Primis Financial Corp. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared primarily with 2022. This is an annual report, not a standalone fourth-quarter results release. The filing was signed October 15, 2024.
Business context
Primis is a Virginia-based bank holding company operating Primis Bank, with community banking in Virginia and Maryland and digital banking, mortgage, Panacea Financial and life-premium-finance businesses. At year-end, it reported $3.86 billion in assets, $3.22 billion in loans held for investment and $3.27 billion in deposits. Its strategy emphasizes core community banking, specialty lending and digital deposit growth.
Financial results and key metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $98.7 million | $101.7 million |
| Net interest margin | 2.68% | 3.30% |
| Net income (loss) attributable to common shareholders | $(7.8) million; $(0.32) per share | $14.1 million; $0.57 diluted per share |
| Provision for credit losses | $32.5 million | $11.3 million |
| Noninterest income | $45.3 million | $18.4 million |
| Noninterest expense | $122.6 million | $91.4 million |
- Interest and dividend income rose to $192.6 million from $123.3 million, driven by loan growth and higher yields. This was more than offset at the net-interest-income level by sharply higher funding costs: interest expense rose to $93.9 million from $21.6 million.
- Return on average assets from continuing operations was (0.2%), versus 0.43% in 2022. Year-end book value per share was $15.23, down $0.53; the company paid $0.40 per share in dividends.
- Assets increased 8.1%; deposits rose 20.1% to $3.27 billion, while loans excluding PPP balances grew 9.2% to approximately $3.2 billion. The gross-loans-to-deposits ratio declined to 98.3% from 108.2%.
- Average cost of interest-bearing deposits increased to 2.92% from 0.64%; the reported cost of deposits was 2.49% versus 0.49% in 2022. Noninterest-bearing deposits were $472.9 million, 14.5% of year-end deposits.
- Cash and cash equivalents were $77.6 million. Cash from operating activities was $28.8 million; investing activities used $312.8 million and financing activities provided $283.6 million.
- Borrowings on the balance sheet totaled approximately $149.0 million, down from $426.8 million. This included $30.0 million of FHLB advances, $20.4 million of secured borrowings and subordinated debt. The company reported $466.1 million of additional FHLB borrowing capacity and $596.4 million of discount-window capacity; it had not borrowed through the discount window or Bank Term Funding Program at year-end.
- Regulatory capital ratios remained above applicable well-capitalized standards. Primis Bank’s leverage, CET1, Tier 1 and total risk-based ratios were 9.80%, 10.88%, 10.88% and 12.12%, respectively. The company reported a 4.12% bank capital conservation buffer.
Changes, credit and unusual items
- Primis moved from 2022 common-shareholder net income of $14.1 million to a 2023 loss of $7.8 million. Drivers included an $11.2 million goodwill impairment, higher credit-loss provisions, increased operating costs and deposit repricing.
- Noninterest income increased substantially, including $17.6 million of mortgage banking income and $18.1 million of Consumer Program derivative income. Mortgage results benefited from a full year of operations after the 2022 acquisition; the filing reports different 2023 mortgage origination figures in different sections.
- The allowance for credit losses was $52.2 million, or 1.62% of loans, versus $34.5 million, or 1.17%, a year earlier. Net charge-offs increased to $14.9 million from $5.8 million. The allowance on the third-party Consumer Program portfolio was $22.4 million, and its net charge-offs were $8.4 million.
- Asset quality improved in the reported core portfolio: nonperforming assets were $10.8 million, or 0.20% of assets excluding SBA guarantees, versus $38.8 million and 0.98% in 2022. The filing says losses on certain Consumer Program loan vintages continued into 2024 and that Primis tightened underwriting criteria in April 2023.
- Real estate-secured loans represented about 62% of loans; commercial real estate was 36.3%. Unsecured consumer loans were approximately 10% of loans. These concentrations expose the bank to collateral values, borrower repayment capacity and economic conditions.
- Uninsured deposits were $1.15 billion, or 34.8% of deposits. Digital banking brought in more than $1 billion of deposits during 2023, with growth concentrated in savings accounts.
- Available-for-sale securities had $27.7 million of gross unrealized losses at year-end, principally attributed by management to interest-rate changes. Management said it intended and was able to hold the securities long enough to recover the losses.
- The Consumer Program derivative asset was $10.8 million and relies on assumptions about prepayments, credit losses and the third-party counterparty. The filing reports $12.2 million of deferred interest on promotional loans and says many promotional periods end from the second half of 2024 through early 2025.
Outlook, risks and contingencies
The filing provides no numerical earnings or growth guidance. Management stated that it expected deposits to meet funding needs in the foreseeable future and believed the company and bank would continue to exceed well-capitalized requirements in 2024. The filing discusses sensitivity to rates, deposit competition, inflation, recession risk, real estate and CRE exposure, unsecured consumer credit, mortgage-market cyclicality, liquidity, fraud, cyber threats and reliance on third parties.
Management identified three material weaknesses in internal control over financial reporting: accounting for loan transfers, estimating credit losses on third-party-managed consumer loans, and evaluating the complex third-party loan-program agreement. Management concluded controls were ineffective; the independent auditor issued an adverse opinion on internal control, while giving an unqualified opinion on the financial statements. Remediation was underway, with management expecting the loan-transfer weakness to be remediated by the end of 2024; remediation of the other weaknesses was not stated as complete.
The company disclosed that it would restate its first three 2023 quarterly reports and anticipated filing delayed 2024 quarterly reports after this 10-K. The filing reports no pending or threatened legal proceeding considered a significant risk. The CIO died in January 2024; an interim CIO was appointed while the company recruited a successor.
Most important facts for investors to verify
- Reconcile the Consumer Program credit-provision figures: the financial highlights cite $20.9 million, while the detailed discussion says $29.4 million of 2023 provision related to the program and describes an additional $18.2 million provision adjustment.
- Review the amended 2023 quarterly filings and the accounting and control remediation updates, including whether the material weaknesses were resolved and whether further restatements were required.
- Assess the Consumer Program’s loss performance, promotional-loan maturities, third-party credit enhancement and the assumptions supporting the $10.8 million derivative asset.
- Track deposit pricing and composition, the 34.8% uninsured-deposit share, available contingent funding, and the bank’s capacity to fund loans without higher-cost wholesale funding.
- Reconcile the mortgage origination disclosures: the business overview cites $592.3 million, while the results discussion cites $572.2 million originated and sold in 2023.
- Monitor CRE and real-estate concentrations, securities unrealized losses, capital ratios, and the effect of interest-rate movements on net interest income and funding costs.