Q3 2023 Primis Financial Corp Earnings Call
Hello, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the premise financial Corporation third quarter earnings call. 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 would like to add.
I ask a question. Please press star followed by the number one on your telephone keypad and if you would like to withdraw your question again Press Star one. Thank you I will now turn the conference over to Matt Switzer, Chief Financial Officer, you may begin.
Good morning, and thank you for joining us.
To begin please note that many of our comments during this call will be forward looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ 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 and Exchange Commission, including our recently filed earnings release, which has also been posted to the Investor Relations section of our corporate site premise 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 number.
Thank you, Matt and thank you to all of you that have joined our third quarter conference call I'm excited about our quarter and about the broad based improvement and momentum we see in some key areas I'll discuss a few of those and then give it back to Matt for some more detail.
I'm joined today here in the call by the way, we bought Matt Switzer, who is our CFO and Rick Volk, who is who has recently been named President premise bank.
Okay.
First and most importantly is our net interest margin.
Our margin improved significantly this quarter. Thanks to a couple of items first we began sweeping excess funds after the balance sheet on June 30.
So the entire impact of that was felt in the third quarter, but none of it was felt in the second quarter.
Go back and normalize that for the second quarter, our margin would have still increased in the third quarter, a couple of basis points, which is significant for the margin to be directionally headed that way.
Further and as our release States, we had a strong September with a margin of three five so we are increasingly confident that we can hold at these levels and continue moving higher.
Obviously, theres a lot of moving parts at play.
Improving the margin, but the foundational block to this success are the wins, we're having in the community bank on.
The new account side, we noted we opened 20 404 new accounts.
For new customers totaling almost $73 million with a weighted average cost of only one 8%.
On an annualized basis and of course, neutralizing 80 movements and existing deposit accounts. This would have represented a 9% annualized growth rate in total deposits and would be almost dead on top of our existing cost of funds. So to have this kind of deposit activity without having to post really high interest rates.
Is pretty notable.
And further even with the scale of our national deposit platform, we did more than two thirds of this new account activity in the community Bank.
On the existing customer side, the core bank managed unimpressive, 191% cost of deposits.
Which was up only slightly from the second quarter of 2003.
The retention of deposits has been a key focus and really more of a challenge because we announced a consolidation of eight branches or 25% of our footprint.
About a quarter ago.
But our calling efforts and our customer convenience factors like Bob have made such a difference and the runoff from those eight branches has been minimal in fact two of the eight branches that were consolidating actually have increased deposit levels since the announcement.
Rick and his team have done an outstanding job with this result, and getting us in a place where we believe it's sustainable our pipelines for the fourth quarter and closed activity. So far look very promising against our third quarter result, and the energy level and excitement at the bank with these wins is well deserved.
On the digital side, we spent no money on paid marketing in the third quarter.
Even so we opened about 1400 new accounts.
And grew total and grew total accounts on the platform by about 15% annualized.
Impressively average cost of these new deposits was still below 5% and a significant percentage of the activity was from existing customer referrals.
In the third quarter customers opened about five new accounts for every one account they closed.
Average balance per account per customer $73000 and our average depositor is about 49 years old.
On the lending side, we are demonstrating any in an increasing fashion the value of our niches.
Between the community Bank Panacea in life premium, we had new production over $100 million at an average yield of about 795.
Matt noted in the press release that we.
Incremental spreads of $5 18, which was way more than neutralizes the dilutive pressure of today's interest rate environment.
P&C and life premium are obviously high quality lending niches with established brands and sources of business.
Both divisions spent the quarter sourcing relationships and partners, whether it be other banks, our securitization platforms and collectively place what I believe is about 25% of their production capacity.
As we go into the fourth quarter, we're going to move this number this percentage higher and through next year. It's my hope that we'll have sources in place to run these agents at full capacity.
Our mortgage division.
Sean This quarter continues to move forward, albeit in a tough environment to build this kind of division.
During the quarter, they funded about $169 million of volume and had pretax earnings of almost $700000.
Importantly, our division got this excellent result by focusing on top shelf lenders and and serious efforts on cost controls are.
Our team understands the environment, where you are in and when yields turn in volumes jump again, and they will do that our divisions profitability will impress and our discipline will pay off.
