Primis Financial Q2 2023 Earnings Call Transcript

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July 28, 2023

There are 6 speakers on the call.

Operator

My name is David, and I'll be your conference operator today.

Speaker 1

At this time, I'd

Operator

like to welcome everyone to the Premise Financial Corp. 2nd Quarter Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

Matthew Switzer, Chief Financial Officer, you may begin your conference.

Speaker 2

Good morning and thank you for joining us. 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 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 website, primusbank.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.

Speaker 2

A reconciliation of the non GAAP measures to the most comparable GAAP measures can be found in our earnings release. I I will now turn the call over to our President and Chief Executive Officer, Dennis Semberg.

Speaker 3

Thank you, Matt, and thank you to all of you that have joined our Q2 conference call. I know this is a noisy quarter, but I really want to stress how excited I am for how we position the bank going forward. The cost savings initiative is pretty hard, but will make us much leaner and more profitable right away. The credit Charge to move NPAs position us to have best in class credit quality with tiny concentrations in office or retail CRE. Our digital platform has gone from 50 basis points over wholesale money to about 50 basis points below wholesale money in just 6 months.

Speaker 3

And lastly, while a lot of the industry is implementing the needed cost saves and branch reductions to offset revenue headwinds, I think we can offset all of ours with our move to the gain on sale strategy. Let me give a little more color on all of that. First, the cost savings initiative. Since I came here in 2020, we have consolidated quite a few branches and worked pretty hard on the sales culture. After this recent consolidation is finished, we'll have 24 branches with core bank deposits of $2,500,000,000 In the last 3 years, we've grown checking accounts in the core bank by about 12% annualized, and we have completely 100% run away from The quality and value of this community bank's deposit portfolio, especially in this rate environment, has never been higher than it is right now.

Speaker 3

And consolidating that value into fewer branches with the best salespeople in our region is something to be excited about. Matt is going to give more color about the cost savings initiative in his remarks, but I believe this can be transformative moment for us And I have seen over and over in my career how this discipline ultimately yields more savings and long term better results. Still on the value of the community bank, our NPA levels were concentrated in just two relationships, but It still damaged our ability to distinguish ourselves. Focusing on excuse me, so closing that one loan sale that did in the quarter and taking contracts on the others position us to have only 13 basis points of non performing assets. We have never chased long maturity, hypercompetitive commercial real estate in our region.

Speaker 3

We've always focused on profitable owner occupied or C and I deals in the core or C and I deals in the core bank and medical professionals and cash secured loans in the lines of business. I think we're very well positioned for whatever is ahead And this lower level of NPAs will allow us to experience the value from that. On the digital platform, we all questioned at the outset, honestly, if we could And we are working very hard to make sure That value proposition becomes a reality using all of the community bank and relationship skills that we have. In just 6 months, we've been able to add to be able to move almost 100 basis points from 50 basis points ahead to 50 basis points below wholesale money. Lastly, we've had virtually no account attrition from our peak and we've rebuilt almost every service platform we have to make sure our service and experience As to our efforts, touching on our gain on sale, our pivot to the gain on sale model, Our digital platform was meant to fully fund Life Premium Finance and Panacea and produce 3 25 basis points of margin.

Speaker 3

The loan businesses were meant to lessen we went into the loan businesses simply to lessen the pressure we had to book every CRE deal that we looked at and to push higher quality credits into our book. There is no question we have done the latter, But the inverted yield curve means that on balance sheet, we're only getting about 200 basis points to 210 basis points of incremental margin. I know that's too thin to keep leveraging, but I also know the yield curve will ultimately come back. And instead of shutting down production and waiting and having to maybe rebuild the platforms. We've been instead building interest and commitments to sell these higher quality loans.

