Q2 2024 Primis Financial Corp Earnings Call
Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Primis Financial Corp. second quarter earnings call. All lines have been placed on mute to prevent any background noise.
Operator: At this time, I would like to welcome everyone to the Primis Financial Corp. 2nd quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer session. If you would like to ask us 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, again, press the star in 1.
Operator: I would like to welcome everyone to the Primis Financial Corp. second quarter earnings call. All lines have been placed on mute to prevent any background noise.
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 the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press the star and 1. I will now turn the call over to Matt Switzer, CFO. You may begin.
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, again press the star and 1.
Matthew Switzer: I will now turn the call over to Matt Switzer, CFO. 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 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 how 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.
I will now turn the call over to Matt Switzer, CFO . You may begin.
Matthew Alan Switzer: 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 that 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: 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. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. How a non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measure is used, if not readily apparent. I will now turn the call over to our President and Chief Executive Officer, Dennis Zember.
Matthew Alan Switzer: 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.
Matthew Alan Switzer: 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.
Matthew Alan Switzer: 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.
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-GAAP financial measures.
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. How a non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measure is used, if not readily apparent.
Matthew Switzer: How a non-gap measure relates to the most comparable gap measure will be discussed when the non-gap measures used if not readily apparent.
Dennis Zember: I will now turn the call over to our President and Chief Executive Officer, Dennis Ember. Thank you, Matt. And thank you to all of you who have joined our call today. Starting at the top, earnings for the quarter improved to $7.8 million when compared to a net loss of $311,000 for the same quarter a year ago. Both quarters have noise, and Matt will outline that shortly. But when you exclude the noise, we're showing pre-tax earnings of approximately $11.7 million for the current quarter, which would be one of our strongest quarters to date. These results are mostly across the board and come before we really, before we experience any real lift in net interest margins.
Dennis J. Zember: Thank you, Matt. And thank you to all of you who have joined our call today. Starting at the top, earnings for the quarter improved to $7.8 million when compared to a net loss of $311,000 for the same quarter a year ago. Both quarters have some noise, and Matt will outline that shortly. But when you exclude the noise, we're showing pre-tax earnings of approximately $11.7 million for the current quarter, which would be one of our strongest quarters to date.
Matthew Alan Switzer: I will now turn the call over to our President and Chief Executive Officer, Dennis Zember.
Dennis J. Zember: Thank you, Matt, and thank you to all of you who have joined our call today. Starting at the top, earnings for the quarter improved to $7.8 million when compared to a net loss of $311,000 for the same quarter a year ago.
Dennis J. Zember: Both quarters have some noise and Matt will outline that shortly, but when you exclude the noise We're showing pre-tax earnings of approximately 11.7 million dollars for the current quarter Which would be one of our strongest quarters to date
Dennis J. Zember: These results are mostly across the board and come before we really experience any real lift in that interest margin. Results from the core bank, our lines of business, steady margins just over three percent, operating expense controls from the initiative that we undertook a year ago have all played a significant part in these results. The consolidated company's reporting a net interest margin of 3.03%, on a standalone basis, excluding the lines of business and the digital platform, the community bank's margin improved to 3.25 percent in the current quarter of 24 compared to 2.
Matthew Alan Switzer: These results are mostly across the board and come before we experience any real lift in net interest margins.
Dennis Zember: Results from the core bank, our lines of business, steady margins, just over 3%, and operating expense controls from the initiatives that we undertook a year ago have all played a significant part in these results. Consolidated, the company is reporting a net interest margin of 3.03%. On a standalone basis, excluding the lines of business and the digital platform, the community bank's margin improved to 3.25% in the current quarter of 24 compared to 2.82% a year, the same quarter a year ago. These results against last year reflect the bank's dedication to seizing all of the loan yield opportunities we can every new period.
Matthew Alan Switzer: Results from the Core Bank, our lines of business, steady margins just over 3%, operating expense controls from the initiatives that we undertook a year ago, have all played a significant part in these results.
Matthew Alan Switzer: consolidated the company's reporting and net interest margin of 3.03 percent
Speaker Change: On a stand-alone basis, excluding the lines of business and the digital platform, the community bank's margin improved to 3.25% in the current quarter of 2004, compared to 2.82% the same quarter a year ago.
Dennis J. Zember: These results against last year reflect the bank's dedication to seizing all of the loan yield opportunities it can at the renewal period, but more so the focus on deposit costs. Our core banks had the luxury of having the digital platform behind them, and that provided an opportunity to focus on the more profitable deposit relationships at the community bank level and not let the cost of funds get away from it. The legacy franchise we have in the core bank has really shined this past year through all the pressures the industry has faced, as well as our efforts in branch consolidation.
Speaker Change: These results against last year reflect the bank's dedication to seizing all of the loan yield opportunities we can at renewal periods.
Dennis Zember: But more so, the focus on deposit costs. Our core banks had the luxury of having the digital platform behind it, and that provided an opportunity to focus on the more profitable deposit relationships at the community bank level, and not let the cost of funds get away from us. The legacy franchise we have in the core bank has really shined in this past year through all the pressures the industry has faced, as well as our efforts on branch consolidation. Our lines of business also had a great quarter. On a combined basis, Panacea, Life Premium Finance, and our digital platform finished the quarter with 835 million in total loans and just under a billion in total deposits.
Speaker Change: but more so the focus on deposit costs. Our core banks had the luxury of having the digital platform behind it and that provided an opportunity to focus on the more profitable deposit relationships at the community bank level and not let the cost of funds get away from us.
