Q2 2025 Primis Financial Corp Earnings Call
Good morning. My name is Audra and I will be your conference operator. Today at this time I would like to welcome everyone to the premise Financial Corp second quarter earnings call today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speaker's remarks, that will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad,
If you would like to withdraw your question, press star 1 again.
At this time, I would like to turn the conference over to Matt slider Chief Financial Officer. Please go ahead.
Matt Slider: Good morning, and thank you for joining us for a premise, Financial Corps, 2025 second quarter, webcast and conference call.
Matt Slider: The results or other expectations expressed in the forward-looking statements.
Matt Slider: 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, and investor presentation, which has also been posted to the investor relations section of our corporate site premise, bank.com.
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.
Matt Slider: 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?
Speaker Change: I will now talk turn the call over to our president and chief executive officer down this December.
Speaker Change: Thank you, Matt. And thank you to all of you who have joined our second quarter conference call.
Speaker Change: To today, I want to cover several items as succinctly as I can first our quarter results and and where our CR recurring earnings, how our operating Leverage is boosting our results, a recap on our operating divisions. And then lastly, a very subtle pitch on our on our stock. For the second quarter, we're showing about 8.4 million in net income or 34 cents per share,
Speaker Change: This quarter included, an additional pre-tax, gain of 7 and a half million dollars on a portion of our, uh, interest in pfh.
We offset that gain with about a million 2 of support on our new teams in the in premise mortgage.
Speaker Change: We had the last write off of noticeable interest on the maturing promo loans of about million dollars and then some other expenses that match highlighted um on uh the slide in our deck on slide 6.
Speaker Change: When you do all that we get back to about 8.4 million of pre-tax pre-provision earnings and then also on the slide, there are some items that we think are going to affect and improve future quarters, uh, and outline, our uh, continued path higher.
Speaker Change: The number 1 Thing driving our results right now is very wide operating leverage quickly. The math is that we're getting incremental margins in the mid 4% range and we're holding Opex and a steady to declining state.
Speaker Change: When we sold the life premium portfolio, we moved off about 375 million of very safe earning assets but had no related decline in operating expenses.
Speaker Change: We can currently added the warehouse lending team at that time and have been moving aggressively on the core Banks pipeline.
The graph and data in our investor presentation on slide, 7 shows how high our incremental margins are and how that's fueling our spread income.
Speaker Change: Importantly, I would point out as I have in the past, the power of this digital platform alongside a strong Community Bank. The table shows that digital raised 36 million nationwide at 4.06%, which is right on top of the rate specials. I'm seeing on Regional Bank and National Bank websites.
Speaker Change: The difference is ours is targeted. It's barely marketed and it's massively. Scalable
That means any strategy we have on digital does not affect the very profitable relationship pricing in my core franchise.
Speaker Change: Consequently we priced about 120 million of deposits in the second quarter and our effective cost was only 2.89 which is 32% lower than it was the same quarter a year ago. We're beating the competition on incremental yields and cost of deposits. And we're doing it with a national deposit, platform supporting a core Bank
For the year we've grown checking accounts by almost 18% annualized and we had some real needle movers here, pushed to the third quarter.
The point of all this is that while our incremental loan yields are really good, we're getting just as much of our margin results and nii growth from the deposit side.
Speaker Change: Slide 15 shows that our Opex is contained. And my belief here is that we can hold this or hold this level or lower through the end of 26. That's supported by a few key items that I'll talk about here first as we noted in the press release, we've negotiated with our core provider, a solution that would save us about starting in August.
Speaker Change: There are some additional technology oriented savings scattered through. The next 8 quarters from other vendor consolidation and amortization runoff that will move this savings to about $600,000 per month in early 27.
Lie from organic efforts, Matt's going to smile about this. Given that our company has grown exclusively from organic efforts.
And has done no m&a. Since 2018, or earlier 2017, we have officially advertised off the last remaining portion of our deposit intangible in the second quarter of that amounted to about 290,000 and I'll go off uh, comments here and say this is the first time in my
Speaker Change: Banking career that I have not had deposit intangible conversation.
Speaker Change: So, a new stage of my career. Uh, anyway, lastly, back on the Note, the company continues to slowly and methodically restructure, by leaning harder on our ambitious, and techno, and Technical experts and consolidating roles where we can.
Speaker Change: For more than 2 years even through, uh, raises and team builds, and all, we're essentially flat on bass comp in the company.
Speaker Change: Outside and bass company, um, outside of mortgage. And as we have turnover, we are very successful. Reallocating duties to our ambitious and Technical champions in the company. And I believe that strategy is something we can sustain for about another 4 to 6 quarters before. It's fully exhausted.
