% of our originations. For the first quarter of '18, that dropped to 78%. Extended core in 2017 was 7.7%, that almost doubled to 13%, not much difference in noncore, but commercial also went up significantly in 2017, 4.7%. First quarter, of '18, almost double again, 8%.

And you can see on the face of those pie charts the difference in the weighted average coupon, all sectors moved up. Core in 2017 was 3.97%, that moved up to 4.27% in Q1; extended core from 4.20% to 4.34%; commercial from 4.60% to 4.84%. So very positive trends in the initiatives in trying to raise the coupon in CRE.

The next page is PRL or single family and this is a simpler pie in that it's just defining niche and non-niche, and John Cardamone will speak to that a bit when he talks about credit. But as you can see, a significant change between 2017 and 2018. Non-niche was the majority of what we originated last year, 58%. First quarter it's only 38%. Niche was 42%, last year. It's now 62% in the first quarter. And you can see the difference in weighted average coupons for both of those periods, 3.91% to 4.19% for non-niche and 3.99% to 4.34% for niche.

The last piece on loans I would mention is that the trend continues to be upward. The pipeline for CRE is currently at about 4.5% and the pipeline for PRL single family is just a little bit under 5%, so at 4.9%. So we are seeing better yields on our niche PRL than we are on the multifamily or CRE side.

One last piece on lending. You may have seen with the press release, we announced the hiring of Tom Atmore to expand our construction lending program. He's a very experienced construction lender. He comes from California Bank & Trust. He's a registered civil engineer and a licensed general contractor. I feel very comfortable that we can safely enter into construction financing in large part because Santa Rosa, Sonoma County experienced so many fire damaged housing and many of those are being sold. Many of the homeowners that lost their homes are selling their lots to developers, so there will be a definite opportunity for construction lending in Sonoma County. Those loans will price at prime plus 2, so that's nice. They're a floater whereas everything else we're doing are hybrid loans with a floor of a minimum of 5%, so they should be originating in the 5s to mid-5s. So an excellent additional coupon for us and an adjustable rate.

I'll move over to the deposit side. We're up $162.8 million. The branches had $63.5 million of that growth. Business online was just a shade under $100 million. Total business online is now at $355 million or 8.6% of our total deposits. We really grew our funding source equally with our lending source. I think the number that shows that best is the loan-to-deposit ratio. We are at 128. It went up slightly to 129, but nevertheless, we did have what I consider matching growth on the funding side.

We put out a press release earlier about a new branch in Bellevue that is still on track to open in June. My expectation is that should be a real plus for us in growing deposits in the second half of the year. My goal would be to lower the loan-deposit ratio and try to get more of our funding out of FHLB borrowings or brokered CDs into business banking or into our branch growth, and that is one of our objectives.

You will see the NIM actually went up from 2.05% to 2.11%; Laura will go through that. There are some adjustments to that as to why that increased to that level during the quarter.

I think we remained pretty efficient. 2017's efficiency ratio was 47.8%, Q1 is 46.7%. If you go quarter-to-quarter, Q4 was 45.5% and Q1 of 2018 is 46.7%. That is all public company costs related to Nasdaq, D&O insurance, investor relations, things like that, but I think expense control is still extremely strong.

With that, I'll pass it over to Laura Tarantino.

Thank you, John.

So last night we put out pretty detailed information, so I'm going to try to be brief here and hopefully just add a little more color around the numbers that we released. I'll primarily be speaking to the results for the first quarter in comparison to the linked quarter or the fourth quarter ending December 2017.

As you saw, our net income for the quarter was $11.1 million or $0.20 fully diluted earnings per share. Because of our recent conversion from an S-corp to a C-corporation, I think it's more relevant to speak about some non-GAAP items like pro forma earnings per share and pretax pre-provision earnings, the definitions of which are all disclosed in the information that we published last night.

