On Friday, Primis Finl (NASDAQ:FRST) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://events.q4inc.com/attendee/286254303

Summary

Primis Finl reported first-quarter earnings of $7.3 million or $0.30 per share, down from $22.6 million or $0.92 per share in the same quarter last year; however, operating earnings increased to $0.33 per share, up 126% from the previous year.

The company's net interest margin improved to 3.43% due to securities restructuring and a favorable mix of earning assets. Loan growth was robust, ending at $3.4 billion, reflecting an 11.7% increase, while deposit growth was strong at over 8%.

Primis Finl is focusing on technology and service to drive deposit growth and plans to leverage AI for operational efficiency. The mortgage division had a strong quarter with pre-tax income rising to $2.1 million, and the company expects to be a top 50 mortgage firm by 2026.

Management highlighted their aim to achieve a 1% ROA by the end of the year, with aspirations for 1.25% or higher in the future, driven by growth in mortgage, warehouse, and core banking operations.

The company is keen on using AI to enhance operational leverage, reduce costs, and improve customer satisfaction, positioning itself as a leader among banks under $10 billion.

Full Transcript

OPERATOR

Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time I would like to welcome you to the Primis Finl Primis Finl First quarter earnings call. All lines have been placed on mute to prevent any background noise and after the speaker's remarks we will conduct a question and answer session. If you'd like to ask a question at that time, please press Star then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, you can press Star one again. I will now turn the call over to Matthew Switzer. You may begin.

Matthew Switzer

Good morning and thank you for joining us for this financial conference 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 can 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, firm's bank website. We undertake no obligation to update or revise forward looking statements to reflect changes, 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. Our non GAAP measure relates to the most comparable GAAP measure will be discussed when the non GAAP measure is used, if not readily apparently. I will now turn the call over to our President and Chief Executive Officer, Dennis Seppert.

Dennis Seppert (President and Chief Executive Officer)

