Primis Financial Corp.

Hello, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primus Financial Corporation third quarter earnings 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, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Matt Switzer, Chief Financial Officer. You may begin.

Good morning and thank you for joining us. 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, premisebank.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. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. 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 that have joined our third quarter conference call. I'm excited about our quarter and about the broad-faced improvement and momentum we see in some key areas. I'll discuss a few of those and then give it back to Matt for some more details. I'm joined today here in the call, by the way, by Matt Switzer, who is our CFO, and Rick Falk, who has recently been named president of Premise Bank. First, and most importantly, is our net interest margin. Our margin improved significantly this quarter thanks to a couple items. First, we began sweeping excess funds off of the balance sheet on June 30th. So the entire impact of that was felt in the third quarter, but none of it was felt in the second quarter. If I go back and normalize that for the second quarter, our margin would have still increased in the third quarter by a couple basis points, which is significant for the margin to be directionally headed that way. Further, and as our release states, we had a strong September with a margin of 305, so we are increasingly confident that we can hold at these levels and continue moving higher. Obviously, there's a lot of moving parts at play in improving the margin, but the foundational block to this success are the wins we're having in the community bank. On the new account side, we note that we opened 2,404 new accounts for new customers totaling almost $73 million with a weighted average cost of only $180 million. On an annualized basis and, of course, neutralizing any movements in existing deposit accounts, this would have represented a 9% annualized growth rate in total deposits and would be almost dead on top of our existing cost of funds. So to have this kind of deposit activity without having to post really high interest rates is pretty notable. And further, even with the scale of our national deposit platform, we did more than two-thirds of this new account activity in the community banks. On the existing customer side, the core bank managed an impressive 1.91% cost of deposits, which was up only slightly from the second quarter of 23. The retention of deposits has been a key focus and really more of a challenge because we announced a consolidation of eight branches or 25% of our footprint about a quarter ago. But our calling efforts and our customer convenience factors like Vibe have made such a difference, and the runoff from those eight branches has been minimal. In fact, two of the eight branches that we're consolidating actually have increased deposit levels since the announcement. Rick and his team have done an outstanding job with this result in getting us in a place where we believe it's sustainable. Our pipelines for the fourth quarter and closed activity so far look very promising against our third quarter result, and the energy level and excitement at the bank with these wins is well deserved. On the digital side, we spent no money on paid marketing in the third quarter. Even so, we opened about 1,400 new accounts and grew total accounts on the platform by about 15% annualized. Impressively, the average cost of these new deposits was still below 5%, and a significant percentage of the activity was from existing customer referrals. In the third quarter, customers opened about five new accounts for every one account they closed. Our average balance per customer is $73,000, and our average depositor is about 49 years old. On the lending side, we're demonstrating in an increasing fashion the value of our niches. Between the community bank, Panacea, and Life Premium, we had new production over $100 million at an average yield of about $795 million. Matt notes in the press release that we booked incremental spreads of 518, which way more than neutralizes the dilutive pressure of today's interest rate environment. Panacea and Life Premium are obviously high-quality lending niches with established brands and sources of business. Both divisions spent the quarter sourcing relationships and partners, whether it be other banks or securitization platforms, and collectively placed what I believe is about 25% of their production capacity. As we go into the fourth quarter, we're going to move this number, this percentage higher, and through next year, it's my hope that we'll have sources in place to run these engines at full capacity. Our mortgage division shines this quarter and continues to move forward, albeit in a tough environment to build this kind of division. During the quarter, they funded about $169 million of volume and had pre-tax earnings of almost $700,000. Importantly, our division got this excellent result by focusing on top-shelf lenders and serious efforts on cost controls. Our team understands the environment we're in, and when yields turn and volumes jump again, and they will do that, our division's profitability will impress and our disciplines will pay off. As I close and turn it back to Matt, I want to make a quick comment on the balance sheet itself. Today we're sitting here with very strong liquidity and really a great story on deposit. We have strong capital levels. We have very low non-performing assets. We really have no concentrations in office CRE or really anything problematic. We have substantial loan and deposit engines that are incrementally very profitable. and that we can take on or off the balance sheet. Our earnings are moving up as well as we inch higher on margins and are able to control and reduce operating expenses. And I really like where we are in this period of uncertainty. Matt, with that, I'll turn it back to you. Thank you, Dennis.