~~PART I -~~PRIMIS FINANCIAL ~~INFORMATION~~CORP

~~ITEM 1 - FINANCIAL STATEMENTS~~

~~SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.~~

.
CONDENSED CONSOLIDATED BALANCE SHEETS

((dollars in thousands, except per share amounts)


	June 30,		December 31,
	2023		2022
ASSETS	(unaudited)
Cash and cash equivalents:
Cash and due from financial institutions	$	6,720	$	6,868
Interest-bearing deposits in other financial institutions		94,148		70,991
Total cash and cash equivalents		100,868		77,859

Securities available-for-sale, at fair value (amortized cost of $256,101 and $269,036, respectively)		223,087		236,315

Securities held-to-maturity, at amortized cost (fair value of $11,369 and $12,449, respectively)		12,378		13,520

Loans held for sale, at fair value		57,704		27,626

Loans held for investment		3,173,638		2,946,637
Less: allowance for credit losses		(38,414)		(34,544)
Net loans		3,135,224		2,912,093

Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB)		12,083		25,815
Bank premises and equipment, net		25,298		25,257
Assets held for sale		3,115		3,115
Operating lease right-of-use assets		10,707		5,335
Goodwill		104,609		104,609
Intangible assets, net		2,606		3,254
Bank-owned life insurance		67,985		67,201
Deferred tax assets, net		20,391		18,289
Other assets		72,438		49,211
Total assets	$	3,848,493	$	3,569,499

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	480,832	$	582,556
Interest-bearing deposits:
NOW accounts		817,725		617,687
Money market accounts		850,359		811,365
Savings accounts		696,750		245,713
Time deposits		471,330		465,057
Total interest-bearing deposits		2,836,164		2,139,822
Total deposits		3,316,996		2,722,378

Securities sold under agreements to repurchase - short term		3,921		6,445
FHLB advances		—		325,000
Junior subordinated debt - long term		9,806		9,781
Senior subordinated notes - long term		85,647		85,531
Operating lease liabilities		11,546		5,767
Other liabilities		27,361		22,232
Total liabilities		3,455,277		3,177,134

Commitments and contingencies (See Note 8)

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		—		—
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,690,064 and 24,680,097 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		246		246
Additional paid in capital		312,976		312,722
Retained earnings		106,075		105,247
Accumulated other comprehensive loss		(26,081)		(25,850)
Total stockholders' equity		393,216		392,365
Total liabilities and stockholders' equity	$	3,848,493	$	3,569,499

September 30, December 31,
2017 2016
(unaudited) (audited)
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions $ 7,500 $ 4,656
Interest-bearing deposits in other financial institutions 15,820 42,736
Total cash and cash equivalents 23,320 47,392

Federal funds sold 623 -

Securities available for sale, at fair value 164,237 3,918

Securities held to maturity, at amortized cost
(fair value of $99,122 and $83,344, respectively) 100,333 85,300

Covered loans 23,979 28,180
Non-covered loans 2,011,202 902,235
Total loans 2,035,181 930,415
Less allowance for loan losses (9,254 ) (8,610 )
Net loans 2,025,927 921,805

Stock in Federal Reserve Bank and Federal Home Loan Bank 24,076 7,929
Equity investment in mortgage affiliate 4,617 4,629
Preferred investment in mortgage affiliate 3,305 2,555
Bank premises and equipment, net 36,289 8,227
Goodwill 96,990 10,514
Core deposit intangibles, net 10,416 874
FDIC indemnification asset 1,525 2,111
Bank-owned life insurance 50,491 23,826
Other real estate owned 8,053 8,617
Deferred tax assets, net 24,921 6,780
Other assets 21,449 7,966

Total assets $ 2,596,572 $ 1,142,443

LIABILITIES AND STOCKHOLDERS' EQUITY

Noninterest-bearing demand deposits $ 323,722 $ 88,783
Interest-bearing deposits:
NOW accounts 326,064 26,338
Cash management accounts - 9,658
Money market accounts 364,420 129,835
Savings accounts 166,030 52,755
Time deposits 723,373 605,613
Total interest-bearing deposits 1,579,887 824,199
Total deposits 1,903,609 912,982

Securities sold under agreements to repurchase 16,416 -
Federal Home Loan Bank (FHLB) advances - short term 272,115 95,000
Junior subordinated debt 9,522 -
Senior subordinated notes 47,138 -
Other liabilities 21,762 8,117
Total liabilities 2,270,562 1,016,099

Commitments and contingencies (See Note 6) - -

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding - -
Common stock, $0.01 par value. Authorized 45,000,000 shares; issued and outstanding, 23,916,453 shares at September 30, 2017 and 12,263,643 at December 31, 2016 239 123
Additional paid in capital 304,682 104,884
Retained earnings 21,827 22,126
Accumulated other comprehensive loss (738 ) (789 )
Total stockholders' equity 326,010 126,344

Total liabilities and stockholders' equity $ 2,596,572 $ 1,142,443

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~statements.

Table of Contents

~~SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.~~PRIMIS FINANCIAL CORP

.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share amounts) (Unaudited)

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Interest and dividend income:
Interest and fees on loans $ 26,726 $ 11,792 $ 51,819 $ 33,790
Interest and dividends on taxable securities 1,464 581 2,620 2,059
Interest and dividends on tax exempt securities 159 84 333 252
Interest and dividends on other earning assets 458 162 829 482
Interest on federal funds sold 4 - 4 -
Total interest and dividend income 28,811 12,619 55,605 36,583
Interest expense:
Interest on deposits 3,391 2,128 7,809 5,918
Interest on repurchase agreements 12 - 13 18
Interest on junior subordinated debt 120 - 129 -
Interest on senior subordinated notes 712 - 1,483 -
Interest on other borrowings 726 118 1,225 388
Total interest expense 4,961 2,246 10,659 6,324

Net interest income 23,850 10,373 44,946 30,259

Provision for loan losses 5,250 2,050 6,850 4,062
Net interest income after provision for loan losses 18,600 8,323 38,096 26,197

Noninterest income:
Account maintenance and deposit service fees 1,518 225 2,098 675
Income from bank-owned life insurance 305 175 631 524
Equity (loss) income from mortgage affiliate (83 ) 749 (450 ) 1,381
(Loss) gain on sales of investment securities (2 ) - 255 -
Other 561 26 580 88
Total noninterest income 2,299 1,175 3,114 2,668

Noninterest expenses:
Salaries and benefits 7,746 2,699 13,750 8,753
Occupancy expenses 1,703 783 3,338 2,377
Furniture and equipment expenses 907 283 1,401 720
Amortization of core deposit intangible 360 44 483 168
Virginia franchise tax expense 364 96 605 290
FDIC assessment 186 165 391 478
Data processing expense 440 184 858 533
Telephone and communication expense 567 201 912 586
Amortization of FDIC indemnification asset 173 187 540 606
Net (gain) loss on other real estate owned (106 ) (9 ) 213 74
Merger expenses 168 - 9,094 -
Other operating expenses 1,928 725 3,745 2,403
Total noninterest expenses 14,436 5,358 35,330 16,988
Income before income taxes 6,463 4,140 5,880 11,877
Income tax expense 2,089 1,375 2,294 3,757
Net income $ 4,374 $ 2,765 $ 3,586 $ 8,120

Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities $ 242 $ 188 $ 323 $ (296 )
Realized amounts on securities sold, net 2 - (255 ) -
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale 3 3 9 10
Net unrealized gain (loss) 247 191 77 (286 )
Tax effect (84 ) (64 ) (26 ) 98
Other comprehensive income (loss) 163 127 51 (188 )
Comprehensive income $ 4,537 $ 2,892 $ 3,637 $ 7,932
Earnings per share, basic $ 0.18 $ 0.23 $ 0.22 $ 0.66
Earnings per share, diluted $ 0.18 $ 0.22 $ 0.21 $ 0.65



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Interest and dividend income:
Interest and fees on loans	$	43,970	$	26,337	$	85,276	$	51,060
Interest and dividends on taxable securities		1,449		1,340		2,932		2,665
Interest and dividends on tax exempt securities		102		105		203		210
Interest and dividends on other earning assets		7,158		448		11,382		854
Total interest and dividend income		52,679		28,230		99,793		54,789
Interest expense:
Interest on deposits		24,783		2,311		39,827		4,684
Interest on other borrowings		1,739		1,341		5,444		2,699
Total interest expense		26,522		3,652		45,271		7,383
Net interest income		26,157		24,578		54,522		47,406
Provision for credit losses		4,301		422		9,488		521
Net interest income after provision for credit losses		21,856		24,156		45,034		46,885

Noninterest income:
Account maintenance and deposit service fees		1,430		1,442		2,646		2,793
Income from bank-owned life insurance		394		378		814		753
Mortgage banking income		5,198		593		9,513		593
Gain on sale of loans		182		—		660		—
Credit enhancement income		1,152		—		6,038		—
Other noninterest income		130		217		347		581
Total noninterest income		8,486		2,630		20,018		4,720

Noninterest expenses:
Salaries and benefits		15,283		10,573		30,311		20,198
Occupancy expenses		1,593		1,418		3,038		2,875
Furniture and equipment expenses		1,852		1,128		3,429		2,228
Amortization of intangible assets		318		341		635		682
Virginia franchise tax expense		848		814		1,697		1,627
Data processing expense		2,828		1,293		5,079		2,783
Marketing expense		521		731		1,090		1,196
Telephone and communication expense		416		366		793		748
Net gain on other real estate owned		—		—		—		(59)
Loss on bank premises and equipment and assets held for sale		—		620		—		620
Professional fees		1,075		827		1,937		1,921
Credit enhancement costs		515		—		1,388		—
Other operating expenses		5,303		2,366		8,559		4,690
Total noninterest expenses		30,552		20,477		57,956		39,509
Income (loss) before income taxes		(210)		6,309		7,096		12,096
Income tax expense (benefit)		(22)		1,361		1,331		2,612
Net income (loss)	$	(188)	$	4,948	$	5,765	$	9,484
Other comprehensive loss:
Unrealized loss on available-for-sale securities	$	(3,299)	$	(10,723)		(293)		(24,099)
Tax benefit		(693)		(2,252)		(62)		(5,061)
Other comprehensive loss		(2,606)		(8,471)		(231)		(19,038)
Comprehensive income (loss)	$	(2,794)	$	(3,462)	$	5,534	$	(9,436)
Earnings (loss) per share, basic	$	(0.01)	$	0.20	$	0.23	$	0.39
Earnings (loss) per share, diluted	$	(0.01)	$	0.20	$	0.23	$	0.38

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

~~SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.~~PRIMIS FINANCIAL CORP

.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND 2022

(dollars in thousands, except per share amounts) (Unaudited)

Accumulated
Additional Other
Common Paid in Retained Comphrensive
Stock Capital Earnings Loss Total
Balance - December 31, 2016 $ 123 $ 104,884 $ 22,126 $ (789 ) $ 126,344
Comprehensive income:
Net income - - 3,586 - 3,586
Change in unrealized loss on securities available for sale (net of tax expense, $23) - - - 45 45
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $3 and accretion, $9 and amounts recorded into other comprehensive income at transfer) - - - 6 6
Dividends on common stock ($0.24 per share) - - (3,885 ) - (3,885 )
Issuance of common stock for warrants exercised (49,500 shares) - 449 - - 449
Issuance of common stock under Stock Incentive Plan (45,550 shares) - 371 - - 371
Issuance of common stock in connection with Eastern Virginia Bankshares, Inc. merger (11,557,760 shares) 116 198,793 - - 198,909
Stock-based compensation expense - 185 - - 185
Balance - September 30, 2017 $ 239 $ 304,682 $ 21,827 $ (738 ) $ 326,010


	For the Three Months Ended June 30, 2023
									Accumulated
					Additional				Other
	Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss		Total
Balance March 31, 2023		24,685,064	$	246	$	312,903	$	108,732	$	(23,475)	$	398,406
Net loss		—		—		—		(188)		—		(188)
Changes in other comprehensive loss on investment securities (net of tax benefit, $693)		—		—		—		—		(2,606)		(2,606)
Dividends on common stock ($0.10 per share)		—		—		—		(2,469)		—		(2,469)
Restricted stock granted		5,000		—		—		—		—		—
Stock-based compensation expense		—		—		73		—		—		73
Balance - June 30, 2023		24,690,064	$	246	$	312,976	$	106,075	$	(26,081)	$	393,216

		For the Three Months Ended June 30, 2022
									Accumulated
					Additional				Other
	Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss		Total
Balance March 31, 2022		24,622,739	$	245	$	311,872	$	99,710	$	(9,455)	$	402,372
Net income		—		—		—		4,948		—		4,948
Changes in other comprehensive loss on investment securities (net of tax benefit, $2,252)		—		—		—		—		(8,471)		(8,471)
Dividends on common stock ($0.10 per share)		—		—		—		(2,465)		—		(2,465)
Stock option exercises		27,500		1		278		—		—		279
Repurchase of restricted stock		—		—		(2)		—		—		(2)
Stock-based compensation expense		—		—		92		—		—		92
Balance - June 30, 2022		24,650,239	$	246	$	312,240	$	102,193	$	(17,926)	$	396,753

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~statements.

Table of Contents

PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(dollars in thousands, except per share amounts) (Unaudited)

~~SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.~~


			For the Six Months Ended June 30, 2023
									Accumulated
					Additional				Other
	Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss		Total
Balance - December 31, 2022		24,680,097	$	246	$	312,722	$	105,247	$	(25,850)	$	392,365
Net income		—		—		—		5,765		—		5,765
Changes in other comprehensive loss on investment securities (net of tax benefit, $62)		—		—		—		—		(231)		(231)
Dividends on common stock ($0.20 per share)		—		—		—		(4,937)		—		(4,937)
Shares retired to unallocated		(1,033)		—		—		—		—		—
Stock option exercises		8,000				85		—		—		85
Restricted stock granted		5,000		—		—		—		—		—
Restricted stock forfeited		(2,000)		—		—		—		—		—
Repurchase of restricted stock		—		—		(12)		—		—		(12)
Stock-based compensation expense		—		—		181		—		—		181
Balance - June 30, 2023		24,690,064	$	246	$	312,976	$	106,075	$	(26,081)	$	393,216

			For the Six Months Ended June 30, 2022
									Accumulated
					Additional				Other
	Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Income (Loss)		Total
Balance - December 31, 2021		24,574,619	$	245	$	311,127	$	97,631	$	1,112	$	410,115
Net income		—		—		—		9,484		—		9,484
Changes in other comprehensive loss on investment securities (net of tax benefit, $5,061)		—		—		—		—		(19,038)		(19,038)
Dividends on common stock ($0.20 per share)		—		—		—		(4,922)		—		(4,922)
Shares retired to unallocated		(538)		—		—		—		—		—
Stock option exercises		27,500		1		278		—		—		279
Restricted stock granted		1,500		—		—		—		—		—
Repurchase of restricted stock		—		—		(8)		—		—		(8)
Stock-based compensation expense		—		—		843		—		—		843
Shares issued in lieu of bonus		47,158		—		—		—		—		—
Balance - June 30, 2022		24,650,239	$	246	$	312,240	$	102,193	$	(17,926)	$	396,753

Table of Contents

PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND ~~2016~~2022

(dollars in ~~thousands)~~thousands, except per share amounts) (Unaudited)


	For the Six Months Ended June 30,
	2023		2022
Operating activities:
Net income	$	5,765	$	9,484
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization		4,547		3,515
Net amortization (accretion) of premiums and discounts		(635)		312
Provision for credit losses		9,488		521
Origination of loans held for sale		(301,161)		(26,998)
Proceeds from sale of loans held for sale		270,852		31,273
Net gains on mortgage banking		(9,513)		(593)
Net gains on sale of loans		(660)		—
Loss on bank premises and equipment and assets held for sale		—		620
Earnings on bank-owned life insurance		(784)		(753)
Gain on bank-owned life insurance death benefit		(30)		—
Stock-based compensation expense		181		843
Gain on other real estate owned		—		(59)
Credit enhancement income		(6,038)		—
Benefit for deferred income taxes		(2,040)		—
Net increase in other assets		(8,830)		(3,008)
Net increase (decrease) in other liabilities		4,345		(2,631)
Net cash and cash equivalents (used in) provided by operating activities		(34,513)		12,526
Investing activities:
Purchases of securities available-for-sale		(5,000)		(27,573)
Proceeds from paydowns, maturities and calls of securities available-for-sale		17,373		16,896
Proceeds from paydowns, maturities and calls of securities held-to-maturity		1,124		7,907
Net decrease of FRB and FHLB stock		13,732		2,581
Net increase in loans		(231,405)		(287,754)
Proceeds from bank-owned life insurance death benefit		873		138
Proceeds from sales of other real estate owned, net of improvements		—		181
Purchases of bank premises and equipment		(1,405)		(536)
Business acquisition, net of cash acquired		—		(4,554)
Net cash and cash equivalents used in investing activities		(204,708)		(292,714)
Financing activities:
Net (decrease) increase in deposits		594,618		(80,411)
Cash dividends paid on common stock		(4,937)		(4,922)
Proceeds from exercised stock options		85		279
Repurchase of restricted stock		(12)		(8)
Repayment of short-term FHLB advances, net of proceeds		—		(75,000)
Repayment of short-term borrowings		(325,000)		(19,254)
Increase (decrease) in securities sold under agreements to repurchase		(2,524)		58
Net cash and cash equivalents provided by (used in) financing activities		262,230		(179,258)
Net change in cash and cash equivalents		23,009		(459,446)
Cash and cash equivalents at beginning of period		77,859		530,167
Cash and cash equivalents at end of period	$	100,868	$	70,721
Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	41,182	$	7,698
Income taxes	$	3,908	$	1,556
Non-cash investing and financing activities:
Initial recognition of operating lease right-of-use assets	$	5,372	$	—

2017 2016

Operating activities:
Net income $ 3,586 $ 8,120
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation 1,282 613
Amortization of core deposit intangible 483 168
Other amortization, net 633 (61 )
Accretion of loan discount (2,321 ) (1,465 )
Amortization of FDIC indemnification asset 540 606
Provision for loan losses 6,850 4,062
Earnings on bank-owned life insurance (631 ) (524 )
Equity loss (income) on mortgage affiliate 450 (1,381 )
Stock-based compensation expense 185 198
Net gain on sales of investment securities (255 ) -
Net loss on other real estate owned 213 74
Net decrease (increase) in other assets 2,237 (1,694 )
Net (decrease) increase in other liabilities (851 ) 3,324
Net cash and cash equivalents provided by operating activities 12,401 12,040
Investing activities:
Purchase of federal funds sold (623 ) -
Proceeds from sales of investment securities 4,767 -
Purchases of held to maturity investment securities (9,950 ) (46,055 )
Purchases of available for sale investment securities (1,747 ) -
Proceeds from paydowns, maturities and calls of available for sale investment securities 3,950 -
Proceeds from paydowns, maturities and calls of held to maturity investment securities 9,752 55,976
Loan originations and payments, net (51,059 ) (90,875 )
Distribution from mortgage affiliate 48 628
Net increase in stock in Federal Reserve Bank and Federal Home Loan Bank (9,413 ) (575 )
Payments received on FDIC indemnification asset - 10
Proceeds from sales of other real estate owned 1,006 1,166
Purchases of bank premises and equipment (750 ) (120 )
Acquisition of Eastern Virginia Bankshares, Inc. (10 ) -
Cash acquired in acquisition of Eastern Virginia Bankshares, Inc. 24,025 -
Net cash and cash equivalents used in investing activities (30,004 ) (79,845 )
Financing activities:
Net (decrease) increase in deposits (149,119 ) 79,596
Cash dividends paid - common stock (3,885 ) (2,940 )
Issuance of common stock for warrants exercised 449 101
Issuance of common stock under Stock Incentive Plan 371 118
Issuance of subordinated notes, net of cost 26,075 -
Net increase in short-term borrowings 119,640 16,000
Net decrease in long-term borrowings - (5,000 )
Net cash and cash equivalents (used in) provided by financing activities (6,469 ) 87,875
(Decrease) increase in cash and cash equivalents (24,072 ) 20,070
Cash and cash equivalents at beginning of period 47,392 30,336
Cash and cash equivalents at end of period $ 23,320 $ 50,406

Supplemental disclosure of cash flow information
Cash payments for:
Interest $ 9,231 $ 6,190
Income taxes 2,390 3,483
Supplemental schedule of noncash investing and financing activities
Transfer from long-term FHLB advances to short-term FHLB advances $ - $ 5,000
Transfer from covered loans to other real estate owned - 144
Transfer from securities sold under agreement to repurchase to deposits - 10,381
Assets acquired, excluding cash and cash equivalents of $24,025 1,346,573 -
Liabilities assumed 1,258,164 -

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~statements.

Table of Contents

~~SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.~~PRIMIS FINANCIAL CORP.

Notes to Unaudited Condensed Consolidated Financial Statements ~~(Unaudited)~~

~~September 30, 2017~~

1. ACCOUNTING POLICIES

~~Southern National Bancorp of Virginia, Inc.~~Primis Financial Corp. (“~~Southern National” or “SNBV”~~Primis,” “we,” “us,” “our” or the “Company”) is ~~a corporation that was formed on July 28, 2004 under~~ the ~~laws of the Commonwealth of Virginia and is the~~bank holding company for ~~Sonabank~~Primis Bank (“~~Sonabank”~~Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. As of the close of business on June 23, 2017, SNBV completed its previously announced merger of Eastern Virginia Bankshares, Inc. (“EVBS”) with and into SNBV and the completion of the merger of EVBS’s wholly-owned subsidiary, EVB, with and into SNBV’s wholly-owned subsidiary, Sonabank (see Note 2 - Business Combinations). This combination has brought together two banking companies with complementary business lines, creating one of the premier banking institutions headquartered in the Commonwealth of Virginia. EVBS was the holding company for EVB, a Virginia state-chartered bank which traced its beginnings to 1910. SonabankPrimis Bank provides a range of financial services to individuals and small and ~~medium sized~~medium-sized businesses.

At ~~September~~June 30, ~~2017, Sonabank~~2023, Primis Bank had ~~thirty-seven~~thirty-two full-service branches in Virginia and Maryland and also provided services to customers through certain online and mobile applications. Thirty full-service retail branches are in Virginia ~~located in the counties of Chesterfield, Essex (2), Fairfax (Reston, McLean~~ and Fairfax), Gloucester (2), Hanover (3), King William, Lancaster, Middlesex (3), New Kent, Northumberland (3), Southampton, Surry, Sussex, and in Charlottesville, Clifton Forge, Colonial Heights, Front Royal, Hampton, Haymarket, Leesburg, Middleburg, New Market, Newport News, Richmond, South Riding, Warrenton, and Williamsburg, and seventwo full-service retail branches are in ~~Maryland,~~Maryland. The Company is headquartered in ~~Rockville, Shady Grove, Bethesda, Upper Marlboro, Brandywine, Owings~~McLean, Virginia and ~~Huntingtown.~~has an administrative office in Glen Allen, Virginia and an operations center in Atlee, Virginia. Primis Mortgage Company, a residential mortgage lenderheadquartered in Wilmington, North Carolina, is also a consolidated subsidiary of Primis Bank.

The accounting policies and practices of Primis and its subsidiaries conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practice within the banking industry. Major policies and practices are described below.

Principles of Consolidation

The consolidated financial statements include the accounts of ~~Southern National~~Primis and its subsidiaries ~~Sonabank~~Primis Bank, Primis Mortgage Company and EVB Statutory Trust I (the “Trust”). Significant inter-company accounts and transactions have been eliminated in consolidation. ~~Southern National~~Primis consolidates subsidiaries in which it holds, directly or indirectly, more than 50 percent of the voting rights or where it exercises control. Entities where ~~Southern National~~Primis holds 20 to 50 percent of the voting rights, or has the ability to exercise significant influence, or both, are accounted for under the equity method. ~~Southern National has~~Primis owns the Trust which is an unconsolidated subsidiary and the junior subordinated debt owed to the Trust is reported as a liability of Primis.

We determine whether we have a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”) under U.S. GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in which we have all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIEs are entities that lack one ~~affiliate, Southern Trust~~or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. The Company has investments in VIE’s for which we are not the primary beneficiary and, as such, are not included in our consolidated financial statements.

Operating Segments

The Company, through its Bank subsidiary, provides a broad range of financial services. While the Company’s chief operating decision makers monitor the revenue streams of the various financial products and services, operations are managed and financial performance is evaluated on an organization-wide basis. Management has determined that the Company has two reportable operating segments: Primis Mortgage ~~LLC (“STM”), which it accounts for~~and Primis Bank, as ~~an equity method investment.~~discussed in Note 10 – Segment Information.

Basis of Presentation

The unaudited consolidated financial statements and notes thereto have been prepared in accordance with U.S. ~~generally accepted accounting principles (“U.S. GAAP”)~~GAAP for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required

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by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in ~~Southern National’s~~Primis’ Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. ~~Material estimates~~Estimates that are particularly susceptible to ~~significant~~ change in the near term ~~relate to~~include: the determination of the allowance for ~~loan~~credit losses, the ~~carrying~~fair value of investment securities, ~~other than temporary~~credit impairment of investment securities, the valuation of goodwill and ~~intangible assets, the FDIC indemnification asset, other real estate owned (“OREO”),~~ deferred tax assets. Management monitors and continually reassess these at each reporting period.

Interest Rate Swaps

The Company is subject to interest rate risk exposure in the normal course of business through its core lending operations. Primarily to help mitigate interest rate risk associated with its loan portfolio, the Company entered into interest rate swaps in May 2023 with a large U.S. financial institution as the counterparty. Interest rate swaps are contractual agreements whereby one party pays a floating interest rate on a notional principal amount and receives a fixed-rate payment on the same notional principal, or vice versa, for a fixed period of time. Interest rate swaps change in value with movements in benchmark interest rates, such as Prime or SOFR. Interest rate swaps subject the Company to market risk associated with changes in interest rates, changes in interest rate volatility, as well as the credit risk that the counterparty will fail to perform. The Company’s interest rate swaps are pay-fixed and receive-floating whereby the Company receives a variable rate of interest based on SOFR.

The Company’s interest rate swaps meets the definition of a derivative instrument under ASC 815, Derivatives and Hedging, and is accounted for both initially and subsequently at its fair value. The Company assessed the derivative instrument at inception and determined it met the requirements under ASC 815 to be accounted for as a fair value hedge. Fair value hedge relationships mitigate exposure to the change in fair value of the hedged risk in an asset, liability or firm commitment. The Company’s interest rate swaps are a fair value hedge that is accounted for using the portfolio layer method, which allows the Company to hedge the interest rate risk of prepayable loans by designating as the hedged item a stated amount of a closed portfolio of consumer loans that is expected to be outstanding for the designated hedge periods. Under the fair value hedging model, gains or losses attributable to the change in fair value of the derivative instrument, as well as the gains and losses attributable to the change in fair value of the hedged item, are recognized in interest income in the same income statement line item with the hedged item in the period in which the change in fair value occurs. The corresponding adjustment to the hedged asset or liability is included in the basis of the hedged item, while the corresponding change in the fair value of the derivative instrument is recorded as an adjustment to other assets or other liabilities, as applicable.

The following table represents the carrying value of the portfolio layer method hedged assets and the cumulative fair value ~~measurements~~hedging adjustments included in the carrying value of the hedged assets as of June 30, 2023 and December 31, 2022:


	June 30, 2023						December 31, 2022
(dollars in thousands)		Amortized Cost Basis		Hedged Asset		Basis Adjustment		Amortized Cost Basis		Hedged Asset		Basis Adjustment
Fixed rate assets	$	440,935	$	195,739	$	(4,261)	$	—	$	—	$	—

Revisions

During the second quarter of 2023, the Company discovered an employee loan fraud with total exposure of approximately $2.5 million. The fraud dated back to origination of several loans to an actual customer in 2010.

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Management believes, on the advice of its counsel, its insurance broker and a third party forensic auditor, that the losses are recoverable under the Company’s insurance policies and is working through the claims process. The Company has evaluated the effect of the error, both qualitatively and quantitatively, and believes the impact to prior years is immaterial to each respective period assessed. However, the Company’s quantitative and qualitative assessments of the fraud losses on the projected 2023 annual earnings is expected to be material. Accordingly, the Company made the decision to revise the losses to the respective periods in which they were incurred in its future Form 10-Q and Form 10-K filings by revising those periods. For all of its future filings, the Company will revise opening retained earnings of the earliest period presented for losses incurred in periods prior to that and revise all prior periods presented in the filing for losses incurred related to ~~assets acquired~~the period. Accordingly, the Company has revised prior periods presented in this Form 10-Q to reflect the fraud losses in the respective period incurred, with any losses incurred prior to January 1, 2022 adjusted in the January 1, 2022 opening retained earnings balance. The revisions resulted in retained earnings as of January 1, 2022 being $2.0 million lower than previously reported in prior periods. Additionally, the revisions resulted in a decrease in loans held for investment of $2.0 million and ~~liabilities assumed from business combinations.~~a decrease in net income for the three and six months ended June 30, 2022, of $61 thousand and $118 thousand, respectively.

The table below discloses the net change (increase or (decrease)) included in all the consolidated statements of net income (loss) line items in this Form 10-Q, as a result of the revisions discussed above.




	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(dollars in thousands)	2022		2023		2022

Income Statement:
Effect to interest income	$	(28)	$	(45)	$	(54)
Effect to noninterest expenses		47		7		92
Effect on income tax expense (benefit)		(14)		(230)		(28)
Net effect to net income (loss)	$	(61)	$	179	$	(118)

Recent Accounting Pronouncements

In ~~January 2016, the~~March 2022, Financial Accounting Standards Board (“FASB”) issued Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) ~~2016-1,~~2022-02, ~~Financial Instruments Overall (Topic 825): Recognition~~Troubled Debt Restructurings and ~~Measurement of Financial Assets and Financial Liabilities~~Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ~~amendments in~~ ASU ~~2016-1: (a) require equity investments (except~~also updates the requirements related to accounting for ~~those accounted~~credit losses under FASB ASC 326 and adds enhanced disclosures for ~~under~~creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The Company adopted the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the total changeguidance in the ~~fair value~~first quarter of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 is2023, which did not ~~expected to~~ have a material impact on the ~~Company's~~Company’s consolidated financial ~~position, results of operations or cash flows.~~

statements and disclosures.

In ~~February 2016, the~~March 2022, FASB issued ASU ~~2016-02,~~2022-01, ~~Leases~~Derivatives and Hedging (Topic ~~842)~~815): Fair Value Hedging-Portfolio Layer Method~~. The FASB issued this ASU~~, to ~~increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on~~expand the ~~balance sheet by lessees for those leases classified as operating leases~~current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under ~~current U.S. GAAP and disclosing key information about leasing arrangements.~~the method. To reflect that expansion, the last-of-layer method was renamed the portfolio layer method. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. Management currently anticipates recognizing a right-of-use asset and a lease liability associated with its long-term operating leases and is in the process of inventorying and categorizing its lease agreements.

~~In March 2016, the FASB issued ASU 2016-07~~~~, Investments – Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting~~. The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increase the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of the amendments did not have an effect on our consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~~~Revenue From Contracts With Customers (Topic 606).~~ These amendments affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g. insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU allows for either full retrospective or modified retrospective adoption. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017. Our revenue is balanced between net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new standard, and noninterest income. The Company is nearing its overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including deposit related fees, gains/losses on the sale of OREO, and interchange fees, to determine the potential impact the new guidance is expected to have on the Company’s consolidated financial statements; however, the Company’s revenue recognition pattern for these revenue streams is not expected to change significantly from current practice. The Company is currently planning to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach.

~~In March 2016, the FASB issued ASU 2016-09,~~~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The Company adopted this guidance during the first quarter of 2017 with an immaterial effect.

