Conferencia de resultados del T3 de 2026 de Primis Financial (FRST): El margen se expande a medida que caen los ingresos hipotecarios

Puntos clave

• Primis Financial Corp. (FRST) registró en el tercer trimestre de 2026 un beneficio neto de 8,7 millones de dólares, o 0,35 dólares por acción diluida, frente a los 6,8 millones de dólares, o 0,28 dólares por acción, del mismo periodo del año anterior.
• El margen de intereses aumentó a 36,3 millones de dólares desde los 29,0 millones de dólares en comparación con el año anterior. El margen de interés neto publicado se amplió 48 puntos básicos hasta el 3,66%; excluyendo una recuperación de intereses de 700.000 dólares, el margen subyacente fue del 3,59%.
• Los préstamos mantenidos para inversión aumentaron un 9% en tasa interanual hasta aproximadamente 3.500 millones de dólares. Los depósitos alcanzaron los 3.470 millones de dólares, un 4% más, mientras que los anticipos del FHLB disminuyeron en 80 millones de dólares hasta los 220 millones de dólares.
• Los ingresos por banca hipotecaria cayeron a 8,0 millones de dólares desde los 11,4 millones del segundo trimestre, ya que los tipos más altos perturbaron la actividad. La unidad hipotecaria perdió aproximadamente 200.000 dólares, incluyendo un reajuste de valoración de la cartera en tramitación por 2,5 millones de dólares.
• La calidad de los activos se mantuvo estable. Los activos improductivos, excluidas las partes garantizadas por la SBA, mejoraron hasta el 1,43% del activo total frente al 2,07% de hace un año, mientras que los saneamientos netos subyacentes se situaron en 17 puntos básicos.
• La dirección prevé una expansión incremental del margen, un crecimiento de los préstamos cercano al 8% para todo el año y un ahorro anualizado de 3 millones de dólares en proveedores y servicios de extractos a partir de principios de 2027.

Datos financieros clave

Rendimiento comercial y operativo

El banco principal fue el motor clave de los beneficios. El crecimiento de los préstamos de la actividad bancaria principal se situó en aproximadamente un 11% anualizado durante el trimestre, mientras que los mayores rendimientos de los activos y una base de financiación estable respaldaron la expansión del margen. Los costes totales de los depósitos aumentaron solo 3 puntos básicos de forma intertrimestral y cayeron 18 puntos básicos en tasa interanual hasta el 2,28%.

Los préstamos de Panacea mantenidos para inversión aumentaron en 20 millones de dólares hasta los 603 millones de dólares. Los saldos de financiación de almacén hipotecario disminuyeron en 43 millones de dólares hasta los 501 millones de dólares, compensando parcialmente el crecimiento del banco principal y de Panacea.

Las operaciones hipotecarias se enfrentaron a una marcada subida de los tipos de interés. La dirección señaló que el rendimiento del Tesoro a 10 años subió casi 100 puntos básicos durante el trimestre, mientras que el tipo medio hipotecario a 30 años de Freddie Mac aumentó del 6,43% a finales de junio al 7,28% a finales de septiembre. Los ingresos por banca hipotecaria cayeron a 8,0 millones de dólares, aunque el volumen formalizado de 347 millones de dólares fue un 12,5% superior al del año anterior.

Primis ha reducido los costes fijos vinculados al negocio hipotecario en aproximadamente 4 millones de dólares anuales, principalmente en las categorías de soporte y proveedores. La dirección también señaló que la mayor parte de la remuneración por ventas hipotecarias se basa en comisiones, lo que permite que los costes disminuyan a la par con el volumen.

La plataforma Banking Valet, anteriormente V1VE, sigue siendo fundamental para la estrategia de depósitos comerciales del banco. La dirección afirmó que aproximadamente la mitad de las cuentas corrientes están vinculadas a la aplicación y atribuyó a este servicio parte de la estabilidad y la baja sensibilidad a los tipos de la base de depósitos.

