Declares Quarterly Cash Dividend of $0.10 Per Share

MCLEAN, Va., Jan. 26, 2023 /PRNewswire/ -- Primis Financial Corp. (NASDAQ: FRST) ("Primis" or the "Company"), and its wholly-owned subsidiary, Primis Bank (the "Bank"), today reported net income from continuing operations of $3.1 million for the quarter ended December 31, 2022, compared to $5.1 million for the quarter ended September 30, 2022 and $7.7 million for the quarter ended December 31, 2021. Earnings per share ("EPS") from continuing operations for the three months ended December 31, 2022 were $0.13 on a basic and $0.12 on a diluted basis, compared to $0.21 on a basic and $0.20 on a diluted basis for the three months ended September 30, 2022 and $0.31 on both a basic and diluted basis for the three months ended December 31, 2021.

Dennis J. Zember, Jr., President and CEO commented about the year's results, saying, "We have exhausted ourselves over the last three years, and intensely in 2022, building growth and profitability engines that will deliver long-term results for shareholders. We have restored regulatory relationships, built two national lines of business focused on top quality borrowers and assets, restructured the community bank, diversified our revenue sources, rationalized our branch footprint and restored manageable levels of talent throughout the bank. I am excited and determined that these investments will separate us from our peers on operating ratios and earnings per share in 2023 and beyond."

Net income from continuing operations for the twelve months ended December 31, 2022 was $17.7 million, compared to $31.0 million for the twelve months ended December 31, 2021. EPS from continuing operations for the twelve months ended December 31, 2022 were $0.72 on a basic and diluted basis, compared to $1.28 on a basic and $1.26 on a diluted basis for the twelve months ended December 31, 2021.

Financial Highlights for the Period Ended December 31, 2022

• Return on average assets from continuing operations of 0.36% for the three months ended December 31, 2022 versus 0.61% for the three months ended September 30, 2022 and 0.88% for the three months ended December 31, 2021.  Operating return on average assets from continuing operations(1) of 0.09%, 0.64% and 0.83% for the three months ended December 31, 2022, September 30, 2022 and December 31, 2021, respectively.
• Pre-tax pre-provision return on average assets from continuing operations(1) was 1.33% for the three months ended December 31, 2022, versus 1.16% for the three months ended September 30, 2022 and 0.98% for the three months ended December 31, 2021. 
• Pre-tax pre-provision operating return on average assets from continuing operations(1) was 0.78% for the three months ended December 31, 2022, versus 1.05% for the three months ended September 30, 2022 and 0.91% for the three months ended December 31, 2021. Excluding losses related to mortgage banking, this ratio would have been 1.10% for the fourth quarter of 2022 and 1.15% for the third quarter of 2022. 
• Loans held for investment grew at a rate of 26.0% for 2022, or 30.1%, net of a decline in Paycheck Protection Program ("PPP") loan balances.  Loans held for investment grew at an annualized rate of 31.5% in the fourth quarter compared to the linked-quarter, net of a decline in PPP balances.
• Total deposits grew an annualized 2.1% from the linked-quarter to $2.72 billion at December 31, 2022. 
• Non-interest bearing checking deposits were $582.6 million, representing 21.4% of total deposits at December 31, 2022, compared to 25.4% at September 30, 2022 and 19.2% at December 31, 2021. 
• Net interest margin of 3.67% in the fourth quarter of 2022 was up substantially from 3.00% in the same period last year and up 10 basis points from 3.57% in the third quarter of 2022. Core net interest margin(1), which excludes the effects of PPP loans and revenue due to a third-party loan servicer (as described below), was 3.51% in the fourth quarter of 2022, down slightly from 3.58% in the third quarter of 2022 and up substantially from 2.79% in the fourth quarter of 2021.
• Allowance for credit losses to total loans was 1.17% at December 31, 2022, compared to 1.17% at September 30, 2022 and 1.24% at December 31, 2021.  Allowance for credit losses to total loans (excluding PPP balances and loans held for sale) was 1.17% at December 31, 2022, compared to 1.17% at September 30, 2022 and 1.29% at December 31, 2021. 
• Equity to assets was 11.04% at December 31, 2022.  Tangible common equity to tangible assets of 8.27% is 68 basis points higher than peer(2) median at December 31, 2022.