So our $0.20 per share results for -- earnings per share results for the first quarter compares to a pro forma C-corp earnings per share of $0.18 last quarter. Our pretax pre-provision earnings of $16.8 million are a $1 million improvement over that of the linked quarter, $15.8 million. The improvement is attributed entirely to our growth in net interest income of $2.9 million, somewhat offset by higher noninterest expense of $1.5 million and lower noninterest income of approximately $469,000.

I would like to mention that our results for the first quarter do include 2 items, which I consider nonrecurring. The first is we received interest recovery of $263,000 on 2 loan payoffs that were for loans that were previously on nonaccrual status. In addition, our tax expense includes a credit or a tax adjustment of $228,000 that really was related to the prior fiscal year. So if I normalized our EPS without including those 2 nonrecurring items, our EPS would have been $0.19 per fully diluted share for the first quarter.

A little bit more on net interest margin. For the quarter, our margin was 2.11% versus 2.05% over the linked quarter. Most of the improvement, as you heard John say, was attributed to significant loan growth, I would say about 75% of the improvement is more related to growth than rate. Our average loans quarter-over-quarter increased $347 million or 7% and our yield increased 8 basis points from -- to 3.61% from 3.53% over the linked quarter.

For the first quarter of 2018, we had a 42 basis point differential between the rate of new loan originations versus the rate on payoff and curtailed loans. So new originations came in at 4.31% rate during the first quarter and our payoff and curtailments were 3.89%. That's an improvement over the differential between originations and payoff for the prior fiscal year, which was approximately 30 basis points.

Switching on investments. Our yield on earning assets increased 11 basis points to 3.42% from 3.31% over the linked quarter.

Moving to the liability side. Our cost of deposits increased 4 basis points to 1.19% from 1.15% for the linked quarter. I think you're aware that we are a liability-sensitive bank from the contractual positions that we have on our assets side and our liability side.

You can see our slide in our deck where we have compared our cost of deposits to the change in LIBOR over the first quarter of 2018, and I think you can see that we've done a pretty good job of holding our beta to about 26%. Not sure if that'll continue. Again, I think we'll continue to see some deposit pressure. Our ending rate on the deposit portfolio at the end of March '18 was 1.24% as compared to 1.15% at the end of 2017 or a 9 basis point increase.

Total cost of funding up 6 basis points to 1.44% from 1.38% over the linked quarter.

Again, I think it's important to try to normalize net interest margin. The interest recovery that I spoke of earlier of $269,000 adds 2 basis points to that margin during the first quarter. In addition, we always know that the first quarter of the year, because of the short February, is a beneficial month when you think about net interest margin.

So if you were to normalize our NIM for a more typical quarter of 91 or 92 days and that interest recovery, our NIM for the first quarter would have been between 2.07% and 2.08% for the first quarter.

We recorded provisions of $1.5 million during the first quarter; that was entirely related to the growth in our loan portfolio. Our credit metrics continue to remain stellar, and John Cardamone will talk more about that. Going forward, I would expect to maintain our ALLL coverage ratio at about 60 basis points, where it is today.

Our noninterest income of $1 million for the first quarter of this year is primarily comprised of FHLB dividends and servicing income. There's not much noise in that figure for the quarter, so I would expect our, going forward, noninterest income to be approximately that amount going throughout 2018. Over the prior linked quarter, it did go down by $469,000 and that was primarily related to adjustments in the fair value of our mortgage servicing rights in the fourth quarter where prepayments on multifamily loans declined and we were able to increase the fair value during the fourth quarter.

For the first quarter of 2018, our noninterest expense of $14.7 million was $1.5 million increase over the linked quarter. Again, there's public company costs in there, but in addition, it has a lot to do with just the timing and the calendar. Most of that increase was related to payroll taxes, and as you know, we have caps that come in later in the calendar year on payroll taxes that wouldn't be applicable in the first quarter of the year. In addition, annual incentives or merit increases kick in, in the beginning of the year as well.

Our efficiency ratio of 47% I would expect to be stable going forward, and my estimate of noninterest expense going forward will still be about $15 million per quarter.

