Primis(FRST) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Unaudited consolidated financial statements show $3.40 billion total assets and $19.7 million net income for H1 2021, driven by credit loss recovery Consolidated Balance Sheets The company's balance sheet shows total assets increased to $3.395 billion by June 30, 2021, with significant growth in cash and deposits - Total assets increased to $3.395 billion as of June 30, 2021, from $3.089 billion at December 31, 2020, primarily driven by a significant increase in cash and cash equivalents from $196 million to $621 million[10] - Net loans decreased from $2.404 billion at year-end 2020 to $2.255 billion at June 30, 2021, while total deposits grew from $2.433 billion to $2.751 billion over the same period[10] Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,395,151 | $3,088,673 | | Cash and cash equivalents | $620,839 | $196,185 | | Net loans | $2,255,090 | $2,404,151 | | Total deposits | $2,751,064 | $2,432,606 | | Total Liabilities | $2,988,211 | $2,698,119 | | Total Stockholders' Equity | $406,940 | $390,554 | Consolidated Statements of Income and Comprehensive Income Net income for Q2 2021 more than doubled to $10.3 million, primarily due to a $4.2 million recovery of credit loss provisions - Net income for the second quarter of 2021 was $10.3 million, more than double the $4.7 million earned in the same period of 2020. For the six-month period, net income surged to $19.7 million in 2021 from $4.7 million in 2020[11] - A significant driver of the increased profitability was the reversal of credit loss provisions, with a recovery of $4.2 million in Q2 2021 compared to a provision of $10.9 million in Q2 2020[11] Key Income Statement Data (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $21,800 | $22,473 | $46,755 | $42,988 | | (Recovery of) provision for credit losses | ($4,215) | $10,899 | ($5,587) | $14,349 | | Noninterest Income | $4,494 | $8,393 | $8,311 | $11,213 | | Noninterest Expenses | $17,393 | $14,070 | $35,569 | $33,922 | | Net Income | $10,275 | $4,709 | $19,658 | $4,736 | | Diluted EPS | $0.42 | $0.19 | $0.80 | $0.19 | Consolidated Statement of Changes in Stockholders' Equity Total stockholders' equity increased to $406.9 million by June 30, 2021, primarily from $19.7 million in net income - Total stockholders' equity increased from $390.6 million at the end of 2020 to $406.9 million at June 30, 2021[13] - The growth in equity during the first six months of 2021 was primarily driven by net income of $19.7 million, partially offset by common stock dividends of $4.9 million[13] Consolidated Statements of Cash Flows Cash and cash equivalents significantly increased by $424.7 million in H1 2021, driven by financing and investing activities - Cash and cash equivalents increased by $424.7 million during the first six months of 2021, compared to a $50.7 million increase in the same period of 2020[15] - The significant cash increase was fueled by net cash provided by financing activities of $291.3 million (primarily from a net increase in deposits) and net cash provided by investing activities of $120.6 million (primarily from a net decrease in loans)[15] Notes to Unaudited Consolidated Financial Statements Key notes detail the company's name change, PPP loan portfolio, credit loss allowance, and subordinated note redemption - On March 31, 2021, the Company changed its name from Southern National Bancorp of Virginia, Inc. to Primis Financial Corp., and its bank subsidiary changed its name to Primis Bank[17] - As of June 30, 2021, the company had originated 6,257 Paycheck Protection Program (PPP) loans totaling $488.4 million. The outstanding balance of PPP loans was $234.3 million[32][52] - The allowance for credit losses on loans was $31.3 million at June 30, 2021, down from $36.3 million at December 31, 2020, reflecting improved economic forecasts[10][89] - On February 1, 2021, the Company redeemed $20.0 million of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025[123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights strong Q2 2021 performance with 10% asset growth to $3.4 billion and $10.3 million net income, driven by credit loss recovery Overview and Financial Highlights Total assets reached $3.4 billion with $10.3 million net income for Q2 2021, driven by a negative provision for credit losses - Total assets reached $3.4 billion at the end of Q2 2021, a 10% increase from December 31, 2020[137] - Net income was $10.3 million for Q2 2021, compared to $4.7 million for Q2 2020. Return on average assets was 1.23% for Q2 2021, up from 0.61% in Q2 2020[137] - The company recorded a negative provision for credit