Primis Financial Corp. Reports Diluted Earnings per Share of $0.42 for the Second Quarter of 2021

MCLEAN, Va., July 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 $10.3 million for the quarter ended June 30, 2021, compared to $9.4 million for the quarter ended March 31, 2021.  Earnings per share for the three months ended June 30, 2021 were $0.42 on a basic and diluted basis, compared to $0.39 basic and $0.38 diluted for the three months ended March 31, 2021.  

Earnings for the six months ended June 30, 2021 were $19.7 million compared to $4.7 million for the six months ended June 30, 2020. Earnings per share for the six months ended June 30, 2021 were $0.81 basic and $0.80 diluted, compared to $0.20 basic and $0.19 diluted for the six months ended June 30, 2020.

The Board of Directors also announced and declared a dividend of $0.10 per share payable on August 27, 2021 to shareholders of record on August 13, 2021.  This is Primis' thirty-ninth consecutive quarterly dividend.  

Highlights for the three months ended June 30, 2021

• Total assets at the end of the second quarter of 2021 were $3.4 billion, an increase of 10.5% versus the year ago period.
• Gross loans were $2.3 billion at the end of the second quarter of 2021, down 9.0% and 4.4% from the year ago period and linked-quarter, respectively.  Excluding Paycheck Protection Program ("PPP") balances, gross loans declined 6.1% and 0.21%, respectively, over the same time periods.
• Total deposits increased $599.5 million year-over-year despite a $231.0 million decline in time deposits over the same time frame.  Non-time deposits comprised 85.9% of total deposits at June 30, 2021 versus 83.7% at March 31, 2021 and 71.2% at June 30, 2020.
• Net income, pre-tax pre-provision earnings⁽¹⁾ and pre-tax pre-provision operating earnings⁽¹⁾ were $10.3 million, $9.1 million and $9.1 million, respectively, for the second quarter of 2021, versus $9.4 million, $11.3 million and $11.5 million, respectively, for the first quarter of 2021.
• Return on average assets of 1.23% for the quarter ended June 30, 2021 versus 1.19% for the quarter ended March 31, 2021.
• Operating return on average assets⁽¹⁾ of 1.23%  for the quarter ended June 30, 2021 versus 1.21% for the quarter ended March 31, 2021.
• Pre-tax pre-provision return on average assets⁽¹⁾ and pre-tax pre-provision operating return on average assets⁽¹⁾ of 1.08% for the second quarter of 2021, compared to 1.43% and 1.45%, respectively, in the first quarter of 2021.
• Loans on deferral were $26.0 million or 1.3% of gross loans excluding PPP balances. Approximately 55% of total deferrals were from the hotel portfolio.
• Negative provision for credit losses of $4.2 million for the second quarter of 2021 versus a negative provision of $1.4 million for the first quarter of 2021.
• Allowance for credit losses to total loans (excluding PPP balances) of 1.52% at June 30, 2021 versus 1.70% at March 31, 2021 and 1.09% at June 30, 2020.
• Cost of deposits declined to 0.50% for the second quarter of 2021 compared to 0.60% for the first quarter of 2021 and 0.95% for the second quarter of 2020.
• Book value per share of $16.59 and tangible book value per share⁽¹⁾ of $12.22 at June 30, 2021, representing an increase of $0.92 and $1.01, 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, Dennis J. Zember, Jr., President and Chief Executive Officer stated, "We are proud of our Bank's efforts to deliver world-class service to our customers and are seeing the results of that effort in our rapidly improving funding mix.  We are laser-focused on enhancing our products and capabilities through our digital efforts and are excited by the technology we will have at our disposal when we launch our new digital bank late this year.  We are also continuing to invest in our management and organization to ensure we have the talent and resources to run a much larger bank."

Net Interest Income

Net interest income decreased 12.6% to $21.8 million for the three months ended June 30, 2021 from $25.0 million for the three months ended March 31, 2021.  The Company's reported net interest margin for the second quarter was 2.80% compared to 3.41% in the first quarter of 2021.  Net interest income and net interest margin were both impacted by lower levels of PPP fee income recognition in the second quarter of 2021.  Net PPP fee income recognized was $1.8 million for the three months ended June 30, 2021 versus $4.9 million for the prior quarter.  Net interest margin excluding the effects of PPP loans⁽¹⁾ was 2.77% in the second quarter of 2021, down 22 bps from 2.99% 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 $558.8 million in the second quarter of 2021, up from $319.1 million in the first quarter of 2021. 

Yield on loans for the second quarter of 2021 was 4.34%, or 4.46%⁽¹⁾ excluding the effect of PPP loans, compared to 4.82% or 4.47%, respectively in the first quarter of 2021.  The Company continues to pursue core deposits to improve the overall deposit mix while reducing funding costs.  As a result of these efforts and a general decline in market rates, the cost of total deposits declined to 0.50% in the second quarter of 2021 from 0.60% in the prior quarter. 