Speaker Change: The legacy franchise we have in the core bank has really shined in this past year through all the pressures the industry has faced, as well as our efforts on branch consolidation.
Dennis J. Zember: Our lines of business also had a great quarter. On a combined basis, Panacea, Life Premium Finance, and our digital platform finished the quarter with $835 million in total loans and just under $1 billion in total deposits.
Speaker Change: Our lines of business also had a great quarter. On a combined basis, Panacea, Life Premium Finance, and our digital platform finished the quarter with $835 million in total loans and just under $1 billion in total deposits.
Dennis Zember: This represents about 25% of our total loans and about 29% of our total deposits. Incremental loan yields are still very good with new production and the high sevens and even some in the 8% range for these higher quality lending strategies. Funding costs have been stable over the past few periods at about 4.84%, combined, which is high, but we still believe that or confident that the beta here on this funding is high and that is right to begin to decline. These combined strategies will see a material profitability lift.
Dennis J. Zember: This represents about 25% of our total loans and about 29% of our total deposits. Incremental loan yields are still very good, with new production in the high sevens and even some in the eight percent range for these higher quality lending strategies. Funding costs have been stable over the past few periods at about 4.84% combined, which is high, but we still believe that or are confident that the beta here on this funding is high and that as rates begin to decline, these combined strategies will see material profitability. Mortgage had a great quarter reporting net income of pre-tax net income of just over a million dollars compared to essentially a break-even quarter a year ago.
Speaker Change: This represents about 25% of our total loans and about 29% of our total deposits.
Speaker Change: Incremental loan yields are still very good with new production in the high sevens and even some in the 8% range for these higher quality lending strategies.
Speaker Change: Funding costs have been stable over the past few periods at about 4.84 percent.
Speaker Change: combined, which is high, but we still believe or are confident that the beta here on this funding is high and that as rates begin to decline, these combined strategies will see a material profitability lift.
Dennis Zember: Mortgage had a great quarter, reporting net income of pre-tax net income of just over a million dollars compared to essentially a break-even quarter a year ago. During the quarter, we took about 228 million in locks, which was up about 25% against last year's against the same quarter last year. Our gain on sale margins came in at 3.1%, up from 2.8% a year ago. Given how we believe rate will be moving in the coming years, we really would like to recruit harder and maybe double our volume potential closer to $2 billion annually, but recruiting right now in this industry is not easy.
Speaker Change: Mortgage had a great quarter reporting net income of pre-tax net income of just over a million dollars compared to essentially a break-even quarter a year ago.
Dennis J. Zember: During the quarter, we took about $228 million in locks, which was up about 25% against the same quarter last year. Our gain on sale margins came in at 3.1%, up from 2.8% a year ago. Given how we believe rates will be moving in the coming years, we really would like to recruit harder and maybe double our volume potential closer to two billion dollars annually. But recruiting right now in this industry is not easy.
Speaker Change: During the quarter, we took about $228 million in locks, which was up about 25% against last year's, against the same quarter last year. Our gain on sale margin came in at 3.1%, up from 2.8% a year ago.
Speaker Change: Given how we believe rates will be moving in the coming years, we really would like to recruit harder and maybe double our volume potential, closer to two billion dollars annually. But recruiting right now in this industry is not easy.
Dennis Zember: We're going to state-disciplined and off-fans. We're going to look for opportunities where we can on the recruiting side, and we're going to make sure that our profitability continues to improve like we saw this quarter. Tangible book value improved to $12.59 per share, which is 8.8% higher against the same time last year. We still expect to deconsolidate PFH as soon as we can and record the value of those shares, which would lift tangible book value by about 65%, excuse me, 65% per share and improved tangible capital ratios by about 40 basis points. Matt got pretty excited about 65% but 65% per share.
Dennis J. Zember: We're going to stay disciplined and offensive, we're going to look for opportunities where we can on the recruiting side, and we're going to make sure that our profitability continues to improve, as we saw this quarter. Tangible book value improved to $12.59 per share, which is 8.8% higher against the same time last year. We still expect to deconsolidate PFH as soon as we can and record the value of those shares, which would lift tangible book value by about 65%, excuse me, 65 cents per share and improve tangible capital ratios by about 40 basis points. Matt got pretty excited about 65%. That's $0.65 per share.
Speaker Change: We're going to stay disciplined and offensive. We're going to look for opportunities where we can on the recruiting side, and we're going to make sure that our profitability continues to improve like we saw this quarter.
Speaker Change: Tangible book value improved to $12.59 per share, which is 8.8% higher against the same time last year.
Speaker Change: We still expect to deconsolidate PFH as soon as we can.
Speaker Change: and record the value of those shares, which would lift tangible book value by about 65 percent, excuse me, 65 cents per share.
Matthew Alan Switzer: and improved tangible capital ratios by about 40 basis points. Matt got pretty excited about 65 percent, but 65 cents per share.
Dennis Zember: Luckily, as I close out, as we lift forward, I believe we're going to see continued strength in the company and incremental progress on our operating results. The core bank's focus on deposit growth first and commercial lending with new existing customers will continue to benefit from all of our digital capabilities and other advantages like Bob. Our lives of business, although pretty young, are going to continue to age well and improve quarter over quarter, just like we've seen for more than a year. Collectively, our focus on holding the line on operating expense or potentially even seeing some net savings will make the results even more positive.
Dennis J. Zember: Lastly, as I close out, as we look forward, I believe we're going to see continued strength in the company and incremental progress on our operating results. The core bank's focus on deposit growth first and commercial lending with new and existing customers will continue to benefit from all of our digital capabilities and other advantages, like Bob. Our lives of business, although pretty young, are going to continue to age well and improve quarter over quarter just like we've seen for more than a year.
