Primis Financial Corp. Q2 2024 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024. Primis Financial Corp. is a bank holding company for Primis Bank, a Virginia state-chartered bank with 24 full-service branches in Virginia and Maryland. The company operates two reportable segments: Primis Bank (commercial and consumer banking) and Primis Mortgage (residential mortgage origination). The company also consolidates Panacea Financial Holdings, Inc. (PFH), a healthcare-focused financial services partner.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income (Attributable to Common) | $3.4 million | ($2.0 million) Loss | $5.9 million | $6.4 million |
| Earnings Per Share (Diluted) | $0.14 | ($0.08) | $0.24 | $0.26 |
| Net Interest Income | $24.9 million | $23.3 million | $50.1 million | $48.7 million |
| Net Interest Margin | 2.72% | 2.36% | 2.78% | 2.57% |
| Provision for Credit Losses | $3.1 million | $4.4 million | $9.6 million | $9.6 million |
| Total Assets | $3.97 billion | $3.87 billion | $3.97 billion | $3.87 billion |
| Total Loans (Held for Investment) | $3.30 billion | $3.22 billion | $3.30 billion | $3.22 billion |
| Total Deposits | $3.34 billion | $3.27 billion | $3.34 billion | $3.27 billion |
| Cash and Cash Equivalents | $66.6 million | $77.6 million | $66.6 million | $77.6 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability in Q2 2024 ($3.4M net income) compared to a net loss of $2.0M in Q2 2023. This was driven by a $1.5M increase in net interest income, a $1.9M increase in noninterest income, and a $1.2M reduction in the provision for credit losses.
- Net Interest Margin Expansion: NIM improved to 2.72% in Q2 2024 from 2.36% in Q2 2023. Asset yields increased by 65 basis points, outpacing the 37 basis point increase in liability costs.
- Noninterest Income Volatility: While Q2 noninterest income rose 21% year-over-year, YTD noninterest income declined 20% to $21.2M. This decline was primarily due to a $9.9M drop in Consumer Program derivative income, which saw fair value losses in 2024 compared to significant gains in 2023.
- Expense Management: Noninterest expenses decreased slightly in Q2 ($29.8M vs. $30.4M) and remained flat YTD. Significant reductions in fraud losses and FDIC assessments in 2024 were offset by higher professional fees related to SEC pre-clearance and restatement processes.
- Asset Quality: Nonperforming assets increased to $13.2M (0.25% of total assets excluding SBA guarantees) from $10.8M at year-end 2023. Net charge-offs were $5.0M in Q2, heavily concentrated in the Consumer Program portfolio ($4.3M).
Guidance, Outlook, and Risks
- Subsequent Event (LPF Sale): On October 24, 2024, Primis entered an agreement to sell its Life Premium Finance (LPF) division to EverBank. The transaction is expected to generate a pre-tax gain of approximately $4.5M. EverBank will acquire ~$370M in loans, with the Bank retaining a subset of fixed-rate loans.
- Consumer Program Risks: The provision for credit losses and net charge-offs remain elevated due to the "Consumer Program" portfolio (loans originated Q3 2022–Q1 2023 with lower credit scores). Management tightened origination criteria in April 2023, and newer production is expected to improve portfolio quality.
- Interest Rate Environment: The company continues to benefit from higher lending rates, though deposit costs remain elevated. Management notes that loan growth will help offset deposit cost increases.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to the continued remediation of previously identified material weaknesses. However, management asserts the financial statements fairly present the company's condition.
- Derivative Exposure: The company holds a significant derivative asset related to the Consumer Program ($9.9M). Valuation is sensitive to prepayment rates and promotional period exits, creating volatility in noninterest income.
Investor Verification Checklist
- Consumer Program Performance: Verify the trajectory of charge-offs and provision requirements for the Consumer Program portfolio as older vintages continue to amortize.
- LPF Transaction Details: Confirm the timeline and accounting treatment for the Life Premium Finance sale to EverBank, specifically the expected $4.5M gain recognition.
- Internal Control Remediation: Monitor progress on remediating material weaknesses in internal controls over financial reporting to ensure future disclosure effectiveness.
- Deposit Cost Trends: Assess the sustainability of the Net Interest Margin as competitive pressures on deposit rates persist in a high-rate environment.
- Derivative Valuation: Review the assumptions used to value the Consumer Program derivative, as changes in prepayment behavior could materially impact earnings.