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Strategic Repositioning

The Company spent substantial time and energy in 2024 focusing the organization toward business lines it believes can drive the greatest long-term profitability and growth.  Activities included continued moves to enhance operating leverage in the core bank, lender recruitment and scaling in mortgage, relieving balance sheet pressure through the sale of Life Premium Finance, leveraging existing infrastructure to expand the mortgage warehouse lending division and neutralizing the credit cost impact of the third-party consumer loan program.  The result of these moves is a significantly more focused organization comprised of:

• A core community bank in strong markets with $2.2 billion of low-cost customer deposits and low commercial real estate concentrations;

• A retail mortgage company that has grown in the face of industry pressures, reaching approximately $800 million of production in 2024 and poised to reach approximately $1.25 billion of production in 2025;

• A national strategy that combines lower risk mortgage warehouse and construction-to-perm lending funded by a unique digital platform; and

• The nation's leading healthcare-focused financial services brand in Panacea Financial whose already out-sized growth continues to accelerate and the market value of which is not reflected in the Company's capital.

The following discussion highlights the near-term opportunity for each of these strategies.

Core Community Bank

The core bank has 24 banking offices in Virginia and Maryland and finished 2024 with $2.2 billion of customer deposits. The core bank's cost of deposits of 1.87% at 2024 year-end is lower than most of its larger regional bank competitors and up to 100 basis points lower than equal sized peers in the greater Washington, D.C. region.  The Bank's proprietary V1BE service directly supports approximately $200 million of checking accounts and is driving growth in new relationships focused on commercial and consumer checking accounts.

The Bank has reorganized its lending team and added selective hires in key markets.  Early signs of success from these efforts can be found in the loan pipeline which ended 2024 at approximately $119 million with 88% of that amount representing new customers to the Bank versus $51 million and 21%, respectively, at the end of 2023.  The Bank's loan portfolio is diversified across the footprint and is well below regulatory concentration limits for commercial real estate.

Primis Mortgage

Primis Mortgage earned approximately $2.6 million pre-tax in 2024, including its managed portfolio, versus immaterial earnings in 2023.  Primis Mortgage had approximately $800 million of production in 2024 versus approximately $600 million of production the prior year.  Continued recruiting and operational improvements have current applications, locks and closings 40% to 50% higher than the same month a year ago and the Company anticipates production of $1.25 billion in the current rate environment.  Not included in this outlook is the impact of the Bank's new construction-to-perm builder partnerships focused on government lending that should generate additional volume with strong profitability metrics.

National Strategies

With the sale of Life Premium Finance, the Company is focusing its national lending strategies on mortgage warehouse lending and a new partnership with a national builder leveraging the Bank's existing construction-to-perm loan product.

While the Bank had mortgage warehouse lending capabilities, activity was insignificant until the team build-out in the fall of 2024.  As of the end of January 2025, the team has grown to 54 approved customers with over $400 million of committed lines.  Average yield, including fees, was SOFR plus 340 basis points in December.   In addition to a growing customer pipeline, the mortgage warehouse team also plans to augment its growth with selective mortgage servicing rights ("MSR") relationships through 2025.

The Bank also recently gained preferred lender status with a national builder by leveraging its one-time-close construction-to-permanent mortgage product.  The partner builder had loan volume of $15 billion in 2024 and has approved the Bank to work with 85 of its offices across the country.  Pricing on the mortgages is generally Prime or better with 50 to 100 basis points of fees and are based on government programs that make the mortgages eligible for sale in the secondary market (via Primis Mortgage).

Funding for the national strategies is provided by the Bank's digital platform powering what we believe is one of only a handful of bank deposit offerings nationwide that is both fully functional and inherently app-based.  Since the launch in November 2022, the platform has grown to 18 thousand customers with just under $1 billion of deposits priced around Fed Funds after the most recent rate adjustment.  The Bank is leveraging the technology underpinning its digital platform to launch a unique affinity brand in March 2025.  This brand will leverage well-known ambassadors and influencers to drive adoption of attractive deposit products in a unique niche.  The Company believes this strategy is highly replicable and has the potential to be a significant driver of growth in the next few years.

Panacea Financial

Panacea's growth accelerated to end 2024 with loans outstanding up 11% from the third quarter of 2024 to $434 million funded by $92 million of deposits attributable to the division.  Panacea is the number one ranked "Bank for doctors" on Google and banks approximately 6,000 professionals and practices nationwide with a goal of reaching 10,000 customers by the end of 2025.  Panacea is utilizing the proceeds of the Panacea Financial Holdings capital raise from late 2023 to develop the initial phase of what is expected to be a sophisticated suite of technology products and services targeting the medical, dental and veterinary space.  As previously disclosed, the Company owns approximately 19% of Panacea Financial Holdings and the value of our ownership was almost $20 million at the time of the capital raise.