losses of $4.2 million for Q2 2021, compared to a provision of $10.9 million in Q2 2020[137] - Cost of deposits significantly decreased to 0.50% for Q2 2021 from 0.95% in Q2 2020[137] Results of Operations Net income for Q2 2021 was $10.3 million, with net interest margin at 2.80% and increased noninterest expenses Net Income Performance (in millions) | Period | Net Income | Basic EPS | Diluted EPS | | :--- | :--- | :--- | :--- | | Q2 2021 | $10.3 | $0.42 | $0.42 | | Q2 2020 | $4.7 | $0.19 | $0.19 | | Six Months 2021 | $19.7 | $0.81 | $0.80 | | Six Months 2020 | $4.7 | $0.20 | $0.19 | - Net interest margin for Q2 2021 was 2.80%, down from 3.33% in Q2 2020, impacted by lower PPP fee income and significantly higher cash balances[148] - Noninterest income decreased 46% to $4.5 million in Q2 2021, primarily due to a $2.3 million decrease in equity gain from the mortgage affiliate (STM) and a $2.0 million decrease in recoveries on acquired charged-off loans[163] - Noninterest expense increased 24% to $17.4 million in Q2 2021, driven by a $1.5 million increase in salaries and benefits related to management restructuring and higher incentive payments[167] Financial Condition Total loans decreased by 6% while deposits grew, and nonperforming assets improved, maintaining a well-capitalized status - Total loans decreased by 6% to $2.29 billion at June 30, 2021, from $2.44 billion at year-end 2020. Excluding PPP loans, the portfolio decreased by 4%[170] - Total deposits grew to $2.75 billion from $2.43 billion at year-end 2020[170] Nonperforming Assets (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Nonaccrual loans | $14,604 | $14,462 | | Other real estate owned | $1,274 | $3,078 | | Total nonperforming assets | $15,878 | $17,540 | - The ratio of nonperforming assets (excluding SBA guaranteed loans) to total assets improved to 0.43% at June 30, 2021, from 0.47% at December 31, 2020[178] - The company and its bank subsidiary remained well-capitalized, with Primis Bank's Total risk-based capital ratio at 18.39% as of June 30, 2021[193][195] Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk through simulation, projecting EVE and NII sensitivity to rate changes within policy limits Sensitivity of Economic Value of Equity (EVE) as of June 30, 2021 | Rate Shock (Basis Points) | EVE Amount (in thousands) | % Change From Base | | :--- | :--- | :--- | | Up 200 | $392,034 | 5.89% | | Up 100 | $386,958 | 4.52% | | Base | $370,219 | 0.00% | | Down 100 | $295,582 | -20.16% | Sensitivity of Net Interest Income (NII) as of June 30, 2021 (1-Year) | Rate Shock (Basis Points) | NII Amount (in thousands) | $ Change From Base (in thousands) | | :--- | :--- | :--- | | Up 200 | $82,796 | $2,686 | | Up 100 | $81,667 | $1,557 | | Base | $80,110 | $0 | | Down 100 | $77,341 | ($2,769) | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[206] - There were no changes in internal control over financial reporting during the quarter that had a material effect or are reasonably likely to have a material effect[208] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal claims, which management believes will not materially affect financial condition - The company is party to various claims and proceedings arising in the ordinary course of business[209] - Management does not believe these matters will have a material adverse effect on the company's financial condition or operations[209] Risk Factors No material changes to risk factors from the 2020 10-K, with the COVID-19 pandemic's uncertain impact highlighted - The company refers to the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020[210] - The ultimate impact of the COVID-19 pandemic is highlighted as highly uncertain and could heighten many of the previously described risks[211] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - Not applicable[212] Defaults Upon Senior Securities This item is not applicable for the current reporting period - Not applicable[213] Mine Safety Disclosures This item is not applicable for the current reporting period - Not applicable[214] Other Information This item is not applicable for the current reporting period - Not applicable[215] Exhibits This section lists filed exhibits, including CEO/CFO certifications and Inline XBRL formatted financial statements - Lists exhibits filed with the report, including CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[218] - Includes financial statements formatted in Inline XBRL[219] Signatures The report is duly signed by the President and CEO, and EVP and CFO on August 9, 2021 - The report was signed on August 9, 2021, by Dennis J. Zember, Jr. (President and CEO) and Matthew Switzer (EVP and CFO)[221]