~~In June 2016~~,~~the FASB issued ASU 2016-13,~~~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~("ASU 2016-13"), which~~ sets forth a “current expected credit loss” ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments in this update ~~are~~were effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Southern National is currently assessing the impact of the adoption of this ASU on its consolidated financial statements and is collecting data that will be needed to produce historical inputs into any models created as a result of adopting this ASU.

~~In August 2016, the FASB issued new guidance related to the~~ ~~Statement of Cash Flows~~in ASU 2016-15. The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 20172022, and interim periods within those fiscal years. The Company adopted the update as it became applicable to us on May 11, 2023. The adoption of this ~~guidance is~~standard did not ~~expected to be~~have a material ~~to the consolidated financial statements.~~

~~In January 2017, the FASB issued ASU 2017-04~~~~, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~~~("ASU 2017-04")~~, which eliminates the second step of the previous FASB guidance for testing goodwill for impairment and is intended to reduce cost and complexity of goodwill impairment testing. The amendments in this ASU modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. After determining if the carrying amount of a reporting unit exceeds its fair value, the entity should take an impairment charge of the same amount to the goodwill for that reporting unit, not to exceed the total goodwill amount for that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Southern National is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-01,~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business,~~ which is intended to provide guidance in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses in order to provide stakeholders with more detailed reporting and less cost to analyze transactions. This ASU provides a screen to determine when a set of assets is not a business. It requires that when substantially all fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set of assets is not a business. If the screen is not met, the amendments in this update provide a framework to assist entities in evaluating whether both an input and a substantive process are present for the set to be a business. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. No disclosures are required at transition and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-03,~~~~Accounting Changes and Error Corrections~~ ~~(Topic 250) and~~ ~~Investments – Equity Method and Joint Ventures~~ ~~(Topic 323)~~ ~~– Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.~~ASU 2017-03 provides amendments that add paragraph 250-10-S99-6 which includes the text of "SEC Staff Announcement: Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period” (in accordance with Staff Accounting Bulletin (“SAB”) Topic 11.M). Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, then additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard's impact on its financial statements. Southern National has enhanced its disclosures regarding the expected impact of recently issued accounting standards adopted in a future period will have on its accounting and disclosures.

~~In March 2017, the FASB issued ASU 2017-08,~~~~Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities,~~which shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Southern National is currently reviewing its portfolio of debt securities to determine the impact that this ASU will have on its consolidated financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~~~Compensation - Stock Compensation (Topic 718)~~,~~Scope of Modification Accounting~~. These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. Southern National is currently evaluating the impact of the amendments in the ASU on its consolidated financial statements.

~~BUSINESS COMBINATIONS~~

On June 23, 2017, SNBV completed its acquisition of EVBS and its subsidiaries, the Trust and EVB. Pursuant to the Agreement and Plan of Merger, dated December 13, 2016, as amended, holders of EVBS common stock received 0.6313 shares of SNBV common stock for each outstanding share of EVBS common stock held immediately prior to the effective time of the Merger and holders of Non-Voting Mandatorily Convertible Non-Cumulative Preferred Stock, Series B of EVBS (“EVBS Series B Preferred Stock”) received 0.6313 shares of SNBV common stock for each share of EVBS Series B Preferred Stock held immediately prior to the effective time of the Merger, which totaled approximately $198.9 million based on SNBV’s closing common stock price on June 23, 2017 of $17.21 per share. EVBS was a bank holding company organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997, commenced operations on December 29, 1997 and was headquartered in Glen Allen, Virginia. EVBS operated twenty-four retail branches, which served diverse markets that primarily are in the counties of Essex, Gloucester, Hanover, Henrico, King and Queen, King William, Lancaster, Middlesex, New Kent, Northumberland, Southampton, Surry, Sussex and the cities of Colonial Heights, Hampton, Newport News, Richmond and Williamsburg.

~~SNBV accounted for the acquisition using the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”) 805,~~~~“Business Combinations.”~~ Under the acquisition method of accounting, the assets and liabilities of EVBS were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. SNBV recognized goodwill of $86.5 million in connection with the acquisition, none of which is deductible for income tax purposes.

The following table details the total consideration paid by SNBV on June 23, 2017 in connection with the acquisition of EVBS, the fair values of the assets acquired and liabilities assumed, and the resulting goodwill.

As Recorded Fair Value As Recorded
(dollars in thousands) (unaudited) by EVBS Adjustments by the Company
Consideration paid:
Cash $ 10
SNBV common stock 198,909
Total consideration paid $ 198,919

Identifiable assets acquired:
Cash and due from banks $ 4,350 $ - $ 4,350
Interest bearing deposits with banks 18,993 - 18,993
Federal funds sold 682 - 682
Securities available for sale, at fair value 163,029 (150 ) 162,879
Securities held to maturity, at carrying value 19,036 508 19,544
Restricted securities, at cost 6,734 - 6,734
Loans 1,045,600 (7,722 ) 1,037,878
Loans held for sale 19,689 - 19,689
Deferred income taxes 15,735 2,844 18,579
Bank premises and equipment 24,242 4,352 28,594
Assets held for sale 2,970 (1,285 ) 1,685
Accrued interest receivable 4,272 - 4,272
Other real estate owned 563 92 655
Core deposit intangible 435 9,590 10,025
Bank owned life insurance 26,035 - 26,035
Other assets 10,004 - 10,004
Total identifiable assets acquired 1,362,369 8,229 1,370,598

Identifiable liabilities assumed:
Noninterest-bearing demand accounts 226,637 - 226,637
Interest-bearing deposits 920,743 1,182 921,925
Federal funds purchased and repurchase agreements 7,598 - 7,598
Federal Home Loan Bank advances 57,475 - 57,475
Junior subordinated debt 10,310 (801 ) 9,509
Senior subordinated notes 19,175 1,876 21,051
Accrued interest payable 902 - 902
Other liabilities 13,067 - 13,067
Total identifiable liabilities assumed 1,255,907 2,257 1,258,164

Net identifiable assets acquired $ 106,462 $ 5,972 $ 112,434

Goodwill resulting from acquisition $ 86,485

The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments to assets acquired and liabilities assumed from EVBS had the following impact on the consolidated financial statements ~~of income during the three and nine months ended September 30, 2017:~~or disclosures.

For the Three Months For the Nine Months
(dollars in thousands) Ended September 30, 2017 Ended September 30, 2017
Loans (1) $ 1,127 $ 1,218
Time deposits (2) 213 217
Junior and senior subordinated debt (3) 21 23
Core deposit intangible (4) (312 ) (338 )
Net impact to income before income taxes $ 1,049 $ 1,120

~~(1)~~

~~Loan discount accretion is included in the “Interest and fees on loans” section of “Interest and dividend income” in the Consolidated Statements of Income.~~

~~(2)~~

~~Time deposit premium amortization is included in the "Interest on deposits" section of "Interest expense" in the Consolidated Statements of Income.~~

~~(3)~~

The junior subordinated debt discount accretion and senior subordinated notes premium amortization are included in the “Interest on junior subordinated debt” and “Interest on senior subordinated notes” section of “Interest expense”, respectively, in the Consolidated Statements of Income.

~~(4)~~

~~Core deposit intangible premium amortization is included in the "Other operating expenses" section of "Noninterest expenses" in the Consolidated Statements of Income.~~

~~Fair values~~Table of ~~the major categories of assets acquired and liabilities assumed were determined as follows:~~Contents

~~Loans~~: The acquired loans were recorded at fair value at the acquisition date of $1.04 billion without carryover of EVBS’s allowance for loan losses. The unpaid principal balance and discount at the merger date were $1.05 billion and $15.4 million, respectively. Where loans exhibited characteristics of performance, fair value was determined based on a discounted cash flow analysis which included default estimates; loans without such characteristics, fair value was determined based on the estimated values of the underlying collateral. While estimating the amount and timing of both principal and interest cash flows expected to be collected, a market-based discount rate was applied. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type and purpose, industry segment and loan structure. Credit risk characteristics included risk rating groups pass, special mention and substandard and lien position. For valuation purposes, these pools were further disaggregated by maturity and pricing characteristics (e.g., fixed-rate, adjustable-rate, balloon maturities).

~~Loans Held for Sale~~: The $19.7 million of acquired loans held for sale were recorded at fair value at the acquisition date. Acquired loans held for sale represent the potentially credit-impaired loans that were moved out of the held for investment portfolio and marked to fair value by EVBS just prior to the closing of the merger. Fair value was determined using quoted prices from an independent, third party buyer. Subsequent to the acquisition date, acquired loans held for sale were sold to an independent third party.

~~Premises and Equipment and Assets Held for Sale~~: The fair value of EVBS’s premises, including land, buildings and improvements, was determined based upon appraisal by licensed appraisers. These appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised. The fair value of bank-owned real estate resulted in a net premium of $3.1 million. Land is not depreciated.

~~Core Deposit Intangible~~: The fair value of the core deposit intangible (��CDI”) was determined based on a combined discounted economic benefit and market approach. The economic benefit was calculated as the cost savings between maintaining the core deposit base and using an alternate funding source, such as FHLB advances. The life of the deposit base and projected deposit attrition rates was determined using EVBS's historical deposit data. The CDI was estimated at $10.0 million or 0.9% of total deposits. The CDI is being amortized over a weighted average life of 96 months using the straight-line method.

~~Time Deposits~~: The fair value of time deposits was determined based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The resulting estimated fair value adjustment of time deposits is a $1.2 million premium and is being amortized over the weighted average remaining life of approximately 18 months using the straight-line method.

~~FHLB Advances~~~~: The fair value of FHLB advances was considered to be equivalent to EVBS’s recorded book balance as the advances mature in 90 days or less.~~

~~Junior Subordinated Debt and Senior Subordinated Notes:~~The fair value of the junior subordinated debt and senior subordinated notes were based on discounted cash flows using rates for securities with similar terms. The resulting estimated fair value adjustment of junior subordinated debt is a $801 thousand discount and is being accreted over the remaining life of approximately 195 months using the straight-line method. The resulting estimated fair value adjustment of senior subordinated notes is a $1.1 million premium and is being amortized over the remaining life of approximately 95 months using the straight-line method.

2. ~~Deferred Income Taxes~~INVESTMENT SECURITIES: Certain deferred tax assets and liabilities were carried over to SNBV from EVBS based on the Company’s ability to utilize them in the future. Additionally, deferred tax assets and liabilities were established for acquisition accounting fair value adjustments as the future amortization/accretion of these adjustments represent temporary differences between book income and taxable income.

The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2016. The unaudited combined pro forma revenue and net income combines the historical results of EVBS with the Company's consolidated statements of income for the periods listed below and, while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition-related expenses of $168 thousand and $9.1 million were included in the Company's reported consolidated statements of income for the three and nine months ended September 30, 2017, respectively, but were excluded from the unaudited pro forma information listed below. While the majority of the acquisition-related expenses have been recognized in the first nine months of 2017, the Company believes that additional legal and other transition expenses related to this acquisition will be likely throughout the remainder of 2017. Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below:

Unaudited Unaudited Unaudited Unaudited
Pro Forma Pro Forma Pro Forma Pro Forma
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
(dollars in thousands) 2017 2016 2017 2016
Net interest income $ 23,850 $ 21,139 $ 67,271 $ 63,467
Net income 4,648 5,742 17,774 17,385

~~STOCK-BASED COMPENSATION~~

In 2004, the Board of Directors adopted a stock option plan that authorized the reservation of up to 302,500 shares of common stock and provided for the granting of stock options to certain directors, officers and employees. The 2010 Stock Awards and Incentive Plan (the “2010 Plan”) was approved by the Board of Directors in January 2010 and approved by the stockholders at the Annual Meeting in April 2010. The 2010 Plan authorized the reservation of an additional 700,000 shares of common stock for the granting of stock awards. The options granted to officers and employees are incentive stock options and the options granted to non-employee directors are non-qualified stock options. The purpose of the plan is to afford key employees an incentive to remain in the employ of Southern National and to assist in the attracting and retaining of non-employee directors by affording them an opportunity to share in Southern National’s future success. Under the plan, the option’s price cannot be less than the fair market value of the stock on the grant date. The maximum term of the options is ten years and options granted may be subject to a graded vesting schedule. At the June 21, 2017 Annual Meeting of Stockholders of Southern National, the 2017 Equity Compensation Plan (the “2017 Plan”) was approved as recommended by the Board of Directors. The 2017 Plan replaces the 2010 Plan and has a maximum number of 750,000 shares reserved for issuance. The purpose of the 2017 Plan is to promote the success of the Company by providing greater incentive to employees, non-employee directors, consultants and advisors to associate their personal interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices. Because the 2017 Plan was approved, shares under the 2004 stock-option plan or 2010 Plan will no longer be awarded.

Southern National granted no regular options during the first nine months of 2017, but did issue 22,559 options under the 2017 Plan in connection with the merger with EVBS which options were previously outstanding under the EVBS 2003 Stock Incentive Plan. Immediately prior to the effective time of the merger, each option to purchase shares of EVBS common stock granted under an EVBS stock plan vested and was converted into and became an option to purchase shares of common stock of SNBV (each, an “Assumed Option”), which was adjusted (i) by multiplying the number of shares of common stock that could be purchased under the Assumed Option by the 0.6313 exchange ratio and rounding down to the nearest share and (ii) by dividing the per share exercise price of the option by the 0.6313 exchange ratio and rounding up to the nearest cent. SNBV assumed each Assumed Option in accordance with the terms of the EVBS stock plan and award agreement by which it is evidenced.

For the three and nine months ended September 30, 2017, stock-based compensation expense was $84 thousand and $185 thousand, respectively, compared to $62 thousand and $198 thousand for the same periods last year, respectively. As of September 30, 2017, unrecognized compensation expense associated with the stock options was $272 thousand, which is expected to be recognized over a weighted average period of 2.0 years.

~~A summary of the activity in the stock option plan during the nine months ended September 30, 2017 follows (dollars in thousands):~~

Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Shares Price Term (in thousands)
Options outstanding, beginning of period 782,200 $ 9.56
Granted - -
Options issued in connection with EVBS merger 22,559 24.54
Forfeited (12,400 ) 11.53
Exercised (42,750 ) 8.67
Options outstanding, end of period 749,609 $ 10.03 5.7 $ 5,391

Exercisable at end of period 409,759 $ 7.72 4.1 $ 3,164

~~INVESTMENT SECURITIES~~

The amortized cost and fair value of ~~available for sale~~available-for-sale investment securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands):


	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
June 30, 2023
Residential government-sponsored mortgage-backed securities	$	113,816	$	—	$	(15,802)	$	98,014
Obligations of states and political subdivisions		33,951		2		(4,280)		29,673
Corporate securities		16,000		—		(3,044)		12,956
Collateralized loan obligations		5,020		—		(119)		4,901
Residential government-sponsored collateralized mortgage obligations		30,813		—		(2,245)		28,568
Government-sponsored agency securities		16,243		—		(2,883)		13,360
Agency commercial mortgage-backed securities		35,374		—		(4,580)		30,794
SBA pool securities		4,884		10		(73)		4,821
Total	$	256,101	$	12	$	(33,026)	$	223,087

	Amortized		Gross Unrealized					Fair
September 30, 2017	Cost		Gains		Losses			Value
Agency residential mortgage-backed securities (fixed and variable rate)	$	32,237	$	3	$	(135	)	$	32,105

										Amortized		Gross Unrealized				Fair
										Cost		Gains		Losses		Value
December 31, 2022
Residential government-sponsored mortgage-backed securities										$	119,371	$	1	$	(16,491)	$	102,881
Obligations of states and political subdivisions		18,650		32		(73	)		18,609		34,103		2		(4,927)		29,178
Corporate securities		2,014		1		-			2,015		16,000		—		(1,172)		14,828
Trust preferred securities		2,589		14		(237	)		2,366
Collateralized loan obligations											5,022		—		(146)		4,876
Residential government-sponsored collateralized mortgage obligations		53,643		5		(278	)		53,370		28,643		—		(2,048)		26,595
Government-sponsored agency securities		1,747		-		(14	)		1,733		17,719		—		(3,103)		14,616
Agency commercial mortgage-backed securities		28,304		-		(223	)		28,081		42,180		—		(4,763)		37,417
SBA pool securities		25,937		46		(25	)		25,958		5,998		13		(87)		5,924
	$	165,121	$	101	$	(985	)	$	164,237
Total										$	269,036	$	16	$	(32,737)	$	236,315

Amortized Gross Unrealized Fair
December 31, 2016 Cost Gains Losses Value
Obligations of states and political subdivisions $ 2,280 $ 9 $ (30 ) $ 2,259
Trust preferred securities 2,590 - (931 ) 1,659
$ 4,870 $ 9 $ (961 ) $ 3,918

The amortized cost, gross unrecognized gains and losses, allowance for credit losses and fair value of investment securities ~~held to maturity~~held-to-maturity were as follows (in thousands):

	Amortized		Gross Unrecognized					Fair
September 30, 2017	Cost		Gains		Losses			Value

										Amortized		Gross Unrecognized				Allowance for		Fair
										Cost		Gains		Losses		Credit Losses		Value
June 30, 2023
Residential government-sponsored mortgage-backed securities	$	12,015	$	45	$	(48	)	$	12,012	$	9,753	$	—	$	(927)	$	—	$	8,826
Obligations of states and political subdivisions											2,388		1		(63)		—		2,326
Residential government-sponsored collateralized mortgage obligations		9,494		-		(51	)		9,443		237		—		(20)		—		217
Government-sponsored agency securities		52,648		48		(1,334	)		51,362
Obligations of states and political subdivisions		22,917		170		(76	)		23,011
Trust preferred securities		3,259		58		(23	)		3,294
	$	100,333	$	321	$	(1,532	)	$	99,122
Total										$	12,378	$	1	$	(1,010)	$	—	$	11,369

	Amortized		Gross Unrecognized					Fair
December 31, 2016	Cost		Gains		Losses			Value

										Amortized		Gross Unrecognized				Allowance for		Fair
										Cost		Gains		Losses		Credit Losses		Value
December 31, 2022
Residential government-sponsored mortgage-backed securities	$	18,594	$	308	$	(118	)	$	18,784	$	10,522	$	—	$	(1,007)	$	—	$	9,515
Obligations of states and political subdivisions											2,721		3		(46)		—		2,678
Residential government-sponsored collateralized mortgage obligations		2,371		-		(54	)		2,317		277		—		(21)		—		256
Government-sponsored agency securities		47,975		28		(1,865	)		46,138
Obligations of states and political subdivisions		12,706		53		(162	)		12,597
Trust preferred securities		3,654		-		(146	)		3,508
	$	85,300	$	389	$	(2,345	)	$	83,344
Total										$	13,520	$	3	$	(1,074)	$	—	$	12,449

Available-for-sale investment securities of $5.0 million were purchased during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, $5.0 million and $27.6 million, respectively of available-

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for-sale investment securities were purchased. No held-to-maturity investments were purchased during the three and six months ended June 30, 2023 and 2022. No investment securities were sold during the three and six months ended June 30, 2023 and 2022.

The amortized cost ~~amounts are net of recognized other than temporary impairment.~~

~~The~~and fair value of available-for-sale and ~~carrying amount, if different, of debt~~held-to-maturity investment securities as of ~~September~~June 30, ~~2017,~~2023, by contractual maturity were as follows (in thousands). Investment securities not due at a single maturity date are shown separately.


	Available-for-Sale				Held-to-Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due within one year	$	—	$	—	$	325	$	324
Due in one to five years		10,024		9,121		1,124		1,121
Due in five to ten years		34,261		28,718		939		881
Due after ten years		26,929		23,051		—		—
Residential government-sponsored mortgage-backed securities		113,816		98,014		9,753		8,826
Residential government-sponsored collateralized mortgage obligations		30,813		28,568		237		217
Agency commercial mortgage-backed securities		35,374		30,794		—		—
SBA pool securities		4,884		4,821		—		—
Total	$	256,101	$	223,087	$	12,378	$	11,369

Held to Maturity Available for Sale
Amortized Amortized
Cost Fair Value Cost Fair Value
Due in one to five years $ 1,456 $ 1,477 $ 1,946 $ 1,943
Due in five to ten years 23,496 23,178 5,397 5,393
Due after ten years 53,872 53,012 17,657 17,387
Agency residential mortgage-backed securities (fixed and variable rate) 12,015 12,012 32,237 32,105
Residential government-sponsored collateralized mortgage obligations 9,494 9,443 53,643 53,370
Agency commercial mortgage-backed securities - - 28,304 28,081
SBA pool securities - - 25,937 25,958
Total $ 100,333 $ 99,122 $ 165,121 $ 164,237

Investment securities with a carrying amount of approximately ~~$134.2~~$193.3 million and ~~$73.9~~$99.4 million at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively, were pledged to secure public deposits, certain other deposits, a line of credit for advances from the Federal Home Loan Bank (“FHLB”) of Atlanta, ~~(“FHLB”),~~ and repurchase agreements.

Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities and (iv) internal forecasts. As of June 30, 2023, Primis had an immaterial allowance for credit losses on held-to-maturity securities.

~~Southern National monitors the portfolio for indicators~~The unrealized losses related to investment securities available-for-sale identified as of ~~other than temporary impairment. At September~~June 30, ~~2017~~2023 and December 31, 2016, certain investment securities’ fair values were below cost. As outlined in the table below, there were investment securities with fair values totaling approximately $202.7 million in the portfolio with the carrying value exceeding the estimated fair value that are considered temporarily impaired at September 30, 2017. Because the decline in fair value is attributable2022, relate to changes in interest rates ~~and market illiquidity, and not credit quality, and because we do not have the intent~~relative to ~~sell these investment securities and it is likely that we will not be required to sell~~when the investment securities ~~before their anticipated recovery, management does~~were purchased, and do not ~~consider~~indicate credit-related impairment. Primis performs quantitative and qualitative analysis in this determination. As a result of the Company’s analysis, none of the securities were deemed to require an allowance for credit losses at June 30, 2023 and

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December 31, 2022. Primis has the ability and intent to retain these ~~investment~~ securities for a period of time sufficient to ~~be other than temporarily impaired as of September 30, 2017.~~

recover all unrealized losses.

The following tables present information regarding investment securities available-for-sale and held-to-maturity in a continuous unrealized loss position as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016 (in thousands)~~2022 by duration of time in a loss ~~position:~~

September 30, 2017 Less than 12 months 12 Months or More Total
Available for Sale Fair value Unrealized
Losses Fair value Unrealized
Losses Fair value Unrealized
Losses
Agency residential mortgage-backed securities (fixed and variable rate) $ 33,288 $ (135 ) $ - $ - $ 33,288 $ (135 )
Obligations of states and political subdivisions 14,509 (73 ) - - 14,509 (73 )
Trust preferred securities - - 863 (237 ) 863 (237 )
Residential government-sponsored collateralized mortgage obligations 52,134 (278 ) - - 52,134 (278 )
Government-sponsored agency securities 1,733 (14 ) - - 1,733 (14 )
Agency commercial mortgage-backed securities 28,081 (223 ) - - 28,081 (223 )
SBA pool securities 11,468 (25 ) - - 11,468 (25 )
$ 141,213 $ (748 ) $ 863 $ (237 ) $ 142,076 $ (985 )

Less than 12 months 12 Months or More Total
Held to Maturity Fair value Unrecognized
Losses Fair value Unrecognized
Losses Fair value Unrecognized
Losses
Residential government-sponsored mortgage-backed securities $ 3,403 $ (40 ) $ 419 $ (8 ) $ 3,822 $ (48 )
Residential government-sponsored collateralized mortgage obligations 7,820 (15 ) 1,623 (36 ) 9,443 (51 )
Government-sponsored agency securities 12,724 (264 ) 24,917 (1,070 ) 37,641 (1,334 )
Obligations of states and political subdivisions 7,441 (48 ) 2,030 (28 ) 9,471 (76 )
Trust preferred securities - - 239 (23 ) 239 (23 )
$ 31,388 $ (367 ) $ 29,228 $ (1,165 ) $ 60,616 $ (1,532 )

December 31, 2016
Less than 12 months 12 Months or More Total
Available for Sale Fair value Unrealized
Losses Fair value Unrealized
Losses Fair value Unrealized
Losses
Obligations of states and political subdivisions $ 1,706 $ (30 ) $ - $ - $ 1,706 $ (30 )
Trust preferred securities - - 1,658 (931 ) 1,658 (931 )
$ 1,706 $ (30 ) $ 1,658 $ (931 ) $ 3,364 $ (961 )

Less than 12 months 12 Months or More Total
Held to Maturity Fair value Unrecognized
Losses Fair value Unrecognized
Losses Fair value Unrecognized
Losses
Residential government-sponsored mortgage-backed securities $ 10,238 $ (110 ) $ 457 $ (8 ) $ 10,695 $ (118 )
Residential government-sponsored collateralized mortgage obligations 1,346 (27 ) 971 (27 ) 2,317 (54 )
Government-sponsored agency securities 41,110 (1,865 ) - - 41,110 (1,865 )
Obligations of states and political subdivisions 3,578 (98 ) 1,065 (64 ) 4,643 (162 )
Trust preferred securities - - 3,508 (146 ) 3,508 (146 )
$ 56,272 $ (2,100 ) $ 6,001 $ (245 ) $ 62,273 $ (2,345 )

~~As of September 30, 2017, we owned pooled trust preferred securities as follows:~~

Previously
% of Current Recognized
Defaults and Cumulative
Ratings Estimated Deferrals to Other
Tranche When Purchased Current Ratings Fair Total Comprehensive
Security Level Moody's Fitch Moody's Fitch Par Value Book Value Value Collateral Loss (1)
(in thousands)
Held to Maturity
ALESCO VII A1B Senior Aaa AAA Aa2 A $ 3,250 $ 2,998 $ 3,055 17 % $ 228
MMCF III B Senior Sub A3 A- Ba1 BBB 265 261 239 32 % 4
3,515 3,259 3,294 $ 232

Cumulative OTTI
Related to
Credit Loss (2)
Available for Sale
Other Than Temporarily Impaired:
TPREF FUNDING II Mezzanine A1 A- Caa3 C 1,500 1,099 862 28 % $ 400
ALESCO V C1 Mezzanine A2 A Caa2 C 2,150 1,490 1,504 13 % 660
3,650 2,589 2,366 $ 1,060

Total $ 7,165 $ 5,848 $ 5,660

~~(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion~~

~~(2) Pre-tax~~

Each of these investment securities has been evaluated for other than temporary impairment. In performing a detailed cash flow analysis of each investment security, Sonabank works with independent third parties to estimate expected cash flows and assist with the evaluation of other than temporary impairment. The cash flow analyses performed included the following assumptions:

~~0.5% of the remaining performing collateral will default or defer per annum.~~

~~Recoveries of 9% with a two year lag on all defaults and deferrals.~~

~~No prepayments for 10 years and then 1% per annum for the remaining life of the investment security.~~

~~Our investment securities have been modeled using the above assumptions by independent third parties using the forward LIBOR curve to discount projected cash flows to present values.~~

~~We recognized no other than temporary impairment charges during the three and nine months ended September 30, 2017 and 2016, respectively.~~

The following table presents a roll forward of the credit losses on our investment securities previously classified as held to maturity and now classified as available for sale recognized in earnings for the nine months ended September 30, 2017 and 2016position (in thousands):


	Less than 12 months				12 Months or More				Total
June 30, 2023	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	4,796	$	(281)	$	93,218	$	(15,521)	$	98,014	$	(15,802)
Obligations of states and political subdivisions		6,850		(84)		21,821		(4,196)		28,671		(4,280)
Corporate securities		5,591		(409)		7,365		(2,635)		12,956		(3,044)
Collateralized loan obligations		—		—		4,901		(119)		4,901		(119)
Residential government-sponsored collateralized mortgage obligations		13,910		(338)		14,658		(1,907)		28,568		(2,245)
Government-sponsored agency securities		—		—		13,360		(2,883)		13,360		(2,883)
Agency commercial mortgage-backed securities		—		—		30,794		(4,580)		30,794		(4,580)
SBA pool securities		—		—		3,009		(73)		3,009		(73)
Total	$	31,147	$	(1,112)	$	189,126	$	(31,914)	$	220,273	$	(33,026)

2017 2016

Amount of cumulative other than temporary impairment related to credit loss prior to January 1 $ 1,060 $ 1,060
Amounts related to credit loss for which an other than temporary impairment was not previously recognized - -
Amounts related to credit loss for which an other than temporary impairment was previously recognized - -
Reductions due to realized losses - -
Amount of cumulative other than temporary impairment related to credit loss as of September 30 $ 1,060 $ 1,060


	Less than 12 months				12 Months or More				Total
June 30, 2023	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Held-to-Maturity	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	586	$	(35)	$	8,240	$	(892)	$	8,826	$	(927)
Obligations of states and political subdivisions		1,357		(17)		388		(46)		1,745		(63)
Residential government-sponsored collateralized mortgage obligations		58		(4)		159		(16)		217		(20)
Total	$	2,001	$	(56)	$	8,787	$	(954)	$	10,788	$	(1,010)


	Less than 12 months				12 Months or More				Total
December 31, 2022	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	23,484	$	(2,268)	$	79,283	$	(14,223)	$	102,767	$	(16,491)
Obligations of states and political subdivisions		10,026		(388)		17,609		(4,539)		27,635		(4,927)
Corporate securities		14,828		(1,172)		—		—		14,828		(1,172)
Collateralized loan obligations		—		—		4,876		(146)		4,876		(146)
Residential government-sponsored collateralized mortgage obligations		22,343		(1,375)		4,252		(673)		26,595		(2,048)
Government-sponsored agency securities		1,484		(16)		13,132		(3,087)		14,616		(3,103)
Agency commercial mortgage-backed securities		13,031		(371)		24,386		(4,392)		37,417		(4,763)
SBA pool securities		529		(38)		3,243		(49)		3,772		(87)
Total	$	85,725	$	(5,628)	$	146,781	$	(27,109)	$	232,506	$	(32,737)

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	Less than 12 months				12 Months or More				Total
December 31, 2022	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Held-to-Maturity	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	9,457	$	(1,002)	$	58	$	(5)	$	9,515	$	(1,007)
Obligations of states and political subdivisions		1,255		(46)		—		—		1,255		(46)
Residential government-sponsored collateralized mortgage obligations		75		(4)		181		(17)		256		(21)
Total	$	10,787	$	(1,052)	$	239	$	(22)	$	11,026	$	(1,074)

Changes in accumulated other comprehensive income (loss) by component for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 are shown in the ~~table~~tables below. All amounts are net of tax (in thousands).