As I close and turn it back to Matt I want to make a quick comment on the balance sheet itself.
Today, we're sitting here with very strong liquidity and really a great story on deposits.
We have strong capital levels, we have very low nonperforming assets.
We really have no concentrations in office, CRE or really anything problematic.
We have substantial loan and deposit agents better incrementally very profitable and that we can take on or off the balance sheet.
Our earnings are moving up as well as Wheaton entire on margins.
And are able to control and reduce operating expenses and I really like where we are in this period of uncertainty.
With that 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 third quarter results can be found in our earnings release and third quarter Investor presentation, both of which can be found on our website.
Operating earnings for the third quarter were $7 7 million or <unk> 32 per diluted share versus $1 million or <unk> <unk> per diluted share in the second quarter and up over 50% from the year ago period.
Total assets were $3 8 billion at September 30 flat versus June 30, excluding PPP loans and loans held for sale loan balances declined 1% linked quarter.
We sold $15 million, a panacea loans and moved another $9 million to held for sale at September 30, We also saw $10 million of participations in life premium finance loans in the quarter.
If not for those transactions loans held for investment would have grown slightly in the third quarter.
Deposits were down slightly in Q3, as we manage the excess liquidity by sweeping opex as deposits, we had approximately $229 million of deposits in the sweep program at the end of the quarter.
Principally average noninterest bearing deposits were flat in the third quarter, while ending while ending noninterest bearing balances increased 2% on annualized from June 30 to September 30.
Our core bank is a source of strength in this environment and the unique products and services. We've developed continue to resonate with customers, particularly small businesses.
Net interest income increased one to $27 1 million in the third quarter as funding cost pressures were offset with higher earning asset yields net.
Net interest margin increased to three 2% from 3% last quarter when adjusting for the excess liquidity we carried in Q2.
We believe we have a unique advantage due to our two pronged funding strategy as a result in the third quarter, we were able to hold the increase in deposit costs in the core bank to 11 basis points well below the increase in wholesale options.
Excluding accounting adjustments noninterest income was $7 9 million in the third quarter versus $7 3 million in the second quarter.
Operator: Hello, my name is Christa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primis Financial Corporation third quarter earnings call. All lines have been placed on mute to prevent any background noise.
Mortgage revenue declined slightly in Q3, but was still strong given the environment offsetting that decline was an increase in gain on sale income.
We sold $15 million of fantasy alone for a $400000 gain and moved another $9 million to held for sale as they will close shortly.
Operator: After the speakers remarks, there will be a question and answer session. If you would like to ask a question, please press star, follow by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you.
Additional potential sales in the pipeline leads us to have confidence that gain on sale income will be higher in the fourth quarter.
Core noninterest expense, excluding accounting adjustments nonrecurring items and mortgage was $20 5 million for the third quarter versus $23 five in the previous quarter.
Matthew Switzer: I will now turn the conference over to Matt Switzer, Chief Financial Officer, you may begin. 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 risk and uncertainty. There are many factors that could cause actual results to differ, 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 and Exchange Commission, including our recently filed earnings release, which has also been posted to the investor relations section of our corporate site, Primisbank.com.
The decline is reflective of the administrative cost saves, we announced last quarter and there were effective midway through the third quarter.
Matthew Switzer: We undertake no obligation to update or revise forward looking statements to reflect change assumptions, the occurrence of unanticipated events or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-gap financial measures. A reconciliation of the non-gap measures to the most comfortable gap measures can be found in our earnings release.
We also will consolidate eight branches at the end of October we continue to be disciplined on the expense side and look for additional saves through attrition, while navigating this challenging environment.
The provision for credit losses was $1 6 million in the third quarter versus $4 3 million last quarter.
$2 1 million of the provision was due to accounting for a third party managed portfolio and which is offset by noninterest income gains.
Core net charge offs were $2 3 million the majority of which was the charge off of specific reserves tied to the partial resolution of the assisted living problem relationship we've discussed in previous quarters.
The final piece of that relationship was resolved in October, bringing pro forma nonperforming assets of $6 5 million or 17 basis points of assets at 930 <unk>.