Operating Performance

Speaking about the items in the Company's quarterly performance, Mr. Zember said, "Our results in the fourth quarter were noisy, as we worked to finish any investing or restructuring that could have negatively affected 2023. When I normalize the quarter for several material factors, I believe our core profitability illustrates the run-rate of our earnings power going into 2023. Without the costs and one-time revenue boost, I believe we had our best quarter, buoyed by a strong net interest margin. Additionally, our results in 2022 included substantial provisioning for loan growth that will moderate in 2023 alongside two divisions (Primis Mortgage and Panacea) that will unquestionably produce meaningful boosts to our ratios in 2023 compared to their build-out style performance in 2022."

Net Interest Income

Net interest income increased to $29.6 million for the three months ended December 31, 2022 from $27.5 million for the three months ended September 30, 2022 and $24.2 million for the three months ended December 31, 2021. Included in fourth quarter net interest income is excess net revenue of $1.37 million attributable to a third-party serviced loan portfolio that is offset by the same amount recorded in noninterest expense. Excluding this revenue, net interest income increased to $28.2 million for the three months ended December 31, 2022 from $27.4 million for the three months ended September 30, 2022.

The Company's reported net interest margin for the fourth quarter of 2022 was 3.67%, compared to 3.57% in the third quarter of 2022. Core net interest margin, excluding the effects of PPP balances and the third-party net revenue described above, was 3.51% for the fourth quarter versus 3.58% in the third quarter of 2022. Yield on loans held for investment for the fourth quarter of 2022 was 5.04%, or 4.86% excluding the adjustments above, compared to 4.51% in the third quarter of 2022. Cost of deposits and cost of funds in the fourth quarter of 2022 were 0.78% and 1.19%, respectively, versus 0.48% and 0.71%, respectively, in the third quarter of 2022.

Noninterest Income

During the three months ended December 31, 2022, Primis had noninterest income of $11.0 million, compared to $5.6 million for the three months ended September 30, 2022, with a large driver of the increase due to a $4.1 million gain on the Company's investment in Infinex Financial Services which sold in the fourth quarter. Noninterest income includes gains of $1.8 million and $1.2 million for the fourth quarter and third quarter, respectively, for recovery of credit losses due to loan portfolio credit enhancement provided by a third party. Excluding these gains and the Infinex sale, noninterest income increased to $5.0 million in the fourth quarter of 2022 from $4.4 million in the third quarter of 2022.

Revenue due to mortgage activity was essentially flat at $2.3 million in the fourth quarter of 2022 versus $2.2 million in the linked quarter. The Company closed $86 million in loans in the quarter versus $63 million in the third quarter, or a 36% increase, in what is a seasonally slow quarter for the industry.

Noninterest Expense

Noninterest expense was $29.1 million for the fourth quarter of 2022, compared to $23.8 million for the third quarter of 2022. As noted in the net interest income discussion above, noninterest expense for the fourth quarter of 2022 included $1.37 million of servicing and other expenses for a third-party managed loan portfolio. Noninterest expense adjusted for these expenses, branch consolidation costs, other restructuring costs and unfunded commitment reserve impacts was $26.5 million for the fourth quarter of 2022 versus $23.1 million for the third quarter of 2022. A significant driver of the increased noninterest expense was an increase of $2.2 million in expenses related to Primis Mortgage to $5.4 million in the fourth quarter of 2022 versus $3.2 million in the third quarter of 2022. As noted last quarter, Primis Mortgage hired substantial production teams late in the third quarter of 2022, the full effects of which were felt in the fourth quarter. Certain members of these teams also had elevated salary draws for a limited period of time while pipelines were built, and which have now expired, totaling $0.9 million in the fourth quarter. Non-interest expense related to mortgage should more closely align with revenue generation going forward. Excluding mortgage, nonrecurring expenses and the third party expenses described above, noninterest expense for the fourth quarter of 2022 was $21.2 million versus $20.3 million linked-quarter.

