管理層發言
Hello, everyone. Thank you for joining us. Welcome to the Primis Financial Corp. Second Quarter Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference call over to Matthew Alan Switzer, Chief Financial Officer. Matthew, please go ahead.
Good morning, and thank you for joining us for our second 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, primisbank.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 J. Zember Jr.
Thanks, Matthew. And thank you to all of you that have joined our second quarter 2026 conference call. We are very pleased with our second quarter results and are excited about how things are moving going into the last half of 2026. When I compare our current results to last year, I see strong growth in revenue, very contained operating expenses, increasing net interest margins, lower efficiency ratios, lower levels of nonperformers, steady growth in earning assets, growing levels of noninterest-bearing checking accounts, and importantly, tangible book up over 20% from last year. Lastly, it's really nice to see some stability return to our operating results, which I believe is critical to making sure our work is appropriately valued. For the second quarter, we are reporting net earnings of $9.4 million or $0.38 per share compared to $2.4 million or $0.10 a year ago. During the current quarter, we did book a gain on the sale of an investment in an insurance agency of about $5.9 million and we fully offset that with a legal settlement and a reserve build on our largest office CRE. Because these items wash, I believe our stated ROA for the quarter of 90 basis points is really the recurring level that we are working with, and I am very pleased to see this kind of improvement. These results include a net interest margin of about 3.45%, up a couple of basis points over last quarter and up almost 60 basis points over the same quarter a year ago. That margin growth comes alongside steady earning asset growth, which has happened for several years now. For the quarter, we averaged about $3.9 billion of earning assets, which is up about 11% compared to the same time a year ago. The increase in margins and earning assets combined with really strong performance from our mortgage company allowed us to have our first quarter ever with more than $50 million of core revenue. That level is 40% higher than it was a year ago. Making sure that revenue moves to the bottom line is critical, and the recurring pace we have had with investors is that operating leverage will be our main strategy. Matthew can give you a lot more context, but I am showing that our core OpEx is up about 15% over the past year compared to the 40% growth in revenue I just talked about. Of that 15%, 7.3% is tied to the increase in mortgage revenue, and 4.7% is tied to the lease expense from the sale-leaseback. So actual growth in OpEx, the real controllable part, is reliably less than 5%. This is outstanding work by our executive team and our staff and it has totally reset the operating performance you can expect from our bank. In the quarter, we had a nice improvement in credit quality, with nonaccruals moving down by 36% thanks to a single C&I loan that was refinanced elsewhere. Additionally, we were able to upgrade a mixed-use commercial project that finally reached stabilization. So collectively, classified assets declined by about $53 million or 36%. And as we stated earlier, we built additional reserves on our largest office loan by about $5.3 million in the quarter. Lastly, before I turn it over to Matthew, we announced in the press release a series of earnings improvements coming out of our core consolidation project. Altogether, we believe the impact on next year's results is about $7 million pretax, which includes zeroing out the amortization expense from the original build of the core. This set of improvements is about 13 or 14 basis points in ROA, about $0.22 per diluted share. That is important. But from a strategic standpoint, what is so special about this is that I firmly believe that this announcement guarantees another year and a half of outside operating leverage similar to what we have put up this year. That is very exciting for our team and our board, and we believe it should meaningfully improve the kind of results we put up in 2027. Matthew, with that, I will turn it over to you.