Unrealized Holding
(Losses) on Held to Maturity
For the three months ended September 30, 2017 Available for Sale Securities Securities Total
Beginning balance $ (743 ) $ (158 ) $ (901 )
Other comprehensive income before reclassifications 161 2 163
Net current-period other comprehensive income 161 2 163
Ending balance $ (582 ) $ (156 ) $ (738 )

Unrealized Holding
(Losses) on Held to Maturity
For the nine months ended September 30, 2017 Available for Sale Securities Securities Total
Beginning balance $ (627 ) $ (162 ) $ (789 )
Other comprehensive income before reclassifications 45 6 51
Net current-period other comprehensive income 45 6 51
Ending balance $ (582 ) $ (156 ) $ (738 )

Unrealized Holding
(Losses) on Held to Maturity
For the three months ended September 30, 2016 Available for Sale Securities Securities Total
Beginning balance $ (760 ) $ (165 ) $ (925 )
Other comprehensive income before reclassifications 125 2 127
Net current-period other comprehensive income 125 2 127
Ending balance $ (635 ) $ (163 ) $ (798 )

Unrealized Holding
(Losses) on Held to Maturity
For the nine months ended September 30, 2016 Available for Sale Securities Securities Total
Beginning balance $ (440 ) $ (170 ) $ (610 )
Other comprehensive (loss) income before reclassifications (195 ) 7 (188 )
Net current-period other comprehensive (loss) income (195 ) 7 (188 )
Ending balance $ (635 ) $ (163 ) $ (798 )


	Unrealized Holding
	Gains (Losses) on
For the three months ended June 30, 2023	Available-for-Sale
Beginning balance	$	(23,475)
Current period other comprehensive income (loss)		(2,606)
Ending balance	$	(26,081)

	5.
		~~LOANS AND ALLOWANCE FOR LOAN LOSSES~~Unrealized Holding
		Gains (Losses) on
For the three months ended June 30, 2022		Available-for-Sale
Beginning balance		$	(9,455)
Current period other comprehensive income (loss)			(8,471)
Ending balance		$	(17,926)


	Unrealized Holding
	Gains (Losses) on
For the six months ended June 30, 2023	Available-for-Sale
Beginning balance	$	(25,850)
Current period other comprehensive income (loss)		(231)
Ending balance	$	(26,081)


	Unrealized Holding
	Gains (Losses) on
For the six months ended June 30, 2022	Available-for-Sale
Beginning balance	$	1,112
Current period other comprehensive income (loss)		(19,038)
Ending balance	$	(17,926)

Table of Contents

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the composition of our loan portfolio as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~2022 (in thousands):


	June 30, 2023		December 31, 2022
Loans held for sale	$	57,704	$	27,626
Loans held for investment
Loans secured by real estate:
Commercial real estate - owner occupied	$	447,407	$	459,866
Commercial real estate - non-owner occupied		595,805		579,733
Secured by farmland		5,271		5,970
Construction and land development		175,073		148,690
Residential 1-4 family		591,938		609,694
Multi-family residential		133,754		140,321
Home equity lines of credit		62,808		65,152
Total real estate loans		2,012,056		2,009,426

Commercial loans		584,251		520,741
Paycheck Protection Program loans		2,143		4,564
Consumer loans		569,139		405,278
Total Non-PCD loans		3,167,589		2,940,009
PCD loans		6,049		6,628
Total loans held for investment	$	3,173,638	$	2,946,637

Covered Non-covered Total Covered Non-covered Total
Loans (1) Loans Loans Loans (1) Loans Loans
September 30, 2017 December 31, 2016
Loans secured by real estate:
Commercial real estate - owner-occupied $ - $ 399,799 $ 399,799 $ - $ 154,807 $ 154,807
Commercial real estate - non-owner-occupied - 452,797 452,797 - 279,634 279,634
Secured by farmland - 13,270 13,270 - 541 541
Construction and land loans - 198,328 198,328 - 91,067 91,067
Residential 1-4 family 9,356 462,545 471,901 10,519 220,291 230,810
Multi- family residential - 73,547 73,547 - 30,021 30,021
Home equity lines of credit 14,623 137,681 152,304 17,661 11,542 29,203
Total real estate loans 23,979 1,737,967 1,761,946 28,180 787,903 816,083

Commercial loans - 235,171 235,171 - 115,365 115,365
Consumer loans - 39,460 39,460 - 856 856
Gross loans 23,979 2,012,598 2,036,577 28,180 904,124 932,304

Less deferred fees on loans - (1,396 ) (1,396 ) - (1,889 ) (1,889 )
Loans, net of deferred fees $ 23,979 $ 2,011,202 $ 2,035,181 $ 28,180 $ 902,235 $ 930,415

Accrued Interest Receivable

~~(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering single family~~Accrued interest receivable on loans ~~expires in December 2019.~~

Accounting policy related to the allowance for loan losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.

~~On June 23, 2017, in connection with the merger with EVBS, SNBV acquired loans held for sale with a fair value of $19.7~~totaled $19.0 million and ~~loans held for investment with an unpaid principal balance of $1.05 billion and an estimated fair value of $1.04 billion, which created an accretable discount of $15.4~~$13.7 million at ~~acquisition. Accretion of $1.1 million and $1.2 million associated with these acquired loans held for investment was recognized in the three and nine months ended September~~June 30, ~~2017, respectively.~~

As part of the Greater Atlantic Bank acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’s assets. There were two agreements with the FDIC: one for single family loans which is a 10-year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year agreement which expired in December 2014. The Bank will share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreements; we refer to these assets collectively as “covered assets.” Loans that are not covered in the loss sharing agreement are referred to as “non-covered loans”. As of September 30, 2017, non-covered loans included $22.6 million of loans acquired in the HarVest acquisition, $37.3 million acquired in the Prince Georges Federal Savings Bank (“PGFSB”) acquisition and $990.4 million acquired in the EVBS acquisition.

~~Accretable discount on the acquired EVBS, Greater Atlantic Bank, PGFSB, and the HarVest loans totaled $19.6 million and $6.5 million at September 30, 2017~~2023 and December 31, ~~2016, respectively.~~2022, respectively, and is included in other assets in the consolidated balance sheets.

Nonaccrual and Past Due Loans

~~For~~Loans are considered past due if the ~~three acquisitions subsequent to the Greater Atlantic Bank acquisition noted above, management sold the majority~~required principal and interest payments have not been received as of the ~~purchased credit impaired loans immediately after closing of~~date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the ~~acquisition.~~

~~Impaired loans~~borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for ~~the covered and non-covered portfolios were as follows (in thousands):~~

Covered Loans Non-covered Loans Total Loans
Unpaid Unpaid Unpaid
Recorded Principal Related Recorded Principal Related Recorded Principal Related
September 30, 2017 Investment Balance Allowance Investment (1) Balance Allowance Investment Balance Allowance
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ 1,218 $ 1,324 $ - $ 1,218 $ 1,324 $ -
Commercial real estate - non-owner occupied (2) - - - - - - - - -
Construction and land development - - - 9,984 9,984 - 9,984 9,984 -
Commercial loans - - - 4,128 9,126 - 4,128 9,126 -
Residential 1-4 family (3) 1,285 1,495 - 376 517 - 1,661 2,012 -
Other consumer loans - - - - - - - - -

Total $ 1,285 $ 1,495 $ - $ 15,706 $ 20,951 $ - $ 16,991 $ 22,446 $ -

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - non-owner occupied (2) - - - - - - - - -
Construction and land development - - - - - - - - -
Commercial loans - - - - - - - - -
Residential 1-4 family (3) - - - - - - - - -
Other consumer loans - - - - - - - - -

Total $ - $ - $ - $ - $ - $ - $ - $ - $ -
Grand total $ 1,285 $ 1,495 $ - $ 15,706 $ 20,951 $ - $ 16,991 $ 22,446 $ -

~~(1) Recorded investment is after cumulative prior charge offs of $5.2 million. These loans also have aggregate SBA guarantees of $1.7 million.~~

~~(2) Includes loans secured by farmland and multi-family residential loans.~~

~~(3) Includes home equity lines of credit.~~

Covered Loans Non-covered Loans Total Loans
Unpaid Unpaid Unpaid
Recorded Principal Related Recorded Principal Related Recorded Principal Related
December 31, 2016 Investment Balance Allowance Investment (1) Balance Allowance Investment Balance Allowance
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ 5,583 $ 5,592 $ - $ 5,583 $ 5,592 $ -
Commercial real estate - non-owner occupied (2) - - - - - - - - -
Construction and land development - - - - - - - - -
Commercial loans - - - 3,002 3,603 - 3,002 3,603 -
Residential 1-4 family (3) 963 1,113 - - - - 963 1,113 -
Other consumer loans - - - - - - - - -

Total $ 963 $ 1,113 $ - $ 8,585 $ 9,195 $ - $ 9,548 $ 10,308 $ -

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ 688 $ 688 $ 150 $ 688 $ 688 $ 150
Commercial real estate - non-owner occupied (2) - - - - - - - - -
Construction and land development - - - - - - - - -
Commercial loans - - - 3,378 5,798 750 3,378 5,798 750
Residential 1-4 family (3) - - - - - - - - -
Other consumer loans - - - - - - - - -

Total $ - $ - $ - $ 4,066 $ 6,486 $ 900 $ 4,066 $ 6,486 $ 900
Grand total $ 963 $ 1,113 $ - $ 12,651 $ 15,681 $ 900 $ 13,614 $ 16,794 $ 900

~~(1) Recorded investment is after cumulative prior charge offs of $3.0 million. These loans also have aggregate SBA guarantees of $2.2 million.~~

~~(2) Includes loans secured by farmland and multi-family residential loans.~~

~~(3) Includes home equity lines of credit.~~

~~The following tables present the average recorded investment and interest income for impaired loans recognized by~~each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of 90 days or more unless the ~~three~~loan is both well secured and ~~nine months ended September 30, 2017~~in the process of collection or (ii) full payment of principal and ~~2016 (in thousands):~~interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

Covered Loans Non-covered Loans Total Loans
Average Interest Average Interest Average Interest
Recorded Income Recorded Income Recorded Income
Three months ended September 30, 2017 Investment Recognized Investment Recognized Investment Recognized
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ 1,325 $ 8 $ 1,325 $ 8
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - 9,984 153 9,984 153
Commercial loans - - 8,286 111 8,286 111
Residential 1-4 family (2) 1,290 12 517 - 1,807 12
Other consumer loans - - - - - -

Total $ 1,290 $ 12 $ 20,112 $ 272 $ 21,402 $ 284

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ - $ - $ -
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - - - - -
Commercial loans - - - - - -
Residential 1-4 family (2) - - - - - -
Other consumer loans - - - - - -

Total $ - $ - $ - $ - $ - $ -
Grand total $ 1,290 $ 12 $ 20,112 $ 272 $ 21,402 $ 284

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

Covered Loans Non-covered Loans Total Loans
Average Interest Average Interest Average Interest
Recorded Income Recorded Income Recorded Income
Three months ended September 30, 2016 Investment Recognized Investment Recognized Investment Recognized
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ 7,984 $ 73 $ 7,984 $ 73
Commercial real estate - non-owner occupied (1) - - 132 3 132 3
Construction and land development - - - - - -
Commercial loans - - 2,600 13 2,600 13
Residential 1-4 family (2) 959 7 - - 959 7
Other consumer loans - - - - - -

Total $ 959 $ 7 $ 10,716 $ 89 $ 11,675 $ 96

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ 693 $ 8 $ 693 $ 8
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - - - - -
Commercial loans - - 4,140 39 4,140 39
Residential 1-4 family (2) - - - - - -
Other consumer loans - - - - - -
��
Total $ - $ - $ 4,833 $ 47 $ 4,833 $ 47
Grand total $ 959 $ 7 $ 15,549 $ 136 $ 16,508 $ 143

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

Covered Loans Non-covered Loans Total Loans
Average Interest Average Interest Average Interest
Recorded Income Recorded Income Recorded Income
Nine months ended September 30, 2017 Investment Recognized Investment Recognized Investment Recognized
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ 1,328 $ 27 $ 1,328 $ 27
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - 9,934 158 9,934 158
Commercial loans - - 8,206 323 8,206 323
Residential 1-4 family (2) 1,292 45 517 - 1,809 45
Other consumer loans - - - - - -

Total $ 1,292 $ 45 $ 19,985 $ 508 $ 21,277 $ 553

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ - $ - $ - $ -
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - - - - -
Commercial loans - - - - - -
Residential 1-4 family (2) - - - - - -
Other consumer loans - - - - - -

Total $ - $ - $ - $ - $ - $ -
Grand total $ 1,292 $ 45 $ 19,985 $ 508 $ 21,277 $ 553

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines~~Table of ~~credit.~~Contents

Covered Loans Non-covered Loans Total Loans
Average Interest Average Interest Average Interest
Recorded Income Recorded Income Recorded Income
Nine months ended September 30, 2016 Investment Recognized Investment Recognized Investment Recognized
With no related allowance recorded
Commercial real estate - owner occupied $ - $ - $ 6,711 $ 220 $ 6,711 $ 220
Commercial real estate - non-owner occupied (1) - - 134 8 134 8
Construction and land development - - - - - -
Commercial loans - - 2,852 - 2,852 -
Residential 1-4 family (2) 996 24 - - 996 24
Other consumer loans - - - - - -

Total $ 996 $ 24 $ 9,697 $ 228 $ 10,693 $ 252

With an allowance recorded
Commercial real estate - owner occupied $ - $ - $ 696 $ 24 $ 696 $ 24
Commercial real estate - non-owner occupied (1) - - - - - -
Construction and land development - - - - - -
Commercial loans - - 3,301 117 3,301 117
Residential 1-4 family (2) - - - - - -
Other consumer loans - - - - - -

Total $ - $ - $ 3,997 $ 141 $ 3,997 $ 141
Grand total $ 996 $ 24 $ 13,694 $ 369 $ 14,690 $ 393

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

The following tables present the aging of the recorded investment in past due loans by class of loans held for investment as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 (in thousands):


	30 - 59		60 - 89		90
	Days		Days		Days		Total		Loans Not		Total
June 30, 2023	Past Due		Past Due		or More		Past Due		Past Due		Loans
Commercial real estate - owner occupied	$	83	$	53	$	—	$	136	$	447,271	$	447,407
Commercial real estate - non-owner occupied		—		—		19,187		19,187		576,618		595,805
Secured by farmland		2		—		503		505		4,766		5,271
Construction and land development		41		—		—		41		175,032		175,073
Residential 1-4 family		2,277		904		715		3,896		588,042		591,938
Multi- family residential		101		—		—		101		133,653		133,754
Home equity lines of credit		670		294		254		1,218		61,590		62,808
Commercial loans		10,437		184		1,371		11,992		572,259		584,251
Paycheck Protection Program loans		7		—		1,775		1,782		361		2,143
Consumer loans		2,628		1,872		129		4,629		564,510		569,139
Total Non-PCD loans		16,246		3,307		23,934		43,487		3,124,102		3,167,589
PCD loans		443		—		1,242		1,685		4,364		6,049
Total	$	16,689	$	3,307	$	25,176	$	45,172	$	3,128,466	$	3,173,638


	30 - 59		60 - 89		90
	Days		Days		Days		Total		Loans Not		Total
December 31, 2022	Past Due		Past Due		or More		Past Due		Past Due		Loans
Commercial real estate - owner occupied	$	55	$	—	$	—	$	55	$	459,811	$	459,866
Commercial real estate - non-owner occupied		290		169		19,641		20,100		559,633		579,733
Secured by farmland		—		—		—		—		5,970		5,970
Construction and land development		46		—		—		46		148,644		148,690
Residential 1-4 family		2,180		410		304		2,894		606,800		609,694
Multi- family residential		—		—		—		—		140,321		140,321
Home equity lines of credit		431		96		249		776		64,376		65,152
Commercial loans		39		—		2,956		2,995		517,746		520,741
Paycheck Protection Program loans		16		15		3,360		3,391		1,173		4,564
Consumer loans		2,079		1,421		200		3,700		401,578		405,278
Total Non-PCD loans		5,136		2,111		26,710		33,957		2,906,052		2,940,009
PCD loans		—		—		1,328		1,328		5,300		6,628
Total	$	5,136	$	2,111	$	28,038	$	35,285	$	2,911,352	$	2,946,637

30 - 59 60 - 89
Days Days 90 Days Total Nonaccrual Loans Not Total
September 30, 2017 Past Due Past Due or More Past Due Loans Past Due Loans
Covered loans:
Commercial real estate - owner occupied $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - non-owner occupied (1) - - - - - - -
Construction and land development - - - - - - -
Commercial loans - - - - - - -
Residential 1-4 family (2) 23 193 - 216 1,109 22,654 23,979
Other consumer loans - - - - - - -

Total $ 23 $ 193 $ - $ 216 $ 1,109 $ 22,654 $ 23,979

Non-covered loans:
Commercial real estate - owner occupied $ 4,491 $ 40 $ - $ 4,531 $ 636 $ 394,632 $ 399,799
Commercial real estate - non-owner occupied (1) 1,934 39 - 1,973 - 537,641 539,614
Construction and land development 1,604 - - 1,604 9,984 186,740 198,328
Commercial loans 5,994 250 - 6,244 1,732 227,195 235,171
Residential 1-4 family (2) 3,565 1,119 - 4,684 639 594,903 600,226
Other consumer loans 37 8 - 45 - 39,415 39,460

Total $ 17,625 $ 1,456 $ - $ 19,081 $ 12,991 $ 1,980,526 $ 2,012,598

Total loans:
Commercial real estate - owner occupied $ 4,491 $ 40 $ - $ 4,531 $ 636 $ 394,632 $ 399,799
Commercial real estate - non-owner occupied (1) 1,934 39 - 1,973 - 537,641 539,614
Construction and land development 1,604 - - 1,604 9,984 186,740 198,328
Commercial loans 5,994 250 - 6,244 1,732 227,195 235,171
Residential 1-4 family (2) 3,588 1,312 - 4,900 1,748 617,557 624,205
Other consumer loans 37 8 - 45 - 39,415 39,460

Total $ 17,648 $ 1,649 $ - $ 19,297 $ 14,100 $ 2,003,180 $ 2,036,577

30 - 59 60 - 89
Days Days 90 Days Total Nonaccrual Loans Not Total
December 31, 2016 Past Due Past Due or More Past Due Loans Past Due Loans
Covered loans:
Commercial real estate - owner occupied $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - non-owner occupied (1) - - - - - - -
Construction and land development - - - - - - -
Commercial loans - - - - - - -
Residential 1-4 family (2) 221 95 - 316 850 27,014 28,180
Other consumer loans - - - - - - -

Total $ 221 $ 95 $ - $ 316 $ 850 $ 27,014 $ 28,180

Non-covered loans:
Commercial real estate - owner occupied $ - $ - $ - $ - $ 637 $ 154,170 $ 154,807
Commercial real estate - non-owner occupied (1) - - - - - 310,196 310,196
Construction and land development - - - - - 91,067 91,067
Commercial loans 1,349 - - 1,349 3,158 110,858 115,365
Residential 1-4 family (2) 1,011 - - 1,011 - 230,822 231,833
Other consumer loans - - - - - 856 856

Total $ 2,360 $ - $ - $ 2,360 $ 3,795 $ 897,969 $ 904,124

Total loans:
Commercial real estate - owner occupied $ - $ - $ - $ - $ 637 $ 154,170 $ 154,807
Commercial real estate - non-owner occupied (1) - - - - - 310,196 310,196
Construction and land development - - - - - 91,067 91,067
Commercial loans 1,349 - - 1,349 3,158 110,858 115,365
Residential 1-4 family (2) 1,232 95 - 1,327 850 257,836 260,013
Other consumer loans - - - - - 856 856

Total $ 2,581 $ 95 $ - $ 2,676 $ 4,645 $ 924,983 $ 932,304

Table of Contents

~~(1) Includes~~The amortized cost, by class, of loans ~~secured by farmland~~ and ~~multi-family residential loans.~~leases on nonaccrual status at June 30, 2023 and December 31, 2022, were as follows (in thousands):


	90			Less Than	Total		Nonaccrual With
	Days			90 Days	Nonaccrual		No Credit
June 30, 2023	or More			Past Due	Loans		Loss Allowance
Commercial real estate - owner occupied	$	—	$	491	$	491	$	491
Commercial real estate - non-owner occupied		19,187		—		19,187		1,323
Secured by farmland		503		2		505		505
Construction and land development		—		26		26		26
Residential 1-4 family		715		529		1,244		1,244
Home equity lines of credit		254		276		530		530
Commercial loans		1,371		60		1,431		61
Paycheck Protection Program loans		61		—		61		61
Consumer loans		129		444		573		573
Total Non-PCD loans		22,220		1,828		24,048		4,814
PCD loans		1,242		—		1,242		1,242
Total	$	23,462	$	1,828	$	25,290	$	6,056

	90			Less Than	Total		Nonaccrual With
	Days			90 Days	Nonaccrual		No Credit
December 31, 2022	or More			Past Due	Loans		Loss Allowance
Commercial real estate - owner occupied	$	—	$	509	$	509	$	509
Commercial real estate - non-owner occupied		19,641		—		19,641		19,641
Secured by farmland		—		713		713		713
Construction and land development		—		29		29		29
Residential 1-4 family		304		8,995		9,299		9,299
Home equity lines of credit		249		301		550		550
Commercial loans		2,956		121		3,077		121
Paycheck Protection Program loans		—		4		4		4
Consumer loans		200		134		334		299
Total Non-PCD loans		23,350		10,806		34,156		31,165
PCD loans		1,328		—		1,328		1,328
Total	$	24,678	$	10,806	$	35,484	$	32,493

~~(2) Includes home equity lines of credit.~~

~~Non-covered nonaccrual loans include SBA guaranteed amounts totaling~~There were $1.7 million and ~~$2.2~~$3.4 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016, respectively.~~2022, respectively.

Table of Contents

The following table presents nonaccrual loans as of June 30, 2023 by class and year of origination (in thousands):


															Revolving
															Loans
													Revolving		Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Commercial real estate - owner occupied	$	—	$	—	$	—	$	—	$	—	$	491	$	—	$	—	$	491
Commercial real estate - non-owner occupied		—		—				—		—		19,187		—		—		19,187
Secured by farmland		—		—		—		—		2		503		—		—		505
Construction and land development		—		—		—		—		—		26		—		—		26
Residential 1-4 family		—				—		—		—		981		—		263		1,244
Home equity lines of credit		—		—		—		—		—		54		457		19		530
Commercial loans		—		—		—		3		—		1,428		—		—		1,431
Paycheck Protection Program loans		—		—		—		61		—		—		—		—		61
Consumer loans		—		379		194		—		—		—		—		—		573
Total non-PCD nonaccruals		—		379		194		64		2		22,670		457		282		24,048
PCD loans		—		—		—		—		—		1,242		—		—		1,242
Total nonaccrual loans	$	—	$	379	$	194	$	64	$	2	$	23,912	$	457	$	282	$	25,290

~~Activity in the allowance for non-covered loan~~Interest received on nonaccrual loans was zero and ~~lease losses~~$0.1 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 is summarized below (in thousands):~~

Commercial Commercial
Real Estate Real Estate Construction Other
Owner Non-owner and Land Commercial 1-4 Family Consumer
Occupied Occupied (1) Development Loans Residential (2) Loans Unallocated Total
Non-covered loans:
Three months ended September 30, 2017
Allowance for loan losses:
Beginning balance $ 938 $ 1,790 $ 1,096 $ 2,691 $ 1,423 $ 84 $ 1,175 $ 9,197
Charge offs - - - (5,316 ) - (57 ) - (5,373 )
Recoveries 7 - - 170 2 1 - 180
Provision (129 ) (260 ) (293 ) 6,629 15 297 (1,009 ) 5,250
Ending balance $ 816 $ 1,530 $ 803 $ 4,174 $ 1,440 $ 325 $ 166 $ 9,254

Three months ended September 30, 2016
Allowance for loan losses:
Beginning balance $ 721 $ 1,403 $ 855 $ 3,345 $ 1,262 $ 122 $ 713 $ 8,421
Charge offs (798 ) - - (1,363 ) - - - (2,161 )
Recoveries - - 120 33 4 2 - 159
Provision 916 196 (328 ) 1,257 95 (41 ) (45 ) 2,050
Ending balance $ 839 $ 1,599 $ 647 $ 3,272 $ 1,361 $ 83 $ 668 $ 8,469

~~(1) Includes loans secured by farmland~~2022, respectively and ~~multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

Commercial Commercial
Real Estate Real Estate Construction Other
Owner Non-owner and Land Commercial 1-4 Family Consumer
Occupied Occupied (1) Development Loans Residential (2) Loans Unallocated Total
Non-covered loans:
Nine months ended September 30, 2017
Allowance for loan losses:
Beginning balance $ 905 $ 1,484 $ 752 $ 3,366 $ 1,279 $ 78 $ 746 $ 8,610
Charge offs - (100 ) - (6,283 ) (319 ) (63 ) - (6,765 )
Recoveries 28 299 - 221 6 5 - 559
Provision (117 ) (153 ) 51 6,870 474 305 (580 ) 6,850
Ending balance $ 816 $ 1,530 $ 803 $ 4,174 $ 1,440 $ 325 $ 166 $ 9,254

Nine months ended September 30, 2016
Allowance for loan losses:
Beginning balance $ 1,185 $ 1,222 $ 865 $ 3,041 $ 1,408 $ 48 $ 652 $ 8,421
Charge offs (798 ) - (450 ) (2,633 ) (22 ) (322 ) - (4,225 )
Recoveries - 1 120 78 8 4 - 211
Provision 452 376 112 2,786 (33 ) 353 16 4,062
Ending balance $ 839 $ 1,599 $ 647 $ 3,272 $ 1,361 $ 83 $ 668 $ 8,469

~~(1) Includes loans secured by farmland~~$0.01 million and ~~multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

~~No activity in~~$0.3 million for the ~~allowance for covered loan and lease losses was recorded during the three and nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016.~~2022, respectively.

Modifications Provided to Borrowers Experiencing Financial Difficulty

The following tables present the balance in the allowance for loan losses and the recorded investment in non-covered loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016 (in thousands):

Commercial Commercial
Real Estate Real Estate Construction Other
Owner Non-owner and Land Commercial 1-4 Family Consumer
Occupied Occupied (1) Development Loans Residential (2) Loans Unallocated Total
Non-covered loans:
September 30, 2017
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 816 1,530 803 4,174 1,440 325 166 9,254
Total ending allowance $ 816 $ 1,530 $ 803 $ 4,174 $ 1,440 $ 325 $ 166 $ 9,254

Loans:
Individually evaluated for impairment $ 1,218 $ - $ 9,984 $ 4,128 $ 376 $ - $ - $ 15,706
Collectively evaluated for impairment 398,581 539,614 188,344 231,043 599,850 39,460 - 1,996,892
Total ending loan balances $ 399,799 $ 539,614 $ 198,328 $ 235,171 $ 600,226 $ 39,460 $ - $ 2,012,598

December 31, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ 150 $ - $ - $ 750 $ - $ - $ - $ 900
Collectively evaluated for impairment 755 1,484 752 2,616 1,279 78 746 7,710
Total ending allowance $ 905 $ 1,484 $ 752 $ 3,366 $ 1,279 $ 78 $ 746 $ 8,610

Loans:
Individually evaluated for impairment $ 6,271 $ - $ - $ 6,380 $ - $ - $ - $ 12,651
Collectively evaluated for impairment 148,536 310,196 91,067 108,985 231,833 856 - 891,473
Total ending loan balances $ 154,807 $ 310,196 $ 91,067 $ 115,365 $ 231,833 $ 856 $ - $ 904,124

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

The following tables present the balance in the allowance for covered loan losses and the recorded investment in covered loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016 (in thousands):

Commercial Commercial
Real Estate Real Estate Construction Other
Owner Non-owner and Land Commercial 1-4 Family Consumer
Occupied Occupied (1) Development Loans Residential (2) Loans Unallocated Total
Covered loans:
September 30, 2017
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment - - - - - - - -
Total ending allowance $ - $ - $ - $ - $ - $ - $ - $ -

Loans:
Individually evaluated for impairment $ - $ - $ - $ - $ 1,285 $ - $ - $ 1,285
Collectively evaluated for impairment - - - - 22,694 - - 22,694
Total ending loan balances $ - $ - $ - $ - $ 23,979 $ - $ - $ 23,979

December 31, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment - - - - - - - -
Total ending allowance $ - $ - $ - $ - $ - $ - $ - $ -

Loans:
Individually evaluated for impairment $ - $ - $ - $ - $ 963 $ - $ - $ 963
Collectively evaluated for impairment - - - - 27,217 - - 27,217
Total ending loan balances $ - $ - $ - $ - $ 28,180 $ - $ - $ 28,180

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~(2) Includes home equity lines of credit.~~

~~Troubled Debt Restructurings~~

A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market ~~rate~~rates for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers.

The assessments of whether a borrower is experiencing ~~(or is likely to experience)~~ financial difficulty ~~and whether~~at the time a concession has been granted is subjective in nature and management’s judgment is required when determining whether the concession results in a modification that is accounted for as a ~~TDR.~~

new loan or a continuation of the existing loan under U.S. GAAP.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, ~~TDRs~~loans modified as a result of borrowers experiencing financial difficulty are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

~~During~~For the quarter ended June 30, 2023, two loans from our owner occupied commercial real estate loan portfolio with an amortized cost basis of $0.4 million, were modified for a borrower experiencing financial difficulty. This modification resulted in reamortization of the balance of the notes over a 25 year period, while maintaining the original maturity dates of February and July 2027, respectively. Contractual payments for both notes, prior to modification, for the three ~~and nine months ending September 30, 2017, there were~~month

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period would have totaled $0.03 million. The modified loans had no ~~loans modified~~payment delinquencies in ~~TDRs. One TDR which had been modified in 2013 defaulted during~~ the second quarter of ~~2015. This loan,~~2023 and represents 0.09% of our total owner occupied commercial real estate loans.

An existing modification performed in the first quarter of 2023, and was comprised of one loan with a $0.9 million amortized cost, which will resume contractual payments in August 2023. This existing modification has had no payment delinquencies since its modification and accounts for only 0.15% of our total 1-4 family residential loans.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies certain loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the loan is written off against the allowance. The amount of ~~$677 thousand, was current as~~the principal forgiveness is deemed to be uncollectible; therefore, that portion of ~~September 30, 2017.~~the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

~~During~~If it is determined that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the ~~three~~loan (or a portion of the loan) is written off. At that time, the amortized cost basis of the loan is reduced by the uncollectible amount and ~~nine months ending September 30, 2016, there were no loans modified in TDRs. One TDR which had been modified in 2013 defaulted during~~ the ~~second quarter of 2015. This loan, in~~allowance for credit losses is adjusted by the ~~amount of $692 thousand, was current as of September 30, 2016.~~

same amount.

Credit Quality Indicators

Through its system of internal controls, ~~Southern National~~Primis evaluates and segments loan portfolio credit quality ~~on a quarterly basis~~ using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified. ~~Southern National had no loans classified Doubtful at September 30, 2017 or December 31, 2016.~~

Special Mention loans are loans that have a potential weakness that ~~deserves~~deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position.

Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

~~As of September~~ Primis had no loans classified as Doubtful at June 30, ~~2017 and~~2023 or December 31, ~~2016, and based~~2022.

In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for credit losses on loans, we monitor portfolio credit quality by the ~~most recent analysis performed, the~~weighted-average risk ~~category~~grade of each class of loan.

