Primis Financial Corp. Reports Diluted Earnings per Share from Continuing Operations of $0.25 for the Third Quarter of 2021

MCLEAN, Va., Oct. 28, 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 $3.9 million for the quarter ended September 30, 2021, compared to $10.3 million for the quarter ended June 30, 2021.  Earnings per share for the three months ended September 30, 2021 were $0.16 on a basic and diluted basis, compared to $0.42 basic and diluted for the three months ended June 30, 2021.

Earnings for the nine months ended September 30, 2021 were $23.6 million compared to $14.3 million for the nine months ended September 30, 2020. Earnings per share for the nine months ended September 30, 2021 were $0.97 basic and $0.96 diluted, compared to $0.59 basic and diluted for the nine months ended September 30, 2020.

As previously disclosed, on September 23, 2021, Primis Bank announced that it entered into an agreement with Southern Trust Mortgage ("STM"), whereby STM intends to purchase all of the Bank's common membership interests and a portion of the Bank's preferred interests in STM for a combination of cash and a promissory note. The transaction is expected to close in the fourth quarter of 2021.  At closing, STM will continue to be a borrower of the Bank, but the Bank will no longer be a minority owner of STM.  The Company will also no longer accrue earnings related to the Bank's common membership interests in STM. The Company recorded a pre-tax charge of approximately $2.9 million related to the transaction in the third quarter of 2021. The investment in STM has been classified as a discontinued operation and prior period financial information has been retrospectively adjusted for the impact of the transaction.

The Board of Directors also announced and declared a dividend of $0.10 per share payable on November 26, 2021 to shareholders of record on November 12, 2021.  This is Primis' fortieth consecutive quarterly dividend.  

Highlights for the three months ended September 30, 2021

• Net income from continuing operations totaled $6.2 million, or $0.25 per basic and diluted share, compared to $8.8 million, or $0.36 per basic and diluted share in the second quarter of 2021.
• Total assets at the end of the third quarter of 2021 were $3.45 billion, an increase of 9.5% versus the year ago period.
• Gross loans, excluding PPP, balances grew an annualized 24% during the third quarter of 2021.
• Total deposits increased to $2.81 billion at September 30, 2021, higher by 26.7% compared to the same period in 2020. 
• Non-interest bearing demand deposits increased to $535.7 million or 19.1% of total deposits while time deposits continued shrinking to 13.4% of total deposits at September 30, 2021.
• Net income from continuing operations, pre-tax pre-provision earnings from continuing operations⁽¹⁾ and pre-tax pre-provision operating earnings from continuing operations⁽¹⁾ were $6.2 million, $8.5 million and $8.5 million, respectively, for the third quarter of 2021, versus $8.8 million, $7.2 million and $7.2 million, respectively, for the second quarter of 2021.
• Return on average assets from continuing operations of 0.72% for the quarter ended September 30, 2021 versus 1.05% for the quarter ended June 30, 2021.
• Operating return on average assets from continuing operations ⁽¹⁾ of 0.72% for the quarter ended September 30, 2021 versus 1.05% for the quarter ended June 30, 2021.
• Pre-tax, pre-provision return on average assets from continuing operations⁽¹⁾ and pre-tax, pre-provision operating return on average assets from continuing operations ⁽¹⁾ of 0.98% for the third quarter of 2021, compared to 0.86%, in the second quarter of 2021.
• Provision for credit losses of $1.1 million for the third quarter of 2021 versus a negative provision of $4.2 million for the second quarter of 2021.
• Allowance for credit losses to total loans (excluding PPP balances) of 1.40% at September 30, 2021 versus 1.52% at June 30, 2021 and 1.18% at September 30, 2020.
• Cost of deposits declined to 0.45% for the third quarter of 2021 compared to 0.50% for the second quarter of 2021 and 0.80% for the third quarter of 2020.
• Book value per share of $16.63 and tangible book value per share⁽¹⁾ of $12.28 at September 30, 2021, representing an increase of $0.67 and $0.75, 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.

Dennis J. Zember, Jr., President and Chief Executive Officer commented, "Our efforts over the last year or so to build stronger commercial lending teams and niche lines of business paid off during the quarter as we posted very strong loan growth.  Additionally, our pipelines encourage us about the coming quarters that we can sustain growth rates that can rapidly put our excess liquidity to work with only minimal levels of incremental operating expenses.  We continue to search for niche lines of business on the deposit and loan side that can augment our long-term growth rates and are pleased to announce our entry into Life Insurance Premium Finance.  During the quarter we recruited a team of sales, technology and operations leaders with substantial experience in the sector to rapidly build a division focused on this top tier asset."

