10-Q: Primis Financial Q3 2025: Profit Soars on Strategic Growth

Primis Financial Corp. reported a significant increase in net income for the third quarter and first nine months of 2025, driven by strategic growth initiatives and lower credit loss provisions.

Summary

• Net income attributable to common stockholders for the three months ended September 30, 2025, totaled $6.83 million ($0.28 basic and diluted earnings per share), a 600% increase from $1.23 million ($0.05 basic and diluted earnings per share) in the same period of 2024.
• Net income attributable to common stockholders for the nine months ended September 30, 2025, totaled $31.90 million ($1.29 basic and diluted earnings per share), a 357% increase from $7.13 million ($0.29 basic and diluted earnings per share) in the same period of 2024.
• Net interest income increased by $1.01 million for the three months and $2.43 million for the nine months ended September 30, 2025, primarily due to lower interest expenses.
• The company recorded a recovery of credit losses of $49 thousand for the three months ended September 30, 2025, compared to a provision of $7.51 million in the prior year period.
• Provision for credit losses for the nine months ended September 30, 2025, was $9.85 million, down from $17.14 million in the same period of 2024.
• Noninterest income increased by $2.69 million for the three months and $31.89 million for the nine months ended September 30, 2025, largely driven by a $32.32 million gain on the Panacea Financial Holdings investment.
• Total assets increased 7% to $3.95 billion as of September 30, 2025, from $3.69 billion at December 31, 2024.
• Loans held for investment (LHFI) grew 11% to $3.20 billion as of September 30, 2025, from $2.89 billion at December 31, 2024.
• Total deposits increased by $165 million to $3.34 billion as of September 30, 2025.
• Nonperforming assets as a percentage of total assets (excluding SBA guarantees) increased to 2.07% as of September 30, 2025, from 0.29% at December 31, 2024.
• The allowance for credit losses to total loans decreased to 1.40% as of September 30, 2025, from 1.86% at December 31, 2024.

Sentiment

Score: 7

Explanation: The company reported strong net income growth and significant reductions in credit loss provisions, driven by strategic initiatives and a large one-time gain. However, asset quality declined with a notable increase in nonperforming assets, and noninterest expenses rose, indicating some underlying challenges despite overall positive financial results.

Positives

• Net income attributable to common stockholders increased 600% for the three months and 357% for the nine months ended September 30, 2025, compared to the same periods in 2024.
• Net interest income grew due to declining interest expenses on deposits and borrowings.
• A recovery of credit losses of $49 thousand was recorded in Q3 2025, a significant improvement from a $7.51 million provision in Q3 2024.
• Noninterest income surged, primarily due to a $32.32 million gain on the Panacea Financial Holdings investment.
• Total assets increased by 7% to $3.95 billion as of September 30, 2025.
• Loans held for investment (LHFI) grew 11% to $3.20 billion, driven by strong performance in Mortgage Warehouse and Panacea Division loans.
• Total deposits increased, with growth in lower-cost noninterest-bearing and interest-bearing accounts.
• Mortgage Warehouse outstanding loan balances increased 411% to $327 million from $64 million at December 31, 2024.
• Panacea Financial Division outstanding loan balances grew 26% to $548 million, and deposits increased 44% to $133 million.
• Primis Mortgage funded loan volume increased 34% to $308 million in Q3 2025 compared to Q3 2024.
• Net interest margin improved to 3.18% for Q3 2025 (from 2.97% in Q3 2024) and 3.06% for the nine months ended September 30, 2025 (from 2.85% in the same period of 2024).
• The company's capital ratios continue to exceed requirements to be considered well capitalized.
• Consumer Program loan income reversals are expected to be substantially lower going forward due to a decline in promotional loans and enhanced loss mitigation efforts.

Negatives

• Noninterest expenses increased by $1.36 million for the three months and $8.49 million for the nine months ended September 30, 2025, primarily due to higher personnel costs in growth areas.
• FDIC insurance assessment increased by $454 thousand for the three months and $1.07 million for the nine months ended September 30, 2025, due to assessment base changes and asset quality.
• Data processing expense increased by $1.13 million for the nine months ended September 30, 2025, due to higher processing volume and continued use of two core operating systems.
• Asset quality declined, with nonperforming assets as a percentage of total assets (excluding SBA guarantees) rising to 2.07% as of September 30, 2025, from 0.29% at December 31, 2024.
• One commercial real estate loan ($40 million) and one commercial relationship ($24 million) were placed on nonaccrual status due to identified weaknesses.
• Consumer Program derivative income declined significantly by $2.83 million for the nine months ended September 30, 2025, compared to the same period in 2024.
• Income from bank-owned life insurance decreased by $656 thousand for the nine months ended September 30, 2025, due to non-recurring death benefit gains in 2024.

