Primis Financial Corp.

ladies and gentlemen thank you for standing by my name is colby and i'll be your conference operator today at this time i would like to welcome you to the premise financial court first quarter earnings call all lines have been placed on mute to prevent any background noise and after the speakers remarks we will conduct a question and answer session if you'd like to ask a question at that time please press star then the number one on your telephone keypad to raise your hand and enter the queue If you'd like to withdraw your question at any time, you can press star 1 again. I will now turn the call over to Matthew Switzer. You may begin.

Matthew Switzer Good morning, and thank you for joining us for Permanent Financial Corp's 2026 First 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 can cause actual results to differ materially from the anticipated results for 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, firmusbank.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 Sever. Thank you, Matt. Thank you for all of you that have joined our first quarter conference call. We're excited to report that in the first quarter, we earned $7.3 million or 30 cents per share, which compares to $22.6 million and 92 cents per share in the same quarter of 25. And as I'm reading that, excited to report earnings shrinking that much. The fact of the matter is on an operating basis, we earned 33 cents per share in the first quarter, which excluded a small tax adjustment related to 2025 results. And when you compare that to the same quarter a year ago, it's up 126% operating earnings, where we reported 14 cents in the same quarter of 25. And Matt may mention this, but the first quarter of 25 included a substantial gain on the deconsolidation of Panacea, which is what I'm excluding. Our key operating ratios obviously improved alongside of that earnings. number I just gave you. On an operating basis, our ROA improved to 84 basis points compared to 40 basis points in the same quarter of 25. Driving that were a couple items, margin mostly and as well as operating expense control. On net interest margin, our net interest margin, excuse me, benefited from the securities restructure as well as the mix of earning assets and climbed to 3.43% in the first quarter compared to 315 in the same quarter of 25. We continue to put up nice growth numbers that are manageable, but really distinguish us amongst our peer group. Loans ended at $3.4 billion, 11.7% compared to the same quarter in 26. That excludes about $40 million or so that we moved into loans held for sale related to a flow agreement with Panacea. So really our growth was probably stronger than this. Deposit growth over the same period is really what you should look at. That came in at just better than 8% with very little of that from the digital platform, which is pretty steady state at about a billion dollars. The growth in checking accounts in our company was even more notable with non-interest bearing checking accounts growing to 541 million, which is almost 19% higher than where we were in 25. Checking accounts continue to be a more meaningful element of our deposit mix and we're 15.9% of total deposits compared to just 14.2% in the first quarter of 25. And lastly, it's very important to note that we grew deposits in this strong a fashion and never once felt pressured in our core bank or on our digital platform to be more aggressive on rate. We're doing it with technology, with service, with people, with getting in front of folks, focusing on commercial deposits and having real success. All of the energy and momentum on our balance sheet really starts at our core bank. There's never been a time since I came to premise that our core bank has had this opportunity on both sides of the balance sheet. Honestly, we're winning business that several years ago we just wouldn't have been in the running for or maybe even had a conversation about. virtually nothing that we're doing to win this business has to do with rates or fees. We're leaning hard into our technology, our service, our people, our existing customers who are turning out to be amazing centers of influence for us. For so long, it felt like we were, that all we were doing here is working on our factory and stuff in the factory. But today stuff is rolling off that assembly line faster and faster. And I'm very encouraged by what our people are accomplishing. Mortgage Warehouse has fully replaced Life Proving Finance at this point and has been so well received in the marketplace. We finished the quarter with about $460 million outstanding. For a few days in the quarter near the end of March, we crested half a billion dollars outstanding. This is before any refi boom. This is before the busy spring and summer seasons for retail mortgages. Importantly, Warehouse is still producing impressive yields and margins efficiency ratios in the 20s, the amount of scale and impact on our overall operating ratios from this business is not really something that's been fully banked or recognized in our current numbers as really they've been just scaling the business so quickly over the past year. But as we I believe we could probably double this business in the next 12 to 18 months. And I believe the incremental impact from that second double is going to be very meaningful. Retail mortgage had an absolute blowout for it. They'll tell you that it was impacted by some Middle East activities and an impact on rates and fair value adjustments. And that's true. We might have reported half a billion dollars. Looking at math, half a billion dollars more had that. But regardless, pre-tax income in the mortgage group grew to $2.1 million in the first quarter compared to $766,000 the same quarter a year ago. In the quarter, our earnings crept up to 57 basis points on closed volume compared to 46 in the same period a year ago. So on a profitability basis, we're up maybe 20, a little better than 20% on closed volume. Our recruiting pipeline has never been this strong. And consistently, we double each month on apps, closed volume, new files. So we have real So we're very positive about what the second half of the year would look like. Right now, we believe Primus Mortgage is on track to be a top 50 mortgage company nationwide in 2026. And lastly, before I turn it over to Matt, I want to emphasize what's really present in mind for us and our desire to build this into a top performing bank. In our day-to-day here, we are laser focused on growing checking accounts, like I mentioned earlier, to about 20% of total deposits. Secondly, we're determined to drive massive amounts of operating leverage from our consistent, reliable balance