Speaker 3

And as I sit here right now, I believe this strategy can completely neutralize all of the net interest income shrinkage that we experienced in

Speaker 2

the quarter, Which is important because

Speaker 3

I think that means the cost savings that Matt is going to discuss about are more bottom line oriented Mortgage for us this quarter was a standout. Right now, We are slowly and methodically adding a couple of producers here and there who are very reasonable about signing bonuses and have been producing solid levels in this environment. We've grown from a $200,000,000 shop to a $700,000,000 shop and we're profitable all 3 months in the Q2. Being profitable right now in this industry is honestly is noteworthy, but doing it As you're growing and at these lower levels are is even more noteworthy. I'm really proud of what our team is doing here and I All of that takes me to Page 5 in our slide deck where Matt has outlined the current quarter with the impact of all these changes.

Speaker 3

Importantly, our non branch savings have already been completed as of this month. So a good portion of that will be in our 3rd quarter run rate. What the math doesn't include is about $800,000 a quarter of expenses related to bank operations that will result from tweaking Some responsibilities and risk management, and we honestly both believe this loan sale strategy is bigger than $1,000,000 With that loan sale strategy in place, the provisioning will fall as well further improving the bottom line. So everything we've done here is just recalibrating the bank to be able to produce a minimum 1% ROA in this environment. Before I turn it back over to Matt, I want to say something about the employee fraud.

Speaker 3

First, I want to stress that I am confident that the vast majority of this is coming back from our insurance. But given the timing of when we discovered it and our investigation, We did not book that receivable. I believe in short order, there will be only minimal financial impact from this event. God knows I am not trying to spin this, but the fact that he spent a decade originating fake loans And stopped 3 years ago, illustrates how important good controls and procedures are and for the need to have experts in administrative For the last 3 years, he's basically just serviced the existing fraudulent loans with past proceeds until our credit and regional staff noticed a few unusual things and dug in to discover this. I expect that Matt and our forensic accountant will be done with their work shortly.

Speaker 3

We'll file the claim and work through the recovery process quickly. All right. With that, Matt, I'll turn it back to you. Thank

Speaker 2

you, Dennis.

Speaker 3

I

Speaker 2

will provide a brief overview of our results before we turn to Q and A. But as a reminder, A full description of our 2nd quarter results can be found in our earnings release and 2nd quarter earnings presentation, both of which can be found on our website. Operating earnings for the Q2 were $1,000,000 or $0.04 per diluted share versus 6,000,000 or $0.24 per diluted share in the Q1. Total assets were $3,800,000,000 at June 30 versus $4,200,000,000 at March 31. The reduction in total assets was due to the sweep program we instituted at the end of the quarter that moved approximately $350,000,000 of excess deposits off the balance sheet at the end of the quarter.

Speaker 2

Excluding PPP loans and loans held for sale, loan balances grew 17% annualized. Growth was driven by Life Premium Finance and Panacea We anticipate loan growth to moderate in the near term as we execute on our loan sales strategy, particularly for our higher growth business lines. Deposits were essentially flat in Q2 if you include the funds that were swept off the balance sheet at June 30. We intend to continue growing deposit relationships while managing overall liquidity through the sweep program. Excluding accounting adjustments related to the 3rd party managed portfolio, net interest income declined to $25,600,000 from $27,500,000 in Q1, largely due to funding cost pressures.

Speaker 2

End interest margin adjusted for excess cash on the balance sheet in Q2 and Q1 that is now being swept off was 3%, down from 3.38 percent in the Q1. A couple of thoughts on margin and net interest income. Pressure on the margin largely occurred earlier in the second quarter with a noticeable slowdown in deposit repricing later in the quarter. As you look at our press release and investor presentation, we detailed the difference in cost between the Community Bank and the digital platform. Our Community Bank beta has been approximately 23%, which we believe is very strong.