Dennis Ember: I will now turn the call over to our President, Chief Executive Officer, Dennis Ember. Thank you, Matt, and thank you to all of you that have joined our third quarter conference call. I'm excited about our quarter and about the broad-based improvement and momentum we see in some key areas. I'll discuss a few of those and then give it back to Matt for some more details. I'm joined today here in the call, by the way, by Matt Switzer, who is our COFO and Rick Folk, who has recently been named President of Primisbank.
The allowance for credit losses to gross loans, excluding PPP balances was $1 one 4% at September 30 versus 121 basis points last quarter with the decline largely due to the charge off of specific reserves and a small reserve release from a lower loan balance and reduced modeled losses under seasonal.
Lastly.
And in summary, operating ROA improved to 81 basis points in the third quarter, the highest level since the fourth quarter of 'twenty one.
Dennis Ember: First, and most importantly is our net interest margin. Our margin improves significantly this quarter, thanks to a couple of items. First, we began sweeping excess funds off the ballot sheet on June 30th. The entire impact of that was felt in the third quarter, but none of it was felt in the second quarter. If I go back and normalize that for the second quarter, our margin would have still increased in the third quarter by a couple basis points, which is significant for the margin to be directionally headed that way.
We have further expense savings being realized in the fourth quarter and are confident we can keep grinding net interest income higher with a healthy margin.
Combined with additional gain on sale revenue, we believe we can still improve profitability even in this difficult environment and are optimistic about our prospects in the near term.
With that operator, we can now open the line for Q&A.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Your first question comes from the line of Casey Whitman from Piper Sandler. Please go ahead.
Dennis Ember: Further, and as our release dates, we had a strong September with a margin of 305, so we're increasingly confident that we can hold at these levels and continue moving higher. Obviously, there's a lot of moving parts that play in improving the margin, but the foundational block to this success are the winds we're having in the community bank. On the new account side, we note that we opened 2,400 and poured new accounts for new customers totaling almost $73 million with a weighted average cost of only 180.
Hey, good morning, congrats on the quarter.
Good morning.
So first can you walk us through how we should think about the size of the balance sheet from here do you see that holding pretty flat, allowing profitability improvement catheter accrete could we see some modest growth what is your outlook there.
Dennis Ember: On an annualized basis, and of course, neutralizing any movements in existing deposit accounts, this would have represented a 9% annualized growth rate in total deposits and would be almost dead on top of our existing cost of funds. To have this kind of deposit activity without having to post really high interest rates is pretty notable. Further, even with the scale of our national deposit platform, we did more than two-thirds of this new account activity in the community bank.
I think we will see modest growth over the next.
Four or five quarters.
But not nearly the pace, it's been the last year.
Year or two probably.
Mid to high single digits.
Over that timeframe really and really not in a way that move to TCE lower I mean, we want to inch higher on TCE.
I mean, I think we're more than comfortable with capital levels, where they are right now, especially with non performers. This low.
Yes.
Yes, so with earnings moving where they are.
Being able to continue growing the balance sheet, but at a slower pace as what we're looking for.
Dennis Ember: On the existing customers side, the core bank managed an impressive 1.91% cost of deposits, which was up only slightly from the second quarter of 23. The retention of deposits has been a key focus and really more of a challenge because we announced a consolidation of eight branches or 25% of our footprint by the quarter or good. But our calling efforts and our customer convenience factors like Bob have made such a difference and the runoff from those eight branches has been minimal.
Okay.
So then with with some balance sheet growth the margin.
Canadian up.
Have pretty pretty high confidence that we have reached the inflection point on an island.
Continue to see growth.
Now to the same extent this quarter, but the trend will continue to go up.
I think so.
Okay.
Okay, and Dennis you want to maybe talk about your success this quarter with the $50 million in deposits at the community Bank.
Dennis Ember: In fact, two of the eight branches that we are consolidating actually have increased deposit levels since the announcement. Rick and his team have done an outstanding job with this result and getting us in a place where we believe it's sustainable. Our pipeline for the fourth quarter and closed activity so far looked very promising against our third quarter result and the energy level and excitement at the bank with these wins is well deserved.
Can we expect more of this kind in Florida, just thought that was a big one.
Yes.
Okay.
When we announced a month or so before 45 days or so before we announce the branch closures.