Previsiones de la dirección

• La dirección prevé que el margen de interés neto se expanda de forma incremental en torno a 4 o 5 puntos básicos con el tiempo. Se espera que el reajuste de precios de los préstamos continúe durante los próximos dos o tres trimestres, aunque es probable que las mayores ganancias de margen hayan quedado atrás.
• Se espera que el crecimiento de los préstamos para todo el año finalice cerca del 8%, frente a un rango previo del 8% al 8,5%. Para 2027, la dirección calificó de alcanzable un crecimiento de un dígito medio a alto, con un objetivo general de crecimiento para la actividad bancaria principal del 5% al 7%.
• Se prevé que los gastos subyacentes, excluyendo el negocio hipotecario, Panacea y las partidas no recurrentes, se mantengan cerca de los 22,5 millones de dólares en el cuarto trimestre antes de comenzar a caer en el primer trimestre de 2027.
• Se espera que la consolidación de proveedores y los cambios en los servicios de extractos generen aproximadamente 3 millones de dólares en ahorros anualizados a partir de principios de 2027.
• La dirección prevé un crecimiento de los depósitos de aproximadamente el 3% al 5% para 2026 y un crecimiento más sólido en 2027, respaldado principalmente por depósitos tradicionales más que por financiación intermediada o mayorista.
• La empresa tiene como objetivo situar el ratio TCE por encima del 8,5% en varios trimestres mediante la mejora de los beneficios y un crecimiento prudente del balance.
• Con tipos hipotecarios en torno al 7,0% - 7,25%, la dirección estima una producción hipotecaria anual de aproximadamente 1.100 millones de dólares y un beneficio antes de impuestos de entre 3,5 y 4,0 millones de dólares. Tipos en la zona media del 6% podrían respaldar un volumen de entre 1.600 y 1.700 millones de dólares y un beneficio antes de impuestos más cercano a los 8 millones de dólares, aunque la dirección enfatizó la incertidumbre de las previsiones hipotecarias.

Riesgos y aspectos a vigilar

La persistencia de tipos hipotecarios elevados sigue siendo la principal presión operativa. Un menor volumen de concesión podría reducir los ingresos hipotecarios y los saldos de financiación de almacén hipotecario a pesar de las reducciones de costes de la división.

La competencia en el crédito es elevada y los clientes comparan activamente tipos y condiciones. Primis confía en su base de depósitos de menor coste y en una concesión selectiva de préstamos para proteger la rentabilidad.

La dirección no anticipa un aumento significativo a corto plazo en los costes de financiación, pero reconoció que los clientes podrían seguir solicitando mejores condiciones en los tipos de los depósitos.

La migración del crédito fue limitada durante el trimestre. Sin embargo, la dirección está evaluando si sanear determinados activos clasificados que ya cuentan con reservas específicas sustanciales. Dicha medida podría afectar a los saneamientos registrados y a los ratios de activos improductivos.

Puntos destacados del turno de preguntas y respuestas

Los analistas se centraron en la sostenibilidad de la expansión del margen. La dirección afirmó que las oportunidades restantes de reajuste de precios en los préstamos concedidos hace cinco años deberían respaldar nuevas ganancias, mientras que la limitada beta de los depósitos y la ausencia de una competencia agresiva por depósitos de alto coste deberían mitigar la presión de la financiación.

En cuanto a los gastos, la dirección mantuvo una tasa de ejecución trimestral subyacente para el cuarto trimestre cercana a los 22,5 millones de dólares. Se prevé que la reducción más significativa se produzca durante el primer trimestre de 2027, a medida que los ahorros en proveedores y servicios de extractos surtan efecto, lo que se verá compensado en parte por reajustes salariales.

La dirección afirmó que se podría mantener un crecimiento de los préstamos de aproximadamente el 8% durante los próximos años equilibrando la actividad de la banca principal, Panacea y la financiación de almacén hipotecario. Este enfoque busca permitir que los beneficios no distribuidos generen capital sin volver a situar el ratio TCE en la franja del 7%.

Los nuevos préstamos de la banca principal se fijan generalmente en torno al tipo prime más un diferencial modesto. Los préstamos de Panacea se fijan aproximadamente al tipo a cinco años más 225 o 250 puntos básicos, mientras que los préstamos de almacén hipotecario, incluidas las comisiones, se sitúan generalmente en torno al SOFR más 275 o 300 puntos básicos.

La dirección reiteró que se divisa un ROA sostenible por encima del 1%. Estimó que una contribución hipotecaria normalizada podría añadir aproximadamente 10 puntos básicos al ROA con niveles de producción más bajos, con el objetivo a más largo plazo de avanzar aproximadamente otros 15 puntos básicos hacia la rentabilidad de sus pares.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Hello, everyone. Thank you for joining us, and welcome to Primis Financial Corp. Third Quarter Earnings Call. I will now hand the conference over to Matthew Switzer, Chief Financial Officer. Matthew, please go ahead.