Speaker Change: Lastly, as I close out, as we look forward, I believe we're going to see continued strength in the company and incremental progress on our operating results.
Speaker Change: The core bank's focus on deposit growth first and commercial lending with new and existing customers will continue to benefit from all of our digital capabilities.
Speaker Change: and other advantages like Bob. Our lines of business, although pretty young, are going to continue to age well and improve quarter over quarter just like we've seen for more than a year.
Dennis J. Zember: Collectively, our focus on holding the line on operating expenses, or potentially even seeing some net savings, will make the results even more positive. I'm not going to sit here and say that I think we're wildly liability sensitive, but a falling or softer rate environment will be positive for us, both on spreads and on mortgage buying. The rapid success we've had in our lines of business and the impressive adoption by customers has our phone ringing a lot with ideas and pitches, but we're staying focused on just our existing strategies and opportunities.
Speaker Change: Collectively, our focus on holding the line on operating expense or potentially even seeing some net savings will make this even more, will make the results even more positive.
Dennis Zember: I'm not going to sit here and say that I think we're wildly liability sensitive, but a falling or softer rate environment will be positive for us both on spreads and on mortgage volumes. The rapid success we've had on our lines of business and the impressive adoption by customers has our phone ringing a lot with ideas and pitches. The we're staying focused on just our existing strategies and our partners.
Speaker Change: I'm not going to sit here and say that I think we're wildly liability sensitive, but a falling or softer rate environment will be positive for us, both on spreads and on mortgage volumes.
Speaker Change: The rapid success we've had on our lines of business and the adoption, the impressive adoption by customers has our phone ringing a lot with ideas and pitches, but we're staying focused on just our existing strategies and opportunities.
Dennis Zember: Security. As we tweak and improve our current offerings, we're going to continue the pivot on the digital platform to focus more on lower cost, higher value deposit relationships, and make our offering more familiar and complete community bank, rather than being singularly focused on only a handful of pretty innovative deposit accounts. Right?
Dennis J. Zember: As we tweak and improve our current offerings, we're going to continue to pivot on the digital platform to focus more on lower-cost, higher-value deposit relationships and make our offering a more familiar and complete community bank rather than being singularly focused on only a handful of pretty innovative deposits. All right, with that, Matt, I'll turn it over to you.
Speaker Change: As we tweak and improve our current offerings, we're going to continue to pivot on the digital platform to focus more on lower cost, higher value deposit relationships.
Speaker Change: and make our offering a more familiar and complete community bank rather than being singularly focused on only a handful of pretty innovative deposit accounts.
Dennis Zember: With that, I'll turn it to you.
Matthew Switzer: Thank you, Dennis. I will 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 process. These results incorporate consistent accounting methodologies as previous quarters for comparison purposes. As in previous quarters, these results include various adjustments related to the third-party managed portfolio that net across different line items. In the second quarter, 577,000 related to this portfolio is included in interest income, with an offsetting amount included in non-interest expense. In addition, 4.6 million other provision for credit losses related to this portfolio, with an offsetting amount included in non-interest income.
Speaker Change: All right, with that, Matt, I'll turn it to you.
Matthew Alan Switzer: I will 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 process. These results incorporate consistent accounting methodologies as previous quarters for comparison purposes.
Matthew Alan Switzer: Thank you, Dennis.
Matthew Alan Switzer: I will 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 process.
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 second quarter, $577,000 related to this portfolio is included in interest income, with an offsetting amount included in non-interest expense. In addition, $4.6 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 the third-party managed portfolio that net across different line items.
Matthew Alan Switzer: In the second quarter, $577,000 related to this portfolio is included in interest income with an offsetting amount included in non-interest expense.
Matthew Alan Switzer: In addition, $4.6 million of the provision for credit losses related to this portfolio with an offsetting amount included in non-interest income.
Matthew Switzer: In the following discussion, references to core items will exclude these amounts. In addition, our results this quarter continued to include the consolidation of PNC of Financial Holdings or PSH. PSH pre-tax loss included in consolidated pre-tax income was 2.3 million in the second quarter. Results will be discussed excluding these amounts and relative to common share unless otherwise noted. Earnings available to common and earnings per diluted share for the second quarter were 7.8 million and 32 cents, respectively. Adjusting for PSH in certain one-time items, core earnings were 9.3 million, or 38 cents per share, and up substantially from three cents in the year-ago period.
Matthew Alan Switzer: In addition, our results this quarter continue to include the consolidation of Panacea Financial Holdings, or PFH. PFH pre-tax losses included in consolidated pre-tax income were $2.3 million in the second quarter. Results will be discussed excluding these amounts and relative to common shares unless otherwise noted.
Matthew Alan Switzer: 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.
Matthew Alan Switzer: PSH pre-tax loss included in consolidated pre-tax income was $2.3 million in the second quarter.
Matthew Alan Switzer: Results will be discussed excluding these amounts and relative to common share unless otherwise noted.
Matthew Alan Switzer: Earnings available to common and earnings per diluted share for the second quarter were $7.8 million and $0.32, respectively. Adjusting for PFH on certain one-time items, core earnings were $9.3 million or $0.38 per share and up substantially from $0.03 in the year-ago period. Total assets were $4 billion at June 30th, up slightly from March 31.
Matthew Alan Switzer: Earnings available to common and earnings per diluted share for the second quarter were $7.8 million and $0.32 respectively.