Speaker Change: Like a, a quick recap on our operating divisions and their results. First is the core Bank, the core Bank is still almost 70% of our total balance sheet and and really our Workhorse on slide 8. We're showing the core Banks Roa of about 1 138, which is supported by a very low cost of deposits in the 1.75% range.
Speaker Change: The core Bank sales efforts on the loan side, are only minimally centered on investor CRA. And on the deposit, side are centered on almost exclusively on low cost, deposits using our Branch Network and our proprietary delivery app called 5.
Mortgage Warehouse continues to build lines and relationships and volume. Slide 9 shows the amount of pre-tax contribution with key operating ratios. The fact that we're only 6 months into this strategy and realizing these kind of ratios and contribution is is pretty exciting. And that scale this strategy will materially move virtually every operating ratio we track and push out a monthly contribution that will move the needle for us.
Speaker Change: Premise mortgage closed about 323 million in the quarter, which is up about 52% from the same quarter in 24.
Speaker Change: We did support our new teams with about 1.2 million dollars of drawers and pricing concessions, which is only about 35 basis points of acquisition cost.
Speaker Change: Um, a lot of our new volume is FHA oriented with higher yields, much higher yields and construction perm, which we believe is important to smooth out. The earnings in this business is naturally slower, fourth quarter without the support. On the new teams. I have the mortgage company profitability at about 46 basis points on closed loans which is about the same level we had last year.
Speaker Change: Panacea lastly is is just so impressive rated the number. 1 Bank, for doctors on Google. It's endorsed by about as of the banking solution, for about anybody that's important in this industry, to doctors their digital Solutions are compelling and reliable but they still Bank doctors vets and dentists with real attention and humans.
Speaker Change: For the quarter, they grew to over 500 million of outstanding credit and really focused hard on the deposit side.
Speaker Change: Uh, closing some pretty big deposits at the end of the quarter and to illustrate the momentum here, I looked this morning. Panacea had cracked 150 million of total deposits and had moved to over 30% coverage ratio on their total loans.
Speaker Change: NASA closed. I want to go back into the presentation to slide 5. The why should you own frst right now?
Speaker Change: And I'll be honest and say it's been hard over the past year.
Speaker Change: To be able to put out a slide like this because I knew the volatility in our results that, uh, the consumer book would cost.
But with that behind us, I'm I'm compelled again to have a slide like this in our comp, peer group. We're the fourth cheapest stock.
Speaker Change: And it's hard to say that as an advantage, but we're the fourth, cheapest, stock barely over tangible Book value. So, the entry point here is attractive
Speaker Change: We are an organic growth story. So, all of the work that we've done to build, really scalable engines that can move earnings move. The balance sheet will benefit current shareholders.
Speaker Change: Earnings, uh, this quarter and Beyond.
Importantly, uh, we have no negative influences on our company that would cause earnings pressure or risk issues. And that's a real critical element for a CEO that's trying to hurt his staff to build what shareholders really want.
Speaker Change: And lastly, um, maybe most importantly, I, I think we're unique and not in a bad way. We in our region, we are 100% core funded. We have very little concentration in commercial real estate.
Speaker Change: And I really don't see the. I don't see any again, the pressures. I don't see any pressures that would cost that to change.
Matt Slider: All right, Matt with that. Succinct summary on our quarter. I'll turn it over to you basically cover. Thanks. No. It's this thing because I wanted it. Yeah. Uh,
Matt Slider: I appreciate that. Dennis as a reminder a discussion of our financial results can be found in our press release and investor presentation found on our website and in our AK filed with the SEC
Speaker Change: Uh, Dennis covered a lot of these points. So I will be brief uh, and encourage you to review both of those documents for more information.
Speaker Change: As previously, previously, disclosed we Decon see a financial Holdings or pfh as of March, 31st, which means pfh is balance. Sheet is not included in our Consolidated, balance sheet at the end of the first quarter and thereafter.
Speaker Change: Pfh is income was included for the first quarter of 25 and prior quarters, but was not part of our Consolidated financials. Beginning with the second quarter of 2025. We also disclosed, we sold down some of our investment in pfh in the second quarter, yielding proceeds of approximately 22 million and an additional gain of 7.4 million in the quarter.
Speaker Change: The second quarter included a number of items, both positive and negative. But on balance, we're on track to achieving the results in the second half of 2025 that we've been driving towards.
Speaker Change: Gross loans held for investment increased almost 12%, annualized for March 31st to June 30th. Excluding a runoff of Life, Premium Finance and consumer program portfolios. Gross loans would have increased approximately 15% annualized led by growth in Panacea. And mortgage warehouse, this growth is moving us towards our Target, level of earning assets with strong yields.