Dennis thank you Matt. Thank you. For all of you that have joined our first quarter conference call, we're excited to report that in the first quarter we earned $7.3 million or $0.30 per share which compares to $22.6 million $0.92 per share in the same quarter of 25. I guess I'm reading that excited to report earnings shrinking that much. The fact of the matter is on an operating basis we earned $0.33 per share in the first quarter, which excluded a small tax adjustment related to 2025 results. And when you compare that to second quarter a year ago, it's up 126% operating earnings where we reported $0.14 in the same quarter of 25. And Matt may mention this but the first quarter 25 included a substantial gain on the deconsolidation of Panacea, which is the. Which is what I'm excluding. Our key operating ratios obviously improved alongside that earnings number I just gave you. On an operating basis, our ROA improved to 84 basis points compared to 40 basis points in same quarter of 25. Driving that were a couple items margin mostly and as well as operating expense control on net interest margin. Our net interest margin, excuse me, benefited from the securities restructure as well as the mix of earning assets and climbed to 3.43% in the first quarter compared to 315 in the same quarter of 25. We continue to put up nice growth numbers that are manageable but really distinguish us amongst our peer group. Loans ended at $3.4 billion 11.7% compared to the same quarter in 26. That excludes about $40 million or so that Matt that we moved into loans held for sale related to a flow agreement with Panacea. So really our growth was probably stronger than this. Deposit growth over the same period is really what you should look at. That came in at just better than 8% with very little of that from the digital platform which is pretty steady state at about a billion dollars. The growth in checking accounts in our company was even more notable with non interest bearing checking accounts growing to 541 million which is almost 19% higher than where we were in 25. Checking accounts continue to be a more meaningful element of our deposit mix and we're 15.9% of total deposits compared to just 14.2% in 1Q25. And lastly, it's very important to note that we grew deposits in this strong fashion and never once felt pressured in our core bank or on our digital platform to be more aggressive on rate. We're doing it with technology, with service, with people getting in front of folks, focusing on commercial deposits and having real success. All of the energy and momentum on our balance sheet really starts at our core bank. There's never been a time since I came to premise that our core bank has had this opportunity on both sides of the balance sheet. Honestly, we're winning business that several years ago we just wouldn't have been in the running for or maybe even had a conversation about. Virtually nothing that we're doing to win this business has to do with rates or fees. Is we're leaning hard into our technology, our service, our people, our existing customers who are turning out to be amazing centers of influence for us. For so long it felt like we were that all we were doing here is working on our factory and stuff in the factory. But today stuff is rolling off that assembly line faster and faster and I'm very encouraged by what our people are accomplishing. Mortgage Warehouse is full, fully replaced. Life Premium finance at this point has been so well received in the marketplace. We finished the quarter with about 460 million outstanding for a few days in the quarter. At the end, near the end of March we crested half a billion dollars outstanding. This is before any refi boom. It's before the busy spring and summer seasons for retail mortgage. Importantly, Warehouse is still producing impressive yields and margins efficiency ratios in the 20s. The amount of scale and impact on our overall operating ratios from this business is not really something that's been fully baked or recognized in our current numbers as really they've been just scaling the business so quickly over the past year. But as we I believe we could probably double this business in the next 12 to 18 months and I believe the incremental impact from that second double is going to be very meaningful. Retail mortgage had an absolute blowout quarter. They'll tell you that it was impacted by some Middle east activities and an impact on rates and fair value adjustments. And that's true. We might have reported half a billion dollars looking at map half a billion dollars more had that. But regardless pre tax income in the mortgage group grew to $2.1 million in the first quarter compared to 766,000 same quarter a year ago. In the quarter our earnings crept up to 57 basis points on close volume compared to 46 in the same period a year ago. So on a profitability basis we're up maybe 20 little better than 20% on closed volume. Our recruiting pipeline has never been this strong and consistently we double each month on apps, close volume, new files, so we have real so we're very positive about what the second half of the year would look like right now we believe Primis Mortgage is on track to be a top 50 mortgage company nationwide in 2026. And lastly before I turn it over to Matt, I want to emphasize what's really present mind for us in our desire to build this into a top performing bank in our day to day here we are laser focused on growing checking accounts like I mentioned earlier to about 20% of total deposits. Secondly, we're determined to drive massive amounts of operating leverage from our consistent reliable balance sheet growth using steady to decreasing opex. And I know I've been saying this for several quarters and so as the quarter ended I was pretty delighted to start playing with the numbers and see what I'm about to tell you here. If you look at the last year first quarter 25 to from first quarter of 25 all the way back to 1Q24, we're reporting growth in core revenue of about 45. Excuse me, we're reporting core revenue of about $45.6 million, which is higher about 33.7%. Call it 34% over a year ago, reported operating expenses straight off of map income statement, no adjustment came in at 33.8 million which is only 4% higher than the same time a year ago. That's 34% growth in revenue, only a 4% growth in opex. I had in my comments that I'd like to promise that we could do that for a couple more years, but I was afraid Matt would grimace so I took that out. But this is an extraordinary level of operating leverage and really the driver of our results. Nobody at Primis thinks we're done in this area and that revenue may not be outpacing OPEX going forward. We have several strategies of course to continue getting this result and one of those is AI. And I don't want to steal Matt's comments or his hard work and I know he's going to comment further on this, but AI for us is the same kind of opportunity and catalyst that you would expect me to report if we were doing an M and A transaction. We already have all the tools we need for this. We expect hardly no additional investment except short but except the deep training that we're going to give our staff to be effective with this. And we believe that in a year we are going to be the undisputed leader Amongst banks under $10 billion. Using AI to drive operating results, sales efficiency, customer satisfaction and experience, and importantly fraud prevention. When you combine that with our work towards converting our core bank to a fully digital core, we are on the edge of being a uniquely positioned bank with technology that has figured out how to keep our community bank filled that Matt, I will turn it over to you.