Risks

• The effects of future economic, business, and market conditions and disruptions in the credit and financial markets, domestic and foreign.
• Potential increases in the provision for credit losses and other general competitive, economic, political, and market factors.
• Uncertainties surrounding geopolitical events, trade policy, taxation policy, the impact of the federal government shutdown, and monetary policy.
• Fraudulent and negligent acts by loan applicants, mortgage brokers, and employees.
• Adverse results from current or future litigation, regulatory examinations, or other legal and/or regulatory actions.
• Changes in the local economies in market areas which adversely affect customers and their ability to transact profitable business.
• Changes in interest rates, inflation, stagflation, loan demand, real estate values, or competition, as well as labor shortages and supply chain disruptions.
• Changes in the availability of funds resulting in increased costs or reduced liquidity.
• A deterioration or downgrade in the credit quality and credit agency ratings of the investment securities portfolio.
• Impairment concerns and risks related to the investment securities portfolio of collateralized mortgage obligations, agency mortgage-backed securities, and obligations of states and political subdivisions.
• The incurrence and impairment of goodwill associated with current or future acquisitions and adverse short-term effects on results of operations.
• Increased credit risk in assets and increased operating risk caused by a material change in commercial, consumer, and/or real estate loans as a percentage of the total loan portfolio.
• The concentration of the loan portfolio in loans collateralized by real estate.
• The level of construction and land development and commercial real estate loans.
• Risk related to a third-party's ability to satisfy its contractual obligation to reimburse for waived interest on loans with promotional features that pay off early.
• The ability to identify and address potential cybersecurity risks on systems and/or third-party vendors and service providers.
• Changes in the levels of loan prepayments and the resulting effects on the value of the loan portfolio.
• The failure of assumptions and estimates underlying the establishment of and provisions made for credit losses.
• The ability to expand and grow the business and operations, including the acquisition of additional banks, and to realize expected cost savings and revenue enhancements.
• Government intervention in the U.S. financial system, including legislative, tax, accounting, and regulatory actions and reforms.
• The potential implementation of a regulatory reform agenda under the presidential administration that is significantly different than that of the prior administration.
• Increased competition for deposits and loans adversely affecting rates and terms.
• The continued service of key management personnel.
• The potential payment of interest on demand deposit accounts to effectively compete for customers.
• The potential environmental liability risk associated with properties assumed upon foreclosure.
• Increased asset levels and changes in the composition of assets and the resulting impact on capital levels and regulatory capital ratios.
• Risks of current or future mergers and acquisitions, including implementation time/cost and potential failure to achieve expected gains.
• Increases in regulatory capital requirements for banking organizations generally.
• Acts of God or of war or other conflicts, civil unrest, acts of terrorism, pandemics, or other catastrophic events.
• Changes in accounting policies, rules, and practices and applications or determinations made thereunder.
• Any inability or failure to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to expediently remediate existing material weaknesses.
• The risk that deferred tax assets could be reduced if future taxable income is less than currently estimated, if corporate tax rates are less than current rates, or if stock sales trigger limitations on net operating loss carryforwards.
• The ability to attract and retain qualified employees, including as a result of heightened labor shortages.
• Risks related to DEI and ESG strategies and initiatives, which could alter reputation and affiliations or result in litigation.
• Negative publicity and the impact on reputation.
• The ability to realize the value of derivative assets that are recorded at fair value due to changes in fair value driven by actual results being materially different than assumptions.
• The ability to grow the mortgage warehouse business and achievement of certain margin results.

Future Outlook

The company expects continued progress in key areas through the rest of 2025 and into 2026. It anticipates that income from new mortgage production teams will exceed their upfront costs as their pipelines rebuild. Consumer Program related income is expected to be increasingly immaterial going forward. The company has negotiated a new contract with its core data provider, which began providing significant reductions in data processing expense in August 2025.