Thank you, Dennis. As a reminder, discussion of our financial results can be found in our press release and investor presentation located on our website and in our 8-Ks filed with the SEC. As Dennis has mentioned, Primis reported earnings of $9.4 million or diluted earnings per share of $0.38 in the second quarter compared to $7.3 million or $0.30 per share in the first quarter of 2026, and $2.4 million or $0.10 per share a year ago. Return on average assets was 90 basis points versus 76 basis points in the first quarter and 26 basis points a year ago. There are a few notable presentations in the quarter that we will review in more detail later in my remarks, but on balance, it was a quarter of solid operating results, with pretax pre-provision operating net income of $11.7 million, up 185% from $4.1 million a year ago. Turning to the balance sheet, gross loans held for investment increased approximately 8% annualized from March 31 to June 30 and were up 11% year over year, led by continued growth in Panacea and Mortgage Warehouse. Average earning assets increased approximately 14% annualized in the quarter and were up 11% compared to the year-ago quarter. Average deposits were up approximately 12% annualized in the quarter, and average noninterest-bearing deposits were up approximately 24% annualized, with average noninterest-bearing deposits representing 16.3% of average total deposits in the second quarter versus 14.3% a year ago. Net interest income was approximately $33.8 million, up from $32.1 million last quarter and $25.2 million a year ago. Our net interest margin in the second quarter was 3.45% up from 3.43% last quarter and 2.86% in the year-ago period. The improvement reflected robust earning asset growth funded at attractive incremental margins with 3 basis points of linked-quarter expansion in the yield on earning assets. Core bank cost of deposits remains very attractive at 1.6% for the quarter compared to 1.79% in the same quarter last year. Cost of total deposits was 2.25% in the second quarter, up 1 basis point linked quarter and down 28 basis points year over year. Cost of interest-bearing deposits was 2.69%, down 25 basis points from the same quarter last year and total cost of funds was 2.46%, flat with the first quarter and down 21 basis points year over year. Our focus on growing noninterest-bearing deposits remains a key part of our strategy to continue controlling funding costs as we grow the balance sheet. Our provision this quarter was $5 million compared to $1.5 million in the first quarter and $8.3 million a year ago. Approximately $5.3 million of the second quarter provision was related to specific reserve additions for one nonaccrual credit. Absent this item, improvements in specific reserve amounts largely offset provision amounts related to portfolio growth, including the consumer loan program. Nonperforming assets, excluding portions guaranteed by the SBA, improved to 1.45% of total assets at quarter end from 2.35% at March 31 and 1.9% a year ago. Core net charge-offs were 53 basis points in the second quarter, up from 6 basis points in the first quarter and 15 basis points a year ago, driven by one nonaccrual loan that was resolved in the quarter. Noninterest income was $22 million in the quarter, $13.6 million in the first quarter and $18 million a year ago. The second quarter included a $5.9 million pretax gain from the liquidation of an insurance agency investment, while the year-ago quarter included a $7.5 million gain on the company's investment in Panacea Financial Holdings. Mortgage-related noninterest income grew 44% year over year to $11.4 million in the second quarter and Primis Mortgage closed volume was $421 million, up 30% compared to the second quarter of 2025. We also reported $1.6 million of gain on sale income related to the sale of Panacea loans and guaranteed portions of SBA loans, including approximately $237 thousand attributable to the core bank. On the expense side, when you exclude mortgage, Panacea division volatility and nonrecurring items, our core operating expense burden was approximately $25 million versus $22 million in both the first quarter of this year and the second quarter of last year. As previously disclosed, the first and second quarters of 2026 include a full quarter of lease expense net of reduced depreciation of approximately $1.4 million from the sale-leaseback transaction executed in the fourth quarter of 2025. The second quarter also included several discrete expenses, including $1.1 million related to the settlement of a previously disclosed mortgage lawsuit for $8.4 million, an increase in loan-related expenses and $200 thousand of higher marketing costs. There was also approximately $900 thousand cumulatively of small expenses related to the company's recent shelf filing, exchange fees, and the core conversion project. We expect the noninterest expense burden, excluding Mortgage and Panacea, to return to the $22 million to $22.5 million range in the third quarter of this year. I would also like to briefly add to Dennis's comments on how we are thinking about operating leverage from our core consolidation initiative and artificial intelligence. During the last six months of planning for the core conversion, we have identified $6.1 million of expected earnings improvements from fully converting the core bank in all divisions onto our real-time fully digital core. These improvements are equally centered on revenue and expense opportunities, with $3 million of revenue improvements as we rationalize products and fees, and $3.1 million from contracts and vendor consolidation and will largely be in place in early 2027. These amounts are real and we believe highly achievable in the time frame highlighted. This also does not include the amortization expense related to capitalized platform development costs of $800 thousand per quarter that will end in the third quarter of 2027. Lastly, we are also in the beginning stages of deploying AI tools and agents to drive ongoing productivity improvements that we believe will allow us to limit expense growth and maintain strong operating leverage for the foreseeable future. In summary, we are excited to report another solid quarter of continued year-over-year improvement in profitability, net interest income, margin, asset quality, and tangible book value per share. We believe the balance sheet momentum, core consolidation work, and ongoing productivity initiatives keep us on track to hit our profitability goals and put us on a path to superior returns. With that, operator, we can now open the line for Q&A.
分析師問答
We will now begin the question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Woody Lay with KBW. Your line is now open.
Hey, good morning, guys. I wanted to start on the net interest margin. It feels like we are in a higher-for-longer rate environment, and a general theme this earnings period has been the magnitude of competition on both the loan and deposit sides and what that means for pricing. I'd love to get your thoughts on how you see the NIM outlook from here.
Similar to what we discussed in previous quarters, we think where we are right now, plus or minus a basis point or two, is probably where we will be for the foreseeable future. We are seeing some pressure on the earning asset side, maybe a little less on the funding side, but certainly some pressures in loan pricing. We have some levers there. A notable one is we have some subordinated debt that is available to refinance that we think we will be able to do at some point in the next quarter or two, and we will save probably between 200 and 250 basis points on the cost of that debt. That should more than offset any incremental pressures on the margin from the balance sheet.