Matt

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 filing with the SEC. Beginning with the balance sheet, gross loans held for Investment increased approximately 14% annualized from December 31st to March 31st led by growth in panacea and mortgage warehouse. Average earning assets increased 6% annualized in the first quarter. With the slower growth rate versus period end growth due to the rampant mortgage warehouse later in the period. Average deposits were up 4% annualized in the quarter while average non interest bearing deposits were up 7% from year end. Net interest income was approximately 32 million, a substantial improvement from 26 million a year ago. Our net interest margin in the first quarter was 3.43%, up from 3.28% last quarter and 3.15% in the year ago period and we have expectations for further margin expansion as we progress through 2026. We completed a redemption of 27 million of subordinated debt at the end of January, so that was only partially reflected in the quarter. We also have approximately 400 million of loans repricing in the second half of the 2026 and early 27 with a weighted average yield of 4.81% that will add to loan yields. The core bank cost deposits remains very attractive at 159 basis points for the quarter flat from the fourth quarter. Cost of total deposits was 223 basis points in Q1 down 3 basis points linked Quarter Our focus on growing NIB deposits is a key part of our strategy to continue driving funding costs lower. Our provision this quarter was 1.5 million, partially driven by growth in the loan portfolio described above. Approximately 0.7 million of the provision was due to specific reserving on impaired loans, while another 0.4 million was tied to activity in the consumer portfolio. Core net charge offs remained low at 6 basis points in the first quarter of 2026. Non interest income was 13.6 million in the quarter versus 12.8 million in the fourth quarter after adjusting for the sale, leaseback gain, investment portfolio restructuring and Panacea loan full sale in the fourth quarter. Mortgage revenue was solid in Q1 at 10.8 million versus 10 million in the fourth quarter and would have been even better in the first quarter if not for the impact of market volatility late in the quarter. Year over year. Retail mortgage production was 122% higher in 1Q26 versus 1Q25, showing strong momentum as we head into the busy home buying season. Also included in that production was 26 million of attractive construction to permanent loans in the first quarter, up from 4 million in the first quarter last year. On the expense side, when you exclude mortgage and panacea division volatility and non recurring items, our core expenses were 22 million in the first quarter versus 20.8 million a year ago. Absent the increased occupancy expense from our recent sale, leaseback transaction, core expenses on this basis would have actually been down year over year year. We've been focused on controlling expenses to maximize operating leverage and feel like we are in a good spot on that front so far in 2026. I would also like to take a moment to briefly touch on how we are thinking about AI. As mentioned in the earnings release, we have canvas the bank looking for opportunities to deploy AI tools to reduce repetitive and time consuming tasks and generate efficiencies. Our first pass has identified hundreds of hours of opportunity and there is almost certainly more that will be found as we start tackling these projects. We view this as a key part of our strategy to keep expense growth to a minimum while maximizing operating leverage. Equally as exciting from where I sit, our in house talent in this area combined with the robust tools built into our existing products such as Microsoft Copilot, should allow us to get the vast majority of these efficiencies without expensive consultants. In summary, we are excited to report a solid first quarter in line with our expectations and believe we are still on track to hit our profitability goal in 26. With that operator, we can now open the line for Q and A.

OPERATOR

Thank you. We will now begin the question and answer session. Again. If you would like to ask a question, please press stars in the number one on your telephone keypad to raise your hand and enter the queue. at any time, you can press Star one again. We'll pause just for a moment to compile the roster. And your first question comes from Woody Lay with KBW. Your line is open.

Woody Lay

Hey good morning guys. Wanted to start on mortgage and as you mentioned it was a blowout quarter and what's typically a seasonally weaker quarter? We're now entering the stronger quarters ahead. What are your expectations for production in the near term and then also in the mortgage expenses. Was there additional hiring that was done in one Q26 or elevated legal expenses? Anything that increased those costs?