Speaker 2

Having an ability to raise incremental funds out of market has allowed us We also will be launching our new digital business accounts in the 3rd quarter Lastly, we entered into an interest rate swap in the middle of the second quarter. If in place for the whole quarter, net interest income would have been approximately $300,000 higher. Combined, we think we have an opportunity to mitigate a lot of the pressure on net interest income in the short term. Excluding accounting adjustments, non interest income was $7,300,000 in the 2nd quarter versus $6,600,000 for the Q1, largely due to an increase in mortgage activity. Mortgage originations were up 50% in the quarter in the face of limited housing supply.

Speaker 2

The locked pipeline also ended Q2 at $61,000,000 up 15% March 31 suggesting strong momentum into the Q3. Lastly, non interest income included a gain of $103,000 from a small panacea loan sale. We expect this activity to increase materially in the second half of twenty twenty three. Core non interest expense excluding accounting adjustments, Non recurring items and mortgage was $23,500,000 for the 2nd quarter versus $21,500,000 in the previous quarter. Much of this increase was due to FDIC insurance, data processing expense and debit card restocking costs that totaled approximately $2,000,000 in the quarter and they were artificially high due to the high volume of accounts opened late in Q1 early Q2.

Speaker 2

FDIC insurance in particular will decline due to the Dennis also discussed a variety of operational changes that will benefit expenses going forward. We also announced a cost save initiative, including broader administrative reductions and the consolidation of 8 branches that will reduce non interest expense by approximately $9,400,000 annually. Annual administrative saves are approximately $6,500,000 with 2 thirds of the run rate expected to be in the 3rd quarter and full run rate in the 4th quarter. Annual branch consolidation saves are The provision for credit losses was $4,300,000 in the 2nd quarter versus $5,200,000 in the 1st quarter. Dollars 1,400,000 of that provision was due to accounting for a third party managed portfolio, which As Dennis highlighted, including an approximately $8,000,000 NPA resolution in the 2nd quarter, total NPAs would have been less than $6,000,000 and NPAs to assets would have been very low at approximately 13 basis points as of June 30.

Speaker 2

Core net charge offs were only $200,000 in the quarter and The allowance for credit losses to gross loans excluding PPP was 1.21% at June 30 versus 1.18% last quarter, largely due to specific reserve build for the NPA sales noted above. Lastly, core pretax pre provision earnings were 5 point $1,000,000 in the 2nd quarter after a $2,000,000 reduction in net interest income and various expenses that hit this quarter as discussed above, but that we expect to be lower going forward. As Dennis discussed, we believe our gain on sale strategy is on the cusp of producing results and we'll mitigate this reduction in net interest income and then some. Our cost save initiatives will also begin adding to earnings in Q3 and Q4 and we'll right size our expense base for the current environment. Combined, we believe we have a much better path to profitability than this quarter would indicate and are optimistic for the future.

Speaker 2

Operator, we can now open the line for Q and A.

Operator

Thank you. We'll take our first question from Casey Whitman with Piper Sandler. Your line is now open.

Speaker 1

Hey, good morning.

Speaker 3

Good morning, Stacy.

Speaker 1

Just starting off with your comments around And the gain on sale model loan growth, could we see loan balances shrink or are we just talking about slowing the growth here?

Speaker 3

They're not I don't think they would shrink. I think there's not everything that Panacea and Life Premium We produce, we get sold. I think the vast majority would, but I think panacea is consumer production. We like that. I don't think that we're looking to sell that.

Speaker 3

I do know that the activity in the core bank honestly has picked up a little. What we're able to do in the core bank, the fact that we even can loan money Sort of distinguishes us and some of the yields we're seeing are in the mid-8s and 9s. So I think probably just concentrating More of our lending efforts there, probably just the single digits Or low single digit increases in loans as opposed to what you saw this quarter.

Speaker 1

I assume you can be pretty nimble there. I mean, how quickly can you kind of shut this off if the yield curve changes and you want the portfolio more?

