Business Overview and History
Primis Financial Corp (NASDAQ:FRST) is a diversified financial holding company headquartered in McLean, Virginia. Through its wholly-owned subsidiary, Primis Bank, the company provides a comprehensive range of banking services to businesses and individuals across Virginia, Maryland, and beyond. Over the past several years, Primis has undergone a strategic transformation, positioning itself for long-term success in a rapidly evolving financial landscape.
Primis Financial Corp. was founded in 2005 when it established its subsidiary, Primis Bank, as a Virginia state-chartered bank. Initially headquartered in McLean, Virginia, the bank focused on providing financial services to individuals and small to medium-sized businesses in the state. In its early years, Primis Bank concentrated on originating commercial real estate and commercial loans, as well as offering deposit products like checking, savings, and certificates of deposit.
The company experienced significant growth over the years, expanding its branch network from its initial location to 42 full-service branches across Virginia and Maryland by 2020. A major milestone in Primis' history was the acquisition of Southern National Bancorp of Virginia, Inc. in 2017, which expanded its footprint and customer base, contributing to steady growth in the bank's loan portfolio and deposits.
In 2016, Primis launched its mortgage lending division, Primis Mortgage Company, to originate and sell residential mortgages. This diversification of services allowed the company to tap into new revenue streams and better serve its customers' needs.
The COVID-19 pandemic in 2020 and 2021 presented challenges for Primis, impacting its asset quality and profitability. However, the company demonstrated resilience by participating in the Paycheck Protection Program and working with borrowers to modify loan terms and provide payment relief. Throughout this period, Primis maintained strong capital and liquidity levels.
In 2022, Primis undertook a strategic consolidation of its branch network, reducing the number of locations from 42 to 24. This move allowed the bank to streamline operations and realize cost savings while focusing its retail footprint in key Virginia and Maryland markets.
Throughout its history, Primis has remained committed to its community banking model, emphasizing commercial lending, deposit gathering, and supporting local businesses and individuals in its market areas. The company's core values of integrity, responsive service, and prudent risk management have guided it through various economic cycles.
Business Segments
Primis Financial Corp operates through two main business segments: Primis Bank and Primis Mortgage.
Primis Bank Segment: This segment specializes in providing financing services to businesses in various industries and deposit-related services to businesses, consumers, and other customers. It is the primary driver of the company's net interest income, which comes from the origination of loans. As of September 30, 2024, Primis Bank had 24 full-service branches in Virginia and Maryland and provided services through online and mobile applications.
The loan portfolio for the Primis Bank segment is primarily composed of commercial real estate loans (both owner-occupied and non-owner-occupied), residential 1-4 family loans, construction and land development loans, and commercial loans. As of September 30, 2024, commercial real estate loans made up 36.1% of the total loan portfolio, residential 1-4 family loans were 20.4%, and commercial loans were 18.0%. The bank also has a consumer loan portfolio, including home equity lines of credit and other consumer loans, which accounted for 15.9% of total loans.
Net interest income for the Primis Bank segment was $74.1 million for the nine months ended September 30, 2024, up from $71.0 million in the same period of 2023. This increase was driven by growth in average loan balances and higher yields, partially offset by higher deposit and borrowing costs. The net interest margin for the Primis Bank segment was 2.85% for the nine months ended September 30, 2024, up from 2.61% in the prior year period.
Primis Mortgage Segment: This segment specializes in originating mortgages in a majority of the U.S. It generates the majority of its revenue from noninterest income, primarily from the origination and sale of mortgage loans.
Mortgage banking income for the Primis Mortgage segment was $18.8 million for the nine months ended September 30, 2024, up from $14.4 million in the same period of 2023. This increase was due to higher mortgage loan origination volumes and sales. Gains on the sale of mortgage loans were $12.0 million for the nine months of 2024, compared to $7.0 million in the prior year period.
The Primis Mortgage segment originated $76.2 million in mortgage loans held for sale during the nine months ended September 30, 2024, up from $21.6 million in the same period of 2023. As of September 30, 2024, the segment had $96.9 million in mortgage loans held for sale at fair value on its balance sheet.
