8-K: Primis Financial Corp. Reports Q4 2024 Results, Announces Dividend and Strategic Shift

Primis Financial Corp. reported a net loss for the fourth quarter of 2024, alongside strategic moves including exiting a consumer loan program and focusing on core banking and new lending initiatives.

Summary

• Primis Financial Corp. reported a net loss of $14.7 million, or $0.59 per share, for the fourth quarter of 2024, compared to a net loss of $8.2 million, or $0.33 per share, in the same quarter of 2023.
• For the full year 2024, the company reported a net loss of $7.5 million, or $0.31 per share, compared to a loss of $7.8 million, or $0.32 per share, in 2023.
• The company's results were significantly impacted by the decision to move a third-party originated consumer loan portfolio to held for sale, resulting in a $20 million charge.
• Primis is strategically repositioning its business, focusing on its core community bank, mortgage operations, national lending strategies, and Panacea Financial.
• The core bank has $2.2 billion in low-cost customer deposits and a loan pipeline of $119 million, with 88% from new customers.
• Primis Mortgage achieved $800 million in production in 2024 and anticipates $1.25 billion in 2025.
• The company's mortgage warehouse lending team has grown to 54 approved customers with over $400 million in committed lines.
• Panacea Financial's loans outstanding increased 11% from the previous quarter to $434 million, funded by $92 million in deposits.
• The company declared a quarterly cash dividend of $0.10 per share, payable on February 26, 2025.
• The company's digital platform has grown to 18,000 customers with just under $1 billion of deposits.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company is making strategic moves to improve its long-term prospects, the current financial results are negative, with a significant loss and increased expenses. The strategic repositioning and growth initiatives are positive, but the near-term challenges and risks temper the overall sentiment.

Positives

• The core bank's cost of deposits is lower than most of its regional bank competitors, at 1.87% at year-end 2024.
• The loan pipeline for the core bank ended 2024 at approximately $119 million, with 88% representing new customers.
• Primis Mortgage's production increased from $600 million in 2023 to $800 million in 2024, with a target of $1.25 billion in 2025.
• The mortgage warehouse lending business has grown rapidly, with $400 million in committed lines as of January 2025.
• Panacea Financial's loan portfolio grew 11% in Q4 2024, reaching $434 million.
• The company's digital platform has attracted 18,000 customers and nearly $1 billion in deposits.
• The company is leveraging its digital platform to launch a unique affinity brand in March 2025.
• The company has secured preferred lender status with a national builder, potentially generating significant mortgage volume.
• The company has made strategic moves to focus on profitable business lines and reduce balance sheet pressure.
• The company's net interest margin, excluding interest reversals, would have been 3.18% in Q4 2024, compared to 2.86% in Q4 2023.

Negatives

• The company reported a net loss of $14.7 million for the fourth quarter of 2024.
• The decision to move the consumer loan portfolio to held for sale resulted in a $20 million charge.
• Net interest income decreased by approximately $1.9 million, or 7%, in Q4 2024 compared to Q3 2024.
• Noninterest expense increased to $37.2 million in Q4 2024, compared to $31.0 million in Q3 2024.
• The company recorded a provision for loan losses of $23.0 million for Q4 2024, with $20.8 million due to the consumer program.
• Net charge-offs were $31.0 million for Q4 2024, up from $8.0 million in Q3 2024, primarily due to the consumer program.
• Book value per common share decreased by $0.83 to $14.58 as of December 31, 2024.
• Tangible book value per common share decreased by $0.82 to $10.77 as of December 31, 2024.
• After-tax unrealized losses on the company's available-for-sale securities portfolio increased by $4.0 million to $21 million.
• The company's reported 2024 ROAA was (0.19)%, although adjusted ROAA was 0.65%.

Risks

• The company's ability to successfully implement its strategic initiatives, including the new mortgage warehouse division and digital platform, is subject to risk.
• The company faces competitive pressures from other financial institutions.
• Changes in laws, regulations, or regulatory policies could adversely affect the company.
• Credit risk associated with lending activities could impact the company's financial performance.
• Economic and market conditions, including changes in interest rates and inflation, could affect the company's results.
• The company is exposed to cybersecurity risks and potential fraud or misconduct.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
• The company's reliance on a single national builder for its construction-to-perm program could pose a risk if that relationship falters.
• The company's digital platform and affinity brand strategy may not achieve the expected growth and profitability.
• The company's exit from the consumer loan program may not fully mitigate the associated credit risks.

Future Outlook

The company expects to improve profitability by focusing on its core community bank, expanding its mortgage business, growing its national lending strategies, and leveraging its digital platform. They anticipate significant growth in mortgage warehouse lending and the new construction-to-perm program. The company also expects to see continued growth in Panacea Financial and its digital deposit platform.

Management Comments

• Dennis J. Zember, Jr., President and Chief Executive Officer of Primis, stated that the company made several costly moves in the fourth quarter of 2024 to better position the company to maximize its strategic value.
• Mr. Zember commented that the company's strategies are profitable and remarkably scalable given its size.
• Mr. Zember noted that the company has 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.

Industry Context

The company's strategic shift away from consumer loans and towards mortgage warehouse lending and digital banking reflects a broader trend in the financial industry towards focusing on higher-margin, scalable businesses. The emphasis on low-cost deposits and digital platforms is also in line with industry trends. The company's focus on the healthcare sector through Panacea Financial is a unique niche strategy.

Comparison to Industry Standards

• Primis's cost of deposits at 1.87% is significantly lower than many of its community bank peers in the Washington D.C. region, which are up to 100 basis points higher, and more in line with larger regional banks.
• The company's mortgage production growth, reaching $800 million in 2024, is notable in a generally shrinking mortgage market.
• The company's digital platform, with nearly $1 billion in deposits from 18,000 customers, is a strong performance compared to other banks of similar size.
• The company's mortgage warehouse lending business, with $400 million in committed lines, is a significant achievement in a short period of time.
• Panacea Financial's growth, with loans outstanding up 11% in Q4 2024, positions it as a leader in the healthcare-focused financial services market.
• The company's core net charge-offs, excluding the consumer program, were 0.05% of average loans, which is low compared to industry averages.
• The company's efficiency ratio of 84.83% is higher than some of its peers, indicating room for improvement in operational efficiency.
• The company's tangible book value per share of $10.77 is a key metric for investors to compare against other banks.
• The company's adjusted ROAA of 0.65% is a key metric for investors to compare against other banks.
• The company's digital platform has a cost of funds of Fed Funds less 15bps which is very competitive.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the decrease in book value per share, but may be encouraged by the strategic repositioning and growth initiatives.
• Employees may be affected by the organizational changes and the focus on new business lines.
• Customers will benefit from the company's focus on low-cost deposits and digital banking services.
• Lenders may be impacted by the company's strategic shift and the exit from the consumer loan program.
• Suppliers may be impacted by the company's focus on new business lines and the potential for increased activity.

Next Steps

• The company will continue to focus on growing its core community bank, mortgage operations, national lending strategies, and Panacea Financial.
• The company will launch a unique affinity brand in March 2025.
• The company will continue to build out its mortgage warehouse lending business and explore MSR relationships.
• The company will continue to leverage its digital platform to drive deposit growth.
• The company will reprice approximately $350 million of loans in 2025 and $300 million in 2026.
• The company will continue to develop the initial phase of technology products and services for Panacea Financial.

Key Dates

Keywords

financial results, mortgage lending, community banking, digital banking, Panacea Financial, loan portfolio, deposit growth, net interest income, strategic repositioning, consumer loans