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

Hello, and welcome to the Annual Meeting of Stockholders of Primis Financial Corp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Chairman Cook. Mr. Chairman, the floor is yours.

Good afternoon, ladies and gentlemen. My name is Randy Cook, and I'm the Chairman of the Board of Directors of Primis Financial Corp. I will now call the 2024 Annual Meeting of Stockholders to order. At this time, I'd like to introduce all the other members of the company's Board of Directors who are either here in person or joining us remotely. John Biagas, Robert Clagett; Deborah Diaz, John Eggemeyer, F.L. Garrett, III, Eric Johnson, Dr. Allen R. Jones, Jr, Charles Kabbash, and Dennis J. Zember, Jr. We also have many of our company executive officers joining us here today. At this time and without objection, I appoint Cheryl Wood to act as Secretary of this annual meeting. With that said, I hereby call for a report from Mrs. Wood concerning notice of this meeting that has been given to 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 October 29, 2024, 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 November 8, 2024, to all stockholders of record of the company at the close of business on October 29, 2024.

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

Mr. Chairman, at the close of business on October 29, 2024, the record date for this meeting, there were 24,722,734 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 present in person or by proxy of stockholders holding a majority of the shares entitled to vote constitutes a quorum or 12,361,368 shares. Stockholders participating in a meeting are deemed present under Virginia Stock Corporation Act. Subject to verification, the holders as of the record date of this meeting of 21,691,219 shares of common stock are present by proxy executed in favor for, John F. Biagas and Eric A. Johnson or either of them. Each of whom is present at this meeting. Therefore, a quorum is present at the meeting. Director nominees are elected by a plurality of the votes of the shares of Primis Financial Corp. common stock present virtually or by proxy at this meeting and entailed to vote on the election of directors. 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 receive a majority of the votes cast. A broker nonvote 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. The ratification of the appointment of Crowe LLP as the company's independent registered public accounting firm for 2024 requires the affirmative vote of a majority of the shares of Primis Financial Corp. common stock present virtually or represented by proxy at this meeting and entitled to vote. Extensions will have the effect of a vote against the ratification of the appointment of the independent registered public accounting firm. The affirmative vote of the majority of the shares of common stock present virtually are represented by proxy at the annual meeting and entitled to vote is required to approve the advisory nonbinding proposal to approve the compensation of the company's named executive officers. Broker nonvotes will be deemed shares not entitled to vote on such matter and will not have any effect on the outcome of such matter. Extensions will have the effect of a vote against the advisory nonbinding proposal to approve the compensation of the company's named executive officers.

As briefly described by the Secretary, the purpose of today's meeting is for stockholders to vote on the following. First, the election of 3 Class III directors to serve on the company's Board of Directors until the 2027 Annual Meeting of Stockholders. Second, to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024. Third, a nonbonding advisory vote under SEC rules to approve the compensation of the company's named executive officers. Lastly, to transact such other business as may properly come before this meeting. As a matter of information, I'm pleased to announce that our stockholders owning sufficient shares to approve the proposal have instructed their proxies to vote in favor of all of the proposals. Although there are sufficient votes cast to approve all of the proposals, we want every stockholder to have the opportunity to cast his or her vote. There will be a question-and-answer period later in the meeting. We will also have some brief comments from our 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 III to serve on the Board of Directors of Primis until the 2027 Annual Meeting of Stockholders. Is there a motion in support of this matter?

I so move.

I second the motion.

Next. The second item before the meeting is the proposal to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024. Is there a motion in support of this matter?

I so move.

I second the motion.

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

I so move.

I second the motion.

These items of business have been properly brought before this annual meeting. And as noted previously, no other business can be conducted at this meeting. It is now 12:37 on December 19, 2024, 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, 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 for the voting. [Voting]

I now declare the polls for this annual meeting closed at 12:40 p.m. on December 19, 2024. At this time, we'll pause to permit the Secretary to tabulate the votes with respect to the proposals. The votes have been tabulated, and I will now ask Mrs. Wood to report the results of the voting.

Mr. Chairman, I'll offer the following report. With respect to Proposal 1, the proposal to elect 3 directors of Class III to serve on the Board of Directors until the 2024 Annual Meeting of Stockholders, I am pleased to report that each director received a plurality of the votes cast, and therefore, the proposal is considered approved. With respect to Propose 2, the proposal to ratify the appointment of Crowe LLP as the independent registered public accounting firm of the company for the fiscal year ending December 31, 2024, I am pleased to report that this proposal received the affirmative vote of a majority of the shares of common stock present virtually or represented by proxy, and therefore, the proposal to ratify this appointment is considered approved. With respect to Proposal 3, the proposal to approve on a nonbinding advisory basis, the compensation payable to Primis's named executive officers, I am pleased to report that the proposal received the affirmative vote of a majority of the shares of common stock present virtually or represented by proxy, and therefore, the proposal is considered approved. Mr. Chairman, this concludes my report on the tabulation of the vote for this stockholder meeting.

Thank you. I declare that the proposal to elect 3 directors of Class III to serve on the Board of Directors until the 2027 Annual Meeting of Stockholders. The proposal to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for fiscal year 2024 and the proposal to approve on a nonbinding advisory basis, the compensation payable to the named executive officers of Primis, all of these have each been approved. I will now turn the meeting over to our CEO, Dennis Zember, for a few comments.