Our effective tax rate for the first quarter of 27%, as a reminder, included that $228,000 true-up from the prior year. Going forward, I would expect our effective tax rate to be a minimum of 29%, maybe slightly over 29%.

And with that, I will pass it to John Cardamone for credit.

Thank you, Laura and hello, everyone and thank you for joining us today.

For those of you I've met before, I'm delighted to tell you once again that our portfolio is characterized by very high credit quality, very low delinquencies and a very small amount of nonperforming assets.

If you look at our multi -- or our CRE portfolio, which is primarily multifamily, our LTVs averaged 56.7% and a 1.58 debt coverage ratio. Our single family portfolio is running at just under 65% LTV with an average FICO score of nearly 750.

As John pointed out to you earlier, we are moving out geographically within California, Oregon and Washington to things that we call extended core and noncore. When we make those moves, we tighten our already conservative credit box a little more, we lower the LTV requirements, increase the debt coverage ratio minimums and that has resulted in very good credit quality for us as we move into these areas. We've done it with experienced lending teams who know these markets very well, and I'm very comfortable with the loans that we have been producing year-to-date and what we expect to produce going forward.

On the single family side, we have increased our niche market lending. And let me say that we define niche markets as things where we can get a pricing add-up, that's something that we track very rigorously. And if we are doing something like an interest-only loan, a 40-year loan, some other products that we do with cross-collateral, things of that nature, departing residence, we are getting premiums on those policies. And you may say, what's a departing residence? That's where someone has not sold their existing home and they're buying a new home. The demand for housing and the competitiveness in the core markets where we lend is considerable here in California to not -- it's very frequent that you see homes priced over asking. So we can help our customers get in and get the home while they're selling their trailing residence.

Again, our customers are characterized by very high levels of discretionary income after their mortgage payments, so they're able to handle these opportunities very comfortably.

That's all I have at the moment. I'll be happy to move things over to Robert Armstrong who's running our deposit operations.

Super.

We continue to establish a clear trend line around deposit growth. We're beginning to show the strength of our franchise and our expanded distribution.

Strong growth continued into first quarter, as John has already stated. But underlying that, it's the second consecutive quarter of growth by count in all of our branches and all of our distribution. 90% of our CDs were retained by count and by number, which is above industry standard, and represents a strong relationship capital that we are converting every day, which means we don't have as much runoff.

In opening our Washington market, and you can see that, that shows up on our Slide 16, opening in June 2018, we're excited about that for a number of reasons. That market is very important to us, one, because we've been in it for a long time and those of you who have joined us on the roadshow know that we have been in that market for about a decade. 15% of our multifamily and 8% of our single family loans currently are centered in that state. In our independent study, it's also generally a lower cost of funds. So walking into that, it represents a true opportunity for lower-cost growth.

Moving on. 61% of the growth for the quarter was business banking. And the reason, again, business banking continues to be important to us is it represents in general a much lower cost of funds or the opportunity for a lower cost of funds. So we are now at 8.6% of our deposits in business banking. We expect that to continue to grow. So the new growth, again, is primarily comprised of a solid mix of both retail consumer as well as business banking.

We have the opportunity for lower costs, and basically it was a very modest beta given the rapid movement at the short end of the curve. And would expect to be able to continue to keep up with the very robust loan growth, and we're doing it as economically as possible but at a beta that's less than what has been projected.

We're making a lot of progress. If you look at Slide 18, for full disclosure, business banking continues to seek opportunities for lower cost verticals. And in this, you can see the progress that's being made around certain strategic verticals we're gaining traction in.

Operating accounts are just under the 10% that we continue to target for business banking. These are our 0 or no cost or low-cost relationships with corporate clients, your more traditional business banking. We're at 8%, which is just shy of the 10% that we've targeted.

We continue to capture internal referral opportunities and we are looking at this kind of growth continuing throughout 2018.

With that, I turn it back over to Laura, I believe, or John?

No, me.

