Primis(US:FRST)2025-04-29 20:44Part I Business Primis Financial Corp. is a bank holding company providing banking services through 24 branches and digital platforms, focusing on specialized lending and strategic digital expansion Key Financial Metrics and Branch Network | Metric | Value (as of Dec 31, 2024) | | :--- | :--- | | Total Assets | $3.7 billion | | Total Loans Held for Investment | $2.9 billion | | Total Deposits | $3.2 billion | | Total Stockholders' Equity | $365.0 million | | Full-Service Branches | 24 (22 in VA, 2 in MD) | - The company's strategy focuses on three core areas: maintaining a strong community bank, growing specialized business lines with above-average returns (like Panacea Financial and Primis Mortgage), and expanding digital offerings to attract deposits at scale2627 - In a strategic shift, the company sold its Life Premium Finance (LPF) division to EverBank, with the transaction closing on January 31, 2025. A majority of the LPF loans were sold by year-end 202450 - As of December 31, 2024, the company employed 592 people, with approximately 63% being female and 20% identifying as minorities63 Lending Activities The company diversifies lending across commercial real estate, SBA, and specialized healthcare, while strategically exiting its Life Premium Finance and a third-party unsecured personal loan program - The company is a Small Business Administration (SBA) Preferred Lending Partner (PLP), enabling it to offer SBA 7(a) and 504 loans nationwide3038 - The Panacea Financial division provides specialized financing for medical, dental, and veterinary practices, covering acquisitions, start-ups, real estate, and equipment39 - A strategic decision was made in 2024 to sell the majority of the Life Premium Finance loan portfolio and to cease offering these loans as of January 31, 202543 - The company is also discontinuing a third-party program for sourcing and originating unsecured personal loans, effective January 31, 2025, and is seeking to sell the existing portfolio44 Lines of Business and Digital Banking The company's Panacea Financial and Primis Mortgage lines exhibit strong growth, with its digital platform successfully attracting nearly $1.0 billion in deposits Key Business Line Performance and Digital Banking Metrics | Business Line / Platform | 2024 Performance Metric | 2023 Performance Metric | | :--- | :--- | :--- | | Panacea Financial Loans | $433.8 million | $322.8 million | | Panacea Financial Deposits | $92.3 million | $56.1 million | | Primis Mortgage Origination | ~$800 million | ~$600 million | | Digital Platform Deposits | $985.5 million | $909.4 million | - The Life Premium Financing division was sold to EverBank, N.A., with the transaction closing on January 31, 2025. As of year-end 2024, $50.7 million in loans were classified as held for sale pending the final close50 - The V1BE service, a bank delivery app for on-demand branch services, now covers the majority of the company's footprint, including the greater Washington, D.C. region53 Supervision and Regulation Primis and Primis Bank are extensively regulated, maintaining "well-capitalized" and "well-managed" status under Basel III capital requirements and various consumer protection rules - To maintain its status as a financial holding company, Primis and Primis Bank must remain "well-capitalized" and "well-managed," and the Bank must have at least a "Satisfactory" Community Reinvestment Act (CRA) rating77 - Both Primis and the Bank's regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer as of December 31, 2024101 - The company is subject to the Community Reinvestment Act (CRA), and new rules issued in October 2023 (currently under a legal injunction) are expected to make it more challenging and/or costly to maintain a satisfactory rating124127 Risk Factors The company faces diverse risks, including credit concentrations, interest rate fluctuations, operational and cybersecurity threats, and financial reporting issues due to internal control weaknesses - Credit Risk: The company has significant exposure to real estate, with real estate lending constituting approximately 69.3% of the total loan portfolio as of December 31, 2024. This includes $1.09 billion in commercial real estate loans and $101.2 million in construction and land development loans138143150 - Third-Party Consumer Loan Risk: A portion of the consumer loan portfolio ($152.1 million) is originated and serviced by a third party. The company is exposed to the credit risk of this third party for reimbursement of waived interest on promotional loans and for a credit enhancement that may not be fully realizable, especially since new originations will cease on January 31, 2025145146147 - Market Risk: Profitability is highly dependent on local economic conditions in its primary markets. The business is also subject to significant interest rate risk, as changes in rates can impact net interest income and