Thank you, Chairman. Good -- it's -- first off, I would apologize to our investors for having this shareholder meeting so late. This has been 30 years, is the latest shareholder meeting I've ever had. But still, we're having that, and I don't want to gloss over the fact that it is maybe we are call it, 6 months late, and I apologize for that. I would say that some of the circumstances that got us here were maybe unforeseen. But regardless of whether they are unforeseen or our fault or not, it's where we are. We anticipate having some very positive news here shortly about the NASDAQ listing. And I think we're going to be -- that will be the last piece of the delayed filings that we'll put to bed, and I think that could happen this week. Normally, we would make these comments in, call it, April or May, and you'd be -- the former year that we would be reporting on is so close in the rearview mirror that we would have all those comments relate to that year. But with this, we have a little more perspective on the current year. So my comments will include some of '23 and then some of what happened in '24. The -- underneath the bad news with our NASDAQ listing and the news on that and the delayed SEC filings, a lot of good things have happened at the bank. One, our bank has -- the core community bank has outperformed its peers in a material way, especially with funding, with liquidity, with cost of funds. Our core bank was able to benefit from all the leverage that the digital platform added, and we were able to not have to fight and screen for every last dollar and our core bank came through that looking pretty good. The digital platform, we ended the year with about $950 million or so of deposits and probably 15,000 accounts as we sit here today or at the end of the third quarter, we had closer to $970 million. So even with the falling rate environment, we've been able to hold on to all the deposits and I think position ourselves to benefit from falling rates on that. These customers love our platform. They love the digital solution we put in front of them, the rates, the fees, all the solutions that we put in front of them, including a community banker. So they're not banking with bots like we like to say on the -- on our call, they're still banking. It's a digital platform run by a community bank. Outside of that, we've got several lines of business. Mortgage, our mortgage division has almost doubled its volume and more than doubled the earnings contributions that we think we'll see this year compared to '23. Panacea has had a dynamite year. We finished '23 with them doing a capital raise that established a market value over $100 million. We have an unrealized gain in our company of about $20 million, about $0.60 or so on tangible book that's not been recognized that we anticipate recognizing shortly when we deconsolidate that. The Life Premium business has been wonderful, no losses, wonderful set of customers, probably a $2 billion pipeline. That's not something you hear a lot of $3.5 billion or $4 billion banks say, but that led us to naturally have to find a better home for that. We announced that here maybe at the end of the third quarter. We found a better home for them. And they basically were able to trade into mortgage warehousing, which is a better solution for our company, higher spreads, and margins, and it plays off very well with our mortgage franchise. So all in all, I feel like the company is positioned -- for all the things that we've done have positioned the company very well in spite of the headline being sort of delayed SEC filings. But we've got that behind us and have sort of a brighter days ahead. With that, Mr. Chairman, I'll turn it back to you.

Thank you, Dennis. And that includes the management presentations. It is also appropriate this time to adjourn. We've concluded all the business of the meeting, we will adjourn 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 be recognized, please follow the instructions set forth on the virtual meeting website. So do we have any questions?

We do, Mr. Chairman. There are 3 questions. First question came to us. Please provide an update on the $2.4 million insurance claim made pertaining to the loan fraud discovered in 2023.

Yes. We did. We had several conversations with -- about this on all of our quarterly calls. We are still pursuing the -- aggressively the insurance claim of that. Anybody that's ever filed a material insurance claim knows that the insurance companies don't just work over the money. And I think even just maybe in the last couple of weeks, they were still asking questions. So I can't tell you where that we're close to getting that. I can just tell you that we're working feverishly to answer questions and provide data and anticipate that sometime maybe in the coming year, we'll resolve that.

Second question was, can you please provide details on the $28 million of CRE loans that went past due during the third quarter.

Yes. We discussed this on our earnings call as well. We had one commercial real estate customer that didn't actually go past due. But we did downgrade from special mention to substandard. The loan has been -- or the property has been slow to lease up. We obtained a substantial amount of additional collateral on this property to cover the shortfall. The loan has never been past due. The customer has always serviced the debt. But because it's been slower to lease up, we downgraded it, got a little more -- which allowed us to get a little more collateral and I think we recognized $1 million or $2 million in the shortfall.

The third question is over the past 2 years, the company has paid out dividends that exceed profits. How safe is the dividend going forward?

Yes. And let me go back to that previous question, make sure that nobody on the call hears that and read anything into credit quality. Our credit quality at the end of the third quarter we had 600% of nonperforming assets in the reserve. Our peer group only has 200%. So we have 3x more loan loss reserve to nonperforming assets in our peer group. Secondly, we have 25 basis points of nonperforming assets to total assets. Our peer group has 78 basis points. So we're less than 1/3 of what our peer group has in credit quality. So I want to make sure that investors hear that credit quality here is not [ colored ] by one -- perhaps one loan that was downgraded and taken care of. The question about the dividend. I mean, obviously, I can't answer how safe is the dividend maybe except for the current dividend I will say that we're well capitalized. We've got a material capital buffer, especially with the sale of Life Premium Finance that added -- probably it moved our ratios up by 10% or 12%. So I'm not going to speak to whether or not the dividend is safe or not, I would just say that we've got plenty of capital to continue paying a dividend.

Mr. Chairman, we have no other questions in the queue.

Thank you so much for that. I want to thank all of the persons who have attended this 2024 Annual Meeting of Stockholders and hope that you have learned something from the meeting today. And there being no further business, I declare the meeting adjourned.

This concludes the meeting. You may now disconnect.