Speaker 3

I think very fast. I mean really what we're talking about is more are more flow Arrangements and flow agreements. So I mean, we would want to honor that honestly, But Panacea is probably only producing 40%, 50% of what they could produce Just because of how hard we dialed them back, we've not been recruiting producers. I think if we get good flow and Arrangements in place, we could hire more producers, produce more, and really exhaust the Name that they've built for themselves. I just feel like this yield curve and incremental funding And honestly, our limited capital, we're not going to burn off all of our capital on that has made us sort of slow down there.

Speaker 3

So really this is such a welcome. This is a very welcome move for, Panacea and probably what they can do. They might be able to double Production levels, if we get when we start getting these in place.

Speaker 1

Okay. But maybe just start out with the I think it was 1,000,000 Assumption for the gain on sale that you have in your slide deck and we'll go from there?

Speaker 3

I would probably start with that. I think we Yes, we would start with there. We're confident that we can do more, but I think for this quarter, that's probably a good number.

Speaker 1

Okay. And then just the cost initiatives you guys are taking, it sounds like at least some of that was driven by the rate environment or Would you probably have made these moves regardless, but you just kind of had accelerated the efforts or just kind of walk us through But how you came to these decisions?

Speaker 3

I mean, I think every single day, Matt and I come to work and we look at what's happening and we calibrate a pathway to the profitability levels And I mean it's been decades really since the industry faced 10% declines in net interest income in a single quarter. Honestly, I think all that's going to moderate. I bet you a year from now, if rates stay like this, we'll be getting some of that back. But it doesn't matter. Right now, the industry has got net interest income headwinds.

Speaker 3

You can't even conceivably grow through that. And it's just the right time to do it. I mean, we Needed to consolidate some branches for years. The opportunity to consolidate our management team And other positions is this every chance that we have to I mean, Matt and I are not always looking for cost savings and to reduce staff levels, we're not. But every chance we have to strengthen Our staffing levels and our pathway to a profit is we're going to take every pathway we can and honestly through the quarter Probably going into the Q2 really.

Speaker 3

We just look and it's like it's going to be tougher to push a 1% ROI if we If we don't build confidence into credit quality with non performers, host of that, that's I think what would you

Speaker 2

No, I completely I mean, we, as Dennis said, are always looking for efficiencies, But probably more critical in this environment, particularly as we're trying to Not grow the balance sheet as quickly as we have. I mean, you can carry higher expenses if you're growing the balance sheet, growing spread income, but in this environment that's More challenging and want to make sure we get the right expense base for the size balance sheet we're going to have in the near term.

Speaker 1

Yes. Ultimately, do you think 24 is the right branch network size? Could we see more branch reductions in the future?

Speaker 2

I mean, never say never. It's going to depend on, to a certain extent, the environment and Consumer behavior, but I think we feel pretty good with the number of branches we have for right now. We'll see incremental over time, but I don't think you'll see another large consolidation like we just did.

Speaker 3

I mean, I would say too, we don't talk about this that much, but I mean, we're adding probably $25,000,000 a quarter To our delivery service, Bob, our delivery service. And a lot of some of that is out of our core network, but a lot of It's not. We're adding 1,000,000 in places that we are kind of close to, but not right on top of. So, I mean, we would for sure add more branches in larger markets around where we are in say Norfolk and Virginia Beach and all that. But for right now, we are that's not on our radar.

Speaker 1

Okay. Maybe can you help us out then in terms of where or give us a kind of quarterly range for where you expect expenses to run When all said and done with the cost saves, it can be a wide range, but just to help us out modeling.

Speaker 3

Yes. I think

Speaker 2

I mean, obviously, this won't all be in the run rate until later this year, but probably in the $18,000,000 to $18,500,000 Excluding mortgage, which obviously mortgage kind of fluctuates pretty dramatically based on seasonality. But the core run rate

Operator

Next we'll go to Russell Gunther with Stephens. Your line is now open.

Speaker 4

Hey, good morning guys.

Speaker 3

Good morning.

