Primis Financial Corp.

Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the Permiss Financial Corp 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 that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you, and I would now like to turn the conference over to Matt Switzer, Chief Financial Officer. You may begin.

Good morning, and thank you for joining us for Premise Financial Corp's 2025 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 Security 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 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.

Thank you, Matt, for that introduction, and thank you to everybody that's joined our conference call this morning. We believe our third quarter results reflect much of what we've been talking about in recent quarters, and we're excited to see the improvement and the lack of noise, honestly, in the current quarter. For the current quarter, we are reporting $6.8 million in net earnings at about 28 cents per share, which compares to core income of $2 million and 8 cents per share in the same quarter in 24. Our ROA and ROTCE in the current quarter improved to 70 basis points and 9.45% respectively. We mentioned this in the press release, and I know Matt's going to give more current or more color, but our current profitability levels are higher than what we are reporting. When we adjust for some certain items that we know aren't permanent, we see a core ROA that's closer to 90 basis points. and puts us right in line to be successful reaching the 1% ROA that we've been targeting. I know Matt's going to give more details on that, but from a high level, I want to recap some of the impactful things that happened this quarter and that give us the confidence that a 1% ROA is within reach. First, we're reporting our core margin in the quarter. at 315 which is up from 3.12 percent in the second quarter of this year but up about 35 basis points compared to a year ago at this point we've replaced about half of the loans that we sold with the life premium business a year ago at yields that are at least 200 basis points higher importantly we have importantly we have the pipeline and the momentum to get the remaining portfolio replaced and with current levels and margins that we see Across our business, we expect that to add another six to eight basis points of margin and improve pre-tax earnings by about $1.6 million per quarter. We've also driven results on the deposit side. Compared to a year ago, we've grown non-interest-bearing checking accounts by about 16%, which has maturely improved our deposit mix and taken our cost of deposits down by almost 20%. At the end of the quarter, alongside the rate cut by the FOMC, we were able to move lower again on the deposit side across our footprint, across our business, both digital and in our core business. And thanks to our focus on core relationships, we've experienced very strong retention across the bank. Very little of this last move is reflected in our results due to the timing at the end of the quarter, but we expect this to be meaningfully positive to our margin and our results in the fourth quarter. When I look through the improvement in margin, I see new asset yields holding in strong, being funded incrementally at very attractive levels. Matt, I know, has more details on this, but in the current quarter, our new and renewed loans came in at about 7.16% compared to 7.57% in the second quarter of this year. New deposit mix, excuse me, new deposit business is a mix of us competing hard on new businesses, commercial businesses, and driving down the overall cost with new checking accounts. New deposit business came in at around 2.51%, and so taken together, our new activity across the entire bank, all of our divisions, produced spreads of about 4.65%. These kind of incremental margins on balance sheet growth is important because we're still relying on operating leverage to drive our results to where we know they should be. Our table in the press release reflects how steady we have been on operating expenses, showing that we came in at just $100,000 or so from our five-quarter average. Looking ahead, we're confident that we can continue to hold growth in OPEX to a very minimal level. managing very tight in this environment and letting the investment that we've made in past quarters pay dividends with growth at the attractive levels we've talked about on our operating divisions real quickly i'm getting pretty excited about the investments we've made tied that are tied to residential mortgage We've built our mortgage division from about 20 million a month of production to about 100 to 120 million a month over the past few years. We've done this profitably too, slowly reinvesting enough of our earnings to build our production staff to what it is today. We've focused on culture and service as well as just products and pricing, and all of this work continues to pay dividends. In the third quarter, We had continued recruiting success that built annual production by about another $120 million, or 10% of where we stood at the beginning of the quarter. Core results for the quarter showed pre-tax earnings of about $1.9 million, which is 58 basis points on closed volume, and our strongest quarter yet. For core results in mortgage, we are excluding some legal fees associated with some recent hires that totaled about $900,000, and we expect this to moderate back to normal levels very rapidly. Mortgage Warehouse continued to grow nicely and continued and shows real promise for the bank and for our earnings. To illustrate this, we had average balances in the quarter of about $210 million. but ending balances of about $327 million. Today, we have over a billion dollars of uncommitted lines approved and in place and a pipeline of new opportunities working through the system of about $300 million. For the quarter, the warehouse group showed pre-tax earnings of about $1.6 million and moved their efficiency ratio down to about 27%. Long-term and at scale, this business can be two to three times its current size on our balance sheet with operating ratios that are accretive across the board. And taken together with our mortgage company, we have ideal and sustainable exposure to residential mortgage that produces fee income and balance sheet growth that nicely augment what our core bank is doing. Panacea. continues to gain steam and momentum. Loan balances moved higher in the current quarter to $530 million on average, compared to $385 million in the same quarter a year ago. Deposits, what's really impressive, growing at a faster rate, ending at about $132 million in the current quarter, which is about 50% higher than they were a year ago. Importantly, Panacea's cost of deposits reflect a blend of technology customer service and deep brand endorsement for the current quarter their cost of deposits came in at 1.37 percent lower than our core banks and compares very nicely to 2.28 percent in the same quarter a year ago i have obviously i have a lot of conviction about the kind of value that we are creating here because the industry deeply values traditional community and commercial banking, and honestly, rightfully so. And while Panacea and what we're doing here does have somewhat of a fintech flair to it, operating nationwide with deep embedded technology versus physical branches, it's producing dynamite credit results focused on C&I and owner-occupied CRE with excellent yields to one of the most, if not the most coveted customers out there. And it's funding the balance sheet at extremely attractive levels, lower than most established community banks. Strategies like this in the past didn't garner meaningful value because they focused on real easy credit and funded with flimsy or expensive solutions like CDs or institutional borrowings. But Tyler and his team have focused on relationships and technology and a customer experience that's proven to be more meaningful. And lastly, before I turn it to Matt for some more details, a few comments on credit. We noted in the last quarter that we've had a few downgrades that were centered on loans that weren't delinquent but did have weaker prospects and weaker guarantor support. Our negative exposure to two office real estate properties in the Northern Virginia market are reflected in our quality numbers, with both being in substandard and one being in non-cruel. Both properties have improving NOI and strong leasing activity, but tenant improvements uh tenant improvements leasing commissions and rent abatements have stressed the borrowers cash levels and their ability to support the property these properties are ideally situated outside of the district in very desirable locations and it's important to note that the market here is stable to slightly improving compared to areas inside the district of columbia the remainder of our non-accruals are centered in two lines one is a seven and a half million dollar loan to a private equity backed company with proven value. Recent capital raises for the company indicate a strong enterprise value that puts us at about 35% loan to value. Matt's impairment testing on the company using pretty deeply discounted cash flows continue to show no impairment on this loan. The other loan is a nationwide operating business with positive debt coverage that's working several strategic opportunities to either be recapitalized or sold. On both of these loans, the bank's working with the borrowers to exit the relationships through sales or refinance. And at this point, we don't believe there's additional losses or costs to be incurred. Outside of these properties, we really have virtually no exposure to office in any of our markets, but especially the D.C. metro area that is still not operating ideally. I don't want to minimize or gloss over any credit issue, but I don't believe we have exposures that should be causing problems or costs going forward. Okay, with that, Matt, I'll turn it to you.