Primis Financial Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. Primis Financial Corp. changed its name from Southern National Bancorp of Virginia, Inc. on March 31, 2021; its bank subsidiary also changed its name to Primis Bank. Primis operates 41 branches in Virginia and Maryland and serves consumers and small and medium-sized businesses.
Financial results and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net income; diluted EPS | $9.4 million; $0.38 | $27,000; $0.00 in Q1 2020 |
| Net interest income | $25.0 million | $20.5 million in Q1 2020 |
| Net interest margin | 3.41%; 2.99% excluding PPP effects | 3.32% in Q1 2020 |
| Noninterest income / expense | $3.8 million / $18.2 million | $2.8 million / $19.9 million in Q1 2020 |
| Provision for credit losses | $1.4 million recovery | $3.5 million provision in Q1 2020 |
| Total assets | $3.33 billion | $3.09 billion at Dec. 31, 2020 |
| Total loans / allowance | $2.39 billion / $34.9 million | $2.44 billion / $36.3 million at Dec. 31, 2020 |
| Total deposits | $2.69 billion | $2.43 billion at Dec. 31, 2020 |
| Cash and cash equivalents | $480.3 million | $196.2 million at Dec. 31, 2020 |
| Stockholders’ equity | $398.0 million | $390.6 million at Dec. 31, 2020 |
Net interest income plus noninterest income totaled $28.8 million, compared with $23.3 million in Q1 2020. Return on average assets was 1.19%, versus 0.0%. The reported filing does not provide a clear consolidated net profit margin.
Cash flow for the quarter was $8.6 million provided by operating activities, $40.4 million provided by investing activities, and $235.1 million provided by financing activities. The resulting cash increase was $284.1 million. Deposits increased $256.0 million, while long-term borrowings decreased $20.0 million. At quarter-end, debt included $100.0 million of FHLB advances, $16.4 million of repurchase agreements, $85.7 million of senior subordinated notes, and $9.7 million of junior subordinated debt.
Regulatory capital remained above required thresholds: the Bank’s total risk-based capital ratio was 17.84%, and management reported the Bank as well capitalized. The Bank’s capital conservation buffer was 9.84%.
Material changes and management commentary
- Net income improved substantially from Q1 2020, reflecting lower deposit costs, a credit-loss recovery rather than a provision, lower restructuring-related compensation expense, and increased earnings from the mortgage affiliate.
- Deposit interest expense fell to $3.8 million from $6.5 million; the reported cost of deposits declined to 0.60% from 1.25%. Average earning-asset yield declined 47 basis points to 4.14%, while net interest margin increased partly because of PPP loan effects.
- Mortgage affiliate equity income rose to $1.3 million from $231,000, amid higher mortgage activity and margins. The affiliate’s results were also affected by approximately $1.2 million of management restructuring expense.
- Loans were down $49.0 million from year-end; excluding PPP loans, balances declined $69.2 million, or 3.3%. The filing also reports gross loans up 8.1% year over year, driven in part by PPP lending. PPP loans totaled $335.2 million across 5,827 originations.
- Deposits rose $256.0 million despite a $51.3 million decline in time deposits. Non-time deposits increased to 83.7% of deposits from 80.0% at year-end.
- The company redeemed $20.0 million of senior subordinated notes on February 1, 2021. It paid a $0.10-per-share quarterly dividend.
Credit, liquidity, outlook, and risks
- There were 44 COVID-related deferred loans totaling $112.8 million at quarter-end; the company said these loans were current. Hotels represented approximately 59% of deferrals, and about 25% of the hotel portfolio was deferred. Management anticipated minimal additional deferrals during the rest of 2021, but noted some deferred loans could become problem loans.
- Nonaccrual loans were $14.3 million, including $3.0 million covered by SBA guarantees; nonperforming assets were $16.5 million. There were nine troubled debt restructurings totaling $2.8 million, primarily related to COVID-19; no defaults of TDRs modified in the preceding 12 months were reported.
- PPP loans earn 1% and are SBA-guaranteed; management expected most to be forgiven. Incomplete SBA guarantees could require additional credit-loss provisions.
- Liquidity was supported by deposit growth and available borrowing sources. Unfunded credit lines and undisbursed construction funds totaled $357.0 million; certificates of deposit maturing within one year totaled $315.4 million. Management said normal funding sources should meet commitments, but warned that volatile short-term funding rates or deposit withdrawals could increase funding costs and pressure margins.
- Interest-rate modeling showed a 17.57% decline in economic value of equity under a 100-basis-point rate decrease. The modeled net interest income impact in that scenario was a 3.05% decline. Management cautioned that these models rely on assumptions and are not precise forecasts.
- Key risks include COVID-19 and uneven recovery, real-estate and commercial-loan concentrations, hotel-related deferrals, credit-loss estimate uncertainty, deposit competition and funding costs, investment-security valuation, interest-rate exposure, cybersecurity, and regulatory or litigation developments. The filing provides no specific earnings or financial guidance.
Important facts for investors to verify
- Whether COVID-related deferrals, particularly in the hotel portfolio, remain current and how balances and credit classifications change.
- PPP loan forgiveness progress and whether any guarantee shortfalls lead to additional credit-loss expense.
- Underlying loan trends excluding PPP balances, and the composition and credit quality of commercial real-estate exposures.
- Whether deposit growth is sustainable and how funding costs affect net interest margin as rates and customer balances change.
- The durability of mortgage affiliate earnings, including the effects of mortgage-market activity and restructuring costs.
- Changes in allowance adequacy, nonperforming assets, liquidity commitments, and regulatory capital.