the valuation of assets and liabilities162164 - Operational & Cybersecurity Risk: The company relies on third-party vendors for key infrastructure and faces significant cyber threats, including e-fraud and data breaches. The increasing use of remote work and AI technologies introduces additional operational and security challenges188194199 - Financial Reporting Risk: Management identified material weaknesses in internal controls over financial reporting for FY 2023 related to accounting for loan transfers and a third-party consumer loan program. While remediation is in progress, the controls have not operated long enough to be considered fully remediated238 Unresolved Staff Comments Primis Financial Corp. reports no unresolved staff comments from the Securities and Exchange Commission (SEC) for the year ended December 31, 2024 - The company has no unresolved staff comments from the SEC as of the report date239 Cybersecurity The company's cybersecurity program, overseen by the ERM Committee, employs threat intelligence, 24/7 monitoring, and an incident response plan to protect information assets - The Enterprise Risk Management (ERM) Committee of the Board has primary oversight of the cybersecurity program, with the Chief Information Officer (CIO) managing the program and reporting to the committee quarterly247248 - The company utilizes a variety of security tools and processes, including active monitoring by its Network Team and a third-party managed security service provider for 24/7 coverage241242 - A formal Cyber Incident Response Plan is in place, which is regularly tested through exercises like tabletop simulations to ensure readiness for potential security incidents244 - To date, the Bank has not experienced a cybersecurity incident that has materially impacted its business strategy, financial condition, or results of operation246 Properties Primis Financial Corp. operates from its main offices and 24 full-service branches across Virginia and Maryland, utilizing 32 owned and 20 leased properties deemed adequate for operations - The company owns 32 properties and leases 20 properties, which house its branch network and operational units251 - As of December 31, 2024, Primis Bank operated twenty-four full-service branches: twenty-two in Virginia and two in Maryland251 Legal Proceedings The company is involved in routine legal proceedings, which management believes will not materially affect its financial condition or operations, with no significant pending risks - Management believes that current legal proceedings will not have a material adverse effect on the company's financial condition or results of operations253 Mine Safety Disclosures This item is not applicable to Primis Financial Corp - Not applicable254 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Primis common stock trades on Nasdaq, with 24.7 million shares outstanding; a repurchase program is authorized, but no shares were bought back in 2024, and the stock has underperformed key indices - The company's common stock (FRST) is traded on the Nasdaq Global Market. As of April 15, 2025, there were 24,722,734 shares outstanding256 - A stock repurchase program authorized on December 19, 2024, allows for the repurchase of up to 740,600 shares. No shares were repurchased under this or previous programs during 2024260262 Five-Year Cumulative Total Return Performance | Year | Primis Financial Corp. | Russell 2000 Index | NASDAQ Bank Index | | :--- | :--- | :--- | :--- | | 2019 | 100.00 | 100.00 | 100.00 | | 2020 | 76.87 | 119.96 | 89.37 | | 2021 | 98.12 | 137.74 | 124.84 | | 2022 | 79.61 | 109.59 | 101.92 | | 2023 | 88.81 | 128.14 | 95.12 | | 2024 | 84.65 | 142.93 | 111.03 | Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2024, Primis reported a $16.2 million net loss, primarily due to a $50.6 million provision for credit losses, despite increased net interest income and an improved net interest margin Key Financial Performance Highlights | Metric | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Loss Attributable to Common Shareholders | ($16.2 million) | ($7.8 million) | | Loss Per Share (basic & diluted) | ($0.66) | ($0.32) | | Net Interest Income | $104.2 million | $98.7 million | | Net Interest Margin | 2.86% | 2.68% | | Provision for Credit Losses | $50.6 million | $32.5 million | - The provision for credit losses was significantly impacted by the Consumer Program portfolio, which accounted for $40.0 million of the total $50.6 million provision in 2024. This included a $20.0 million write-down related to transferring a portion of this portfolio to held for sale296288 - The company sold a majority of its Life Premium Finance (LPF) loan portfolio, realizing a $4.7 million gain, which is included in noninterest income296 - Total assets decreased to $3.7 billion, and loans held for investment decreased by $332.0 million, or 10.3%, from year-end 2023294 Critical Accounting Estimates and