Q1 2024 Primis Financial Corp Earnings Call
Operator: Thank you for standing by. My name is John, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Primis Financial Corp. First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is John and I'll be your conference operator for today at this time I would like to welcome everyone to the premise financial Corp. First quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. I would now like to turn the call over to Matt Switzer, Chief Financial Officer. Please do so.
The Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply you press star followed by the number one on your telephone keypad.
Matt: If you would like to withdraw your question. Please press star one again I would now like to turn the call over to Matt SR, Chief Financial Officer. Please go ahead.
Yes.
Matthew Alan Switzer: Good morning, and thank you for joining us for Primis Financial Corp.'s 2024 first quarter webcast and conference call. 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 materially from the anticipated results or other expectations expressed in the forward-looking statement. Further discussion of the company's risk factors and other important information regarding our forward-looking statements is included in 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.
Matthew Alan Switzer: Good morning, and thank you for joining us for premise financial Corp's 2024, first quarter webcast and conference call.
Before we begin please note that many of our comments during this call will be forward looking statements, which involve risks and uncertainty. 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 Companys risk factors and other important information regarding our forward looking.
Matthew Alan Switzer: A 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.
Matthew Alan 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-GAAP financial measures. How a non-gap measure relates to the most comparable gap measure will be discussed when the non-gap measure is used if it is not readily apparent.
Matthew Alan Switzer: 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.
Matthew Alan Switzer: In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures.
Matthew Alan Switzer: Our non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measures used if not readily apparent.
Dennis J. Zember: I will now turn the call over to our President and Chief Executive Officer, Dennis Zember.
Matthew Alan Switzer: I will now turn the call over to our President and Chief Executive Officer Dennis ever.
Matthew Alan Switzer: Okay.
Dennis J. Zember: Thank you, Matt. I appreciate that. And I appreciate everyone that's joined our call today. I want to start by just saying that we've made a lot of changes in our company over the last year, and I think it's very satisfying to see how all those changes have added up to such a material improvement. When I add back the cost of the consulting services that were a unique expense this quarter, I'm showing that we improved pre-tax and pre-provision by about $3.2 million compared to a year ago. That's a substantial improvement given how serious the industry's headwinds have been. I want to give a little more color on where this improvement came from.
Dennis J. Zember: Thank you, Matt I appreciate that and I appreciate everyone.
That has joined our call today.
Dennis J. Zember: I want to start by just saying that we've plowed a lot of changes to our company over the last year.
Dennis J. Zember: And I think it is very satisfying.
Dennis J. Zember: See how all of those changes have added two such material improvement when I look when I add back the cost of the consulting services that were a unique expense this quarter I'm showing that we improved pre tax pre provision.
Dennis J. Zember: 'bout $3 $2 million compared to a year ago that substantial improvement given just how serious the industry's headwinds.
Dennis J. Zember: <unk> bin.
Dennis J. Zember: Let me give a little more color on where this improvement come from first the core banks results or our outstanding last year. The bank consolidated 25% of its branch infrastructure and still retained about 95% of those deposits.
Dennis J. Zember: First, the core bank's results are outstanding. Last year, the bank consolidated 25% of its branch infrastructure and still retained about 95% of those deposits. Our core margin, which excludes the impacts of the third-party portfolio, came in at 3.03%, which is down just a touch from the fourth quarter, but still above the 3% level.
Dennis J. Zember: Our core margin, which excludes the impact of the third party portfolio came in at 3.3%, which is down just detached from the fourth quarter, but still above the 3% level driving these results is our core deposits.
Dennis J. Zember: Driving these results is our core deposits, our core banks deposit franchise, which posted a cost of interest-bearing deposits of only 2.56% when you separate out the impact of the national deposit franchise. This cost of interest-bearing deposits is between 50 and 150 basis points lower than most of our regional peers, and it speaks volumes about the quality of our customer base and our franchise. Our sales pipelines are heavily focused on the deposit side, where we're leveraging our advantages with Vibe and other technologies to win meaningful relationships. Secondly, Panacea earned about $1.6 million pre-tax in the quarter, which compares favorably to only $22,000 in the same quarter a year ago.
Dennis J. Zember: <unk>.
Dennis J. Zember: Our core bank deposit franchise.
Dennis J. Zember: Which posted a cost of interest bearing deposits of only 2.56% when you separate out the impact of the national deposit franchise.
This cost of interest bearing deposits is between 50, and 150 basis points lower than most of our regional peers and it speaks volumes about the quality of our customer base and our franchise.
Dennis J. Zember: Our sales pipelines are heavily focused on the deposit side, where we're leveraging our advantages with Bob and other technologies to win meaningful relationships.
Dennis J. Zember: Secondly, panacea earned about $1.6 million pre tax in the quarter, which compares favorably to only $22000 in the same quarter a year ago, there growth in loans and deposits over the past year has been remarkable, but especially deposits where they now signed about 30% of their entire bag.
Dennis J. Zember: Their growth in loans and deposits over the past year has been remarkable, but especially deposits, where they now fund about 30% of their entire balance sheet. Their pipeline for deposit growth is multiples stronger than their pipeline for loans, and it's a direct result of the technology build-out that was made possible by their capital raise. We still have approximately $16 million after tax of market value in tangible book that we have not recognized but expect to be able to as soon as we deconsolidate Panacea Financial Holdings and recognize that improvement in book value.
