Primis Financial Corp. quarterly report, Q3 FY2023

完整文档

Primis Financial Corp. — Q3 2023 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2023. Primis is a Virginia-based bank holding company operating Primis Bank and Primis Mortgage, with banking operations in Virginia and Maryland. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.

Financial performance and position

  • Q3 earnings: Net loss of $3.6 million, or $0.14 per diluted share, versus net income of $5.0 million, or $0.20 diluted per share, in Q3 2022. The loss included an $11.2 million noncash goodwill impairment.
  • Nine-month earnings: Net income of $2.2 million, or $0.09 diluted per share, compared with $14.5 million, or $0.59, in 2022.
  • Interest income and margin: Q3 interest and dividend income was $50.5 million and net interest income was $27.1 million, versus $32.6 million and $27.4 million, respectively, in Q3 2022. Q3 net interest margin was 3.02%, down from 3.57% a year earlier but up from 2.65% in Q2 2023. Nine-month net interest income was $81.6 million versus $74.8 million; net interest margin was 2.93% versus 3.28%.
  • Noninterest income and expenses: Q3 noninterest income rose to $9.9 million from $5.6 million, led by mortgage banking and credit-enhancement income. Noninterest expense was $37.1 million versus $23.8 million, including the goodwill impairment. Nine-month totals were $30.0 million and $95.0 million, respectively.
  • Credit costs and asset quality: Provision for credit losses was $1.6 million in Q3 and $11.1 million for nine months, compared with $2.9 million and $3.4 million in 2022. The allowance was $35.8 million, or 1.14% of loans, versus $34.5 million and 1.17% at year-end 2022. Nonperforming assets were $21.9 million, or 0.51% of assets excluding SBA guarantees, compared with $38.8 million and 0.98% at year-end. A $13.1 million assisted-living problem credit was resolved in early October; management reported pro forma nonperforming assets of $6.5 million at September 30.
  • Balance sheet and funding: Assets were $3.81 billion, up 7% from December 31, 2022. Loans held for investment were $3.15 billion, up about 7% excluding PPP loans. Deposits were $3.29 billion, up 21%; the gross loans-to-deposits ratio fell to 96% from 108%. Cash and equivalents were $93.9 million. Stockholders’ equity was $382.9 million, down from $392.4 million.
  • Debt and liquidity: Primis repaid $325.0 million of short-term FHLB advances during Q1; no FHLB advances remained outstanding at September 30. It reported $9.8 million of junior subordinated debt, $85.7 million of senior subordinated notes and $3.8 million of repurchase-agreement borrowings. Available borrowing capacity included approximately $558.9 million from the FHLB and $548.9 million at the Federal Reserve discount window; no BTFP borrowings were outstanding. Uninsured deposits were $1.11 billion, or 34% of deposits; management said liquidity sources were about 185% of uninsured or unsecured deposits.
  • Cash flows, nine months: Operating cash flow was negative $41.8 million, investing cash flow negative $178.3 million and financing cash flow positive $236.1 million, for a $16.0 million increase in cash and equivalents. Deposit growth of $571.0 million and repayment of $325.0 million in FHLB advances were prominent financing items.

Material changes versus comparable periods

  • Q3 results shifted from profit to loss, primarily because of the goodwill impairment. Management reported adjusted Q3 net income of $7.6 million excluding impairment in its highlights; elsewhere it described $7.7 million excluding impairment and $0.2 million of fraud-related costs. These are management-defined, non-GAAP comparisons.
  • For nine months, reported net income fell 85%. Management cited impairment, higher deposit costs, increased staffing and operating expenses, and higher credit provision, partly offset by loan growth, mortgage banking income and loan-sale gains. It reported $14.7 million adjusted net income excluding impairment, fraud costs and $1.5 million of branch-consolidation costs, versus $14.5 million reported GAAP income; adjusted EPS was $0.60 versus $0.63 basic and $0.62 diluted in 2022.
  • Deposit growth was driven substantially by the digital platform, particularly savings accounts. The cost of average interest-bearing deposits rose to 3.03% in Q3 from 0.64% a year earlier, pressuring margin.
  • Primis sold $15 million of loans in Q3 and recorded a pretax gain of approximately $0.4 million; another $9 million was transferred to held-for-sale pending buyer diligence.
  • Available-for-sale securities had $38.6 million of gross unrealized losses at September 30, primarily attributed to interest-rate changes. Accumulated other comprehensive loss was $30.5 million, compared with $25.9 million at year-end.

Outlook, risks and unusual items

  • Outlook: The filing provides no specific earnings or financial guidance. Management noted that higher interest rates were raising deposit costs faster than yields on some fixed-rate loans, and that future Federal Reserve rate changes would be data-dependent.
  • Goodwill impairment: Annual testing found the Primis Bank reporting unit’s estimated fair value approximately 2.4% below carrying value, resulting in the $11.2 million noncash impairment. Management said it did not affect cash flow, liquidity or regulatory capital; valuation depends on judgment-sensitive assumptions.
  • Employee-loan fraud: Discovered in Q2, with approximately $2.5 million of total exposure. Management believes the losses are recoverable under insurance and is pursuing claims. The filing revised prior-period presentations: opening retained earnings at January 1, 2022 was reduced by $2.0 million, and 2022 net income was reduced by $29,000 for Q3 and $147,000 for nine months. Management considered the effect immaterial to each prior year assessed.
  • Cost actions: Primis announced branch and administrative cost reductions in Q2. In late October 2023, after the reporting date, it consolidated eight locations, reducing its branch count from 32 to 24. Management said Q3 noninterest expense excluding impairment was $25.9 million, down from $30.6 million in Q2.
  • Principal risks cited: Deposit competition and funding costs; interest-rate and liquidity changes; credit exposure, including commercial real estate and construction lending; economic and real-estate weakness; fraud and insurance recovery; securities valuation; cybersecurity and operational risks. Management reported the Bank was well-capitalized and that it knew of no liquidity trends reasonably likely to have a material impact. No significant pending or threatened legal proceeding was identified; no material change to previously disclosed risk factors was reported.

Important facts for investors to verify

  • Reconcile management’s differing adjusted Q3 earnings figures ($7.6 million versus $7.7 million) and confirm the exclusions used for all adjusted earnings and EPS comparisons.
  • Track progress, timing and recoverability of the employee-fraud insurance claim, including the ultimate loss relative to the approximately $2.5 million exposure.
  • Monitor deposit retention, pricing, uninsured-deposit levels and use of contingent borrowing capacity as deposits reprice or mature.
  • Review credit trends and resolution of the assisted-living exposure, charge-offs and allowance adequacy, especially across commercial real estate and consumer portfolios.
  • Assess whether the branch consolidation and other cost actions deliver sustained savings, and whether mortgage and digital-platform growth supports profitability without further margin or expense pressure.
  • Follow interest-rate-driven securities marks, goodwill valuation assumptions and capital ratios. The filing reports capital ratios and available liquidity capacity, but these do not eliminate market, credit or funding risks.