Okay. Just in closing, I think from what I've seen from the first quarter and as I look out through the rest of this year, I believe we can produce very strong loan growth for the rest of '18. I believe we can continue to increase the weighted average coupon; that would be assuming there's no significant decrease in the 10-year Treasury.

I believe we can grow deposits to fund our loan growth between the business banking, between the existing branches, the new Bellevue branch and we are looking for another branch in Southern California. However, I would say the NIM does remain under pressure. It's really, as we discussed in the roadshow, it's about timing, it's about where the 10-year Treasury goes, how quickly we continue -- can continue to grow the weighted average coupon with some of these initiatives and how fast the Fed and how many times the Fed raises the fed funds rate.

So I will close there, and open it up to analyst questions.

(Operator Instructions) Our first question comes from Matthew Clark with Piper Jaffray.

I guess my first question really on the core deposit growth and the outlook there. It sounds like you want to get that loan-to-deposit ratio back down. I guess, that's doable and probably at some price. I guess, can you give us a sense for how you plan on kind of stepping up that deposit growth from here to help fully fund the loan growth? Or do you think it makes any sense to slow the loan growth to some degree?

We could. I don't think I would make that decision yet. I think we are -- if we got to the point where we were not matching the loan growth with deposit growth, then that would be a different situation if the loan-to-deposit ratio was increasing. Again, I think the business banking is growing and that's helping.

The strategy is that we pay up in new branches or branches that are not mature. So by going up to Bellevue, yes, it'll be expensive to attract deposits up there, but we're only paying, number one, Washington or Seattle is a lower-cost funding area to begin with. But whatever we pay to grow deposits there will be paid just in that area. So it does not reprice the whole portfolio. So I think we can grow that.

We did just have an exit meeting with the FDIC and there was discussions about loan-to-deposit ratio and everything looked very fine. There was no issues with that. So I feel comfortable operating in the range of the loan-deposit ratio we're in right now. My feeling of wanting to reduce it or have more deposits fuel that mix is really more the sort of the industry feeling right now that deposits are going to become harder and harder to get and it would be more comfortable if we got into a situation like that where we had an excess of deposits that -- where the loan-to-deposit ratio was lower versus being at a little bit higher rate. But my feeling is if we operated the whole year and we remain at high 120s, that, that would still be okay. So we sort of manage that with the cost to do it right? So if I wanted to get that way down, if it's really expensive to do that, then we wouldn't do that and we'd just leave it in the high 120s.

Okay, great. And just on the CDs, the cost -- weighted average cost in the quarter was 1.44%. Can you just give us a sense for what's maturing here for the balance of this year, what rate and where you tend to be adding?

I don't know that I have any maturity -- CD maturity reports with us, maybe we could e-mail that to you. I can say that rates on CDs are extremely competitive. First Republic is the strongest competitor. They are regularly advertising rates above 2%, now they're extending their term with that. So that is a strategy you could use if you think that rate is going to continue to go up, you pay for it a little bit more now. But by the end of the year, you're feeling that's a pretty good rate.

So my expectation is CD rates are going to continue to rise. There's just -- I don't see any way that, that is not going to happen. The same is true on the institutional side of the table as well. So institutional money has become far more expensive when you look across-the-board from broker to FHLB advances. Those are all higher -- 2% or higher as well.

Right, okay. And then last one for me, just on the construction initiative. Can you give us a sense for how big of a portfolio relative to the total mix you're going to look to target and where within your footprint? Sounds like you're going to keep it close to home initially. But just where you might look to grow it throughout your footprint?

We will do that very conservatively. As I said in the press release, I really do feel since Santa Rosa is our headquarters and our hometown and so many buildings were destroyed, we just have to be a part of that rebuild process. I don't really know yet. I mean, off the top of my head, could it get to be $100 million to $200 million portfolio? I would think potentially. I don't think it would get above that. But that is a long way out.