Dennis J. Zember: Alex shape.
Dennis J. Zember: Their pipeline on deposit growth is multiples stronger and their pipeline of loans and it's a direct result of the technology build out that was made possible by their capital race, we still have approximately $16 million after tax of market value and tangible book that we have not recognized but expect to be able to.
Dennis J. Zember: As soon as we deconsolidation.
Dennis J. Zember: Panacea financial holdings, and recognize that improvement in book value.
Dennis J. Zember: Our mortgage division last year recruited and built technology and secondary capabilities, and through all of that, they tweaked or continue to tweak their operating expense burden. This allowed Mortgage to earn about $850,000 pre-tax in the first quarter, compared to a loss of $250,000 in the same quarter a year ago. That is an excellent result for the first quarter of the year and for this industry in particular right now, with 30-year rates at or above 8%.
Dennis J. Zember: Our mortgage division last year recruited and built technology and secondary capabilities and through all that they tweaked our continued to tweak their operating expense burden.
Dennis J. Zember: This allowed mortgage to earn about $850000 pre tax in the first quarter compared to a loss of 250000 in the same quarter a year ago.
Dennis J. Zember: That is an excellent result for the first quarter of the year and for this industry in particular, right now with with 30 year rates at or above 8%.
Dennis J. Zember: I want to keep recruiting in the division by just hitting singles and doubles to build our capacity and be ready for lower rates and the revenue boom that we expect when rates begin to fall. Lastly, our premium finance division finished the quarter with pre-tax income of about $1.3 million, up from about $850,000 in the same period a year ago. Driving those results are remarkably low operating expense burdens, managing the sector's fastest and most digitally oriented processes for facilitators and customers.
Dennis J. Zember: I want to keep recruiting in the division with just hitting singles and doubles to build our capacity and be ready for lower rates and the revenue boom that we expect win.
Dennis J. Zember: Rates begin to fall.
Dennis J. Zember: Lastly, our premium Finance division finished the quarter with pretax income of about $1.3 million up from about 850000 in the same period a year ago.
Dennis J. Zember: Driving those results are remarkably low operating expense burdens managing the sector's fastest and most digitally oriented process for their facilitators and customers. This kit. This business is 100% cash secured with current production yields that are easily 100 basis points ahead of CRE.
Dennis J. Zember: This business is 100% cash secured with current production yields that are easily 100 basis points ahead of CRE. I think it says a lot about our company that we emerged through this last year so much stronger. Without question, our multifaceted strategy for the future is the reason for our success, where we are not fully dependent on just one region or just one concept to drive results. At the consolidated level, we are not looking to add any more strategies or complexities. We're instead just looking to tweak and improve the slate that we already have and enjoy the better operating results that come from that success. All right, with that, I will turn it back to you, Matt.
Speaker Change: I think it says a lot about our company that we emerged through this last year this much stronger.
Speaker Change: Without question, it's our multifaceted strategy.
Speaker Change: For the rate is the reason for our success, where we are not fully dependent on just one region or just one concept to drive results at the consolidated level. We are not looking to add any more strategies or complexities, where instead, just looking to tweak and improve the slight that we already have and enjoy the better operating results there.
Speaker Change: Come from that success.
Speaker Change: Alright with that I will turn it back to you Matt.
Matthew Alan Switzer: Thank you Dennis.
Matthew Alan Switzer: I will now provide an overview of our results before we turn to Q&A, but as a reminder, the financial information we will discuss is preliminary pending our previously disclosed SEC preclearance process. These results incorporate consistent accounting methodologies as previous quarters for comparison purposes.
Matthew Alan Switzer: I will now provide an overview of our results before we turn to Q&A, but as a reminder, the financial information we will discuss his preliminary pending our previously disclosed SEC pre clearance process. These.
Matthew Alan Switzer: These results incorporate consistent accounting methodologies as previous quarters for comparison purposes.
Matthew Alan Switzer: As in previous quarters, these results include various adjustments related to a third-party managed portfolio that net across different line items. For the first quarter, $1.31 million related to this portfolio was included in interest income with an offsetting amount included in non-interest expense. In addition, $6.28 million of the provision for credit losses related to this portfolio with an offsetting amount included in non-interest income. In the following discussion, references to core items will exclude these amounts.
Matthew Alan Switzer: As in previous quarters. These results include various adjustments related to a third party managed portfolio that net across different line items in the first quarter 1.31 million related to this portfolio is included in interest income with an offsetting amount included in noninterest expense.
Matthew Alan Switzer: In addition, $6 million to $8 million of the provision for credit losses related to this portfolio with an offsetting amount included in noninterest income and.
In the following discussion references to core items will exclude these amounts.
Matthew Alan Switzer: In addition, our results this quarter continue to include the consolidation of Panacea Financial Holdings, or PFH. PFH's pre-tax loss included in consolidated pre-tax income was $2 million. This is comprised of approximately $78,000 of non-interest income and $2.1 million of non-interest expense that's included in our consolidated financial results. Results will be discussed excluding these amounts in relation to common share unless otherwise noted.
Matthew Alan Switzer: In addition, our results. This quarter continue to include the consolidation of Panacea financial holdings or P. S. H P.