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The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of June 30, 2023 (in thousands):


															Revolving
															Loans
														Revolving	Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Commercial real estate - owner occupied
Pass	$	21,276	$	89,674	$	61,730	$	18,444	$	21,553	$	214,548	$	2,832	$	6,821	$	436,878
Special Mention		—		—		220		—		—		5,081		—		—		5,301
Substandard		—		—		—		—		97		5,131		—		—		5,228
Doubtful		—		—		—		—		—		—		—		—		—
	$	21,276	$	89,674	$	61,950	$	18,444	$	21,650	$	224,760	$	2,832	$	6,821	$	447,407
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.49		3.31		3.44		3.39		3.28		3.53		3.66		3.97		3.46
Commercial real estate - nonowner occupied
Pass	$	1,472	$	59,088	$	120,978	$	43,528	$	41,039	$	281,105	$	1,884	$	5,085	$	554,179
Special Mention		—		—		—		1,548		—		20,291		—		601		22,440
Substandard		—		—		—		—		—		19,186		—		—		19,186
Doubtful		—		—		—		—		—		—		—		—		—
	$	1,472	$	59,088	$	120,978	$	45,076	$	41,039	$	320,582	$	1,884	$	5,686	$	595,805
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.15		3.27		3.08		3.83		3.95		3.84		2.86		3.21		3.63
Secured by farmland
Pass	$	514	$	—	$	13	$	108	$	—	$	3,627	$	328	$	176	$	4,766
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		2		503		—		—		505
Doubtful		—		—		—		—		—		—		—		—		—
	$	514	$	—	$	13	$	108	$	2	$	4,130	$	328	$	176	$	5,271
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		N/A		N/A		4.00		4.00		6.00		4.02		3.92		3.12		3.97
Construction and land development
Pass	$	15,392	$	61,912	$	71,105	$	544	$	2,522	$	21,805	$	807	$	9	$	174,096
Special Mention		—		—		—		—		—		951		—		—		951
Substandard		—		—		—		—		—		26		—		—		26
Doubtful		—		—		—		—		—		—		—		—		—
	$	15,392	$	61,912	$	71,105	$	544	$	2,522	$	22,782	$	807	$	9	$	175,073
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.55		3.21		3.39		3.39		3.29		3.57		3.37		4.00		3.36
Residential 1-4 family
Pass	$	12,664	$	153,892	$	154,811	$	42,560	$	57,486	$	162,489	$	1,908	$	2,736	$	588,546
Special Mention		—		—		—		—		—		179		—		—		179
Substandard		—		—		—		—		118		2,363		—		732		3,213
Doubtful		—		—		—		—		—		—		—		—		—
	$	12,664	$	153,892	$	154,811	$	42,560	$	57,604	$	165,031	$	1,908	$	3,468	$	591,938
Current period gross charge offs	$	—	$	—	$	—	$	—	$	94	$	—	$	—	$	—	$	94
Weighted average risk grade		3.16		3.08		3.04		3.07		3.07		3.22		3.92		3.64		3.12
Multi- family residential
Pass	$	—	$	8,257	$	21,678	$	18,045	$	6,997	$	76,520	$	649	$	648	$	132,794
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		669		—		291		960
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	8,257	$	21,678	$	18,045	$	6,997	$	77,189	$	649	$	939	$	133,754
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		N/A		3.69		3.00		3.90		3.00		3.41		4.00		4.62		3.42
Home equity lines of credit
Pass	$	75	$	492	$	423	$	50	$	52	$	3,201	$	57,009	$	880	$	62,182
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		54		553		19		626
Doubtful		—		—		—		—		—		—		—		—		—
	$	75	$	492	$	423	$	50	$	52	$	3,255	$	57,562	$	899	$	62,808
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.00		3.00		3.00		3.00		3.00		3.89		3.05		3.93		3.11
Commercial loans
Pass	$	116,586	$	283,911	$	54,530	$	6,648	$	2,888	$	28,008	$	81,285	$	6,947	$	580,803
Special Mention		—		—		—		12		144		—		1,311		360		1,827
Substandard		—		—		—		3		66		1,552		—		—		1,621
Doubtful		—		—		—		—		—		—		—		—		—
	$	116,586	$	283,911	$	54,530	$	6,663	$	3,098	$	29,560	$	82,596	$	7,307	$	584,251
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	1,590	$	—	$	—	$	1,590
Weighted average risk grade		2.74		3.01		3.36		3.36		3.98		3.47		3.20		3.82		3.06

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															Revolving
															Loans
														Revolving	Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Paycheck Protection Program loans
Pass	$	—	$	—	$	1,115	$	967	$	—	$	—	$	—	$	—	$	2,082
Special Mention		—		—		—		61		—		—		—		—		61
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	1,115	$	1,028	$	—	$	—	$	—	$	—	$	2,143
Current period gross charge offs	$	—	$	—	$	—	$		$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		N/A		N/A		2.00		2.24		N/A		N/A		N/A		N/A		2.11
Consumer loans
Pass	$	281,151	$	248,630	$	26,879	$	1,209	$	200	$	4,176	$	5,872	$	186	$	568,303
Special Mention		—		—		—		—		—		67		—		—		67
Substandard		—		382		387		—		—		—		—		—		769
Doubtful		—		—		—		—		—		—		—		—		—
	$	281,151	$	249,012	$	27,266	$	1,209	$	200	$	4,243	$	5,872	$	186	$	569,139
Current period gross charge offs	$	—	$	3,729	$	751	$	—	$	—	$	—	$	—	$	—	$	4,480
Weighted average risk grade		3.50		2.70		3.67		3.99		3.97		4.02		2.93		4.00		3.16
PCD
Pass	$	—	$	—	$	—	$	—	$	—	$	2,908	$	—	$	—	$	2,908
Special Mention		—		—		—		—		—		1,618		—		—		1,618
Substandard		—		—		—		—		—		1,523		—		—		1,523
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	6,049	$	—	$	—	$	6,049
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		N/A		N/A		N/A		N/A		N/A		4.67		N/A		N/A		4.67
Total	$	449,130	$	906,238	$	513,869	$	133,727	$	133,164	$	857,581	$	154,438	$	25,491	$	3,173,638
Current period gross charge offs	$	—	$	3,729	$	751	$	—	$	94	$	1,590	$	—	$	—	$	6,164
Weighted average risk grade		3.29		3.00		3.21		3.50		3.40		3.59		3.16		3.73		3.29

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The following table presents weighted-average risk grades for all loans, isby class and year of origination/renewal as of December 31, 2022 (in thousands):



															Revolving
															Loans
														Revolving	Converted
	2022		2021		2020		2019		2018		Prior		Loans		To Term		Total
Commercial real estate - owner occupied
Pass	$	116,545	$	58,202	$	19,178	$	21,985	$	27,397	$	202,484	$	3,389	$	6,740	$	455,920
Special Mention		—		—		—		—		—		988		—		—		988
Substandard		—		—		—		—		—		2,958		—		—		2,958
Doubtful		—		—		—		—		—		—		—		—		—
	$	116,545	$	58,202	$	19,178	$	21,985	$	27,397	$	206,430	$	3,389	$	6,740	$	459,866
Weighted average risk grade		3.25		3.45		3.38		3.27		3.43		3.50		3.52		3.96		3.42
Commercial real estate - nonowner occupied
Pass	$	28,128	$	126,291	$	44,696	$	41,631	$	55,702	$	228,735	$	4,173	$	3,065	$	532,421
Special Mention		—		—		1,566		—		926		24,580		—		601		27,673
Substandard		—		—		—		—		13,066		6,573		—		—		19,639
Doubtful		—		—		—		—		—		—		—		—		—
	$	28,128	$	126,291	$	46,262	$	41,631	$	69,694	$	259,888	$	4,173	$	3,666	$	579,733
Weighted average risk grade		3.36		3.16		3.82		3.95		4.01		3.82		2.87		3.33		3.68
Secured by farmland
Pass	$	141	$	16	$	110	$	—	$	—	$	2,279	$	1,697	$	85	$	4,328
Special Mention		—		—		—		—		—		649		—		112		761
Substandard		—		—		—		6		—		875		—		—		881
Doubtful		—		—		—		—		—		—		—		—		—
	$	141	$	16	$	110	$	6	$	—	$	3,803	$	1,697	$	197	$	5,970
Weighted average risk grade		4.00		4.00		4.00		6.00		N/A		4.20		3.98		3.70		4.13
Construction and land development
Pass	$	44,253	$	73,226	$	847	$	3,006	$	6,937	$	19,553	$	822	$	17	$	148,661
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		29		—		—		29
Doubtful		—		—		—		—		—		—		—		—		—
	$	44,253	$	73,226	$	847	$	3,006	$	6,937	$	19,582	$	822	$	17	$	148,690
Weighted average risk grade		3.21		3.06		3.60		3.42		3.17		3.69		3.36		4.00		3.20
Residential 1-4 family
Pass	$	152,178	$	157,233	$	43,812	$	61,268	$	40,707	$	138,782	$	1,837	$	3,437	$	599,254
Special Mention		—		—		—		—		—		30		—		—		30
Substandard		285		—		—		8,099		—		1,310		—		716		10,410
Doubtful		—		—		—		—		—		—		—		—		—
	$	152,463	$	157,233	$	43,812	$	69,367	$	40,707	$	140,122	$	1,837	$	4,153	$	609,694
Weighted average risk grade		3.09		3.04		3.07		3.41		3.13		3.23		3.92		3.54		3.15
Multi- family residential
Pass	$	9,953	$	21,927	$	18,338	$	7,064	$	1,804	$	75,370	$	4,192	$	676	$	139,324
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		702		—		295		997
Doubtful		—		—		—		—		—		—		—		—		—
	$	9,953	$	21,927	$	18,338	$	7,064	$	1,804	$	76,072	$	4,192	$	971	$	140,321
Weighted average risk grade		3.58		3.00		3.90		3.00		3.21		3.31		4.00		4.61		3.37
Home equity lines of credit
Pass	$	463	$	431	$	52	$	63	$	230	$	4,093	$	58,312	$	957	$	64,601
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		54		476		21		551
Doubtful		—		—		—		—		—		—		—		—		—
	$	463	$	431	$	52	$	63	$	230	$	4,147	$	58,788	$	978	$	65,152
Weighted average risk grade		3.00		3.00		3.00		3.00		3.00		3.94		3.05		3.89		3.12
Commercial loans
Pass	$	295,459	$	59,642	$	7,332	$	6,658	$	9,228	$	19,830	$	100,407	$	17,381	$	515,937
Special Mention		—		396		64		74		—		—		519		388		1,441
Substandard		—		—		5		90		—		1,678		1,590		—		3,363
Doubtful		—		—		—		—		—		—		—		—		—
	$	295,459	$	60,038	$	7,401	$	6,822	$	9,228	$	21,508	$	102,516	$	17,769	$	520,741
Weighted average risk grade		3.14		3.41		3.38		3.90		3.42		3.70		3.47		3.33		3.29
Paycheck Protection Program loans
Pass	$	—	$	2,119	$	2,435	$	—	$	—	$	—	$	—	$	—	$	4,554
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		10		—		—		—		—		—		—		10
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	2,129	$	2,435	$	—	$	—	$	—	$	—	$	—	$	4,564
Weighted average risk grade		N/A		2.02		2.00		N/A		N/A		N/A		N/A		N/A		2.01

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															Revolving
															Loans
														Revolving	Converted
	2022		2021		2020		2019		2018		Prior		Loans		To Term		Total
Consumer loans
Pass	$	365,842	$	29,184	$	1,493	$	340	$	534	$	4,319	$	2,918	$	—	$	404,630
Special Mention		—		—		—		—		—		65		—		—		65
Substandard		70		513		—		—		—		—		—		—		583
Doubtful		—		—		—		—		—		—		—		—		—
	$	365,912	$	29,697	$	1,493	$	340	$	534	$	4,384	$	2,918	$	—	$	405,278
Weighted average risk grade		3.24		3.74		3.99		3.98		4.00		4.02		3.81		N/A		3.30
PCD
Pass	$	—	$	—	$	—	$	—	$	—	$	3,692	$	—	$	—	$	3,692
Special Mention		—		—		—		—		—		1,320		—		—		1,320
Substandard		—		—		—		—		—		1,616		—		—		1,616
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	6,628	$	—	$	—	$	6,628
Weighted average risk grade		N/A		N/A		N/A		N/A		N/A		4.54		N/A		N/A		4.54
Total	$	1,013,317	$	529,190	$	139,928	$	150,284	$	156,531	$	742,564	$	180,332	$	34,491	$	2,946,637
Weighted average risk grade		3.20		3.19		3.48		3.54		3.60		3.57		3.35		3.53		3.36

Revolving loans that converted to term during the reported periods were as follows (in thousands):


	For the three months ended June 30, 2023		For the six months ended June 30, 2023
Commercial real estate - owner occupied	$	214	$	214
Commercial real estate - non-owner occupied		—		2,057
Secured by farmland		—		—
Construction and land development		—		—
Residential 1-4 family		142		142
Multi- family residential		—		—
Home equity lines of credit		—		—
Commercial loans		—		186
Paycheck Protection Program loans		—		—
Consumer loans		—		—
Total loans	$	356	$	2,599

Covered Loans Non-covered Loans Total Loans
Classified/ Special Classified/
September 30, 2017 Criticized (1) Pass Total Mention Substandard (3) Pass Total Criticized Pass Total
Commercial real estate - owner occupied $ - $ - $ - $ - $ 1,218 $ 398,581 $ 399,799 $ 1,218 $ 398,581 $ 399,799
Commercial real estate - non-owner occupied (2) - - - - 9,984 529,630 539,614 9,984 529,630 539,614
Construction and land development - - - - - 198,328 198,328 - 198,328 198,328
Commercial loans - - - 3,258 4,128 227,785 235,171 7,386 227,785 235,171
Residential 1-4 family (4) 1,285 22,694 23,979 - 376 599,850 600,226 1,661 622,544 624,205
Other consumer loans - - - - - 39,460 39,460 - 39,460 39,460

Total $ 1,285 $ 22,694 $ 23,979 $ 3,258 $ 15,706 $ 1,993,634 $ 2,012,598 $ 20,249 $ 2,016,328 $ 2,036,577

Covered Loans Non-covered Loans Total Loans
Classified/ Special Classified/
December 31, 2016 Criticized (1) Pass Total Mention Substandard (3) Pass Total Criticized Pass Total
Commercial real estate - owner occupied $ - $ - $ - $ - $ 6,271 $ 148,536 $ 154,807 $ 6,271 $ 148,536 $ 154,807
Commercial real estate - non-owner occupied (2) - - - - - 310,196 310,196 - 310,196 310,196
Construction and land development - - - - - 91,067 91,067 - 91,067 91,067
Commercial loans - - - 28 6,380 108,957 115,365 6,408 108,957 115,365
Residential 1-4 family (4) 963 27,217 28,180 - - 231,833 231,833 963 259,050 260,013
Other consumer loans - - - - - 856 856 - 856 856

Total $ 963 $ 27,217 $ 28,180 $ 28 $ 12,651 $ 891,445 $ 904,124 $ 13,642 $ 918,662 $ 932,304

~~(1) Credit quality is enhanced by a loss sharing agreement with the FDIC in the covered portfolio. The same credit quality indicators used in the non-covered portfolio are combined.~~

~~(2) Includes loans secured by farmland and multi-family residential loans.~~

~~(3) Includes SBA guarantees of $1.7 million and $2.2 million as of September 30, 2017 and December 31, 2016.~~

~~(4) Includes home equity lines of credit.~~

~~The amount of foreclosed residential real estate property held at September 30, 2017 and December 31, 2016 was $2.0 million and $3.4 million, respectively.~~ The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $0.3 million and $0.1 million at June 30, 2023 and December 31, 2022, respectively.

Allowance For Credit Losses – Loans

The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate.

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. For allowance modeling purposes, our loan pools include but are not limited to (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction and land development, (iv) commercial, (v) agricultural loans, (vi) residential 1-4 family and (vii) consumer loans. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of inputs: (i) probability of default, (ii) probability of attrition, (iii) loss given default and (iv) exposure at default. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the probability of default input. The various pool-specific inputs may be adjusted for current macroeconomic assumptions.

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Significant macroeconomic variables utilized in our allowance models include, among other things, (i) VA Gross Domestic Product, (ii) VA House Price Index, and (iii) VA unemployment rates.

Management qualitatively adjusts allowance model results for risk factors that are not considered within our quantitative modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Qualitative factor (“Q-Factor”) adjustments are driven by key risk indicators that management tracks on a pool-by-pool basis.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of June 30, 2023 and December 31, 2022, calculated in accordance with the current expected credit losses (“CECL”) methodology (in thousands).


	Commercial		Commercial										Home
	Real Estate		Real Estate				Construction						Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
June 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Modeled expected credit losses	$	4,747	$	6,360	$	3	$	914	$	4,067	$	1,641	$	307	$	5,225	$	7,011	$	—	$	30,275
Q-factor and other qualitative adjustments		268		625		29		372		385		352		19		855		5		—		2,910
Specific allocations		—		2,454		—		—		—		—		—		843		—		1,932		5,229
Total	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414

	Commercial		Commercial										Home
	Real Estate		Real Estate				Construction						Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
December 31, 2022	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Modeled expected credit losses	$	5,297	$	6,652	$	4	$	997	$	3,579	$	1,814	$	310	$	5,006	$	3,851	$	—	$	27,510
Q-factor and other qualitative adjustments		261		495		21		376		512		387		19		654		2		—		2,727
Specific allocations		—		—		—		—		—		—		—		2,193		42		2,072		4,307
Total	$	5,558	$	7,147	$	25	$	1,373	$	4,091	$	2,201	$	329	$	7,853	$	3,895	$	2,072	$	34,544

No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

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Activity in the allowance for credit losses by class of loan for the three months ended June 30, 2023 and 2022 is summarized below (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate				Construction						Home Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
Three Months Ended June 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	5,274	$	7,161	$	21	$	1,280	$	4,343	$	2,087	$	350	$	6,464	$	6,802	$	1,945	$	35,727
Provision (recovery)		(259)		2,278		11		6		203		(94)		(19)		468		1,720		(13)		4,301
Charge offs		—		—		—		—		(94)		—		(7)		(10)		(1,629)		—		(1,740)
Recoveries		—		—		—		—		—		—		2		1		123		—		126
Ending balance	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414

Three Months Ended June 30, 2022
Allowance for credit losses:
Beginning balance	$	4,173	$	8,913	$	49	$	1,029	$	3,888	$	2,289	$	376	$	5,466	$	1,025	$	2,171	$	29,379
Provision (recovery)		142		(1,498)		—		(5)		384		(129)		(14)		962		625		(45)		422
Charge offs		(14)		—		—		—		—		—		—		—		(84)		—		(98)
Recoveries		—		502		—		—		—		—		1		—		3		—		506
Ending balance	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209

Activity in the allowance for credit losses by class of loan for the six months ended June 30, 2023 and 2022 is summarized below (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate				Construction						Home Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
Six Months Ended June 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	5,558	$	7,147	$	25	$	1,373	$	4,091	$	2,201	$	329	$	7,853	$	3,895	$	2,072	$	34,544
Provision (recovery)		(543)		2,292		7		(199)		469		(208)		2		845		6,963		(140)		9,488
Charge offs		—		—		—		—		(269)		—		(7)		(1,776)		(4,112)		—		(6,164)
Recoveries		—		—		—		112		161		—		2		1		270		—		546
Ending balance	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414

Six Months Ended June 30, 2022
Allowance for credit losses:
Beginning balance	$	4,562	$	9,028	$	56	$	998	$	3,588	$	3,280	$	437	$	4,088	$	787	$	2,281	$	29,105
Provision (recovery)		(247)		(1,613)		(7)		26		627		(1,120)		(61)		2,170		901		(155)		521
Charge offs		(14)		—		—		—		—		—		(14)		—		(131)		—		(159)
Recoveries		—		502		—		—		57		—		1		170		12		—		742
Ending balance	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209

Generally, a commercial loan, or a portion thereof, is charged-off when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is incapable of servicing unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or, in the case of secured debt, when it is determined, through analysis of current information with regards to our collateral position, that amounts due from the borrower are in excess of the calculated current fair value of the collateral. Losses on installment loans are recognized in accordance with regulatory guidelines. All other consumer loan losses are recognized when delinquency exceeds 120 cumulative days.

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The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023				December 31, 2022
	Loan		Specific		Loan		Specific
	Balance		Allocations		Balance		Allocations
Commercial real estate - owner occupied	$	5,073	$	—	$	2,795	$	—
Commercial real estate - non-owner occupied		19,187		2,454		19,641		—
Secured by farmland		503		—		525		—
Construction and land development		—		—		—		—
Residential 1-4 family		1,655		—		9,636		—
Multi- family residential		960		—		996		—
Home equity lines of credit		—		—		21		—
Commercial loans		1,369		843		2,979		2,193
Consumer loans		—		—		259		42
Total non-PCD loans		28,747		3,297		36,852		2,235
PCD loans		6,051		1,932		6,628		2,072
Total loans	$	34,798	$	5,229	$	43,480	$	4,307

4. FAIR VALUE

ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability

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Assets and liabilities measured at fair value on a recurring basis are summarized below:


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	June 30, 2023		(Level 1)		(Level 2)		(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities	$	98,014	$	—	$	98,014	$	—
Obligations of states and political subdivisions		29,673		—		29,673		—
Corporate securities		12,956		—		12,956		—
Collateralized loan obligations		4,901		—		4,901		—
Residential government-sponsored collateralized mortgage obligations		28,568		—		28,568		—
Government-sponsored agency securities		13,360		—		13,360		—
Agency commercial mortgage-backed securities		30,794		—		30,794		—
SBA pool securities		4,821		—		4,821		—
		223,087		—		223,087		—
Loans held for investment		195,739		—		—		195,739
Loans held for sale		57,704		—		57,704		—
Mortgage banking financial assets		269		—		—		269
Derivative assets		2,032		—		2,032		—
Interest rate swaps		4,232		—		4,232		—
Total assets	$	483,063	$	—	$	287,055	$	196,008

Liabilities:
Derivative liabilities	$	126	$	—	$	—	$	—
Total liabilities	$	126	$	—	$	—	$	—

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			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities	$	102,881	$	—	$	102,881	$	—
Obligations of states and political subdivisions		29,178		—		29,178		—
Corporate securities		14,828		—		14,828		—
Collateralized loan obligations		4,876		—		4,876		—
Residential government-sponsored collateralized mortgage obligations		26,595		—		26,595		—
Government-sponsored agency securities		14,616		—		14,616		—
Agency commercial mortgage-backed securities		37,417		—		37,417		—
SBA pool securities		5,924		—		5,924		—
		236,315		—		236,315		—
Loans held for sale		27,626		—		27,626		—
Mortgage banking financial assets		21		—		—		21
Derivative assets		1,410		—		1,386		24
Total assets	$	265,372	$	—	$	265,327	$	45

Liabilities:
Mortgage banking financial liabilities	$	4	$	—	$	—	$	4
Derivative liabilities		122		—		115		7
Total liabilities	$	126	$	—	$	115	$	11

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

(dollars in thousands)

June 30, 2023

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

34,408

—

34,408

Assets held for sale

3,115

—

3,115

Fair Value Measurements Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

(dollars in thousands)

December 31, 2022

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

47,832

—

47,832

Assets held for sale

3,115

—

3,115

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Fair Value of Financial Instruments

The carrying amount, estimated fair values and fair value hierarchy levels (previously defined) of financial instruments were as follows (in thousands) for the periods indicated:


		June 30, 2023				December 31, 2022
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	100,868	$	100,868	$	77,859	$	77,859
Securities available-for-sale	Level 2		223,087		223,087		236,315		236,315
Securities held-to-maturity	Level 2		12,378		11,369		13,520		12,449
Stock in Federal Reserve Bank and Federal Home Loan Bank	Level 2		12,083		12,083		25,815		25,815
Preferred investment in mortgage company	Level 2		3,005		3,005		3,005		3,005
Net loans	Level 3		3,135,224		2,995,950		2,912,093		2,809,163
Loans held for sale	Level 2		57,704		57,704		27,626		27,626
Accrued interest receivable	Level 2		20,238		20,238		14,938		14,938
Mortgage banking financial assets	Level 3		269		269		21		21
Derivative assets	Level 2 and 3		2,032		2,032		1,410		1,410
Interest rate swaps	Level 2		4,232		4,232		—		—
Credit enhancement	Level 2		4,247		4,247		1,504		1,504
Financial liabilities:
Demand deposits and NOW accounts	Level 2	$	1,298,557	$	1,298,557	$	1,200,243	$	1,200,243
Money market and savings accounts	Level 2		1,547,109		1,547,109		1,057,078		1,057,078
Time deposits	Level 3		471,330		468,551		465,057		462,376
Securities sold under agreements to repurchase	Level 1		3,921		3,921		6,445		6,445
FHLB advances	Level 1		—		—		325,000		325,000
Junior subordinated debt	Level 2		9,806		9,018		9,781		9,181
Senior subordinated notes	Level 2		85,647		83,123		85,531		84,347
Accrued interest payable	Level 2		7,350		7,350		3,261		3,261
Mortgage banking financial liabilities	Level 3		—		—		4		4
Derivative liabilities	Level 2 and 3		126		126		122		122

Carrying amount is the estimated fair value for cash and cash equivalents, loans held for sale, accrued interest receivable and payable, mortgage banking financial assets and liabilities, derivative assets and liabilities, interest rate swaps, demand deposits, savings accounts, money market accounts and FHLB advances and securities sold under agreements to repurchase.

Fair value of long-term debt is based on current rates for similar financing. Carrying amount of Federal Reserve Bank and FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are based on the ultimate recoverability of the par value. The fair value of off-balance-sheet items is not considered material. Fair value of net loans, time deposits, junior subordinated debt, and senior subordinated notes are measured using the exit-price notion.

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5.LEASES

The Company leases certain premises under operating leases. In recognizing lease right-of-use assets and related liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. At June 30, 2023 and December 31, 2022, the Company had operating lease liabilities totaling $11.5 million and $5.8 million, respectively, and right-of-use assets totaling $10.7 million and $5.3 million, respectively, related to these leases. Operating lease liabilities and right-of-use assets are reflected in our consolidated balance sheets. We do not currently have any financing leases. For the three months ended June 30, 2023 and 2022, our net operating lease costs were $0.6 million and $0.4 million, respectively and for the six months ended June 30, 2023 and 2022, our net operating lease costs were $1.2 million and $1.0 million, respectively. These net operating lease costs are reflected in occupancy expenses on our consolidated statements of income and comprehensive income (loss).

The following table presents other information related to our operating leases:


	For the Six Months Ended
(in thousands except for percent and period data)	June 30, 2023			June 30, 2022
Other information:
Weighted-average remaining lease term - operating leases, in years		7.5			4.5
Weighted-average discount rate - operating leases		3.8	%		2.8	%

The following table summarizes the maturity of remaining lease liabilities:



	As of
(dollars in thousands)	June 30, 2023
Lease payments due:
2023	$	1,019
2024		1,829
2025		1,683
2026		1,657
2027		1,635
Thereafter		5,729
Total lease payments		13,552
Less: imputed interest		(2,006)
Lease liabilities	$	11,546

As of June 30, 2023, the Company had one operating lease that has not yet commenced that will create additional lease liabilities and right-of-use assets for the Company.

6. DEBT AND OTHER BORROWINGS

Other borrowings can consist of FHLB convertible advances, FHLB of Atlanta overnight advances, FHLB advances maturing within one year, federal funds purchased, Federal Reserve Board Discount Window and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers. The balance in repo accounts at June 30, 2023 and December 31, 2022 was $3.9 million and $6.5 million, respectively.

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At June 30, 2023 and December 31, 2022, we had pledged callable agency securities, residential government-sponsored mortgage-backed securities and collateralized mortgage obligations with a carrying value of $4.6 million and $14.2 million, respectively, to customers who require collateral for overnight repurchase agreements and deposits.

We repaid our short-term FHLB advances of $325.0 million that were outstanding as of December 31, 2022 and matured in the first quarter of 2023. As a result, we have all of our FHLB capacity available for future liquidity needs. At June 30, 2023, Primis Bank had lendable collateral value in the form of residential 1-4 family mortgages, HELOCs, commercial mortgage loans, and investment securities supporting borrowing capacity of approximately $580.8 million from the FHLB.

In June 2023, the Bank began participating in the Federal Reserve discount window borrowing program. At June 30, 2023, the Bank had borrowing capacity of $489.6 million within the program.

In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) in response to industry disruption, offering loans with up to one year in maturity to eligible depository institutions in exchange for pledged collateral in the form of U.S. Treasuries, agency debt and mortgage-backed securities and other qualifying assets. Borrowing capacity under the BTFP is based on the par value, not fair value, of the collateral. At June 30, 2023, we had securities available of $138.0 million for utilization with the BTFP, with no borrowings outstanding under the program at June 30, 2023.

In 2017, the Company assumed $10.3 million of trust preferred securities that were issued on September 17, 2003 and placed through a trust in a pooled underwriting totaling approximately $650 million. At June 30, 2023 and December 31, 2022, there was $10.3 million outstanding, net of approximately $0.5 million of debt issuance costs. As of June 30, 2023 and December 31, 2022, the interest rate payable on the trust preferred securities was 8.46% and 7.69%, respectively. At June 30, 2023, all of the trust preferred securities qualified as Tier 1 capital.

On January 20, 2017, Primis completed the sale of $27.0 million of its fixed-to-floating rate senior Subordinated Notes due 2027. Interest is currently payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption. At June 30, 2023, 60% of these notes qualified as Tier 2 capital.

On August 25, 2020, Primis completed the sale of $60.0 million of its fixed-to-floating rate Subordinated Notes due 2030. Interest is payable at an initial annual fixed rate of 5.40% and after September 1, 2025, at a floating rate equal to a benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 531 basis points. At June 30, 2023, all of these notes qualified as Tier 2 capital.

At June 30, 2023 and December 31, 2022, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled $1.4 million and ~~$1.8~~$1.5 million, respectively.

7. STOCK-BASED COMPENSATION

The 2017 Equity Compensation Plan (the “2017 Plan”) has a maximum number of 750,000 shares reserved for issuance. The purpose of the 2017 Plan is to promote the success of the Company by providing greater incentives to employees, non-employee directors, consultants and advisors to associate their personal financial interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices.

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A summary of stock option activity for the six months ended June 30, 2023 follows:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contractual	Value
	Shares	Price		Term	(in thousands)
Options outstanding, beginning of period	203,300	$	11.41	1.3	$	102
Expired	(113,500)
Exercised	(8,000)
Options outstanding, end of period	81,800	$	11.49	2.1		—

Exercisable at end of period	81,800	$	11.49	2.1	$	—

There was no stock-based compensation expense associated with stock options for the three and six months ended June 30, 2023 and 2022. As of June 30, 2023, we do not have any unrecognized compensation expense associated with the stock options.

A summary of time vested restricted stock awards for the six months ended June 30, 2023 follows:


		Weighted		Weighted
		Average		Average
		Grant-Date		Remaining
		Fair Value		Contractual
	Shares	Per Share		Term
Unvested restricted stock outstanding, beginning of period	68,700	$	14.24	2.4
Granted	5,000		7.58
Vested	(21,350)		14.28
Forfeited	(2,000)		15.43
Unvested restricted stock outstanding, end of period	50,350	$	13.51	2.4

Stock-based compensation expense for time vested restricted stock awards totaled $0.1 million for the three months ended both June 30, 2023 and 2022, and $0.1 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, unrecognized compensation expense associated with restricted stock awards was $0.5 million, which is expected to be recognized over a weighted average period of 2.4 years.

A summary of performance-based restricted stock units (the “Units”) for the six months ended June 30, 2023 follows:


			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
			Fair Value	Contractual
	Shares		Per Share	Term
Unvested Units outstanding, beginning of period	153,960	$	13.02	3.6
Granted	—		—
Vested	—		—
Unvested Units outstanding, end of period	153,960		13.02	2.6

These Units are subject to service and performance conditions. These Units vest based on the achievement of both conditions. Achievement of the performance condition will be determined at the end of the five-year performance period (the “Performance Period”) by evaluating the: 1) Company’s adjusted earnings per share compound annual growth measured for the Performance Period and 2) performance factor achieved. Payouts between performance levels will be determined based on straight line interpolation.

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The Company did not recognize any stock-based compensation expense associated with these Units for the three and six months ended June 30, 2023 and 2022 because it is not probable that these Units will vest. The potential unrecognized compensation expense associated with these Units was $3.0 million and $1.3 million at ~~September~~June 30, ~~2017~~2023 and ~~December 31, 2016,~~2022, respectively.

~~FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK~~
8. COMMITMENTS AND CONTINGENCIES

~~Southern National~~Financial Instruments with Off-Balance Sheet Risk

Primis is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and guarantees of credit card ~~accounts sold by EVBS premerger.~~accounts. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance ~~sheet.~~sheets. Letters of credit are written conditional commitments issued by ~~Southern National~~Primis to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling ~~$14.3 million and $6.4~~$10.7 million as of ~~September~~both June 30, ~~2017~~2023 and December 31, ~~2016, respectively.~~

2022.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is based on the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures

The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 3 - Loans and Allowance for Credit Losses, as if such commitments were funded. The allowance for credit losses on off-balance-sheet credit exposures is reflected in other liabilities in our consolidated balance sheets.