Got it, that is helpful color. Then shifting over to credit: it was great to see the quarter-over-quarter NPA improvement. I was hoping to get an update on that larger office CRE credit that is still on the books. Could you remind us what the total specific reserve you have against that credit is now?
Woody, it's a little over $11 million of reserve. The borrower is still working with us and is investing in tenant improvements and commissions to lease it up. We did have a relatively large lease or at least an LOI signed in the second quarter, so there is activity and the borrower is working hard to get it leased up. We are working with them as best we can. We do have a pretty healthy reserve on it at this point, and we have a couple million dollars of cash reserves—almost $2 million in cash reserves. The borrower is making payments, so it is in nonaccrual but not 90 days past due. We want to keep adding reserves whenever we can to reduce potential earnings volatility from that credit.
That makes total sense. And then last for me, regarding the core conversion and the additional impacts you are planning that could begin to run in 2027, are there any larger one-time costs remaining with the core conversion that we should expect?
Not really. We may have smaller implementation fees here and there in the next couple of quarters, but we are talking a few hundred thousand dollars. Nothing material that you would notice.
Alright, perfect. That's all for me. Thanks for taking my questions.
Your next question comes from the line of Russell Elliott Gunther with Stephens. Please go ahead.
Good morning, guys. I wanted to start on the loan growth outlook. Really strong first half of the year and a good second quarter. Matthew, you mentioned a larger C&I payoff in the quarter and that you're still growing through that. Would be helpful to get a sense for how you are thinking about loan growth in the back half of the year, both in order of magnitude and asset class perspective.
I'll start and Matthew can jump in. We have not had a lot of Panacea growth this year because we have been selling most of that; Tyler's got a good flow agreement. I think we will see more growth on that side of the balance sheet in the second half of the year. In mortgage warehouse, with rates as high as they are, we thought that might slow down, but new customer acquisition and sales efforts have countered that trend. I think there is a little bit of risk on growing mortgage warehouse, but we can probably hold close to current levels and possibly go up given the pipeline. I do not think it will be as tremendous as the first half of the year. The core bank has a great pipeline, so all three together, the back half of the year will probably look a bit like the first half. Yield-wise, I think they are incremental to where our loan book is right now, and I do not see growth being dilutive to the current margin. Given where we are growing deposits—core bank, warehouse, digital—I still think it is positive and incremental to the margin.
I agree with Dennis. The nice thing is a lot of the growth in the first half has been mortgage warehouse, and they fund about 10% of their growth themselves with capital that is close to noninterest-bearing. They may have a little interest expense but, by and large, it has been noninterest-bearing, which is very additive from a mix standpoint. Digital bank has shown some nice growth at similar rates to the last quarter or two, and some of that has been small business driven. The core bank has done a good job growing in footprint. We're not immune to pressures on cost, but arguably we have a few more levers than a lot of other banks, which helps us stay pretty consistent with where we have been.
That is helpful, Dennis. The deck calls out some nice fixed repricing over the next few quarters as well. Matthew, you mentioned a bit more pressure on average earning asset yields relative to deposits. As earnings season wraps up, a lot of focus has been on incremental deposit costs as a headwind to margin. How are you defending against that?
As I said, mortgage warehouse funding has been helpful. The digital bank has contributed nicely and some of that growth has been small business-driven. The core bank has attracted low-cost deposits. We're not immune to rising costs, but we have additional levers and a mix that has helped keep costs manageable.
Adding to that, our digital and national advantages continue to pay dividends. Even with rates up a bit, our digital offerings remain competitive. While many banks are experiencing pressure on deposit costs and potential margin compression tied to funding, we have not exhausted our deposit opportunity because of strong earning asset growth. So I think we are in a better position on the deposit side to stay competitive.
Understood, that is helpful context. One last thing on the expense side: Matthew, you mentioned the core expense run rate and the consolidation savings. That $3.1 million—are those incremental to anything you have called out in the past? If so, how should we think about the core expense run rate exiting Q4 or trending over next year?
Our expectation is that $22 million to $22.5 million is the baseline for the next few quarters. The savings from the consolidation will be incremental to that baseline and will reduce expenses further. This is incremental to what we've discussed previously.
We have never talked about these specific savings on the revenue or expense side before. There is no chance that future necessary expense items will exhaust the savings we identified from the consolidation. We are actively recruiting new lenders and teams, but the savings will accrue to the bottom line and are durable.
