8-K: Primis Financial Corp. Reports Strong Q4 Earnings, Announces Panacea Investment and Dividend

Primis Financial Corp. reported a significant increase in net income for the fourth quarter of 2023, alongside strategic investments and a declared cash dividend.

Summary

• Primis Financial Corp. announced net income available to common shareholders of $8.1 million, or $0.33 per diluted share, for the quarter ended December 31, 2023, a substantial increase from $3.0 million, or $0.12 per diluted share, in the same quarter of 2022.
• For the full year 2023, the company reported earnings of $9.9 million, or $0.40 per diluted share, compared to $17.5 million, or $0.71 per diluted share, in 2022, with 2023 results including $13.0 million in after-tax nonrecurring charges and goodwill impairment.
• Primis invested in Panacea Financial Holdings, Inc. (PFH), acquiring approximately 19% for an immaterial price, with the investment valued at approximately $20 million based on a recent capital raise.
• The company declared a quarterly cash dividend of $0.10 per share, payable on February 23, 2024, to shareholders of record as of February 9, 2024.
• Operating return on average assets increased to 0.89% in Q4 2023, up from 0.81% in the previous quarter.
• The net interest margin was 3.36% for the fourth quarter, up from 3.01% in the third quarter, or 3.09% excluding certain accounting adjustments.
• The company opened over 2,000 new deposit accounts totaling $75 million with a weighted average cost of 2.96%.
• Noninterest expense decreased to $29.8 million in Q4 2023 from $37.1 million in Q3 2023, or $18.7 million excluding certain non-operational items.
• Nonperforming assets decreased by 61% to $7.7 million, excluding SBA guarantees.
• The company's leverage ratio increased to 8.93%, and the tangible common equity to tangible assets ratio was 7.99%.

Sentiment

Score: 8

Explanation: The document presents a generally positive outlook with strong Q4 results, strategic investments, and a dividend declaration. While there are some challenges, the overall tone is optimistic and indicates a positive trajectory for the company.

Positives

• The company experienced a significant increase in net income and earnings per share compared to the same quarter last year.
• The investment in Panacea Financial Holdings, Inc. is expected to be accretive to future operations.
• The declaration of a quarterly cash dividend demonstrates confidence in the company's financial position.
• The company's operating return on average assets improved, indicating better profitability.
• The net interest margin increased, reflecting improved revenue generation.
• The company successfully attracted new deposits at a reasonable cost.
• Noninterest expenses were reduced, improving operational efficiency.
• Nonperforming assets decreased significantly, indicating improved asset quality.
• The company's capital ratios improved, demonstrating financial strength.
• The digital platform is attracting new customers with no marketing costs incurred.

Negatives

• Full year earnings for 2023 were lower than 2022, impacted by nonrecurring charges and goodwill impairment.
• The company experienced a net charge-off of $5.0 million for the fourth quarter of 2023.
• Total deposits decreased slightly from the previous quarter.
• Mortgage banking income decreased due to lower activity.
• The company recorded a provision for loan losses of $3.1 million for the fourth quarter of 2023.

Risks

• The company's ability to implement its strategic and growth initiatives, including the Panacea Financial and Life Premium Finance Divisions, is subject to risk.
• Competitive pressures among financial institutions could increase significantly.
• Changes in laws, rules, or regulations 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.
• Adverse results from litigation or regulatory actions could impact the company.
• Cybersecurity risks and fraud could negatively affect the company.
• Acts of God, war, or other catastrophic events could impact the company's operations.
• The company's forward-looking statements are subject to risks and uncertainties, and actual results may differ materially.

Future Outlook

The company expects continued growth in production and profitability throughout 2024, particularly in the mortgage division. Management anticipates that the increasing level of activity at PFH will ultimately lead to deconsolidation in subsequent quarters. The company expects the effective tax rate in 2024 to be approximately 18.5%.

Management Comments

• Dennis J. Zember, Jr., President and Chief Executive Officer of Primis, stated that the Panacea capital raise is a tremendous vote of confidence and will allow the Panacea team to keep building out their brand and capabilities.
• Mr. Zember also noted that the restructuring activities undertaken in 2023 resulted in a noticeable improvement in expenses.
• Tyler Stafford, CFA, CEO and Co-founder of Panacea Financial, stated that Primis has been a tremendous partner and they are thrilled to announce the successful completion of their Series B funding round.

Industry Context

The announcement reflects a trend in the banking industry towards strategic investments in fintech and digital platforms to enhance growth and profitability. The focus on improving efficiency and reducing nonperforming assets is also consistent with industry-wide efforts to maintain financial stability and improve performance.

Comparison to Industry Standards

• Primis's operating return on average assets of 0.89% is a positive result, but it is important to compare this to the average ROAA for similar sized banks, which can vary significantly based on market conditions and business models.
• The net interest margin of 3.36% is above the average for many regional banks, but it is important to consider the specific mix of assets and liabilities that contribute to this margin.
• The reduction in nonperforming assets to $7.7 million is a positive sign, but it is important to compare this to the average NPA ratio for peer banks to assess the relative strength of Primis's asset quality.
• The company's tangible common equity to tangible assets ratio of 7.99% is within the range of industry standards, but it is important to compare this to the regulatory requirements and the capital ratios of peer banks.
• The cost of deposits at 2.69% is competitive, but it is important to compare this to the average cost of funds for peer banks to assess the relative efficiency of Primis's funding strategy.
• The company's digital platform is a key differentiator, but it is important to compare the growth and profitability of this platform to other banks with similar digital initiatives.
• The investment in Panacea Financial Holdings, Inc. is a strategic move, but it is important to compare the potential returns of this investment to other banks' investments in fintech.

Stakeholder Impact

• Shareholders will benefit from the increased earnings and the declared dividend.
• Employees may benefit from the company's growth and strategic initiatives.
• Customers will benefit from the company's enhanced digital banking platform and expanded services.
• The company's financial strength and stability will benefit creditors and suppliers.

Next Steps

• The company will continue to focus on growing its digital banking platform and expanding its Panacea Financial and Life Premium Finance divisions.
• Management will host a conference call on January 26, 2024, to discuss the fourth quarter results.
• The company will continue to manage its balance sheet to optimize liquidity and capital ratios.
• The company will continue to monitor and manage credit risk associated with its loan portfolio.

Key Dates

Keywords

financial results, earnings, net income, dividends, Panacea Financial, investment, net interest margin, nonperforming assets, deposits, loan portfolio, capital ratios, digital banking, mortgage banking