The Company's efficiency ratio from continuing operations was 71.7% in the fourth quarter of 2022 versus 71.9% in the third quarter of 2022. The operating efficiency ratio from continuing operations(1) in the fourth quarter of 2022 was 79.9% compared to 73.6% in the third quarter of 2022. As noted above, the efficiency ratio was heavily impacted by Primis Mortgage in the fourth quarter. Excluding mortgage, the operating efficiency ratio was 69.2% for the fourth quarter of 2022 versus 69.0% for the third quarter of 2022.

Loan Portfolio

Loans held for investment increased to $2.95 billion at December 31, 2022, compared to $2.74 billion at September 30, 2022. Loans held for investment grew at an annualized rate of 26.0% for the twelve months of 2022 or 30.1%, net of a decline in PPP balances, and a substantially higher growth rate than management's expectations at the beginning of 2022. Loan growth was particularly strong in the Panacea and Life Premium Finance divisions in the fourth quarter, as discussed below.

Asset Quality

Asset quality metrics for the fourth quarter were negatively affected by one nonaccrual relationship discussed last quarter. As previously disclosed, this relationship is primarily secured by multiple assisted living facilities and a smaller tract of land. Management has a receiver appointed by the court ahead of an anticipated foreclosure and aggressively valued the properties for that sale. Provisions associated with this single borrower in the quarter were approximately $5.0 million.

Commented Mr. Zember, "Because our asset quality ratios are so materially affected by this one relationship, we valued the collateral very conservatively and are moving with haste to dispose of the property. Outside of this relationship, our total NPAs were $15.6 million at the end of the year including $8.0 million in a single family loan that is current with a less than 50% loan to value. While I am aggravated with the hassle of these assets and the associated charge-offs, I feel confident about our credit quality and currently do not see any weaknesses or trends that I believe will affect losses in 2023."

The Company recorded a provision for loan losses of $7.9 million for the fourth quarter of 2022 versus $2.9 million for the third quarter of 2022. Of this provision, $1.8 million was due to charge-offs and reserve build for the loan portfolio with a third-party credit enhancement described previously. This portion of the provision is fully offset by a gain recorded in noninterest income and has no effect on net income. Excluding this provision amount and the amounts related to the impairments described above, and net of recoveries experienced in the quarter, the allowance for credit losses would have increased $2.6 million in the fourth quarter. Of this amount, approximately $1.6 million was due to loan growth in the fourth quarter with the remainder due to increased loss rates from weakened economic forecasts. As a percentage of loans, excluding PPP balances, the allowance for credit losses was 1.17% at the end of the third and fourth quarters of 2022.

Net charge-offs were $5.3 million for the fourth quarter of 2022, up from $1.1 million in the third quarter of 2022. Excluding the losses tied to the impaired relationship described above and $1.5 million of charge-offs that are covered by a third-party, the fourth quarter would have experienced $1.3 million of net recoveries.

Nonperforming assets, excluding portions guaranteed by the SBA, were $34.9 million at December 31, 2022 compared to $37.2 million at September 30, 2022, while loans rated substandard or doubtful decreased to $41.0 million in the fourth quarter of 2022 from $47.3 million in the third quarter of 2022. Other real estate owned declined to zero from $1.0 million linked-quarter.

Deposits

Total deposits increased to $2.72 billion at December 31, 2022 from $2.71 billion at September 30, 2022 and decreased compared to $2.76 billion at December 31, 2021. Non-interest bearing demand deposits now represent 21.4% of total deposits and time deposits represent only 17.1% of total deposits at December 31, 2022. Non-interest bearing balances decreased 15.3% compared to the linked-quarter to $582.6 million. The Company has a single large depositor whose balance declined approximately $30 million in the fourth quarter of the year but is expected to fund back fully during the first and second quarters of 2023. Time deposits increased 28.1% compared to the linked-quarter to $465.1 million as the Bank extended maturities in the face of rising rates with approximately $100 million in CDs of varying maturities and rates. While newly launched, the Bank's new digital banking offering is beginning to see balance growth with $29.7 million of deposits on the new platform at year-end and almost $40 million at the time of this press release.

Lines of Business

The table below highlights revenue and expenses directly attributable to the Company's various business lines. Net interest income in the table below also includes an assumed cost of funds given to each business line for illustrative purposes, with offsetting benefit to net interest income included in the Bank column. The Bank column includes all activities not captured in the business lines, including parent company activities.

