Primis Financial Corp. Common Stock 2026 Q3 Earnings Call

Before we begin, please note that many of our comments during this call will be forward-looking statements which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Further discussion of the company's risk factors and other important information regarding our forward-looking statements are part of our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has also been posted to the investor relations section of our corporate site, primisbank.com. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures.

How a non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measure is used, if not readily apparent. I will now turn the call over to our President and Chief Executive Officer, Dennis Zember.

Thank you, Matt. Thank you for everyone that's joined our third quarter earnings call. For the quarter, we're reporting $8.7 million of net earnings, or about $0.35 per share, which is a healthy increase of 28% over the same quarter a year ago. A couple notable items had a real outsized impact on the quarter's results. First was our net interest margin coming out of the core bank, which increased to about 3.66% in the current quarter compared to the same quarter a year ago. That's about a 15% improvement when we reported 3.18%. We continue to benefit from a very valuable deposit portfolio with long-term loyal customers, and we pair that with loan production levels, loan production, and loan repricing opportunities that have delivered real results. Putting that steady quarter-over-quarter improvement in perspective, we've grown annual net interest income by about $28 million over the last 12 ones.

The balance sheet restructuring we did at the end of 2025 definitely helped, but staying disciplined on both sides of the balance sheet and with loan repricing has been the real driver. Our core bank and our digital platform combined quarter after quarter, growing deposits at a healthy and profitable level, and our bank loan engines focus on higher quality customers with yields and rates that I know are at a win-win level. There is real competition out there right now on the loan side, and customers are shopping very hard. So having a valuable deposit side of the balance sheet is critical to being competitive and profitable. On the negative side, we had a fall off in revenue in the Mortgage Warehouse that corresponded to a pretty steep rise in rates.

The 10-year Treasury increased almost 100 basis points in the third quarter, and it moved Freddie Mac's average 30-year mortgage from 643 at the end of June to 728 at the end of September. Our mortgage CEO calibrates volume based on these rates, and if these higher rates were to persist, we think annual volume would decrease from about $1.6 billion a year to about $1.1 billion a year. Knowing this might be a new normal, we have been rightsizing costs, mostly in support and vendor categories since mid-September and have reduced fixed costs by about $4 million a year. These fixed cost reductions are augmented by the fact that virtually none of our commission-based sales team have regular salaries. We know that a notable reduction in compensation will occur as volumes fall.

In the third quarter, the mortgage company lost about $200,000, which included the $2.5 million reset in the open pipeline values and about $300,000 of provision for growth in portfolio and construction loans. This performance with those headwinds, combined with the restructuring work that our mortgage team has undertaken, give us confidence in this division as we adjust to what might be a new norm in rates. On the balance sheet, we ended the quarter with about $3.5 billion in loans, up 9.3% from a year ago, but only up about $30 million from the end of the second quarter. Production in our core bank was very good with very good rates, and we supported that with mostly steady balances in warehouse and higher balances in Panacea.

I expect balances to come in a little in the fourth quarter, just given the mortgage backdrop and how that is going to affect warehouse. I expect that we can probably finish the year with total growth in the balance sheet of about 8%-8.5% on year-end balances. Deposits have grown slower over the past year as we have been unsure about where rates were headed. I know that our loan pricing and our sensitivity would allow us to be more aggressive on rates for deposits, but we did not want to outrun the Fed, and so we stood still waiting to know which direction rates will be going and relied more heavily on Federal Home Loan Bank. Still today, we do not have any wholesale or broker deposits. We have a pipeline of large deposit opportunities that should move our year-end balances materially at very attractive rates.

Lastly, capital levels are creeping up like we believe they would. For the quarter, tangible book value and tangible common equity to total assets improved. Tangible book value ended at $13.81, which is 18% higher than a year ago, and our TCE ratio improved to 8.14, which is materially higher than a year ago when we were in the mid-sevens. Matt and I really would like for TCE to be north of 8.5, and we expect that a continued improvement in earnings and cautious balance sheet growth will get us there in a few quarters. With that, Matt, I will turn it to you.

Thank you, Dennis. As a reminder, a discussion of our financial results can be found in our press release and investor presentation located on our website and in our 8-K filed with the SEC. As Dennis mentioned, Primis reported earnings of $8.7 million, or diluted earnings per share of $0.35 in the third quarter, compared to $9.4 million or $0.38 per share in the second quarter, and $6.8 million or $0.28 per share a year ago. Operating earnings were $0.35 per share this quarter, up substantially from $0.23 in the second quarter and $0.28 a year ago. Operating return on average assets was 80 basis points versus 53 basis points in the second quarter and 70 basis points a year ago. Pre-tax, pre-provision operating net income was $12 million in the third quarter, up 38% from $8.7 million in the year ago period.

Turning to the balance sheet, gross loans held for investment increased approximately 4% annualized from June 30th to September 30th, and we were up 9% year-over-year. Core bank loan growth was approximately 11% annualized in the quarter, and Panacea loans held for investment increased $20 million to $603 million, partially offset by a $43 million decline in period end Mortgage Warehouse balances to $501 million. Average earning assets were approximately $3.94 billion, up slightly linked quarter, but up 9% compared to the year ago quarter. Total deposits ended the quarter at $3.47 billion, up $26 million linked quarter and 4% year-over-year, while FHLB advances declined $80 million to $220 million. Net interest income was approximately $36.3 million, up from $33.8 million last quarter and $29 million a year ago. The third quarter included approximately $700,000 of interest recoveries from a previously charged-off loan.

Excluding that recovery, net interest income was $35.6 million, up 5.5% linked quarter. Our reported net interest margin was 3.66%, up 21 basis points linked quarter and 48 basis points year-over-year. Excluding this interest recovery, core net interest margin was 3.59%, up a healthy 14 basis points from the second quarter. While earning asset yields continued to increase, we have benefited from a stable funding base with cost of total deposits up 228 basis points in the third quarter, up three basis points linked quarter and down 18 basis points year-over-year, while total cost of funds was 247 basis points, up one basis point linked quarter and down 15 basis points year-over-year. Our provision this quarter was $1.1 million compared to $5.5 million in the second quarter and a recovery of $449,000 a year ago.

The majority of the provision this quarter was driven by loan growth as described above. Asset quality remained stable with non-performing assets, excluding portions guaranteed by the SBA, improving to 1.43% of total assets at quarter end from 1.45% at June 30 and 2.07% a year ago. Core net charge-offs were 17 basis points in the third quarter, down 53 basis points in the second quarter and up from 3 basis points a year ago, with the year-over-year increase largely driven by one credit that had previously been reserved for. Non-interest income was $12.9 million in the third quarter versus $22 million last quarter, which also included a $5.9 million investment gain. Mortgage banking revenue was $8 million, down from $11.4 million last quarter and $8.9 million a year ago, reflecting the significant market disruption during the quarter.

Primis Mortgage still closed $347 million of volume, which was a 12.5% increase year-over-year. We also reported $1.5 million of gain on sale income related to Panacea loans and the guaranteed portion of SBA loans this quarter. Other income included approximately $900,000 of recoveries on a previously charged-off loan reflected in the third quarter. On the expense side, reported non-interest expense was $37.2 million, down from $38.2 million in the second quarter and up from $32.3 million a year ago. Excluding Mortgage and Panacea division volatility and non-recurring items, our core operating expense burden was approximately $24.2 million versus $24.9 million in the second quarter and $21.6 million a year ago. Included in the third quarter numbers, approximately $1.4 million of loan-related expenses and $0.4 million of professional fees and other third-party expenses incurred in the quarter.