10-Q: Primis Financial Reports Q1 2026 NIM Expansion and Loan Growth

Primis Financial Corp. achieved a significant increase in net interest margin and mortgage banking income in Q1 2026, despite a decline in headline net income following a prior-year one-time gain.

Summary

• Net income attributable to common stockholders was $7.3 million, or $0.30 per diluted share, for the quarter ended March 31, 2026.
• Core earnings grew by $9 million year-over-year when excluding a $25 million one-time gain from the deconsolidation of Panacea Financial Holdings in Q1 2025.
• Net interest income increased to $32.1 million, up from $26.4 million in the same period last year, driven by higher average loan balances.
• Net interest margin (NIM) expanded to 3.43% for the quarter, a 28 basis point improvement from 3.15% in Q1 2025.
• Total loans held for investment reached $3.4 billion, an increase of $113 million or 3% since December 31, 2025.
• Mortgage banking income surged 92% to $10.8 million, fueled by a 122% increase in funded loan volume.
• Total deposits grew to $3.42 billion, with the digital platform contributing approximately $1.0 billion of the total base.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive quarter characterized by strong core operational growth and margin expansion. While the headline net income fell due to a prior-year gain and nonperforming assets ticked up, the underlying business segments—particularly Mortgage and Panacea—are showing robust momentum.

Positives

• Net interest margin improved significantly to 3.43% due to favorable deposit pricing and earning asset growth.
• Mortgage banking income nearly doubled to $10.8 million compared to $5.6 million in the prior year.
• Repaid $27 million of fixed-to-floating rate senior subordinated notes on January 31, 2026, which is expected to lower future interest expense.
• The digital banking platform successfully grew small business balances to $28 million, up from $16 million at year-end 2025.
• Core community bank cost of deposits was 1.59%, significantly lower than the digital platform's 3.79%.
• Mortgage warehouse loan balances grew 45% during the quarter to $460 million.

Negatives

• Nonperforming assets as a percentage of total assets increased to 2.35% from 2.03% at year-end 2025.
• Salaries and benefits expenses rose by $1.6 million, primarily due to growth in the Primis Mortgage Company segment.
• Occupancy expenses increased by $1.1 million following a sale-leaseback transaction executed in late 2025.
• Internal controls over financial reporting remain ineffective as of March 31, 2026, due to ongoing remediation of previously identified material weaknesses.

Risks

• Commercial real estate (CRE) concentration remains high, with 36% of the loan portfolio tied to CRE, including $134.8 million in office space exposure.
• The digital deposit base has a high cost of 3.79%, which could pressure margins if interest rates remain elevated or competition for deposits intensifies.
• Potential for increased credit losses if economic conditions deteriorate, particularly in the suburban office and hotel/motel sectors which represent significant portions of the CRE portfolio.
• The Consumer Program loan portfolio, while running off, still carries higher risk with an 8% aggregate allowance and discount relative to the $82 million principal balance.

Future Outlook

Management expects the restructuring of the bank-owned life insurance (BOLI) portfolio to improve noninterest income by approximately $1.2 million annually starting late in Q2 2026. The company is also focused on realizing the full benefit of the $27 million subordinated note repayment in the second quarter. Strategic growth continues to target the Panacea Financial division and Mortgage Warehouse lending, while the Consumer Program portfolio is expected to become increasingly immaterial as it runs off.

Management Comments

• Our growth strategy is focused on driving higher production and profitability in four key areas: core community bank, mortgage warehouse, Panacea financial lending, and Primis Mortgage Company.
• The first quarter of 2026 was reflective of progress in growing earning assets and non-interest deposits.
• Because of the scalability of the digital platform, there is significantly less pressure on the core community bank to provide funding and risk profitable, decades-old relationships.

Industry Context

StockSavvy.ai notes that Primis is successfully navigating the 'higher-for-longer' interest rate environment by expanding its NIM through specialized lending niches like Panacea and Mortgage Warehouse, which often command higher yields than standard commercial lending. Their $1 billion digital deposit base provides a scalable funding source that many regional peers lack, though it comes at a higher cost than traditional branch-based deposits.

Comparison to Industry Standards

• NIM of 3.43% is competitive compared to the industry average for banks of similar size, which have seen margin compression due to rising deposit costs.
• The 25% concentration in non-owner occupied CRE is relatively moderate compared to some regional peers that exceed 300% of total capital in CRE exposure.
• The digital platform's 3.79% cost of deposits is higher than traditional community bank averages but lower than many 'high-yield' online-only competitors.
• Mortgage banking income growth of 92% significantly outperforms the broader industry, which has struggled with low origination volumes due to high mortgage rates.

Corporate Governance

Legal Proceedings

• The company is involved in various claims and proceedings in the ordinary course of business, but none are expected to have a material adverse effect on financial condition.

Stakeholder Impact

• Shareholders benefit from the NIM expansion and core earnings growth, though the material weakness in controls remains a concern for transparency.
• Borrowers in the Panacea (healthcare) and Mortgage Warehouse sectors continue to see strong credit availability from the bank.
• Employees in the Mortgage segment are seeing increased activity and compensation tied to higher funded volumes.

Next Steps

• Complete the restructuring of the bank-owned life insurance portfolio by late Q2 2026.
• Continue remediation of material weaknesses in internal controls over financial reporting.
• Execute the sale of the remaining Panacea Financial division commercial loans held for sale by June 30, 2026.
• Monitor the performance of the suburban office loan portfolio and the two specific commercial loans that recently fell into the 90-day past due category.

Key Dates

Recommendation

The company is showing excellent core growth and margin management, which are strong 'buy' signals. However, the persistent material weakness in internal controls and the recent uptick in nonperforming assets suggest a 'hold' is more prudent until the controls are fully remediated and asset quality stabilizes.

Keywords

Primis Financial Corp., Net Interest Margin, Mortgage Banking, Digital Banking, Commercial Real Estate Lending, Panacea Financial, Mortgage Warehouse, Subordinated Debt, Asset Quality, Virginia Banking