Primis Financial Corp.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primus Financial Corporation Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Matt Switzer, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us for Premise Financial Corp's 2022 Fourth 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 statements. Further discussion of the company's risk factors and other important information regarding our forward-looking statements are part of our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has also been posted to the investor relations section of our corporate site, firmisbank.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. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. Reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. With that, I will now turn the call over to our President and Chief Executive Officer, Dennis Semper. Thank you, Matt, and thank you to all of you that have joined our fourth quarter conference call. When we started 2022, we were determined to grow our new lines of business alongside the community bank. to finish the work that we'd started on the digital bank and to somehow diversify away from just spread income. Wanting to build some strength and opportunity and non-interest income, which our company has not really benefited from. Looking back over the last 12 months, we've invested so hard in the bank that we envision. And the question, or one of the questions that we all have, is basically, will it pay off and when? I'm going to answer that in a minute, but first a few items. highlight in the quarter and in the year first was the loan growth we experienced i knew matt was conservatively estimating our growth potential he's chuckling right now uh as we started 2022 and we did come in very strong with about 25 percent growth in loans when you exclude the effects of ppp and this was from all areas of the bank just like we had predicted evenly from the community bank from panacea and from white premium finance For almost five years, really through the middle of last year, our bank had just not grown loans organically. We were not known for that. And I think we've turned that around in a really big way, and I'm really proud of the engine that we have built here from scratch. Two of these engines are operating lines of business. Panacea started the year with only about $50 million of loans, all consumer, and about $1.3 million of recurring revenue. We grew our doctor base to about 3,000 doctors doing business with us all across the country. We've invested in production and credit administration and customer support and technology. We spent all this money to build the brand, and as we progressed through the year, results at Panacea progressed nicely. We finished the year with about $7 million of recurring revenue, and the prospect of a material boost to that number as we move to start splitting our production between gain on sales and portfolio. The credit here is outstanding. Our commercial book has debt coverages over two times, no past dues ever, and incremental yields, honestly, that are close to or exceeding traditional bank CREs. Life Premium Finance ended with just under $200 million of outstanding loans and about $800 million underwritten. In less than a year, they've built a brand in all the infrastructure and can take this to something much more sizable where the only real incremental operating expense is higher incentive pay for the producers. This division also moved deals higher on loans that are entirely cash-secured And in the fourth quarter, we were getting incremental variable rate yields within 30 to 40 basis points of fixed rate CRE. Another area we invested in was the mortgage business. Our total investment in the mortgage company, including the losses associated with recruiting the teams, stands at just under $6 million, which is considerably less than our former investment in Southern Trust. Looking at our production teams, our restructured comp plans, the level of administrative staffing and the current rate and housing environment, I feel confident that this investment has a payback of about four or five quarters. We are not so heavily invested in this space that we can't maneuver or pivot if conditions worsen or recruit and build if conditions for this space improve. I really believe we're ideally positioned for this year and this division will improve our earnings and ROA in 23. The last thing I'd mention, the next to last thing I'd mention really before turning this back to Matt is in regards to credit quality. During the quarter, we took a very large provision for a single asset, one that we had put in non-performers, I think, in the third quarter. When this loan got wobbly, we got new appraisals and we felt pretty confident in our position. But we reappraised the properties in the fourth quarter and aggressively wrote them down to the 90-day liquidation value and levels that I'm hopeful will move the property as soon as we're able to do so. The other material MPA on our books is the first mortgage on the large estate property. We have a 40% or so LTV there, three junior lien holders behind us. And right now that loan is current, but we have left it in non-performers for the time being. So outside of these two credits, we only have about 20 basis points of non-performers, and our credit quality in 22 would have improved dramatically, almost by 50%, and nearly to the top of our peer group. None of that actually, none of that excuses our actual results. We finished the year with about 119 basis points of non-performers, And I'm just trying to illustrate to you how determined we are to move these two assets out of the bank as fast as we can and restore credit quality that you'd expect from a top-performing bank.

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