As far as being able to build in Santa Rosa, things have just really slowed down. There's problems with getting permits. I don't really envision there being that much activity for a while. But we will do this in other markets as well. Tom is from Southern California and has a group of builders that he's worked with for years. And these are mostly one-off single-lot construction, so I want to be clear on that. It's not bare land, it's not land loans. It's a contractor who buys a house in a good area and scrapes it and builds a new house and sells it. So I think we can do it safely. I think it'll be a good augment to our portfolio and give us some better yields.

Our next question comes from Tim O'Brien with Sandler O'Neill.

So Laura, you alluded to this, or John, you might have as well; so the -- and I know you guys have a keen interest in and take great pride in your efficiency ratio. There are some, I guess, going public costs and such, are those recurring? Is that going to stick with it? Or do those actually ultimately come out of overhead cost and drive improvement -- or maybe not improvement to judge it, but a lower efficiency ratio that would be optimal for you guys going forward?

I think our efficiency ratio may go down with our growth. But no, those public company costs will be with us ongoing. I mean, some are significant such as audit costs or insurance costs so...

Just checking. Just making sure. And then was there -- in the $1.5 million higher operating cost this quarter, so some of that was seasonality tied to payroll. Was there also -- is there an incentive component that is going to add volatility to comp costs kind of on a quarter-in, quarter-out basis that we can get a feel for here or you guys can provide color on and educate us about?

I think the incentive comp is also seasonality. So for example, bonuses for 2017 are typically paid in January, so that's where you see the higher payroll taxes because we have higher cash out. But as far as expensing, I would think our incentive comp should be consistent throughout the year. There will be tax-related cash links, if that makes sense.

Because you've accrued the incentive in the year that it was due, but the payroll tax, mostly FICA, that will cap out. So that ends up being a period cost Q1, Q2 and dropping off.

Correct. And then, again, merit increases first quarter as opposed to other quarters.

That's a Jan 1 move, right? Some banks put it off until second quarter -- or of start second quarter, but you guys do it Jan 1?

That's correct.

And then just to stick with expenses, one last question. Do you have a ballpark? Can you just characterize what the typical cost of opening new branch is, all in? And how much was accrued this quarter in preparation for the opening of the Bellevue branch? And is there anything different there about that? Or did you get a lot of TIs or...

Yes, the Bellevue branch is different because it's a shorter lease and it was a bank before. So this was a [WAF] head branch and then it was Cascade branch and then it was a Opus branch. So one of the first times we've got into a space that clearly had been a branch space for quite some time. And because the lease is shorter, normally we'd put $750 -- $750,000 to $1 million in TIs. In this case, we're going to put about $200,000, I think, something like that.

Now all that gets amortized out, right? So you really don't see much of that. I think the period cost you're going to see is going to be the staffing, so you have to add your branch staff. There will be communications cost for all the lines, for having all your computer systems work up there. I don't have a total on that off the top of my head. But such a large portion of it is capitalized. Furniture is capitalized, the tenant improvements is capitalized. So the period costs really are more personnel, telecommunications, what else?

Rent.

Rent. Yes, rent.

And no, the first quarter didn't include any expenses with regards to Bellevue. When I project $15 million quarterly ongoing, I think that number should cover our expenses, including that new branch.

Great. And then one last housekeeping item. Is this call going to be transcript-ed and that's going to be available, there's good detail in here we might not have all caught?

Yes, it will be.

(Operator Instructions) Our next question comes from Jackie Bohlen with KBW.

Just as we think about the Bellevue branch and understanding that it's going to be additive to deposits, do you anticipate that having a positive impact to loan growth as well?

Not necessarily. I mean, we've got our loan officer up there. One of the things that's different with this branch is that our loan officers tend to be in LPOs and so this is a larger facility. So our income property lender and his team of 3 are all going to be in the branch. Actually, our lead for PRL is a Seattle person, so she is going to be in that branch with an individual as well.

So it's the first time where we're going to have really very active loan people in a new branch setting. So when -- our primary goal in doing that is to get the operating accounts from these apartment owners. And by having the loan officer in the branch, he can bring his customers in, they now can see us, it's a very visible location. We now have a facility. That's our main goal.