Rick and his team sort of mobilized to go out and talk to every customer that was going to be impacted.
And Rick sitting in here, Rick that that not only did that sort of neutralize any impact that.
Dennis Ember: On the digital side, we spent no money on paid marketing in the third quarter. Even so, we opened about 1,400 new accounts and grew total accounts on the platform by about 15% annualized. Impressively, the average cost of these new deposits was still below 5%, and the significant percentage of the activity was from existing customer referrals. In the third quarter, customers opened about five new accounts for every one account they closed, our average balance per customer is $73,000 and our average deposit is about 49 years old.
We might have seen from.
Closing some branches on the outflows I mean really they uncovered quite a few opportunities and it really turned into a little bit more of a sales initiative.
And really there were some there were a couple of sizable accounts I think that we're working on at the end of September that we didn't that we didn't close before quarter end and I think that's really why we're all sitting in here with kind of the confidence.
About sort of duplicating the third quarter.
As we go into the fourth quarter.
Dennis Ember: On the lending side, we're demonstrating in an increasing fashion the value of our niches. Between the community bank, panacea and life premium, we had new production over $100 million at an average yield of about $7.95. Matt notes in the press release that we booked incremental spreads of 5.18, which way more than neutralizes the delutive pressure of today's interest rate environment. Panacea and life premium are obviously high quality lending niches with established brands and sources of business.
Yes.
The restructure M&A, it's important to restructure that we had in the third quarter or excuse me in the second quarter that essentially let us move Rick into this position.
And let Rick start.
Hi.
Directing the team in yen and getting the wins and building the excitement and energy level there.
Pretty positive for our company.
And I'll just add I mean.
And we're not alone probably with this strategy that we feel like we're we've got some advantages with some of our technology and products and services, but we are we have.
Dennis Ember: Both divisions spent the quarter sourcing relationships and partners, whether it be other banks or securities platforms, and collectively place what I believe is about 25% of their production capacity. As we go into the fourth quarter, we are going to move this number, this percentage higher, and through next year's my hope that we'll have sources in place to run these engines at full capacity. Our Morgan's division shines this quarter and continues to move forward, albeit in a tough environment to build this kind of division.
Dedicated core bank, 100% to pursue and small business customers. We can raise retail funds through the digital platform out of market at a reasonable cost.
So we don't have to.
Dennis Ember: During the quarter, they funded about 169 million of volume and had pre-tax earnings of almost $700,000. Importantly, our division got this excellent result by focusing on top shelf lenders and serious efforts on cost controls. Our team understands the environment we are in, and when yields turn and volumes jump again, and they will do that, our division's profitability will impress and our disciplines will pay off.
But a lot of energy into CD specials or other retail.
Deposit raising campaigns in market, because we can do that out of market. So our focus in the core bank and in the <unk>.
<unk>.
Virginia, Maryland markets is small business and they are generally higher balances lower costs and.
A lot of them are coming from the big banks, particularly truest.
But also we're hearing a lot from P&C.
That are getting horrible service.
As those banks cut back on cost and are still way underpaying on.
Dennis Ember: As I close and turn it back to Matt, I want to make a quick comment on the balance sheet itself. Today we're sitting here with very strong liquidity and really a great story on deposits. We have strong capital levels, we have very low non-performing assets. We really have no concentrations in office CRE or really anything problematic. We have substantial loan and deposit engines that are incrementally very profitable and that we can take on or off the balance sheet. Our earnings are moving up as well as we retire on margins and are able to control and reduce operating expenses and I really like where we are in this period of uncertainty.
Interest rate on those balances. So we think theres a lot of running room to go after those banks in and move some business.
Okay. Thank you and then.
Can you give us an update as to where you think quarterly expenses will land for the branch consolidations in there.
Is it sort of the same range, you gave last quarter or any change to that.
And then it won't fully be in until next quarter, but still feel pretty confident about that range maybe a.
Such higher I think we said.
18 to $18 five maybe 18 five to 19 at the end of the day, but.
Matthew Switzer: Matt with that 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 third quarter results can be counted in our earnings release and third quarter investor presentation, both of which can be counted on our website. Operating earnings for the third quarter were 7.7 million or 32 cents per diluted share versus 1 million or 4 cents per diluted share in the second quarter and up over 50 percent from the year ago period.