Matthew Switzer

Good morning. 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 could 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, primisbank.com. We undertake no obligation to update or revise forward-looking statements to reflect changed 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. How a non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measure is used, if not readily apparent. I will now turn the call over to our President and Chief Executive Officer, Dennis Zember.

Dennis Zember

Thank you, Matt. Thank you for everyone that joined our third quarter earnings call. For the quarter, we're reporting $8.7 million of net earnings or about $0.35 per share, which is a healthy increase of 28% over the same quarter a year ago. A couple of notable items had a real outsized impact on the quarter's results. First was our net interest margin coming out of the Community Bank, which increased to about 3.66% in the current quarter compared to the same quarter a year ago, that's about a 15% improvement when we reported 3.18%.

We continue to benefit from a very valuable deposit portfolio with long-term loyal customers, and we pair that with loan production levels, loan production and loan repricing opportunities that have delivered real results. Putting that steady quarter-over-quarter improvement in perspective, we've grown annual net interest income by about $28 million over the last 12 months. The balance sheet restructuring we did at the end of '22 definitely helped, but staying disciplined on both sides of the balance sheet and with loan repricing has been the real driver. Our core bank and our digital platform combined quarter after quarter, growing deposits at a healthy and profitable level and our bank's loan engines focus on higher-quality customers with yields and rates that I know are at a win-win level. There's real competition out there right now on the loan side and customers are shopping very hard. So having a valuable deposit side of the balance sheet is critical to being competitive and profitable.

On the negative side, we had a falloff in revenue in the mortgage company that corresponded to a pretty steep rise in rates. The 10-year treasury increased almost 100 basis points in the third quarter, and it moved Freddie Mac's average 30-year mortgage from 6.43% at the end of June to 7.28% at the end of September. Our mortgage CEO calibrates volume based on these rates. And 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. 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.

These fixed cost reductions are augmented by the fact that virtually none of our commission-based sales team have regular salaries. And so we know that a notable reduction in compensation will occur as volumes fall. In the third quarter, the mortgage company lost about $200,000, which included the $2.5 million reset in the open pipeline values and about $300,000 of provision for growth in portfolio and construction loans. This performance with those headwinds, combined with the restructuring work that our mortgage team is undertaking give us confidence in this division as we adjust to what might be a new norm in rates.

On the balance sheet, we ended the quarter with about $3.5 billion in loans, up 9.3% from a year ago, but only up about $30 million from the end of the second quarter. Production in our core bank was very good with very good rates, and we supported that with mostly steady balances in warehouse and higher balances in Panacea. I'd expect balances to come in a little in the fourth quarter, just given the mortgage backdrop and how that's going to affect warehouse. I expect that we probably finish the year with total growth in the balance sheet of about 8% to 8.5% on year-end balances.

Deposit has grown slower over the past year as we've been unsure about where rates were headed. I know that our loan pricing and our sensitivity allow us to be -- would allow us to be more aggressive on rates for deposits, but we did want to outrun the Fed. And so we stood still waiting to know which direction rates will be going and rely more heavily on FHLB. Still today, we don't 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.

Lastly, capital levels are creeping up like we believe they would. For the quarter, tangible book value and tangible common equity to total assets improved. Tangible book value ended at $13.81, which is 18% higher than a year ago. And our TCE ratio improved to 8.14%, which is materially higher than a year ago when we were in the mid-7s. Matt and I really would like for TCE to be north of 8.5%, and we expect that a continued improvement in earnings and cautious balance sheet growth will get us there in a few quarters. With that, Matt, I'll turn it to you.

Matthew Switzer

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 filed with the SEC. As Dennis mentioned, Primis reported earnings of $8.7 million or diluted earnings per share of $0.35 in the third quarter compared to $9.4 million or $0.38 per share in the second quarter and $6.8 million or $0.28 per share a year ago. Operating earnings were $0.35 per share this quarter, up substantially from $0.23 in the second quarter and $0.28 a year ago. Operating return on average assets was 80 basis points versus 53 basis points in the second quarter and 70 basis points a year ago. Pretax pre-provision operating net income was $12 million in the third quarter, up 38% from $8.7 million in the year ago period.