Matt

Nothing unusual on the expense side. I think what I think we probably I think maybe we came into the year thinking we might have we closed 1.2 billion last year, but had a lot of momentum in the fourth quarter. Thought we probably had like a 1617 mortgage company and then through the first quarter felt like it was a little higher, maybe 1.8, maybe even 2 billion this year. But we I feel like we're probably still maybe around 1.8 billion. I mean we're going to be April's very strong sort of reflecting what we thought. I think for the I'd say we're probably still somewhere in the 1:8 range on closed volume. And I think what's important and you know as we've been growing, what's important is like we were at 46 basis points a year ago. We're at 57 basis points now on closed volume. What's impacting that is obviously a lot more scale on the fixed expenses. As we get closer to billion. A lot more focus on. Matt mentioned construction perm. We have a big construction permit focus here that's honestly very centered on government or getting higher yields there. And really we've been building that for the last year. These are probably six to nine months bills so that's starting to flow. So what's important I think is that we, we think we're going to do a 1.8 billion or so this year as things look right now and maybe trend somewhere closer to probably a touch over 60 basis points. We, you know the Middle east event probably hit us for a few basis points, five or six basis points on profitability. So we might have been over 60 had we not had the fair value. Just that's going to happen in mortgage though, so you can't really exclude it.

Woody Lay

Yeah that's helpful color and then maybe shifting over to the net interest margin outlook. Matt, you noted some of the loan repricing tailwinds through the remainder of the year. You know, growth is expected to remain strong. You're going to have to fund, fund that growth. Do you think you can continue to post strong growth and see margin expansion or will it be, you know, are we looking more at a flat margin with incremental growth?

Matt

I think we'll see a little bit more more margin expansion because of the debt payoff I mentioned. And we also had a little bit of a drag in the margin or from moving those loans to help for sale. We reversed some deferred costs that ran through the margin. It was only like a basis point. So we'll see some margin expansion next quarter and a little and then probably inch up from there. I mean I, I would not expect you know, margin to hit three six but would we hit you know high three fours to three and a half as we go through the year. Most likely.

Woody Lay

Got it. And then maybe just last for me on the credit. I, I appreciate the comments on the paydowns of those 90-day past-due loans subsequent to quarter end but just on some of those larger relationships that are still on mpa. Any update on those and when we could see possible resolutions.

Matt

Matt, it's funny you asked that. Matt, look straight at me like you Answer that one. I mean the. There's two real estate, commercial real estate deals, office and we've had both had pretty good quarters on new leases. So I mean it's, I think it's trending positive there. I think the two things are trending positive. One, there's more leasing activity. Sales cycle on new leases in an office park like this is longer than we want it to be. But still the fact that they're talking to a lot of folks and that there's a pathway is positive. The second is cap rates are improving as they're not falling like we'd like them to, but they are improving. And so I think, you know, every day that goes by we're a little safer on value. They're current so they're not. These are not. I mean it could change anytime. But right now they're. Things are trending more positive there. Does that answer your question?

Woody Lay

Yeah, no, that's, that's perfect. I appreciate you taking my questions. Congrats on the good quarter. Thank you.

OPERATOR

Your next question comes from the line of Russell Gunther with Stevens Inc. Your line is open.

Russell Gunther

Hey, good morning guys. I wanted to start. Morning, Dennis. Morning, Matt. Maybe just a quick follow up on the margin commentary. Appreciate the directional guide, but maybe some of the underpinning assumptions would be helpful to get a sense for kind of where new commercial loan origination yields are today. And then Matt, within the guide, how are you thinking about deposit costs from here? Is there room to move those lower? Is there kind of a flat to upward bias within your margin expectations?

Matt

I'll start with the last piece. I think on the deposit side it's probably flat, you know, up or down a couple basis points, but not. I don't want to expect any substantial moves in the cost of deposits in the near term. On the production side we're in the core bank probably low mid sixes. Yeah, we're probably regularly five years. I mean we're still probably all in. We're probably close. 5 year 2.75%. Yeah, probably better than that. Mortgage warehouse is probably with fees is probably, you know, one month. So for plus 315320 panacea outstanding. I mean they are. I mean they've really, I mean the niche that they've established for themselves, their marketing, their profile, the opportunity to do business with them, it's reflected in the race and I think the rates they're getting on their production is exceptional to they're probably 5 year treasury plus 25260 on that kind of credit, you know on funding And Matt, Matt, Matt and I regularly debate this. I mean, we could across the bank right now I feel like we could probably take, we could probably take digital down 25 or 30 basis points, probably not lose that much. We can probably take the core bank down, you know, five or ten. It's already very low. But there's some savings that we could get on the deposit side. The problem is it puts us in a place where we're not very strong on the, on the growth side. And again, we're not leaning into rate on digital or anything else. But we also don't want to not be competitive. And right now when we're looking at, you know, panacea. Panacea could do 200 million for us this year. Warehouse could grow 3,400 million. The core bank is the best it's ever been. That could be a couple hundred million. We just don't want to get in a position, I mean, we don't want to go harvest 30 basis points of deposit cost and then just rely on Federal Home Loan Bank advances. We don't want to be that bank.