Still comfortably in that neighborhood.
Next quarter and that April right that this excludes the mortgage rate.
Yes, it does.
Yes.
Alright closed today.
Is that right the branches closing at the end of month of today.
Okay.
Okay.
Great. Thank you.
Alright, Thank you Casey.
Your next question comes from the line of Friday struck Glenn from Janney Montgomery Scott. Please go ahead.
Matthew Switzer: Total assets were 3.8 billion at September 30 flat versus June 30, excluding PPP loans and loan sales for sale, loan balances declined to 1 percent length to quarter, which sold 15 million of panacea loans and moved another 9 million to health for sale at September 30. We also sold 10 million of participation in life premium finance loans in the quarter. If not for those transactions, loan sales for investment would have grown slightly in the third quarter.
Hey, good morning, gentlemen.
Good morning.
Just wanted to go back to that expense point, we were just talking about the 18 $5 million to $19 million expense run rate how much could we see that grow over the course of 2024.
Just trying to get a good sense for.
Matthew Switzer: Deposits were down slightly in Q3 as we manage access liquidity by sweeping off access deposits. We had approximately 229 million deposits in the sweep program at the end of the quarter. Impressively average non-intersparing deposits were flat in the third quarter while ending while ending non-intersparing balances increased 2 percent unannualized from June 30 to September 30.
Beyond just next quarter or the next couple of quarters.
Whether thats low mid single digits or what's your thinking in terms of expenses for next year.
That's a great question.
Or.
Given the environment, we are 100% focused on controlling expenses so our.
Matthew Switzer: Our core bank is a source of strength in this environment and the unique products and services we've developed continue to resonate with customers, particularly small businesses. Net interest income increased 1 million to 27.1 million in the third quarter as funding cost pressures were offset by with higher earning asset yields. Net interest margin increased to 3.02 percent from 3 percent last quarter when adjusting for the access liquidity we carried in Q2. We believe we have a unique advantage due to our two pronged funding strategy.
Goal is to.
Bottom out at that level, and then keep increases to a minimum so.
Like to think.
Low single digits.
Sure.
At the end of the day.
Certainly not higher than that.
Got it.
And then I think you've mentioned this in your opening comments, but what was the spot rate on the deposits at the end of the quarter.
And as we sit here in late October is that has that gone up.
Matthew Switzer: As a result in the third quarter, we were able to hold the increase in deposit costs in the core bank to 11 basis points well below the increase in wholesale options. Excluding accounting adjustments, non-intersparing income was 7.9 million in the third quarter versus 7.3 million in the second quarter. More revenue declined slightly in Q3 but was still strong given the environment. All setting that decline was an increase in gain on sale income.
By any meaningful amount.
I think that's fine.
I think the spot rate on deposits, obviously is still inching higher.
<unk>.
Not in a dramatic fashion, but whats, but we're more than outpacing that.
With asset repricing and with incremental new business I mean, the incremental new business was.
Matthew Switzer: We sold 15 million of fantasy loans for a $400,000 gain and moved another 9 million to health for sale as they will close shortly. Additional potential sales in the pipeline lead us to have confidence that gain on sale income will be higher in the fourth quarter.
Solidly in the fives.
So I mean I think we're.
<unk> honestly I think we're generating enough new incremental spread with just new business.
That really asset repricing is really what's moving the margin here.
Matthew Switzer: Core non-interspense, excluding accounting adjustments, non-recurring items and mortgage was 20.5 million for the third quarter versus 23.5 in the previous The decline is reflective of the administrative cost saves we announced last quarter and that were effective midway through the third quarter. We also will consolidate eight branches at the end of October. We continue to be disciplined on the expense side and look for additional saves through attrition while navigating this challenging environment.
I think we saw.
On cost of deposits in July and August overall also deposits went up about five basis points a month, but it was lower than that in September.
And with some of the wins, we got late in the month.
Barbara.
Lesson that to flat.
In October November.
Understood. That's helpful and then the $75 million in brokerage Cds that you have.