Matthew Alan Switzer: <unk> pretax loss included in consolidated pre tax income was $2 million. This is comprised of approximately 78000 of noninterest income and $2 1 million of noninterest expense. That's included in our consolidated financial results.
Matthew Alan Switzer: Results will be discussed excluding these amounts and relative to common share unless otherwise noted.
Matthew Alan Switzer: With that, earnings available to common and earnings per diluted share for the first quarter were $6.3 million, or $0.26 per diluted share, respectively. Adjusting for PFH and certain one-time items, core earnings were $7.2 million, or $0.29 per share, and up substantially from $0.23 in the year-ago period. Total assets were $3.9 billion at March 31st, up slightly versus December 31st. Excluding PVP loans and loans held for sale, loan balances increased approximately 1% annualized after selling roughly 11 million Panacea loans in the quarter.
Matthew Alan Switzer: With that earnings available to common and earnings per diluted share for the first quarter were $6 3 million or <unk> 26.
Matthew Alan Switzer: <unk> per diluted share respectively.
Adjusting for <unk> and certain one time items core earnings were $7 2 million or <unk> 29 per share and up substantially from 23 in the year ago period.
Matthew Alan Switzer: Total assets were $3 9 billion at March 30, <unk> up slightly versus December December 31.
Matthew Alan Switzer: Excluding PPP loans and loans held for sale loan balances increased approximately 1% annualized after selling roughly $11 million a panacea loans in the quarter.
Matthew Alan Switzer: Deposits were $3.3 billion in Q1, up slightly from the fourth quarter, and net of approximately $70 million of deposits off balance sheet in the suite program at March 31st, non-interest-bearing deposits declined approximately 2% in the quarter to $463 million. Core net interest income, excluding accounting adjustments from the third-party managed portfolio, decreased $0.7 million to $27.0 million in Q1 due to one less calendar day and with increased loan yields only partially The Core Net Interest Margin decreased 6 basis points to 3.03% in Q1.
Matthew Alan Switzer: Deposits were $3 3 billion in Q1 up slightly from the fourth quarter and net of approximately $770 million of deposits off balance sheet in the sweep program at March 31.
Matthew Alan Switzer: Noninterest bearing deposits declined approximately 2% in the quarter to $463 million.
Yes.
Matthew Alan Switzer: Core net interest income excluding accounting adjustments from the third party managed portfolio decreased.
Matthew Alan Switzer: 0.7 million to $27.8 million in Q1, due to one less calendar day and with increased loan yields only partially offsetting increased funding costs.
Matthew Alan Switzer: Core net interest margin decreased six basis points to 3.3% in Q1.
Matthew Alan Switzer: Core yield on loans held for income increased nine basis points to 610%, while core yield on earning assets increased five basis points to 584%.
Matthew Alan Switzer: Core yield on loans held for income increased 9 basis points to 6.10%, while core yield on earning assets increased 5 basis points to 5.84%. Cost of deposits increased 13 basis points to 2.82%, while cost of funds increased 12 basis points to 2.97%. Excluding accounting adjustments, non-interest income was $8.3 million in Q1 versus $6.1 million in Q4, largely due to increased mortgage activity. Non-interest income this quarter also included $336,000 of gain-on-sale revenue from the Panacea Loan Sale.
Matthew Alan Switzer: Cost of deposits increased 13 basis points to eight 2% while cost of funds increased 12 basis points to 297%.
Matthew Alan Switzer: Excluding accounting adjustments noninterest income was $8 3 million in Q1 versus $6 1 million in Q4, largely due to increased mortgage activity.
Matthew Alan Switzer: Noninterest income this quarter also included 336000 of gain on sale revenue from the panacea loan sale.
Matthew Alan Switzer: Noninterest expense was $26 5 million excluding <unk>.
Matthew Alan Switzer: Mortgage expenses included in that number were five 1 million this quarter up from $4 8 million last quarter on higher volume on.
Matthew Alan Switzer: The unfunded commitment reserve expense was 75000 in the first quarter versus 299000 last quarter.
Matthew Alan Switzer: Non-interest expense was $26.5 million excluding PFH. Moreage expenses included in that number were $5.1 million this quarter, up from $4.8 million last quarter on higher volume. Unfunded commitment reserve expense was $75,000 in the first quarter versus $299,000 last quarter. Core non-interest expense, excluding accounting adjustments, non-recurring items, and mortgage, was $19.4 million in Q1 versus $18.7 million for the previous quarter and in line with expectations. However, more importantly, core non-interest expense was lowered by approximately 10% this quarter versus the year-ago period, demonstrating the substantial strides we've made right-sizing the expense base while executing on our growth strategy.
Matthew Alan Switzer: Core noninterest expense, excluding accounting adjustments nonrecurring items and mortgage was $19 4 million in Q1 versus $18 $7 million for the previous quarter and inline with expectations.
Matthew Alan Switzer: More importantly, core noninterest expense was lower by approximately 10% this quarter versus the year ago period, demonstrating the substantial strides we've made right sizing the expense base, while executing on our growth strategies.
Matthew Alan Switzer: The core provision for credit losses was $1 6 million in Q1 versus a much smaller core provision of 100000 approximately in Q4.
Matthew Alan Switzer: Core net charge offs were 900000 down from $1 9 million last quarter.
