Primis Financial’s Mixed Earnings: Revenue Triumphs, but EPS Miss Highlights Ongoing Challenges

Primis Financial Corp. (PF) reported its Q1 2025 earnings, delivering a mixed performance that underscores both operational resilience and lingering headwinds. While revenue surged past expectations, the Non-GAAP EPS of $0.14 fell short of the consensus by $0.11, raising questions about execution and valuation. This analysis dissects the results, strategic progress, and risks to gauge the investment case.

Revenue Beats Reflect Operational Turnaround

Primis’ top-line performance shone, with revenue of $34.14 million—a $7.26 million beat—driven by strong momentum in its core businesses. Net interest income rose to $26.4 million, fueled by a widening net interest margin to 3.15%, up from 2.90% in Q4 2024. New loan production carried an attractive 7.20% yield, suggesting further margin expansion. Mortgage banking income also climbed to $5.6 million, supported by a 27% jump in locked loans. These gains reflect successful cost-cutting and strategic pivots, including the termination of unprofitable consumer loan originations and a focus on high-margin segments like commercial deposits and mortgage lending.

EPS Miss Signals Persistent One-Time Costs

The $0.14 Non-GAAP EPS—$0.11 below expectations—stems from elevated nonrecurring expenses. A $1.9 million provision for reclassifying the consumer loan portfolio and elevated professional fees (likely tied to auditor transitions) weighed on results. Excluding these items, normalized earnings hit $5.1 million, yielding a 0.56% ROA, up from 0.26% in Q1 2024. However, the GAAP EPS of $0.11 matched the consensus, highlighting the narrow line between recurring operations and one-off pressures. This misalignment underscores the importance of distinguishing between normalized metrics and headline figures.

Strategic Progress and Future Leverage

Primis is executing on key initiatives that position it for sustained growth:
1. Core Banking Strength: Deposits remain robust, with noninterest-bearing balances rising to $446 million, aided by low-cost commercial deposits. Loan pipelines expanded to $228 million, a 93% jump from Q4 2024, driven by proprietary technology like V1BE.
2. Mortgage Division Surge: New teams in high-growth markets are projected to add $500 million in potential production, while March 2025 lock volume rose 53% year-over-year. Mortgage warehouse lending balances increased 80% to $115 million, signaling rising demand.
3. Cost Discipline: Core operating expenses fell to $20.3 million, with management targeting a $20 million–$21 million quarterly run rate in 2025. Combined with a planned $6–7 million annual savings from IT consolidation, these cuts could boost ROA by 15 basis points.

Balance Sheet and Risks

Asset quality remains solid, with nonperforming assets at 0.28% of total assets and net charge-offs at 0.06% of loans—among the lowest in its peer group. However, risks persist:
- Consumer Loan Portfolio Exit: While reducing losses, the $10.8 million in net charge-offs here highlights legacy challenges.
- Interest Rate Sensitivity: A prolonged low-rate environment could pressure net interest margins, though the bank’s 1.83% deposit costs provide a buffer.
- Execution Risks: The mortgage division’s growth hinges on sustained demand in high-cost markets, while Panacea’s medical lending expansion faces regulatory scrutiny.

Conclusion: A Buying Opportunity or Cautionary Tale?

Primis Financial’s Q1 results reflect a company transitioning from recovery to growth. The revenue beat and improving ROA trajectory (targeted 0.70–0.75% by year-end) suggest underlying strength, while the EPS miss underscores near-term execution risks. Investors should weigh these factors against the $10.59 tangible book value per share (up $0.17 quarter-over-quarter) and the $0.10 dividend, maintained for 54 consecutive quarters.

Crucially, the $3.7 billion balance sheet—with deposits at $3.16 billion and a $487 million mortgage warehouse lending pipeline—provides ample liquidity for growth. If Primis can sustain its cost discipline and leverage its mortgage and Panacea divisions, it could outperform its 1.8x price-to-tangible-book valuation, especially in a rising-rate environment. However, the recurring one-time costs and competitive pressures in banking warrant caution. For now, the stock offers a compelling risk-reward trade-off for investors willing to bet on its turnaround story.

Final Take: Primis’ operational progress and strategic focus suggest resilience, but its valuation and execution challenges require a watchful stance. Monitor Q2 results for signs of sustained EPS normalization and margin expansion.