Business Context and Reporting Period
Primis Financial Corp. (Primis) is a bank holding company for Primis Bank, a Virginia state-chartered bank with 24 full-service branches in Virginia and Maryland. The company also operates Primis Mortgage Company and consolidates Panacea Financial Holdings, Inc. (PFH). This Form 10-Q covers the quarterly period ended September 30, 2024.
Key Financial Metrics
| Metric | Q3 2024 (Three Months) | Q3 2023 (Three Months) | YTD 2024 (Nine Months) | YTD 2023 (Nine Months) |
|---|---|---|---|---|
| Net Income (Loss) Attributable to Common Stockholders | $1.2 million | $(6.0) million | $7.1 million | $0.3 million |
| Earnings Per Share (Diluted) | $0.05 | $(0.24) | $0.29 | $0.01 |
| Net Interest Income | $28.0 million | $24.3 million | $78.1 million | $73.0 million |
| Net Interest Margin | 2.97% | 2.70% | 2.85% | 2.61% |
| Provision for Credit Losses | $7.5 million | $1.6 million | $17.1 million | $11.2 million |
| Total Assets | $4.02 billion | $3.84 billion | $4.02 billion | $3.84 billion |
| Total Loans Held for Investment | $2.97 billion | $3.22 billion | $2.97 billion | $3.22 billion |
| Total Deposits | $3.31 billion | $3.27 billion | $3.31 billion | $3.27 billion |
| Cash and Cash Equivalents | $77.3 million | $77.6 million | $77.3 million | $77.6 million |
Material Changes vs. Prior Period
- Profitability Improvement: The company returned to profitability in Q3 2024 ($1.2M net income) compared to a significant loss in Q3 2023 ($6.0M loss). This turnaround was driven by a $3.7 million increase in net interest income and a $6.0 million decrease in noninterest expenses, partially offset by a $5.9 million increase in the provision for credit losses.
- Expense Reduction: Noninterest expenses declined significantly year-over-year, primarily due to the absence of an $11.2 million goodwill impairment charge recorded in Q3 2023. However, salaries and benefits increased due to growth in the mortgage and Panacea divisions, and professional fees rose related to SEC pre-clearance and restatement processes.
- Loan Portfolio Restructuring: Gross loans held for investment decreased by approximately 8% from year-end 2023. This decline is largely attributable to the reclassification of approximately $362 million of Life Premium Finance (LPF) loans to "loans held for sale" in anticipation of a sale to EverBank. Excluding this reclassification, gross loans grew by approximately 4%.
- Asset Quality: Nonaccrual loans increased to $14.4 million from $9.1 million at year-end 2023. The increase was driven by specific commercial real estate and commercial loans. The allowance for credit losses to total loans ratio increased to 1.72% from 1.62%.
Guidance, Outlook, and Risks
- Life Premium Finance (LPF) Sale: On October 24, 2024, Primis entered into an agreement to sell its LPF division to EverBank. The transaction is expected to result in a pre-tax gain of approximately $4.5 million. The initial closing occurred in late October 2024, with the final closing expected by January 31, 2025.
- Interest Rate Environment: Management notes that while the Federal Reserve lowered rates by 50 basis points in September 2024, the company continues to operate in a high-rate environment. Margin pressure is expected to persist until multiple future rate cuts occur, as deposit costs remain elevated relative to historical loan rates.
- Consumer Program Credit Quality: The provision for credit losses was heavily influenced by the Consumer Program portfolio, specifically loans originated between Q3 2022 and Q1 2023 which have shown credit weaknesses. Management tightened origination criteria in April 2023, and newer production is expected to improve portfolio quality.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of September 30, 2024, due to the continued remediation of previously identified material weaknesses in internal controls over financial reporting. Management believes the financial statements fairly present the company's condition despite these weaknesses.
Investor Verification Checklist
- LPF Transaction Status: Verify the final closing date and the actual pre-tax gain realized from the sale of the Life Premium Finance division to EverBank.
- Consumer Program Charge-offs: Monitor future quarters for the trajectory of net charge-offs in the Consumer Program portfolio to confirm if the tightened underwriting standards are reducing losses.
- Internal Control Remediation: Review subsequent filings for updates on the remediation of material weaknesses in internal controls over financial reporting.
- Deposit Cost Trends: Track the cost of interest-bearing deposits to assess the impact of the Federal Reserve's rate cuts on net interest margin expansion.
- Nonaccrual Loan Resolution: Monitor the resolution of the specific commercial real estate and commercial loans that were placed on nonaccrual status during the quarter.