Importantly non-interest-bearing deposits, increase. 22 million or 19% annualized in the quarter with a strong contribution from the core Bank and Mortgage Warehouse.
Speaker Change: Our strategies on that front are meaningful and we believe are going to continue driving low cost deposit growth.
Speaker Change: As Dennis discussed. Our Focus has been making sure we execute on the strategies that drive our Roa higher from here, which we've done core, net interest margin excluding the effects of the consumer program and the second quarter was 3.15% uh from a reported 3.13% last quarter and 280 basis points in the year ago, period because this quarter had significant interest reversals on the consumer program promo loans, without offsetting interest recognition reported net interest income declined in the quarter. However, excluding interest reversals on consumer program loans, in the second quarter net interest income would have been 27.5 million versus 26.4 million in the first quarter and 24.9 million a year ago.
Speaker Change: As described further in our earnings release, our level of promo, activity is substantially lower from here. So we should not see the large reductions to interest income from this point forward.
We are still booking new loans with yields well over 7% and we have a substantial amount of loans repricing later this year. And next below that level that will continue to help the margin.
Speaker Change: Core Bank costs and deposits remains very attractive at 179 basis points in the quarter and we recently lowered rates on the digital platform, 15 basis points and believe that we have an opportunity to lower further on that platform in the coming months.
Speaker Change: Our provision expenses quarter was 1.2 million driven by growth in the portfolio and moderate charge off activity.
Speaker Change: We're pleased to report that we did not require a provision for the consumer program. This quarter and are working hard with our own team, to drive down, delinquencies, and losses in that portfolio.
Speaker Change: Non-interest income was 10.6 million in the quarter versus 8.5 Million. Last quarter, when excluding pfh related, gains with increased mortgage Revenue as the primary driver,
Mortgage revenue and profitability was impacted by the expansion in Lake, q1 driven by temporary pricing concessions and compensation report as Dennis described all of which is done at June 30th.
Speaker Change: we also closed, 26 million of construction to perm loans in the quarter where we won't see gain on sale Revenue until later this year,
Speaker Change: Lastly we are in the early stages of ramping up, our SBA lending activities and realized gains of 210,000 in the second quarter.
Speaker Change: Games we've recorded in roughly a year and we expect that Revenue to build the rest of this year and into 2026.
Speaker Change: On the expense side when you exclude mortgage volatility and non-recurring items, our core expenses were approximately 22.7 million versus 20.4 million in the first quarter.
Speaker Change: There are a handful of items described in the earnings release that are 1-time in nature, but don't rise to the definition of non-recurring for reporting purposes and totaled approximately 1.7 million.
Speaker Change: Normalizing for these core non-interest expense was approximately 21 million in the second quarter.
The technology saves, we've discussed combined, with ending of our CDI amortization. Our expected to lower our run rate by 1 and a half million per quarter with approximately 900,000 of that expected in the third quarter. We have other opportunities as Dennis. Alluded to that we are chasing from an efficiency and vendor consolidation standpoint that we believe can get that run rate down to 18 to 18 and 1.5 million per quarter in 2026.
Speaker Change: In summary as we've detailed in the earnings release and investor presentation. The second quarter is the last quarter to Bear significant noise due to the consumer program and the associated catching up on filings. Normalizing for those items are run rate pre-tax pre-provision earnings or 8.4 million in the second quarter.
Speaker Change: With mortgage bouncing back expense savings from technology, contracts and growth, and repricing of earning assets. That number is expected to grow to over 13 million heading into 2026, which equates to our 1%, Roa goal.
Speaker Change: We've consistently pointed to the end of 2025, as our Target, for getting to our profitability goals. We have substantial Tailwind from here that get us there, without Herculean efforts, just straight forward, blocking, and tackling.
Speaker Change: We cannot be more optimistic about how we are positioned in our ability to generate attractive earnings in coming quarters.
With that operator. We can now open the line for Q&A.
Speaker Change: Thank you. We will now begin the question and answer session if you have dialed in and would like to ask a question. Please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again.
Speaker Change: We'll go first to Russell, Gunther at Stevens.
Speaker Change: Hey guys, this is Nick on in for Russell.
Speaker Change: Hey, Nick.
So to start off, I wanted to see if you guys could provide some more color around your loan growth expectations. Just for the back half of this year and overall 26, but maybe particularly touch a little bit on growth expectations for Panacea and mortgage Warehouse.
