Primis Financial Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Moved portfolio into held for sale to neutralize credit cost and position for sale, enabling focus on strategic options.
• Core bank has $2.1 billion core deposits with low cost, enviable CRE, and reliable credit quality.
• Digital strategy features a fully digital full-service checking account with ~18,000 customers, working to improve margins and operating ratios.
• Mortgage division production is growing, with a pipeline twice the prior year's size, 80% from new customers.
• Panacea division is growing, with potential in securitizing loans and forward flow agreements.
• Moving Life Premium Finance neutralized $20 million of credit costs, net interest income improved by $5.5 million annually, moving to $17 million annually once warehouse is at scale in 2025.

Segment Performance

• Core Bank: At December 31, 2024, had $2.1 billion of core deposits with a cost of deposits of $1.87 billion, 25-50 basis points lower than larger $25 billion peers and 100+ basis points lower than comparably sized community bank competition. Had enviable levels of CRE and reliable credit quality.
• Life Premium Finance: Sold at the end of October.
• Mortgage Division: Consistently growing production 30%-40% year-over-year, ended the year with a pipeline twice as large as the prior year, over 80% of which was from new customers to the bank.
• Panacea Division: Grew to just under $435 million in total loans and almost $100 million in low-cost funding, with growth rates around 30%-40% and potential in capital markets and securitizing loans.

Guidance

• Expect margin expansion in the first quarter and through the year as business lines build volume, with margin expected to be closer to the upper end of the $325 million-$350 million range.
• Loan growth expected in the core bank ($125 million-$175 million), mortgage warehouse ($300 million), and Panacea with potential in the secondary market.
• Pre-tax earnings potential closer to $10 million once drag items (e.g., Life Premium Finance portfolio sale, promotional loans) are eliminated.

Risks

• Uncertainties in executing strategic options to realize the market value of the company.
• Factors that could cause actual results to differ materially from forward-looking statements.
• Non-GAAP financial measures and the need to reconcile with GAAP measures.

Question and Answer

• Q: On loan growth outlook, given exit verticals and new entrants, what is the net loan growth outlook for 2025? A: Core bank loan pipeline is double the prior year's size. Modeling involves replacing Life Premium Finance, with Panacea expected to grow with potential in the secondary market.
• Q: What is the margin cadence and where is the expected exit for 2025? A: Margin is expected to be closer to the upper end of the $325 million-$350 million range, with margin expansion in the first quarter and through the year as business lines build volume.
• Q: Regarding the consumer loan sale, is the loss timing based on accounting and potential to recoup losses? A: Unlikely to recoup significant losses, as it's a strategic decision to exit and move to core business lines.
• Q: What about the strategic review and deposits mix? A: Focus on recruiting at the core bank and growing checking accounts through the digital platform. Aiming for $2.5 billion core deposits in two years, with focus on tweaking deposit mix.
• Q: Panacea growth and deposits mix? A: Panacea is expected to grow, with potential for deposit funding to move to 30%-40% of its balance sheet over time.