Matthew Alan Switzer: The net reserve build in Q1 versus Q4 was influenced by softer forward economic forecasts when modeling our allowance under Cecil, particularly for projected unemployment.
Matthew Alan Switzer: The core provision for credit losses was $1.6 million in Q1 versus a much smaller core provision of $100,000 in approximately Q4. Core net charge-offs were $900,000, down from $1.9 million last quarter. The net reserve billed in Q1 versus Q4 was influenced by softer forward economic forecasts when modeling our allowance under CECL, particularly for projected unemployment. Lastly, operating return on average assets was 75 basis points in Q1. Mortgage was nicely profitable in the first quarter with a roughly $2 million pre-tax swing versus the fourth quarter, offsetting an increase in the core provision.
Matthew Alan Switzer: Lastly, operating return on average assets was 75 basis points in Q1.
Matthew Alan Switzer: Mortgage was nicely profitable in the first quarter with a roughly $2 million pretax swing versus the fourth quarter offsetting an increase in the core provision.
Matthew Alan Switzer: Core pre tax pre provision earnings were $10 7 million in the first quarter up 7% linked quarter and 44% versus the year ago period.
Matthew Alan Switzer: Core profitability remains solid even in this difficult operating environment and we are optimistic we can continue improving core returns from here.
Speaker Change: With that operator, we can now open the line for Q&A.
Speaker Change: At this time, if you would like I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
Matthew Alan Switzer: Core pre-tax pre-provision earnings were $10.7 million in the first quarter, up 7% compared to the linked quarter and 44% versus the year-ago period. Core profitability remains solid even in this difficult operating environment, and we are optimistic we can continue improving core returns from here. With that, Operator, we can now open the lawn for Q&A.
Speaker Change: If you would like to withdraw your question simply grasp our win again.
Speaker Change: For a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Casey Whitman from Piper Center. Please go ahead.
Casey Cassiday Orr Whitman: Hey, good morning.
Casey Cassiday Orr Whitman: Good morning, Kate.
Casey Cassiday Orr Whitman: First of all I'll just ask you is there any update on the timing for when you might be able to consolidate a panacea.
Operator: At this time, I would like to remind everyone that in order to ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Casey Whitman from Piper Center. Please go ahead. Hey, good morning. Give them a warning, Kate.
Casey Cassiday Orr Whitman: The.
Kate: I can't say definitively that it would be in the second quarter Casey we're hopeful.
Kate: Possible in the third quarter.
Kate: Okay.
Speaker Change: Appreciate that.
Speaker Change: May be ill.
Speaker Change: Got it.
Speaker Change: I mean can you just walk us through sort of the deposit growth this quarter break out sort of how much you have in the deposits now are you seeing some quite deposit growth our understanding ferring.
Casey Cassiday Orr Whitman: First of all, I'll just ask, is there any update on the timing for when you might be able to deconsolidate Panacea?
Dennis J. Zember: I can't say definitively that it would be in the second quarter, Casey. We're hopeful it..., will be possible in the third quarter.
Speaker Change: Just sort of walk us through the deposits this quarter.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Core deposits were relatively flat.
Dennis J. Zember: I appreciate that, maybe it could go towards, I mean, can you just walk us through sort of the deposit growth this quarter, break out sort of how much you have in the digital deposits, you know, are you seeing some core deposit growth, how are the non-disparaging deposits fairing, just sort of walk us through the deposits this quarter.
Absolutely, we sweep some off balance sheet, but the amount that we sweep all declined in the quarter.
Speaker Change: Average deposits were.
Speaker Change: About $2 5 million.
Speaker Change: Down call it $20 million to $30 million in the core bank.
Dennis J. Zember: Yeah, the core deposits were relatively flat. Obviously, we swept some off the balance sheet, but the amount that we swept off declined in the quarter. Average deposits were about $2.5 million, down call it $20 or $30 million in the core bank from last quarter, so not by a large margin. And then the pickup, at least on the balance sheet, was in the digital platform. If you look at the costs, digital deposits have been relatively consistent.
Speaker Change: From last quarter, so not by a large margin and then.
Speaker Change: Pick up at least on balance sheet.
Speaker Change: Within the digital platform.
Speaker Change: If you look at the cost of the digital deposits have been relatively consistent.
Speaker Change: This quarter, our average cost of interest bearing on that digital was Basel four versus $5 three last quarter.
The core bank deposits did tick up.
And we've seen similar activity across our peers, but cost of total deposits in the core bank was about up about 15 basis points in the quarter.
Dennis J. Zember: I think this quarter our average cost of interest bearing on digital was $504 versus $503 last quarter. The core bank deposits did tick up, and we've seen... similar activity across our peers, but the cost of total deposits in the core bank was up about 15 basis points in the quarter.
Speaker Change: Yes.
Speaker Change: Are you starting to see that.
Speaker Change: Kind of pace of deposit cost increases start to slow.
Speaker Change: In March our so far this month.
Speaker Change: Yes to a certain extent I mean I think we're.
Dennis J. Zember: Are you starting to see that the kind of pace of deposit cost increases start to slow, at least in March or so far this month?
Speaker Change: As we go into the second quarter.
Speaker Change: Probably not as optimistic as we're going to have a lot of margin expansion in the quarter.
Speaker Change: More flattish.