Policies Critical accounting estimates include the allowance for credit losses, goodwill valuation, and the complex third-party consumer loan portfolio accounting, which saw a significant Q4 2024 write-down - The allowance for credit losses (ACL) is a critical estimate based on the CECL methodology, using historical data, economic forecasts (from Moody's), and management judgment272274 - Goodwill impairment testing as of September 30, 2024, for both the Primis Bank and Primis Mortgage reporting units resulted in no impairment, as the estimated fair values exceeded their carrying values277279 - The third-party Consumer Program is accounted for as multiple units: the loans themselves and a separate derivative asset representing expected reimbursements and performance fees. This derivative is marked to fair value each period282285 - In Q4 2024, the company ceased new originations in the Consumer Program (effective Jan 31, 2025) and transferred $133.2 million of these loans to held for sale, recording a $20.0 million write-down to fair market value288 Financial Condition As of December 31, 2024, total assets decreased to $3.7 billion, with a 10% reduction in loans, increased nonperforming assets and ACL, yet the company remained well-capitalized Consolidated Balance Sheet Highlights | Balance Sheet Item | Dec 31, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $3,690.1M | $3,856.5M | (4.3%) | | Net Loans | $2,833.7M | $3,167.2M | (10.5%) | | Total Deposits | $3,171.0M | $3,270.2M | (3.0%) | | Total Equity | $365.0M | $397.6M | (8.2%) | - Nonperforming assets rose to $16.7 million from $10.8 million in the prior year, primarily due to an increase in nonaccrual commercial and commercial real estate loans325 - The allowance for credit losses to total loans increased to 1.86%. Excluding the high-risk Consumer Program loan portfolio, the ratio was 1.29%296 - The company's investment securities portfolio increased slightly to $245.4 million. The portfolio contains a material amount of unrealized mark-to-market losses due to higher interest rates, but the company intends to hold these securities and does not anticipate realizing losses353354 - Both Primis Financial Corp. and Primis Bank exceeded all regulatory capital requirements to be categorized as well-capitalized as of December 31, 2024381383 Financial Statements and Supplementary Data This section presents FY2024 audited consolidated financial statements, with an unqualified opinion on financials but an adverse opinion on internal controls due to material weaknesses, and detailed accounting notes - The independent auditor, Crowe LLP, issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2024, due to three material weaknesses393405 - The auditor identified two critical audit matters: the Goodwill Impairment Evaluation for the Bank reporting unit and the economic variable forecasts used in the Allowance for Credit Losses on loans397399 - The company changed its independent registered public accounting firm, engaging Crowe LLP for the 2024 fiscal year audit after Forvis Mazars, LLP declined to stand for re-appointment855 Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, covering Panacea Financial consolidation, LPF division sale, and the complex third-party Consumer Program accounting, including a Q4 2024 write-down and reclassification - The company consolidates Panacea Financial Holdings, Inc. (PFH) as a Variable Interest Entity (VIE) for which it is the primary beneficiary433438 - The sale of the Life Premium Finance (LPF) division to EverBank resulted in the sale of approximately $400 million in loans and a pre-tax gain of $4.7 million in 2024439 - The third-party Consumer Program loan portfolio, which had an outstanding balance of $152.1 million at year-end, was subject to a $20.0 million write-down when a portion was moved to held for sale. The allowance for credit losses on the remaining held-for-investment portion ($38.9 million) was $16.3 million476477 - Subsequent to year-end, in March 2025, the company decided to reclassify the $113.2 million of Consumer Program loans from held for sale back to held for investment695 Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2024, due to three material weaknesses in internal control, including un-remediated prior issues and a new deposit processing weakness, with remediation plans underway - Management concluded that internal control over financial reporting was not effective as of December 31, 2024700 - Three material weaknesses were identified: (1) ineffective controls over accounting for loan transfers, (2) ineffective controls over evaluating credit losses on the third-party consumer loan portfolio, and (3) improper segregation of duties and review controls for deposit account processing701706 - The material weakness in the third-party consumer loan allowance resulted in a $6.5 million understatement of the allowance for credit losses and provision for