Turning to the balance sheet. Gross loans held for investment increased approximately 4% annualized from June 30 to September 30 and were up 9% year-over-year. Core bank loan growth was approximately 11% annualized in the quarter and Panacea loans held for investment increased $20 million to $603 million, partially offset by a $43 million decline in period-end mortgage warehouse balances of $501 million. Average earning assets were approximately $3.94 billion, up slightly linked quarter, but up 9% compared to the year ago quarter. Total deposits ended the quarter at $3.47 billion, up $26 million linked quarter and 4% year-over-year, while FHLB advances declined $80 million to $220 million. Net interest income was approximately $36.3 million, up from $33.8 million last quarter and $29 million a year ago.

The third quarter included approximately $700,000 of interest recoveries from a previously charged off loan. Excluding that recovery, net interest income was $35.6 million, up 5.5% linked quarter. Our reported net interest margin was 3.66%, up 21 basis points linked quarter and 48 basis points year-over-year. Excluding this interest recovery, core net interest margin was 3.59%, up a healthy 14 basis points from the second quarter. While earning asset yields continue to increase, we have benefited from a stable funding base with cost of total deposits of 228 basis points in the third quarter, up 3 basis points linked quarter and down 18 basis points year-over-year, while total cost of funds was 247 basis points, up 1 basis point linked quarter and down 15 basis points year-over-year.

Our provision this quarter was $1.1 million compared to $5.5 million in the second quarter and a recovery of $49,000 a year ago. The majority of the provision this quarter was driven by loan growth as described above. Asset quality remains stable with nonperforming assets, excluding portions guaranteed by the SBA, improving to 1.43% of total assets at quarter end from 1.45% at June 30 and 2.07% a year ago. Core net charge-offs were 17 basis points in the third quarter, down 53 basis points in the second quarter and up from 3 basis points a year ago, with the year-over-year increase largely driven by 1 credit that had previously been reserved for.

Noninterest income was $12.9 million in the third quarter versus $22 million last quarter, which also included a $5.9 million investment gain. Mortgage banking revenue was $8 million, down from $11.4 million last quarter and $8.9 million a year ago, reflecting the significant market disruption during the quarter. Primis Mortgage still closed $347 million of volume, which was a 12.5% increase year-over-year. We also reported $1.5 million of gain on sale income related to Panacea loans and the guaranteed portion of SBA loans this quarter. Other income included approximately $900,000 of recoveries on a previously charged-off loan reflected in the third quarter.

On the expense side, reported noninterest expense was $37.2 million, down from $38.2 million in the second quarter and up from $32.3 million a year ago. Excluding mortgage and Panacea division volatility and nonrecurring items, our core operating expense burden was approximately $24.2 million versus $24.9 million in the second quarter and $21.6 million a year ago. Included in the third quarter numbers, approximately $1.4 million of loan-related expenses and $0.4 million of professional fees and other third-party expenses incurred in the quarter. Excluding these items, the core operating expense burden was essentially flat with the run rate we discussed last quarter and down slightly from the year ago period when adjusting for the lease expense associated with our sale leaseback in the fourth quarter of 2022.

We continue to expect approximately $3 million of annualized savings from vendor consolidation and statement services beginning early in 2027. These savings are an important part of our effort to drive continued operating leverage through 2027. In summary, the third quarter demonstrated continued strength in the core banking franchise, further margin expansion, stable credit costs and meaningful year-over-year improvement in operating earnings. Breakeven on net overhead for mortgage, which would still be lower than normal for a typical third quarter, would have had us at a 1% ROA for the third quarter as we've been targeting. We can't control the environment, but we are taking steps to align costs with current volumes while preserving our ability to benefit when the market recovers. We like how we are positioned right now, and we couldn't be more confident that profitability is going to continue to improve as planned. With that, operator, we can now open the line for Q&A.

Operator

Your first question comes from the line of Russell Gunther from Stephens.

Preguntas y respuestas

Russell Elliott Gunther

Guys, I wanted to start out on the margin. So great core result this quarter. You're well through kind of where you thought you might end the year, I think, in that 3.50%, 3.55% range. So it would be helpful to get a sense for where you see the margin trajectory from here into the fourth quarter and next year. Would you guys expect to see continued expansion? Or has the rate environment or competitive landscape kind of shifted your view on where that margin ultimately shakes out?

