プリミス・ファイナンシャル（FRST）2026年第3四半期決算説明会：住宅ローン収入減少に伴いマージン拡大

主要なポイント

• プリミス・ファイナンシャル（FRST）が発表した2026年第3四半期の純利益は870万ドル（希薄化後1株当たり0.35ドル）となり、前年同期の680万ドル（1株当たり0.28ドル）から増加した。
• 純利息収入は前年同期の2,900万ドルから3,630万ドルに増加した。発表された純利息マージン（NIM）は48ベーシスポイント（bp）拡大して3.66%となった。70万ドルの利息回収分を除いたコアマージンは3.59%であった。
• 投資目的保有貸出金は前年同期比9%増の約35億ドルとなった。預金残高は4%増の34億7,000万ドルに達した一方、連邦住宅ローン銀行（FHLB）借入金は8,000万ドル減少し2億2,000万ドルとなった。
• 金利上昇が取引活動を押し下げたことで、住宅ローン銀行業務収入は第2四半期の1,140万ドルから800万ドルに減少した。住宅ローン部門は、パイプライン評価の250万ドルの下方修正を含め、約20万ドルの赤字となった。
• 資産の質は安定を維持した。米中小企業庁（SBA）保証部分を除く不良資産比率は、前年同期の2.07%から総資産の1.43%へと改善し、コア純償却率は17ベーシスポイント（bp）であった。
• 経営陣は、マージンの段階的な拡大、通期で約8%の貸出成長、および2027年初頭からのベンダーおよび明細書サービス関連コストの年換算300万ドルの削減を見込んでいる。

主要財務データ

事業および業績の動向

コア銀行事業が主な収益牽引役となった。当四半期のコア銀行の貸出成長率は年率約11%となり、資産利回りの上昇と安定した資金調達基盤がマージン拡大を支えた。預金コスト全体は前期比でわずか3ベーシスポイント（bp）の上昇にとどまり、前年同期比では18ベーシスポイント（bp）低下して2.28%となった。

投資目的で保有するパナシア（Panacea）貸出は2,000万ドル増の6億300万ドルとなった。住宅ローン・ウェアハウス貸出残高は4,300万ドル減の5億100万ドルとなり、コア銀行およびパナシアの成長を一部相殺した。

住宅ローン事業は急激な金利上昇に直面した。経営陣によると、当四半期中に10年物米国債利回りが約100ベーシスポイント（bp）上昇した一方、フレディマック（連邦ホームローン抵当金庫）の30年固定住宅ローン平均金利は6月末の6.43%から9月末には7.28%に上昇した。実行額は3億4,700万ドルと前年同期比で12.5%増加したものの、住宅ローン銀行業務の収入は800万ドルに減少した。

プリミスは、主にサポート部門およびベンダー関連費用を通じて、住宅ローン関連の固定費を年間約400万ドル削減した。また経営陣は、住宅ローンの営業報酬の大半が歩合制であるため、取扱高の減少に伴ってコストも減少する仕組みになっていると説明した。

旧V1VEである「Banking Valet」プラットフォームは、引き続き同行の法人預金戦略の中心となっている。経営陣によると、当座預金口座の約半数がこのアプリに連携しており、預金基盤の安定性と金利感応度の低さは、このサービスに負うところが大きいとしている。

経営陣のガイダンス

• 経営陣は、純利息マージン（NIM）が時間をかけて段階的に約4〜5ベーシスポイント（bp）拡大すると見込んでいる。貸出金の再価格設定（リプライシング）は今後2〜3四半期続くと予想されるが、マージン大幅拡大のピークは過ぎた可能性が高い。
• 通期の貸出成長率は、以前の予想（8%〜8.5%）に対し、8%近くで着地する見通しである。2027年については、コア銀行の成長目標を概ね5%〜7%とし、一桁台半ばから後半の成長が達成可能であると説明した。
• 住宅ローン、パナシア、一時的項目を除くコア費用は、第4四半期に約2,250万ドルで推移した後、2027年第1四半期から減少に転じる見込みである。
• ベンダーの統合と明細書サービスの変更により、2027年初頭から年換算で約300万ドルのコスト削減効果が見込まれている。
• 2026年の預金成長率は約3%〜5%と見込んでおり、ブローカー預金や大口市場調達（ホールセール・ファンディング）ではなく、主にコア預金に支えられて2027年にはさらに力強い成長を見込んでいる。
• 同社は、収益改善と慎重なバランスシート成長を通じて、数四半期以内にTCE比率を8.5%以上に引き上げることを目指している。
• 住宅ローン金利が7.0%〜7.25%程度の場合、年間取扱高は約11億ドル、税引前利益は350万ドル〜400万ドルと推定される。金利が6%台半ばまで低下すれば、取扱高は16億ドル〜17億ドル、税引前利益は800万ドル近くまで拡大する可能性があるが、経営陣は住宅ローン予測の不確実性を強調した。

リスクと注視点

高水準で推移する住宅ローン金利が引き続き主な営業上の圧迫要因となっている。同部門のコスト削減策にかかわらず、新規実行額の減少は住宅ローン関連収入および住宅ローン・ウェアハウス残高を減少させる可能性がある。

貸出競争が激化しており、顧客は金利や条件を活発に比較検討している。プリミスは、収益性を防衛するために低コストの預金基盤と厳選した貸出審査（アンダーライティング）に頼っている。

経営陣は短期的な資金調達コストの大幅な上昇は見込んでいないものの、顧客からの預金金利引き上げ要求が今後も続く可能性があることを認めた。

当四半期中の信用の悪化（クレジット・マイグレーション）は限定的であった。しかし経営陣は、すでにかなりの個別引当金を計上している特定の管理対象資産について、償却を実施するかどうかを検討している。このような対応は、発表される償却額や不良資産比率に影響を与える可能性がある。

アナリスト質疑応答の主なポイント

アナリストの関心はマージン拡大の持続可能性に集中した。経営陣は、5年前に実行された貸出金の再価格設定（リプライシング）の機会が残っていることが更なるマージン拡大を支えるとする一方、預金ベータの低さと高コスト預金の獲得競争を控えていることが調達圧力を抑制するはずだと述べた。

費用については、第4四半期のコア四半期ランレート（標準的な支出水準）を2,250万ドル近くに維持した。給与改定により一部相殺されるものの、ベンダーおよび明細書サービスの削減効果が出始める2027年第1四半期に、より大幅な費用減少が見込まれている。

経営陣は、コア銀行、パナシア、住宅ローン・ウェアハウスの各事業のバランスを取ることで、今後数年間にわたり約8%の貸出成長を維持できると述べた。このアプローチにより、TCE比率を再び7%台に低下させることなく、利益剰余金によって自己資本を積み増す狙いがある。

コア銀行における新規貸出金利は、概ねプライムレート（最優遇貸出金利）にわずかなスプレッドを上乗せした水準で設定されている。パナシア貸出は5年物金利プラス約225〜250ベーシスポイント（bp）、手数料を含む住宅ローン・ウェアハウス貸出は概ねSOFRプラス275〜300ベーシスポイント（bp）に設定されている。

経営陣は、持続可能な1%超のROAが視野に入っていることを改めて強調した。低い取扱高水準であっても住宅ローン部門が正常化すればROAが約10ベーシスポイント（bp）押し上げられると推定しており、長期目標としては同業他社の収益性に向けてさらに約15ベーシスポイント（bp）向上させることを見込んでいる。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

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.

質疑応答

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.