Now we will advertise good rates on the more consumer side to bring in those deposits as well. Could that lead to more lending because of presence? It could, but I don't envision that it will. And I don't know that we need it, Jackie, because loan growth is so strong throughout our markets. And one thing that is true, Seattle is a great market. But if you look at pricing-wise, they're probably one of the most competitive markets we have. So a lot of the credits that go on in Seattle are not necessarily the best -- the highest yielding credits that we can originate.

Okay, fair enough. What geography are you seeing the best yield out of in terms of your loan generation?

This is John Cardamone. Probably the best rates we're getting is out of the Greater Sacramento area, which is part of our extended core operations. We have an experienced team out there with established relationships, and our highest yields would be coming from there.

Okay. And are they -- is that contributing to an increase in the niche lending that we're seeing?

Yes -- well, not the niche funding. This would be what we call our income property lending, multifamily primarily and a little CRE that's coming out of there. Virtually, all of our single family funding is coming through our broker network in our core areas.

Okay, okay. That's right, thank you for the reminder on that. Okay. And then, I guess, just as we think about loan growth, which is obviously incredibly strong in the quarter, how do you think about seasonal trends given that your first quarter was so strong?

Yes. Typically, Q1 wouldn't be our strongest quarter. So if you look at PRL, I would say Q2 is a more typical strong quarter, that's your more typical buying season. I think PRLs had really some -- we're at 170% of budget for PRL. But I think part of that might be the rates have moved up a bit and it sort of pushed some people off the fence as to whether they want to do a transaction or not. So I don't know, Jackie, it's hard to predict. But our pipe is still very strong. So at this point, I do not see any signs of abatement in that activity.

Our next question comes from Gary Tenner with D. A. Davidson.

Most of my questions had been asked. But just in terms of future markets, can you kind of give us some sense of where you might be targeting next in terms of a new branch and what type of time line you may put on that?

Well, we are looking in Southern -- south Southern California for another branch. It's hard for me to put time line on that. We've looked in San Diego. We actually got very lucky with this Bellevue site. Bellevue is so full, you can hardly find a site anywhere and we're very picky about our sites. So we've been looking -- I've been looking in -- we've looked at Newport Beach, I'm looking at Costa Mesa. I'm looking at that Orange County area as well. So we continue to look, but we haven't found anything yet, but I'd sure like to be able to find -- at least find a site. Well, Bellevue will be online in June. I would sure like to be able to find a site by somewhere in Q3, if possible, or at least at the latest, at the end of this year, so we can get another branch going in '19.

After that, I don't really have any particular sense of where we might go. We, at this point, are really sticking to our footprint from Seattle to San Diego. I also like branches that are separated from the rest of the group because that allows us to do this regional pricing, so we can open a branch, do some specials that nobody sees and then we're only having to pay up for the new money that comes into that new facility.

And we do have one follow-up from Matthew Clark.

I just wanted to ask about the expense to average asset ratio. I know we touched on the efficiency ratio, but it's obviously very low and industry leading as it is. But is it unrealistic to assume that, that ratio could dip below 90 basis points maybe next year? Or is that just not realistic and you'll kind of reinvest and pay your people?

Well, I think we could potentially. I look at it this way: the company has built out the infrastructure from a point of view of risk and compliance and legal and all of the operational pieces. So as we -- if we're talking about personnel, as we add people, we're adding people like Tom Atmore who's going to provide construction lending for us. It's going to be someone who's going to help us produce loans or produce business accounts in the branches. So I don't believe that, as we grow, we're going to have to incrementally increase expenses.

So look at it this way: we're a $6 billion institution and we have 267 employees. I don't think there's anybody else out there that has those type of numbers. I'm assuming -- it's around 267. Don't quote me. It changes continually. But I think those ratios will continue. I think the asset growth will continue to grow robustly and we won't have to add that many people.

I show no further questions in the queue, so this will complete our call today. A recorded copy of the call will be available on the company's website. Thank you for joining us.