Matthew Switzer

Yes. I think we'll continue to see some incremental margin expansion, Russell. It's probably not going to be quite as dramatic as it was this quarter, but we've got loan repricing still in front of us from loans we put on 5 years ago. And that's going to still play out over the next, call it, 2 to 3 quarters. So we do -- I mean, we have strongly benefited from our core deposit base. And I don't have the beta in front of me, but our beta on this last rate move was very low. We have been selectively adjusting rates as customers have raised their hand, but we have not been aggressively moving rates up across the board or going after hot money, which is including on the digital platform. We did not adjust rates on the digital platform after the last rate move. So we're going to continue to see -- absent the Fed move, we're going to continue to see people raise their hand or ask for concessions, and we'll manage through that. But we don't expect a big move in cost of funds. It will be more incremental and then loan yields will continue to tick up. So I think that when you put all that together, we'll have some incremental margin expansion 4 or 5 basis points over time, but not quite what we saw this quarter. The big moves are kind of behind...

Russell Elliott Gunther

Well, still an excellent result and it sounds like some forward progress still to come. So I appreciate the color. Very helpful. Maybe switching gears on to the expense side of things. I hear you on how the mortgage revenue will impact comp and the step down there. Maybe outside of that, how are you thinking about kind of core trends in the fourth quarter? And then do we see more of a kind of step down in 2027 as some of those efficiency initiatives pull through? Just be helpful to get -- I hear you on positive operating leverage, but maybe just a finer point on kind of core expense trends.

Matthew Switzer

Yes. I think last quarter, we talked about a kind of run rate expense of, call it, $22 million to $22.5 million quarterly when you take out mortgage and Panacea and nonrecurring noise. We were basically in that same ballpark this quarter when you take out those couple of expenses that I highlighted in mortgage and Panacea. And I still think that's around that $22.5 million number is still a good spot for the fourth quarter as we go into next year. Next year, it will be kind of midway through the first quarter. We'll start to see those savings from the -- our contracts around the statements and other vendor consolidation, the $3 million number I highlighted. So in our mind, that's incrementally bringing down that $22.5 million number. Now we will adjust salaries and things like that late in the first quarter. So that will put some pressure up. But we're looking for offsets to that to keep us in that low 22% range or less after those statement savings.

Russell Elliott Gunther

Okay. And then just last one for me, if I could. The deck had suggested that '27 estimates are achievable. I see consensus near $2 that puts you firmly in that sustainable ROA north of 1%. Do you have a goalpost in mind beyond that and the timing you'd hope to achieve it?

Dennis Zember

Matt, it wouldn't be normal for me to tell you the next goal before we get to this goal...

Matthew Switzer

Russell.

Dennis Zember

Russell. But I mean, our peer group is better than that. And some of the things that we've been doing over the years, investing and building stuff right here, we're done with that. We're simply harvesting the good that all of our efforts have provided. So I think we'd be higher than that. And the mortgage investment sort of requires it. So I think adjusting mortgage even in this -- at this level, if these rates persist and we're really somewhere in the $1 billion to $1.2 billion. I still think mortgage would add 10 basis points to the ROA over a year. I think if it was higher, if we were sort of in the 1.7%, 1.8%, probably be closer to 15. But at 10 basis points, given where the margin is and some of the OpEx things that Matt was mentioning that are -- I mean, we're a month away from some of these things happening. 1% is definitely in sight. We would have been there this quarter if just sort of steady on mortgage. Beyond that, we really just got to sort of get to and get above peer level, which is probably another 15 basis points.

Operator

Your next question comes from the line of Steve Moss with Raymond James.

Stephen Moss

This is Chase on for Steve. So good core bank loan growth this quarter, and I saw the pipeline number in the release. Can you just give a sense where you're seeing the best opportunities today and maybe how to think about growth in 4Q into 2027?