Russell Gunther

All right, thank you guys. I appreciate the color there. And Dennis, you kind of took my next question in terms of how that loan growth might shake out from a vertical perspective. So I appreciate that. Maybe I would then switch gears to the expense front. How are you guys thinking about directionally the overall expense base inclusive? If we could have the kind of mortgage banking vertical as well.

Matt

Inclusive of mortgage. That was kind of hard to spit out unfortunately, because it's so tied to volume. I mean, as you know, it's going to be a, almost direct percentage of whatever their buying is going to be in the next quarter. I mean, I like to think of mortgage as kind of you net non interest income and non interest expense for the year. Now that doesn't include like spread income, which we also include in our profitability. Probably going to net US5 or 6 million for the year. So you can kind of back into, you know, take your, whatever your revenue assumption is and not interested. income for a mortgage and kind of back into expense from there. Otherwise when we kind of. And then panacea volatility to it as well. So we really focus on that core expense number which is around 22 million, I think. I think we'll stay in that kind of 22 to 23 million dollars range for the year.

Russell Gunther

Okay, understood. Appreciate it, Matt. Thank you. And then just last one for me guys would be an update on your kind of roa glide path like you mentioned in your Remarks would expect to pitch your targets, which I think are 1% ROA by the end of the year. What aspirations do you guys have from there and. And sort of a timeline to achieve.

Matt

Do you want to answer that before Fox?

Russell Gunther

Please move the gold post again. I can take Matt. Matt. Matt sometimes doesn't like how aspirational I am, Russell.

Matt

I understand. I get that. Yeah. I mean, 1%. I mean, 1%'s a good line for us because we not consistently been there, but 1% not going to. I mean, given our growth rate, that problem, our growth rates and our dividends, that will probably keep the bank capital levels flat. But I mean we want to build book, we want to build capital ratios, we want to position ourselves to be strategic and so we've got to be higher than that. I think mortgage at scale, I've said it's 57 basis points. Mortgage at scale probably is, you know, another 20% higher than that. That's going to be a big deal in the ROA. That's probably another 10 basis points for the ROA warehouse is probably going to add another 10 basis points once it gets to scale. The AI thing that Matt's working on and our rest of our bank, I mean, over time and we're not looking at that. If Russell is something that's going to reduce pet count, what it's going to do is take the experts we have and just make them be able to manage twice as much. And that's. We can manage like that when we have growth rates like we have. We know. I know I'm going to need these staff, these staff over time. I mean, aspirationally we ought to be given these lines of business on top of our core bank. We ought to be 1.25% or better and probably are looking more rotce to be something that would get near 15. I think if 15% return on tangible common equity (ROTCE), you kind of can control your future. People don't like your stock, you can just buy it back. If they do like your stock, then you can do other strategic things. But really until you get to that point, you're all you're doing is working

Russell Gunther

That's good. All right, I appreciate it, guys. I appreciate your thoughts and for taking all my questions. Thank you very much. Again.

OPERATOR

If you'd like to ask a question, please press Star. Then the number one on your telephone keypad. Your next question comes from the line of Christopher Marinak with Bren Capital Research. Your line is open.

Christopher Marinak

Hey, good morning. Dennis, the last couple days banks have talked about the competitiveness of digital deposits being more expensive than brokered funds. And I'm curious what you think about that. It seems that you're in a much better place. You've been doing the digital banking much longer and I'm just curious kind of how you look at that and is that digital area going to grow less as a result of the rate environment?

