Primis Financial’s Deconsolidation of Panacea: A Catalyst for Profitability and ROA Expansion

Primis Financial (NASDAQ: FRST) is undergoing a strategic realignment through its deconsolidation of Panacea Financial Holdings (PFH), a move that has unlocked an immediate $20 million after-tax gain. But beyond this one-time boost, the restructuring signals a structural shift toward operational efficiency and sustained profitability. By shedding non-core assets and refocusing on its core banking operations, mortgage warehouse lending, and Panacea’s niche senior lending division, Primis is primed to double its return on assets (ROA) from 0.56% to over 1% by year-end. Here’s why investors should take notice.

The Immediate Catalyst: $20M Gain and a 10 Basis Point ROA Uplift

The deconsolidation of PFH has delivered an immediate $20 million after-tax gain, but the true value lies in the operational improvements. By removing PFH’s 10 basis point drag on ROA and cutting core operating expenses by $3.2 million quarter-over-quarter, Primis has already reset its baseline performance. The GAAP ROA rose to 0.30% in Q1 2025, but the non-GAAP “operating ROA” (excluding nonrecurring costs) hit 0.40%, a 10 basis point improvement. This is just the beginning.

Operational Efficiency: A 14-Point Turnaround in the Efficiency Ratio

Primis’s efficiency ratio—a critical gauge of cost discipline—has improved dramatically. The GAAP efficiency ratio fell from 95.3% in Q1 2025 to an adjusted 91.97%, marking a 3.33-point improvement (or a 14-point swing from prior quarters). This shift reflects reduced core operating expenses, lower deposit costs (down 58 basis points in Q1), and cost-saving IT consolidations. Management projects further savings of $6–7 million annually from legacy system integration, which alone could add 15 basis points to ROA. This is no temporary fix; it’s a foundational reset.

The Growth Engines: Core Banking, Mortgage Warehouse, and Panacea’s Niche

Primis is not just cutting costs—it’s leveraging three growth engines to rebuild its balance sheet:
1. Core Banking: Deposit costs are now 1.83%, far below regional peers’ 2.83%, creating a low-cost funding advantage.
2. Mortgage Warehouse: Loan production yields rose to 7.20%, with $115 million in new growth driving margin expansion.
3. Panacea’s Senior Lending: While deconsolidated, Panacea remains a key division, targeting a $10 billion senior housing market with 8.5% loan yields.

These divisions are fueling a path to $3.75 billion in earning assets—pre-2024 levels—positioning Primis to capitalize on rising interest rates and a recovering banking sector.

Why This Isn’t Just a One-Time Gain

Critics may dismiss the $20 million gain as a one-off event, but the deconsolidation’s true value is in its structural impact:
- Cost Discipline: Core operating expenses are now capped at $20–21 million quarterly, down from $23.48 million in Q4.
- IT Savings: The $6–7 million annual savings from consolidating legacy systems are recurring, not one-time.
- Margin Expansion: Lower deposit costs and higher loan yields mean net interest margins could expand by 20 basis points in 2025 alone.

Combined, these factors create a clear path to doubling ROA to 1.0–1.15% by year-end—a 100% improvement over the Q1 normalized ROA of 0.56%.

A Compelling Play on Banking Sector Recovery

Primis is trading at 0.9x book value, far below its five-year average of 1.4x. With a balance sheet strengthened by $3 billion in loans and deposits, and a management team aggressively pruning costs while boosting yields, this is a rare opportunity in a sector still undervalued post-2023 turmoil. The $20 million gain is the starting line, not the finish.

Action Item: Primis Financial (FRST) offers asymmetric upside as it executes its turnaround. With operational metrics turning the corner and a diversified growth pipeline, this is a prime candidate to benefit from a banking sector recovery. Investors should consider initiating a position now, ahead of Q2 results that could confirm the ROA and efficiency trends.