Speaker 4

I wanted to follow-up on the gain on sale model discussion and just get your thoughts about how you see that maturing As we look into 'twenty four and the 1% ROA bogey, I hear you on the near term gain on sale expectations, But how

Speaker 3

do you think that scales as we move forward? I mean Panacea produced, what, 45 This quarter? I think Panacea did $45,000,000 in commercials. Matt's going to look it up. I think Panacea could there's no question in my mind they could hire we could hire 2 or 3 more bankers and probably maybe even double that.

Speaker 3

So now finding buyers for all that, I think we've got quite a few lined up And several that are nearing the very end. Payment fees commercial production On a floating rate basis is kind of right on top of prime. And so these are High quality commercial loans to medical professionals with strong credit metrics any way you look at it. So I mean, yes, I think there's a lot of interest in this.

Speaker 2

They originated about $75,000,000 in the quarter, a little less than half of that actually funded in the quarter.

Speaker 3

Okay. So $75,000,000 in the quarter. I mean, it's a good problem to have, having something this robust, But it's just so I think it's a good opportunity, Juan. I think it's a real good opportunity for us to step out and find This is something like this, but right now it's just this is not something we can do even if yields were great and the yield curve was right. Tyler and his staff and Matt and I, we all understand we just don't have the balance sheet or the capital to do that.

Speaker 3

So this is I think this is a real good opportunity. Again, we got $1,000,000 in there. I think it's yes, I think it can be a lot more than that. We're just

Speaker 2

being careful. And Frankly, I mean, we talked about this last quarter. We thought there was going to be more gain on sale income in Q2, just taking a little bit longer to This is the finish line with some of these buyers, but that's why we think we're pretty confident about the 3rd quarter.

Speaker 4

Understood. No, I appreciate that guys. And then as I just kind of marry that with the balance sheet expectations, I think you said core loan growth in the single digits kind of on an aggregate basis near term. So still thinking of what that Could look like in 2024 again as we let the gain on sale model mature. How are you guys thinking about total loan growth going forward?

Speaker 2

I mean, if we stay in the environment we're in right now, then it will we will target That lowtomidsingledigitloangrowthnextyearaswell. But with Like we're not with these loan sales, it's not a requirement to sell everything we produce. So if The curve changes. We have the flexibility to hold more. We have the flexibility to bring funding back on balance sheet out of the sweep program.

Speaker 2

So, but if we're sitting in 24 like we are right now, the goal will be to Advantage balance sheet and maximize spread as much as possible.

Speaker 3

I don't want to and I don't want to overplay this, but It's probably obvious. I mean, we're unique really, especially in our region for having some money And we have not completely pulled our horns in and we're getting looks at some pretty decent deals on Community Bank side, I think in fact the place where we're raising money on the Community Bank side on the deposit From a deposit standpoint, compared to where we're able to put some money out on really good customers, This is probably the widest spreads we've had on the community bank side. I've probably, yes, since I've been here. So, and honestly getting some looks at customers that we probably wouldn't get to normally look at. Now we're not trying to We're still on the national platform.

Speaker 3

We're still being cautious. We're still in the romance stage where we're making these customers as core as we possibly can before we get very confident About investing at all and just being prudent there, the sweep helps us because we're positive on the spread there On the whole platform, but I mean I really like the momentum that we're starting to see on the core bank side, The Community Bank side and I think mid single digits It's going to be pretty profitable on the for the bank.

Speaker 4

Okay. I appreciate that both of you for the color there. And then just switching gears, a number of steps we're taking this quarter to support NII and the NIM going forward, be it the sweep or the swap. And Just hoping you could tie all that together, give us a sense for where you expect the consolidated margin to trend in the back half of the year.

Speaker 3

Okay. Let me Matt can do the swap part. On the sweep, The sweep is important to us because really we can grow, and I'm just We can just grow almost infinitely and really not have any impact On our capital ratios, on our margins or anything like that, everything we do incrementally on the digital platform has Positive spread to the suite. And there's some degree there's some amount of that that ultimately is going to pay for the whole platform. So it's important for us to continue growing that like we have been.