Dennis J. Zember: Yeah, to a certain extent. I mean, I think we're... you know, as we go into the second quarter. Probably not as optimistic as we're going to have a lot of margin expansion in the quarter. I'm thinking more flattish and hopefully more margin expansion towards the latter half of the year, even in a...
Speaker Change: And hopefully more margin expansion towards the latter half of the year even in <unk>.
Rate cut environment.
Speaker Change: Yes, Casey that I'd add Greg.
Speaker Change: I would add that.
Speaker Change: I think the margin compression.
Speaker Change: It would probably come if we got a little I don't want to use or desperate, but a little more needy.
Dennis J. Zember: Yeah, Casey, I'd add. I would add that.
Dennis J. Zember: I think the margin compression would probably come if we got a little, I don't want to use the word desperate, but a little more needy for more deposits. I don't see that that's happening. Every day we're opening, I mean, each week we're opening somewhere between, call it, 50 and 100 accounts on the digital platform again with no advertising. Each of those accounts is probably, you know, those accounts are coming in somewhere priced right below five percent.
Speaker Change: For more deposits I don't see that Thats that I don't see Thats happening every day, we're opening.
Speaker Change: Each week, we're opening somewhere between call it.
Speaker Change: 50, and 100 accounts on the digital platform again with no advertising.
Speaker Change: Each of those accounts are probably those accounts are coming in somewhere pricing probably right below 5%.
Dennis J. Zember: [inaudible] each, you know, at about $25,000 average, you know, and that takes a lot of pressure off what we have to do in the core bank, which is, again, back to why we think the core bank's cost of deposits and the value of that franchise is so good. And I don't, Matt may have a view, but I don't see us this coming quarter, even with the loan demand or the pipeline. I don't think we're going to be in a place where we feel like we've got to really start moving on rates to get funds in here.
Speaker Change: And about $25000 averages.
Speaker Change: And that takes a lot of pressure off what we have to do in the core bank, which is again back to what we think the core banks.
Speaker Change: Cost of deposits and the value of that franchise.
Speaker Change: So good so I don't and I don't Matt made.
Speaker Change: Have a beer, but I don't see it this coming quarter, even with the loan demand or the pipeline I don't think we're going to be in a place where we feel like we got it.
Speaker Change: Really start moving right to get funds in here.
Speaker Change: Good day.
Matthew Alan Switzer: You threw a lot of numbers out there, Matt, but it sounds like from a core expense run rate, from a core fees, and core margin, you're sort of where you had hoped to be or somewhat near there, and that your sort of outlook for 2024 hasn't meaningfully adjusted. Would that be accurate? Yes. Okay, and I'll just ask one more. I recognize that non-accruals are coming off of it at a very low level, but did you see any sort of credit migration this quarter or any major upticks in the classifieds or anything you want to address there?
Speaker Change: He threw a lot of numbers out there Matt.
Speaker Change: Sounds like from a core expense run rate from our core fees core margin sort of where you had hoped to be somewhat near there and that your sort of outlook for 2024, Hasnt hasnt meaningfully adjusted would that be.
Speaker Change: Yes.
Okay.
Speaker Change: And I'll just ask one more.
Speaker Change: Recognize that non accruals are coming off of it at a very low level, but yes.
Speaker Change: See any sort of credit migration this quarter or any major upticks in the classifieds or anything you want to address there.
Speaker Change: We did not and I can tell you what our.
Dennis J. Zember: We did not, and I can tell you what they are. (inaudible) Risk Rated Special Mention was up, caught $4.5 million this quarter, but still at a relatively low base, roughly $19.5 million versus $15 million last quarter, which is not an unusual level of activity. And then substandard actually declined to 14.9 from 17.2 last quarter. So, you know, net-net, a little bit of a movement in and out of buckets, but Um, no, no large directional swing. Okay, thank you.
Speaker Change: So our.
Speaker Change: Risk rated special mention was up call. It $4 5 million this quarter, but still at a relatively low base 19, roughly $19 5 million.
Speaker Change: Versus $15 million last quarter.
Speaker Change:
Speaker Change: Which is not an unusual level of activity.
Speaker Change: Sub standard actually declined to $14 nine from $17 two last quarter. So net net a little bit of a movement in and out of buckets, but.
Speaker Change: No.
Speaker Change: No large directional swings.
Speaker Change: Okay. Thank you ill, let someone else Japan.
Operator: Okay, thank you. I'll let someone else jump on.
Speaker Change: Okay.
Christopher William Marinac: The next question comes from the line of Christopher Marinac from Janey Montgomery Scott. Please go ahead.
Speaker Change: The next question comes from the line of Christopher <unk> from Janney Montgomery Scott. Please go ahead.
Christopher William Marinac: I'm going to pick up where Casey left off on the credit question. So the reserve build we saw this quarter, was that sort of out of an abundance of caution? Do you think you'll have higher losses, or is it just because it was prudent at the structure?
Christopher: Hey, Thanks, good morning, I'm going to pick up where Casey left off on the credit question. So the reserve build we saw this quarter was that sort of out of an abundance of caution do you think youll have higher losses.
Christopher: Or is it just because it was prudent at this juncture.