Commenting on the Company's digital bank development, Mr. Zember stated, "On November 15 of this year, we are rolling out our digital bank to consumers with full checking and savings offerings.  This initial offering will be directed towards 'family and friends' until late December when we will begin offering the digital bank in a much broader sense.  Development on expanded consumer and full commercial deposit services are already underway and likely something that we will introduce during the first quarter."

Net Interest Income

Net interest income increased 6.5% to $23.2 million for the three months ended September 30, 2021 from $21.8 million for the three months ended June 30, 2021.  The Company's reported net interest margin for the third quarter was 2.87% compared to 2.80% in the second quarter of 2021.  Net PPP fee income recognized was $2.7 million for the three months ended September 30, 2021 versus $1.8 million for the prior quarter.  Excluding net PPP fees, net interest income was $20.5 million for the three months ended September 30, 2021 versus $20.0 million in the second quarter of 2021, an increase of 2.8%.  Net interest margin excluding the effects of PPP loans⁽¹⁾ was 2.66% in the third quarter of 2021, down eleven basis points from 2.77% linked-quarter.  Net interest margin, excluding the effects of PPP loans, continues to be negatively impacted by unusually high cash balances at the Bank.  Average balances of cash and equivalents were $675.6 million in the third quarter of 2021, up from $563.9 million in the second quarter of 2021. 

Yield on loans for the third quarter of 2021, excluding the effect of PPP loans, was 4.35%⁽¹⁾ compared to 4.46%, respectively, in the second quarter of 2021.  Efforts to improve the momentum on loan production and core loan growth has resulted in better results with very little impact to overall loan yields.  Management believes it can continue to achieve its robust loan growth goals without substantial dilution to overall portfolio yields and without subjecting the company to increased interest rate risk.

The Company's efforts on deposit sales and growth continue to focus on growth in lower cost deposit types.  Management has continued to adjust deposit rates lower throughout the current interest rate environment and believes some small additional savings can be achieved.  Management believes additional savings can be achieved in the overall cost of funds but wants to stay slightly ahead of its peers and continue driving outsized increases in total deposits, believing that the momentum on loan growth and lending strategies will use the liquidity in short order.

Noninterest Income

During the three months ended September 30, 2021, Primis had non-interest income of $2.7 million, compared to $2.6 million for the three months ended June 30, 2021.  This excludes the pre-tax charge of approximately $2.9 million in the third quarter of 2021 and equity gains in prior periods related to STM which are now recorded in discontinued operations.  Recoveries related to acquisition-related previously charged-off loans and investment securities also increased $257 thousand from the second quarter of 2021 to $481 thousand in the third quarter of 2021. 

Noninterest Expense

Noninterest expense was $16.9 million for the three months ended September 30, 2021, compared to $17.4 million for the three months ended June 30, 2021.  Included in noninterest expense is unfunded commitment reserve recovery in the third quarter of 2021 of $470 thousand and reserve for unfunded commitment expense of $149 thousand in the second quarter of 2021.  Excluding these items, noninterest expense for the three months ended September 30, 2021 was $17.4 million, an increase of $120 thousand from the second quarter of 2021.

As the Company progresses in to 2022, management believes that incremental increases in noninterest expense will include the costs of the new digital banking effort as well as a slower build on leadership roles that has occurred in 2021.  Repositioning some existing positions, consolidating some of its branch infrastructure and several other strategies are anticipated to offset some of the known increases and hold the overall growth rate to low single digits. 

Loan Portfolio and Asset Quality

Loans outstanding increased to $2.31 billion at September 30, 2021, compared to $2.29 billion at June 30, 2021 and decreased from $2.52 billion at September 30, 2020.  Excluding PPP loans, loans outstanding have increased $122.1 million since June 30, 2021, a growth rate of 5.9% or approximately 24% annualized.  An intense focus on building credit relationships, increased traction with new loan officers that joined early this year and increasing momentum from our Panacea Division all contributed to growth this quarter.  The Company believes these factors will continue to drive loan growth at mid-teens or higher rates through the end of 2022.

The Company ended the third quarter of 2021 with $7.0 million of loans on deferral, or 0.3% of total loans excluding PPP loans, down from $26.0 million of loans on deferral at June 30, 2021.  Nonperforming assets, excluding portions guaranteed by the SBA, were 0.47% of total assets at September 30, 2021, compared to 0.43% of total assets at June 30, 2021.  Loans rated substandard or doubtful increased $4.1 million in the third quarter versus the linked-quarter, primarily due to the downgrade of one relationship.    

