Primis Financial’s Earnings Call Maps Path to Higher ROA

Primis Financial Corp. ((FRST)) has held its Q4 earnings call. Read on for the main highlights of the call.

Primis Financial Charts a Positive Course Despite Near-Term Noise in Earnings Call

Primis Financial Corp.’s latest earnings call painted a broadly optimistic picture, with management emphasizing margin expansion, healthier funding, and scalable fee businesses as the key pillars to achieving a 1% return on assets (ROA) target in 2026. While the fourth quarter’s reported results were flattered by one-time gains and restructuring items, executives underscored that the underlying trajectory—driven by stronger net interest margins, deposit mix improvement, and growth in mortgage and warehouse lending—remains positive, even as they acknowledged seasonal and credit-related headwinds in the near term.

Strong Quarterly Earnings Signal Earnings Power

Primis reported fourth-quarter earnings of $29.5 million, or $1.20 per share, implying an eye-catching ROA of roughly 3.0% for the quarter. Management made clear that this level of profitability is not yet sustainable, but the result nevertheless highlights the earnings potential embedded in the business model. The quarter stands out as a demonstration of what the franchise can produce when core operations are layered on top of strategic actions and market-driven opportunities, even if investors should adjust for temporary boosts.

Run-Rate Profitability Sets Baseline for Growth

Beneath the headline quarter, Primis quantified its current run-rate earnings at about $8 million, translating to an approximately 80 basis point ROA on roughly $4.0 billion of average assets. Management is using this run-rate as the realistic starting point from which it intends to grow to a 1% ROA by 2026. Importantly, they noted that this baseline reflects “virtually no improvement” yet from recently announced restructuring efforts, implying that much of the upside from efficiency and balance sheet repositioning remains ahead rather than already captured.

Net Interest Income and Margin Expansion Drive Core Upside

Net interest income climbed to about $31 million in the fourth quarter from $26 million a year earlier, underscoring the benefits of balance sheet restructuring and disciplined pricing. Net interest margin (NIM) expanded to 3.28% from 2.90% a year ago and 3.18% in the prior quarter. Management indicated that, adjusting for completed debt redemption and securities restructuring, NIM would have been roughly 11 basis points higher, underscoring additional embedded margin upside. This margin trajectory is key to the bank’s earnings story, as higher-yielding assets and lower funding costs filter through results.

Deposit Growth and Cheaper Funding Strengthen the Franchise

Primis highlighted material progress in its deposit franchise, particularly in low-cost and noninterest-bearing balances. Checking accounts rose more than 23% year over year, adding about $116 million, while noninterest-bearing deposits climbed to $554 million, or 16% of total deposits, up from $439 million (14%) at the end of the prior year. Core bank cost of deposits fell to 1.59% in the fourth quarter, down 14 basis points from the prior quarter, with total deposit costs declining 20 basis points to 2.26%. This improving funding mix not only helps current profitability but also provides a sturdier foundation to support future asset growth without overreliance on expensive wholesale funding.

Earning Asset and Loan Growth Support Revenue Expansion

Earning assets rose by $325 million over the year, signaling continued balance sheet growth despite a challenging rate environment. Including Panacea loans that were sold, gross loans would have increased at an approximately 17% annualized pace in the fourth quarter, while average earning assets rose about 13% annualized. This measured but meaningful growth in earning assets adds scale that, when combined with expanding margins, should drive net interest income higher over time. Management’s stance suggests they are focusing on profitable, risk-aware growth rather than chasing volume for its own sake.

Mortgage Business Delivers Momentum and Scale

Primis Mortgage continued to emerge as a key strategic engine, closing roughly $1.2 billion of loans in 2025, a near 50% increase from 2024. Fourth-quarter mortgage revenue reached about $10 million, up from $8.9 million in the third quarter, reflecting both higher volume and improved execution. Management expects the mortgage business to scale further in 2026, targeting pretax margins of 40–60 basis points on production as volumes grow. That contribution, while cyclical and somewhat rate-sensitive, is becoming a meaningful and repeatable component of the bank’s overall earnings mix.

Warehouse Lending Positioned for Significant Upside

The mortgage warehouse lending segment is another area of strategic focus. Average mortgage warehouse balances stood at $175 million in 2025, but management expects that figure to jump to about $500 million on average in 2026, with seasonal peaks exceeding $600 million. The bank has previously cited this business as generating north of a 2% ROA even at smaller scale, suggesting that ramping up warehouse balances could materially boost consolidated returns. While warehouse lending is sensitive to mortgage market volumes, Primis is positioning itself to capture more of that flow through established relationships and infrastructure.

Operating Leverage and Expense Normalization Underpin Targets

On the cost side, management stressed that underlying expenses are more restrained than the headline fourth-quarter numbers suggest. After stripping out mortgage and Panacea volatility and nonrecurring items, normalized core noninterest expense was about $21 million in the quarter. Looking ahead to 2026, the bank is targeting quarterly core expenses in the $23–24 million range, inclusive of roughly $1.5 million in lease costs, and believes it can operate at or below the low end. This focus on operating leverage—growing revenues faster than expenses—is vital to bridging the gap between today’s 80 bps run-rate ROA and the 1% goal.