Matthew Alan Switzer: Adjusting for PFH in certain one-time items, core earnings were $9.3 million or $0.38 per share and up substantially from $0.03 in the year-ago period.
Matthew Switzer: Total assets were 4 billion to June 30th, up slightly from March 31. Lone-Telfer income increased 2.5% from the end of Q1, driven primarily by a panacea and like premium finance activity. Deposits were 3.3 billion, up slightly from last quarter. Average non-interest spending deposits declined 5% versus the first quarter due to remixing. Core net interest income excluding accounting noise from the third party managed portfolio decreased slightly, roughly 300,000, to 27.1 million in Q2, with growth and earning assets offsetting margin pressure in the quarter. Reported net interest margin was 3.03%, while core net interest margin excluding accounting noise was 2.94% as compared to 3.03% last quarter.
Matthew Alan Switzer: Loans held for income increased 2.5% from the end of Q1, driven primarily by panacea and life premium finance activity. [inaudible] Core net interest income, excluding accounting noise from the third-party managed portfolio, decreased slightly, roughly $300,000 to $27.1 million in Q2, with growth in earning assets offsetting margin pressure in the quarter. The reported net interest margin was 3.03% while core net interest margin, excluding accounting noise, was 2.94% as compared to 3.03% last quarter.
Matthew Alan Switzer: Total assets were $4 billion at June 30th up slightly from March 31. Loans held for income increased two and a half percent from the end of Q1 driven primarily by panacea and life premium finance activity.
Matthew Alan Switzer: Deposits were $3.3 billion, up slightly from last quarter. Average non-interest bearing deposits declined 5% versus the first quarter due to remixing.
Matthew Alan Switzer: Core net interest income excluding accounting noise from the third-party managed portfolio decreased slightly, roughly $300,000 to $27.1 million in Q2 with growth in earning assets offsetting margin pressure in the quarter.
Matthew Alan Switzer: Reported net interest margin was 3.03% while core net interest margin excluding accounting noise was 2.94% as compared to 3.03% last quarter.
Matthew Switzer: Core yield on loans health or income increased slightly to 6.14%, while core yield on earning assets increased to 5.92%. Cost of deposits increased to 2.98%, while cost of funds increased to 3.16% in the quarter. Excluding accounting adjustments, non-interest income was 9.9 million in Q2 versus 8.3 million last quarter, an increase of 1.6 million and largely driven by increased mortgage activity. Non-interest expense was 27.8 million, excluding the impact of PFA.
Matthew Alan Switzer: Core yield on loans held for income increased slightly to 6.14%, while core yield on earning assets increased to 5.92%. Cost of deposits increased to 2.98%, while cost of funds increased to 3.16% in the quarter. Excluding accounting adjustments, non-interest income was $9.9 million in Q2 versus $8.3 million last quarter, an increase of $1.6 million and largely driven by increased mortgage activity. Non-interest expense was $27.8 million excluding the impact of PFH. Mortgage expenses were $6.1 million in the second quarter, up from $5.1 million in the last quarter and on higher volume.
Matthew Alan Switzer: Core yield on loans held for income increased slightly to 6.14 percent while core yield on earning assets increased to 5.92 percent.
Matthew Alan Switzer: Cost of deposits increased to 2.98% while cost of funds increased to 3.16% in the quarter.
Matthew Alan Switzer: Excluding accounting adjustments, non-interest income was $9.9 million in Q2 versus $8.3 million last quarter, an increase of $1.6 million and largely driven by increased mortgage activity.
Matthew Alan Switzer: Non-interest expense was $27.8 million excluding the impact of PFH.
Matthew Switzer: College. Mortgage expenses were $6.1 million in the second quarter, up from $5.1 million last quarter, and on higher volume. Unfunded commitment and reserve expense was to release a $432,000 in the quarter versus an expense of $75,000 last quarter. We also incurred approximately $1.3 million of accounting and accounting advisory costs in the quarter. Core non-intersex expense, excluding accounting adjustments, these non-recurring items, and mortgage was $20.3 million in this quarter versus $19.4 million last quarter. A portion of the increase is due to heavier legal expenses in the quarter, also partially tied to the restatement activities of roughly $330,000.
Matthew Alan Switzer: Mortgage expenses were $6.1 million in the second quarter, up from $5.1 million last quarter and on higher volume.
Matthew Alan Switzer: Unfunded commitment reserve expense was a release of $432,000 in the quarter versus an expense of $75,000 last quarter. We also incurred approximately $1.3 million of accounting and accounting advisory costs in the quarter. Core non-interest expense, excluding accounting adjustments, these non-recurring items, and mortgage was $20.3 million in this quarter versus $19.4 million last quarter. A portion of the increase is due to heavier legal expenses in the quarter, also partially tied to the restatement activities of roughly $330,000.
Matthew Alan Switzer: Unfunded commitment reserve expense was a release of $432,000 in the quarter versus an expense of $75,000 last quarter.
Matthew Alan Switzer: We also incurred approximately $1.3 million of...
Matthew Alan Switzer: accounting and accounting advisory costs in the quarter.
Matthew Alan Switzer: Core non-interest expense excluding accounting adjustments, these non- recurring items, and mortgage was $20.3 million in this quarter versus $19.4 million last quarter.
Matthew Alan Switzer: A portion of the increase is due to heavier legal expenses in the quarter, also partially tied to the restatement activities of roughly $330,000.