Consumer Loan Program Winddown

As disclosed previously, the Company has originated consumer loans through a third-party (the "Consumer Program") since the second half of 2021.  A subset of the Consumer Program has promotional characteristics where interest is deferred during the promotional period and is waived if the customer pays off the loan prior to the period end.  In that event, the third-party reimburses the Bank for the waived interest.  Until the end of the promotional period, the Company is unable to accrue interest on the loan under GAAP but does record a derivative representing the fair value of expected interest reimbursements from the third-party.  Credit costs are also included in the Company's results, including estimated life of loan losses required by ASC 326 while potential credit enhancements from the Consumer Program are only reflected as received.  Outstanding balances in the Consumer Program before fair value marks were $173 million as of December 31, 2024 with $39 million of balances in a promotional period versus $180 million and $60 million, respectively, at September 30, 2024.

In the fourth quarter of 2024, the Company made the decision to cease originating new loans under the Consumer Program effective January 31, 2025 and moved a large portion of the portfolio, with an amortized cost of $133 million, to loans held for sale and marked them to fair market value.  The adjustment to fair market value resulted in additional provision expense and charge-offs of $20.0 million in the fourth quarter of 2024.  The remaining portion of the portfolio still classified as held for investment of approximately $39 million at December 31, 2024 has an associated allowance for credit losses of approximately $10 million and is expected to run off substantially in 2025.   The table below highlights the drag on 2024 profitability from the program:

Outlook

Mr. Zember commented, "The Company's strategies are profitable and remarkably scalable given our size.  We operate a successful and valuable community bank and lines of business that can deliver outsized growth and profits relative to our size.  As seen below, we have already made the moves necessary to deliver attractive operating results and clearing the deck of the consumer loan noise was necessary for these results to be apparent. "

Net Interest Income

Net interest income decreased approximately $1.9 million, or 7%, to $26.1 million during the fourth quarter of 2024 compared to the third quarter of 2024. Material items impacting the fourth quarter level of net interest income were $2.5 million of interest reversals on charged off Consumer Program loans and approximately $1.3 million of decline related to sale of the Life Premium Finance portfolio as of October 31, 2024.  Higher spreads between loans and deposits were achieved through the quarter as deposit rates fell by approximately 20 basis points in the core Bank which mostly neutralized the impact of the sold Life Premium Finance portfolio.  On a recurring basis excluding the impact of prior quarter reversals, net interest income would have been $28.6 million compared to $28.0 million in the third quarter of 2024 and up 11.3% compared to $25.7 million in the fourth quarter of 2023.  Excluding the interest reversal described above, net interest margin for the fourth quarter of 2024 would have been 3.18% compared to 2.86% in the fourth quarter of 2023.

Interest income, adjusted for the interest reversals noted above, was $53.9 million for the fourth quarter of 2024, higher by 7.4% when compared to $50.2 million in the same quarter in 2023.  When adjusted for the interest reversals yield on earning assets was 5.99% in the fourth quarter of 2024 compared to 5.58% in the same quarter in 2023.  In 2025, the Company has approximately $350 million of loans with a weighted average yield of 5.90% subject to repricing that indicate some level of opportunity for continued increases in interest income.

The pace of declines in interest expense alongside steady levels of interest income accelerated in the fourth quarter and indicates stronger profitability moving into 2025.  Cost of deposits decreased 24 basis points to 2.80% in the fourth quarter of 2024 from 3.04% in the third quarter of 2024 and did not include lower costs on almost $1 billion of digital deposits that repriced late in December 2024 and early in January 2025.  Deposit costs on digital deposits have declined by approximately 65 basis points compared to fourth quarter levels implying additional savings of approximately $6.5 million annually.

Noninterest Income

Noninterest income was $13.2 million in the fourth quarter of 2024 versus $9.3 million in the third quarter of 2024.  Excluding the net gain from the Life Premium Finance sale, noninterest income decreased to $8.4 million in the fourth quarter of 2024.  Income from mortgage banking activity decreased $1.8 million during the fourth quarter of 2024 due to seasonally lower activity.  Partially offsetting the decrease in mortgage banking income was an increase of $0.8 million in fee income related to the Consumer Program net of changes in the associated derivative fair market value.  The fourth quarter of 2024 also had a $13 thousand loss on disposal of bank property versus $0.4 million of gains in the third quarter of 2024.