The allowance for credit losses was $30.4 million at September 30, 2021, down 2.8% from $31.3 million at June 30, 2021 and up 17.9% from $25.8 million at September 30, 2020.  The Company recorded a provision of $1.1 million in the third quarter, primarily as a result of robust loan growth for the quarter.  As a percentage of loans (excluding PPP), the allowance declined to 1.40% at the end of the third quarter of 2021 versus 1.52% as of June 30, 2021 due to improving economic fundamentals.  Annualized net charge-offs as a percentage of average loans were 34 basis points in the third quarter of 2021 versus net recoveries of ten basis points in the prior quarter.  Net charge-offs in the third quarter were largely driven by the write-off of loans rated doubtful in the second quarter of 2021 for which reserves had already been established.

Deposits

Total deposits increased to $2.81 billion at September 30, 2021, compared to $2.75 billion at June 30, 2021 and $2.22 billion at September 30, 2020.  The Company continues to aggressively pursue improvement in the funding mix with an emphasis on core deposits.  During the quarter, CDs declined by $14.0 million while core deposits (demand, NOW, money market and savings) increased $70.0 million linked-quarter.  Time deposits represented approximately 13% of total deposits at September 30, 2021, down from 14% at June 30, 2021 and 25% at September 30, 2020.

Shareholders' Equity

Book value per share as of September 30, 2021 was $16.63, an increase of $0.04 since June 30, 2021 and $0.67 since September 30, 2020.  Tangible book value per share⁽¹⁾ at the end of the third quarter of 2021 was $12.28, an increase of $0.06 since June 30, 2021 and $0.75 since September 30, 2020.  Shareholder's equity was $408.6 million, or 11.8% of total assets at September 30, 2021.  Tangible common equity⁽¹⁾ at September 30, 2021 was $301.9 million, or 9.02% of tangible assets⁽¹⁾.  

Panacea Financial Division Update

During the third quarter, the Bank's Panacea Financial Division ("Panacea" or the "Division") saw a forty percent linked-quarter increase in consumer loan and deposit applications which led to accelerating growth, including early momentum within its recently launched Practice Solutions division. Also during the quarter, Panacea announced partnerships with three national and state medical associations. Additionally, Panacea launched its In-Training Medical/Dental School Loan Refinance product which allows physicians and dentists that are in training the opportunity to refinance their student debt at a lower interest rate, while benefiting from affordable monthly payments during training. The Division is on track to expand to veterinarians by November 30, 2021 and, when combined with the expiration of the forbearance period under the CARES Act on January 31, 2022 related to student loans, the Division is optimistic for robust consumer growth in 2022. Panacea closed its first commercial loans in September within its Practice Solutions division and is actively recruiting experienced commercial healthcare bankers and a credit team with deep industry subject matter expertise. Lastly, the Panacea Financial Foundation awarded $25,000 in scholarships to five underrepresented minority medical students during the third quarter of 2021. Importantly, on October 22, 2021, the Internal Revenue Service granted the Panacea Financial Foundation tax-exempt status as a 501(c)(3) which allows the Foundation to raise additional donations from organizations, customers, and other external parties who also share in their passion for strengthening the underrepresented ethnic and racial minority pipeline of doctors. More information can be found at www.panaceafinancial.com.

About Primis Financial Corp.

As of September 30, 2021, Primis had $3.45 billion in total assets, $2.31 billion in total loans and $2.81 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 full-service branches in Virginia and Maryland and through certain internet and mobile applications.

Conference Call

The Company's management will host a conference call to discuss its third quarter results Friday, October 29, 2021 at 10:00 a.m. (ET). A live Webcast of the conference call is available at the following website: https://www.webcaster4.com/Webcast/Page/2742/43176.  Participants may also call 1-888-346-2613 and ask for the Primis Financial Corp. call.  A replay of the teleconference will be available through November 5, 2021 by calling 1-877-344-7529 and providing Replay Access Code 10161016.

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 from continuing operations adjusted for nonrecurring income and expenses; pre-tax pre-provision operating earnings from continuing operations; operating return on average assets from continuing operations; pre-tax pre-provision operating return on average assets from continuing operations; operating return on average equity from continuing operations; operating return on average tangible equity from continuing operations; operating efficiency ratio from continuing operations; 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. We use the term "operating" to describe a financial measure that excludes income or expense considered to be non-recurring in nature.  Items identified as non-operating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.  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 effects of the COVID-19 pandemic and related variants 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 recently established Panacea Financial Division and announced new digital bank; competitive pressures among financial institutions increasing significantly; 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, inflation, 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.

(1) Non-GAAP financial measure.  Please see "Reconciliation of Non-GAAP Items"in the financial tables for more information and for a reconciliation to GAAP.