Primis Financial Corp. Reports Diluted Earnings per Share of $0.38 for the First Quarter of 2021

MCLEAN, Va., April 29, 2021 /PRNewswire/ -- Primis Financial Corp. (NASDAQ: FRST) ("Primis" or the "Company"), and its wholly-owned subsidiary Primis Bank (the "Bank"), today reported net income of $9.4 million for the quarter ended March 31, 2021, compared to $27 thousand for the quarter ended March 31, 2020.  Earnings per share for the three months ended March 31, 2021 were $0.39 on a basic and $0.38 on a diluted basis compared to $0.00 basic and diluted for the three months ended March 31, 2020.  

The Company also announced its new digital banking initiative expected to launch in the fourth quarter of this year.  As detailed below, the new digital bank will have unique technology-driven products and services and will initially be focused on consumer and small-business customers.

The Board of Directors also announced and declared a dividend of $0.10 per share payable on May 24, 2021 to shareholders of record on May 14, 2021.  This is Primis' thirty-eighth consecutive quarterly dividend.  

Highlights for the three months ended March 31, 2021 versus three months ended March 31, 2020

• Rebranding of the Corporation and the Bank from Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, effective March 31, 2021.
• Return on average assets of 1.19% versus 0.0% in the year-ago period.
• Operating return on average assets⁽¹⁾ of 1.21% versus 0.63% in the year-ago period.
• Net income was $9.4 million, pre-tax pre-provision earnings were $11.3 million and pre-tax pre-provision operating earnings⁽¹⁾ were $11.5 million for the first quarter of 2021, versus $27 thousand, $3.5 million and $8.9 million, respectively for the first quarter of 2020.
• Pre-tax pre-provision return on average assets⁽¹⁾ of 1.43% and pre-tax pre-provision operating return on average assets⁽¹⁾ of 1.45% for the first quarter of 2021, compared to 0.52% and 1.30%, respectively, in the first quarter of 2020.
• Total assets at the end of first quarter of 2021 were $3.33 billion, an increase of 20.6%.
• Gross loans were $2.39 billion at the end of the first quarter of 2021, up 8.1% from the year ago period.  Excluding PPP balances, gross loans declined 7.1% over the same period.
• Loans on deferral were $112.8 million or 5.5% of gross loans excluding PPP balances. Approximately 59% of total deferrals were from the hotel portfolio while restaurant deferrals were approximately 1%.
• Total deposits increased $613 million year-over-year despite a $288 million decline in time deposits over the same time frame.  Non-time deposits comprised 83.7% of total deposits at March 31, 2021 versus 65.0% at March 31, 2020.
• Cost of deposits declined to 0.60% for the first quarter of 2021 compared to 1.25% for the first quarter of 2020.
• Mortgage income was $1.3 million for the first quarter of 2021 versus $231 thousand for the first quarter of 2020.
• Allowance for credit losses to total loans (excluding PPP balances) of 1.70% at March 31, 2021 versus 0.57% at March 31, 2020.
• Book value per share of $16.22 and tangible book value per share⁽¹⁾ of $11.84 at March 31, 2021, an increase of $0.63 and $0.73, respectively, from a year ago despite a significant build in the allowance for credit losses and $0.40 in dividends paid over the last twelve months.

Commenting on the quarter, President and CEO Dennis J. Zember, Jr. stated, "I am proud of the accomplishments our bank has made over this past quarter, including a wildly successful rebranding effort.  Launching a new brand and working to change perception in the marketplace is no easy task.  Our employees have embraced the challenge of making Primis stand for superior customer service enhanced by technology.  The feedback from customers has been tremendous so far.  As we detail below, our new digital banking effort is the next exciting step of the Primis evolution."

Added Matthew A. Switzer, Executive Vice President and CFO, "Our liquidity continued to build in the quarter as cash and equivalents ended March at $480 million.  Part of this liquidity build was due to a deposit relationship with a mortgage company that has generated more funds than anticipated.  We anticipate normalization of this account in the second quarter which should reduce cash balances by approximately $100 million.  We continue to focus on building core deposits while anticipating a more robust lending environment in the latter half of 2021 as the economy continues to open." 

Announcement of New Digital Banking Initiative

As noted above, the Company announced plans for a new digital bank offering with a launch date during the fourth quarter of 2021.  This venture will utilize a modern, cloud-based core platform provided by Finxact.  The Company has also partnered with nearly a dozen technology firms to provide the most robust and unique banking experience including Apiture (for digital customer-facing and mobile applications), Savana (customer and product management and servicing) and Levvel (third-party lead for development and implementation).  Key features enabled by this new technology include real-time processing and fully self-contained mobile applications, including in-app account opening, while utilizing the latest security protocols and robust consumer data protection.

The Company believes that this modern banking architecture is critical.  First, this architecture greatly compresses the time for creative thoughts and ideas to become a reality in the customer's mobile application.  Today's mobile applications are not functional or unique and severely limit the ability to incorporate banks' new ideas to address customer needs.  Second, the Company's creative abilities and unique features will remain the property of Primis alone.  The developers that breathe life into these new ideas will either be employed by or contracted to the Company and any distinguishing features will not be for sale or distribution by our core provider.  This drastically lengthens the period of time in which the Company can differentiate itself and invites substantial collaboration from industry experts, consumers and fintech partners who previously had no avenue or platform to roll out exclusive solutions.