Matthew Alan Switzer: I mean the core reserve bill, like some of the provision was charge-offs obviously, and then the rest of it was about six hundred thousand or so of core reserve billed. Half of that was an increase in specific reserves on individual credits, so about three hundred grand, not a huge number, and then the other half, the other three hundred grand, roughly, was just model-driven under CESA. We did see in Moody's forecast this quarter that the front end of the forecast was weaker on average than it had been recently, and that does factor into our model. I mean, we have seen other banks releasing reserves, but under our methodology and with those forecasts, it had a little bit of a reserve bill, not substantial, but just not a release.
Christopher: I mean, the core reserve build like some of the provision was charge offs obviously.
Christopher: And then the rest of it it was about 600000 or so of core reserve build.
Christopher: Half of that was.
Speaker Change: An increase in specific reserves on individual credits.
Speaker Change: 300 Grand not a huge number and then the other half.
The other 300 Gantt Graham.
Speaker Change: Graham roughly was just model driven under seasonal.
Speaker Change: We did see in the Moody's forecast this quarter.
Speaker Change: The front end of the forecasts were.
Speaker Change: Weaker on average than they had been recently.
Speaker Change: And that does factor into our model and we have seen other banks releasing reserves.
Speaker Change: Under our methodology and what those forecasts.
Speaker Change: Had a little bit of a reserve bill not substantial but just.
Speaker Change: Not a release.
Matthew Alan Switzer: Nope, perfectly fine. And I guess, you know, if we look at the core charge-offs we saw this quarter outside of the third party, is that a good run rate for the near term? Would you expect that to be a little higher over the course of the cycle?
Speaker Change: That's perfectly fine and I guess, if we look at the core charge offs. We saw this quarter were outside of the third party is that a good run rate for the near term would you expect that to be a little higher over the course of the cycle.
Matthew Alan Switzer: I think that's probably a good run rate down from there.
Speaker Change: I think that's probably a good run rate hopefully it will be.
Matthew Alan Switzer: Got it. And then last question just has to do with kind of just new deposits at the margin, you know, what does it cost to get new money in the door? And do you think that that sort of incremental rate may back off a little bit as this next quarter develops?
Speaker Change: Down from there.
Speaker Change: Got it and then last question just has to do with kind of just new deposits at the margin what does it cost to get new money in the door.
Speaker Change: Do you think that that sort of incremental rate may may back off a little bit as this next quarter develops.
Matthew Alan Switzer: Dennis, do you want to take a stab at that, or do you want me to do it? I'll do it.
Speaker Change: Since you won't take a stab at that or you want me to do it.
Speaker Change: I'll do it.
Matthew Alan Switzer: You know, it depends on the avenue we're pursuing, Chris. You know, on the digital platform, the incremental cost of funds is probably still around five or low fives. And then in the core bank, it depends on. You know, most of our efforts in the core bank or in our local markets are commercial driven, as Dennis mentioned in his remarks.
Speaker Change: It depends on the Avenue, where.
Speaker Change: Pursue and Chris on the digital platform incremental cost of funds is probably still around five or low fives.
Speaker Change: <unk>.
Speaker Change: And then in the core bank it depends on.
Speaker Change: Most of our efforts in the core bank or in our local markets as <unk>.
Speaker Change: Commercial driven.
Speaker Change: And I think Dennis referenced in his remarks.
Dennis J. Zember: We've had a lot of success using some of our technology offerings, particularly Vibe, getting corporate customers. And we can get those customers, even if they're coming into an interest-bearing business account, for sometimes well below four. So we're, probably weighted average, raising money, low to mid-fours on an incremental basis. But it just. We're pulling all the levers all the time to get those dollars in.
Speaker Change: We've had a lot of success using some of our technology offerings, particularly Bob getting corporate customers and we can get those customers, even if they're coming into an interest bearing business accounts.
Speaker Change: For sometimes well below four.
Speaker Change: So we are.
Speaker Change: Probably weighted average raising money in.
Speaker Change: Low to mid fours on an incremental basis.
Speaker Change: But it just <unk>.
Speaker Change: We're pulling all the levers.
Speaker Change: All the time to get those dollars.
Matthew Alan Switzer: Matt, I'm sorry, I was speaking very eloquently but on mute. And, you know, backing up what Matt just said, I mean, on the digital side, yeah, I mean, we're bringing in money that's kind of for, call it, with a little bit of checking. I mean, we're probably in the high fours on the digital side. And I think we probably can do, without any marketing or anything, 30 to, you know, 50, 60 million a quarter there.
Speaker Change: Yes, Matt Im sorry.
Matthew Alan Switzer: Speaking very eloquently on mute.
Matthew Alan Switzer: Yes.
Backing up what what Matt just said I mean on the digital side, Yes, I mean, we're bringing in money that's kind of four.
Matthew Alan Switzer: All it for with a little bit of checking I mean, we're probably in the in the high fours on the digital side.
Matthew Alan Switzer: And I think we probably can do without any marketing or anything we probably can do 32.
Matthew Alan Switzer: $60 million a quarter there.
Matthew Alan Switzer: On the core bank side, Matt's exactly right. I mean, it's not as expensive on the core bank side, but what the core bank has is Vibe and some of the other technologies that's moving probably, call them...
Matthew Alan Switzer: The core bank side, Matt is exactly right.
Matthew Alan Switzer: It's not as expansive on the core bank side, but what the core bank has is.
Matthew Alan Switzer: Bob and some of the other technologies that move in probably call. It <unk>.
