Primis Financial Corp. (FRST) Earnings Call Transcript & Summary

Welcome to the Southern National Bancshares (sic) [ Southern National Bancorp's ] 2020 Annual Meeting of Stockholders. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to the Chairman of SONA.

Good afternoon, ladies and gentlemen. My name is Randy Cook. I'm the Chairman of Southern National Bancorp of Virginia, Inc., and in that capacity, I now call the 2020 Annual Meeting to order. It's unfortunate that the current pandemic and the social distancing rules prevent us from conducting a traditional in-person meeting. However, the Board of Directors recognize that we have a duty to protect our employees, shareholders and directors, and we felt like having a virtual meeting best served our needs. With that said, I thank you for participating in this meeting, and I hope you'll find the meeting interesting and informative. I came to this organization as a result of a merger in 2017, having served as the Chairman of the acquired bank for about 16 years. I'm very proud to be associated with Sonabank. I know firsthand the hard work that has gone into building the bank through acquisitions and organic growth and the challenges of merging 2 cultures and doing our best to see that our customers, staff and shareholders realize the success that they all desire. I assumed the position of Chairman of SONA on March 21, 2020, upon the retirement of our former Executive Chairman and Founder. I'm honored to serve in this position. I want to assure you that I intend to carry out the responsibilities of Chairman to the best of my abilities. Also, I want to let you know that the entire Board of Directors is committed to vigorously protecting the company and the interest of the shareholders. Let us now turn to the business portion of the meeting. I'd like to recognize the Board of Directors at this time. I will name them. We have John F. Biagas; Robert Clagett; F.L. Garrett, III; W. Bruce Jennings; Eric Johnson; Charles A. Kabbash; Dennis J. Zember, Jr. And all of them are here present at our headquarters today, except for Mr. Kabbash, who is not quarantined, but he's not with us today. He's down in Florida. He's online. We also have a number of our company officers here with us. Joining us today are Barry Almond, Head of Retail Banking; Keith Avant, Chief Credit Officer; Bruce Brockwell, Head of Commercial Banking; John Colantoni, Risk -- Chief Risk Officer; Jeff Karafa, Chief Financial Officer; Marie Leibson, Chief SBA Lending Officer; Cody Sheflett, Chief Information Officer; William Stevens, Chief Credit Risk Officer; and Stephen Weber, Chief Strategy Officer. At this time, I appoint Cheryl Wood to act as Secretary of this annual meeting. I'll now ask the Secretary for a report concerning the notice of the meeting that has been given to all the stockholders of the company.

Mr. Chairman, I have here a certified list of the stockholders of record of the company at the close of business on April 3, 2020, the record date for this meeting as fixed by the Board of Directors. I also have a signed affidavit stating that a copy of the notice of this meeting and the form attached to the affidavit was mailed on or about April 20, 2020 to all stockholders of record of the company at the close of business on April 3, 2020.

I declare that the due notice of this annual meeting has been given to all stockholders entitled to notice thereof and who are entitled to vote at this meeting and that the meeting has been duly convened. Ms. Wood, may we have a report as to the presence of a quorum?

Mr. Chairman, at the close of business on April 3, 2020, the record date for this meeting, there were 24,297,703 shares of common stock of the company issued and outstanding and entitled to vote at this meeting. Under Section 13.1-666 of the Virginia Stock Corporation Act, the presence in person or by proxy of stockholders holding a majority of the shares entitled to vote constitutes a quorum or 12,148,852 shares. Stockholders participating in a meeting by means of remote communication, as today, are deemed present under the Virginia Stock Corporation Act. Subject to verification, the holders as of the record date of this meeting of 21,811,188 shares of common stock are present by proxies executed in favor of John F. Biagas and Robert Y. Clagett or either of them, each of whom is present at this virtual meeting. Therefore, a quorum is present at the meeting. Director nominees are elected by a plurality of the votes of the shares of common -- of SONA common stock present in person or by proxy at this meeting. This means that the director nominee with the most votes for a particular board seat is elected for that seat regardless of whether or not such nominee receives a majority of the votes cast. A broker non-vote or a withholding of authority to vote with respect to the director nominee will not have the effect of a vote against such nominee because it is not a vote cast in favor of or against the proposal. Approval -- or the ratification of the appointment of Dixon Hughes Goodman and the nonbinding advisory proposal to approve the compensation of SONA's named executive officers each require the affirmative vote of a majority of the shares of SONA common stock present in person or represented by proxy at this meeting. Abstentions will have the effect of a vote against the ratification of the appointment of independent registered public accounting firm and the nonbinding advisory proposal to approve the compensation of SONA's named executive officers.

