KBRA Downgrades Ratings for Primis Financial Corp.; Outlook Stable
5 Jan 2026 | New York
KBRA downgrades the senior unsecured debt rating to BBB- from BBB, downgrades the subordinated debt rating to BB+ from BBB-, and affirms the short-term debt rating of K3 for McLean, VA based Primis Financial Corp. (NASDAQ: FRST) (“the company”). In addition, KBRA downgrades the deposit and senior unsecured debt ratings to BBB from BBB+, the subordinated debt rating to BBB- from BBB, and the short-term deposit and debt ratings to K3 from K2 for its subsidiary, Primis Bank ("the bank"). The Outlook for all long-term ratings is revised to Stable from Negative.
The ratings downgrade is tied to the bank’s continued comparatively low capital ratios (notably RBC ratios) and investment asset liquidity position, which is expected to persist, after consideration of the capital improvement from the recent branch office sales-leaseback (SLB) transaction and management’s existing asset liquidity management balance sheet strategy. The emergence of loan quality weaknesses tied to three large individual credits, disclosed in 2Q25, is also a contributing factor to the ratings downgrade.
On December 8, 2025, the bank completed an SLB transaction connected to 18 branch offices, resulting in a pre-tax gain of $48 million, a portion of which ($14.8 million) will be used to re-balance a portion of the securities portfolio into investment securities with higher market yields in comparison to the exiting yield on the AFS investment book. The positive earnings impact of the securities reinvestment activity (together with a partial BOLI asset position restructuring) will essentially offset the increased rent expense going forward, according to KBRA’s understanding. The company also disclosed that it plans to retire $27 million in holding company subordinated debt with cash sometime in January 2026. According to the company, pro forma 3Q25 consolidated CET1 and TCE ratios are expected to improve by about one point, to 9.32% and 8.43%, respectively, after consideration of the SLB transaction and other factors noted above.
In terms of future operating performance, KBRA recognizes management’s actions to reduce organizational complexity, which will help lower certain operating expenses, reduce deposits costs, lower data processing expenses, and reduce credit risk exposure within the indirect consumer loan portfolio (Consumer Loan Program). These efforts should result in less variable operating results and improved profitability, enabling the bank to achieve peer-like bottom line earnings performance. The anticipated realization of peer-like earnings performance has been considered as part of the downgrade of ratings.
KBRA further acknowledges the positive impact from the SLB transaction on capital ratios, although planned asset growth will offset some of the benefit from the SLB realized gain. However, because of the current variance in capital ratios relative to the peer average, the ratios will remain notably lower, including after considering the effects of the SLB transaction, improved earnings performance, and anticipated balance sheet growth.
The deterioration in the three loans noted above, encompassing two D.C. MSA office loans, appears isolated, but given the aggregate size (2.3% of 3Q25 total assets), it has resulted in a notably weakened NPA ratio. While NCO performance across the total loan portfolio remains adverse, compared to the peer average, loss activity is disproportionately connected to Consumer Program loans, of which, the negative impact is likely to be significantly lower going forward given the level of NCOs taken in recent quarters and the degree of current reserves held or discounts maintained.
Asset liquidity, in the form of short-term investments and the AFS investment portfolio, remains low at about 7% of total assets as of 3Q25, but is more meaningful when residential LHS are included, which can be sizeable depending upon seasonal and operating environmental factors. KBRA notes that residential loan production remains an integral part of the bank’s strategy, with recent investments made at Primis Mortgage Company to broaden the mortgage banking franchise.
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