Primis Financial Corp.

Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primus Financial Core 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 during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I would like to hand the call over to Matt Switzer, Chief Financial Officer. You may begin your conference.

Good morning, and thank you for joining us for Premise Financial Corp's 2024 third 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, permissbank.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. 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 Ember. Thank you, Matt.

Good morning, and thank you to all of you that have joined our call. Our results this quarter reflect our correction of the accounting error on the consumer loan portfolio and the impacts for accounting for this portfolio using the multi-unit accounting method. As Matt will discuss in more detail, this method recognizes credit costs upfront with a full CECL reserve, and the impacts of the credit support are not recognized until they are received, which is generally in the second half of the average life of the portfolio. Additionally, not all the revenue is recognized, particularly while the loan is in a promotional period. We are in high gear working to catch up on all of our T&Qs and targeting to be fully current on our SEC filings by the middle of November. Lastly, as we've stated in our NP filings, we still have an open consultation with the Chief Accountant's Office at the SEC regarding the accounting for this portfolio. While we expect some resolution on that in the near future, we cannot predict the outcome. The noise from this consumer portfolio is unfortunate because these loans really only represent 5% to 6% of total loans. And I say unfortunate because outside of this portfolio and our delayed filings, we've made a lot of progress on our strategy. A few examples are these. First, the core bank's contribution to our results continues to improve. The core bank's cost of deposits, for instance, for the quarter was 2.21% compared to 1.97 a year ago. Alongside the recent rate cut, we made the necessary adjustments immediately to keep the margin and net interest income steady. But coming into the quarter, we have 1.1 billion of deposits that we know are going to adjust further in the quarter. Our current bank, excuse me, our core bank's cost of deposits is consistently 40 to 50 basis points lower than our community bank peers in the Mid-Atlantic, and that's because of the lifetime relationships we have with our customer base, the technology that we use like Vibe to deliver noticeable convenience to the commercial customers, and the leverage we have with our digital platform. Secondly, the core bank's building pipelines on new relationships at a very impressive pace. While we do work hard with existing clients and continue to grow with them, the majority of our push and our incentive dollars focus on new relationships to the bank, new commercial relationships to the bank. The pipeline and pace of new relationships is three times what it was a year ago, and the momentum is almost all in the second half of this year. This leads us to believe that the community bank's ability to be the noticeable driver in our growth and operating results is finally present. A comment or two about Panacea. When we started the division, this concept was built to just be a loan vertical and really a consumer loan vertical at that. Today, we have continued to tweak the model and built unique digital capabilities that equally focus on deposit as well as commercial loan activity. Tyler's team this quarter had several really big wins with continued endorsements from large national medical associations, and a flurry of new commercial deposits at the end of the quarter that will probably mean up to $20 million in non-interest-bearing balances once the accounts are fully moved and funded. The development of all the ancillary financial services that we can sell alongside our loan and deposit relationships are in high gear, and the early signs about adoption are good. We experienced real momentum with our mortgage team. Our results this quarter on locked loans, we eclipsed $1 billion of annual production. Our run rate is $1 billion of locked loans for the first time. In the quarter, we locked $277 million of mortgage loans, which was up 67% against the same quarter in 2023. While we expect a slower fourth quarter, obviously, than what we had in the second and third quarter, Our year over year growth rate in production says a lot about first recruiting success and second, momentum in this industry. Right now, we have the best recruiting pipeline that we have had since we launched this platform in 2022. And combining that with the momentum that the industry is having gives us real confidence that we're going to see expansion in the contribution to our ROA and earnings per share that this division provides. Our announcement about Life Premium Finance is very positive but bittersweet. It's very positive for the three gentlemen that we recruited in 2021 who came to us with a lot of ambition, who built a platform and deepened their relationships and reputation in their industry to a really remarkable level. The opportunity in this division is probably bigger than my entire balance sheet, and it just needed a home similar to the one we announced. We'll sweep off a similar amount of deposits immediately and shrink total assets by probably about 10%. We expect this move by itself to improve tangible common equity ratio by about 75 basis points and improve our net interest margin immediately by six to seven basis points. We expect another five basis points of margin lift over the next several quarters as some of the remaining assets run off. The real lift with our announcement is with regards to Mortgage Warehouse. We recruited a team from a large bank that was exiting the space alongside an acquisition, and we are sprinting to onboard their client base. Fortunately, we had the software already and had done significant engineering and with our small warehouse client base. But what we didn't have was leadership or a team with the relationships that this team has and their vision. I'm confident that we can replace the entire life premium portfolio over the next few quarters. And the yields we are selling in warehouse right now are 160 basis points higher than our current life premium yields. conservatively, if we assume that only 80% of that pickup holds as we build capacity, we're talking about almost 20 basis points pickup in the margin and about 13 basis points or so pickup in our return on asset. The baseline op-ex in this division really isn't materially different than what we had in life premium, and we believe credit costs will be similar. This was a very good opportunity for our company, and my line of sight to the operating ratios that Matt and I want are much clearer after this move. On credit quality, we finished the quarter with only 25 basis points of non-performing assets, which is steady really for the last few quarters, but half of what it was in the third quarter of 2023. We still don't have any other real estate and have had little migration between the grades. During the quarter, we did conservatively downgrade one commercial real estate property that had been slow to lease up and really affected by vacancies in close or adjacent properties. Our borrower has funded all of the cost overrun, has never missed a payment, and pledged additional collateral, but our appraisals cap rate almost doubled from the origination date, and so we booked a provision for the small shortfall in collateral values. I don't expect a loss on this asset or migration into non-performing. and also believe we might have downgraded this asset right as cap rates on CRE were peaking. All right, with that, Matt, I will turn it over to you for some comments. Thanks, Dennis.