The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures:


	2023		2022
Balance as of January 1	$	1,416	$	977
Credit loss expense (recovery)		(143)		92
Balance as of June 30,	$	1,273	$	1,069

Commitments

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments are made predominately for adjustable rate loans, and generally have fixed expiration dates of up to three months or other termination clauses and usually require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each ~~customer's~~customer’s creditworthiness on a case-by-case basis.

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We had $81.5 million of Primis mortgage loan commitments outstanding as of June 30, 2023, all of which contractually expire within thirty years.

At ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, we had unfunded lines of credit and undisbursed construction loan funds totaling ~~$399.8~~$495.4 million and ~~$135.8~~$540.6 million, ~~respectively.~~respectively, not all of which will ultimately be drawn. Virtually all of our unfunded lines of credit and undisbursed construction loan funds are variable rate. The amount of certificate of deposit accounts maturing in less than one year was $379.6 million as of June 30, 2023, including $75.0 million of brokered CDs. Management anticipates that funding requirements for these commitments can be met in the normal course.

Premerger, EVBS sold its credit card portfolio. With that sale, EVBS guaranteed the credit card accounts of certain customers to the bank that issues the cards. In connection with the merger with EVBS, Southern National now is the guarantor. The fair value of guarantees of credit card accounts previously sold is basedPrimis also had commitments on the ~~estimated cost to settle the obligations with the counterparty~~subscription agreements entered into for investments in non-marketable equity securities of $2.4 million and ~~are not considered significant as of September~~$3.2 million at June 30, ~~2017.~~2023 and December 31, 2022, respectively.

9. 7.~~Earnings Per Share~~EARNINGS PER SHARE

The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations ~~(dollars~~(amounts in thousands, except per share data):


			Weighted
			Average
	Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount
For the three months ended June 30, 2023
Basic EPS	$	(188)	24,639	$	(0.01)
Effect of dilutive stock options and unvested restricted stock		—	—		—
Diluted EPS	$	(188)	24,639	$	(0.01)

For the three months ended June 30, 2022
Basic EPS	$	4,948	24,563	$	0.20
Effect of dilutive stock options and unvested restricted stock		—	118		—
Diluted EPS	$	4,948	24,681	$	0.20

For the six months ended June 30, 2023
Basic EPS	$	5,765	24,632	$	0.23
Effect of dilutive stock options and unvested restricted stock		—	53		—
Diluted EPS	$	5,765	24,685	$	0.23

For the six months ended June 30, 2022
Basic EPS	$	9,484	24,534	$	0.39
Effect of dilutive stock options and unvested restricted stock		—	132		(0.01)
Diluted EPS	$	9,484	24,666	$	0.38

Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
For the three months ended September 30, 2017
Basic EPS $ 4,374 23,913 $ 0.18
Effect of dilutive stock options and warrants - 305 -
Diluted EPS $ 4,374 24,218 $ 0.18

For the three months ended September 30, 2016
Basic EPS $ 2,765 12,258 $ 0.23
Effect of dilutive stock options and warrants - 171 -
Diluted EPS $ 2,765 12,429 $ 0.22

For the nine months ended September 30, 2017
Basic EPS $ 3,586 16,526 $ 0.22
Effect of dilutive stock options and warrants - 295 -
Diluted EPS $ 3,586 16,821 $ 0.21

For the nine months ended September 30, 2016
Basic EPS $ 8,120 12,248 $ 0.66
Effect of dilutive stock options and warrants - 154 -
Diluted EPS $ 8,120 12,402 $ 0.65

~~There were 480,729 and 467,977~~The Company had 81,800 anti-dilutive options ~~outstanding for the three~~as of June 30, 2023 and ~~nine months ended September 30, 2017, respectively. There were 684,604 and 702,027~~did not have any anti-dilutive options ~~and warrants outstanding for the three and nine months ended September 30, 2016, respectively.~~

8.~~FAIR VALUE~~

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

~~Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access~~ as of ~~the measurement date~~June 30, 2022.

~~Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability~~

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10. SEGMENT INFORMATION

The Company's management reporting process measures the performance of its operating segment based on internal operating structure, which is subject to change from time to time. Accordingly, the Company operates two reportable segments for management reporting purposes as discussed below:

Primis Bank. This segment specializes in providing financing services to businesses in various industries and deposit-related services to businesses, consumers and other customers. The primary source of revenue for this segment is net interest income from the origination of loans.

Primis Mortgage. This segment specializes in originating mortgages in a majority of the U.S. The primary source of revenue for this segment is noninterest income and the origination and sale of mortgage loans.

The following ~~is a description of~~table provides financial information for the ~~valuation methodologies used for instruments measured at fair value, as well as~~Company's reportable segments. The information provided under the ~~general classification of such instruments pursuant to the valuation hierarchy:~~

~~Investment Securities Available for Sale~~

Where quoted prices are available in an active market, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices arecaption “Primis Bank” includes operations not available, then fair values are estimated by using pricing models, quoted prices of investment securities with similar characteristics or discounted cash flow. Level 2 investment securities would include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Currently, all of Southern National’s available for sale debt investment securities are considered to be ~~Level 2 investment securities.~~

~~Assets measured at fair value on a recurring basis are summarized below:~~

Fair Value Measurements Using
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Total at Identical Assets Inputs Inputs
(dollars in thousands) September 30, 2017 (Level 1) (Level 2) (Level 3)
Financial assets:
Available for sale securities
Agency residential mortgage-backed securities (fixed and variable rate) $ 32,105 $ - $ 32,105 $ -
Obligations of states and political subdivisions 18,609 - 18,609 -
Corporate securities 2,015 - 2,015 -
Trust preferred securities 2,366 - 2,366 -
Residential government-sponsored collateralized mortgage obligations 53,370 - 53,370 -
Government-sponsored agency securities 1,733 - 1,733 -
Agency commercial mortgage-backed securities 28,081 - 28,081 -
SBA pool securities 25,958 - 25,958 -
$ 164,237 $ - $ 164,237 $ -

~~Assets and Liabilities Measured on a Non-recurring Basis:~~

~~Impaired Loans~~

Generally, we measure the impairment for impaired loans considering the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral is determined by an independent appraisal reportable segments and/or evaluation less estimated costs related to selling the collateral. In some cases appraised value is net of costs to sell. Estimated selling costs range from 6% to 10% of collateral valuation at September 30, 2017 and December 31, 2016. Fair value is classified as Level 3 in the fair value hierarchy. Non-covered loans identified as impaired totaled $15.7 million (including SBA guarantees of $1.7 million) as of September 30, 2017 with $0 allocated allowance for loan losses compared to a carrying amount of $12.7 million (including SBA guarantees of $2.2 million) with an allocated allowance for loan losses totaling $900 thousand at December 31, 2016.

~~Assets held for sale~~

In connection with the merger with EVBS, SNBV acquired four properties that were either former EVBS administrative locations or previously anticipated to be future EVBS administrative locations. Assets held for sale are measured at fair value less cost to sell, based on appraisals conducted by an independent, licensed appraiser outsidegeneral operating expenses of the Company, ~~using observable market data. If~~and includes the ~~fair value is significantly adjusted due~~parent company and elimination adjustments to ~~differences in~~reconcile the ~~comparable properties, or is discounted by~~results of the Company because of marketability, then the fair value is considered Level 3. Assets held for sale are measured at fair value on a non-recurring basis. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense onoperating segment to the consolidated financial statements ~~of income.~~prepared in conformity with GAAP.


	As of and for the three months ended June 30, 2023						As of and for the six months ended June 30, 2023
	Primis Mortgage		Primis Bank		Consolidated		Primis Mortgage		Primis Bank		Consolidated

Interest income	$	701	$	51,978	$	52,679	$	1,097	$	98,696	$	99,793
Interest expense		—		26,522		26,522		—		45,271		45,271
Net interest income		701		25,456		26,157		1,097		53,425		54,522
Provision for credit losses		—		4,301		4,301		—		9,488		9,488
Noninterest income		5,217		3,269		8,486		9,532		10,486		20,018
Noninterest expense		5,271		25,281		30,552		10,259		47,697		57,956
Income (loss) before income taxes		647		(857)		(210)		370		6,726		7,096
Income tax expense (benefit)		162		(184)		(22)		96		1,235		1,331
Net income (loss)	$	485	$	(673)	$	(188)	$	274	$	5,491	$	5,765
Assets	$	63,563	$	3,784,930	$	3,848,493	$	63,563	$	3,784,930	$	3,848,493

~~Other Real Estate Owned (“OREO”)~~

OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or evaluation less cost to sell. In some cases appraised value is net of costs to sell. Selling costs have been in the range from 5.0% to 7.6% of collateral valuation at September 30, 2017 and December 31, 2016. Fair value is classified as Level 3 in the fair value hierarchy. OREO is further evaluated quarterly for any additional impairment. At September 30, 2017, the total amount of non-covered OREO was $8.1 million, and there was no covered OREO. As of December 31, 2016, the total amount of OREO was $8.6 million, and there was no covered OREO.

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~~Assets measured at fair value on a non-recurring basis are summarized below:~~

Fair Value Measurements Using
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Total at Identical Assets Inputs Inputs
(dollars in thousands) September 30, 2017 (Level 1) (Level 2) (Level 3)
Impaired non-covered loans:
Commercial real estate - owner occupied $ 1,218 $ - $ - $ 1,218
Construction and land development 9,984 - - 9,984
Commercial loans 4,128 - - 4,128
Residential 1-4 family 376 - - 376
Impaired covered loans:
Residential 1-4 family 1,285 - - 1,285
Assets held for sale 1,685 - - 1,685
Non-covered other real estate owned:
Commercial real estate - owner occupied 3,092 - - 3,092
Construction and land development 2,923 - - 2,923
Residential 1-4 family 2,038 - - 2,038

Fair Value Measurements Using
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Total at Identical Assets Inputs Inputs
(dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3)
Impaired non-covered loans:
Commercial real estate - owner occupied $ 6,121 $ - $ - $ 6,121
Commercial loans 5,630 - - 5,630
Impaired covered loans:
Residential 1-4 family 963 - - 963
Non-covered other real estate owned:
Commercial real estate - owner occupied 1,110 - - 1,110
Commercial real estate - non-owner occupied (1) 237 - - 237
Construction and land development 3,863 - - 3,863
Residential 1-4 family 3,407 - - 3,407

~~(1) Includes loans secured by farmland and multi-family residential loans.~~

~~Fair Value of Financial Instruments~~

~~The carrying amount, estimated fair values and fair value hierarchy levels (previously defined) of financial instruments were as follows (in thousands):~~

September 30, 2017 December 31, 2016
Fair Value Carrying Fair Carrying Fair
Hierarchy Level Amount Value Amount Value

Financial assets:
Cash and cash equivalents(1) Level 1 $ 23,943 $ 23,943 $ 47,392 $ 47,392
Securities available for sale See previous table 164,237 164,237 3,918 3,918
Securities held to maturity Level 2 100,333 99,122 85,300 83,344
Stock in Federal Reserve Bank and Federal Home Loan Bank n/a 24,076 n/a 7,929 n/a
Equity investment in mortgage affiliate Level 3 4,617 4,617 4,629 4,629
Preferred investment in mortgage affiliate Level 3 3,305 3,305 2,555 2,555
Net non-covered loans Level 3 2,001,948 2,005,934 893,625 903,085
Net covered loans Level 3 23,979 24,027 28,180 32,173
Accrued interest receivable Level 2 & Level 3 7,965 7,965 3,202 3,202
FDIC indemnification asset Level 3 1,525 528 2,111 528
Financial liabilities:
Demand deposits Level 1 649,786 649,786 124,779 124,779
Money market and savings accounts Level 1 530,450 530,450 182,590 182,590
Certificates of deposit Level 3 723,373 721,223 605,613 605,394
Securities sold under agreements to repurchase Level 1 16,416 16,416 - -
FHLB short term advances Level 1 272,115 272,115 95,000 95,000
Junior subordinated debt Level 2 9,522 11,524 - -
Senior subordinated notes Level 2 47,138 52,649 - -
Accrued interest payable Level 1 & Level 3 2,619 2,619 1,190 1,190

~~(1)~~

~~Includes Federal Funds Sold~~

Carrying amount is the estimated fair value for cash and cash equivalents (including federal funds sold), equity investment in mortgage affiliate, preferred investment in mortgage affiliate, accrued interest receivable and payable, demand deposits, savings accounts, money market accounts, securities sold under agreements to repurchase, short-term debt, and variable rate loans that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life. A discount for liquidity risk was not considered necessary in estimating the fair value of loans. It was not practicable to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to restrictions placed on its transferability. Fair value of long-term debt is based on current rates for similar financing. The fair value of the FDIC indemnification asset was determined by discounting estimated future cash flows using the long-term risk free rate plus a premium and represents the present value of our current expectation for recoveries from the FDIC on covered loans. The fair value of off-balance-sheet items is not considered material. The fair value of loans is not presented on an exit price basis.

~~SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS~~

Other short-term borrowings can consist of Federal Home Loan Bank (“FHLB”) overnight advances, other FHLB advances maturing within one year, federal funds purchased and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers.

In the second quarter of 2016, the Company discontinued offering repo accounts. However, repo accounts totaling $7.6 million were assumed on June 23, 2017 in the merger with EVBS. During the third quarter of 2017 the Company determined that it will continue to offer repo accounts and the balance at September 30, 2017 was $16.4 million.

~~10.~~

~~JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTES~~

In connection with our merger with EVBS, the Company assumed $10 million of trust preferred securities that were issued on September 17, 2003 and placed through the Trust in a pooled underwriting totaling approximately $650 million. The trust issuer has invested the total proceeds from the sale of the trust preferred securities in Floating Rate Junior Subordinated Deferrable Interest Debentures (“Junior Subordinated Debt”) issued by EVBS. The trust preferred securities pay cumulative cash distributions quarterly at a variable rate per annum, reset quarterly, equal to the 3-month LIBOR plus 2.95%. As of September 30, 2017 and December 31, 2016, the interest rate was 4.27% and 3.94%, respectively. The dividends paid to holders of the trust preferred securities, which are recorded as interest expense, are deductible for income tax purposes. The trust preferred securities have a mandatory redemption date of September 17, 2033, and became subject to varying call provisions beginning September 17, 2008. The Company has fully and unconditionally guaranteed the trust preferred securities through the combined operation of the Junior Subordinated Debt and other related documents. The Company’s obligation under the guarantee is unsecured and subordinate to senior and subordinated indebtedness of the Company.

The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. At September 30, 2017, all of the trust preferred securities qualified as Tier 1 capital.

Subject to certain exceptions and limitations, the Company is permitted to elect from time to time to defer regularly scheduled interest payments on its outstanding Junior Subordinated Debt relating to its trust preferred securities. If the Company defers interest payments on the Junior Subordinated Debt for more than 20 consecutive quarters, the Company would be in default under the governing agreements for such notes and the amount due under such agreements would be immediately due and payable.

On January 20, 2017, Southern National completed the sale of $27.0 million of its fixed-to-floating rate Subordinated Notes due 2027 (the “SNBV Senior Subordinated Notes”). The SNBV Senior Subordinated Notes will initially bear interest at 5.875% per annum until January 31, 2022; thereafter, the SNBV Senior Subordinated Notes will be payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption. At September 30, 2017, all of the SNBV Senior Subordinated Notes qualified as Tier 2 capital. At September 30, 2017, the remaining unamortized debt issuance costs related to the SNBV Senior Subordinated Notes totaled $878 thousand.

Also in connection with our merger with EVBS, the Company assumed the Senior Subordinated Note Purchase Agreement previously entered into by EVBS on April 22, 2015 with certain institutional accredited investors pursuant to which EVBS sold $20.0 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025 (the “EVBS Senior Subordinated Notes”) to the investors at a price equal to 100% of the aggregate principal amount of the EVBS Senior Subordinated Notes. The EVBS Senior Subordinated Notes bear interest at an annual rate of 6.50%, payable semi-annually in arrears on May 1 and November 1 of each year ending on May 1, 2020. From and including May 1, 2020 to, but excluding, the maturity date, the EVBS Senior Subordinated Notes will bear interest at an annual rate, reset quarterly, equal to LIBOR determined on the determination date of the applicable interest period plus 502 basis points, payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, beginning on August 1, 2020. The Company may, at its option, redeem, in whole or in part, the EVBS Senior Subordinated Notes as early as May 1, 2020, and any partial redemption would be made pro rata among all of the holders. At September 30, 2017 all of the EVBS Senior Subordinated Notes qualified as Tier 2 capital.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of ~~SNBV.~~Primis. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2022. Results of operations for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of results that may be attained for any other period.

The emphasis of this discussion will be on the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 for the consolidated statements of income (loss) and comprehensive income (loss). For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2023 compared to December 31, 2022. This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.

FORWARD-LOOKING STATEMENTS

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. ~~These~~Forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are ~~based on~~not guarantees of future performance and are subject to risks, assumptions and ~~involve a number~~uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of ~~risks and uncertainties, many of which are beyond our control.~~the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. The words “believe,” “may,” “forecast,” “should,” “anticipate,” “contemplate,” “estimate,” “expect,” “project,” “predict,” “intend,” “continue,” “would,” “could,” “hope,” “might,” “assume,” “objective,” “seek,” “plan,” “strive” ~~and~~or similar words, or the negatives of these words, ~~are intended to~~ identify forward-looking statements.

~~Many possible events or factors could affect our future financial results~~Forward-looking statements involve risks and ~~performance and could~~uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the Risk ~~Factor~~Factors contained in this Quarterly Report on Form 10-Q, as well as the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, and the other reports we file with the Securities and Exchange Commission, factors that could contribute to those differences include, but are not limited to:

~~the effects of future economic, business and market conditions and changes, domestic and foreign;~~

changes in the local economies in our market areas adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;

~~changes in the availability of funds resulting in increased costs or reduced liquidity;~~

~~a deterioration or downgrade in the credit quality and credit agency ratings of the investment securities in our investment securities portfolio;~~

impairment concerns and risks related to our investment securities portfolio of collateralized mortgage obligations, agency mortgage-backed securities, obligations of states and political subdivisions and pooled trust preferred securities;

~~the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;~~

~~increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio;~~

~~the concentration of our loan portfolio in loans collateralized by real estate;~~

~~our level of construction and land development and commercial real estate loans;~~

~~changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;~~

~~the failure of assumptions and estimates underlying the establishment of and provisions made to the allowance for loan losses;~~

our ability to expand and grow our business and operations, including the establishment of additional branches and acquisition of additional branches and banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities;

changes in governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System, or changes in interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;

~~increased competition for deposits and loans adversely affecting rates and terms;~~

~~the continued service of key management personnel;~~

~~the potential payment of interest on demand deposit accounts to effectively compete for customers;~~

~~potential environmental liability risk associated with lending activities;~~

~~increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;~~

34●

the effects of future economic, business and market conditions and disruptions in the credit and financial markets, domestic and foreign;

●

potential impacts of the recent adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto;

●

potential increases in the provision for credit losses and other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services;

●

fraudulent and negligent acts by loan applicants, mortgage brokers and our employees;

●

our ability to recover certain losses related to fraudulent loans under the Company's insurance policies and to successfully complete the claims process and minimize the financial impact of these loans;

●

our ability to implement our various strategic and growth initiatives, including our Panacea Financial and Life Premium Finance Divisions, new digital banking platform, V1BE fulfillment service and Primis Mortgage Company as well as our cost saving project to reduce administrative and branch expenses;

●

adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions;

~~risks~~Table of Contents

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changes in the local economies in our market areas which adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;

●

changes in interest rates, inflation, loan demand, real estate values, or competition, as well as labor shortages, supply chain disruptions, the threat of recession and volatile equity capital markets;

●

changes in the availability of funds resulting in increased costs or reduced liquidity, as well as the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;

●

a deterioration or downgrade in the credit quality and credit agency ratings of the investment securities in our investment securities portfolio;

●

impairment concerns and risks related to our investment securities portfolio of collateralized mortgage obligations, agency mortgage-backed securities and obligations of states and political subdivisions;

●

the incurrence and possible impairment of goodwill associated with current or future acquisitions and possible adverse short-term effects on our results of operations;

●

increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio, including as a result of rising interest rates, inflation and recessionary concerns;

●

the concentration of our loan portfolio in loans collateralized by real estate;

●

our level of construction and land development and commercial real estate loans;

●

our ability to identify and address potential cybersecurity risks on our systems and/or third party vendors and service providers on which we rely, heightened by increased use of our virtual private network platform, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation;

●

changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;

●

the failure of assumptions and estimates underlying the establishment of and provisions made to the allowance for credit losses;

●

our ability to expand and grow our business and operations, including the acquisition of additional banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities;

●

government intervention in the U.S. financial system, including the effects of legislative, tax, accounting and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities, the Tax Cuts and Jobs Act of 2017 and the CARES Act, as well as the possibility that the U.S. could default on its debt obligations and the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;

●

uncertainty related to the transition away from the London Inter-bank Offered Rate (“LIBOR”);

●

increased competition for deposits and loans adversely affecting rates and terms;

●

the continued service of key management personnel;

●

the potential payment of interest on demand deposit accounts to effectively compete for customers;

●

potential environmental liability risk associated with properties that we assume upon foreclosure;

●

increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;

●

risks of current or future mergers and acquisitions, including the related time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;

●

increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business;

●

acts of God or of war or other conflicts, including the current Ukraine/Russia conflict, acts of terrorism, pandemics or other catastrophic events that may affect general economic conditions;

●

changes in accounting policies, rules and practices and applications or determinations made thereunder, including the impact of the adoption of the current expected credit losses (“CECL”) methodology;

●

failure to maintain effective internal controls and procedures;

Table of ~~implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;~~Contents

legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, including those associated with the Dodd Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;

~~increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business;~~

~~the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions;~~

~~changes in accounting policies, rules and practices and applications or determinations made thereunder;~~

the risk that our deferred tax assets could be reduced if future taxable income is less than currently estimated, if corporate tax rates in the future are less than current rates, or if sales of our capital stock trigger limitations on the amount of net operating loss carryforwards that we may utilize for income tax purposes;

factors that adversely affect our business initiatives, including SNBV’s merger and integration of EVBS, and other factors that could impact the business of the combined organization, including, without limitation, changes in the economic or business conditions in SNBV’s markets; and

other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

●

our ability to attract and retain qualified employees, including as a result of heightened labor shortages;

●

risks related to environmental, social and governance ("ESG") strategies and initiatives, the scope and pace of which could alter our reputation and shareholder, associate, customer and third-party affiliations; and

●

other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we file with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

Forward-looking statements are not guarantees of performance or ~~results.~~results and should not be relied upon as representing management’s views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should ~~keep in mind~~refer to the risk factors and other cautionary statements in this Quarterly Report on Form ~~10-Q.~~10-Q and in our periodic and current reports filed with the SEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form ~~10-Q.~~10-Q (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.

OVERVIEW

~~SNBV~~Primis Financial Corp. (“Primis,” “we,” “us,” “our” or the “Company”) is ~~a corporation that was formed on July 28, 2004 under~~ the ~~laws of the Commonwealth of Virginia and is the~~bank holding company for ~~Sonabank~~Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. As of the close of business on June 23, 2017, SNBV completed its previously announced merger of EVBS with and into SNBV and the completion of the merger of EVBS’s wholly-owned subsidiary, EVB, with and into SNBV’s wholly-owned subsidiary, Sonabank. This combination has brought together two banking companies with complementary business lines, creating one of the premier banking institutions headquartered in the Commonwealth of Virginia. EVBS was the holding company for EVB, a Virginia state-chartered bank which traced its beginnings to 1910. SonabankPrimis Bank provides a range of financial services to individuals and small and ~~medium sized~~medium-sized businesses. At ~~September~~June 30, ~~2017, Sonabank~~2023, Primis Bank had ~~thirty-seven~~thirty-two full-service branches in Virginia and Maryland and also provides services to customers through certain online and mobile applications. Thirty full-service retail branches are in Virginia ~~located in the counties of Chesterfield, Essex (2), Fairfax (Reston, McLean~~ and Fairfax), Gloucester (2), Hanover (3), King William, Lancaster, Middlesex (3), New Kent, Northumberland (3), Southampton, Surry, Sussex, and in Charlottesville, Clifton Forge, Colonial Heights, Front Royal, Hampton, Haymarket, Leesburg, Middleburg, New Market, Newport News, Richmond, South Riding, Warrenton, and Williamsburg, and seventwo full-service retail branches are in ~~Maryland,~~Maryland. The Company is headquartered in ~~Rockville, Shady Grove, Bethesda, Upper Marlboro, Brandywine, Owings~~McLean, Virginia and ~~Huntingtown.~~

~~We have~~has an administrative ~~offices~~office in ~~Warrenton and~~ Glen Allen, Virginia and ~~executive offices~~an operations center in ~~Georgetown, Washington, D.C.~~Atlee, Virginia. Our deposits are insured, up to applicable limits, by the Federal Deposit Insurance Corporation (the “FDIC”). Primis Mortgage Company, a residential mortgage lender headquartered in Wilmington, North Carolina, is also a consolidated subsidiary of Primis Bank.

As part of a cost saving initiative, the Bank plans to consolidate eight branch locations, reducing total branches from thirty-two to twenty-four, with an expected effective date of October 31, 2023.

While Primis Bank offers a wide range of commercial banking services, it focuses on making loans secured primarily by commercial real estate and ~~Glen Allen, Virginia where~~other types of secured and unsecured commercial loans to small and medium-sized businesses in a number of industries, as well as loans to individuals for a variety of purposes. Primis Bank invests in real estate-related securities, including collateralized mortgage obligations and agency mortgage backed securities. Primis Bank’s principal sources of funds for loans and investing in securities are deposits and, to a lesser extent, borrowings. Primis Bank offers a broad range of deposit products, including checking (NOW), savings, money market accounts and certificates of deposit. Primis Bank actively pursues business relationships by utilizing the business contacts of its senior management, other bank officers and its directors, thereby capitalizing on its knowledge of its local market areas.

Current Economic Environment

The U.S. economy expanded in the second quarter of 2023, with Real Gross Domestic Product growing by an annualized 2.4%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment was relatively stable compared to year end at 3.5% in July 2023. The Federal Reserve (the “Fed”) has now raised rates 525 bps in total since March of 2022, a pace that has not been experienced in more than 40 years. This rate level is ~~located. In September 2017, Southern National and Sonabank successfully completed~~continuing to put strong margin pressure on all banks, including Primis, as the ~~core data processing system conversion related~~cost of deposits is increasing while many loans are fixed due to

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borrowers locking in historic low rates in the past few years. Inflation, while beginning to show signs of moderating, remains higher than the Fed’s long term target rate. This has resulted in the Fed continuing to raise borrowing rates in an attempt to get inflation to its ~~merger~~2% target rate. The path of ~~EVBS~~future rate hikes by the Fed is uncertain as it indicated their rate decisions going forward will be data-dependent, which could result in additional increases in the second half of 2023.

Further, on August 1, 2023, Fitch Ratings downgraded the United States of America's Long-Term Foreign-Currency Issuer Default Rating to 'AA+' from 'AAA', citing expected fiscal deterioration over the next three years, a high and ~~EVB. We are very excited~~growing general government debt burden, and the erosion of governance relative to ~~have combined~~'AA' and 'AAA' rated peers over the last two ~~great organizations~~decades that has manifested in repeated debt limit standoffs and ~~remain highly optimistic about the future prospects and synergies~~last-minute resolutions. The full extent of the ~~combined entity. With~~impact of these factors is uncertain and may have a negative impact on the ~~core data processing system conversion complete, during~~U.S. economy, including the ~~fourth quarter~~possibility of ~~2017 and forward, we plan to continue to focus our efforts on realizing cost savings, maximizing revenue enhancement opportunities from~~an economic recession in the ~~merger~~near or mid-term.

FINANCIAL HIGHLIGHTS

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Net loss for the three months ended June 30, 2023 totaled $0.2 million, or $0.01 basic and diluted loss per share, compared to net income of $5.0 million, or $0.20 basic and diluted earnings per share for the three months ended June 30, 2022. Net income for the six months ended June 30, 2023 totaled $5.8 million, or $0.23 basic and diluted earnings per share, compared to $9.5 million, or $0.39 basic and $0.38 per diluted earnings per share for the six months ended June 30, 2022.

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Total assets as of June 30, 2023 were $3.85 billion, an increase of 8% compared to December 31, 2022.

●

Total cash and cash equivalents grew to $100.9 million, up from $77.9 million at December 31, 2022.

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Total loans, excluding Paycheck Protection Program (“PPP”) balances as of June 30, 2023, were $3.17 billion, an increase of $229.4 million, or 8%, from December 31, 2022.

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Total deposits were $3.32 billion at June 30, 2023, an increase of 22% compared to December 31, 2022.

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Non-time deposits increased to $2.85 billion at June 30, 2023, an increase of $588.3 million, or 26%, compared to December 31, 2022.

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The ratio of gross loans to deposits has declined to 96% at June 30, 2023, from 108% at December 31, 2022.

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Net interest margin of 2.65% in the second quarter of 2023 was down from 3.33% in the second quarter of 2022.

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Allowance for credit losses to total loans was 1.21% at June 30, 2023, compared to 1.17% at December 31, 2022.

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Recently announced cost savings initiative and structural changes to branch and digital deposit gathering is expected to reduce costs by an estimated $9.4 million per year and is expected to be fully implemented by October 2023.

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Reduction in branch count will push total deposits per branch to approximately $153 million compared to approximately $85 million per branch at the end of 2022.

●

During the second quarter of 2023, the Company discovered an employee loan fraud with total exposure of approximately $2.5 million. The Company has evaluated the effect of the error, both qualitatively and quantitatively, and believes the impact to prior years is immaterial to each respective period assessed. Regardless, the Company has revised prior periods to reflect the fraud losses in the respective period incurred instead of recording in the current period when we discovered them because the losses are projected to have a material impact to the expected 2023 annual results. When reflecting the losses in prior periods, any losses incurred prior to January 1, 2022 were adjusted in the January 1, 2022 opening retained earnings balance. The revisions resulted in retained earnings as of January 1, 2022 being $2.0 million lower than previously reported in prior periods. Additionally, the revisions resulted in a decrease in loans held for investment as of December 31, 2022, of $2.0 million and a decrease in net income for the three and six months ended June 30, 2022, of $61 thousand and $118 thousand, respectively.

Table of ~~EVBS, while conservatively and prudently growing the balance sheet.~~ Contents

RESULTS OF OPERATIONS

Net Income

Three-Month Comparison.Net loss for the three months ended June 30, 2023 totaled $0.2 million, or $0.01 basic and diluted loss per share, compared to net income of $4.9 million, or $0.20 basic and diluted earnings per share for the three months ended June 30, 2022. The 104% decrease in net income during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was driven by higher noninterest expenses mainly from an increase in employee compensation and benefits expense in the second quarter of 2023 related to increased head count at the Bank, Primis Mortgage and Panacea. The decrease in net income was also attributable to higher data processing expense driven by substantially higher application volume on the digital deposit platform as a result of a savings account rate promotion offered during 2023. We also experienced a $3.9 million increase in the provision for loan losses, a substantial amount of which was due to specific loans that are in the process of resolution. These decreases were partially offset by higher interest income and from mortgage banking income in the second quarter of 2023.

Six-Month Comparison.Net income for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 was $4.4~~2023 totaled $5.8 million, or $0.23 basic and ~~$3.6~~diluted earnings per share, compared to $9.5 million, ~~respectively. That compares to~~or $0.39 basic and $0.38 per diluted earnings per share for the six months ended June 30, 2022. The 39% decrease in net income ~~of $2.8 million and $8.1 million~~ during the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, respectively. SNBV’s results for~~2023 compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 were directly impacted~~2022 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense and higher data processing expense in the ~~merger with EVBS including expenses related to the merger of $168 thousand~~current year, partially offset by higher mortgage banking and $9.1 million, respectively, compared to no merger expenses during the same periods last year. Also affecting SNBV’s results was a provision for loan losses of $5.3 million that was recorded during the third quarter of 2017. The primary driver of the elevated provision for loan losses was the $5.3 millioncredit enhancement income in charge-offs taken on two loans that were related to the deteriorating financial condition of one long-time borrower of Sonabank, a government contractor, who is experiencing cash flow problems. Management is closely monitoring this situation.

