8-K: Primis Financial Corp. Reports Q3 2024 Earnings, Announces Sale of Life Premium Finance Division and Mortgage Team Expansion

Primis Financial Corp. announced a net income of $1.2 million for Q3 2024, along with the sale of its Life Premium Finance Division and expansion of its mortgage warehouse lending team.

Summary

• Primis Financial Corp. reported a net income available to common shareholders of $1.2 million, or $0.05 per diluted share, for the third quarter of 2024, compared to a net loss of $6.0 million, or $0.24 per diluted share, for the same period in 2023.
• Year-to-date earnings for 2024 are $7.5 million, or $0.30 per diluted share, compared to $0.3 million, or $0.01 per diluted share, in 2023.
• Adjusting for non-recurring items, operating net income was $2.0 million, or $0.08 per diluted share, for Q3 2024, compared to $5.3 million, or $0.21 per diluted share, in Q3 2023.
• The company has agreed to sell its Life Premium Finance Division to EverBank for a $6.0 million premium, expecting a pre-tax gain of $4.5 million in Q4 2024.
• Primis has expanded its mortgage warehouse lending team by hiring four key professionals and expects to add another four to five support staff.
• Net interest income increased by $3.2 million, or 13%, to $28.0 million in Q3 2024 compared to Q2 2024, with a net interest margin of 2.97%.
• Noninterest income decreased to $9.3 million in Q3 2024 from $11.2 million in Q2 2024, while noninterest expense was $31.0 million in Q3 2024, compared to $29.8 million in Q2 2024.
• The company's loan portfolio decreased to $2.97 billion at September 30, 2024, from $3.30 billion at June 30, 2024, due to the sale of the Life Premium Finance Division.
• Total deposits decreased slightly to $3.31 billion at September 30, 2024, from $3.34 billion at June 30, 2024.
• The Panacea Financial Division has $392 million in outstanding loans and $90 million in deposits.
• Book value per common share increased to $15.43, and tangible book value per common share increased to $11.61 as of September 30, 2024.
• A dividend of $0.10 per share was declared, payable on November 22, 2024, to shareholders of record on November 8, 2024.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the return to profitability, strategic sale of a division, and expansion into a higher-yield business. However, there are some concerns about increased expenses and loan losses.

Positives

• The company returned to profitability in Q3 2024 with a net income of $1.2 million.
• The sale of the Life Premium Finance Division will result in a significant gain.
• The expansion into mortgage warehouse lending is expected to improve yields.
• The company's digital banking platform is showing strong growth.
• The Panacea Financial Division is experiencing substantial growth.
• The company has a strong deposit base with a low cost of funds.
• The company has a strong capital position with a tangible common equity to tangible assets ratio of 7.30%.

Negatives

• Noninterest income decreased in Q3 2024 compared to Q2 2024.
• Noninterest expense increased in Q3 2024 compared to Q2 2024.
• The loan portfolio decreased due to the sale of the Life Premium Finance Division.
• Total deposits decreased slightly in Q3 2024.
• The company recorded a provision for loan losses of $7.5 million for the third quarter of 2024.
• Net charge-offs were $8.0 million for the third quarter of 2024, up from $5.0 million for the second quarter of 2024.

Risks

• The company's financial results are affected by the corrected accounting for a third-party originated consumer portfolio.
• The company is exposed to credit risk associated with its lending activities.
• The company is subject to changes in interest rates, inflation, and economic conditions.
• The company faces competitive pressures from other financial institutions.
• The company is exposed to cybersecurity risks and potential fraud or misconduct.
• The company is subject to potential impacts of adverse developments in the banking industry.

Future Outlook

The company expects to record a pre-tax gain of $4.5 million in the fourth quarter of 2024 from the sale of the Life Premium Finance Division and anticipates significant bottom-line impact from the expansion of the mortgage warehouse lending operation. The company expects promotional loan balances to decline to a nominal amount by the end of 2025.

Management Comments

• Dennis J. Zember, Jr., President and CEO, stated that the life premium finance platform's opportunity is bigger than the company's balance sheet.
• Mr. Zember believes the mortgage warehouse lending expansion is a perfect time to expand capabilities due to several large banks exiting the space and projected increases in mortgage volumes.
• Mr. Zember expects the credit results and operating expense burdens of the mortgage warehouse lending business to be similar to the life premium finance business.

Industry Context

The sale of the Life Premium Finance Division and expansion into mortgage warehouse lending reflects a strategic shift in response to market opportunities and competitive pressures. The company is capitalizing on the exit of larger banks from the mortgage warehouse lending space and focusing on higher-yield opportunities.

Comparison to Industry Standards

• Primis's return on average assets of 0.12% is below the industry average for banks of similar size, which is typically around 1%.
• The company's net interest margin of 2.97% is within the typical range for community banks, but there is room for improvement.
• The efficiency ratio of 83.22% is higher than the industry average, indicating that the company has higher operating costs compared to its peers.
• The company's tangible common equity to tangible assets ratio of 7.30% is within the regulatory requirements but could be improved to provide a stronger capital base.
• Compared to regional banks like Truist Financial Corp. and Regions Financial Corp., Primis is smaller and has a lower market capitalization, but it is focusing on niche markets like Panacea Financial and mortgage warehouse lending to differentiate itself.
• The sale of the Life Premium Finance Division is similar to moves by other banks to divest non-core assets to focus on more profitable areas.

Stakeholder Impact

• Shareholders will benefit from the return to profitability and the declared dividend.
• Employees of the Life Premium Finance Division will transition to EverBank.
• Customers will experience changes in service due to the sale of the Life Premium Finance Division.
• The company's expansion into mortgage warehouse lending may create new opportunities for business partners.

Next Steps

• The company will complete the sale of the Life Premium Finance Division by January 31, 2025.
• The company will continue to expand its mortgage warehouse lending team and operations.
• The company will focus on growing its digital banking platform and Panacea Financial Division.
• The company will manage costs to improve profitability.

Key Dates

Keywords

financial results, earnings, net income, mortgage warehouse lending, life premium finance, digital banking, Panacea Financial, loan portfolio, deposits, dividends