Very good. I appreciate the help, guys. Thank you.
Your next question will be from the line of Steve Moss with Raymond James. Please go ahead.
Good morning, guys. Most of my questions have been asked, but I want to follow up on the office nonperformer. Regarding the drivers of the additional provision, with the borrower leasing up or having an LOI, how are you thinking about the potential timing of resolution? And did you obtain a new appraisal to drive some of this provision?
The driver of the provision was the passage of time. While there is leasing activity and we did get a pre-lease LOI signed in the quarter, we've gone 12 months since this asset went on nonaccrual and vacancies moved only a little at the margin. As we completed our evaluation work, we needed to add to the specific impairment to account for the fact that vacancy progress has been slower than expected over the last 12 months.
We're accounting for this on a discounted cash flow basis rather than a straight appraisal because the borrower is not collateral dependent, is making payments, and is investing in the property. Matthew was more aggressive with the DCF assumptions this quarter. We have been signaling that we want to keep building reserves here, and we were able to do that in the quarter.
That is helpful. Then on the mortgage warehouse business, I understand it is a tougher environment to grow but you have a good pipeline. Where are spreads these days for that business?
Spreads depend on the customer. For large mortgage companies doing a couple billion a year, you're probably around SOFR plus 200 all-in with fees. For smaller, nondelegated customers, maybe SOFR plus 300 plus fees. Some customers are still paying around 7% all-in. Our all-in margin on that business is very close to the company's overall margin. The efficiency ratio in that group is low—around 21% to 22%—and with scale we could push that down to around 15% by increasing throughput without much additional OpEx. In the second quarter, it was over 2% ROA after tax for the mortgage warehouse business, so it is a very good business for us.
I appreciate the color. Thank you very much, guys.
Your next question is from the line of Christopher William Marinac with Brean Capital. Please go ahead.
Hey, thanks. Good morning. Dennis and Matthew, I wanted to go back to the core bank and get a little more background on the margin change this quarter and whether that can repeat. As you continue to work on the expense side, would that lead to even better returns in the core bank next year?
When you say the core bank, excluding warehouse and Panacea, I would say the core bank's incremental ROA on new business is very strong because a lot of it comes from checking accounts and low-cost deposits. The core bank's growth rate is more modest—I'd put it at 5% to 6%—and we are focused on owner-occupied CRE, C&I, residential builders, and supporting the mortgage company. We are not focused on investor CRE. The margins on what we are bringing in don't require us to compete down to unprofitable levels. If you look at the reported margin this quarter around 3.45%, you would probably add 7 to 8 basis points for the sub debt refinance. Given where rates are, I think there's probably 10 basis points of upside on this margin over the next year from repricing the existing commercial book. On efficiency and the core project, our core bank has lagged in noninterest income because we built the bank without focusing on fees. The core conversion will allow us to rationalize products and fees and capture revenue as well as expenses, and between margin build, revenue, and savings, you are probably looking at taking another 5 or 6 points off the efficiency ratio.
As you execute the systems change and realize those cost savings, it seems you would have a competitive advantage that could be parlayed into other relationships or opportunities down the road because you could get more out of the platform. How do you think about that?
We expect to finish next year with the entire bank on a modern, real-time core, and we will be the most flexible bank in front of customers. Our contract, because we are an early adopter and helped build the platform, will likely be around half of what a bank our size would pay, and it is fixed—so if we grow to $8 billion or $10 billion, that cost does not scale. The benefit accrues to shareholders. The competitive advantage we need is continued improvement over the next several quarters to prove the model. We believe we will erase the discount to peers over the next four to six quarters as we demonstrate the value of the model.
Last question: if the mortgage market is still sluggish a year from now, do you just continue to tough it out knowing it will shift back?
Definitely. Our mortgage company keeps surprising us. We had our best quarter ever in mortgage with the highest volume and profitability. Rates do dampen profitability, and we probably should be 20% to 30% better in a normal summer season, but our sales team and operations are dynamite. We're also offensive in recruiting mortgage loan officers—when rates are higher, there is opportunity to add talent. Over time we expect rates to ease a bit once volatility subsides. About 8% to 10% of mortgage volume is portfolio product, much of which is construction-to-perm that stays with us for a short time before being refinanced away, and spreads on that portfolio business are very good—construction originations are probably in the mid-sevens with nice fees—so the portfolio piece offsets some retail softness.
Thank you all for your questions. This concludes the question-and-answer session. I will now turn the call back to Dennis J. Zember Jr. for closing remarks. Please go ahead.
Alright. Thank you all for joining our call. Hope everybody has a good weekend and a good summer. Matthew and I are both available for calls if you want to reach out to us. Thanks. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.