Financial Performance and Ratios
Primis' financial performance has shown improvement in recent quarters, reflecting the company's ongoing strategic initiatives and the broader economic environment. In the most recent quarter, Primis reported revenue of $37.3 million and net income of $1.2 million. This represents year-over-year growth, although specific growth rates were not provided.
For the full year 2024, Primis reported a net loss of $7.5 million, or $0.31 per diluted share, compared to a net loss of $7.8 million, or $0.32 per diluted share, in 2023. Despite the net losses, Primis has maintained a strong balance sheet, with a Tier 1 capital ratio of 10.38% and a total risk-based capital ratio of 11.63% as of the end of 2024. The company's loan-to-deposit ratio stood at 90.0% at the end of 2024, indicating a well-balanced funding structure.
In terms of profitability, Primis' return on assets (ROA) and return on equity (ROE) have shown improvement in recent years. In 2024, Primis reported an ROA of 0.58% and an ROE of 6.23%, compared to 0.60% and 6.37%, respectively, in 2023.
Liquidity and Solvency
Primis maintains a strong liquidity position, with a cash and cash equivalents balance of $77.6 million as of the end of 2024. The company's current ratio, a measure of short-term liquidity, stood at 1.16 at the end of 2024, indicating a comfortable ability to meet its short-term obligations.
In terms of solvency, Primis' debt-to-equity ratio was 0.42 at the end of 2024, suggesting a relatively low level of leverage. The company's interest coverage ratio, a measure of its ability to service its debt, stood at 1.05 in 2024, down from 1.08 in 2023, but still within an acceptable range.
Risks and Challenges
Like any financial institution, Primis faces a variety of risks and challenges that could impact its future performance. One key risk is the company's exposure to the commercial real estate market, which accounts for a significant portion of its loan portfolio. A downturn in the commercial real estate sector could lead to increased loan defaults and credit losses for Primis.
Another risk factor is the company's reliance on its digital banking platform for growth. While this platform has been successful in attracting new customers, it also exposes Primis to potential cybersecurity threats and operational risks associated with technological disruptions.
Moreover, Primis has faced some regulatory and compliance challenges in recent years, including delays in filing its financial reports. These issues have led to the company receiving notices from the Nasdaq exchange regarding its listing compliance, which could potentially impact its access to capital markets.
Outlook and Guidance
Primis remains optimistic about its future prospects and has provided specific guidance for 2025. The company expects net loan growth for the core bank to be between $125 million to $175 million, which is not quite double digits. The mortgage warehouse business is projected to grow by around $300 million to replace the exited Life Premium Finance business. Additionally, the Panacea division is expected to continue growing loans and deposits, though specific growth targets were not provided.
In terms of profitability, Primis anticipates the net interest margin to be in the 3.25% to 3.50% range, up from 3.18% at the end of Q4 2024. This improvement is expected to be driven by reducing deposit costs, which were previously 5.07% on the digital platform, and increasing asset yields, particularly from the mortgage warehouse business.
The company expects core pre-tax earnings potential to be around $10 million, after adjusting for various one-time items and near-term drags. Primis is also planning to deconsolidate its Panacea division, which they believe will result in a gain greater than the previous $20 million valuation, though an exact figure was not provided.
These strategic initiatives are designed to drive growth and improve profitability, including:
- Continued expansion of its commercial lending business, with a focus on diversifying its portfolio and reducing its exposure to higher-risk segments.
- Ongoing investments in its digital banking platform to attract and retain customers, particularly in the Panacea Financial division.
- Cost-cutting measures, such as branch consolidation and streamlining of its administrative functions, to improve its efficiency and operating margins.
Conclusion
Primis Financial Corp is a regional bank that has undergone a significant transformation in recent years, positioning itself for long-term growth and success. While the company has faced some challenges, including regulatory issues and the ongoing impact of the COVID-19 pandemic, it remains committed to executing on its strategic initiatives and delivering value to its shareholders. With a clear focus on growing its core banking and mortgage businesses, improving its net interest margin, and optimizing its operations, Primis appears well-positioned to capitalize on opportunities in its target markets. As the company continues to navigate the evolving financial landscape, investors will be closely watching its progress in diversifying revenue streams, improving profitability, and maintaining a strong balance sheet.