Primis (FRST) Q1 2026 earnings review
Core Earnings Accelerate as Specialized Lending and Low-Cost Deposits Deliver
Primis Financial delivered a highly encouraging Q1 2026, showcasing the success of its strategic repositioning. While reported net income fell year-over-year due to a massive one-time gain in Q1 2025, Operating Net Income surged 126% to $8.1 million. The engine behind this is twofold: explosive growth in specialized, high-yield divisions like Mortgage Warehouse (+300% YoY), and a relentless focus on noninterest-bearing (NIB) deposits, which expanded Net Interest Margin by 28 bps year-over-year to 3.43%. With Operating ROAA climbing to 0.84%, the bank is firmly on the path to its stated 1.0% ROA target.
🐂 Bull Case
Net Interest Margin accelerated to 3.43%, up from 3.15% a year ago. A 20% YoY increase in average noninterest-bearing deposits actively suppressed funding costs, creating substantial positive leverage against high-yielding new loan originations.
The Mortgage Warehouse division is hitting hyper-growth, expanding balances 300% YoY to $460 million at a 6.80% yield. Primis Mortgage also defied macro headwinds, closing $367 million in volume (+122% YoY) and generating $2.1M in pre-tax earnings.
🐻 Bear Case
Asset quality requires monitoring. Nonperforming assets ticked up sequentially to 2.24% of total assets, driven by a single $13.6M relationship that fell 90 days past due at quarter-end.
Reported noninterest expense remains high. While management cites a controlled 'core operating expense burden' of $22M, structural costs like the $1.4M quarterly lease expense from the Q4 sale-leaseback act as a persistent headwind.
⚖️ Verdict: 🟢
Bullish. The core banking engine is clicking. By aggressively growing NIB deposits and scaling high-yield niches like Mortgage Warehouse and Panacea, Primis has engineered a sustainable path to widening margins and expanding ROAA.
Key Themes
Noninterest-Bearing Deposits Powering Margin Leverage
A crucial driver of Primis's margin expansion is its deposit mix. Average noninterest-bearing (NIB) deposits grew 20% YoY to $534 million, now comprising 15.9% of average total deposits (up 160 bps YoY). This influx of free funding dragged the total cost of funds down 21 basis points YoY to 2.46%, providing a massive competitive advantage as the bank funds high-yielding specialized loans.
Mortgage Warehouse Hyper-Growth
The Mortgage Warehouse division is accelerating dramatically. Outstanding balances reached $460 million at the end of Q1, up 300% from $115 million a year ago and up 45% sequentially. The division generated an attractive 6.80% yield in Q1, funded efficiently by associated customer NIB deposits covering roughly 12% of the balance sheet. This is a highly scalable, high-ROA earnings engine.
Transitioning Panacea to Flow Sales
Panacea Financial loan balances grew 10% sequentially to $600 million. Crucially, management noted that loans held for sale at quarter-end will be sold in early Q2, followed by ongoing flow loan sales. This strategic shift allows Panacea to maintain high origination volumes and generate fee income without permanently bloating the balance sheet or straining capital.
Persistent Asset Quality Blips
Nonperforming assets (excluding SBA guarantees) crept up to 2.24% of total assets, compared to 2.03% in Q4 2025 and just 0.28% a year ago. The sequential increase was driven by a $13.6 million relationship moving to 90 days past due. While management noted the borrower subsequently made multiple payments, the elevated NPA baseline requires monitoring, even though core net charge-offs remained nominal at 0.06%.
AI-Driven Operating Leverage
Management highlighted ongoing initiatives to deploy artificial intelligence tools to contain expenses while growing revenue. Departments across the bank have identified high-priority AI use cases expected to yield over 200 people-hours per week in efficiencies. This supports the narrative of holding core operating expenses relatively flat while scaling revenue.
Other KPIs
Accelerating significantly from 3.07% in Q4 2025 and 5.78% in Q1 2025. This metric strips out one-time noise and demonstrates the true compounding power of the repositioned balance sheet, clearing the double-digit hurdle for the first time.
Accelerating heavily. Closed mortgage volume spiked 122% YoY from $165M in Q1 2025. Pre-tax earnings jumped to $2.1M (from $0.8M YoY). This volume growth defies a tough rate environment, driven heavily by market share capture and successful recruitment of high-producing teams.
Up 18% YoY from $11.40. Consistent value creation despite the noise of Q4's balance sheet restructuring and sale-leaseback, reflecting solid retained earnings and stabilizing accumulated other comprehensive income (AOCI).
Guidance
Accelerating. The core bank expects to generate this level of SBA fee income beginning in Q2 2026, creating a reliable, high-margin revenue stream that was largely absent in prior quarters.
Stable incremental growth. Expected to improve noninterest income starting late in Q2 2026, flowing directly to the bottom line.
Stable. The company expects the tax rate to remain near 21.8% of pre-tax earnings for the remainder of 2026, aligning with normalized historical run rates.
Key Questions
Panacea Flow Sale Economics
With Panacea transitioning to ongoing flow loan sales in Q2, what are the expected gain-on-sale margins for these transactions, and how much volume do you anticipate selling quarterly?
NPA Resolution Timeline
NPAs ticked up to 2.24% due to a specific $13.6M relationship that is 90-days past due but making payments. What is the timeline for moving this credit back to performing status, and are there any specific loss exposures?
Mortgage Warehouse Ceiling
Mortgage Warehouse outstandings grew to $460M, representing a substantial portion of the balance sheet. What is management's target capacity or concentration limit for this division?
AI Implementation Timeline
You mentioned identifying AI use cases to save 200+ hours per week. When will these efficiencies begin to materially lower the core operating expense burden?