8-K: Primis Financial Boosts Capital, Earnings with $58M Sale-Leaseback

Primis Financial Corp. announced a $58 million sale-leaseback of 18 bank branches, generating a significant pre-tax gain and enabling strategic balance sheet restructurings expected to boost capital and recurring earnings.

Summary

• Primis Bank, a wholly-owned subsidiary of Primis Financial Corp., completed a sale-leaseback transaction involving 18 retail banking branches for an aggregate purchase price of approximately $58 million on December 5, 2025.
• The transaction is expected to result in a pre-tax gain of approximately $50 million, or $48 million after transaction-related expenses.
• Concurrent with the sale, Primis Bank entered into a master lease agreement for the properties with FNLR Mud LLC for an initial term of 20 years, extendable for an additional 20 years, with an initial annual base rent of $4.7 million, increasing by 2% per annum.
• The first-year expense under the lease, net of depreciation, is approximately $5.4 million pre-tax.
• No branch closures or market exits are planned as part of this transaction.
• Primis Financial Corp. intends to use the proceeds and improved capital position to restructure its investment portfolio, restructure its bank-owned life insurance (BOLI) portfolio, and reduce/refinance holding company debt obligations.
• These subsequent restructurings include selling approximately $144 million in securities at an estimated pre-tax loss of $14.8 million, with proceeds funding loan growth and reinvestment.
• Subordinated debt will be reduced by approximately $27 million, and the remainder refinanced.
• The BOLI restructuring involves minimal one-time costs (less than $100 thousand).
• The net effect of all these transactions is expected to be an after-tax gain of $38 million, or $1.54 per share, and is anticipated to be immediately accretive to net income and earnings per share, while increasing book value, tangible book value per share, and regulatory capital ratios.

Sentiment

Score: 8

Explanation: The filing presents a highly positive outlook, detailing a strategic transaction that significantly boosts capital, improves key financial ratios, and is expected to be immediately accretive to earnings. The subsequent balance sheet optimizations further strengthen the company's financial position and future growth prospects, outweighing the minor negative impacts.

Positives

• Generated a significant pre-tax gain of $48 million (after expenses) from the sale-leaseback transaction.
• Expected after-tax gain of $38 million, or $1.54 per share, from the combined transactions.
• Anticipated to be immediately accretive to net income and earnings per share.
• Projected increase in tangible book value per share by $1.54, from $11.71 to $13.25 (+13.2%).
• Expected increase in regulatory capital ratios: CET1 Consolidated from 8.62% to 9.32% (+8.1%) and CET1 Bank from 10.14% to 10.84% (+6.9%).
• Anticipated annual pre-tax earnings improvement of $4.3 million from securities portfolio restructuring.
• Expected annual pre-tax earnings improvement of $3.0 million from subordinated debt strategies.
• Estimated annual earnings improvement of $1.2 million from BOLI restructuring.
• Overall net income expected to increase by 15.0% (+$1.027 million annually) based on 3Q25 proforma.
• Net Interest Margin expected to improve by 8.8% (from 3.18% to 3.46%).
• Efficiency Ratio expected to improve by 2.5% (from 79.0% to 77.0%).
• No branch closures or market exits are planned as part of the transaction.

Negatives

• The sale-leaseback will result in an increased recurring occupancy expense of approximately $5.4 million per year, net of depreciation.
• The securities portfolio restructuring involves selling securities with a book value of approximately $144 million at an estimated pre-tax loss of $14.8 million.

Risks

• Forward-looking statements involve substantial risks and uncertainties, and actual results may differ materially from those anticipated.
• Instability in global economic conditions and geopolitical matters could impact financial performance.
• Changes in interest rates, inflation, loan demand, real estate values, or competition, as well as labor shortages and supply chain disruptions, may affect operations.
• Competitive pressures among financial institutions could increase significantly.
• Changes in applicable laws, rules, or regulations, including changes to statutes, regulatory policies, or practices, may impact the business.
• Credit risk is associated with lending activities.
• Potential impacts of adverse developments in the banking industry, including on customer confidence, deposit outflows, liquidity, and regulatory responses, are a concern.
• The ability to identify and address increased cybersecurity risks, including those impacting vendors and other third parties, is crucial.
• Fraud or misconduct by internal or external actors may occur and might not be preventable, detectable, or mitigable.
• Acts of God or of war or other conflicts, acts of terrorism, pandemics, or other catastrophic events may affect general economic conditions.
• Action or inaction by the federal government, including as a result of any prolonged government shutdown, could have an impact.

Future Outlook

The Company expects the net effect of these transactions to be immediately accretive to net income and earnings per share while increasing book value and tangible book value per share and regulatory capital ratios. Management anticipates starting 2026 with the necessary capital to support several mature strategies aimed at growing revenue with minimal operating expense burden.

Management Comments

• "This transaction as we close out 2025 is the finishing touch on a great year of repositioning the Company. We have rebuilt tangible book value and capital levels by realizing some embedded gains and strengthened the earnings outlook materially with 12 months of profitable growth and now this restructure."
• "Because of this transaction, we are starting 2026 with the capital we need to support several mature strategies that are growing revenue with very little operating expense burden."

Industry Context

Sale-leaseback transactions are a common strategy for financial institutions to unlock capital from owned real estate, which can then be redeployed into higher-yielding assets or used to strengthen the balance sheet. The subsequent restructuring of investment portfolios, BOLI assets, and debt obligations aligns with broader industry trends where banks actively manage their balance sheets to optimize capital, improve profitability, and enhance liquidity in response to evolving market conditions and regulatory requirements.

Stakeholder Impact

• Shareholders: Expected to benefit from increased earnings per share, higher tangible book value per share, and improved profitability metrics.
• Employees: No branch closures are planned as part of the transaction, maintaining employment stability at the affected locations.
• Customers: No market exits are planned, ensuring continued access to banking services at the current branch locations.

Next Steps

• Restructure a portion of the investment portfolio, with approximately $50 million of proceeds funding near-term loan growth and the remainder reinvested in higher-yielding securities.
• Restructure the bank-owned life insurance portfolio by converting lower-yielding assets into higher-yielding policies and funding incremental required policies.
• Reduce outstanding subordinated debt by approximately $27 million and refinance the remainder of the subordinated debt in the near future.
• Complete the full implementation of the restructuring initiatives in the first quarter of 2026.

Key Dates

Recommendation

The strategic sale-leaseback and subsequent balance sheet restructurings are highly favorable, generating substantial capital, significantly improving tangible book value, and enhancing recurring earnings and key profitability ratios. This positions Primis Financial Corp. for robust future growth and financial stability, making it an attractive investment.

Keywords

Primis Financial Corp, FRST, sale-leaseback, bank branches, real estate, financial restructuring, capital raise, earnings per share, tangible book value, regulatory capital, investment portfolio, subordinated debt, BOLI, balance sheet optimization