Matthew Switzer: These costs, along with heavier accounting-related expenses, will be reduced in the near future as we complete our activities with the SEC. The core provision for credit losses was a release of $600,000 versus a core provision of $1.6 million in the first quarter. Core net charge-offs were $600,000, approximately down from $900,000 last quarter. The net reserve release in Q2 versus Q1 was largely due to a reduction in individually evaluated and PCD reserves. Lastly, operating our away was 90 basis points in the second quarter, up from 70 basis points linked to quarter. Our core profitability continues to be solid, even in this difficult operating environment.
Matthew Alan Switzer: These costs, along with heavier accounting-related expenses, will be reduced in the near future as we complete our activities with the EdCenter. The core provision for credit losses was a release of $600,000 versus a core provision of $1.6 million in the first quarter. Core net charge-offs were $600,000, approximately down from $900,000 last quarter. The net reserve release in Q2 versus Q1 was largely due to a reduction in individually evaluated and PCD reserves.
Matthew Alan Switzer: These costs, along with heavier accounting-related expenses, will be reduced in the near future as we complete our activities with the SEC.
Matthew Alan Switzer: The core provision for credit losses was a release of $600,000 versus a core provision of $1.6 million in the first quarter.
Matthew Alan Switzer: Core net charge-offs were $600,000, approximately, down from $900,000 last quarter. The net reserve release in Q2 versus Q1 was largely due to a reduction in individually evaluated and PCD reserves.
Matthew Alan Switzer: Lastly, operating ROA was 90 basis points in the second quarter, up from 70 basis points in the linked quarter. Our core profitability continues to be solid, even in this difficult operating environment, and we are optimistic we can continue improving core returns from here as we put the noise-related to SEC filings behind us. With that, operator, we can open up for questions.
Matthew Alan Switzer: Lastly, operating ROA was 90 basis points in the second quarter, up from 70 basis points linked quarter. Our core profitability continues to be solid even in this difficult operating environment and we are optimistic we can continue improving core returns from here as we put noise related to SEC filings behind us.
Matthew Switzer: We are optimistic we can continue improving the core returns from here as we put noise related to SEC filings behind us.
Speaker Change: With that, operator, we can open up for questions.
Operator: With that, I'd like to remind everyone that in order to ask a question, simply press star in the number one on your telephone keypad.
Operator: And at this time, I would like to remind everyone, in order to ask a question, simply press star and then the number 1 on your telephone keypad. And our first question comes from the line of Christopher Marinac with Janie Montgomery Scout. Your line is open.
Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question simply press star than the number one on your telephone keypad.
Christopher Marinac: Our first question comes from the line of Christopher Marnack with Jamie Montgomery Scout. Your line is open. Hey, good morning, Dennis and Matt. I guess I'll start on just the expense point that Matt was making a minute ago. Is that lower $20,000 or expense number a good place to think about as you get behind this noise in future quarters? Or should we think of still something closer to what we just reported?
Speaker Change: And our first question comes from the line of Christopher Marinac with Jamie Montgomery Scout. Your line is open.
Christopher William Marinac: Hey, good morning Dennis and Matt. I guess I'll start on just the expense point that Matt was making a minute ago. So is that lower 20-ish million dollar expense number a good place to think about as you get behind this noise in future quarters, or should we think of something still closer to what we...
Christopher William Marinac: Hey, good morning Dennis and Matt. I guess I'll start on just the expense point that Matt was making a minute ago. So is that lower 20-ish million dollar expense number a good place to think about as you get behind this noise in future quarters?
Speaker Change: or should we think of still something closer to what we just reported?
Matthew Switzer: I think closer to where we have guided last couple of quarters down mid-19s. Okay, so that profitability obviously is much better than what we're seeing as that goes back to the new normal. Correct. Okay, and then would the same be true on provision where provision, particularly exit third parties stuff, it kind of holds in on this low basis point sub 10 area. Yes. I mean, our provisions have been even taken out the third-party portfolio that when we discuss on a core basis. It's been somewhat up and down the last couple of quarters, but we think that should normalize here in the near future as these economic forecasts settle down.
Dennis J. Zember: I think closer to where we have got in the last couple quarters, kind of mid-19.
Speaker Change: I think closer to where we have got at last couple quarters, kind of mid-19s.
Dennis J. Zember: Okay, so that profitability obviously is much better than what we're seeing as it goes back to the new normal. Correct. Okay, and then would the same be true on provision where provision, you know, particularly x, x, the third-party stuff, it kind of hones in on kind of this, this, you know, low basis point, sub-10 area.
Speaker Change: Okay, so that profitability obviously is much better than what we're seeing as data goes back to the new normal.
Speaker Change: Correct.
Speaker Change: Okay, and then would the same be true on provision, where provision, you know, particularly X, X for third-party stuff, it kind of hones in on kind of this, this you know, low basis point, sub-10 area?
Speaker Change: Yes, I mean our provision's been even taken out the...
Dennis J. Zember: Yes, I mean, our, our provisions have even been taken out of the third-party portfolio that when we discuss on a core basis, it's been somewhat up and down the last couple of quarters, but I would think that should normalize here in the near future as the economic forecasts settle down.
Speaker Change: the third-party portfolio that when we discuss on a core basis it's been somewhat up and down the last couple of quarters but
Speaker Change: We think that should normalize here in the near future as these economic forecasts settle down.
Matthew Switzer: We've got it.
Dennis J. Zember: Got it. And then do you have a sense of sort of timing for when this gets resolved? I mean, are we talking a few more weeks, a few more months? Or is it hard to say at this point?