Dennis Zember

I mean I think 4Q loan growth, I think the core bank will probably continue with well, actually, the core bank may be flat in the fourth quarter. We have one big loan payoff, disappointing that it's paying off, but that's probably going to keep us flat on the core bank. I mean mortgage warehouse had a strong third quarter despite where rates went. But I mean, it's the fourth quarter, I'd expect it to stack a little. I think for the year, we're going to end up with loan growth in probably the 8% category. We've got several good drivers. We have the core bank, we have Panacea. We've got mortgage warehouse. We can kind of lean on any of them in a quarter to sort of keep earning assets moving. But I think we end the year somewhere around 8%, which I think is right in line with where Matt and I wanted to go. It allows us to have earnings growing TCE. It doesn't pressure that. Matt and I don't want to get back into the 7s. We really want to be kind of closer to 8.5% or 9%. And so I think 8% loan growth is good. And I would tell you, I think 8% given those loan drivers, those businesses, I think we can probably sustain that for a couple of more years. I think we're going to have on the deposit side, I think we can fund the majority of that with core deposit growth, not using broker, not using wholesale. We're going to have -- I'm pretty sure we're going to have a dynamite fourth quarter on deposits, just given some of what I know is going to close and show up here. So I think for the year, we'll probably be, call it, 3%, 4%, 5% on deposits. But next year, I think we'd be stronger than that. So yes, I'd say we're probably going to settle back from 9% right now to probably around 8% for the whole year. And I'd probably call for that same thing next year.

Matthew Switzer

Yes. I mean the core bank had a really good third quarter, but for the year, it won't be at 11% rate. And we think about the core bank more kind of up 5% to 7% year in and year out. And then we can manage the Panacea growth, we can manage a mortgage portfolio. So something mid- to high single digits is comparable for next year.

Dennis Zember

And not having to push it's a real luxury not having to push hard on the core bank. I mean, keep it on sort of in the 5% to 6% growth rate because I mean, one, we focus on better deposits. We focus that are less rate sensitive, that are less rate shoppers. We -- and we can really focus on the best loan opportunities, whether that's the loan rate or the yield or structure, credit quality. So we're able to be a little more picky and then lean harder on whether it's Panacea, warehouse or even digital to sort of get us to where we want to be. I think it's a real luxury.

Stephen Moss

Appreciate all that color there. And just staying on loans here, where are new loans pricing at now today?

Matthew Switzer

Warehouse --...

Dennis Zember

Well, the core bank is probably comfortably -- I mean, all blended comfortably either prime plus a little bit. Panacea is probably 5-year plus 225, 250 maybe, but probably -- I mean, it's with 5-year moving up, it's probably tightened that spread a little. And warehouse is generally like with fees generally like SOFR plus 275, maybe 300.

Stephen Moss

Got it. Appreciate you. And just one more for me here. I believe I heard you say $1.1 billion, $1.6 billion of mortgage production at current rates. And I know it's a bit tough to answer, but if mortgage rates came down another 50 to 100 basis points, and I know we're down a lot in the 10-year this week, how much upside could there be to that range you think?

Dennis Zember

Yes. I keep my I found that I cannot accurately predict anything with mortgage outside of tomorrow. But that's a good question. And I will tell you, we've got a lot of -- have got a massive amount of algorithms and R-squareds on mortgage. I will tell you that at our current level, with rates sort of 7%, 7.25%, we're about $1.1 billion mortgage shop. And at that level, we're probably about 30 to 35 basis points of pretax on on volume. So maybe $3.5 million, $4 million at the high end pretax. At $1.6 billion, if rates were like in the mid-6s like we were at the end of the second quarter, I mean, we were on track to do $1.6 billion, $1.7 billion, maybe a little more. And at that level, we're probably comfortably over 50 basis points of profitability. So at $1.6 billion, you're doing somewhere closer to $8 million of pretax. We -- again, our mortgage company does not have the luxury of nothing is boosting our mortgage company profitability with servicing or servicing revenues are recurring in that we do all servicing-released type sales. We hedge a good bit. But I mean, there's a lot of upside. I will tell you this. I'm reluctant to say this because I don't want anybody to hear us thinking that we're just hoping for higher rates. We're not. We're like adjusting to today's rate with cost saves. That will make us more efficient if rates sort of fall. But we're sort of presuming that these rates will be persistent. I mean inflation is -- I mean, the economy is a lot hotter and stronger than we want to believe it is, at least what the results say. And so we're sort of pretending that this is not pretending, we're acting like this is our new norm. I say that I do watch the 10-year every day, and I celebrate every time it's in the red. Anyway, go ahead.

Operator

Your next question comes from the line of Christopher Marinac from [ Green Capital ].

