Primis Financial's Core Conversion and NIM Expansion Drive Record Revenue, with Clear Path to 1% ROA
Q2 2026 marks first $50M core revenue quarter, NIM up 60bps YoY, and $7M in identified savings from core consolidation—though office CRE provision persists.
FRST · Earnings Call · 2026-07-24
Strongest Quarter in Years
Primis Financial delivered a standout second quarter, with net earnings of $9.4M ($0.38/share) versus $2.4M a year ago. CEO Dennis Zember characterized results as "very pleased" and highlighted "strong growth in revenue, very contained operating expenses, increasing net interest margins, lower efficiency ratios, lower levels of nonperformers, steady growth in earning assets, growing levels of non interest bearing checking accounts, and importantly, tangible book, over 20% from last year." The quarter featured a $5.9M gain on sale of an insurance agency investment, offset by a legal settlement and a reserve build on the largest office CRE loan, leaving an ROA of 90bps as "the recurring level we are working with."NIM Expansion and Funding Advantages
The earning asset base grew 11% YoY to $3.9B, and net interest margin expanded to 3.45% from 2.86% a year ago. CFO Matthew Switzer detailed that the improvement reflected "robust earning asset growth funded at attractive incremental margins" and core bank Cost of deposits remained low at 1.6%. This is a strategic advantage: "Our focus on growing noninterest bearing deposits remains a key part of our strategy to continue controlling funding costs as we grow the balance sheet." The sub debt refinance is expected to save 200-250 basis points, providing further margin tailwind. Switzer said, "we think where we are right now, plus or minus a basis point or 2 is probably where we will be for the foreseeable future," but noted the sub-debt savings will offset any pressure.Mortgage and Warehouse Momentum
Mortgage related noninterest income grew 44% YoY to $11.4M, with basis points on closed volume up 30% to $421M. Dennis highlighted the Mortgage company's profitability and potential: "We are not saying we are immune to pressures on cost, but arguably, we have a few more levers..." The warehouse business is particularly attractive, with an efficiency ratio around 20% and "we could probably double the portfolio... with very little increase in OpEx." This is a key growth driver.Expense Discipline and Core Conversion
Core operating expenses, excluding mortgage and Panacea, were contained at ~$25M, up from $22M, but that includes discrete items. The core conversion is the centerpiece: management identified $6.1M in expected earnings improvements, split between revenue ($3M) and expense ($3.1M), plus $0.8M quarterly amortization ending. Dennis said, "We have never talked about these savings on the revenue or the expense side," underscoring newness. Combined with AI initiatives, he forecasts "another year and a half of outside operating leverage." Prior quarters consistently guided to a 1% ROA target; this quarter's specific savings strengthen that path. The efficiency ratio has been a focus, and the trend supports the margin expansion story.Credit Remains a Watch Item
Nonperforming assets improved, with classified assets down 36%. However, they added $5.3M to reserves on the largest office loan. Dennis explained: "We are accounting for this on a DCF... Matthew just got more aggressive with the DCF and with some assumptions." The borrower continues to make payments, and an LOI was signed for a large lease, but the reserve build signals caution. This is a lingering issue but not derailing overall momentum.Outlook
This is a clear signal of improving profitability. With NIM expansion and expense discipline, management's repeated 1% ROA goal appears increasingly achievable. The stock is up 16% over the last 90 days, but trades at only 0.8x book, leaving room for re-rating if execution continues. Net interest income remains the core driver.Altogether, we believe the impact on next year's results is about $7 million pretax, which includes zeroing out the amortization expense from the original bill of the court.