Speaker Change: all right, the um,
Speaker Change: I think warehouse for the quarter. I think we ended at 180. I think the average for 1844, I think for, I mean, scale you can see on the graph there. We're thinking that, uh, We've sort of showed what 250 million 350 and 500. I don't think we're going to try to push that to 500 million next year. But I think being somewhere in the 250, to 350 range next year, is is very realistic. Um,
The team I'm sure is listening and and they want to, um, they want to reach for the moon or or Mars, and, but I think 250 to 350 is probably, um, for the average for next year is is pretty realistic.
Get slower in the first quarter in the fourth.
Speaker Change: Um, Panacea could uh I mean Panacea could of course blow the top off. I mean the pipelines are massive. The adoption is uh, really good. Their salespeople are uh, their Bankers are
Speaker Change: Are really every day increasingly, recognized in the industry. Um, telephone rings.
Speaker Change: A good bit. But, uh,
Speaker Change: Their growth is clearly more than our balance sheet can handle. And so Panacea has been reaching out finding um, some Capital Market Solutions,
Speaker Change: Uh some pretty big Banks over 50 billion dollars that uh are pretty interested in their paper.
Speaker Change: and so, I suppose we could probably mute, uh,
Speaker Change: a little bit of their growth or what?
I'm a little bit of their pipeline if I had to guess.
Speaker Change: We probably could, we probably could have, you know, somewhere in the hundred to 150 million range next year.
Speaker Change: Focused on is um, doing a little bit of residential construction to support the mortgage company.
Speaker Change: Um and so I think the court Bank probably is something that's in the, you know, 5% range. Overall, we're going to have some shrinkage in life premium, the consumer book is still going to shrink. So I think you know you boil all that together I think we're probably maybe High single digits. Would you say for next year for next year and probably for the rest of this year? Maybe low to mid single digits. Yes, because mortgage Warehouse will moderate in the fourth quarter. Um, we'll have shrinkage in those runoff books.
Um fantasy. You may have some uh, opportunities to put some stuff off the balance sheet this year, so we won't I don't our expectation is not to have um,
You know, 12 to 15% growth for the back half of this year, it'll be much slower. Yeah.
Speaker Change: Okay, awesome. Thank you. That's great next. So with your corn name, sitting around a, what was it 315 and this quarter, how much improvement or even compression? Do you guys anticipate over the next
few quarters, if you're assuming no rate cuts,
Speaker Change: We're still assuming, um, call we've been seeing about 2 basis points, a month in margin expansion, um, and with the reduction in, uh, digital platform and incremental growth and repricing. I mean, we're still expecting that to creep up for the rest of the year, probably into the mid 320s by the time we get to the end of the year.
Maybe okay.
Speaker Change: That works. All right. Thank you for taking my questions.
Uh, huh.
Speaker Change: We'll move next to Christopher merignac at Janney Montgomery, Scott.
Speaker Change: Hey, good morning. It's kind of want to continue along the, the same lines of questions. I I would want to go back to I guess to the general bank or the, the core back and compare kind of how um, that growth is going to be as a percentage of the overall earning asset growth. Not just this next quarter but also thinking, you know, beyond Q3 and and is and how much of that growth in the um core bank is going to be local versus your digital. Um, um changes.
Speaker Change: On the deposit side. Chris,
Speaker Change: It's really deposits in and and Loans, I mean, to both sides would be helpful.
I think on the deposit side, I I don't think uh,
Speaker Change: I mean, I think digital probably for the rest of the years is flat, and then, maybe next year, could be up 10% maybe a hundred million dollars. I think the core bank will outgrow the digital. I'm confident the core Bank actually will outgrow digital on the deposit side. Just given the the, the pipeline
Speaker Change: for um,
for that growth and some of the way they're using Vibe and
Speaker Change: Uh other treasury services and how focused we are across the bank on the deposit strategy. I mean, our and I'm not trying to get off your question, but our whole strategy over here on
Speaker Change: Improving core earnings is operating margins. And uh, we see
Uh, low cost deposit growth or keeping incremental deposit yields sort of in the 2, mid twos low twos as key to that. So I think the core Bank act unquestionably will outgrow digital, um,
Speaker Change: And I just don't see any pressures.
Speaker Change: On.
Speaker Change: The company at all, that would make us want to get more aggressive on the uh, digital side. We lowered rates on the digital
Speaker Change: Uh, deposits this, uh, last week and we've seen, I think very minimal, not even 1% runoff in deposits, but that probably has caused a little bit of, um, pressure on the upside growth. So, so there and on the on the loan side again, we're I mean, if we stepped pretty hard,
Speaker Change: On.