Dennis Seppert (President and Chief Executive Officer)

You know, I'm so glad you asked that question. I remember speaking on a panel somewhere and I was talking about how we had these 25 or 30,000 digital customers all across the country that have never been in a branch, probably never seen one of our bankers. And I was talking about how that we sometimes peruse their social media or we, you know, in communications with them, we find out that they have a dog, you know, Cavapoo. And we will do things that are very community bankerish. We will send them some swag, you know, a dog collar band or we'll reach out to them when we're in, you know, I've gone to see customers when I'm in Telluride. I found additional customers that was out there and went and had breakfast with them. The reason that I'm not going to sit here and say that these deposits aren't more expensive, honestly, they should be. They we have 25,000 or more digital customers that we're banking with six people so that they should be more comfortable, I mean more expensive. There's very little cost associated with it. But we have separated them from being just straight rate driven by being community bankers. The same thing that we do in the bank to make our customers not be solely rate focused, we're doing that on the digital platform. I'm not going to sit here and say that we're the only people that are doing that, but I will tell you that we're probably more effective at that than our competition. And we've been doing that for now for three years since we've got the real big slug of deposits in here. Our average digital customer has, Average digital customer is probably down 150 basis points from where their peak was. Average digital customer's been here, you know, probably more than 30 months closer to 36. Their average age is over 50, average deposits probably approaching 30 or $40,000. They have the cell phone numbers of the bankers that work them. Everybody has talked to a banker. I mean it's just things like that that have separated these customers from being solely rate focused. Now I would tell you in the core bank, the core Bank's cost of deposits is probably 180, 175, 159. I mean the digital is sitting there at like 375 or so. Like I said, we could probably push that down 25 or 30. So let's just say we could get them to three and a half. So yeah, it's obviously more expensive, but it's, it's growing at that level. And yeah, I don't know, I don't want to ramble on about it, but I'm very proud, I'm very proud of how our bankers pushed a community bank attitude and approach onto these 25,000 customers and that's paid off. Chris, that was a very long and rambling answer to your question.

Christopher Marinak

That is a. Okay, thanks for sharing all that. My other question just goes back to the mortgage business. As you continue to thrive in mortgage both in terms of production and gains plus the mortgage warehouse, is there a natural cap that will happen to how much of that business you want for the whole company? Will the bank just grow around it and kind of naturally cap how much mortgage will be down the road?

Dennis Seppert (President and Chief Executive Officer)

That, that's see that's the kind of thing you don't worry about when you're starting up. Matt and I joke all the time that we, our claim to fame is that we find problems and we fix them so well that they create new problems. I mean mortgage really should not be just a mortgage company. We don't want to be a mortgage company here. We want to run an amazing mortgage company but we don't want to be just to be a mortgage company. It really probably should be more than 20% of our bottom line. No question about, I mean and some of it is, you know, we have a dynamite team in mortgage and a dynamite leader and we have that. As for the core bank as well too. And Ric but I mean the core bank we're a little, we don't, we're still not fascinated with CRE. We're doing it but that's not our hallmark. You know, we're in some non growth, not really, not really fast growth areas in the core bank. So over time we're, we've got to find a way probably to grow the core bank faster so that mortgage warehouse panacea, all of those stay as complements to the bank and not the whole story. I mean we not we don't want to change the growth profiles or the growth dynamics. I mean our core bank is what our core bank right now is doing is amazing. And I don't want to step on the gas any harder and get a different kind of business. Some strategy will open up to us. We've not been in an M and a strategy or a position to do that. Maybe that will open up one day and that's probably the catalyst we need to build on the core bank and let these other items that we do that are so good and just run so well be a compliment to that.

Christopher Marinak

Great. That's very helpful. Thanks for that. I appreciate all the information today. Thanks, Chris.

OPERATOR

Thank you. There are no further questions at this time. I'd like to turn the conference back over to Dennis Zimber for any closing remarks.

Dennis Seppert (President and Chief Executive Officer)

Thank you all for joining our first quarter conference call. If you have any questions, Matt and I are are happy to get on the phone with you. Otherwise, have a good weekend. We'll talk to you soon.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.