Matthew Switzer: And then do you have a sense on sort of timing for when this gets resolved? I mean, are we talking a few more weeks, a few more months? Or is it hard to say at this point? Yeah, and we're close to, it's kind of a multi-step process, but we're close to getting through the first step, which will allow us to start completing filings and getting back caught up. That's probably hopeful we'll start seeing filing to hit the tape in by the end of August. Great.
Speaker Change: Got it. And then, do you have a sense on sort of timing for when this gets resolved? I mean, are we talking a few more weeks, a few more months, or is it hard to say at this point?
Dennis J. Zember: Yeah, and we're close to it's kind of a multi-step process, but we're close to getting through the first step, which will allow us to start completing filings and getting back caught up. That's probably... I'm hopeful we'll start seeing filings hit the tape by the end of August.
Speaker Change: yeah and we're we're close to it's kind of a
Speaker Change: multi-step process but we're close to getting through the first step which will allow us to start completing filings and getting back caught up. That's probably
Speaker Change: I'm hopeful we'll start seeing filings hit the tape by the end of August .
Dennis J. Zember: Great. And then Dennis, maybe just a quick one for you back to the kind of core business, and how do you feel about the sort of digital account openings and just your normal kind of deposit gathering and kind of what you see out there? How is it changing today from where it may have been, you know, three or four months ago?
Christopher Marinac: And then Dennis, maybe just a quick one for you back to the kind of core business and how do you feel about the sort of digital account openings in just your normal kind of deposit gathering and kind of what you see out there. How is it changing today from work? Three or four months ago? I mean, I think it's still similar to what we've been seeing. I mean, we open a substantial amount of accounts on the digital platform. We don't advertise. We don't see, you know, we don't see a lot of money in and then a lot of money out.
Speaker Change: Great. And then Dennis, maybe just a quick one for you back to the kind of core business. I mean, how do you feel about the sort of digital account openings and just your normal kind of deposit gathering and kind of what you see out there? How is it changing today from where it may have been, you know, three or four months ago?
Dennis J. Zember: I mean, I think it's still... Similar to what we've been seeing, I mean, we open a substantial amount of accounts on the digital platform. We don't advertise. We don't see
Dennis J. Zember: I mean, I think it's still...
Dennis J. Zember: similar to what we've been saying I mean we we
Dennis J. Zember: open a substantial amount of accounts on the digital platform.
Dennis J. Zember: We don't advertise. We don't see...
Dennis J. Zember: You know, we don't see a lot of money in and then a lot of money out. I mean, it's stable, more stable than you might think. It is a little more rate-driven than what we want it to be long term, but from a technology build, it was probably necessary to start that way. I think the pivot now is we're focusing on some business accounts, and those are individual sales just like it is in the community bank, um, You know, we have several strategies that we're implementing that really aren't going to cost anything, but just what I was mentioning about sort of being more fulsome on our offering, you know right now it's just focused on some innovative deposit products but as we start adding other traditional community bank services you know it's going to make us stronger in our core market because we do market as Primis Bank, both digitally and locally.
Dennis Zember: I mean, it's stable, more stable than you might think. It is a little more rate-driven than what we want it to be long-term, but from a sort of a technology build, it's probably necessary to start that way.
Dennis J. Zember: we don't see a lot of money in and then a lot of money out. I mean, it's stable, more stable than you might think.
Dennis J. Zember: It is a little more rate-driven than what we want it to be long-term, but from a sort of a technology build, it was probably necessary to start that way. I think the pivot now is we're focusing on some business accounts, and those are
Dennis Zember: I think the pivot now is we're focusing on some business accounts, and those are, you know, individual sales just like it is in the community bank. You know, we have several strategies that we're implementing that really aren't going to cost anything, but just what I was mentioning about sort of being more fulsome on our offering. You know, right now it's just focused on some innovative deposit products, but as we start adding other traditional community bank services, you know, it's going to make us stronger in our core market because we do market as premise bank, both digitally and locally. So it will make us better in all of our local markets and in sort of wherever else we're able to market that.
Dennis J. Zember: you know, individual sales just like it is in the community bank.
Dennis J. Zember: You know, we have several strategies that we're implementing that really aren't going to cost anything, but just what I was mentioning about sort of being more fulsome on our offering.
Dennis J. Zember: You know right now it's just focused on some innovative deposit products but as we start adding other traditional community bank services
Dennis J. Zember: You know it's going to make us stronger in our core market because we do market
Dennis J. Zember: So it will make us better in all of our local markets and in sort of wherever else we're able to market that. I mean, we're still pretty positive about it and see a lot of opportunity there, but really until we demonstrate the ability to open low-cost accounts, lower-cost accounts, we're not going to get all the value for the shareholders that we want. So that's really where we're focused right now.
Dennis J. Zember: as Primis Bank both digitally and locally so it will make us better in all of our local markets and sort of wherever else we're able to to market that. I mean we're still pretty positive about it and see a lot of
Dennis Zember: I mean, we're still pretty positive about it and see a lot of opportunity there, but really until we demonstrate the ability to open low-cost accounts, lower-cost accounts, we're not going to get all the value for the shareholder that we want. So that's really where we're focused right now. Got it. That's very helpful, and I imagine the cost of funds still is in the process of kind of, you know, evolving to where you want it to go, kind of to your point just made. Yeah, I mean, but I will tell you, I mean, we've got the operating expense burden on the digital deposits is about 15% of what the operating expense burden is in the community bank.
Dennis J. Zember: opportunity there, but really until we demonstrate
Dennis J. Zember: the ability to open low-cost accounts, lower-cost accounts.
Dennis J. Zember: We're not going to get all the value for the shareholder that we want. So that's really where we're focused right now.