Christopher Marinac

Dennis, can you brag a little bit on the Banking Valet business that you rebranded and maybe talk about the opportunities and more deposit growth from that channel?

Dennis Zember

Yes. Banking Valet, which is what we used to call V1VE for those on the call, and that's basically our proprietary app where we deliver banking services to mostly commercial customers, but commercial and consumer customers. Basically, any service you can get in a in the branch, you can use our app, and we will bring that service to you. So we have thousands of customers using it. Of all the customers that have downloaded it and used it, maybe 1 or 2 have quit using it or deleted it. So it's very popular. Virtually, none of these customers have closed their accounts. It's probably the leading -- one of the leading things our commercial and treasury people lead with when they are in front of a new customer. Virtually, every commercial deposit relationship we have that didn't come because of the loan came because of its service. It's very, very valuable, very useful. probably half of our checking accounts are rooted with this app. So I would tell you -- and that's very important because especially in a rising rate environment where deposits, checking accounts seem to stag a little bit. I think this is something that's going to keep us pretty steady or potentially increasing. We have beta tested this in a faraway market to see what would -- how we could deliver services. We found COIs, salespeople and had some success. We have not -- I'm not going to go out on a limb and say that that's the future here. Really, what we do is we just use this to expand the power of our branch beyond 5 miles, and we're selling probably out to 20, 25 miles of each of our branches. It just makes our branches -- it's not a branch replacement tool. It's sort of a branch enhancement tool. We changed the name from V1VE to Banking Valet just to be a little more progressive and sort of fit with the rest of the bank as well. So I don't know, Chris, if that answers your question, but...

Christopher Marinac

So Dennis, my impression is that you can lean more into this as well as sort of with a weak mortgage environment that you can lean more into banking. And certainly, that may be a blessing in the skies. So just curious if you think that's going to help you get more core deposits, continue to have this low-cost funding engine that can drive earnings while you manage expenses and hopefully get a churn in the mortgage business later.

Dennis Zember

Yes. Chris, I mean, the numbers -- you can't look at the balances in our numbers and sort of -- if you look at the balances, you can't really see the success of this over the last 3 or 4 years because I mean, really, you've had so much shift mix going on as rates have moved up. But what you can see is the stability in deposits as our betas have shrunk to rising rates. And here we are with an extremely attractive cost of deposits. And I'd tell you a lot of it is because of this. It's rooted in this plus long-term loyalty. So what -- we are growing deposits aggressively with this. It's just not as visible because of shift mix. But I think as rates -- if rates were to sort of stabilize, I think you would -- I don't think -- I know you would see stronger results in noninterest-bearing to deposit -- noninterest-bearing to total.

Christopher Marinac

Got it. That's helpful. And then, Matt, just a quick one for you. The operating expenses, should we see a small downtick in Q4 and then a more bigger change as the systems and other changes that you've already announced kick in, in Q1?

Matthew Switzer

I think we'll be flattish in the fourth quarter and then start to tick down in Q1.

Christopher Marinac

Okay. So the $3 million adjustment, we should see a lot of that in Q1?

Matthew Switzer

Yes.

Christopher Marinac

Perfect. Okay. And then anything on the credit side? You had success lowering charge-offs and criticized backed off a little bit. Anything in the pipeline in terms of where that could go further from here?

Matthew Switzer

I mean not at the moment. We didn't have any migration in the quarter. It's really focused on working through the ones we already have.

Christopher Marinac

I was more curious if losses would be the same or if it's possible that they could grind lower.

Dennis Zember

Net charge-offs?

Christopher Marinac

Correct.

Dennis Zember

I mean, we have some pretty substantial specific reserves on a few of the classified assets. I mean, we've debated or are debating and mostly from an accounting standpoint, if we should charge those off as opposed to just carrying them into specifics. And so that the NPA ratio is not as inflated. But -- that we may do that before the end of the quarter, but that's -- I think that's it. I don't think we see any -- aside from that, I don't think we see anything that would move that number.

Christopher Marinac

Right now that would generate incremental provisioning charging off.

Operator

This concludes the question-and-answer session. I will now turn the call back to Dennis Zember for closing remarks.

Dennis Zember

Thank you all again for joining us on our third quarter call. I hope everybody has a good weekend and a good fourth quarter, and we will talk to you soon.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.