The initial rollout will center on deposit solutions for retail and small business customers and will incorporate a variety of unique and proprietary features that the Company believes will be very attractive for customers.  Additionally, the Company's products and services in the digital bank will feature rates, fee schedules and customer incentives that recognize the substantially lower infrastructure costs borne by the bank to provide services.  Management estimates that the capital outlay of developing a fully functional, modern core with unique and distinguishing characteristics will approximate the capital investment of two to three traditional branches in metropolitan-type markets.

The digital bank will operate in parallel with the Bank's existing infrastructure currently powered by solutions from Fiserv.  Fiserv remains an important partner for the Company, and the Fiserv platform will continue to support the Bank's growth for the foreseeable future.

Mr. Zember noted, "Our branches and employees are passionate about providing the highest quality service and leadership in our local communities. This high-touch model is important but at the same time, we are cognizant of how customer behavior and demands for more technology have changed over the last year. We launched a new brand with a vision of being unique in this industry, wanting to use technology to improve the customer experience. Our efforts here should create a competitive advantage and something noticeably unique in our communities."

Panacea Financial Division Update

The Bank's Panacea Division ("Panacea"), which launched in November of 2020, has seen strong early success with physician household growth.  Panacea continues to actively pursue partnerships to support the physician community such as the recently announced partnership with the Student Osteopathic Medical Association, the largest independent organization of osteopathic medical students.  Additionally, Panacea closed its first medical school debt refinance loan in April which represents a new and potentially significant avenue for further loan growth. Lastly, the Panacea Financial Foundation closed its first round of grants to underrepresented ethnic and racial minority residents and fellow physicians in March and remains driven to help improve the minority representation within medicine.

Net Interest Income

Net interest income increased to $25.0 million for the three months ended March 31, 2021 from $20.5 million for the three months ended March 31, 2020.  PPP fee income was $4.95 million for the current quarter and was the primary factor contributing to the increase. The Company's reported net interest margin for the first quarter was 3.41% compared to 3.58% in the fourth quarter of 2020 and 3.32% in the first quarter of 2020.  Net interest margin excluding the effects of PPP loans⁽¹⁾ was 2.99% in the first quarter of 2021, down 24 bps from 3.23% linked-quarter due to significantly higher cash balances.  Unrecognized net deferred fees related to PPP loans totaled $5.21 million versus $4.45 million at December 31, 2020.

Yield on loans for the first quarter was 4.82%, or 4.47%⁽¹⁾ excluding the effect of PPP loans, compared to 4.89% in the first quarter of 2020.  While lower rates also lowered funding costs, the Company aggressively pursued core deposits during the year to replace brokered time deposits and other sources of wholesale funding.  Despite actively pursuing core deposits and positively shifting the Company's deposit mix, the cost of total deposits still declined to 0.60% in the first quarter of 2021 from 1.25% in the year-ago quarter.  The Company also paid off $20.0 million of subordinated debt with a floating-rate cost of three-month LIBOR plus 502 basis points in February of this year.

Noninterest Income

During the three months ended March 31, 2021, Primis had non-interest income of $3.8 million compared to $2.8 million for the three months ended March 31, 2020.  Income on account maintenance and deposit service fees increased $119 thousand from the year-ago period primarily in account service charges and non-sufficient fund fees. Gains on our investment in Southern Trust Mortgage ("STM") increased to $1.3 million compared to $231 thousand in the same quarter in 2020, driven by higher margins on closed loans combined with a higher volume of mortgage activity. The gain on investment in STM was negatively impacted this quarter by an expense of approximately $1.2 million due to management restructuring at STM.

Noninterest Expense

Noninterest expense was $18.2 million for the three months ended March 31, 2021, compared to $19.9 million for the three months ended March 31, 2020.  As previously disclosed, the year ago period included $4.9 million of charges related to management restructuring.  Excluding these charges, total noninterest expense increased $3.22 million, largely driven by an increase of $1.96 million in employee compensation and benefits year-over-year.  In addition to generally higher staffing and compensation levels, employee compensation in the first quarter of 2021 was impacted by $200 thousand in recruitment payments as well as $454 thousand in employee incentive payments tied to core deposit generation in the fourth quarter of 2020.  Other expenses also increased in the first quarter versus the year ago period, largely driven by a $711 thousand increase in the reserve for unfunded commitments.

Loan Portfolio and Asset Quality

Loans outstanding grew to $2.39 billion at March 31, 2021, compared to $2.21 billion at March 31, 2020.  Excluding PPP loans, loans outstanding have decreased $156.2 million since March 31, 2020, largely driven by a $109.3 million decrease in 1-4 family residential balances. The Company ended the first quarter of 2021 with $112.8 million of loans on deferral, or 5.5% of total loans excluding PPP loans. Hotels account for 59% of all deferrals with approximately 25% of the hotel portfolio deferred at March 31, 2021.  Of the hotel deferrals, 55% are paying interest with the remainder deferring both interest and principal.