Speaker 3

And especially now as the Fed keeps moving, we our incremental spread just continues to improve there. Most of that goes to non interest income, except for the portion that offsets Sweet deposit interest expense. That added, what, like 35 basis points To the margin in the quarter, and to the degree that we raised funds in the core bank, which we're raising those funds at very healthy margins at substantially less than the national platform. That means we can sweep more of the expensive money and see cost of deposits and our margins improve. With that, what would you Yes.

Speaker 3

I mean, just

Speaker 2

to put a finer point on that last bit there, Russell. I mean, And this is sometimes a little hard to appreciate. I mean, it's obvious On the loan side, if we sell loans and we can book the gain on sale and then we can replace those with potentially Loans at a higher yield and pick up incremental spread while keeping the loan portfolio flat, let's say. We can with this sweep, the one way sweep, we can actually do the same thing on the deposit side, less so like Gains in the near term, but we've got about $500,000,000 of deposits on balance sheet At that higher rate that we raised them at late in Q1, so around 5%. Every dollar that we Raise of deposits either in our local markets with our new digital business accounts that come on or even through checking accounts on the digital platform that every dollar we raise lower than 5%, We can keep those deposits on balance sheet and sweep off the $500,000,000 that's at the higher rate.

Speaker 2

It doesn't cost us anything because the rate we're getting through the suite service is basically at the same rate. So we can move them off with no incremental costs, but we pick up incremental spread on the balance sheet. So we get When we talk about managing the balance sheet through loan sales and through the sweep, we're really talking about both sides of the balance sheet. We can we've got an opportunity Maybe average up loan yields on the loan side and then average down deposit costs on the liability side. This is all incremental stuff, so I'm not saying that we're going to suddenly reverse all of the net interest income pressure we saw last quarter.

Speaker 2

But as we think about the next couple of quarters, we feel confident that we're going to be able to pull some of these levers and Mitigate some of the pressure that we've seen here recently. The other thing I'll say is, I don't want to give specific guidance on margin because it's been so hard to predict, but I will say If we look at the quarter, the margin compression that we saw was heavily weighted to the first half of the quarter. June was much, much lower. So it feels like we may be I can't say that there won't be any pressure in the Q3, but it should be very incremental versus Some of the step changes we saw in the 1st and second quarter.

Speaker 4

Okay. Thanks, Dennis. And then

Speaker 2

That doesn't necessarily mean net interest income would decline again, but the percentage.

Speaker 4

Okay, understood. And then thank you. Just last one tying it all together, a lot of proactive steps to improve profitability this quarter. Could you just update us on what you think the glide path is to that 1% ROA from here?

Speaker 2

Well, I mean, it's probably Q1 at the earliest of next year because We got to get all the cost saves in place from the branch closures and consolidations and the rest of the largely the administrative saves are in place. But all those movements plus some of the other reductions in operating costs we talked about Most of the way there and then the rest of the way comes from these loan sales. So we get That $1,000,000 of loan sale revenue doesn't get us there, but I

Speaker 3

think that's probably the variable. If that comes on hotter, that's probably going to move us from, call it, say, 70, 80 basis points Closer to 1 or over 1. That's probably the variable.

Speaker 4

Great. Thank you both. Thanks for taking my questions.

Operator

Okay. Next we'll go to Christopher Marinac with Janney Montgomery Scott. Your line is open.

Speaker 5

Thanks. Good morning. Dennis and Matt, just wanted to go through kind of the cost of funds and should we think of it kind of maybe bottoming here given that you're going to get a benefit And then that kind of covers this last Fed move that we just saw this week. Is that somewhat good way to think about it?

Speaker 3

I hope so. I think so. I mean, we are what Matt the point Matt just made about Sweeping more of the digital deposits that have a higher rate as we replace them with core bank, community bank deposits that have Substantially lower rates, I mean, we are working tirelessly on that effort. So yes, That probably altogether could put a cap on where we are on the cost And probably help us on net interest margin. Okay.