Matthew Switzer: The provision for credit losses was 1.6 million in the third quarter versus 4.3 million in last quarter. 2.1 million other provision was due to accounting for a third party managed portfolio and which is offset by non-interesting income gains. Core net charge loss were 2.3 million, the majority of which was the charge off of specific reserves tied to the partial resolution of the assisted living problem relationship we've discussed in previous quarters. The final piece of that relationship was resolved in October bringing pro forma non-performing assets to 6.5 million or 17 basis points of assets at 9.30.
Rolling off later this year do you think you'll you'll put some level of that back on just to supplement funding base or do you feel like deposit growth is strong enough at this point that you can potentially let that roll off.
We're going to let that roll off.
Okay.
Last question for me.
What's your base case for net charge offs over the next couple of quarters. I mean, obviously, we don't know exactly how everything is going to play out with credit, but should we expect a certain level each quarter and just compare that with where the strong reserve level is today.
Matthew Switzer: The allowance for credit losses to gross loans, excluding PPP balances, was 1.14% at September 30 versus 121 basis points last quarter with the decline largely due to the charge off of specific reserves and a small reserve release from a lower loan balance and reduced model losses under Cecil.
I think with the last piece of that assisted living relationship. There is still a little bit of a specific reserve left that will be charged off in the fourth quarter.
Absent that.
I mean, our charge off and running.
Matthew Switzer: Lastly, and in summary, operating ROAA improved to 81 basis points in the third quarter, the highest level since the fourth quarter of 21. We have further expense savings being realized in the fourth quarter and are confident we can keep grinding net interest income higher with a healthy margin. Combined with additional gain on sale revenue, we believe we can still improve profitability even in this difficult environment and are optimistic about our prospects in the near term.
While the 600, a quarter up 600000 a quarter.
We don't see any reason why that would be.
In the near term.
Understood. Thanks for taking my questions.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
And we have no further questions in the queue. At this time I will turn the call I'll turn the call back over to Dennis timber for closing remarks.
Operator: With that, operator, we can now open the line for Q&A. As a reminder, if you would like to ask a question, please press star, follow by the number one on your telephone keypad.
Alright. Thank you again for joining our call I Hope you have good insights we gain if you have any questions.
KC Whitman: Your first question comes from the line of KC Whitman from Piper Sandler. Please go ahead. Hey, good morning. Congrats on the quarter. Morning. KCK.
Here in the office and happy to take your call Alright. Thank you have a good day.
And this concludes today's conference call. Thank you for your participation and you may now disconnect.
Dennis Ember: So first, can you walk us through how we should think about the size of the balance sheet from here. Do you see that holding pretty flat, allowing profitability improvement, capital of Crete, could we see some modest growth? What is your outlook there? I think we'll see modest growth over the next four or five quarters, but not nearly the pace it's been the last year or two, so probably mid to high single digits over that time frame.
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Sure.
Okay.
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Dennis Ember: Really and really not in a way that moves PPE lower. I mean, we want to retire on PCE, and I mean, I think we're more comfortable with capital levels where they are right now, especially with not performers this low. Yeah. Yeah, so with earnings moving where they are, being able to continue growing the balance sheet, but at a slower pace, it's what we're looking for.
Dennis Ember: Okay. So then with some balance sheet growth, the margins, stable to maybe even up, do we have pretty high confidence that we've reached the inflection point on NII, will continue to see growth, maybe not at the same extent this quarter, but the trend will continue to go up. I think so.
Dennis Ember: Okay, and Dennis, do you want to maybe talk about your success this quarter with the 50 million in deposits of the community bank? You know, can we expect more of this kind of inflow? I thought that was a big one. Yeah. You know, when we announced, well, a month or so before, 45 days or so before we announced the branch closures, Rick and his team sort of mobilized to go out and talk to every customer that was going to be impacted and Rick fit in here.
Dennis Ember: Rick, that, that not only did that sort of neutralize any impact that you might have seen from, you know, closing some branches on the outflows. I mean, really, they uncovered quite a few opportunities. And it really took to turn into a little bit more of a sales initiative. And really, there were some, there were a couple sizable accounts. I think that we were working on at the end of September that we didn't, that we didn't close before quarter end. And I think that's really why we're all sitting in here with kind of the confidence about sort of duplicating the third quarter. You know, as we go into the fourth quarter.
