Primis: Primis Financial : Reports Earnings per Share for the Third Quarter of 2024 Form 8 K

Primis Financial Corp. Reports Earnings per Share for the Third Quarter of 2024 Announces Sale of Life Premium Finance Division Announces Expansion of Mortgage Warehouse Lending Team Declares Quarterly Cash Dividend of $0.10 Per Share For immediate release Thursday, October 24, 2024 McLean, Virginia, October 24, 2024 - Primis Financial Corp. (NASDAQ: FRST) ("Primis" or the "Company"), and its wholly-owned subsidiary, Primis Bank (the "Bank"), today reported net income available to common shareholders of $1.2 million or $0.05 per diluted share for the quarter ended September 30, 2024, compared to a net loss available to common shareholders of $6.0 million or $0.24 per diluted share for the quarter ended September 30, 2023. For the year-to-date period in 2024, the Company reported earnings available to common and diluted earnings per share of $7.5 million and $0.30, respectively, compared to $0.3 million and $0.01, respectively, in the same period in 2023. Earnings for the three month and year-to-date periods are highly affected by the Company's corrected accounting for a third-party originated consumer portfolio. Earnings for the three month and year-to-date period in 2024 include $0.8 million and $2.2 million, respectively, or $0.03 and $0.09 per diluted share, respectively, of after-tax nonrecurring charges versus $11.3 million and $12.5 million, respectively, or $0.45 and $0.51 per diluted share, respectively in the comparable 2023 periods and inclusive of the goodwill impairment in the third quarter of 2023. Adjusting for these items, operating net income available to common shareholders was $2.0 million (1) or $0.08 per diluted share (1) for the quarter ended September 30, 2024, compared to net operating income available to common shareholders of $5.3 million (1) or $0.21 per diluted share (1) for the quarter ended September 30, 2023. For the year-to-date period in 2024 when adjusting for these items, earnings available to common and diluted earnings per share was $9.6 million (1) and $0.39 (1) , respectively, compared to $12.8 million (1) and $0.52 (1) , respectively, in the same period in 2023. Sale of Life Premium Finance Division On October 24, 2024, Primis Bank and EverBank, N.A. ("EverBank") entered into a purchase and assumption agreement whereby EverBank will acquire the Life Premium Finance Division from Primis Bank including all the associated loans, except for a subset of mostly fixed rate and rate-capped loans retained by the Bank, and the operations of the division, including its employees, for a premium of $6.0 million. Primis Bank expects to record a pre-tax gain of $4.5 million net of advisory and legal fees in the fourth quarter of 2024. On October 31, 2024, EverBank will acquire approximately $370 million of loans from the division with Primis Bank providing interim servicing until the transition of the business at the final closing which is expected on January 31, 2025. Between the first and second closings, EverBank will purchase loans generated by the division in ordinary course at par. After the second closing, EverBank will service the Bank's retained portfolio for the duration of the portfolio. (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. 1 Dennis J. Zember, Jr., President and Chief Executive Officer of Primis commented, "Three years ago we hired a set of professionals with a vision to build a tech-forward solution for life insurance premium finance. This platform has been widely accepted and used by the industry's facilitators to such a degree that its opportunity is bigger than our balance sheet. EverBank is known for investing in scalable businesses with attractive risk-adjusted returns which makes our life premium finance team a perfect fit." Mortgage Warehouse Lending Team Expansion In early October of 2024, Primis hired a seasoned team of mortgage warehouse lending professionals from a larger bank with a very successful track record in this space. While Primis Bank has had mortgage warehouse lending capabilities for some time, production had been limited while the Bank searched for the right leadership. Four key individuals have joined the Bank comprising sales, operations and portfolio management with another four to five support staff expected in the coming months. Commented Mr. Zember, "Mortgage warehouse lending as an asset class has very attractive returns and limited losses. With several very large banks exiting the space and mortgage volumes projected to increase substantially, we believe this is a perfect time to expand our capabilities. Knowing the team we hired and having visited quite a few of their customers, I believe we can replace all of the life premium business we are selling with yields that are 125bps to 150bps higher. I expect the credit results and operating expense burdens to be similar so we