Primis Breaks Its Own Margin Ceiling, Then Mortgage Breaks Back

A 3.66% NIM and a $2.5 million mortgage pipeline reset collide as management calls higher-for-longer the new norm.

FRST · Earnings Call · 2026-10-23

Primis just beat its own guidance — and its own history

Primis reported $8.7 million of net earnings, or $0.35 per share, up 28% year over year. But the real event was the margin. “Our reported net interest margin was 3.66%, up 21 basis points linked quarter and 48 basis points year over year.” — Matthew Alan Switzer, CFO · 2026-10-23 That is not a slow grind. On the prior call, the CFO framed the margin as flat: “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.” — Matthew Alan Switzer, Chief Financial Officer · 2026-07-24 A quarter before that, the same CFO said: “I would not expect margin to hit 3.6%. But would we hit high 3.4s to 3.5% as we go through the year, most likely.” — Matthew Switzer, Chief Financial Officer · 2026-04-24 Primis did hit 3.66%, and core NIM was still 3.59% excluding a $700,000 loan recovery. The upside came from two places management has been flagging for several quarters: loan repricing still in front of it, and a deposit base that is repricing far more slowly than its loans. Net interest income reached $34 million, up 34% year over year, and the company's own history shows the core bank, not the mortgage unit, is now the engine. Net interest income rose 34% year over year to $34 million, with the four-year trend now up 134%. The CFO also said the bank is not chasing rate-sensitive money: “going after a hot money which is including on the digital platform.” — Matthew Alan Switzer, CFO · 2026-10-23 That is the key contrast with the broader tape. Global market keywords are pricing more Fed rate hikes, and regional-bank reporters this week repeatedly cited high-rate environments and deposit betas. Primis is on the other side of that trade: its deposits reprice slower, so the same rate move that hurts its mortgage unit helps its core bank.

The mortgage hedge is now the drag

The problem is that Primis is not just a bank. It owns a mortgage company, and the third quarter was brutal for it. The 10-year Treasury rose almost 100 basis points in the quarter, pushing Freddie Mac's average 30-year mortgage from 6.43% at the end of June to roughly 7.28% at the end of September. Mortgage revenue fell to $8 million from $11.4 million in the second quarter and $8.9 million a year ago. The unit lost about $200,000, including a $2.5 million reset in open pipeline values and roughly $300,000 of provision for portfolio and construction loans. Management is now planning for a smaller mortgage company: “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.” — Dennis J. Zember Jr., CEO · 2026-10-23 That is the tension in the quarter. The core bank's margin expansion was real, but the mortgage hedge that once cushioned the company is now amplifying the rate shock. The CEO is calling it what it is — a new norm.

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.
Dennis J. Zember Jr., CEO · 2026-10-23

The cost work is credible: management has cut $4 million of annualized fixed costs, and because most mortgage sales staff are commission-based, compensation falls with volume. But the swing is large. At $1.1 billion of volume, mortgage may contribute only $3.5 million to $4 million of pretax profit; at $1.6 billion, closer to $8 million. That difference is roughly 10 to 15 basis points of ROA, which is exactly the gap between Primis's current profitability and its 1% target.

Deposits are the moat, but the moat is filling slowly

Primis ended the quarter with $3.47 billion of deposits, up only $26 million linked quarter and 4% year over year. That sounds underwhelming until you see how it is funded. “Still today, we do not have any wholesale or broker deposits and we have a pipeline of large deposit opportunities that should move our year end balances materially at very attractive rates.” — Dennis J. Zember Jr., CEO · 2026-10-23 The company did lean on FHLB advances, which rose $80 million to $220 million, but that is a deliberate choice to avoid expensive broker deposits while waiting for the rate direction to clarify. Management says the fourth quarter could be a "dynamite" deposit quarter as large commercial relationships close. The secret weapon is Banking Valet, the rebranded proprietary app that delivers branch-like service to commercial and consumer customers outside the branch footprint. “Virtually, every commercial deposit relationship we have that did not come because of a loan. Came because of this service.” — Dennis J. Zember Jr., CEO · 2026-10-23 The CEO says roughly half of checking accounts are rooted in the app. That is a genuine company-unique differentiator. The catch is that deposit growth has not yet accelerated enough to fund the loan book without FHLB advances. If the pipeline closes, the margin story holds; if it slips, the bank is more dependent on wholesale funding than the headline suggests.

What's left: loan growth, expenses, and a flat stock

Loan growth remains the first keyword on the call, but the cadence is slowing. Total loans rose 4% annualized in the quarter and 9% year over year, with core bank production up 11% annualized. The fourth quarter will be softer: one large core bank payoff, lower mortgage warehouse balances, and a deliberate pause. Management expects full-year loan growth of 8% to 8.5%, then mid-to-high single digits next year. Expense discipline is the other lever. Core operating expense was $24.2 million, and management still points to a $22.5 million quarterly run rate, with roughly $3 million of annualized savings from vendor consolidation and statement services starting early in 2027. Capital is improving but not yet at target: tangible common equity rose to 8.14%, with management wanting to get above 8.5% in a few quarters. The stock has not rewarded the earnings inflection. Primis shares are roughly flat over the last 90 days, about 8% below the August peak of $16.67, and they trade at 0.9x book — still a deep discount to the 1.6x peak multiple in 2017. Price to book is 0.9x, up 32% year over year but well below the historical peak. The market is effectively saying: show me the deposit pipeline, show me mortgage stability, and show me that the core bank can carry the company when the mortgage hedge is broken. Primis made real progress on the first two. The third is now the whole story.