2023.

Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and investments, and interest expense on interest-bearing liabilities such as deposits and borrowings.

Three-Month Comparison.Net interest income was ~~$23.9~~$26.2 million infor the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2023, compared to ~~$10.4~~$24.6 million ~~during~~for the ~~same period last year. Average loans during the third quarter of 2017 were $2.04 billion compared to $907.3 million during the same period last year. Southern National’s~~three months ended June 30, 2022. Primis’ net interest margin for the three months ended June 30, 2023 was ~~4.02% in the third quarter of 2017~~2.65%, compared to ~~4.04% during~~3.33% for the ~~third quarter~~three months ended June 30, 2022. Net interest margin for three months ended June 30, 2023 was affected by excess cash balances that were not earning the higher rates of ~~2016.~~our loans combined with the climbing rates of our interest bearing deposits. Total income on interest-earning assets was $52.7 million and $28.2 million for the three months ended June 30, 2023 and 2022, respectively. The yield on average interest-earning assets ~~decreased five~~was 5.34% and 3.82% for the three months ended June 30, 2023 and 2022, respectively. Increase in yield on average interest-earnings assets was driven by higher rates on cash and loans in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The cost of average interest-bearing deposits increased 265 basis points to ~~4.86% during the third quarter of 2017 when comparing to the 4.91% yield on average interest-earning assets during the third quarter of 2016. Cost of funds improved five basis points to 0.88%~~3.10% for the ~~third quarter of 2017 when~~three months ended June 30, 2023, compared to 0.45% for the ~~0.93% cost of funds during the third quarter of 2016. The accretion of the discount~~three months ended June 30, 2022. Interest and fees on loans ~~acquired in~~totaled $44.0 million and $26.3 million for the ~~acquisitions of EVBS, Greater Atlantic Bank, HarVest~~three months ended June 30, 2023 and ~~PGFSB increased due to the EVBS acquisition and contributed $1.5 million to net interest income~~2022, respectively. Average loans during the three months ended ~~September~~June 30, ~~2017 compared to $536 thousand during the third quarter of 2016.~~

Net interest income was $44.9 million during the nine months ended September 30, 2017, compared to $30.3 million during the comparable period in the prior year. Average loans during the nine months ended September 30, 20172023 were ~~$1.4~~$3.15 billion, compared to ~~$879.6 million~~$2.51 billion during the ~~same period last year. Southern National’s net interest margin was 3.88% during the nine~~three months ended ~~September~~June 30, ~~2017 compared to 4.05% during the same period in 2016. The loan discount accretions on the four aforementioned acquisitions were $2.4 million in the first nine months~~2022.

Table of ~~2017 compared to $1.6 million in the same period last year.~~Contents

The following ~~tables detail~~table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:


	Average Balance Sheets and Net Interest Margin
	Analysis For the Three Months Ended
	June 30, 2023						June 30, 2022
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate

	(Dollar amounts in thousands)

Assets
Interest-earning assets:
Loans held for sale	$	48,698	$	700	5.77	%	$	6,936	$	93	5.38	%
Loans, net of deferred fees ^{(1) (2)}		3,101,946		43,270	5.60	%		2,507,779		26,244	4.20	%
Investment securities		240,700		1,551	2.58	%		287,722		1,445	2.01	%
Other earning assets		568,251		7,158	5.05	%		158,817		448	1.13	%
Total earning assets		3,959,595		52,679	5.34	%		2,961,254		28,230	3.82	%
Allowance for credit losses		(35,694)						(29,844)
Total non-earning assets		294,742						259,052
Total assets	$	4,218,643					$	3,190,462

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	826,598	$	4,343	2.11	%	$	695,481	$	557	0.32	%
Money market accounts		858,532		6,231	2.91	%		810,781		938	0.46	%
Savings accounts		1,026,085		10,405	4.07	%		222,274		142	0.26	%
Time deposits		495,721		3,804	3.08	%		329,198		674	0.82	%
Total interest-bearing deposits		3,206,936		24,783	3.10	%		2,057,734		2,311	0.45	%
Borrowings		99,794		1,739	6.99	%		107,784		1,341	4.99	%
Total interest-bearing liabilities		3,306,730		26,522	3.22	%		2,165,518		3,652	0.68	%
Noninterest-bearing liabilities:
Demand deposits		473,295						596,714
Other liabilities		37,265						22,095
Total liabilities		3,817,290						2,784,327
Stockholders' equity		401,353						406,135
Total liabilities and stockholders' equity	$	4,218,643					$	3,190,462
Net interest income			$	26,157					$	24,578
Interest rate spread					2.12	%					3.15	%
Net interest margin					2.65	%					3.33	%

Average Balance Sheets and Net Interest
Analysis For the Three Months Ended
September 30, 2017 September 30, 2016
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of deferred fees (1) (2) $ 2,038,574 $ 26,726 5.20 % $ 907,330 $ 11,792 5.17 %
Investment securities 267,315 1,623 2.41 % 93,563 665 2.84 %
Other earning assets 47,143 462 3.89 % 21,296 162 3.01 %
Total earning assets 2,353,032 28,811 4.86 % 1,022,189 12,619 4.91 %
Allowance for loan losses (12,069 ) (8,427 )
Total non-earning assets 255,760 81,147
Total assets $ 2,596,723 $ 1,094,909

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts $ 328,602 323 0.39 % $ 41,735 18 0.17 %
Money market accounts 381,942 690 0.72 % 127,939 116 0.36 %
Savings accounts 167,630 139 0.33 % 52,093 82 0.63 %
Time deposits 765,725 2,239 1.16 % 596,160 1,912 1.28 %
Total interest-bearing deposits 1,643,899 3,391 0.82 % 817,927 2,128 1.04 %
Borrowings 271,336 1,570 2.30 % 53,777 118 0.87 %
Total interest-bearing liabilities 1,915,235 4,961 1.03 % 871,704 2,246 1.03 %
Noninterest-bearing liabilities:
Demand deposits 330,145 91,575
Other liabilities 25,913 7,794
Total liabilities 2,271,293 971,073
Stockholders' equity 325,430 123,836
Total liabilities and stockholders' equity $ 2,596,723 $ 1,094,909
Net interest income $ 23,850 $ 10,373
Interest rate spread 3.83 % 3.88 %
Net interest margin 4.02 % 4.04 %

~~(1)~~

(1)	Includes loan fees in both interest income and the calculation of the yield on loans.

(2)	Calculations include non-accruing loans in average loan amounts outstanding.

Six-Month Comparison.Net interest income was $54.5 million for the six months ended June 30, 2023, compared to $47.4 million for the six months ended June 30, 2022. Primis’ net interest margin for the six months ended June 30, 2023 was 2.89%, compared to 3.14% for the six months ended June 30, 2022. Continued upward pressure on deposit account rates and consumer preferences shifting from non-interest bearing to higher rate products are impacting interest expense and net interest income for the Company and the ~~calculation~~industry as a whole. Net interest margin for the Company was further affected by excess cash balances, that are part of average other earning assets that earned lower rates compared to the rates earned by our loan portfolio. Total income on interest-earning assets was $99.8 million and $54.8 million for the six months ended June 30, 2023 and 2022, respectively. The yield on ~~loans.~~

~~(2) Calculations include non-accruing~~average interest-earning assets was 5.29% and 3.63% for the six months ended June 30, 2023 and 2022, respectively. Increase in yield on average interest-earnings assets was driven by higher rates on cash and loans in 2023 compared to 2022. The cost of average ~~loan amounts outstanding.~~interest-bearing deposits increased 231 basis points to 2.75% for the six months ended June 30, 2023, compared to 0.44% for the six months ended June 30, 2022. Interest and fees on loans totaled $85.3 million and $51.1 million for the six months ended June 30, 2023 and 2022, respectively. Average loans during the six months ended June 30, 2023 were $3.08 billion, compared to $2.44 billion during the six months ended June 30, 2022.

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Average Balance Sheets and Net Interest
Analysis For the Nine Months Ended
September 30, 2017 September 30, 2016
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of deferred fees (1) (2) $ 1,353,054 $ 51,819 5.12 % $ 879,628 $ 33,790 5.13 %
Investment securities 155,506 2,953 2.54 % 99,028 2,311 3.11 %
Other earning assets 38,822 833 2.87 % 19,417 482 3.33 %
Total earning assets 1,547,382 55,605 4.80 % 998,073 36,583 4.90 %
Allowance for loan losses (10,030 ) (8,633 )
Total non-earning assets 152,257 81,380
Total assets $ 1,689,609 $ 1,070,820

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts $ 137,295 384 0.37 % $ 35,348 40 0.15 %
Money market accounts 221,749 1,005 0.61 % 127,115 332 0.35 %
Savings accounts 95,604 308 0.43 % 51,556 252 0.65 %
Time deposits 652,322 6,112 1.25 % 571,143 5,294 1.24 %
Total interest-bearing deposits 1,106,970 7,809 0.94 % 785,162 5,918 1.01 %
Borrowings 170,466 2,850 2.24 % 69,526 406 0.78 %
Total interest-bearing liabilities 1,277,436 10,659 1.12 % 854,688 6,324 0.99 %
Noninterest-bearing liabilities:
Demand deposits 181,064 86,294
Other liabilities 23,780 7,647
Total liabilities 1,482,280 948,629
Stockholders' equity 207,329 122,191
Total liabilities and stockholders' equity $ 1,689,609 $ 1,070,820
Net interest income $ 44,946 $ 30,259
Interest rate spread 3.68 % 3.91 %
Net interest margin 3.88 % 4.05 %

~~(1) Includes loan fees in both~~The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest ~~income~~earned/paid on such assets and liabilities, and the ~~calculation of~~yield/rate for the ~~yield on loans.~~periods indicated:


	Average Balance Sheets and Net Interest Margin
	Analysis For the Six Months Ended
	June 30, 2023						June 30, 2022
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate

	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans held for sale	$	37,086	$	1,091	5.93	%	$	3,487	$	93	5.38	%
Loans, net of deferred fees ^{(1) (2)}		3,047,259		84,185	5.57	%		2,433,593		50,967	4.22	%
Investment securities		243,536		3,135	2.60	%		295,036		2,875	1.96	%
Other earning assets		478,786		11,382	4.79	%		312,033		854	0.55	%
Total earning assets		3,806,667		99,793	5.29	%		3,044,149		54,789	3.63	%
Allowance for credit losses		(34,901)						(29,543)
Total non-earning assets		291,459						257,472
Total assets	$	4,063,225						3,272,078

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	774,878	$	6,610	1.72	%	$	756,118	$	1,222	0.33	%
Money market accounts		841,630		11,032	2.64	%		810,124		1,797	0.45	%
Savings accounts		811,148		15,156	3.77	%		223,489		291	0.26	%
Time deposits		492,412		7,029	2.88	%		339,724		1,374	0.82	%
Total interest-bearing deposits		2,920,068		39,827	2.75	%		2,129,455		4,684	0.44	%
Borrowings		191,859		5,444	5.72	%		139,363		2,699	3.91	%
Total interest-bearing liabilities		3,111,927		45,271	2.93	%		2,268,818		7,383	0.66	%
Noninterest-bearing liabilities:
Demand deposits		514,657						571,264
Other liabilities		33,135						22,573
Total liabilities		3,659,719						2,862,655
Stockholders' equity		403,506						409,423
Total liabilities and stockholders' equity	$	4,063,225						3,272,078
Net interest income			$	54,522					$	47,406
Interest rate spread					2.35	%					2.97	%
Net interest margin					2.89	%					3.14	%

(1)	Includes loan fees in both interest income and the calculation of the yield on loans.

(2)	Calculations include non-accruing loans in average loan amounts outstanding.

~~(2) Calculations include non-accruing loans in average loan amounts outstanding.~~

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses is a current charge to earnings made in order to ~~increase~~adjust the allowance for ~~loan~~credit losses ~~to a level~~ for ~~inherent probable~~current expected losses in the loan portfolio based on an evaluation of the loan portfolio, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability. Our ~~loan loss~~ allowance for credit losses is calculated by segmenting the loan portfolio by loan type and applying risk factors to each segment. The risk factors are determined by considering historical loss data, peer data, as well as applying management’s judgment.

The ~~loan loss~~Company recorded a provision for the quarter ended September 30, 2017 was $5.3 million, compared to $2.1 million for the same period last year. For the nine months ended September 30, 2017, the loan loss provision was $6.9 million compared to $4.1 million for the same period last year. Net charge offscredit losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were $5.2~~2023 of $4.3 million and ~~$6.2~~$9.5 million, ~~respectively. Net charge offs~~respectively, compared to a provision for credit losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 were $2.0~~2022 of $0.4 million and ~~$4.0~~$0.5 million, respectively. ~~The primary driver~~For the three and six months ended June 30, 2023, $1.1 million and $6.0 million, respectively, were due to charge-offs and additional reserve calculated in our normal reserve process for a portfolio of loans that includes a third-party credit enhancement. As a result, this portion of the ~~elevated~~provision is fully offset by a gain

Table of Contents

recorded in noninterest income due to credit enhancement and has no effect on net income. Excluding this provision amount, the provision for ~~loan~~credit losses would have been $3.2 million and $3.5 million for the three and six months ended June 30, 2023, respectively. We had charge-offs totaling $1.7 million and $0.1 million during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, as compared~~2023 and 2022, respectively, and $6.2 million and $0.2 million during six months ended June 30, 2023 and 2022, respectively. During the three months ended June 30, 2023, the charge-offs were almost entirely related to the ~~same periods in 2016, was~~credit enhancement portfolio of loans. Approximately half of the ~~$5.3 million in~~ charge-offs ~~taken~~ during the ~~third quarter of 2017 on two loans that~~six months ended June 30, 2023, were related to the ~~deteriorating financial condition~~credit enhancement portfolio of ~~one long-time borrower~~loans and a majority of ~~Sonabank, a government contractor, who is experiencing cash flow problems. Management is closely monitoring this situation.~~the remaining were due to three specific borrowers in which we determined portions of their loans were uncollectible. There were recoveries totaling $0.1 million and $0.5 million during three months ended June 30, 2023 and 2022, respectively, and $0.6 million and $0.7 million during six months ended June 30, 2023 and 2022, respectively.

The Financial Condition Section of Management’s Discussion and Analysis provides information on our loan portfolio, past due loans, nonperforming assets and the allowance for credit losses.

Noninterest Income

The following ~~tables present~~table presents the major categories of noninterest income for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:


	For the Three Months Ended
	June 30,
(dollars in thousands)	2023		2022		Change
Account maintenance and deposit service fees	$	1,430	$	1,442	$	(12)
Income from bank-owned life insurance		394		378		16
Mortgage banking income		5,198		593		4,605
Gain on sale of loans		182		—		182
Credit enhancement income		1,152		—		1,152
Other noninterest income		130		217		(87)
Total noninterest income	$	8,486	$	2,630	$	5,856

For the Three Months Ended
September 30,
2017 2016 Change
(dollars in thousands)
Account maintenance and deposit service fees $ 1,518 $ 225 $ 1,293
Income from bank-owned life insurance 305 175 130
Equity (loss) income from mortgage affiliate (83 ) 749 (832 )
(Loss) on sales of investment securities (2 ) - (2 )
Other 561 26 535
Total noninterest income $ 2,299 $ 1,175 $ 1,124

For the Nine Months Ended
September 30,
2017 2016 Change
(dollars in thousands)
Account maintenance and deposit service fees $ 2,098 $ 675 $ 1,423
Income from bank-owned life insurance 631 524 107
Equity (loss) income from mortgage affiliate (450 ) 1,381 (1,831 )
Gain on sales of investment securities 255 - 255
Other 580 88 492
Total noninterest income $ 3,114 $ 2,668 $ 446

~~During~~Noninterest income increased 223% to $8.5 million for the ~~third~~three months ended June 30, 2023, compared to $2.6 million for the three months ended June 30, 2022. The increase in noninterest income was primarily related to $5.2 million of mortgage banking income and $1.2 million of credit enhancement income in the second quarter of ~~2017, Southern National had noninterest income of $2.3 million compared to noninterest income of $1.2 million~~2023. The Company began accounting for certain third party credit enhancements on consumer lending during the third quarter of ~~2016. A loss was recorded from the investment~~2022, resulting in ~~STM, Southern National’s mortgage affiliate,~~no income in the amount of $83 thousand compared to income of $749 thousand during the same quarter last year. This loss was primarily driven by an overall decrease in STM’s revenue due to a lower volume of mortgage loan closings. Account maintenanceprior year and ~~deposit service fees increased $1.3 million as compared to the same quarter last year, primarily driven by the increased retail deposits acquired~~purchased Primis Mortgage late in the ~~merger with EVBS. Income from bank-owned life insurance increased $130 thousand~~second quarter of 2022, which resulted in the lower level of income when compared to current year. During the ~~third~~second quarter of ~~2016, primarily driven by additional income earned from~~2023, the ~~increase in bank-owned life insurance policies acquired in~~Bank also realized $0.2 million of gains associated with a small sale of Panacea commercial loans.

The following table presents the ~~merger with EVBS. Other~~major categories of noninterest income ~~increased $535 thousand as compared to~~for the ~~same quarter last year. This increase was primarily driven by $300 thousand~~six months ended June 30, 2023 and ~~$137 thousand in recoveries~~2022:


	For the Six Months Ended
	June 30,
(dollars in thousands)	2023		2022		Change
Account maintenance and deposit service fees	$	2,646	$	2,793	$	(147)
Income from bank-owned life insurance		814		753		61
Mortgage banking income		9,513		593		8,920
Gain on sale of loans		660		—		660
Credit enhancement income		6,038		—		6,038
Other noninterest income		347		581		(234)
Total noninterest income	$	20,018	$	4,720	$	15,298

Table of acquired loan and investment security balances from the EVBS acquisition, respectively. These loan and investment security balances were fully charged off by EVBS prior to its acquisition by Southern National.Contents

Noninterest income increased 324% to ~~$3.1~~$20.0 million for the six months ended June 30, 2023, compared to $4.7 million for the six months ended June 30, 2022. The increase in noninterest income was primarily related to $8.9 million of higher mortgage banking income and $6.0 million of credit enhancement income during the six months ended June 30, 2023. The increase in the ~~first nine months~~mortgage banking income is related to the purchase of ~~2017 from $2.7 million~~Primis Mortgage in May 2022 coupled with meaningful growth in the ~~first nine months of 2016. The increase was primarily due to~~year since the ~~$1.4 million increase in account maintenance~~purchase. Mortgage banking income includes fair value adjustments, origination income, and ~~deposit service fees as discussed in the previous paragraph. Southern National also recognized increases of $255 thousand and $492 thousand on~~ gains on sales of ~~investment securities~~mortgage loans held for sale. The increase in the credit enhancement income was due to the significant increase in the consumer loan portfolio that receives the enhancement when comparing 2023 to 2022 and the increase in ~~other~~charge-offs in that portfolio over that time. Increase in noninterest income ~~respectively. Partially offsetting these increases~~ was ~~a $1.8~~also attributable to $0.7 million ~~decline~~of gains associated with the sale of loans in ~~income from the investment in STM, which resulted in a loss of $450 thousand for the nine months ended September 30, 2017.~~

2023, primarily related to Panacea commercial loans.

Noninterest Expense

The following ~~tables present~~table presents the major categories of noninterest expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:


	For the Three Months Ended
	June 30,
(dollars in thousands)	2023		2022		Change
Salaries and benefits	$	15,283	$	10,573	$	4,710
Occupancy expenses		1,593		1,418		175
Furniture and equipment expenses		1,852		1,128		724
Amortization of core deposit intangible		318		341		(23)
Virginia franchise tax expense		848		814		34
Data processing expense		2,828		1,293		1,535
Marketing expense		521		731		(210)
Telephone and communication expense		416		366		50
Net loss on bank premises and equipment		—		620		(620)
Professional fees		1,075		827		248
Credit enhancement costs		515		—		515
Other operating expenses		5,303		2,366		2,937
Total noninterest expenses	$	30,552	$	20,477	$	10,075

For the Three Months Ended
September 30,
2017 2016 Change
(dollars in thousands)
Salaries and benefits $ 7,746 $ 2,699 $ 5,047
Occupancy expenses 1,703 783 920
Furniture and equipment expenses 907 283 624
Amortization of core deposit intangible 360 44 316
Virginia franchise tax expense 364 96 268
FDIC assessment 186 165 21
Data processing expense 440 184 256
Telephone and communication expense 567 201 366
Amortization of FDIC indemnification asset 173 187 (14 )
Net (gain) on other real estate owned (106 ) (9 ) (97 )
Merger expenses 168 - 168
Other operating expenses 1,928 725 1,203
Total noninterest expenses $ 14,436 $ 5,358 $ 9,078

For the Nine Months Ended
September 30,
2017 2016 Change
(dollars in thousands)
Salaries and benefits $ 13,750 $ 8,753 $ 4,997
Occupancy expenses 3,338 2,377 961
Furniture and equipment expenses 1,401 720 681
Amortization of core deposit intangible 483 168 315
Virginia franchise tax expense 605 290 315
FDIC assessment 391 478 (87 )
Data processing expense 858 533 325
Telephone and communication expense 912 586 326
Amortization of FDIC indemnification asset 540 606 (66 )
Net loss on other real estate owned 213 74 139
Merger expenses 9,094 - 9,094
Other operating expenses 3,745 2,403 1,342
Total noninterest expenses $ 35,330 $ 16,988 $ 18,342

Noninterest expenses were ~~$14.4 million and $35.3~~$30.6 million during the ~~third quarter and the first nine~~three months ~~of 2017, respectively,~~ended June 30, 2023, compared to ~~$5.4 million and $17.0~~$20.5 million during the ~~same periods in 2016, respectively. Salaries and benefits totaled $7.8 million and $13.8 million for the~~ three ~~and nine~~ months ended ~~September~~June 30, ~~2017, respectively. Southern National expects salaries and benefits~~2022. The 49% increase in noninterest expenses was primarily due to ~~decrease~~a $4.7 million increase in employee compensation in the ~~fourth~~second quarter of ~~2017 as~~2023 related to increased head count at the ~~last of the merger-related full-time equivalent employee (“FTE”) reductions are scheduled to take place~~Bank, Primis Mortgage and ~~then begin to normalize in the first half of 2018. Occupancy expenses rose $920 thousand in the third quarter of 2017, to $1.7 million, when~~Panacea compared to the ~~$783 thousand~~second quarter of ~~occupancy expenses recorded~~2022, along with costs related to the cost savings initiative announced in the second quarter of 2023. The increase in noninterest expense during the ~~third quarter~~three months ended June 30, 2023 was also attributable to a $1.5 million increase in data processing expense driven by substantially higher application volume on the digital deposit platform as a result of ~~2016.~~a savings account rate promotion offered during 2023. Furniture and equipment expenses ~~rose $624 thousand~~increased $0.7 million due in ~~the third quarter~~large part to write-downs of 2017, to $907 thousand, when compared to the $283 thousand of furniture and equipment expenses recorded during the third quarter of 2016. The increases in occupancy and furniture and equipment expenses are in line with the added expenses associated with the EVBS merger. Year to date, occupancy expenses were $3.3 million and furniture and equipment expenses were $1.4 million. Expensesassets related to the ~~merger with EVBS~~cost savings initiative announced in the second quarter of 2023. Noninterest expense for the three months ended June 30, 2023 included $0.5 million of credit enhancement costs related to servicing and other expenses for a third-party managed loan. A significant driver of the increase in other non-interest expenses were ~~$168 thousand~~higher expenses related to Primis Mortgage in the second quarter of 2023. Other notable drivers of the increase in other operating expenses in the second quarter of 2023 included higher FDIC insurance costs due to the significant growth in deposits.

Table of Contents

The following table presents the major categories of noninterest expense for the six months ended June 30, 2023 and ~~$9.1~~2022:


	For the Six Months Ended
	June 30,
(dollars in thousands)	2023		2022		Change
Salaries and benefits	$	30,311	$	20,198	$	10,113
Occupancy expenses		3,038		2,875		163
Furniture and equipment expenses		3,429		2,228		1,201
Amortization of core deposit intangible		635		682		(47)
Virginia franchise tax expense		1,697		1,627		70
Data processing expense		5,079		2,783		2,296
Marketing expense		1,090		1,196		(106)
Telephone and communication expense		793		748		45
Net (gain) loss on other real estate owned		—		(59)		59
Net loss on bank premises and equipment		—		620		(620)
Professional fees		1,937		1,921		16
Credit enhancement costs		1,388		—		1,388
Other operating expenses		8,559		4,690		3,869
Total noninterest expenses	$	57,956	$	39,509	$	18,447

Noninterest expenses were $58.0 million during the ~~third quarter~~six months ended June 30, 2023, compared to $39.5 million during the six months ended June 30, 2022. The 47% increase in noninterest expenses was primarily attributable to a $10.1 million increase in employee compensation and benefits expense mainly related to increased head count at the Bank, Primis Mortgage and Panacea in the six months ended June 30, 2023 compared to 2022. The increase in noninterest expense during the six months ended June 30, 2023 was also driven by a $2.3 million increase in data processing expense in 2023 driven by substantially higher application volume on the digital deposit platform as a result of a savings account rate promotion offered during the first ~~nine~~and second quarter of 2023. Noninterest expense for the six months ended June 30, 2023 included $1.4 million of ~~2017, respectively, compared~~credit enhancement costs related to ~~no merger~~servicing and other expenses for a third-party managed loan portfolio due to significant growth and charge-offs in that loan portfolio during ~~the same periods last year. Other operating~~2023. Furniture and equipment expenses increased $1.2 million ~~from $725 thousand recorded~~due to growth in the ~~third~~Bank, Primis Mortgage, and Panacea, and also due to write-downs of assets related to the cost savings initiative announced in the second quarter of ~~2016 to $1.9 million recorded in the same period in 2017. The increase is in line with the added~~2023. Other expenses ~~associated with the EVBS merger. In addition, other operating expenses~~increased during the ~~third quarter~~six months ended June 30, 2023 compared to the six months ended June 30, 2022, largely driven by higher expenses related to Primis Mortgage and higher FDIC insurance costs in 2023.

Table of 2017 increased due to fraudulent wire transactions in July 2017 that caused losses of approximately $172 thousand. These fraudulent wire transactions were the result of an email phishing scheme that targeted various employees of the Bank and led to an internal email compromise, affording the perpetrators access to personal information of a number of the Bank’s customers. The Bank took immediate action to contain and eradicate the email compromise, including the implementation of control enhancements to prevent a similar situation from occurring again. Southern National believes this is an isolated event and does not believe its technology systems have been compromised.Contents

~~The majority of the merger and merger related expenses have been incurred as the result of the merger with EVBS. The following table shows a breakdown of those merger and merger related expenses:~~

For the Nine Months Ended
September 30, 2017
(dollars in thousands)

Salaries and benefits (1) $ 4,961
Consulting and investment banking fees 2,150
Data processing (2) 600
Legal fees 586
Occupancy expenses 422
Filing fees 164
Appraisals 95
Lodging, travel and meals 25
Training 17
Other 74
Total merger expenses $ 9,094

~~(1) Includes change-in-control contract payouts, severance and pay-to-stay bonuses.~~

~~(2) Fee incurred to cancel core system platform contract.~~

FINANCIAL CONDITION

Balance Sheet Overview

Total assets were ~~$2.60~~$3.85 billion as of ~~September~~June 30, ~~2017 compared to $1.14~~2023 and $3.57 billion as of December 31, ~~2016. Net~~2022. Total cash and cash equivalents were $100.9 million as of June 30, 2023 and $77.9 million as of December 31, 2022. Investment securities decreased from $249.8 million as of December 31, 2022 to $235.5 million as of June 30, 2023. Total loans ~~receivable~~ increased 7%, from ~~$921.8 million at the end of 2016 to $2.03~~$2.95 billion at ~~September~~December 31, 2022 to $3.17 billion at June 30, ~~2017, primarily due to the loans acquired in the merger with EVBS on June 23, 2017, which totaled $990.4 million at September 30, 2017.~~

2023. Total deposits were ~~$1.90~~$3.32 billion at ~~September~~June 30, ~~2017~~2023, compared to ~~$913.0~~$2.72 billion at December 31, 2022 and total equity was $393.2 million and $392.4 million at June 30, 2023 and December 31, 2022, respectively.

Stockholder’s equity balances decreased $0.2 million from December 31, 2022 to June 30, 2023 as a result of a decrease in unrealized mark-to-market adjustments on the Company’s available-for-sale securities portfolio due to increases in market interest rates during the six months ended June 30, 2023. The Company has the intention to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

Loans

Total loans were $3.17 billion and $2.95 billion at June 30, 2023 and December 31, 2022, respectively. PPP loans totaled $2.1 million at June 30, 2023 and $4.6 million at December 31, ~~2016. The merger with EVBS contributed $1.15 billion in deposits on~~2022, respectively. Excluding PPP loans, loans outstanding increased $229.4 million, or 8%, since December 31, 2022.

As of June ~~23, 2017.~~

~~Loan Portfolio~~

Net loan growth in the third quarter of 2017 was $2.0 million. Loan growth during the third quarter was offset by the sale of approximately $29.0 million of EVB’s classified and residential TDR loans during July and August of 2017 as well as net charge-offs of $5.2 million. Total loan purchases of residential portfolio product from STM were $19.9 million during the quarter.

~~The following table summarizes the composition of our loan portfolio as of September~~ 30, ~~2017~~2023 and December 31, ~~2016:~~

~~(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering single family loans expires in December 2019.~~

~~As of September 30, 2017 and December 31, 2016, substantially all~~2022, a majority of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.

The composition of our loans held for investment portfolio consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023				December 31, 2022
	Amount		Percent		Amount		Percent
Loans secured by real estate:
Commercial real estate - owner occupied	$	447,407	14.1	%	$	459,866	15.6	%
Commercial real estate - non-owner occupied		595,805	18.8	%		579,733	19.7	%
Secured by farmland		5,271	0.2	%		5,970	0.2	%
Construction and land development		175,073	5.5	%		148,690	5.0	%
Residential 1-4 family		591,938	18.7	%		609,694	20.7	%
Multi- family residential		133,754	4.2	%		140,321	4.8	%
Home equity lines of credit		62,808	2.0	%		65,152	2.2	%
Total real estate loans		2,012,056	63.4	%		2,009,426	68.2	%

Commercial loans		584,251	18.4	%		520,741	17.7	%
Paycheck protection program loans		2,143	0.1	%		4,564	0.2	%
Consumer loans		569,139	17.9	%		405,278	13.8	%
Total Non-PCD loans		3,167,589	99.8	%		2,940,009	99.8	%
PCD loans		6,049	0.2	%		6,628	0.2	%
Total loans	$	3,173,638	100.0	%	$	2,946,637	100.0	%

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The following table sets forth the contractual maturity ranges of our loans held for investment portfolio and the amount of those loans with fixed and floating interest rates in each maturity range as of June 30, 2023 (in thousands):


			After 1 Year				After 5 Years
			Through 5 Years				Through 15 Years				After 15 Years
	One Year		Fixed		Floating		Fixed		Floating		Fixed		Floating
	or Less		Rate		Rate		Rate		Rate		Rate		Rate		Total
Loans secured by real estate:
Commercial real estate - owner occupied	$	31,468	$	120,778	$	17,039	$	103,472	$	107,189	$	2,315	$	65,146	$	447,407
Commercial real estate - non-owner occupied		34,523		192,115		31,175		60,317		65,937		1,384		210,354		595,805
Secured by farmland		1,527		891		285		221		1,008		—		1,339		5,271
Construction and land development		122,162		25,535		19,291		757		5,013		681		1,634		175,073
Residential 1-4 family		15,602		48,619		8,306		30,035		54,093		72,286		362,997		591,938
Multi- family residential		5,677		56,640		18,783		7,078		18,562		—		27,014		133,754
Home equity lines of credit		9,468		996		11,142		30		3,002		33		38,137		62,808
Total real estate loans		220,427		445,574		106,021		201,910		254,804		76,699		706,621		2,012,056
Commercial loans		107,138		97,191		153,771		175,287		46,927		1,131		2,806		584,251
Paycheck protection program loans		25		1,918		—		200		—		—		—		2,143
Consumer loans		2,410		274,374		105,150		92,232		92,553		2,415		5		569,139
Total Non-PCD loans		330,000		819,057		364,942		469,629		394,284		80,245		709,432		3,167,589
PCD loans		3,060		1,337		—		—		1,114		398		140		6,049
Total loans	$	333,060	$	820,394	$	364,942	$	469,629	$	395,398	$	80,643	$	709,572	$	3,173,638

Asset Quality

While the impact of COVID-19 largely subsided in 2023, the residual effect of COVID-19 and its variants, as well as new risks emerging from geopolitical conflict, inflation, bank failures and the threat of a recession continue to cause economic instability. Despite this economic uncertainty, our asset quality remained strong during the first and second quarter of 2023. We will generally place a loan on nonaccrual status when it becomes 90 days past due. Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Cash payments received while a loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections.