believe the bottom-line impact will be significant as we scale this operation." Discussion of Results The following table highlights selected financial data for the last five quarters: 3Q 2024 2Q 2024 1Q 2024 4Q 2023 3Q 2023 Return on average assets 0.12 % 0.39 % 0.26 % (0.85 )% (0.62 )% Operating return on average assets (1) 0.20 % 0.50 % 0.29 % (0.79 )% 0.54 % Pre-tax pre-provision return on average assets (1) 0.85 % 0.78 % 1.02 % 0.96 % (0.33 )% Pre-tax pre-prov. operating return on average assets (1) 0.95 % 0.92 % 1.05 % 1.01 % (0.30 )% Return on average common equity 1.28 % 4.06 % 2.62 % (8.43 )% (6.11 )% Operating return on average common equity (1) 2.11 % 5.18 % 2.99 % (7.91 )% 5.35 % Operating return on avg. tangible common equity (1) 2.80 % 6.93 % 3.98 % (10.53 )% 7.35 % Cost of funds 3.25 % 3.16 % 2.97 % 2.85 % 2.75 % Net interest margin 2.97 % 2.72 % 2.84 % 2.86 % 2.70 % Gross loans to deposits 89.68 % 98.95 % 97.37 % 98.45 % 96.37 % Efficiency ratio 83.22 % 82.62 % 77.41 % 81.31 % 108.50 % Operating efficiency ratio (1) 80.35 % 78.86 % 76.17 % 79.43 % 75.17 % As disclosed in our recent filings with the SEC, the Company has corrected its method for accounting for a third-party originated and serviced consumer loan portfolio (the "Consumer Program") and in which the separate agreements comprising the portfolio are treated as separate units of account (See "Critical Accounting Estimates and Policies" in the Company's 2023 Form 10-K). A subset of the Consumer Program has promotional characteristics where interest is deferred during the promotional period and is waived if the customer pays off the loan prior to the period end. In that event, the third-party reimburses the Bank for the waived interest. Until the end of the promotional period, the Company is unable to accrue interest on the loan under GAAP but does record a derivative representing the fair value of expected interest reimbursements from the third-party. Credit costs are also fully included in the Company's results, including estimated life of loan losses required by ASC 326 while potential credit enhancements from the Consumer Program are only reflected as received. Total outstanding balances in the Consumer Program were $180 million as of September 30, 2024 versus $194 million at June 30, 2024. (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. 2 Net Interest Income Net interest income increased approximately $3.2 million, or 13%, to $28.0 million during the third quarter of 2024 compared to the second quarter of 2024 largely due to increased interest recognition on previously deferring loans. For the third quarter of 2024, the Company reported a net interest margin of 2.97% versus 2.72% for the second quarter of 2024. Interest income increased 9.4% to $57.1 million in the third quarter of 2024 compared to $52.2 million during the second quarter of 2024. At September 30, 2024, $60 million of loans were deferring interest due to a promotional feature. The Company recognized $3.0 million of interest in the third quarter of 2024 from promotional loans that were deferring interest and then began amortizing. In addition, in the third quarter of 2024, payoff of promotional loans triggered reimbursement of $2.5 million of deferred interest that was recognized in noninterest income. Promotional loan balances of $17 million and $21 million will reach the end of their promotional periods in the fourth quarter of 2024 and first quarter of 2025, respectively, after which loans with a promotional feature will decline to a nominal amount of the Bank's portfolio by the end of 2025. Yield on earning assets and loans held for investment were 6.06% and 6.31%, respectively, in the third quarter of 2024 versus 5.72% and 5.91%, respectively, in the second quarter of 2024. Interest expense increased $1.7 million to $29.1 million in the third quarter of 2024 compared to the second quarter of 2024 largely due to an increased reliance on FHLB funding during the third quarter. Cost of deposits increased 6 basis points to 3.04% in the third quarter of 2024 from 2.98% in the second quarter of 2024. Cost of funds was 3.25% in the third quarter of 2024, an increase of 9 basis points linked-quarter. Noninterest Income Noninterest income decreased during the third quarter of 2024 to $9.3 million compared to $11.2 million in the second quarter of 2024. Included in the second quarter of 2024 is approximately $0.9 million of bank-owned life insurance income due to a death benefit payout. Income from mortgage banking activity increased $0.4 million during the third quarter. Offsetting the increase in mortgage banking income was a reduction of $0.4 million in service fees and $1.2 million reduction in income related to the Consumer Program. Noninterest Expense Noninterest expense was $31.0 million for the third quarter of 2024, compared to $29.8 million for the second quarter of 2024. Noninterest expense also include