Primis Financial Corp. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone fourth-quarter income statement. Primis is a Virginia-based bank holding company operating Primis Bank, with 32 branches in Virginia and Maryland and digital banking services.
Business context and results
Primis provides consumer and business banking, with lending concentrated in real estate and commercial credit. Growth initiatives include Panacea Financial, Life Premium Finance, a digital banking platform and V1BE branch-delivery services. Primis acquired SeaTrust Mortgage Company in May 2022 and renamed it Primis Mortgage.
- Assets and equity: Total assets were $3.57 billion, up 4.8% year over year; stockholders’ equity was $394.4 million, down from $411.9 million.
- Earnings: Net income was $17.7 million ($0.72 per diluted share), versus $31.2 million ($1.27 per diluted share) in 2021. Return on average assets was 0.53%, compared with 0.93%.
- Net interest income and margin: Net interest income increased to $104.5 million from $94.2 million; net interest margin rose to 3.39% from 3.01%. The reported 2021 margin included $11.7 million of PPP fee income, compared with $0.3 million in 2022.
- Credit costs: Provision for credit losses was $11.3 million, versus a $5.8 million recovery in 2021. Net charge-offs rose to $5.8 million from $1.4 million. The allowance was $34.5 million, or 1.17% of loans excluding PPP balances.
- Noninterest items and expenses: Noninterest income increased to $21.3 million, including $5.1 million of mortgage banking income, a $4.1 million gain on sale of other investments and $3.0 million of credit enhancement income. Noninterest expense rose 29.2% to $92.3 million, including salaries and benefits of $49.0 million, up $12.3 million.
- Cash flow: Operating cash flow was $13.1 million, down from $27.7 million. Investing activities used $617.5 million, primarily reflecting loan growth; financing activities provided $152.1 million. Cash and cash equivalents fell to $77.9 million from $530.2 million.
- Loans and deposits: Loans held for investment totaled $2.95 billion, up 26%; excluding PPP loans, growth was 30.1%. Deposits declined 1.5% to $2.72 billion. Noninterest-bearing demand deposits were $582.6 million, or 21.4% of deposits.
- Liquidity and borrowings: FHLB advances were $325.0 million, compared with $100.0 million a year earlier; total FHLB advances and repurchase agreements were $331.4 million. The Bank reported $437.7 million of additional available FHLB borrowing capacity. Subordinated debt and junior subordinated debt totaled about $95.3 million on the balance sheet.
Material changes and financial position
- Loan growth and a changed asset mix helped lift net interest income and margin, while increased employee, technology and marketing costs, alongside the provision for credit losses, weighed on earnings.
- Nonperforming assets increased to $38.8 million from $16.5 million. The increase was largely related to one assisted-living-facility borrower relationship; Primis recorded about $5.0 million of related provisions in the fourth quarter. The filing reports no nonperforming construction and land development loans.
- Real estate loans represented 68.2% of the loan portfolio; commercial real estate was 40.3%. The allowance-to-nonaccrual-loan ratio declined to 97.35% from 193.66%.
- Available-for-sale securities had $32.7 million of gross unrealized losses at year-end, principally attributed by management to higher interest rates rather than credit impairment. Accumulated other comprehensive income moved from $1.1 million to a $25.9 million loss; management said it intended to hold the securities until maturity or recovery and did not anticipate realizing losses.
- Regulatory capital remained above well-capitalized standards. At year-end, the Bank’s leverage, CET1, Tier 1 and total risk-based capital ratios were 11.39%, 12.64%, 12.64% and 13.84%, respectively.
Outlook, risks and unusual items
- Management said it expected the Company and Bank to continue exceeding applicable well-capitalized requirements and the capital conservation buffer in 2023. It reported no known trends or uncertainties then reasonably likely to have a material impact on liquidity and expected normal funding sources to meet commitments.
- The filing does not give numerical earnings, revenue or net-interest-margin guidance. Management’s strategy emphasizes growth, digital and specialty businesses, core deposits, underwriting discipline and selective acquisitions.
- Key risks include real-estate and commercial-loan concentration, rising credit costs, deposit competition and funding costs, interest-rate sensitivity, securities valuation losses, mortgage-market cyclicality, technology and cybersecurity threats, and execution or integration risks from growth initiatives and acquisitions. Unfunded lines and undisbursed construction funds totaled $540.6 million.
- The filing, signed March 15, 2023, specifically discusses the March 2023 failures of Silicon Valley Bank, Signature Bank and Silvergate and warns that industry confidence or deposit outflows could adversely affect Primis’s liquidity and results.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management’s control assessment and the auditor’s ICFR audit excluded Primis Mortgage, acquired in May 2022; it represented 1% of year-end assets and 4% of 2022 revenue.
Important facts for investors to verify
- Track the assisted-living borrower’s foreclosure or resolution, further provisions, and whether elevated nonperforming loans and charge-offs persist.
- Reconcile deposit trends and the sharp decline in cash with FHLB borrowing, available collateral and deposit maturities; assess the capacity to fund $540.6 million of commitments.
- Review securities’ unrealized losses, accumulated other comprehensive loss and the implications of holding the portfolio through changing rates or liquidity needs.
- Assess whether loan growth, specialty lending and Primis Mortgage can generate sustainable returns without further cost increases or deterioration in credit quality.
- Confirm the treatment and transition of LIBOR-linked debt and contracts, including floating-rate subordinated obligations and applicable fallback benchmarks.
- Monitor capital ratios, dividend capacity and the integration of Primis Mortgage, whose internal controls were excluded from the year-end assessment.