sheet growth using steady to decreasing OPEX. And I know I've been saying this for several quarters. And so as the quarter ended, I was pretty delighted to start playing with the numbers and see what I'm about to tell you here. If you look at the last year, first quarter of 25, from first quarter of 25 all the way back to the first quarter of 24. We're reporting growth in core revenue of about 45, excuse me, we're reporting core revenue of about $45.6 million, which is higher, about 33.7%, call it 34% over a year ago. Reported operating expenses, straight off of math income statement, no adjustments, came in at 33.8 million. which is only 4% higher than the same time a year ago. That's 34% growth in revenue, only a 4% growth in OpEx. I had in my comments that I'd like to promise that we could do that for a couple more years, but I was afraid Matt would grimace, so I took that out. But this is an extraordinary level of operating leverage and really the driver of our results. Nobody at Primus thinks we're done in this area. and that revenue may not be outpacing OPEX going forward. We have several strategies, of course, to continue getting this result, and one of those is AI. And I don't want to steal Matt's comments or his hard work on this, and I know he's going to comment further on this, but AI for us is the same kind of opportunity and catalyst that you would expect me to report if we were doing an M&A transaction. We already have all the tools we need for this. We expect hardly no additional investment except the deep training that we're going to give our staff to be effective with this. And we believe that in a year, we are going to be the undisputed leader amongst banks under $10 billion using AI to drive operating results, sales efficiency, customer satisfaction and experience, and importantly fraud prevention. When you combine that with our work towards converting our core bank to a fully digital core, we are on the edge of being a uniquely positioned bank with technology that has figured out how to keep our community bank filled. With that, ma'am, I will turn it over to you. Thank you, Dennis. As a reminder, a discussion of our financial results can be found in our press release and investor presentation located on our website and in our 8-K file at the SEC. Beginning with the balance sheet, gross loans, health or investment increased approximately 14% annualized from December 31 to March 31, led by growth and panacea in mortgage warehouse. Average earning assets increased 6% annualized in the first quarter with the slower growth rate versus period end growth due to the ramp in mortgage warehouse later in the period. Average deposits were up 4% annualized in the quarter, while average non-interest rate deposits were up 7% from year end. Net interest income was approximately $32 million, a substantial improvement from $26 million a year ago. Our net interest margin in the first quarter was 3.43%, up from 3.28% last quarter and 3.15% in the year-ago period. And we have expectations for further market expansion as we progress through 2026. We completed the redemption of $27 million of support aid debt at the end of January, so that was only partially reflected in the quarter. We also have approximately $400 million of loans repricing in the second half of 2026 and early 2027 with a weighted average yield of 4.81% that will add to loan yields. The Core Bank Huston deposits remained very attractive at 159 basis points for the quarter, flat from the fourth quarter. The cost of total deposits was 223 basis points in Q1, down 3 basis points linked to quarter. Our focus on growing NIV deposits is a key part of our strategy to continue driving funding costs lower. Our provision this quarter was $1.5 million, partially driven by growth in the loan portfolio described above. Approximately $0.7 million of the provision was due to specific reserving on impaired loans, while another $0.4 million was tied to activity in the consumer portfolio. Core net charge-offs remained low at six basis points in the first quarter of 2026. Non-interest income was $13.6 million in the quarter versus $12.8 million in the fourth quarter after adjusting for the sell-leaseback gain, investment portfolio restructuring, and panacea loan pool sale in the fourth quarter. Forage revenue was solid in Q1 at $10.8 million versus $10 million in the fourth quarter and would have been even better in the first quarter if not for the impact of market volatility late in the quarter. Year over year, retail mortgage production was 122% higher in the first quarter of 26 versus the first quarter of 25, showing strong momentum as we head into the busy home buying season. Also included in that production was 26 million of attractive construction to permanent loans in the first quarter, up from 4 million in the first quarter last year. On the expense side, when you exclude mortgage and panacea division volatility and non-recurring items, Our core expenses were $22 million in the first quarter versus $20.8 million a year ago. Absent the increased occupancy expense from our recent sale-leaseback transaction, core expenses on this basis would have actually been down year over year. We've been focused on controlling expenses to maximize operating leverage and feel like we're in a good spot on that front so far in 2026. I would also like to take a moment to briefly touch on how we are thinking about AI. As mentioned in the earnings release, we have canvassed the bank looking for opportunities to deploy AI tools to reduce repetitive and time consuming tasks and generate efficiencies. Our first pass has identified hundreds of hours of opportunity, and there is almost certainly more that would be found as we start tackling these projects. We view this as a key part of our strategy to keep expense growth to a minimum while maximizing operating leverage. Equally as exciting from where I sit, our in-house talent in this area, combined with the robust tools built into our existing products, such as Microsoft Copilot, should allow us to get the vast majority of these efficiencies without expensive consultants. In summary, we are excited to report a solid first quarter in line with our expectations and believe we are still on track to hit our profitability goal in 2026. With that, operator, we can now open the line for Q&A.

Thank you. We will now begin the question and answer session. Again, if you'd like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the key. If you'd like to withdraw your question at any time, you can press star one again. We'll pause just for a moment to compile the roster. And your first question comes from Woody Lay with KBW. Your line is open.