Primis Financial’s Steady Dividend Signals Resilience Amid Banking Sector Challenges

Primis Financial Corp (NASDAQ: FRST) has maintained its streak of dividend consistency, announcing a $0.10 per share quarterly payout—its 54th consecutive dividend—amid a banking sector reshaped by interest rate volatility and regulatory shifts. This dividend underscores the company’s financial stability, even as peers grapple with margin compression and credit risks. Below, we dissect Primis’s performance, strategic moves, and the broader market dynamics shaping its path forward.

Financial Resilience Amid Shifting Rates

Primis’s Q1 2025 earnings reflect a turning point. Net income rebounded to $2.7 million ($0.11 per share), reversing a $23.3 million loss in Q4 2024. Excluding one-time costs, normalized net income hit $5.1 million, supporting a 0.56% return on assets (ROA). This improvement stems from disciplined cost management: noninterest expenses dropped to $32.5 million, with core operating costs now projected to remain between $20 million and $21 million quarterly—a 14% reduction from 2024’s elevated levels.

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The company’s deposit strategy also stands out. Its $2.2 billion in low-cost deposits carry a mere 1.83% interest cost, far below regional peers. This advantage, combined with rising loan yields (7.20% on new production), drove the net interest margin (NIM) to 3.15%, a 25-basis-point jump from Q1 2024.

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Operational Strength in Key Divisions

Primis’s diversified business model is a critical growth driver:
1. Primis Mortgage: Pre-tax earnings surged to $0.8 million in Q1, reversing a $0.4 million loss in Q4. Mortgage lock volume grew 27% quarter-over-quarter to $257 million, fueled by new teams in high-growth markets like Nashville and Austin. Applications rose 100% in March .
2. Digital Banking Platform: The app-based service now manages $1 billion in deposits at a cost aligned with the federal funds rate. A new affinity brand, leveraging influencers, has reduced acquisition costs for low-rate deposits.
3. Panacea Financial: Targeting 10,000 healthcare clients by 2025, this division added $40 million in loans (to $460 million) and $94 million in deposits in Q1, signaling scalability in niche markets.

Navigating Banking Sector Challenges

The broader banking landscape in 2025 remains fraught with headwinds:
- Margin Pressure: The industry’s NIM is projected to drop to 3% by year-end as deposit costs lag declines in lending rates. Midsize banks like Primis face steeper challenges, with CRE loans at 199% of risk-based capital (vs. 54% for large banks).
- Regulatory Shifts: The Basel III Endgame re-proposal has relaxed capital rules for smaller banks, freeing up capital for growth. Primis’s common equity to assets ratio of 9.67% leaves room for expansion without breaching regulatory thresholds.

Primis’s CEO, Dennis J. Zember, Jr., has prioritized addressing these challenges:
- Cost Savings: Consolidating legacy IT systems could save $6–7 million annually, adding ~15 basis points to ROA.
- Asset Rebuilding: Aiming to restore earning assets to pre-2024 levels ($3.75 billion), which would boost ROA by 21 basis points.
- Mortgage Momentum: The division’s contribution to ROA is expected to rise to 0.15% in 2025 (up from 0.05% in 2024).

Risks and Opportunities Ahead

While Primis’s trajectory is positive, risks persist:
- CRE Exposure: Primis’s $3.04 billion in loans include CRE segments, which remain vulnerable to office vacancy rates. However, its nonperforming assets (NPAs) at 0.28% of total assets remain low.
- Interest Rate Cycles: A prolonged low-rate environment could squeeze margins further, though Primis’s low deposit costs provide a buffer.

Conclusion: A Dividend-Backed Growth Story

Primis Financial’s $0.10 dividend is no accident. Supported by a 3.15% NIM, disciplined cost control, and growth in mortgage and healthcare lending, the company is on track to double its normalized ROA to 1.1%+ by addressing remaining cost drags. With $14.38 book value per share and a tangible book value rising to $10.59, its balance sheet remains robust.

Investors should monitor two key metrics:
1. Primis Mortgage’s lock volume: A sustained 20%+ quarterly growth could accelerate ROA expansion.
2. Tech cost savings: Realization of $6–7 million in annual savings will be critical to hitting its ROA targets.

In a sector where midsize banks face margin erosion and CRE risks, Primis’s focus on low-cost deposits, niche growth, and cost discipline positions it as a resilient play for dividend-focused investors. The stock’s dividend yield of 2.1% (as of Q1 2025) offers stability, while its 54-quarter dividend streak signals a management team committed to shareholder returns.

In conclusion, Primis Financial’s blend of financial discipline, strategic diversification, and operational execution makes it a compelling investment in an otherwise challenging banking environment.