Dennis J. Zember: Got it. That's very helpful. And I imagine the cost of funds is still in the process of kind of, you know, evolving to where you want it to go, kind of to your point you just made. Yeah.
Speaker Change: got it that's very helpful and I imagine the cost of funds still is in the process of kind of you know evolving to where you want it to go kind of to your point just made
Dennis J. Zember: Yeah, I mean, but I will tell you, I mean, the operating expense burden on the digital deposits is about 15% of what the operating expense burden is in the community bank. So the thesis that, you know, the digital customers are, you know, more savvy maybe or more used to using their devices has played out.
Speaker Change: Yeah, I mean, but I will tell you, I mean, we've got the operating expense burden on the digital deposits.
Speaker Change: is about 15% of what the operating expense burden is in the community bank. So the thesis that, you know, the digital customers are, you know, more savvy, maybe, or more used to using their devices
Dennis Zember: So the thesis that, you know, the digital customers are, you know, more savvy, maybe, or more used to using their devices. I had played out, played out. And so we could probably have a higher cost of funds on the more digital oriented deposits and still find our way to above average profitability. It just doesn't need to be right now. We really call it 65 basis points behind Fed funds, below Fed funds. We probably need to be another 65 below to really be pushing all the profitability here that we want. So that's, I mean, I don't feel like we got to go from 484. Is our is our combined yield.
Dennis J. Zember: So we can probably have a higher cost of funds on the more digitally oriented deposit and still find our way to above-average profitability. It just doesn't need to be. Right now, we really call it 65 basis points behind Fed funds, below Fed funds. We probably need to be another 65 below to really be pushing all the profitability here that we want. So that's, I mean, I don't feel like we have to go from 484, which is our combined yield.
Speaker Change: has played out. So we could probably have a higher cost of funds on the more digital-oriented deposits.
Speaker Change: and still find our way to above-average profitability. It just doesn't need to be. Right now, we really call it 65 basis points behind Fed funds, below Fed funds. We probably need to be
Speaker Change: another 65 below to really be pushing all the profitability here that we want so that's I mean I don't feel like we got to go from 484
Dennis Zember: I don't think we have to go to 4.84 on those deposits to 3.3%. We don't have to do that.
Speaker Change: is our
Speaker Change: combined yield. I don't think we have to go to 4.84% on those deposits to 3% We don't have to do that. We just got to go probably down another 50 or 60 basis points overall and
Dennis J. Zember: I don't think we have to go to 4.84 on those deposits, to three percent. We don't have to do that. We just got to go probably down another 50 or 60 basis points overall, and we'd be pushing some real profitability.
Christopher Marinac: We just got to go probably down another 50 or 60 basis points overall, and we've been pushing some real profitability here. Great. Thank you both. I appreciate you with my questions and also hosting the call today. All right. Thanks, Chris.
Speaker Change: We'd be pushing some real profitability here.
Dennis J. Zember: Great. Thank you both. I appreciate you taking the time to answer my questions and also hosting the call today.
Speaker Change: Great. Thank you both. I appreciate you with my questions and also hosting the call today.
Dennis J. Zember: Bye. Thanks, Chris.
Nick Lauren: And your next question comes from the line of Nick Lauren zoning with Steven's Inc. Your line is open. Hey, good morning. Guys gone in for Russell Gunther. I just wanted to start with the name. Could you talk about your expectations to be able to keep the name above 3%. All right. And what the related puts and takes are there. And if not, do you think you can still grow NII if NIM declines? We, I think we can keep the NIM pretty confident plus or minus where we are even in this rate environment. Just to talk about in terms of where new productions coming on and relative to our incremental funding.
Operator: And your next question comes from the line of Nick Loranzoni with Stevens Inc. Your line is open. Hey, good morning, guys.
Chris: All right. Thanks, Chris.
Speaker Change: And your next question comes from the line of Nick Lorenzoni with Stevens Inc. Your line is open.
Nick Loranzoni: I just wanted to start with NIM. Could you talk about your expectations of being able to keep NIM above 3% and what the related puts and takes are there? And if not, do you think you can still grow NII if NIM declines?
Nick Loranzoni: Hey, good morning guys. I'm going in for Russell Gunther.
Nick Lorenzoni: Hey, good morning guys. Going in for Russell Gunther. I just wanted to start with the NIM. Could you talk about your expectations to be able to keep the NIM above 3%?
Nick Lorenzoni: and what the related puts and takes are there. And if not, do you think you can still grow NII if NIM declines?
Matthew Alan Switzer: We, I think we can keep the NIM pretty constant, plus or minus where we are even in this rate environment because, as Dennis was talking about in terms of where new production is coming on and relative to our incremental funding. We see incremental earning assets coming on pretty close to three, you know, we can we can continue growing NII because we've got pretty healthy engines for growing earning assets and funding. So we can continue to outpace NIM compression and grow, if there is any, and grow NII, but that then becomes limited by capital. I mean, we don't want to stress our capital ratios just to load up on earning assets, you know, crush the NIM, but grow NII. That's where we're trying to find the right balance. Okay, great.
Speaker Change: We, I think we can keep the NIM pretty constant, plus or minus where we are even in this rate environment because as Dennis just talked about in terms of where new production is coming on and relative to our incremental funding.
Dennis Zember: We see incremental earning assets coming on pretty close to 3. You know, we can, we can continue growing NII because we've got pretty healthy engines for growing earning assets and funding. So we can continue to outpace NIM compression and grow. If there is any and grow NII, but that then becomes limited by capital. I mean, we don't want to stress our capital ratios just to load up on earning assets and, you know, crush the NIM by grow NII.