Nonperforming assets, excluding portions guaranteed by the SBA, were 0.41% of total assets at March 31, 2021, compared to 0.43% at March 31, 2020.  Loans rated substandard remained flat in the first quarter of 2021 from linked-quarter.

The allowance for credit losses was $34.9 million at March 31, 2021, up 174% from $12.7 million at March 31, 2020, due to pandemic-related provisioning and the adoption of the Current Expected Credit Loss ("CECL") accounting standard.  The Company released $1.37 million of the allowance as economic outlook related to the pandemic improved in the quarter and unguaranteed loan balances declined.  As a percentage of loans (excluding PPP), the allowance was 1.70% at the end of the first quarter of 2021.  Annualized net charge-offs to average loans remained low at 1 basis points for the first quarter of 2021 versus 18 basis points in the year-ago period.

Deposits

Total deposits increased to $2.69 billion at March 31, 2021, compared to $2.43 billion at December 31, 2020 and $2.08 billion at March 31, 2020.  During the quarter, CDs declined by $51.3 million while core deposits (demand, NOW, money market and savings) increased $307.3 million linked-quarter. Time deposits represented approximately 16% of total deposits at March 31, 2021. The Company is aggressively building sales and incentive cultures focused on growing and managing core deposits, with the primary attention on commercial and consumer checking accounts.  Management expects continued improvement in the funding mix over the next several quarters with further reductions in total funding costs to occur in the last several quarters of 2021.

Stockholders' Equity

Book value per share as of March 31, 2021 was $16.22, an increase of $0.63 since March 31, 2020.  Tangible book value per share⁽¹⁾ at the end of the first quarter of 2021 was $11.84, an increase of $0.73 since March 31, 2020.  Shareholder's equity was $398.0 million, or 11.95% of total assets at March 31, 2021.  Tangible common equity⁽¹⁾ at March 31, 2021 was $290.5 million, or 9.01% of tangible assets⁽¹⁾.  

About Primis Financial Corp.

As of March 31, 2021, Primis had $3.33 billion in total assets, $2.39 billion in total loans and $2.69 billion in total deposits. Primis Bank, the Company's banking subsidiary, provides a range of financial services to individuals and small- and medium-sized businesses through forty-one full-service branches in Virginia and Maryland and through certain internet and mobile applications.

Primis Financial Corp., NASDAQ Symbol FRST

Website: www.primisbank.com

Non-GAAP Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables. Primis uses non-GAAP financial measures to analyze its performance. The measures entitled net income adjusted for nonrecurring income and expenses; pre-tax pre-provision operating earnings; operating return on average assets; pre-tax pre-provision operating return on average assets; operating return on average equity; operating return on average tangible equity; operating efficiency ratio; tangible book value per share; tangible common equity; tangible common equity to tangible assets; and net interest margin excluding PPP loans are not measures recognized under GAAP and therefore are considered non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is provided in the Reconciliation of Non-GAAP items table.

Management believes that these non-GAAP financial measures provide additional useful information about Primis that allows management and investors to evaluate the ongoing operating results, financial strength and performance of Primis and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider Primis' performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of Primis.  Non-GAAP financial measures are not standardized and, therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names.

Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-Looking Statements

This press release and certain of our other filings with the Securities and Exchange Commission contain statements that constitute "forward-looking statements" within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Such statements can generally be identified by such words as "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," and other similar words or expressions of the future or otherwise regarding the outlook for the Company's future business and financial performance and/or the performance of the banking industry and economy in general. These forward-looking statements include, but are not limited to, our expectations regarding our future operating and financial performance, including our outlook and long-term goals for future growth; our expectations regarding net interest margin; expectations on our growth strategy, expense management, capital management and future profitability; expectations on credit quality and performance; statements regarding the potential effects of the COVID-19 pandemic on our business and financial results and conditions; and the assumptions underlying our expectations.

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on the information known to, and current beliefs and expectations of, the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. Factors that might cause such differences include, but are not limited to: the Company's ability to implement its various strategic and growth initiatives, including its announced new digital bank; competitive pressures among financial institutions increasing significantly; changes in economic or political conditions, either nationally or locally, particularly in areas in which the Company conducts operations; interest rate risk; changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic; changes in management's plans for the future; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values, or competition; changes in accounting principles, policies, or guidelines; adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company's participation in and execution of government programs related to the COVID-19 pandemic; the impact of the COVID-19 pandemic on the Company's assets, business, cash flows, financial condition, liquidity, prospects and results of operations; potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services.

Forward-looking statements speak only as of the date on which such statements are made. These forward-looking statements are based upon information presently known to the Company's management and are inherently subjective, uncertain and subject to change due to any number of risks and uncertainties, including, without limitation, the risks and other factors set forth in the Company's filings with the Securities and Exchange Commission, the Company's Annual Report on Form 10-K for the year ended December 31, 2020, under the captions "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors," and in the Company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on these forward-looking statements.