Panacea continues to experience substantial growth as a result of its nationally-recognized brand. The division has banking relationships with over 3,000 doctor households across all 50 states. Panacea finished the fourth quarter of 2022 with approximately $248.4 million in outstanding loans, an increase of $46.5 million, or 23.0%, from September 30, 2022. At the end of the fourth quarter, Panacea's loan portfolio was 55% commercial, 24% consumer and 21% student loan refinance. As highlighted above, Panacea increased its profitability in the fourth quarter of 2022 on a funded basis by 234% from third quarter levels and expects significant continued improvements throughout 2023.

The Company's strategy with Panacea centers heavily on making it a very effective deposit player with its target customers, which began to bear fruit in the fourth quarter. Panacea-related deposits increased to $22.9 million at December 31, 2022, up 69% from September 30, 2022 and a substantially higher rate of growth than loan growth for the quarter. Lastly, Panacea is in the early stages of leveraging the Company's mortgage capabilities with Primis Mortgage to market residential mortgage products to its nationwide customer base.

The Life Premium Finance ("LPF") division, launched in late 2021, ended the fourth quarter of 2022 with outstanding balances, net of deferred fees, of $193.8 million, compared to $129.0 million at the end of the third quarter of 2022. The LPF division is already showing a healthy level of profitability (including assumed cost of funds) with a loan portfolio that is predominantly variable rate based (one year renewals) and cash secured.

As previously discussed, the Company took advantage of market disruption to expand Primis Mortgage with high quality producers in order to build production capacity for 2023. As a result, Primis Mortgage reduced pre-tax net income by $2.7 million in the fourth quarter. Higher expenses related to these team acquisitions ended at the end of the fourth quarter. The Company expects Primis Mortgage to be break-even in the first quarter of 2023 and to contribute $4 to $5 million to net income and 10 to 15 basis points to return on assets in 2023.

Shareholders' Equity

Book value per share as of December 31, 2022 was $15.98, an increase of $0.09 from September 30, 2022. Tangible book value per share(1) at the end of the fourth quarter of 2022 was $11.61, an increase of $0.07 from September 30, 2022. Shareholders' equity was $394.4 million, or 11.04% of total assets, at December 31, 2022. Tangible common equity(1) at December 31, 2022 was $286.5 million, or 8.27% of tangible assets(1). Unrealized losses on the Company's available-for-sale securities portfolio declined by $1.6 million to $25.9 million due to marginal increases in market interest rates during the quarter. The Company has the wherewithal to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

Additionally, the Board of Directors announced and declared a dividend of $0.10 per share payable on February 24, 2023 to shareholders of record on February 10, 2023. This is Primis' forty-fifth consecutive quarterly dividend.

About Primis Financial Corp.

As of December 31, 2022, Primis had $3.57 billion in total assets, $2.95 billion in total loans and $2.72 billion in total deposits. Primis Bank provides a range of financial services to individuals and small- and medium-sized businesses through thirty-two full-service branches in Virginia and Maryland and provides services to customers through certain online and mobile applications.

Primis Financial Corp., NASDAQ Symbol FRST
Website: www.primisbank.com

Conference Call

The Company's management will host a conference call to discuss its fourth quarter results on Friday, January 27, 2022 at 10:00 a.m. (ET). A live Webcast of the conference call is available at the following website: https://events.q4inc.com/attendee/236726104. Participants may also call 1-888-330-3573 and ask for the Primis Financial Corp. call. A replay of the teleconference will be available for 7 days by calling 1-800-770-2030 and providing Replay Access Code 4440924.

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; operating earnings per share from continuing operations – basic; operating earnings per share from continuing operations – diluted; tangible book value per share; tangible common equity; tangible common equity to tangible assets; and core net interest margin 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 and new offerings and services; our expectations regarding net interest margin; expectations on our growth strategy, expense management, capital management and future profitability; expectations on credit quality and performance; 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 and Life Premium Finance Divisions, new digital banking platform, V1BE fulfillment service and Primis Mortgage Company; competitive pressures among financial institutions increasing significantly; changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices; 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, as well as labor shortages and supply chain disruptions; 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 ongoing 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 credit losses; 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, 2021, 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.