Dennis J. Zember: we see incremental earning assets coming on pretty close to three. You know we can we can continue growing NII because we've got
Speaker Change: pretty healthy engines for growing earning assets and funding. So we can continue to outpace NIM compression and grow, if there is any, and grow NII, but that then becomes limited by capital. I mean we don't want to
Speaker Change: stress our capital ratios just to load up on earning assets and
Dennis Zember: So it's, that's where we're trying to find the right balance. Okay. Great.
Speaker Change: you know, crush the NIM but grow NII. So it's, that's where we're trying to find the right balance.
Matthew Alan Switzer: Okay, great. And then another sidetrack question: how are you thinking about the overall balance sheet growth for the remainder of this year and then into 2025? And could you also address expectations for Panacea and life premium finance specifically as to what you plan to keep versus sell in the end?
Nick Lauren: And then another side track question. How are you thinking about the overall balance sheet growth for the remainder of this year and then into 2025. And you could also address expectations for panacea and the life printing finance specifically as to what you plan to portfolio versus sell in the end. I mean, I think the overall loan growth for the year we're still targeting high single digits to 10%. Probably been, I think we were a little bit lower at the beginning of the year, but it's been a little bit faster than that was. So probably still approaching 10% is the upper end of what we would see from the whole year.
Speaker Change: Okay, great. And then another sidetrack question, how are you thinking about the overall balance sheet growth for the remainder of this year and then into 2025?
Speaker Change: If you could also address expectations for Panacea and the life premium finance, specifically as to what you plan to portfolio.
Matthew Alan Switzer: I mean, I think the overall loan growth for the year, we're still targeting high single digits to 10%. I think we were a little bit lower at the beginning of the year, but it's been a little bit faster than that, so probably still approaching 10% as the upper end of what we would see for the whole year. [inaudible] We did not have any loan sales in the second quarter.
Speaker Change: I mean I think the overall loan growth for the year we're still targeting high single digits to 10% probably been I think we were a little bit lower at the beginning of the year but it's been a little bit faster than
Speaker Change: than that was, so probably still approaching 10% as...
Dennis Zember: We did not have any loan sales in the second quarter. We're working on some potential outlets for particularly for Panacea. probably wouldn't happen in the third quarter, potentially in the fourth quarter, but that would free them up to, they've got actually both PANCE and Lightroom Finance have all the opportunity to grow earning assets that they want. We've slowed them both down while we look for potential outlets. So, even if the PANCE it does end up selling a portfolio later in the year, I think that'll be replaced pretty quickly. I think our expectations for 25 is probably similar, assuming similar rate of armature we have right now. I mean, even if we get one rate that I think we're still in a somewhat challenging yield curve and rate environment until we get more cuts, so probably would look for that high single digit, low double digit growth in 25 as well.
Speaker Change: the upper end of what we would see for the whole year.
Matthew Alan Switzer: We're working on some potential outlets, particularly for Panacea, probably probably wouldn't happen in the third quarter, potentially in the fourth quarter, but that would free them up to use what they've got. Actually, both PANCEA and Liferoom Finance have all the opportunity to grow earning assets that they want, slow them both down while we look for potential outlets. So even if Panacea does end up selling a portfolio later in the year, I think that'll be replaced pretty quickly.
Speaker Change: probably
Speaker Change: probably wouldn't happen in the third quarter, potentially in the fourth quarter.
Speaker Change: but that would free them up to, they've got...
Speaker Change: Actually, both PANCEA and Life Room Finance have all the opportunity to grow earning assets that they want.
Matthew Alan Switzer: I think our expectations for 25 are probably similar, uh, assuming a similar rate environment to what we have right now. I mean even if we get one rate cut, I think we're still in a somewhat challenging yield curve and rate environment until we get more cuts, so I probably would look for that high single-digit, low double-digit growth in 2025 as well.
Speaker Change: I think our expectations for 2025 is probably similar.
Nick Loranzoni: Got it. That's a solid color. Thanks for taking my questions, guys.
Speaker Change: Assuming a similar rate environment to what we have right now, I mean, even if we get one rate cut, I think we're still in a somewhat challenging
Speaker Change: yield curve and rate environment until we get more cuts. So we probably would look for that high single digit, low double digit growth in 25 as well.
Nick Lauren: Got it, that's a solid color. Thanks for taking my questions, guys. Thanks, Nick.
Speaker Change: Got it. That's solid color. Thanks for taking my questions, guys.
Dennis Zember: In there, no further questions at this time. I will turn the call back over to CEO, Dennis Zember. All right, thank you, and I appreciate everybody taking time on your priority for the call. If you have any questions, Matt and I are available.
Operator: And there are no further questions at this time. I will turn the call back over to CEO Dennis Zember.
Speaker Change: Thanks Nick.
Speaker Change: And there are no further questions at this time. I will turn the call back over to CEO Dennis Zember.
Dennis J. Zember: All right. Thank you. And I appreciate everybody taking time out on their Friday for the call. If you have any questions, Matt and I are available. Have a good weekend.
Dennis J. Zember: All right, thank you. And I appreciate everybody taking time on your Friday for the call. If you have any questions, Matt and I are available. Have a good weekend.
Dennis Zember: Have a good weekend.
Operator: This concludes today's conference call.
Operator: This concludes today's conference call. You may now disconnect.
Operator: You may now disconnect.
Speaker Change: This concludes today's conference call. You may now disconnect.
Speaker Change: ?? ?? ?? ?? ??