Management Comments

• "The third quarter of 2025 demonstrated progress in key areas that are expected to continue and build through the rest of the year and into 2026."
• "Our strategy centers on growing earning assets back to previous levels after the sale of our Life Premium Finance division and achieving higher production and profitability in our retail mortgage business."
• "However, as these teams rebuild their pipeline, we expect income from their production to exceed the upfront costs incurred."
• "Noninterest income from the Consumer Program is expected to be increasingly immaterial going forward as promotional loans have declined to only $7 million at the end of the third quarter of 2025 and the derivative value is immaterial at September 30, 2025."
• "We have negotiated a new contract with our core data provider with contract terms that began to provide significant reductions in data processing expense in August of 2025."
• "Management believes, as of September 30, 2025, that we meet all capital adequacy requirements to which we are subject."
• "Management continues to put controls in place to remediate the previously identified material weaknesses and the material weaknesses will not be remediated until the necessary controls are in place and operating effectively for a sufficient amount of time."

Industry Context

The company's focus on growing its Mortgage Warehouse and Panacea Financial divisions indicates a strategic move into specialized lending and diversified revenue streams, aligning with trends in the financial services sector to target niche markets. The discussion of interest rate sensitivity and deposit pricing reflects the broader macroeconomic environment of fluctuating interest rates. The acknowledgment of the 'shift to work-from-home and hybrid work environments' impacting office space utilization directly addresses current commercial real estate market trends.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a party to various claims and proceedings arising in the ordinary course of business, including employment-related claims, lender liability, breach of contract, and other similar lending-related claims.
• Management believes that these matters, individually and in the aggregate, will not have a material adverse effect on the company's financial condition or results of operations.
• There are no proceedings pending, or to management's knowledge, threatened, that represent a significant risk against Primis or Primis Bank as of September 30, 2025.

Related Party Transactions

• Following the deconsolidation of Panacea Financial Holdings, Inc. (PFH), transactions between Primis and PFH are considered related party transactions.
• The primary transactions relate to quarterly payments between the parties driven by the financial performance of loans PFH originates in the Panacea Division of the Bank.
• As of September 30, 2025, the company had a payable of $200 thousand included within other liabilities on the balance sheet related to a payment due to PFH.

Stakeholder Impact

• Shareholders: Positive impact from significantly increased net income and EPS, and the ongoing stock repurchase program. Potential concern from increased nonperforming assets and persistent material weaknesses in internal controls.
• Employees: Growth in the Primis Mortgage, Mortgage Warehouse, and Panacea Division segments suggests job opportunities and expansion, though it also contributes to higher personnel costs.
• Customers: Continued provision of a range of financial services, including specialized offerings for doctors through the Panacea Division. Consumer Program loan modifications aim to improve collections and mitigate charge-offs for delinquent borrowers.
• Creditors: Increased total assets and deposits, but also a notable rise in nonperforming assets. Capital ratios remain strong, exceeding well-capitalized regulatory requirements.
• Regulatory Authorities: The company is actively working on remediating previously identified material weaknesses in internal controls over financial reporting. Capital ratios meet all adequacy requirements.

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.
• New mortgage production teams are expected to rebuild their pipeline and generate income exceeding upfront costs.
• Continue loss mitigation efforts for Consumer Program loans.
• Remediate material weaknesses in internal control over financial reporting.
• Evaluate the impact of new accounting standards updates (ASU 2023-09, ASU 2024-03, ASU 2025-01, ASU 2025-03, ASU 2025-06, ASU 2025-07) on financial statements and disclosures.

Key Dates

Recommendation

While Primis Financial Corp. demonstrated strong net income growth and a significant one-time gain from the Panacea deconsolidation, alongside strategic expansion in mortgage warehouse and Panacea divisions, the notable increase in nonperforming assets and the persistence of material weaknesses in internal controls introduce a degree of uncertainty. The positive financial results are compelling, but the asset quality deterioration and control issues warrant a cautious approach, suggesting a 'hold' until further clarity on asset quality trends and successful remediation of internal control weaknesses is achieved.

Keywords

Banking, Financial Services, SEC Filing, 10-Q, Quarterly Report, Primis Financial Corp, FRST, Net Income, Earnings Per Share, Loan Growth, Deposits, Credit Quality, Mortgage Banking, Panacea Financial, Mortgage Warehouse, Nonperforming Assets, Allowance for Credit Losses, Capital Ratios, Interest Rates, Commercial Real Estate, Consumer Loans, Virginia, Maryland