Primis(FRST) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a pre-tax net income of $4.5 million in the first quarter, with adjustments leading to a pre-tax net income of $7.5 million or $5.9 million after tax, equating to a 66 basis point ROA [19] - The net interest margin increased to 3.15%, up from 2.90% in the previous quarter, benefiting from reduced deposit costs [20] - Core bank cost of deposits remained attractive at 183 basis points, with new loans booked at yields over 7% [20][21] Business Line Data and Key Metrics Changes - The core community bank's loan pipeline has increased to about three times the level from a year ago, with a $25 million increase in loans as of April [6] - The mortgage division closed $800 million in loans in 2024, with a pretax income per closed volume 50% higher than all of 2024 [10] - Non-interest income was $7.8 million in the quarter, down from $8.5 million in the previous quarter, primarily due to a negative swing in fee income related to the consumer program [21] Market Data and Key Metrics Changes - The company expects about $100 million growth from the core bank, $150 million from warehouse, and $125 million from Panacea [9] - The digital platform is projected to fund around $500 million in excess lending for Panacea by the end of the year, with an expected 1.5% after-tax ROI [13] Company Strategy and Development Direction - The company is focused on three strategies to drive higher ROAs, including growth in earning assets, expansion of the mortgage division, and consolidation of core processing contracts [5][9][12] - The digital platform is crucial for funding excess lending and supporting the community bank, reducing pressure on credit decisions [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving higher profitability in Q2, with no significant pressures on operating expenses [26][28] - The company anticipates a strong performance in mortgage volumes due to seasonal trends and recent recruitment efforts [31][32] Other Important Information - The consumer loan portfolio has been moved back to a held-for-investment status, with a significant reduction in promotional loans from $90 million to $17 million [17] - The company is working towards deconsolidating Panacea, which could lead to a substantial gain in future financial statements [16][62] Q&A Session Summary Question: Any potential issues in Q2 affecting profitability? - Management noted an increase in earning assets and expected strong performance in mortgage warehouse, with no pressures on operating expenses [26][28] Question: Resolution timeline for consumer loans? - Management indicated that over half of the promotional loans are scheduled to pay off before the promo period ends, with expectations to reduce the promotional book to $4-5 million by year-end [36][37] Question: Margin outlook for Q2 and the year? - Management expects a 5-10 basis point margin expansion in Q2, with a potential increase of 10-20 basis points by year-end [43][45] Question: Charge-off expectations moving forward? - Management anticipates continued high charge-offs but believes reserves are sufficient to absorb them as the portfolio runs off [55][57] Question: Timing and impact of Panacea deconsolidation? - Management stated that if deconsolidation is confirmed, it would be effective March 31, with a potential substantial gain from fair value adjustments [61][62]