Dennis J. Zember: Reliably, $20 million a quarter of checking accounts, and that, you know, especially with rates where they are right now, that just blends down the total cost of deposits and our total, like for the whole bank, the total incremental. You know, back to Casey's question about the margin. I mean, Matt and I are like-minded on this. I don't think that we're doing a lot of things in the bank that's diluted to a 3% margin.
Matthew Alan Switzer: Reliably 20 million a quarter of checking accounts.
Matthew Alan Switzer: And that especially with rates, where they are right now that just blends down the.
Matthew Alan Switzer: The total cost of deposits and our total.
Matthew Alan Switzer: For the whole bank that total.
Matthew Alan Switzer: Incremental.
Matthew Alan Switzer: Back to Casey's question about the margin.
Speaker Change: Matt and I are.
Speaker Change: Like minded on this I don't think that we're doing a lot of things in the bank debts dilutive to a 3% margin I think our incremental cost of funds and our incremental lending levels.
Dennis J. Zember: I think our incremental cost of funds and our incremental lending levels are accretive to that. Now, it may be one-off here and there in the repricing, for sure, you know, dent that, but I think we're in a really good place actually.
Speaker Change: Or are accretive to that and it may be one off here and there and the repricing for sure.
Speaker Change: Did that but.
Speaker Change: I think we're in a really good place actually.
Dennis J. Zember: Great, that's all very helpful. And Dennis, the pace that you're talking about for the digital channel is a function of kind of the groundwork you've laid the past couple of years. So over time, is it possible that that number could be a little bit bigger?
Speaker Change: Great. That's all very helpful and Dennis the pace that you are talking about the digital channel is a function thats kind of the groundwork you've laid the past couple of years. So over time is it possible that that number could be a little bit bigger.
Dennis J. Zember: I mean, yeah, absolutely. We actually restrict the amount of deposits that will open on this just first because... you know, we're trying to still be pretty, we're still trying to introduce customer service, and every digital customer still has a banker that we, you know, contact. So we are limiting the amount of customers that will open on that. Really, what we are, sort of the next phase of this, is introducing concepts that bring in deposits that are more checking oriented, you know, and long term have lower costs.
Dennis J. Zember: I mean, yes, absolutely I mean, we actually restrict the amount of deposits that will open on this just first because.
Speaker Change: We're trying to still be pretty.
Dennis J. Zember: We're still trying to introduce customer service and every digital customer still has a banker that we.
Dennis J. Zember: Contact so we are limiting the amount of customers that will open on that really what we are sort of the next phase of this is introducing concepts that bring in deposits that are more <unk>.
Dennis J. Zember: Checking oriented.
Dennis J. Zember: And long term have.
Dennis J. Zember: Lower costs, but but but Chris to your point I mean, we're not marketing this.
Dennis J. Zember: But Chris, to your point, I mean, we're not marketing. We really do not market the digital platform. I mean, we have, call it, 16,000 customers. We've probably opened 18,000 accounts, and we're really not marketing it. It's those customers referring to other customers and increasingly, to your point, name recognition, which helps. It's reasonable to believe that we're going to get an avalanche of customers opening accounts in a bank they've never heard of. But the longer we do this, And you said this, but the longer we do this and the better our name gets out there, the more account activity we're going to see.
Dennis J. Zember: We really do not market the digital platform I mean, we have call it.
Dennis J. Zember: 16000 customers, we probably opened 18000 accounts and we're really not marketing it those customers, referring other customers and and increasingly to your point.
Dennis J. Zember: Name recognition, which helps I mean, it's not.
Dennis J. Zember: Reasonable to believe that we're going to get an avalanche of customers opening accounts and a bank they've never heard of but the longer we do this.
Dennis J. Zember: And you said this but the longer we do this and the better our name gets out there the the.
Dennis J. Zember: <unk>.
Dennis J. Zember: The more account activity, we're going to see.
Matthew Alan Switzer: Great. That's helpful, Dennis, and thank you both.
Speaker Change: Great. That's helpful. Dennis Thank you both.
Speaker Change: Thanks, Chris.
Speaker Change: Okay.
Operator: The last question comes from the line of Russell Gunther from Stevens. Please go ahead.
The next question comes from the line of Russell Gunther from Stephens. Please go ahead.
Russell Elliott Teasdale Gunther: Hey, good morning, guys. I wanted to ask you about your loan growth expectations for the year. If you could talk about this volume and mix and then how your date on sales strategy factors in.
Russell Elliott Teasdale Gunther: Hey, good morning, guys.
Russell Elliott Teasdale Gunther: I wanted to ask you Hey, guys I wanted to ask you about your loan growth expectations for the year and if you could talk about this volume and mix and then how your gain on sale strategy factors.
Dennis J. Zember: Yeah, I'll start. The, I think the core bank, the core bank definitely got some loan opportunities. A lot of that is with existing customers. I think the industry's cautiousness and honestly real estate investors' cautiousness on CRE is probably going to mute the kind of balance sheet growth we can see out of the core banks. Um, you know, I think, but Life Premium Finance. There's no telling where we could take life premium finance.
Yes, I'll start.
Speaker Change: I think the core bank.
Speaker Change: The core bank definitely got some some loan opportunities.
Speaker Change: A lot of that is with existing customers.
Speaker Change: I think the industry's cautiousness and honestly see real estate investors cautiousness on CRE is probably going to meet the the kind of balance sheet growth, we can see out of the core bank.