Speaker 3

And then the

Speaker 5

other side of that question was really just the ability to Continue to push through both loan and earning asset yields and that's not done evolving in your favor?

Speaker 2

Correct.

Speaker 5

Got it. Okay. And then, if we go through the fraud situation, this is not the first time you've seen and dealt with these things. Can you kind of just remind us All the things you've done internally since you've been at the bank and kind of where that positions you going forward and maybe just the cost that you've already put in for some of the systems you've done to kind of avoid

Speaker 3

Oh my God, I wish

Speaker 2

I would have prepared better for that.

Speaker 3

I mean, because I thought that I could be concise. I mean, put in new Chief Credit Officer, Put in a fully staffed credit administration team, lowered the level for Substantially lowered the level or analyst and underwriter independent analyst and underwriter approvals. Put in a full I hate to say this, but this is the fact, put in a regularly occurring process We're approving loans. In other words, we don't just approve loans randomly one off here and there. I mean, we have a team of experts Get packages that review loans and that approve them.

Speaker 3

And that probably sounds very basic, but yes, we've had to do that. The amount of loan systems And monitoring that we've put in extraordinary. I mean, when we focus when we say no I mean, just learning how to say no to a lot of customers when they want extensions of this or renewals of that, When we not being so dependent, I mean, I This is everybody every banker that hears this will know what I'm saying, but when you don't have to say yes to every single loan demand, every single loan request Because you have other options, I just Processes for renewals, processes for extensions, Ask yourself how hard do you look at renewals and extensions or do you just sort of quickly approve those to get through. We don't do that anymore.

Speaker 2

It's pretty extensive.

Speaker 3

Honestly, and a lot of that happened right out of the gate because As soon as I got here, we fell into COVID. We had the hospitality book that wasn't performing very well And a lot of other customers that were stressed. And so it was really in that that we just instituted A lot more detailed review, a lot more detailed understanding of everything.

Speaker 2

So And truth, I mean, Chris, I don't want to go into a whole lot of detail, but we're very confident that this was a one off Ishu is a rogue employee. We've been conducting this for quite a while taking advantage of His knowledge of policies and procedures and controls and basically leveraging Relationships and his tenure at the bank to avoid a lot of those and get around them. But What Dennis was just describing is what caused it all unwind. I mean, he had built a house of cars that he was able to Manage under the previous policies and kind of how things were structured. But with those changes that Dennis talked about, it made it untenable for him to keep all the balls in the air and that's how it It all fell apart.

Speaker 2

Sure.

Speaker 5

No, that's all helpful background. Thank you very much for all that. Just a quick final question for me just on the mortgage business. Does the seasonality both in Q3 and Q4 Suggest that you can still make a little bit of pretax income now and then have a small loss in Q4 or do you think it

Speaker 4

can be better than that?

Speaker 3

I think if we can make I think Q3 should probably look a little bit like Q2, especially I think With what Matt was saying about the pipeline, so I think Q3 should look mostly like Q2, maybe a little better, I don't know. But In Q4, I think we probably need to be somewhere around $1,000,000 pretax profitable so that we don't dip into negative territory in the 4th quarter. I'm hopeful that the 4th quarter fall off in production and pipeline and all that, our goal is to just get it Above breakeven for the Q4.

Speaker 2

Sure.

Speaker 5

Okay. Very well. Thank you both. I appreciate all the background.

Speaker 2

All right. Thank you, Chris.

Speaker 3

Okay. And I show that there

Operator

are no further questions at this time. And I'll turn the call back over to Dennis Zember for any additional or closing remarks.

Speaker 3

Thank you all again for calling. Hope you have a good weekend. If you have any questions or comments

Operator

This concludes today's conference call. You may now

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Primis Financial Q2 2023
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