Noninterest Income

During the three months ended June 30, 2021, Primis had non-interest income of $4.5 million compared to $3.8 million for the three months ended March 31, 2021.  Gains on our investment in Southern Trust Mortgage ("STM") increased to $1.9 million compared to $1.3 million in first quarter in 2021.  The second quarter at STM benefited from a gain related to the sale of mortgage servicing rights while STM's first quarter was impacted by a management restructuring charge as previously discussed.  Recoveries related to acquisition-related previously charged-off loans and investment securities also increased $145 thousand from the first quarter of 2021. 

Noninterest Expense

Noninterest expense was $17.4 million for the three months ended June 30, 2021, compared to $18.2 million for the three months ended March 31, 2021.  The decrease in noninterest expense was largely driven by a decrease of $562 thousand in employee compensation and benefits and decrease of $561 thousand in reserve for unfunded commitments expense from the prior quarter, partially offset by an increase of $217 thousand in data processing expense for the same time frames.  Employee compensation in the second quarter of 2021 included $429 thousand in employee incentive payments tied to core deposits generated in the first quarter of 2021, down from $454 thousand of incentive expense recognized last quarter. 

Loan Portfolio and Asset Quality

Loans outstanding declined to $2.29 billion at June 30, 2021, compared to $2.39 billion at March 31, 2021 and $2.51 billion at June 30, 2020.  Excluding PPP loans, loans outstanding have decreased $134.5 million since June 30, 2020 and $4.30 million since March 31, 2021. The Company ended the second quarter of 2021 with $26.0 million of loans on deferral, or 1.3% of total loans excluding PPP loans, down from $112.8 million of loans on deferral at March 31, 2021. Hotels account for 55% of deferrals as of June 30, 2021 versus 59% at March 31, 2021.

Nonperforming assets, excluding portions guaranteed by the SBA, were 0.43% of total assets at June 30, 2021, compared to 0.41% at March 31, 2021.  Loans rated substandard or doubtful declined 7.3% in the second quarter versus the linked-quarter.  Doubtful loans were $1.53 million at June 30, 2021, up from $0 in the prior quarter, due to the downgrade of two SBA guaranteed relationships.  The credits have been on nonaccrual and in work-out for an extended period of time and have been downgraded while the Bank pursues the SBA guarantees.

The allowance for credit losses was $31.3 million at June 30, 2021, down 10% from $34.9 million at March 31, 2021 and up 32% from $23.6 million at June 30, 2020.  The Company recorded a negative provision of $4.22 million in the second quarter as loans on deferral and the economic impact of COVID-19 declined dramatically in the quarter.  As a percentage of loans (excluding PPP), the allowance was 1.52% at the end of the second quarter of 2021 versus 1.70% as of March 31, 2021.  Net charge-offs remain low with net recoveries of $587 thousand in the second quarter of 2021 versus net charge-offs of $80 thousand in the prior quarter.

Deposits

Total deposits increased to $2.75 billion at June 30, 2021, compared to $2.69 billion at March 31, 2021 and $2.15 billion at June 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 $49.8 million while core deposits (demand, NOW, money market and savings) increased $112.3 million linked-quarter. Time deposits represented approximately 14% of total deposits at June 30, 2021, down from 16% at March 31, 2021 and 29% at June 30, 2020.

Shareholders' Equity

Book value per share as of June 30, 2021 was $16.59, an increase of $0.37 since March 31, 2021 and $0.92 since June 30, 2020.  Tangible book value per share⁽¹⁾ at the end of the second quarter of 2021 was $12.22, an increase of $0.38 since March 31, 2021 and $1.01 since June 30, 2020.  Shareholder's equity was $406.9 million, or 12% of total assets at June 30, 2021.  Tangible common equity⁽¹⁾ at June 30, 2021 was $299.8 million, or 9.12% of tangible assets⁽¹⁾.  

Panacea Financial Division Update

The Bank's Panacea Division ("Panacea"), which launched in November of 2020, focuses on national lending and deposit gathering with unique products and services for the medical community.  The division is seeing increasing traction within the medical community and the pipeline suggests rapid growth for the division in the second half of 2021.  To date, over 45% of its borrowers have established checking account relationships with Panacea. Additionally during the second quarter, Panacea hired an experienced healthcare banker from a super-regional bank to lead its new commercial division, Panacea Practice Solutions.  Panacea now offers personal, student debt refinance, commercial real estate and practice loans. Lastly, Panacea is launching an expansion on August 1 to target dentists with the same innovative products and services currently offered to the medical community.

About Primis Financial Corp.

As of June 30, 2021, Primis had $3.40 billion in total assets, $2.29 billion in total loans and $2.75 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.

Conference Call

The Company's management will host a conference call to discuss its second quarter results Friday, July 30, 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/2742/41861.  Participants may also call 1-877-870-4263 and ask for the Primis Financial Corp. call.  A replay of the teleconference will be available through August 6, 2021 by calling 1-877-344-7529 and providing Replay Access Code 10157863.

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, 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.