Speaker Change: I think the life premium financed as.
Speaker Change: There is no talent, where we could take life premium finance.
Dennis J. Zember: You know, and we're kind of trying to meet those growth levels a little, but really not that much. We could probably do it between life premium finance and Panacea has got the same kind of loan volumes. I think we're probably looking for total loan growth that's maybe in the high single digits.
Speaker Change: Tom.
Speaker Change: And we're kind of trying to we're trying to meet those growth levels a little but.
Speaker Change: But really not that much we could probably between life premium financing I think Tennessee has got the same kind of loan volumes.
Speaker Change: <unk>.
Speaker Change: I think we're probably looking for total loan growth.
Speaker Change: Maybe high single digits.
Matthew Alan Switzer: Yeah, I think last quarter we said... high single digits to, you know, maybe low double digits, 10-ish percent, net loan growth, net of sales, and I think it's still eminently doable. (Inaudible)
Speaker Change: Matt.
Speaker Change: Okay.
Matthew Alan Switzer: Yeah, I think last quarter, we said.
Matthew Alan Switzer: High single digits, maybe low double digits 10 ish percent.
Matthew Alan Switzer: Net loan growth net of sales, but I think still.
Matthew Alan Switzer: Bill.
Speaker Change: Not really doable.
Speaker Change: Okay.
Dennis J. Zember: I appreciate it, guys. And then just a couple of follow-ups. I hear you on the potential timing of the ability to deconsolidate Panacea. Can you just remind us, in terms of the use of capital, balancing that kind of high single-digit, you know, maybe low double-digit loan growth with the potential for buyback activity?
Speaker Change: I appreciate it guys.
Speaker Change: And then just a couple of follow ups I hear you on the potential timing of the ability to deconsolidation panacea.
Speaker Change: Just remind us in terms of use of capital balancing that kind of a high single digit.
Speaker Change: Maybe low double digit loan growth with the potential for buyback activity.
Speaker Change: Okay.
Matthew Alan Switzer: Well, when we get that game, we will definitely evaluate the best use for that capital, be it growth or buybacks. I mean, if we continue to trade at a meaningful discount to tangible book value, Bye, Becks. Obviously, it will become much more attractive.
Speaker Change: Well when we get that game, we will definitely evaluate.
Speaker Change: The best use for that capital be it.
Speaker Change: Growth or buybacks.
Speaker Change: <unk> continued to trade at a meaningful discount to tangible book value.
Speaker Change: Buy backs.
Speaker Change: Obviously become much more attractive.
Dennis J. Zember: probably move. Yeah, probably move. The buyback would probably move way up the list of strategic items.
Speaker Change: Probably move probably move the buyback would probably move.
Speaker Change: Way up the list of strategic.
Ideas.
Matthew Alan Switzer: Okay. Very good. And then, thank you, guys. Last one for me. Matt, you touched on in response to a question just how the overall 24 outlook given the start to the year hasn't materially adjusted. So as we fold all of this together, can you just remind us of your timeline to achieving that 1% ROA target on a sustainable basis?
Speaker Change: Okay.
Speaker Change: Very good and then thank you guys last one for me.
Speaker Change: Matt you touched on it.
Speaker Change: Response to a question just.
Speaker Change: Overall 2000 and for the outlook given the start to the year Hasnt hasnt materially adjust it so.
Matthew Alan Switzer: As we fold all of this together can you just remind us of your.
Matthew Alan Switzer: Timeline to achieving that 1% ROA target on a sustainable basis.
Matthew Alan Switzer: We still believe that that's doable at the end of this year, so I think we've talked previously about the latter half of 2024 getting to that level, which would be the third or fourth quarter. Hard to say, it's going to somewhat depend on the margin environment, but we do what we think we can get. Okay, let's start.
Matthew Alan Switzer: We still believe that that's doable at the end of this year.
Matthew Alan Switzer: So.
Matthew Alan Switzer: I think we've talked pretty consistently about latter half of 'twenty for getting to that level.
Matthew Alan Switzer: Whether it's third or fourth quarter hard to say, it's kind of somewhat depend about the on the margin environment, but.
Matthew Alan Switzer: So where we think we can get.
Matthew Alan Switzer: Okay.
Russell Elliott Teasdale Gunther: Okay, that's very helpful. All right guys, the rest of my questions are asked and answered, so thank you very much.
Speaker Change: That's very helpful. Alright, guys. The rest of my questions were asked and answered. So thank you very much.
Speaker Change: Thanks Russell.
Dennis J. Zember: As there are no further questions at this time, I would like to turn the call over back to Dennis Zember for closing remarks.
Speaker Change: As there are no further questions at this time I would like to turn the call over back to Dennis <unk> for closing remarks.
Dennis J. Zember: Okay. Thanks again to everyone that joined the call and expressed some interest. Matt and I are available the rest of the day, really anytime, so call us if you have any more questions. Otherwise, we hope you have a good weekend. We'll talk to you soon. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Dennis J. Zember: Okay. Thanks, again for everyone that joined the call and expressed some interest.
Speaker Change: Matt and I are available.
Dennis J. Zember: The rest of the day really anytime so policy. If you have any more questions. Otherwise hope you have a good weekend and we'll talk to you soon.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
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