Digital and Customer Acquisition Power Long-Term Deposit Growth

Primis is leaning heavily on its digital platform as a growth and funding engine. Digital deposits totaled $903 million at year-end, supported by more than 20,000 customers, with about 15% of those within the bank’s core geographic footprint. Despite rate volatility and some intentional repricing, management maintained around 90% of these digital balances throughout the year and added nearly 6,000 new customers. While digital balances were down slightly (less than 10%) versus the prior year, the strong retention and steady new customer inflows demonstrate the platform’s staying power and potential for continued wallet share expansion.

Capital and Strategic Actions Reposition the Balance Sheet

Primis also took several strategic balance sheet actions designed to enhance capital efficiency and earnings. The company completed a sale-leaseback transaction and announced a $27 million subordinated debt redemption slated for completion at month-end. Management argued that these moves help reposition the franchise and improve future profitability, particularly by reducing interest expense and freeing up flexibility as the bank pushes toward its 1% ROA target. These steps, while creating some one-time noise in reported numbers, are intended to yield durable benefits.

One-Time Items Cloud Quarter Comparability

Though the quarter looked particularly strong on the surface, management was transparent that several nonrecurring items boosted results and complicated year-over-year comparisons. The sale-leaseback produced a substantial gain, and other restructuring-related adjustments contributed to the headline performance. This disclosure is important for investors parsing the sustainability of earnings, as it underscores that run-rate profitability remains materially lower than the quarter’s 3% ROA would suggest.

Run-Rate Still Lagging Behind Headline Quarter

Reinforcing that cautionary note, executives pointed out that the roughly 80 basis point run-rate ROA reflects minimal realized benefit so far from the restructuring actions. In other words, the strong fourth-quarter print was partly a function of timing and one-offs rather than a fully transformed earnings profile. This framing sets realistic expectations: the heavy lifting of converting restructuring plans into stable, higher recurring returns is still ongoing and will be a key factor for investors to monitor in coming quarters.

Provisioning, Reserves, and Emerging Credit Watch Items

On the credit front, provision expense totaled $2.4 million in the fourth quarter, driven partly by loan growth. About $1.0 million of that was tied to specific reserves for impaired loans, and roughly $600,000 related to activity in the consumer portfolio. Management also noted an uptick in special mention balances, calling out examples such as an office commercial real estate loan undergoing modification, an assisted living property facing tenant issues, and another credit in the process of recapitalization. While the team characterized these as manageable and not indicative of systemic deterioration, they remain watch-list items that investors should keep in view, particularly in a still-uneven commercial real estate environment.

Reported Operating Expenses Elevated by One-Off Charges

Reported core noninterest expense jumped to $28 million in the fourth quarter from $22 million in the third quarter, a move that might raise eyebrows absent context. Management explained that the increase included $4.5 million of restricted stock expense along with approximately $1.8 million in other one-time items and an additional $300,000–$400,000 in cleanup-related costs. These factors significantly distorted quarter-to-quarter comparisons and help explain why normalized expense levels are meaningfully lower than the headline figures suggest.

Seasonality and Early-Quarter Headwinds Temper Near-Term Outlook

Looking into the first quarter, management flagged seasonality as a key near-term headwind, especially in the mortgage and warehouse businesses, which typically slow in early-year periods. They warned that ROA in the first quarter could fall below the company’s 1.0% target before improving later in 2026 as volume and margin benefits build. While this may create some short-term volatility in results and potentially in the stock, management framed the softness as seasonal rather than structural.

Forward-Looking Guidance: Pathway to 1% ROA in 2026

Management’s guidance centers on reaching a full-year 2026 ROA of around 1.0%, up from today’s roughly 80 bps run-rate. The roadmap relies on further net interest margin expansion into the mid-3% to roughly 3.5% range as the bank completes its securities restructuring, redeems $27 million of subordinated debt, and benefits from loans repricing near 5% and the roll-off of $40 million of high-cost deposits. On the fee side, the mortgage warehouse portfolio is expected to average about $500 million in 2026 (with first-quarter levels around $400 million and peaks above $600 million), while closed mortgage loans—already about $1.2 billion in 2025, up 50% year over year—are projected to rise another 40–50% with pretax contribution of roughly 50–60 basis points on production. Combined with deposit growth (up 10% annualized in the fourth quarter), a stable base of noninterest-bearing deposits at 16% of totals, and disciplined expense management targeting $23–24 million of quarterly core noninterest expense, Primis believes it has multiple levers to close the gap to its ROA goal.

In sum, Primis Financial’s earnings call delivered a blend of robust reported results and sober context, with management candid about quarter-specific noise but confident in the underlying trajectory. Margin expansion, improving funding costs, and scalable mortgage and warehouse platforms stand out as the main growth drivers, counterbalanced by seasonal softness and a handful of credit watch items. For investors, the story is one of a bank in transition: not all of the promised benefits are in the numbers yet, but the strategy and early evidence support a constructive outlook heading into 2026.