Noninterest Expense

Noninterest expense was $37.2 million for the fourth quarter of 2024, compared to $31.0 million for the third quarter of 2024. Noninterest expense also includes consolidated expenses from Panacea Financial Holdings ("PFH"). Management considers the core expense burden of the Bank that adjusts for certain items that are volume dependent such as mortgage banking-related expenses or expense related to changes in the reserve for unfunded commitments.  The following table illustrates the Company's core operating expense burden during 2024:

As noted above, the core expense burden increased $3.7 million in the fourth quarter of 2024 from the third quarter of 2024.  Contributing to the increase was $1.0 million increase in compensation-related accruals, including restricted stock expense and mortgage warehouse signing bonuses, $0.4 million of miscellaneous lending expense, $0.3 million increase in FDIC insurance expense and other consulting expenses and implementation fees related to various technology projects.  Many of these expense items are expected to decline beginning in the first quarter of 2025.  Core operating expense burden is projected to be between $21 million and $22 million per quarter for 2025.

Loan Portfolio and Asset Quality

Loans held for investment decreased to $2.91 billion at December 31, 2024, compared to $2.97 billion at September 30, 2024.  As noted above, the Bank reclassified $133 million of gross loan balances associated with the Consumer Program to loans held for sale at December 31, 2024.  Including these balances, loans held for investment would have increased 2.2% unannualized in the fourth quarter of 2024.  The Mortgage Warehouse and Panacea divisions drove the growth in the period with loan growth of $49 million and $41 million, respectively, in the fourth quarter of 2024.

Nonperforming assets, excluding portions guaranteed by the SBA, were only 0.29% of total assets, or $10.8 million at December 31, 2024, compared to 0.25% or $10.2 million at September 30, 2024.  The Bank had no other real estate owned at the end of the fourth quarter of 2024.

The Company recorded a provision for loan losses of $23.0 million for the fourth quarter of 2024 versus $7.5 million for the third quarter of 2024.  Of this provision, $20.8 million was due to Consumer Program activity including recording the fair market value adjustment for the portion of the portfolio that was moved to loans held for sale through the allowance for credit losses.  As a percentage of loans held for investment, the allowance for credit losses was 1.49% and 1.72% at the end of the fourth and third quarter of 2024, respectively, with the decline due to the reclassification of Consumer Program loans.

Net charge-offs were $31.0 million for the fourth quarter of 2024, up from $8.0 million for the third quarter of 2024.  Consumer Program net charge-offs were $30.5 million in the fourth quarter versus $6.7 million in the third quarter of 2024.  Core net charge-offs, excluding those losses from the Consumer Program, were $0.5 million, or 0.05% of average loans, in the fourth quarter of 2024 compared to $0.9 million, or 0.11%, in the third quarter of 2024⁽¹⁾.

Deposits and Funding

Total deposits at December 31, 2024 decreased to $3.17 billion from $3.31 billion at September 30, 2024 as the Bank paid off high cost brokered deposits and swept off excess liquidity during the quarter.  Deposits swept off balance sheet totaled $137 million at December 31, 2024 versus none at September 30, 2024.  Importantly, noninterest bearing demand deposits were $439 million at December 31, 2024, up 4.2% from $421 million at September 30, 2024 as the Company emphasizes driving up low cost deposit balances.

Deposit growth in the Bank continues to benefit from better technology and unique convenience factors.  V1BE, the Bank's proprietary invitation-only delivery tool, increased total users by 20% in 2024, and now has over 3,000 users on the platform as of December 31, 2024.  The service completed over 40 thousand requests in 2024 and supports almost $200 million of deposits.

During the fourth quarter of 2024, the Bank opened approximately $32.5 million new deposit accounts on the digital platform with very modest marketing expenses.  At quarter end, the Bank had approximately 18,000 digital accounts with $981 million in total deposits and average balances of approximately $55 thousand.

As of December 31, 2024, the Bank has no wholesale funding.

Shareholders' Equity

Book value per common share as of December 31, 2024 was $14.58, a decrease of $0.83 from September 30, 2024.  Tangible book value per common share⁽¹⁾ at the end of the fourth quarter of 2024 was $10.77, a decrease of $0.82 from September 30, 2024.  Common shareholders' equity was $360 million, or 9.75% of total assets, at December 31, 2024.  Tangible common equity⁽¹⁾ at December 31, 2024 was $266 million, or 7.39% of tangible assets⁽¹⁾.  After-tax unrealized losses on the Company's available-for-sale securities portfolio increased by $4.0 million to $21 million due to increases in market interest rates during the fourth quarter of 2024.  The Company has the intent and ability to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

The Board of Directors declared a dividend of $0.10 per share payable on February 26, 2025 to shareholders of record on February 12, 2025.  This is Primis' fifty-third consecutive quarterly dividend.