We maintain appraisals on loans secured by real estate, particularly those categorized as nonperforming loans and potential problem loans. In instances where appraisals reflect reduced collateral values, we make an evaluation of the borrower’s overall financial condition to determine the need, if any, for impairment or write-down to their fair values. If foreclosure occurs, we record OREO at the lower of our recorded investment in the loan or fair value less our estimated costs to sell.

Our ~~loss and delinquency experience on our~~ loan portfolio ~~has~~losses and delinquencies have been primarily limited by ~~a number of factors, including~~ our underwriting standards and ~~the relatively short period of time since the loans were originated.~~portfolio management practices. Whether ~~our loss~~losses and ~~delinquency experience~~delinquencies in ~~the area of~~ our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy ~~of the region.~~in our market area, rising interest rates, historically high inflation, and recessionary concerns.

~~Non-covered Loans and Assets~~

~~OREO as of September 30, 2017 was $8.1~~Total calculated reserves increased by $3.9 million ~~compared~~ to ~~$8.6~~$38.4 million ~~as of~~at the end of June 30, 2023 compared to $34.5 million at December 31, 2022, driven by growth in the ~~previous year.~~third-party managed loan portfolio and secondarily due to the $227.0 million in overall loan growth experienced in 2023.

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The following table presents a comparison of nonperforming assets as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30,			December 31,
	2023			2022
Nonaccrual loans	$	25,290		$	35,484
Loans past due 90 days and accruing interest		1,714			3,361
Total nonperforming assets		27,004			38,845

SBA guaranteed amounts included in nonperforming loans	$	2,331		$	3,969

Allowance for credit losses to total loans		1.21	%		1.17	%
Allowance for credit losses to nonaccrual loans		151.90	%		97.35	%
Allowance for credit losses to nonperforming loans		142.25	%		88.93	%
Nonaccrual to total loans		0.80	%		1.20	%
Nonperforming assets excluding SBA guaranteed loans to total assets		0.64	%		0.98	%

~~Non-covered nonaccrual~~Nonaccrual loans ~~were $11.3~~decreased 29% to $25.3 million (excluding ~~$1.7~~$0.6 million of loans fully covered by SBA guarantees) at ~~September~~June 30, ~~2017~~2023, compared to ~~$1.6~~$35.5 million (excluding ~~$2.2~~$0.6 million of loans fully covered by SBA guarantees) at December 31, 2022. A substantial portion of the ~~end~~Bank’s nonperforming assets in previous periods were comprised of ~~last year. Included~~two relationships with a combined balance of approximately $27.0 million. A large residential property with a balance of approximately $8.0 million included in that total was sold in the ~~$11.3 million~~second quarter of ~~non-covered nonaccrual loans~~2023. The other relationship, primarily consisting of assisted living facilities, is a $10.0 million loan extended to a commercial construction real estate company which is secured by commercial real estate properties with appraised values of approximately $14 million. The unguaranteed portions of the nonperforming SBA loans have been charged off. The ratio of non-covered nonperforming assets (excluding the SBA guaranteed loans) to total non-covered assets decreased from 0.92%currently at the end of ~~2016~~a receiver-managed marketing process with all three facilities under contract to ~~0.75% at September 30, 2017.~~

~~Southern National’s allowance for loan losses as a percentage~~close in the third quarter of ~~non-covered total~~2023. When including the receipt of funds and removal of these loans, the Bank would have had approximately $5.0 million of nonperforming loans at ~~September~~June 30, ~~2017 was 0.46%,~~2023, an 86% decrease from year end.

At June 30, 2023, our total substandard loans were $33.7 million compared to ~~0.95%~~$41.0 million at ~~the end of 2016. The main factor driving the 49 basis point decline~~December 31, 2022, an 18% decline. Included in the ~~allowance~~total substandard loans were SBA guarantees of $0.8 million in both periods. Special mention loans totaled $32.4 million at June 30, 2023 and $32.3 million at December 31, 2022.

For the quarter ended June 30, 2023, two loans from our owner occupied commercial real estate loan portfolio with an amortized cost basis of $0.4 million, were modified to a borrower experiencing financial difficulty. This modification resulted in reamortization of the balance of the notes over a 25 year period, while maintaining the original maturity date of February and July 2027. Contractual payments for ~~loan losses as a percentage~~both notes, prior to modification, for the three month period would have totaled $0.03 million. This newly originated financial difficulty modification had no payment delinquencies in the second quarter and represents 0.09% of ~~non-covered~~our total owner occupied commercial real estate loans.

An existing modification performed in the first ~~nine months~~quarter of ~~2017 was~~2023, comprised of one loan with a $0.9 million amortized cost, which will resume contractual payments in August 2023. This existing modification has had no payment delinquencies since its modification and accounts for only 0.15% of our total 1-4 family residential loans.

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Investment Securities

Our investment securities portfolio provides us with required liquidity and collateral to pledge secure public deposits, certain other deposits, advances from the ~~loans acquired from EVBS, totaling $1.04 billion~~FHLB of Atlanta, and repurchase agreements.

We classify our investment securities as either held-to-maturity or available-for-sale. Debt investment securities that Primis has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Investment securities classified as available-for-sale are those debt securities that may be sold in response to changes in interest rates, liquidity needs or other similar factors. Investment securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred taxes, included in accumulated other comprehensive income (loss) in stockholders’ equity. Our portfolio of available-for-sale securities currently contains a material amount of unrealized mark-to-market adjustments due to increases in market interest rates since the original purchase of many of these securities. We have the intention to hold these securities until maturity or recovery of the value and do not anticipate realizing any losses on the investments.

Investment securities, available-for-sale and held-to-maturity, totaled $235.5 million at June ~~23, 2017, which were marked~~30, 2023, a decrease of 6% from $249.8 million at December 31, 2022, primarily due to ~~fair value at~~paydowns, maturities, and calls of the ~~merger date. Management believes~~investments over the ~~allowance is adequate at this time but continues to monitor trends in environmental factors which may potentially affect future losses.~~

We have an internal loan review and a loan committee, both of which provide on-going monitoring to identify and address issues with problem loans. The loan loss provision is determined after consideration of all known relevant internal and external factors affecting loan collectability to maintain the allowance for loan and lease losses at a level necessary to absorb estimated credit losses.

past six months.

The following table ~~presents~~sets forth a ~~comparison~~summary of ~~non-covered nonperforming assets~~the investment securities portfolio as of ~~September 30, 2017~~the dates indicated. Available-for-sale investment securities are reported at fair value, and ~~December 31, 2016~~held-to-maturity investment securities are reported at amortized cost (in thousands):.


	June 30,		December 31,
	2023		2022
Available-for-sale investment securities:
Residential government-sponsored mortgage-backed securities	$	98,014	$	102,881
Obligations of states and political subdivisions		29,673		29,178
Corporate securities		12,956		14,828
Collateralized loan obligations		4,901		4,876
Residential government-sponsored collateralized mortgage obligations		28,568		26,595
Government-sponsored agency securities		13,360		14,616
Agency commercial mortgage-backed securities		30,794		37,417
SBA pool securities		4,821		5,924
Total	$	223,087	$	236,315

Held-to-maturity investment securities:
Residential government-sponsored mortgage-backed securities	$	9,753	$	10,522
Obligations of states and political subdivisions		2,388		2,721
Residential government-sponsored collateralized mortgage obligations		237		277
Total	$	12,378	$	13,520

September 30, December 31,
2017 2016
Nonaccrual loans $ 12,991 $ 3,795
Loans past due 90 days and accruing interest - -
Total nonperforming loans 12,991 3,795
Other real estate owned 8,053 8,617
Total nonperforming assets $ 21,044 $ 12,412

Troubled debt restructurings $ 677 $ 688

SBA guaranteed amounts included in nonaccrual loans $ 1,732 $ 2,173

Allowance for loan losses to nonperforming loans 71.23 % 226.88 %
Allowance for loan losses to total non-covered loans 0.46 % 0.95 %
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets 0.75 % 0.92 %

~~A modification is classified as a TDR if both~~We recognized an immaterial amount of ~~the following exist: (1) the borrower is experiencing financial difficulty, and (2) the Bank has granted a concession~~credit impairment charges related to ~~the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent~~credit losses on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

~~During~~our held-to-maturity investment securities during the three and ~~nine~~six months ~~ending September~~ended June 30, ~~2017, there were~~2023 and no ~~loans modified~~credit losses during the three and six months ended June 30, 2022.

Deposits

The market for deposits is competitive. We offer a line of traditional deposit products that currently include noninterest-bearing and interest-bearing checking (or NOW accounts), commercial checking, money market accounts, savings accounts and certificates of deposit. We compete for deposits through our banking branches with competitive pricing, as well as nationally through advertising and online banking. We use deposits as a principal source of funding for our lending, purchasing of investment securities and for other business purposes.

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Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in ~~troubled debt restructurings. One TDR which had been modified~~deposits from year-end was primarily driven by the substantial growth in ~~2013 defaulted during~~ the Bank’s new digital deposit platform in the first and second quarter of ~~2015. This loan,~~2023. The majority of the growth was in savings accounts with the ~~amount of $677 thousand, was current as of September 30, 2017.~~

~~During the three and nine months ending September 30, 2016, there were no loans modified~~remainder largely in ~~troubled debt restructurings. One TDR which had been modified in 2013 defaulted during the second quarter of 2015. This loan, in the amount of $692 thousand, was current as of September 30, 2016.~~

~~Covered Loans and Assets~~

~~Covered loans identified as impaired totaled $1.3~~NOW accounts. Savings accounts increased 184% from $245.7 million ~~as of September 30, 2017 and $963 thousand~~ as of December 31, ~~2016. Covered nonaccrual loans were $1.1~~2022 to $696.8 million at ~~September~~June 30, ~~2017 and $850 thousand at December 31, 2016. At September 30, 2017 and December 31, 2016, there were no covered loans past due 90 days or more and accruing interest.~~

~~Investment Securities~~

~~Investment securities, available for sale and held to maturity, totaled $264.6 million at September 30, 2017 up~~2023. NOW accounts increased 32% from ~~$89.2~~$617.7 million at December 31, ~~2016. The merger with EVBS contributed $182.4~~2022 to $817.7 million at June 30, 2023. Our deposits are diversified in type and by underlying customer and lack significant concentrations to any type of customer (i.e. commercial, consumer, government) or industry.

Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits as calculated per regulatory guidance were $1.2 billion, or 35% of total deposits, at June 30, 2023. As further discussed below in “Liquidity and Funds Management” we took steps during the first six months of 2023 to bolster our available ~~for sale~~sources of liquidity and ~~held to maturity investment securities on June 23, 2017.~~

~~Investment securities in our portfolio~~ as of ~~September~~June 30, ~~2017 were~~2023, our total available sources of liquidity exceeds total uninsured deposits by $100 million.

The variety of deposit accounts we offer allows us to be competitive in obtaining funds and in responding to the threat of disintermediation (the flow of funds away from depository institutions such as ~~follows:~~

~~residential government-sponsored mortgage-backed securities in the amount of $44.1 million~~banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and ~~residential government-sponsored collateralized mortgage obligations in the amount of $62.9 million;~~

~~corporate bonds in the amount of $2.0 million;~~

~~commercial mortgage-backed securities in the amount of $28.1 million;~~

~~SBA loan pool securities in the amount of $26.0 million;~~

~~callable agency securities in the amount of $54.4 million;~~

~~trust preferred securities in the amount of $5.6 million, $3.0 million of which is Alesco VII A1B which is rated A1 (Moody’s); and~~

~~municipal bonds in the amount of $41.5 million (fair value of $41.6 million) with a taxable equivalent yield of 3.43% and ratings as follows:~~

Moody's Amount Standard & Poor's Amount
Rating (in thousands) Rating (in thousands)
Aaa $ 5,384 AAA $ 6,544
Aa1 12,496 AA+ 7,150
Aa2 4,525 AA 14,626
Aa3 1,899 AA- 1,799
A1 1,941 A+ 1,069
A2 1,577 A 868
Baa1 1,053 BBB+ 1,053
NA 12,745 NA 8,511
$ 41,620 $ 41,620

~~During~~ the ~~first nine months~~effect of ~~2017, we purchased $11.8 million~~such retention on our cost of callable agency securities. Two callable agency securities in the amount $5.3 million were called. Additionally, during the second quarter of 2017, as part of our restricting of our investment securities portfolio, $3.2 million of odd-lot residential government-sponsored mortgage-backed securities and $1.3 million of odd-lot residential government-sponsored collateralized mortgage obligations were sold.

~~At September 30, 2017, we owned pooled trust preferred securities as follows (in thousands):~~

~~(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion~~

~~(2) Pre-tax~~

~~Each of these investment securities~~funds, has been, evaluated for potential impairment under accounting guidelines. In performing a detailed cash flow analysis of each investment security, Sonabank works with independent third parties to identify the most reflective estimate of the cash flow estimatedand will continue to be, ~~collected. If this estimate results~~significantly affected by the general economy and market rates of interest.

For our deposit agreements with certain customers, we hold the collateral in a ~~present~~segregated custodial account. We are required to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, we will pledge additional securities. We closely monitor collateral levels to ensure adequate levels are maintained, while mitigating the potential risk of expected cash flows that is less than the amortized cost basis of an investment security (that is, credit loss exists), an other than temporary impairment is considered to have occurred. If there is no credit loss, any impairment is considered temporary.

~~We recognized no other than temporary impairment charges during the three and nine months ended September 30, 2017 and 2016, respectively.~~

over-collateralization.

Liquidity and Funds Management

The objective of our liquidity management is to ~~assure~~ensure the ability to meet our financial obligations. These obligations include the payment of deposits on demand or at maturity, the repayment of borrowings at maturity and the ability to fund commitments and other new business opportunities. We obtain funding from a variety of sources, including customer deposit accounts, customer certificates of deposit and payments on our loans and investments. ~~Historically,~~If our level of core deposits ~~has been insufficient~~are not sufficient to fully fund our lending ~~activities. As a result,~~activities, we have ~~sought~~access to funding from additional sources, including but not limited to borrowing from the Federal Home Loan Bank of Atlanta and institutional certificates of ~~deposit and the sale of available for sale investment securities.~~deposits. In addition, we maintain ~~lines of credit with the FHLB of Atlanta,~~ federal funds lines of credit with ~~three~~two correspondent banks, totaling $65 million, and utilize securities sold under agreements to repurchase (“repo”) and reverse repurchase agreement borrowings from approved securities ~~dealers.~~

dealers, as needed.

We prepare a cash flow forecast ~~for one year with the first three months prepared~~ on a ~~weekly~~30, 60 and 90 day basis along with a one and ~~on a monthly basis thereafter. The~~two year basis. These projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses. ~~To estimate loan~~

At June 30, 2023, we had substantial liquidity on the balance sheet with cash and equivalents of $100.9 million versus $77.9 million at December 31, 2022 largely due to the growth ~~over~~in digital platform deposits described above.

The balance in repo accounts at June 30, 2023 and December 31, 2022 was $3.9 million and $6.5 million, respectively.

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commercial mortgage loans, and investment securities supporting borrowing capacity of approximately $580.8 million from the FHLB.

In June 2023, the Bank began participating in the Federal Reserve discount window borrowing program. At June 30, 2023, the Bank had borrowing capacity of $489.6 million within the program.

In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) in response to recent industry disruption, offering loans with up to one year ~~period, the projection incorporates the scheduled loan closings~~in maturity to eligible depository institutions in exchange for pledged collateral in the ~~Loan Pipeline Report along with~~form of U.S. Treasuries, agency debt and mortgage-backed securities and other ~~management estimates.~~

We recently purchased liquidity risk software with which we can monitor our liquidity risk at a point in time and prepare cash flow and funds availability projections over a two year period. The projections can be run using a base case and several stress levels.

~~During~~qualifying assets. Borrowing capacity under the ~~nine months ended September 30, 2017, we funded our financial obligations with deposits, borrowings from~~BTFP is based on the ~~FHLB of Atlanta and the issuance~~par value, not fair value, of the ~~SNBV Senior Subordinated Notes in January 2017.~~collateral. At ~~September~~June 30, ~~2017,~~2023, we had ~~$391.0~~securities available of $138.0 million for utilization with the BTFP, with no borrowings outstanding under the program at June 30, 2023.

The Bank also utilizes institutional and brokered certificates of deposit to supplement customer funding. At June 30, 2023, we had $75.0 million of brokered deposits outstanding. We had remaining brokered CD capacity under internal policy of approximately $321.0 million.

At June 30, 2023, we had $495.4 million of unfunded lines of credit and undisbursed construction loan ~~funds.~~funds, not all of which will ultimately be drawn. The amount of certificate of deposit accounts maturing in less than one year was $379.6 million as of June 30, 2023, including $75.0 million of brokered CDs. Management anticipates that funding requirements for these commitments can be met ~~from~~in the normal ~~sources~~course.

As of ~~funds.~~June 30, 2023, Primis was not aware of any known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of June 30, 2023, Primis has no material commitments for capital expenditures.

Capital Resources

Capital management consists of providing equity to support both current and future operations. Primis Financial Corp. and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. At June 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under regulatory framework for PCA.

Quantitative measures established by regulation to ensure capital adequacy require Primis to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to average assets (as defined). Management believes, as of June 30, 2023, that Primis meets all capital adequacy requirements to which it is subject.

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The following table provides a comparison of ~~our leverage and risk-weighted capital ratios and~~ the leverage and risk-weighted capital ratios of ~~the~~Primis Financial Corp. and Primis Bank at the ~~dates~~periods indicated to the minimum and well-capitalized required regulatory ~~standards (dollars in thousands):~~standards:

Required for Capital To Be Categorized as
Actual Adequacy Purposes (1) Well Capitalized (2)
Amount Ratio Amount Ratio Amount Ratio
September 30, 2017
Southern National
Common equity tier 1 capital ratio $ 212,038 10.53 % $ 90,632 4.50 % n/a n/a
Tier 1 risk-based capital ratio 219,691 10.91 % 120,843 6.00 % n/a n/a
Total risk-based capital ratio 275,945 13.70 % 161,124 8.00 % n/a n/a
Leverage ratio 219,691 8.86 % 99,187 4.00 % n/a n/a
Sonabank
Common equity tier 1 capital ratio $ 257,369 12.76 % $ 90,783 4.50 % $ 131,131 6.50 %
Tier 1 risk-based capital ratio 257,369 12.76 % 121,044 6.00 % 161,392 8.00 %
Total risk-based capital ratio 266,623 13.22 % 161,392 8.00 % 201,740 10.00 %
Leverage ratio 257,369 10.37 % 99,322 4.00 % 124,152 5.00 %

December 31, 2016
Southern National
Common equity tier 1 capital ratio $ 116,076 12.69 % $ 41,171 4.50 % n/a n/a
Tier 1 risk-based capital ratio 116,076 12.69 % 54,894 6.00 % n/a n/a
Total risk-based capital ratio 124,686 13.63 % 73,193 8.00 % n/a n/a
Leverage ratio 116,076 10.56 % 43,965 4.00 % n/a n/a
Sonabank
Common equity tier 1 capital ratio $ 114,779 12.55 % $ 41,151 4.50 % $ 59,440 6.50 %
Tier 1 risk-based capital ratio 114,779 12.55 % 54,868 6.00 % 73,157 8.00 %
Total risk-based capital ratio 123,389 13.49 % 73,157 8.00 % 91,447 10.00 %
Leverage ratio 114,779 10.45 % 43,947 4.00 % 54,934 5.00 %


	Minimum
	Required for
	Capital		To Be		Actual Ratio at
	Adequacy		Categorized as		June 30,		December 31,
	Purposes		Well Capitalized⁽¹⁾		2023		2022
Primis Financial Corp.
Leverage ratio	4.00	%	n/a		8.14	%	9.68	%
Common equity tier 1 capital ratio	4.50	%	n/a		9.38	%	10.30	%
Tier 1 risk-based capital ratio	6.00	%	n/a		9.68	%	10.63	%
Total risk-based capital ratio	8.00	%	n/a		13.16	%	14.57	%

Primis Bank
Leverage ratio	4.00	%	5.00	%	9.41	%	11.39	%
Common equity tier 1 capital ratio	7.00	%	6.50	%	11.71	%	12.64	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	11.71	%	12.64	%
Total risk-based capital ratio	10.50	%	10.00	%	12.92	%	13.84	%

(1)

When fully phased-in on January 1, 2019, the Basel III capital rules include a capital conservation buffer of 2.5% that is added on top of each of the minimum risk-based capital ratios noted above. Implementation began on January 1, 2016 at the 0.625% level and will increase each subsequent January 1, until it reaches 2.5% on January 1, 2019.

~~(2)~~

Prompt corrective action provisions are not applicable at the bank holding company level.

Primis Financial Corp. and Primis Bank are required to meet minimum capital requirements set forth by regulatory authorities. Bank regulatory agencies have approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. The Basel III Capital Rules require Primis Financial Corp. and Primis Bank to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer”, (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer and (iv) a minimum leverage ratio of 4.0%. Failure to meet minimum capital requirements may result in certain actions by regulators which could have a direct material effect on the consolidated financial statements.

~~The most recent regulatory notification categorized Sonabank as well capitalized~~Primis Financial Corp. and Primis Bank remain well-capitalized under Basel III capital requirements. Primis Bank had a capital conservation buffer of 4.92% at June 30, 2023, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.

Primis Bank’s capital position is consistent with being well-capitalized under the regulatory framework for ~~prompt corrective action. There~~PCA.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies are ~~no conditions or events~~discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2022. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in “Note 1. Organization and Significant Accounting Policies” in Form 10-K for the year ended December 31, 2022. Disclosures regarding changes in our significant accounting policies since ~~that notification that management believes have changed Sonabank’s category.~~year end and the effects of new accounting pronouncements are included in “Note 1. Accounting Policies” in this Form 10-Q.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are engaged primarily in the business of investing funds obtained from deposits and borrowings into interest-earning loans and investments. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between the interest income on loans and other investments and the interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-earning assets, we are subject to interest rate risk and corresponding fluctuations in net interest income. Our Asset-Liability Committee (“ALCO”) meets regularly and is responsible for reviewing our interest rate sensitivity position and

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establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by our Board of Directors. We have employed asset/liability management policies that seek to manage our net interest income, without having to incur unacceptable levels of credit or investment risk.

We use simulation modeling to manage our interest rate risk, and we review quarterly interest ~~sensitivity reports prepared for us by FTN Financial using the Sendero ALM Analysis System.~~sensitivity. This approach uses a model which generates estimates of the change in our economic value of equity (“EVE”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts using assumptions ~~about~~including estimated loan prepayment rates, reinvestment rates and deposit decay rates.

The following tables are based on ~~an analysis prepared by FTN Financial setting forth~~ an analysis of our interest rate risk as measured by the estimated change in EVE resulting from instantaneous and sustained parallel shifts in the yield curve (plus 400 basis points or minus ~~200~~100 basis points, measured in 100 basis point increments) as of ~~September~~June 30, ~~2017~~2023 and ~~as of~~ December 31, ~~2016.~~2022. All changes are within our Asset/Liability Risk Management Policy guidelines except for the change resulting from the 200 basis point decrease in interest rates at September 30, 2017 and the change resulting from the 100 basis point decrease in interest rates at December 31, 2016.guidelines.


	Sensitivity of Economic Value of Equity
	As of June 30, 2023
							Economic Value of
	Economic Value of Equity						Equity as a % of
Change in Interest Rates			$ Change		% Change		Total		Equity
in Basis Points (Rate Shock)	Amount		From Base		From Base		Assets		Book Value

	(dollar amounts in thousands)
Up 400	$	503,320	$	(57,915)	(10.32)	%	14.77	%	122.20	%
Up 300		515,991		(45,244)	(8.06)	%	15.14	%	125.28	%
Up 200		527,895		(33,340)	(5.94)	%	15.49	%	128.17	%
Up 100		551,187		(10,048)	(1.79)	%	16.18	%	133.82	%
Base		561,235		—	—	%	16.47	%	136.26	%
Down 100		556,910		(4,325)	(0.77)	%	16.34	%	135.21	%
Down 200		534,924		(26,311)	(4.69)	%	15.70	%	129.87	%


	Sensitivity of Economic Value of Equity
	As of December 31, 2022
							Economic Value of
	Economic Value of Equity						Equity as a % of
Change in Interest Rates			$ Change		% Change		Total		Equity
in Basis Points (Rate Shock)	Amount		From Base		From Base		Assets		Book Value

	(dollar amounts in thousands)
Up 400	$	481,135	$	(63,410)	(11.64)	%	14.12	%	116.81	%
Up 300		496,136		(48,409)	(8.89)	%	14.56	%	120.46	%
Up 200		510,807		(33,738)	(6.20)	%	14.99	%	124.02	%
Up 100		534,163		(10,382)	(1.91)	%	15.68	%	129.69	%
Base		544,545		—	—	%	15.98	%	132.21	%
Down 100		539,297		(5,248)	(0.96)	%	15.83	%	130.94	%

Sensitivity of Economic Value of Equity
As of September 30, 2017
Economic Value of
Economic Value of Equity Equity as a % of
Change in Interest Rates $ Change % Change Total Equity
in Basis Points (Rate Shock) Amount From Base From Base Assets Book Value
(dollar amounts in thousands)

Up 400 $ 503,532 $ 52,248 11.58 % 19.39 % 154.45 %
Up 300 498,874 47,590 10.55 % 19.21 % 153.02 %
Up 200 490,181 38,897 8.62 % 18.88 % 150.36 %
Up 100 477,193 25,909 5.74 % 18.38 % 146.37 %
Base 451,284 - 0.00 % 17.38 % 138.43 %
Down 100 387,010 (64,274 ) -14.24 % 14.90 % 118.71 %
Down 200 313,519 (137,765 ) -30.53 % 12.07 % 96.17 %

Sensitivity of Economic Value of Equity
As of December 31, 2016
Economic Value of
Economic Value of Equity Equity as a % of
Change in Interest Rates $ Change % Change Total Equity
in Basis Points (Rate Shock) Amount From Base From Base Assets Book Value
(dollar amounts in thousands)

Up 400 $ 116,120 $ (37,494 ) -24.41 % 10.16 % 91.91 %
Up 300 123,778 (29,836 ) -19.42 % 10.83 % 97.97 %
Up 200 132,243 (21,371 ) -13.91 % 11.58 % 104.67 %
Up 100 141,858 (11,756 ) -7.65 % 12.42 % 112.28 %
Base 153,614 - 0.00 % 13.45 % 121.58 %
Down 100 136,456 (17,158 ) -11.17 % 11.94 % 108.00 %
Down 200 129,485 (24,129 ) -15.71 % 11.33 % 102.49 %

Our interest rate sensitivity is also monitored by management through the use of a model ~~run by FTN Financial~~ that generates estimates of the change in the net interest income (“NII”) over a range of interest rate scenarios. NII depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. In this regard, the model assumes that the composition of our interest sensitive assets and liabilities existing at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 remains constant over the period being measured and also assumes that a particular change in interest rates is

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reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. All changes are within our ~~Asset/Liability Risk Management~~ALM Policy guidelines at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016.~~2022.


	Sensitivity of Net Interest Income
	As of June 30, 2023
	Adjusted Net Interest Income
Change in Interest Rates			$ Change
in Basis Points (Rate Shock)	Amount		From Base

	(dollar amounts in thousands)
Up 400	$	101,999	$	(13,566)
Up 300		104,695		(10,870)
Up 200		107,389		(8,176)
Up 100		112,004		(3,561)
Base		115,565		—
Down 100		117,594		2,029
Down 200		117,636		2,071

	Sensitivity of Net Interest Income
	As of September 30, 2017
	Adjusted Net Interest Income				Net Interest Margin

											Sensitivity of Net Interest Income
											As of December 31, 2022
											Adjusted Net Interest Income
Change in Interest Rates			$ Change					% Change					$ Change
in Basis Points (Rate Shock)	Amount		From Base		Percent			From Base			Amount		From Base
	(dollar amounts in thousands)

											(dollar amounts in thousands)
Up 400	$	94,535	$	9,578		3.99	%		0.38	%	$	108,514	$	(12,447)
Up 300		92,442		7,485		3.90	%		0.29	%		111,127		(9,834)
Up 200		90,178		5,221		3.82	%		0.21	%		113,730		(7,231)
Up 100		87,755		2,798		3.72	%		0.11	%		117,811		(3,150)
Base		84,957		-		3.61	%		0.00	%		120,961		—
Down 100		85,228		271		3.63	%		0.02	%		122,070		1,109
Down 200		85,574		617		3.64	%		0.03	%		120,687		(274)

Sensitivity of Net Interest Income
As of December 31, 2016
Adjusted Net Interest Income Net Interest Margin
Change in Interest Rates $ Change % Change
in Basis Points (Rate Shock) Amount From Base Percent From Base
(dollar amounts in thousands)

Up 400 $ 41,484 $ 3,759 3.87 % 0.43 %
Up 300 41,172 3,447 3.75 % 0.31 %
Up 200 39,898 2,173 3.64 % 0.20 %
Up 100 38,688 963 3.53 % 0.09 %
Base 37,725 - 3.44 % 0.00 %
Down 100 37,961 236 3.46 % 0.02 %
Down 200 37,473 (252 ) 3.42 % -0.02 %

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII sensitivity requires the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Accordingly, although the EVE tables and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net worth and NII. Sensitivity of EVE and NII are modeled using different assumptions and approaches. In the low interest rate environment that currently exists, limitations on downward adjustments for interest rates, particularly as they apply to deposits, can and do result in anomalies in scenarios that are unlikely to occur due to the current low interest rate environment.

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report on Form 10-Q, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d ~~-15(c)~~-15(e) under the Securities Exchange Act of 1934). utilizing the framework established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer have concluded that these controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting. As a result of the acquisition of ~~EVBS, there were changes in our~~Primis Mortgage, the Company is continuously working to integrate Primis Mortgage into its internal control over financial reporting ~~(as such term is defined~~process.