As greatly mentioned by the Secretary, the purpose of today's meeting is for the stockholders to vote on the following proposals: number one, the election of 3 Class II directors to serve on the company's Board of Directors until the 2023 Annual Meeting of Stockholders; number two, to ratify the appointment of Dixon Hughes Goodman LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020; number three, a nonbinding advisory vote under SEC rules to approve the compensation of the company's named executive officers; number four, to transact such other business as may properly come before the Board in today's meeting. No other business shall be conducted. As a matter of information, I'm pleased to announce that our stockholders owning sufficient shares to approve the proposals have instructed their proxies to vote in favor of all the proposals. Although there are sufficient votes to cast to approve all of the proposals, we want every stockholder to have an opportunity to cast his or her vote. There will be a question-and-answer period later in the meeting. We will also have a management presentation from our recently appointed Chief Executive Officer, Dennis Zember. Let's begin the voting. The first item to be voted upon at this meeting is the proposal to elect 3 directors of Class II to serve on the Board of Directors of Sonabank until 2023 Annual Meeting of Stockholders. Is there a motion to support this matter?

I so move, Mr. Chairman.

Is there a second?

I second.

Okay. We have a motion and a second. The second item before the meeting is the proposal to ratify the appointment of Dixon Hughes Goodman LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. Is there a motion in support of this matter?

I so move.

I second.

The final item before the meeting is the proposal to approve on a nonbinding advisory basis, the compensation of SONA's named executive officers. Is there a motion in support of this matter?

I so move.

Is there a second?

I second.

These items of business have been properly brought before the annual meeting. And as noted previously, no other business can be conducted at this meeting. It is now 2:40 on May 21, 2020, and I declare the polls for this annual meeting to be open for voting on the 3 agenda items. If there's any stockholder present who wishes to vote or to revoke a proxy previously submitted and then vote, please follow the instructions provided on the virtual meeting website. Stockholders who have voted by proxy do not need to vote on the website today unless they wish to change the vote on their proxies. With that said, I ask that anyone wishing to vote, please do so now. We will have a short pause to allow time for voting. [Voting]

Okay. We're ready to reconvene the meeting. If you haven't voted, please do so immediately. Since all stockholders have submitted their proxies or electronic votes, I now declare the polls for this meeting closed at 2:41 on May 21, 2020. At this time, we'll pause to permit the secretary to collect the votes with respect to the proposals. The votes have been collected. I will now ask Ms. Wood to report the results of the voting.

Mr. Chairman, I offer the following report. With respect to proposal 1, the proposal to elect 3 directors of Class II to serve on the Board of Directors, I'm pleased to report that each director received a plurality of the votes cast. Therefore, the proposal is considered passed. With respect to proposal 2, the proposal to ratify the appointment of Dixon Hughes Goodman LLP as the independent registered public accounting firm of the company for the fiscal year ended December 31, 2020, I am pleased to report that the proposal received a plurality of the votes cast and, therefore, the proposal to ratify this appointment is considered passed. With respect to proposal 3, the proposal to approve, on a nonbinding advisory basis the compensation payable to SONA's named executive officers, I am pleased to report that the proposal received a plurality of the votes cast. Therefore, the proposal is considered approved. Mr. Chairman, this concludes my report on the tabulation of the votes for this shareholder meeting.

Thank you. I declare that the first proposal to elect 3 directors of Class II to serve on the Board of Directors, the second proposal to ratify the appointment of Dixon Hughes Goodman LLP as our accounting firm and the third proposal to approve on a nonbinding advisory basis the compensation payable to certain executive officers of SONA, have each been approved. It's now my pleasure to introduce to you our CEO, Dennis Zember. Dennis has been with us now for about 3 months, and we are very pleased to have him join our company. Dennis comes to us by way of Ameris Bank, headquartered in Jacksonville, Florida, and brings with him a broad range of banking experience. And as you will see, his excitement about the future of our company is contagious. Dennis?

