Primis Financial Corp. FRST

Primis Financial reported net earnings of $9.4 million, or $0.38 per diluted share, for Q2 FY26, a significant increase from $2.4 million, or $0.10 per share, in the prior year. Return on average assets (ROAA) reached 90 basis points, up from 26 basis points a year ago. The quarter included a $5.9 million pretax gain from an insurance agency investment sale, partially offset by a legal settlement and a $5.3 million reserve build on a large office CRE loan. Pretax pre-provision operating net income was $11.7 million, marking a 185% increase year-over-year.

The company achieved a net interest margin (NIM) of 3.45% in Q2 FY26, an increase of 60 basis points from the prior year and 2 basis points linked quarter. This expansion was driven by robust earning asset growth and attractive incremental funding margins. Average earning assets grew 11% year-over-year to $3.9 billion. Average deposits increased 12% annualized, with noninterest-bearing deposits up 24% annualized, now representing 16.3% of total average deposits. The core bank's cost of deposits remained low at 1.6%.

Primis demonstrated strong operating leverage, with core revenue growing 40% year-over-year while core operating expenses increased by 16%. Of this expense growth, 7.3% was tied to mortgage revenue and 4.7% to a sale-leaseback transaction, indicating that the controllable portion of OpEx grew less than 5%. Management expects core noninterest expense (excluding mortgage and Panacea) to normalize to $22 million to $22.5 million in Q3 FY26, following discrete expenses in Q2 related to a legal settlement, loan expenses, marketing, and core conversion planning.

Credit quality improved significantly, with nonperforming assets (excluding SBA guarantees) declining 36% quarter-over-quarter to 1.45% of total assets. This was aided by the refinancing of a C&I loan and the stabilization of a mixed-use commercial project. The company built an additional $5.3 million specific reserve on its largest office CRE loan, bringing the total reserve to over $11 million. While leasing activity, including an LOI, is ongoing, the provision increase reflects slower-than-expected vacancy reduction over the past year.

Primis announced expected earnings improvements of $7 million pretax for FY27 from its core consolidation project, translating to 13-14 basis points in ROA and $0.22 per diluted share. These improvements are split between $3 million in revenue enhancements (rationalizing products/fees) and $3.1 million in expense savings (contract/vendor consolidation), largely effective in early 2027. The company also anticipates the end of $0.8 million per quarter in amortization expense for capitalized platform development in Q3 FY27. Additionally, AI tools are being deployed to drive ongoing productivity and limit future expense growth.

The mortgage warehouse business continues to be a strong contributor, with Q2 FY26 closed volume of $421 million, up 30% year-over-year. Despite a challenging rate environment, the segment's all-in margin is comparable to the company's overall margin, and it achieved an ROA of over 2% after tax in Q2. The efficiency ratio for this group is currently 20-22%, with potential to drop to 15% by doubling the portfolio with minimal OpEx increase. New customer acquisition and sales efforts have offset market headwinds^🌐.