About Primis Financial Corp.

As of December 31, 2024, Primis had $3.7 billion in total assets, $2.9 billion in total loans held for investment and $3.2 billion in total deposits. Primis Bank provides a range of financial services to individuals and small- and medium-sized businesses through twenty-four full-service branches in Virginia and Maryland and provides services to customers through certain online and mobile applications.

Conference Call

The Company's management will host a conference call to discuss its fourth quarter results on Wednesday, January 29, 2025 at 10:00 a.m. (ET). A live Webcast of the conference call is available at the following website: https://events.q4inc.com/attendee/384098079.  Participants may also call 1-800-715-9871 and ask for the Primis Financial Corp. call.  A replay of the teleconference will be available for 7 days by calling 1-800-770-2030 and providing Replay Access Code 4554342.

Non-GAAP Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables. Primis uses non-GAAP financial measures to analyze its performance. The measures entitled net income adjusted for nonrecurring income and expenses; pre-tax pre-provision operating earnings; operating return on average assets; pre-tax pre-provision operating return on average assets; operating return on average equity; operating return on average tangible equity; operating efficiency ratio; operating earnings per share – basic; operating earnings per share – diluted; tangible book value per share; tangible common equity; tangible common equity to tangible assets; and core net interest margin are not measures recognized under GAAP and therefore are considered non-GAAP financial measures. We use the term "operating" to describe a financial measure that excludes income or expense considered to be non-recurring in nature.  Items identified as non-operating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.  A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is provided in the Reconciliation of Non-GAAP Items table.

Management believes that these non-GAAP financial measures provide additional useful information about Primis that allows management and investors to evaluate the ongoing operating results, financial strength and performance of Primis and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider Primis' performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of Primis.  Non-GAAP financial measures are not standardized and, therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names.

Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-Looking Statements

This press release and certain of our other filings with the Securities and Exchange Commission contain statements that constitute "forward-looking statements" within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Such statements can generally be identified by such words as "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," and other similar words or expressions of the future or otherwise regarding the outlook for the Company's future business and financial performance and/or the performance of the banking industry and economy in general. These forward-looking statements include, but are not limited to, our expectations regarding our future operating and financial performance, including the preliminary estimated financial and operating information presented herein, which is subject to adjustment; our outlook and long-term goals for future growth and new offerings and services; our expectations regarding net interest margin; expectations on our growth strategy, expense management, capital management and future profitability; expectations on credit quality and performance; and the assumptions underlying our expectations.

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on the information known to, and current beliefs and expectations of, the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. Factors that might cause such differences include, but are not limited to: the Company's ability to implement its various strategic and growth initiatives, including its recently established Panacea Financial Division, digital banking platform, V1BE fulfillment service, mortgage warehouse division and Primis Mortgage Company; the risks associated with the Life Premium Finance sale, including failure to achieve the expected impact to our operating results; competitive pressures among financial institutions increasing significantly; changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices; changes in management's plans for the future; credit risk associated with our lending activities; the impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within our primary market areas; changes in interest rates, inflation, loan demand, real estate values, or competition, as well as labor shortages and supply chain disruptions; the impacts of tariffs and trade policies; changes in accounting principles, policies, or guidelines; adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions; potential impacts of adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto; potential increases in the provision for credit losses; our ability to identify and address increased cybersecurity risks, including those impacting vendors and other third parties; fraud or misconduct by internal or external actors, which we may not be able to prevent, detect or mitigate; acts of God or of war or other conflicts, including the current Ukraine/Russia conflict and Israel/Hamas conflict, acts of terrorism, pandemics or other catastrophic events that may affect general economic conditions; and other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services.

Forward-looking statements speak only as of the date on which such statements are made. These forward-looking statements are based upon information presently known to the Company's management and are inherently subjective, uncertain and subject to change due to any number of risks and uncertainties, including, without limitation, the risks and other factors set forth in the Company's filings with the Securities and Exchange Commission, the Company's Annual Report on Form 10-K for the year ended December 31, 2023, under the captions "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors," and in the Company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

 

 

 

 

 

 

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SOURCE Primis Financial Corp.