Thank you, Mr. Cook. For those of -- good morning again, and thank you for attending our 2020 shareholder meeting. For those of you that don't know me, I am Dennis Zember, and I became CEO of Southern National on February 19 of this year, it's 92 days ago. And I have to be restrained for the sake of professionalism, but if I weren't, I would be standing on the table and expressing my excitement at this opportunity. I feel very fortunate to be here today to be working with this executive team and this Board and the 350 inspired staff that are thrilled with the chance to build on the solid foundation that our founders left for us. I don't think I can overstate the motivation that exists in our company from the Board level down to prove that we can and will build a lot of value for our shareholders. In my professional career, nothing produces results faster than a motivated and inspired team that pulls together in one direction, and that's what I believe in our future. First, a report about last year's performance. For the year ended 2019, we earned $33.2 million or $1.36 per share, which compares to $1.39 for 2018. Our results were affected by several items in 2019, most notably, the $3 million after-tax charge to settle a lawsuit in the first quarter and a -- and an inverted yield curve that negatively affected our net interest margin. We overcame a lot of these negatives with good cost controls and steady levels of operating expenses. Our adjusted operating efficiency for the year came in at just below 55%, which we consider to be a real strength for our company. On an actual basis, the company earned an ROA of 1.22%, just a touch down from the 1.25% we earned in 2018. Our return on tangible capital declined in 2019 because of our building capital levels to approximately 12.5% for the full year. Our total assets ended the year mostly flat against the prior year. This is not reflective of the company's spirit and excitement about growing existing relationships or looking for new ones, but it has allowed us to build very strong capital levels. We ended 2019 with tangible common equity to tangible assets of 10.3%, and our bank subsidiary finished with Tier 1 leverage of 12.1%. Our last slide here shows tangible book value. We ended the year with $11.09 per share in tangible book value after a dividend of $0.36 per share. This represents an impressive growth rate of 12.2% over the prior year ending balance of $9.88. Our Board is firmly committed to protecting and growing tangible book value with our operating results and our corporate strategy. Now with that short recap of 2019 behind us, let's talk about our future. Our short-term plans are really just twofold: First and foremost, we're dealing with the economic fallout from the pandemic, really like the rest of our industry. The fact is that most of what we face is brand new every day. For our existing customers, we've done about 430 modifications on loans totaling over $0.5 billion. For the Payroll Protection Program, we've taken almost 3,000 applications from borrowers all across the country. We've used experts and outside firms to help process the flow and demand, implemented increased programs to check and monitor fraud and engaged the entire company who has worked tirelessly in an effort to deliver an exceptional experience for our customer. Outside of this impressive staff, the company is working diligently to come together using the current economic issue as a time to support one another and work towards a common goal, defining our future and actively talking about being one company with one culture and one vision for the future. Our long-term plans are what most people are asking us about. And there are thousands of paths to building value, but not every path will beat our competition or stand the test of time. So it's important to choose a path that can grow our owners' value at such a pace that we alone control our future, that allows us to fully realize the fruits of our labor. So there are 3 things that we're focused on. First is a drive to always improve our results. While this is an enduring quality, we are laser-focused on just a couple of items for this year. First, we're going to develop the expertise to diversify our loan portfolio, and at the same time, work diligently to improve our deposit mix and deposit costs, reducing dependence on noncore deposits. Secondly, we are in a hurry to innovate to build better products and delivery systems, to imagine better ways of serving the customer and then to make it a reality. These efforts will improve our company's geographic reach. It will improve our growth rates, and it will make us unique when compared to the competition. Lastly, we're focused on building an enduring and attractive image. We're going to develop an image and a brand and a culture that attracts champions. If you'll allow me an analogy here, I would offer that our country got to the moon first because we had champions that had that vision. We found champions that had the technical expertise and know-how, and we found champions that weren't afraid to go first. I know that sounds ideal, but champions don't just materialize. They are craving a certain kind of place to work and to succeed. They want to be in an atmosphere that isn't bureaucratic, that doesn't stifle creativity or individualism. And in our industry, has the products, services and support that get stuff done faster and better than the competition. At the root of that environment is leadership, inspired leadership that gets all of its energy from removing the hindrances and road blocks, and seeing the people around them reach their highest potential professionally and personally. As I close, I'd like to say thank you again on behalf of the Board and all the employees, to our owners for the opportunities given us to build something unique, and remind you again that we are dedicated stewards of your resources. With that, I will turn it back to our Chairman.

Thank you, Dennis. I know the Board is committed to work hard with you to continue the success of Sonabank. We look forward to working with you. I will adjourn the formal business portion of the meeting. I will now open the floor to questions. Please remember to follow the rules of conduct, especially regarding the time limit. If you would like to ask a question, please follow the instructions set forth on the virtual meeting website. Your question and your individual control number will appear on our Computershare platform and will be read aloud. I or another member of the Board or the management team, as appropriate, will answer the question. So with that said, do we have any questions?

Mr. Chairman, we have no questions at this time.

Okay. We'll wait a while, give everybody -- make sure everybody has a chance to participate. Using this technology has been different for us. It's something new to us, but all of our corporate counterparts are having to go to virtual meetings, and I think it will be used more so in the future. We appreciate what Computershare has done for us to make this possible and our staff who worked hard to get this done. Jeff, anything?

We have no questions.

Okay. We have no questions. I want to thank each of you for participating in today's meeting. I hope you learned something about the company that maybe you didn't know. I hope you found it to be interesting. And with that said, I will adjourn the 2020 Annual Shareholder Meeting. Thank you.

This concludes the meeting. You may now disconnect.