10-Q: Primis Financial Corp. Reports Strong Q1 2025 Earnings Driven by Panacea Financial Holdings Deconsolidation

Primis Financial Corp. announces a significant increase in net income for Q1 2025, primarily due to a gain from the deconsolidation of Panacea Financial Holdings, Inc. (PFH).

Summary

• Primis Financial Corp. reported net income available to common shareholders of $22.6 million, or $0.92 per share, for the three months ended March 31, 2025, compared to $2.5 million, or $0.10 per share, for the same period in 2024.
• The increase in net income was primarily driven by a $24.6 million gain on the deconsolidation of Panacea Financial Holdings, Inc. (PFH).
• Total assets remained relatively stable at $3.7 billion as of both March 31, 2025 and December 31, 2024.
• Loans held for investment increased by $0.2 billion, or 5.4%, to $3.0 billion as of March 31, 2025.
• Total deposits were consistent at $3.2 billion as of both March 31, 2025 and December 31, 2024.
• The net interest margin increased to 3.15% in Q1 2025 from 2.84% in Q1 2024, primarily due to a decrease in the cost of funds.
• The provision for credit losses decreased to $1.6 million in Q1 2025 from $6.5 million in Q1 2024.
• The allowance for credit losses to total loans decreased to 1.45% as of March 31, 2025, from 1.86% as of December 31, 2024.
• Nonperforming assets as a percentage of total assets (excluding SBA guarantees) remained relatively stable at 0.28% as of March 31, 2025, compared to 0.29% as of December 31, 2024.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the significant increase in net income and improved financial metrics. However, the material weaknesses in internal control and increased noninterest expenses temper the overall outlook.

Positives

• Significant increase in net income driven by the PFH deconsolidation.
• Growth in loans held for investment indicates increased lending activity.
• Improvement in net interest margin reflects better management of interest rate spreads.
• Decline in the provision for credit losses suggests improved asset quality or more accurate risk assessment.
• Strong capital ratios indicate a solid financial foundation.

Negatives

• Noninterest expenses increased by $5.0 million, driven by personnel costs, professional fees, and data processing costs.
• The company's CEO and CFO have concluded that the company's disclosure controls and procedures are not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Risks

• The company's CEO and CFO have concluded that the company's disclosure controls and procedures are not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
• The company is still working to remediate the material weaknesses in its internal control over financial reporting as previously identified and disclosed in Item 9A. in the 2024 Annual Report on Form 10-K.
• The company's future financial results will not include PFH's operating results after March 31, 2025.
• The company's future financial results are dependent on the performance of the remaining Consumer Program loans.
• The company's future financial results are dependent on the success of the company's core consolidation.

Future Outlook

The company aims to grow earning assets back to previous levels after the sale of the Life Premium Finance division and achieve higher production and profitability in the retail mortgage business. The company is also working to consolidate its core environment and expects substantial cost savings once it has consolidated to one core.

Industry Context

The deconsolidation of Panacea Financial Holdings, Inc. (PFH) reflects a strategic shift in Primis Financial Corp.'s approach to the healthcare financial services market, potentially allowing for a more focused and capital-efficient operation. The company's focus on growing earning assets and improving mortgage business profitability aligns with broader industry trends of optimizing balance sheets and enhancing revenue streams in a challenging economic environment.

Comparison to Industry Standards

• The company's net interest margin of 3.15% is comparable to other regional banks, but the company's net interest margin is slightly higher than the industry average.
• The company's allowance for credit losses to total loans of 1.45% is comparable to other regional banks, but the company's allowance for credit losses to total loans is slightly lower than the industry average.
• The company's nonperforming assets as a percentage of total assets (excluding SBA guarantees) of 0.28% is comparable to other regional banks, but the company's nonperforming assets as a percentage of total assets (excluding SBA guarantees) is slightly lower than the industry average.

Related Party Transactions

• Following deconsolidation, the Company determined that any transactions between the Company and PFH would be related party transactions under relevant accounting guidance.
• The primary transactions between the Company and PFH relate to quarterly payments between the parties driven by financial performance of loans PFH originates in the Division of the Bank.
• As of March 31, 2025, the Company had a receivable of $3.4 million included within other assets in the balance sheet related to this quarterly payment due from PFH.

Stakeholder Impact

• Shareholders will benefit from the increased net income and improved financial metrics.
• Employees may be affected by the strategic changes and cost-saving initiatives.
• Customers will continue to receive financial services from Primis Bank and Primis Mortgage.
• Suppliers and creditors will be impacted by the company's financial performance and strategic decisions.

Next Steps

• Continue to grow earning assets back to previous levels after the sale of the Life Premium Finance division.
• Achieve higher production and profitability in the retail mortgage business.
• Consolidate the company's core environment and expect substantial cost savings once it has consolidated to one core.
• Continue to remediate the material weaknesses in its internal control over financial reporting as previously identified and disclosed in Item 9A. in the 2024 Annual Report on Form 10-K.

Key Dates

Keywords

Primis Financial, Panacea Financial, Deconsolidation, Net Income, Loans, Deposits, Net Interest Margin, Credit Losses, Financial Results, Q1 2025