Dennis Ember: So, you know, and, and, you know, the restructure, I mean, it's important to restructure that we had in the third quarter or excuse me in the second quarter that essentially let us move Rick into this position and, and let Rick start, you know, directing the team and, and, and getting the wins and, and sort of building the excitement and energy level there. I'm pretty positive for our company. And I'll just add, I mean, and we're not alone, probably with the strategy that we feel like we're, we've got some advantages with some of our technology and products and services.
Dennis Ember: But we are, we have dedicated the core bank 100% to pursuant small business customers. We can raise retail funds through the digital platform out of market at a reasonable cost, so we don't have to put a lot of energy into CD specials or other retail deposit raising campaigns in market because we can do that out of market. So, our focus in the core bank and in the, in our Virginia Maryland markets is small business and they're generally higher balances, lower cost and a lot of them are coming from the big banks, particularly truest, but also we're here in a lot from PNC that are getting horrible service as those banks cut back on costs. And are still way underpaying on interest rate on those balances. So we think there's a lot of running room to go after those banks and move some business.
Dennis Ember: Okay, thank you. And then.
Dennis Ember: and can you give us an update as to where you think quarterly expenses will land for the grants and solidations in there? Is it sort of the same range you gave last quarter or any change to that? I mean, it won't fully be in until next quarter, but I still feel pretty confident about that range. Maybe it hit much higher. I think we said 18 to 18 and a half, maybe 18 and a half to 19 at the end of the day, but still comfortable in that neighborhood. Next quarter. And that just excludes the mortgage, right? Yes, it does. Is that right?
KC Whitman: The branch is closing at the end of the month or today? Good. Great. Thank you. All right.
Operator: Thank you.
Freddy Strickland: Your next question comes from the line of Freddy Strickland from Janie McCummery Scott. Please go ahead. Hey, good morning, gentlemen. Good morning. Just wanted to go back to that expense point. We were just talking about the 18 and a half to 19 million expense run, right? How much could we see that grow over the course of 2024? Just trying to get a good sense for beyond just next quarter or next couple quarters, whether that's low mid-single digits or what you're thinking in terms of expenses for next year?
Dennis Ember: That's a great question. I mean, are in the environment we are 100 percent focused on controlling expenses? So our goal is to bottom out at that level and then keep increases to a minimum. So I'd like to thank most single digits at the end of the day. Certainly not higher than that. Got it.
Dennis Ember: And then I think you mentioned this in your open comments, but what was the spot rate on the deposit to the end of the quarter? And as we said, you're in late October. Is that going up by any meaningful amount? I think the spot right on deposits, obviously, is still inching higher. Not in a dramatic fashion, but we're more than outtacing that with asset reprising and with incremental new business. I mean, the incremental new business was solidly into five.
Dennis Ember: So I mean, I think we're generating enough. Honestly, I think we're generating enough new incremental spread with just new business that really asset reprising is really what's moving the margin higher. I think we saw on calls for deposits in July and August, overall calls for deposits went up about five basis points among, but it was lower than that December. And with some of the wins, we got late in the month. We're open that, is less than that to flat in October and November. Understood, that's helpful.
Dennis Ember: And then the stepping five million in brokerage CDs that you have rolling off later this year, do you think you'll put some level of that back on just a supplement funding base? Or do you feel like the positive growth is strong enough at this point that you can potentially let that roll off? We're going to let that roll off.
Dennis Ember: Okay, last question for me. What's your base case for net charge off over the next couple quarters? I mean, obviously we don't know exactly how everything's going to play out with credit, but should we expect a certain level each quarter and just compare that with where the strong reserve level is today? I think with the last piece of that assisted living relationship, there's still a little bit of a specific reserve left that will be charged off in the fourth quarter. Absent that, I mean, our charge also has been running. Wow, the 600 a quarter, about 600,000 a quarter. And we don't see any reason why that would be in the near term.
Freddy Strickland: Understood.
Operator: Thanks for taking my questions. Again, if you would like to ask a question, please press star one on your telephone keypad. We have no further questions in the queue at this time.
Dennis Ember: I'll turn the call back over to Dennis, the member for closing remarks. All right, thank you again for joining our call. I hope you have good and safe weekend if you have any questions. We're here in the office and happy to take the call. All right, thank you. Have a good day.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.