credit losses before correction706 - Management has implemented and is continuing to enhance remediation plans for all identified weaknesses, including refining controls, enhancing reviews, and adding access restrictions704705716 Part III Directors, Executive Officers and Corporate Governance The ten-member Board includes an independent Audit Committee with a financial expert, and the company maintains a Code of Ethics, though a director's Section 16 filing was reported as delinquent - The Board of Directors consists of ten members, with John F. Biagas serving as Chairman and W. Rand Cook as Vice-Chairman713719 - The Audit Committee is composed entirely of independent directors, with John Eggemeyer designated as the audit committee financial expert738 - A Form 4 filing for director Deborah Diaz was not timely filed for purchase transactions on October 15, 2024, but was subsequently filed on March 15, 2025745 Executive Compensation Executive compensation saw discretionary reductions in 2024 short-term incentives for NEOs due to net loss and untimely filings, with no new long-term equity awards granted, and a CEO to median employee pay ratio of 13.6 to 1 - Due to the company's 2024 net loss and untimely financial filings, the Compensation Committee used its discretion to eliminate the CEO's short-term incentive payment and substantially reduce payments for other NEOs767 - No long-term equity incentive awards (performance-based restricted stock units) were granted to executive officers in 2024768799 2024 Named Executive Officer Compensation | Name | Position | 2024 Total Compensation | | :--- | :--- | :--- | | Dennis J. Zember, Jr. | President and CEO | $788,439 | | Matthew A. Switzer | EVP and CFO | $411,310 | | Rickey A. Fulk | EVP and President of Primis Bank | $385,640 | | Marie T. Leibson | EVP and CCO | $373,516 | | Ann-Stanton C. Gore | EVP and CMO | $321,095 | - The ratio of the CEO's annual total compensation ($788,439) to the median employee's compensation ($57,831) was 13.6 to 1 for 2024833 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of April 28, 2025, three entities beneficially own 5% or more of the common stock, while all directors and executive officers collectively own 10.96% of outstanding shares - As of April 28, 2025, there are three beneficial owners of 5% or more of the company's common stock: BlackRock, Inc. (8.11%), Castle Creek Capital Partners VII, LP (7.62%), and The Banc Funds Company, L.L.C. (6.92%)837 - All directors and executive officers as a group beneficially own 2,712,783 shares, representing 10.96% of the class837 Certain Relationships and Related Transactions, and Director Independence The company discloses related party transactions, including employment of executive officers' relatives and loans to affiliates, with the Board affirming the independence of all directors except the CEO - The daughter of CCO Marie T. Leibson and the nephew of CEO Dennis J. Zember, Jr. are employed by the Bank840841 - Loans to directors and executive officers are made in the ordinary course of business and on terms comparable to those for unaffiliated persons. As of December 31, 2024, these loans totaled $17.6 million842 - All directors are considered independent, except for CEO Dennis J. Zember, Jr849 Principal Accounting Fees and Services For FY2024, Crowe LLP served as the independent auditor, replacing Forvis Mazars, LLP, with fees detailed for both firms, noting the prior auditor's non-reappointment without disagreements, despite material weaknesses Independent Auditor Fees | Fee Type | 2024 Fees (Crowe) | 2024 Fees (Forvis Mazars) | 2023 Fees (Forvis Mazars) | | :--- | :--- | :--- | :--- | | Audit Fees | $1,608,198 | $171,042 | $2,570,396 | | Audit-Related Fees | $52,500 | $0 | $92,292 | | Tax Fees | $0 | $0 | $153,300 | | All Other Fees | $0 | $0 | $0 | - On September 19, 2024, the Audit Committee approved the engagement of Crowe LLP as the new independent registered public accounting firm for the fiscal year ending December 31, 2024858 - The previous auditor, Forvis Mazars, LLP, declined to stand for re-appointment. There were no disagreements with Forvis Mazars on accounting principles or practices855857 Part IV Exhibits and Financial Statement Schedules This section lists all Form 10-K documents, including consolidated financial statements and the auditor's report, with omitted schedules and a detailed exhibit index covering corporate and compensation documents - The consolidated financial statements and auditor's reports are filed under Part II, Item 8865 - All financial statement schedules have been omitted because they are not required or the information is presented elsewhere in the report866 - The exhibit list includes key corporate documents, debt agreements, employment agreements, and required certifications under the Sarbanes-Oxley Act868869870 Form 10-K Summary This item is not applicable, and no summary is provided - None871