Primis Financial (NASDAQ:FRST) reported third-quarter net income of $8.7 million, or $0.35 per diluted share, as expansion in the company’s core banking net interest margin and loan repricing helped offset weaker mortgage warehouse revenue amid higher interest rates.
Net income rose 28% from $6.8 million, or $0.28 per share, a year earlier, though it declined from $9.4 million, or $0.38 per share, in the second quarter. Operating earnings were also $0.35 per share, compared with $0.23 in the prior quarter and $0.28 a year earlier.
“The third quarter demonstrated continued strength in the core banking franchise, further margin expansion, stable credit costs, and meaningful year-over-year improvement in operating earnings,” Chief Financial Officer Matthew Switzer said.
Margin expansion drives core banking results
Primis reported net interest income of approximately $36.3 million, up from $33.8 million in the second quarter and $29 million a year earlier. The quarterly total included roughly $700,000 of interest recoveries from a previously charged-off loan. Excluding that recovery, net interest income was $35.6 million, up 5.5% sequentially.
Reported net interest margin increased to 3.66%, up 21 basis points from the second quarter and 48 basis points from a year earlier. Excluding the interest recovery, core net interest margin was 3.59%, an increase of 14 basis points sequentially.
President and Chief Executive Officer Dennis Zember said the company’s core-bank margin improvement reflected its deposit base, loan production and loan repricing. He said annual net interest income has increased by roughly $28 million over the past 12 months.
Switzer said Primis expects further, though less pronounced, margin improvement as older loans continue to reprice over the next two to three quarters. He estimated incremental expansion could be in the range of four or five basis points over time, assuming no Federal Reserve rate move.
The company’s total deposit cost was 2.28% in the third quarter, up three basis points from the prior quarter but down 18 basis points from a year earlier. Total cost of funds was 2.47%, up one basis point sequentially and down 15 basis points year over year.
Mortgage business adjusts to higher-rate environment
Mortgage banking revenue declined to $8 million from $11.4 million in the second quarter and $8.9 million a year earlier, reflecting market disruption as mortgage rates rose during the quarter. Zember said the 10-year Treasury yield climbed nearly 100 basis points during the period, while Freddie Mac’s average 30-year mortgage rate increased from 6.43% at the end of June to 7.28% at the end of September.
Despite the rate pressure, Primis Mortgage closed $347 million of volume, a 12.5% increase from a year earlier. The mortgage operation recorded a loss of roughly $200,000 in the quarter, which included a $2.5 million reset in open-pipeline values and about $300,000 of provision tied to growth in portfolio and construction loans.
Zember said that if higher mortgage rates persist, the company expects annual mortgage volume to decline to about $1.1 billion from roughly $1.6 billion. In response, Primis has reduced fixed costs by approximately $4 million annually, primarily through support and vendor categories. The company also noted that most of its commission-based mortgage sales staff do not receive regular salaries, meaning compensation should decline with lower volumes.
At current mortgage-rate levels, Zember said the company views Primis Mortgage as a roughly $1.1 billion annual-production business. At a production level of $1.6 billion, which he associated with mortgage rates in the mid-6% range, the business could generate closer to $8 million of pretax profit.
Loan growth moderated while deposits rose
Gross loans held for investment rose at a 4% annualized rate from June 30 through Sept. 30 and were up 9% from a year earlier. Total loans ended the quarter at approximately $3.5 billion, according to Zember.
Core-bank loan growth was approximately 11% annualized in the quarter. Panacea loans held for investment increased $20 million to $603 million, while period-end mortgage warehouse balances fell $43 million to $501 million.
Zember said Primis expects mortgage warehouse balances to decline somewhat in the fourth quarter due to the mortgage-rate backdrop. He projected total year-end balance-sheet growth of about 8% to 8.5%, while describing mid- to high-single-digit loan growth as a comfortable target for the following year.
Total deposits ended the quarter at $3.47 billion, increasing $26 million from the second quarter and 4% from a year earlier. Federal Home Loan Bank advances declined $80 million to $220 million. Zember said the company had no wholesale or brokered deposits and expected a pipeline of large deposit opportunities to materially increase year-end balances at attractive rates.
The company also highlighted its Banking Valet service, formerly called V1BE, which delivers banking services through a proprietary app. Zember said the platform is used by thousands of customers and has become a key tool for commercial deposit and treasury relationships.
Expenses, asset quality and capital
Noninterest expense was $37.2 million, down from $38.2 million in the second quarter but above $32.3 million a year earlier. Excluding mortgage and Panacea volatility and nonrecurring items, core operating expenses were approximately $24.2 million, compared with $24.9 million in the prior quarter.
Switzer said the company expects its core quarterly expense run rate to remain around $22 million to $22.5 million in the fourth quarter. Primis expects approximately $3 million in annualized savings from vendor consolidation and statement-service contracts beginning early in 2027, with a significant portion expected to begin affecting expenses during the first quarter.
Provision for credit losses totaled $1.1 million, down from $5.5 million in the second quarter. The majority of the provision was related to loan growth. Nonperforming assets, excluding SBA-guaranteed portions, improved to 1.43% of total assets from 1.45% at June 30 and 2.07% a year earlier.
Tangible book value ended the quarter at $13.81 per share, up 18% year over year, while tangible common equity to total assets improved to 8.14%. Zember said management wants the tangible common equity ratio to exceed 8.5% and expects continued earnings improvement and cautious balance-sheet growth to support that objective over the next several quarters.
About Primis Financial (NASDAQ:FRST)
Primis Financial Corp. is a bank holding company headquartered in Glen Allen, Virginia. Its principal subsidiary, Primis Bank, provides banking and financial services to individuals, families, businesses and nonprofit organizations.
Primis Bank offers deposit products, residential and commercial real estate loans, consumer lending, business loans, treasury and cash-management services, mortgage banking and online and mobile banking. The bank also provides services designed to support small and middle-market businesses, including commercial lending and payment solutions.
The institution was formerly known as Sonabank and adopted the Primis name as part of a broader rebranding in 2020.