Local projects. I mean, when you do that, you have to focus a little more on investor CRA. And right now we're just not
willing to step out and do that office multi family. Uh,
Speaker Change: Just really the only investor CRA that we like right now is residential construction and most of that's because we we pair it up with our mortgage company. Um, seeing IG growth. We've got I think a decent Pipeline on some cni business but when you look at the core Banks uh
Portfolio right now, the amortizations and the payoffs and so so forth. I just
Speaker Change: I think 5% is growth on the core bank is, is just upside. I just don't think it's can do more than that. Without us letting them loose in, in investor CRA world, you
Speaker Change: Okay. Super, and then launching Vibe and other markets. That's still part of the of the core Bank as you account for that. That's not included at all individual activity. Okay, that's what I thought. Um, the growth in the mortgage side that you mentioned in the slides before, or by year, end does that predicate any any uh, drop in interest rates? Or can you do that without external health?
Speaker Change: That's that's where we think we are right now. If you look at our team,
Speaker Change: uh, especially with the new
Speaker Change: Teams and new recruits that we've added, you know, in the first half of the year. That's where we are right now. I think if and so I would tell you Chris that's probably volume that we could expect with you know the 30-year mortgage probably
Speaker Change: Approaching 675.
Speaker Change: Yeah, I mean north of 6 and a half but but probably closer to 7 than 6 and a half that's probably the volume. You could expect, I think the volume would be up 30-, 40% if we got in the low 6 is and probably 60 to 70% if we got in the 5.
Speaker Change: Again because you I just refi boom. Um impacts coming in there.
Got it and then uh, 2. I guess other follow-up questions just, you know, 1 on sort of the the um, the change in criticizing classifies improving, does that portend lower charge offs? Or is there kind of a base level of charge off? So we should just sort of think out the out loud about going forward.
I think I don't know that they can get much lower. Net charge offs. Yeah, we on a core basis. We really didn't have a high level of charge us. Anyway,
Speaker Change: I mean, I think our our
Net charge offs are really. I think in what the industry is I think it's probably around 10 probably. So no. I mean the answer is we'd like to see in that go down but I don't think it's going to pretend lower charge offs. I mean, if you though it's really going to drive charge offs here is the fact that we're pretty much through promo lines, we've had
Speaker Change: A year ago, Chris we were and that consumer book, we had 90 million dollars of promo loans.
All all types.
Speaker Change: And we're down 90. We plowed through 90 of that with immense noise in our results and charge offs and um,
Speaker Change: We're we're, I mean, we're through all but 9 million of that right now. And I think that 9 million is probably even over the next 6 quarters. Yeah.
Speaker Change: And it's not like we're going to charge off all that either. Exactly.
Speaker Change: So I mean so that that that mid teams level we see on slide 16, you know give or take. That's that's kind of where you're where you're at.
Yes.
Speaker Change: And then on core expenses um what would be kind of an appropriate growth rate in general, it's not necessarily looking at next quarter per se, but just thinking out loud the next 6 to 7 quarters. As you continue to grow the whole Enterprise,
Well, we're trying to get that uh, negative in the short term but if we get down to our kind of 18 to 18 and a half million level with the tech savings and some other initiatives, um, from there we would expect kind of normal.
Uh, inflation call it.
Speaker Change: 3 to 4 percent.
Speaker Change: To 3 to 4% from a honestly 18 18 is probably about as low as we could go. I mean 18, I show that 18. If we got to 18 million with our sort of core Banks, if you, if you get to that level, excluding mortgage you and you look at the core Banks, non-interest income. It's not big as maybe 7 million a year. You, you really have us at about a hundred and 155 or 160 on net overhead.
Speaker Change: that's,
Speaker Change: We're still a little Tech heavy and Tech forward. That's probably about as low as we could go.
Speaker Change: So I think if we got to somewhere around there 18 I think at that point you would see us
Speaker Change: Like Matt saying moving a little higher.
And if you don't get that that far down, that would be because you'd grown faster or done more. And that just, you know, we'll take care of itself on the earnings side.
Speaker Change: Sort of going forward.
Great. That's helpful. Thanks for everything in the uh disclosures here and uh for taking our questions this morning
Speaker Change: All right. Thank you. Thanks Chris.
Speaker Change: And that concludes our Q&A session. I will now turn the conference back over to Dennis sber for closing remarks.
Speaker Change: All right. Thank you everybody. That's joined our call. Uh, hope you have a good and safe weekend. If you have any questions or comments,
Matt Slider: Uh, Matt and I are available. All right, talk to you soon.
Matt Slider: And that concludes today's conference call. Thank you for your participation. You may now disconnect