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There were no changes in ~~Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)~~our internal controls over financial reporting that occurred during ~~our most recent fiscal quarter~~the three and six months ended June 30, 2023 that ~~have~~ materially affected, or are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting. Such changes related to this acquisition included implementing new procedures, including procedures to integrate existing systems, and changes to our accounting and reporting professionals to reflect their new responsibilities with the compliance process. We are continuing to evaluate and augment our existing controls to appropriately manage the risks inherent in an acquisition of this magnitude and complexity.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

~~Southern National~~Primis and ~~Sonabank may,~~Primis Bank are from time to time be a party, as both plaintiff and defendant, to various ~~legal~~claims and proceedings arising in the ordinary course of ~~business.~~the Bank’s business, including administrative and/or legal proceedings that may include employment-related claims, as well as claims of lender liability, breach of contract, and other similar lending-related claims. While the ultimate resolution of these matters cannot be determined at this time, the Bank’s management presently believes that such matters, individually and in the aggregate, will not have a material adverse effect on the Bank’s financial condition or results of operations. There are no proceedings pending, or to management’s knowledge, threatened, that represent a significant risk against ~~Southern National~~Primis or ~~Sonabank~~Primis Bank as of ~~September~~June 30, ~~2017.~~2023.

ITEM 1A – RISK FACTORS

~~Other than as~~In addition to the other information set forth ~~below,~~in this Report, in evaluating an investment in the Company’s securities, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our 2022 Form 10-K, and as disclosed in Part II, Item 1A of ~~September 30, 2017 there have been~~our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There are no material changes during the period covered by this Report to the risk factors ~~faced by Southern National from those~~ previously disclosed onin our ~~Annual~~2022 Form 10-K or our Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2016.~~2023.

~~We face significant cyber and data security risk that could result in the disclosure of confidential information, adversely affect our business or reputation and expose us to significant liabilities.~~

As a financial institution, we are under threat of loss due to hacking and cyber-attacks. This risk has increased in recent years, and continues to increase, as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customer or our accounts. The attempts to breach sensitive customer data, such as account numbers and social security numbers, are less frequent but would present significant reputational, legal and/or regulatory costs to us if successful. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. In July 2017, we incurred a loss of approximately $172 thousand due to fraudulent wire transactions. These fraudulent wire transactions were the result of an email phishing scheme that targeted various employees of the Bank and led to an internal email compromise, affording the perpetrators access to personal information of a number of the Bank’s customers. We took immediate action to contain and eradicate the email compromise, including the implementation of control enhancements to prevent a similar situation from occurring again. We believe this was an isolated event and do not believe our technology systems have been compromised. While we have not experienced any material losses relating to cyber-attacks or other information security breaches such as the one that occurred in July 2017, we have been the subject of a successful hacking and cyber-attack and there can be no assurance that we will not suffer additional losses in the future related to this event or others.

The occurrence of any cyber-attack or information security breach, such as the one that occurred in July 2017, could result in material adverse consequences to us including damage to our reputation and the loss of customers. We also could face litigation or additional regulatory scrutiny. Litigation or regulatory actions in turn could lead to significant liability or other sanctions, including fines and penalties or reimbursement of customers adversely affected by this security breach. Even if we do not suffer any material adverse consequences as a result of the event that occurred in July 2017 or as a result of other future events, successful attacks or systems failures at the Bank or at other financial institutions could lead to a general loss of customer confidence in financial institutions including the Bank.

Our ability to mitigate the adverse consequences of occurrences (such as the one in July 2017) is in part dependent on the quality of our information security procedures and contracts and our ability to anticipate the timing and nature of any such event that occurs. In recent years, we have incurred significant expense towards improving the reliability of our systems and their security from attack. Nonetheless, there remains the risk that we may be materially harmed by this cyber-attack and information security breach or others in the future. Methods used to attack information systems change frequently (with generally increasing sophistication), often are not recognized until launched against a target, may be supported by foreign governments or other well-financed entities, and may originate from less regulated and remote areas around the world. As a result, we may be unable to address these methods in advance of attacks, including by implementing adequate preventive measures. If such an attack or breach does occur again, we might not be able to fix it timely or adequately. To the extent that such an attack or breach relates to products or services provided by others, we seek to engage in due diligence and monitoring to limit the risk.

~~Item~~

ITEM 2 – ~~Unregistered Sales of Equity Securities and Use of Proceeds~~

UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Not ~~applicable~~applicable.

~~Item~~

ITEM 3 – ~~Defaults Upon Senior Securities~~

DEFAULTS UPON SENIOR SECURITIES

Not ~~applicable~~applicable.

~~Item~~

ITEM 4 – MINE SAFETY DISCLOSURES

Not ~~applicable~~applicable.

~~Item~~

ITEM 5 – ~~Other Information~~OTHER INFORMATION

Pursuant to Item 408(a) of Regulation S-K, none of the Company's directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 tradingarrangement during the three months ended June 30, 2023.

~~Not applicable~~

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ITEM 6 - EXHIBITS

(a) Exhibits.

~~Exhibit No.~~		~~Description~~
Exhibit No.		Description
31.1*
3.1		Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed August 4, 2006)

3.2		Certificate of Amendment to the Articles of Incorporation dated January 31, 2005 (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)

3.3		Certificate of Amendment to the Articles of Incorporation dated April 13, 2006 (incorporated herein by reference to Exhibit 3.3 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)

3.4		Articles of Amendment to the Articles of Incorporation dated June 30, 2021 (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s Current Report on Form 8-K filed on June 30, 2021)

3.5		Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s Current Report on Form 8-K filed on June 30, 2021)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

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101		The following materials from ~~Southern National Bancorp of Virginia, Inc.~~Primis Financial Corp. Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2023, formatted in Inline XBRL (Extensible Business Reporting Language), filed herewith: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (unaudited), (iii) Consolidated Statement of Changes in Stockholders’ Equity (unaudited), (iv) Consolidated Statements of Cash Flows (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited).

104		The cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).

+ Management contract or compensatory plan or arrangement

* Filed with this Quarterly Report on Form 10-Q

** Furnished with this Quarterly Report on Form 10-Q

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		~~Southern National Bancorp of Virginia, Inc.~~
			~~(Registrant)~~

Primis Financial Corp.

~~November 9, 2017~~	~~/s/ Joe A. Shearin~~
~~(Date)~~		~~Joe A. Shearin,~~ (Registrant)


August 9, 2023		/s/ Dennis J. Zember, Jr.
(Date)		Dennis J. Zember, Jr.
		President and Chief Executive Officer
		~~(Principal Executive Officer)~~

~~November 9, 2017~~		~~/s/ J. Adam Sothen~~
~~(Date)~~ August 9, 2023		~~J. Adam Sothen,~~ /s/ Matthew Switzer
(Date)		Matthew Switzer
		Executive Vice President and Chief Financial Officer
		~~(Principal Financial and Accounting Officer)~~

~~Virginia~~	~~20-1417448~~
Virginia	20-1417448
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)


Title of each class:	Trading symbol	Name of each exchange on which registered:
Common Stock, par value $0.01 per share	FRST	NASDAQ Global Market


Large accelerated filer ☐	Accelerated filer ☒	Smaller reporting company ☐

Non-accelerated filer ☐	Emerging growth company ☐

~~INDEX~~ TABLE OF CONTENTS		PAGE

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022		2
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022		3
Condensed Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2023 and 2022		4
Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022		5 6
Notes to Unaudited Condensed Consolidated Financial Statements		~~6-33~~ 7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~34-47~~ 35

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		~~47-49~~ 51

Item 4 – Controls and Procedures		49 53

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		50 54

Item 1A – Risk Factors		50 54

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		51 54

Item 3 – Defaults Upon Senior Securities		51 54

Item 4 – Mine Safety Disclosures		51 54

Item 5 – Other Information		51 54

Item 6 - Exhibits		51 55

Signatures		52 57

~~Certifications~~

	September 30,			December 31,
	2017			2016
	(unaudited)			(audited)
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	7,500		$	4,656
Interest-bearing deposits in other financial institutions		15,820			42,736
Total cash and cash equivalents		23,320			47,392

Federal funds sold		623			-

Securities available for sale, at fair value		164,237			3,918

Securities held to maturity, at amortized cost
(fair value of $99,122 and $83,344, respectively)		100,333			85,300

Covered loans		23,979			28,180
Non-covered loans		2,011,202			902,235
Total loans		2,035,181			930,415
Less allowance for loan losses		(9,254	)		(8,610	)
Net loans		2,025,927			921,805

Stock in Federal Reserve Bank and Federal Home Loan Bank		24,076			7,929
Equity investment in mortgage affiliate		4,617			4,629
Preferred investment in mortgage affiliate		3,305			2,555
Bank premises and equipment, net		36,289			8,227
Goodwill		96,990			10,514
Core deposit intangibles, net		10,416			874
FDIC indemnification asset		1,525			2,111
Bank-owned life insurance		50,491			23,826
Other real estate owned		8,053			8,617
Deferred tax assets, net		24,921			6,780
Other assets		21,449			7,966

Total assets	$	2,596,572		$	1,142,443

LIABILITIES AND STOCKHOLDERS' EQUITY

Noninterest-bearing demand deposits	$	323,722		$	88,783
Interest-bearing deposits:
NOW accounts		326,064			26,338
Cash management accounts		-			9,658
Money market accounts		364,420			129,835
Savings accounts		166,030			52,755
Time deposits		723,373			605,613
Total interest-bearing deposits		1,579,887			824,199
Total deposits		1,903,609			912,982

Securities sold under agreements to repurchase		16,416			-
Federal Home Loan Bank (FHLB) advances - short term		272,115			95,000
Junior subordinated debt		9,522			-
Senior subordinated notes		47,138			-
Other liabilities		21,762			8,117
Total liabilities		2,270,562			1,016,099

Commitments and contingencies (See Note 6)		-			-

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		-			-
Common stock, $0.01 par value. Authorized 45,000,000 shares; issued and outstanding, 23,916,453 shares at September 30, 2017 and 12,263,643 at December 31, 2016		239			123
Additional paid in capital		304,682			104,884
Retained earnings		21,827			22,126
Accumulated other comprehensive loss		(738	)		(789	)
Total stockholders' equity		326,010			126,344

Total liabilities and stockholders' equity	$	2,596,572		$	1,142,443

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016

Interest and dividend income:
Interest and fees on loans	$	26,726		$	11,792		$	51,819		$	33,790
Interest and dividends on taxable securities		1,464			581			2,620			2,059
Interest and dividends on tax exempt securities		159			84			333			252
Interest and dividends on other earning assets		458			162			829			482
Interest on federal funds sold		4			-			4			-
Total interest and dividend income		28,811			12,619			55,605			36,583
Interest expense:
Interest on deposits		3,391			2,128			7,809			5,918
Interest on repurchase agreements		12			-			13			18
Interest on junior subordinated debt		120			-			129			-
Interest on senior subordinated notes		712			-			1,483			-
Interest on other borrowings		726			118			1,225			388
Total interest expense		4,961			2,246			10,659			6,324

Net interest income		23,850			10,373			44,946			30,259

Provision for loan losses		5,250			2,050			6,850			4,062
Net interest income after provision for loan losses		18,600			8,323			38,096			26,197

Noninterest income:
Account maintenance and deposit service fees		1,518			225			2,098			675
Income from bank-owned life insurance		305			175			631			524
Equity (loss) income from mortgage affiliate		(83	)		749			(450	)		1,381
(Loss) gain on sales of investment securities		(2	)		-			255			-
Other		561			26			580			88
Total noninterest income		2,299			1,175			3,114			2,668

Noninterest expenses:
Salaries and benefits		7,746			2,699			13,750			8,753
Occupancy expenses		1,703			783			3,338			2,377
Furniture and equipment expenses		907			283			1,401			720
Amortization of core deposit intangible		360			44			483			168
Virginia franchise tax expense		364			96			605			290
FDIC assessment		186			165			391			478
Data processing expense		440			184			858			533
Telephone and communication expense		567			201			912			586
Amortization of FDIC indemnification asset		173			187			540			606
Net (gain) loss on other real estate owned		(106	)		(9	)		213			74
Merger expenses		168			-			9,094			-
Other operating expenses		1,928			725			3,745			2,403
Total noninterest expenses		14,436			5,358			35,330			16,988
Income before income taxes		6,463			4,140			5,880			11,877
Income tax expense		2,089			1,375			2,294			3,757
Net income	$	4,374		$	2,765		$	3,586		$	8,120

Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities	$	242		$	188		$	323		$	(296	)
Realized amounts on securities sold, net		2			-			(255	)		-
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale		3			3			9			10
Net unrealized gain (loss)		247			191			77			(286	)
Tax effect		(84	)		(64	)		(26	)		98
Other comprehensive income (loss)		163			127			51			(188	)
Comprehensive income	$	4,537		$	2,892		$	3,637		$	7,932
Earnings per share, basic	$	0.18		$	0.23		$	0.22		$	0.66
Earnings per share, diluted	$	0.18		$	0.22		$	0.21		$	0.65

								Accumulated
			Additional					Other
	Common		Paid in		Retained			Comphrensive
	Stock		Capital		Earnings			Loss			Total
Balance - December 31, 2016	$	123	$	104,884	$	22,126		$	(789	)	$	126,344
Comprehensive income:
Net income		-		-		3,586			-			3,586
Change in unrealized loss on securities available for sale (net of tax expense, $23)		-		-		-			45			45
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $3 and accretion, $9 and amounts recorded into other comprehensive income at transfer)		-		-		-			6			6
Dividends on common stock ($0.24 per share)		-		-		(3,885	)		-			(3,885	)
Issuance of common stock for warrants exercised (49,500 shares)		-		449		-			-			449
Issuance of common stock under Stock Incentive Plan (45,550 shares)		-		371		-			-			371
Issuance of common stock in connection with Eastern Virginia Bankshares, Inc. merger (11,557,760 shares)		116		198,793		-			-			198,909
Stock-based compensation expense		-		185		-			-			185
Balance - September 30, 2017	$	239	$	304,682	$	21,827		$	(738	)	$	326,010

	2017			2016

Operating activities:
Net income	$	3,586		$	8,120
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation		1,282			613
Amortization of core deposit intangible		483			168
Other amortization, net		633			(61	)
Accretion of loan discount		(2,321	)		(1,465	)
Amortization of FDIC indemnification asset		540			606
Provision for loan losses		6,850			4,062
Earnings on bank-owned life insurance		(631	)		(524	)
Equity loss (income) on mortgage affiliate		450			(1,381	)
Stock-based compensation expense		185			198
Net gain on sales of investment securities		(255	)		-
Net loss on other real estate owned		213			74
Net decrease (increase) in other assets		2,237			(1,694	)
Net (decrease) increase in other liabilities		(851	)		3,324
Net cash and cash equivalents provided by operating activities		12,401			12,040
Investing activities:
Purchase of federal funds sold		(623	)		-
Proceeds from sales of investment securities		4,767			-
Purchases of held to maturity investment securities		(9,950	)		(46,055	)
Purchases of available for sale investment securities		(1,747	)		-
Proceeds from paydowns, maturities and calls of available for sale investment securities		3,950			-
Proceeds from paydowns, maturities and calls of held to maturity investment securities		9,752			55,976
Loan originations and payments, net		(51,059	)		(90,875	)
Distribution from mortgage affiliate		48			628
Net increase in stock in Federal Reserve Bank and Federal Home Loan Bank		(9,413	)		(575	)
Payments received on FDIC indemnification asset		-			10
Proceeds from sales of other real estate owned		1,006			1,166
Purchases of bank premises and equipment		(750	)		(120	)
Acquisition of Eastern Virginia Bankshares, Inc.		(10	)		-
Cash acquired in acquisition of Eastern Virginia Bankshares, Inc.		24,025			-
Net cash and cash equivalents used in investing activities		(30,004	)		(79,845	)
Financing activities:
Net (decrease) increase in deposits		(149,119	)		79,596
Cash dividends paid - common stock		(3,885	)		(2,940	)
Issuance of common stock for warrants exercised		449			101
Issuance of common stock under Stock Incentive Plan		371			118
Issuance of subordinated notes, net of cost		26,075			-
Net increase in short-term borrowings		119,640			16,000
Net decrease in long-term borrowings		-			(5,000	)
Net cash and cash equivalents (used in) provided by financing activities		(6,469	)		87,875
(Decrease) increase in cash and cash equivalents		(24,072	)		20,070
Cash and cash equivalents at beginning of period		47,392			30,336
Cash and cash equivalents at end of period	$	23,320		$	50,406

Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	9,231		$	6,190
Income taxes		2,390			3,483
Supplemental schedule of noncash investing and financing activities
Transfer from long-term FHLB advances to short-term FHLB advances	$	-		$	5,000
Transfer from covered loans to other real estate owned		-			144
Transfer from securities sold under agreement to repurchase to deposits		-			10,381
Assets acquired, excluding cash and cash equivalents of $24,025		1,346,573			-
Liabilities assumed		1,258,164			-

	As Recorded		Fair Value			As Recorded
(dollars in thousands) (unaudited)	by EVBS		Adjustments			by the Company
Consideration paid:
Cash						$	10
SNBV common stock							198,909
Total consideration paid						$	198,919

Identifiable assets acquired:
Cash and due from banks	$	4,350	$	-		$	4,350
Interest bearing deposits with banks		18,993		-			18,993
Federal funds sold		682		-			682
Securities available for sale, at fair value		163,029		(150	)		162,879
Securities held to maturity, at carrying value		19,036		508			19,544
Restricted securities, at cost		6,734		-			6,734
Loans		1,045,600		(7,722	)		1,037,878
Loans held for sale		19,689		-			19,689
Deferred income taxes		15,735		2,844			18,579
Bank premises and equipment		24,242		4,352			28,594
Assets held for sale		2,970		(1,285	)		1,685
Accrued interest receivable		4,272		-			4,272
Other real estate owned		563		92			655
Core deposit intangible		435		9,590			10,025
Bank owned life insurance		26,035		-			26,035
Other assets		10,004		-			10,004
Total identifiable assets acquired		1,362,369		8,229			1,370,598

Identifiable liabilities assumed:
Noninterest-bearing demand accounts		226,637		-			226,637
Interest-bearing deposits		920,743		1,182			921,925
Federal funds purchased and repurchase agreements		7,598		-			7,598
Federal Home Loan Bank advances		57,475		-			57,475
Junior subordinated debt		10,310		(801	)		9,509
Senior subordinated notes		19,175		1,876			21,051
Accrued interest payable		902		-			902
Other liabilities		13,067		-			13,067
Total identifiable liabilities assumed		1,255,907		2,257			1,258,164

Net identifiable assets acquired	$	106,462	$	5,972		$	112,434

Goodwill resulting from acquisition						$	86,485

	For the Three Months			For the Nine Months
(dollars in thousands)	Ended September 30, 2017			Ended September 30, 2017
Loans (1)	$	1,127		$	1,218
Time deposits (2)		213			217
Junior and senior subordinated debt (3)		21			23
Core deposit intangible (4)		(312	)		(338	)
Net impact to income before income taxes	$	1,049		$	1,120

	Unaudited		Unaudited		Unaudited		Unaudited
	Pro Forma		Pro Forma		Pro Forma		Pro Forma
	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2017		2016		2017		2016
Net interest income	$	23,850	$	21,139	$	67,271	$	63,467
Net income		4,648		5,742		17,774		17,385

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in thousands)
Options outstanding, beginning of period		782,200		$	9.56
Granted		-			-
Options issued in connection with EVBS merger		22,559			24.54
Forfeited		(12,400	)		11.53
Exercised		(42,750	)		8.67
Options outstanding, end of period		749,609		$	10.03		5.7	$	5,391

Exercisable at end of period		409,759		$	7.72		4.1	$	3,164

	Held to Maturity				Available for Sale
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one to five years	$	1,456	$	1,477	$	1,946	$	1,943
Due in five to ten years		23,496		23,178		5,397		5,393
Due after ten years		53,872		53,012		17,657		17,387
Agency residential mortgage-backed securities (fixed and variable rate)		12,015		12,012		32,237		32,105
Residential government-sponsored collateralized mortgage obligations		9,494		9,443		53,643		53,370
Agency commercial mortgage-backed securities		-		-		28,304		28,081
SBA pool securities		-		-		25,937		25,958
Total	$	100,333	$	99,122	$	165,121	$	164,237

September 30, 2017	Less than 12 months					12 Months or More					Total
Available for Sale	Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses
Agency residential mortgage-backed securities (fixed and variable rate)	$	33,288	$	(135	)	$	-	$	-		$	33,288	$	(135	)
Obligations of states and political subdivisions		14,509		(73	)		-		-			14,509		(73	)
Trust preferred securities		-		-			863		(237	)		863		(237	)
Residential government-sponsored collateralized mortgage obligations		52,134		(278	)		-		-			52,134		(278	)
Government-sponsored agency securities		1,733		(14	)		-		-			1,733		(14	)
Agency commercial mortgage-backed securities		28,081		(223	)		-		-			28,081		(223	)
SBA pool securities		11,468		(25	)		-		-			11,468		(25	)
	$	141,213	$	(748	)	$	863	$	(237	)	$	142,076	$	(985	)

															Previously
												% of Current			Recognized
												Defaults and			Cumulative
		Ratings								Estimated		Deferrals to			Other
	Tranche	When Purchased		Current Ratings						Fair		Total			Comprehensive
Security	Level	Moody's	Fitch	Moody's	Fitch	Par Value		Book Value		Value		Collateral			Loss (1)
						(in thousands)
Held to Maturity
ALESCO VII A1B	Senior	Aaa	AAA	Aa2	A	$	3,250	$	2,998	$	3,055		17	%	$	228
MMCF III B	Senior Sub	A3	A-	Ba1	BBB		265		261		239		32	%		4
							3,515		3,259		3,294				$	232

															Cumulative OTTI
															Related to
															Credit Loss (2)
Available for Sale
Other Than Temporarily Impaired:
TPREF FUNDING II	Mezzanine	A1	A-	Caa3	C		1,500		1,099		862		28	%	$	400
ALESCO V C1	Mezzanine	A2	A	Caa2	C		2,150		1,490		1,504		13	%		660
							3,650		2,589		2,366				$	1,060

Total						$	7,165	$	5,848	$	5,660

	2017		2016

Amount of cumulative other than temporary impairment related to credit loss prior to January 1	$	1,060	$	1,060
Amounts related to credit loss for which an other than temporary impairment was not previously recognized		-		-
Amounts related to credit loss for which an other than temporary impairment was previously recognized		-		-
Reductions due to realized losses		-		-
Amount of cumulative other than temporary impairment related to credit loss as of September 30	$	1,060	$	1,060

	Unrealized Holding
	(Losses) on			Held to Maturity
For the three months ended September 30, 2017	Available for Sale Securities			Securities			Total
Beginning balance	$	(743	)	$	(158	)	$	(901	)
Other comprehensive income before reclassifications		161			2			163
Net current-period other comprehensive income		161			2			163
Ending balance	$	(582	)	$	(156	)	$	(738	)

	Covered		Non-covered			Total			Covered		Non-covered			Total
	Loans (1)		Loans			Loans			Loans (1)		Loans			Loans
	September 30, 2017								December 31, 2016
Loans secured by real estate:
Commercial real estate - owner-occupied	$	-	$	399,799		$	399,799		$	-	$	154,807		$	154,807
Commercial real estate - non-owner-occupied		-		452,797			452,797			-		279,634			279,634
Secured by farmland		-		13,270			13,270			-		541			541
Construction and land loans		-		198,328			198,328			-		91,067			91,067
Residential 1-4 family		9,356		462,545			471,901			10,519		220,291			230,810
Multi- family residential		-		73,547			73,547			-		30,021			30,021
Home equity lines of credit		14,623		137,681			152,304			17,661		11,542			29,203
Total real estate loans		23,979		1,737,967			1,761,946			28,180		787,903			816,083

Commercial loans		-		235,171			235,171			-		115,365			115,365
Consumer loans		-		39,460			39,460			-		856			856
Gross loans		23,979		2,012,598			2,036,577			28,180		904,124			932,304

Less deferred fees on loans		-		(1,396	)		(1,396	)		-		(1,889	)		(1,889	)
Loans, net of deferred fees	$	23,979	$	2,011,202		$	2,035,181		$	28,180	$	902,235		$	930,415

	30 - 59		60 - 89
	Days		Days		90 Days		Total		Nonaccrual		Loans Not		Total
September 30, 2017	Past Due		Past Due		or More		Past Due		Loans		Past Due		Loans
Covered loans:
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-		-
Commercial loans		-		-		-		-		-		-		-
Residential 1-4 family (2)		23		193		-		216		1,109		22,654		23,979
Other consumer loans		-		-		-		-		-		-		-

Total	$	23	$	193	$	-	$	216	$	1,109	$	22,654	$	23,979

Non-covered loans:
Commercial real estate - owner occupied	$	4,491	$	40	$	-	$	4,531	$	636	$	394,632	$	399,799
Commercial real estate - non-owner occupied (1)		1,934		39		-		1,973		-		537,641		539,614
Construction and land development		1,604		-		-		1,604		9,984		186,740		198,328
Commercial loans		5,994		250		-		6,244		1,732		227,195		235,171
Residential 1-4 family (2)		3,565		1,119		-		4,684		639		594,903		600,226
Other consumer loans		37		8		-		45		-		39,415		39,460

Total	$	17,625	$	1,456	$	-	$	19,081	$	12,991	$	1,980,526	$	2,012,598

Total loans:
Commercial real estate - owner occupied	$	4,491	$	40	$	-	$	4,531	$	636	$	394,632	$	399,799
Commercial real estate - non-owner occupied (1)		1,934		39		-		1,973		-		537,641		539,614
Construction and land development		1,604		-		-		1,604		9,984		186,740		198,328
Commercial loans		5,994		250		-		6,244		1,732		227,195		235,171
Residential 1-4 family (2)		3,588		1,312		-		4,900		1,748		617,557		624,205
Other consumer loans		37		8		-		45		-		39,415		39,460

Total	$	17,648	$	1,649	$	-	$	19,297	$	14,100	$	2,003,180	$	2,036,577

	Commercial			Commercial
	Real Estate			Real Estate			Construction								Other
	Owner			Non-owner			and Land			Commercial			1-4 Family		Consumer
	Occupied			Occupied (1)			Development			Loans			Residential (2)		Loans			Unallocated			Total
Non-covered loans:
Three months ended September 30, 2017
Allowance for loan losses:
Beginning balance	$	938		$	1,790		$	1,096		$	2,691		$	1,423	$	84		$	1,175		$	9,197
Charge offs		-			-			-			(5,316	)		-		(57	)		-			(5,373	)
Recoveries		7			-			-			170			2		1			-			180
Provision		(129	)		(260	)		(293	)		6,629			15		297			(1,009	)		5,250
Ending balance	$	816		$	1,530		$	803		$	4,174		$	1,440	$	325		$	166		$	9,254

Three months ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	721		$	1,403		$	855		$	3,345		$	1,262	$	122		$	713		$	8,421
Charge offs		(798	)		-			-			(1,363	)		-		-			-			(2,161	)
Recoveries		-			-			120			33			4		2			-			159
Provision		916			196			(328	)		1,257			95		(41	)		(45	)		2,050
Ending balance	$	839		$	1,599		$	647		$	3,272		$	1,361	$	83		$	668		$	8,469

			Weighted
			Average
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
For the three months ended September 30, 2017
Basic EPS	$	4,374		23,913	$	0.18
Effect of dilutive stock options and warrants		-		305		-
Diluted EPS	$	4,374		24,218	$	0.18

For the three months ended September 30, 2016
Basic EPS	$	2,765		12,258	$	0.23
Effect of dilutive stock options and warrants		-		171		-
Diluted EPS	$	2,765		12,429	$	0.22

For the nine months ended September 30, 2017
Basic EPS	$	3,586		16,526	$	0.22
Effect of dilutive stock options and warrants		-		295		-
Diluted EPS	$	3,586		16,821	$	0.21

For the nine months ended September 30, 2016
Basic EPS	$	8,120		12,248	$	0.66
Effect of dilutive stock options and warrants		-		154		-
Diluted EPS	$	8,120		12,402	$	0.65

			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	September 30, 2017		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available for sale securities
Agency residential mortgage-backed securities (fixed and variable rate)	$	32,105	$	-	$	32,105	$	-
Obligations of states and political subdivisions		18,609		-		18,609		-
Corporate securities		2,015		-		2,015		-
Trust preferred securities		2,366		-		2,366		-
Residential government-sponsored collateralized mortgage obligations		53,370		-		53,370		-
Government-sponsored agency securities		1,733		-		1,733		-
Agency commercial mortgage-backed securities		28,081		-		28,081		-
SBA pool securities		25,958		-		25,958		-
	$	164,237	$	-	$	164,237	$	-

	Average Balance Sheets and Net Interest
	Analysis For the Three Months Ended
	September 30, 2017								September 30, 2016
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of deferred fees (1) (2)	$	2,038,574		$	26,726		5.20	%	$	907,330		$	11,792		5.17	%
Investment securities		267,315			1,623		2.41	%		93,563			665		2.84	%
Other earning assets		47,143			462		3.89	%		21,296			162		3.01	%
Total earning assets		2,353,032			28,811		4.86	%		1,022,189			12,619		4.91	%
Allowance for loan losses		(12,069	)							(8,427	)
Total non-earning assets		255,760								81,147
Total assets	$	2,596,723							$	1,094,909

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	328,602			323		0.39	%	$	41,735			18		0.17	%
Money market accounts		381,942			690		0.72	%		127,939			116		0.36	%
Savings accounts		167,630			139		0.33	%		52,093			82		0.63	%
Time deposits		765,725			2,239		1.16	%		596,160			1,912		1.28	%
Total interest-bearing deposits		1,643,899			3,391		0.82	%		817,927			2,128		1.04	%
Borrowings		271,336			1,570		2.30	%		53,777			118		0.87	%
Total interest-bearing liabilities		1,915,235			4,961		1.03	%		871,704			2,246		1.03	%
Noninterest-bearing liabilities:
Demand deposits		330,145								91,575
Other liabilities		25,913								7,794
Total liabilities		2,271,293								971,073
Stockholders' equity		325,430								123,836
Total liabilities and stockholders' equity	$	2,596,723							$	1,094,909
Net interest income				$	23,850							$	10,373
Interest rate spread							3.83	%							3.88	%
Net interest margin							4.02	%							4.04	%

	Average Balance Sheets and Net Interest
	Analysis For the Nine Months Ended
	September 30, 2017								September 30, 2016
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of deferred fees (1) (2)	$	1,353,054		$	51,819		5.12	%	$	879,628		$	33,790		5.13	%
Investment securities		155,506			2,953		2.54	%		99,028			2,311		3.11	%
Other earning assets		38,822			833		2.87	%		19,417			482		3.33	%
Total earning assets		1,547,382			55,605		4.80	%		998,073			36,583		4.90	%
Allowance for loan losses		(10,030	)							(8,633	)
Total non-earning assets		152,257								81,380
Total assets	$	1,689,609							$	1,070,820

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	137,295			384		0.37	%	$	35,348			40		0.15	%
Money market accounts		221,749			1,005		0.61	%		127,115			332		0.35	%
Savings accounts		95,604			308		0.43	%		51,556			252		0.65	%
Time deposits		652,322			6,112		1.25	%		571,143			5,294		1.24	%
Total interest-bearing deposits		1,106,970			7,809		0.94	%		785,162			5,918		1.01	%
Borrowings		170,466			2,850		2.24	%		69,526			406		0.78	%
Total interest-bearing liabilities		1,277,436			10,659		1.12	%		854,688			6,324		0.99	%
Noninterest-bearing liabilities:
Demand deposits		181,064								86,294
Other liabilities		23,780								7,647
Total liabilities		1,482,280								948,629
Stockholders' equity		207,329								122,191
Total liabilities and stockholders' equity	$	1,689,609							$	1,070,820
Net interest income				$	44,946							$	30,259
Interest rate spread							3.68	%							3.91	%
Net interest margin							3.88	%							4.05	%

Moody's	Amount		Standard & Poor's	Amount
Rating	(in thousands)		Rating	(in thousands)
Aaa	$	5,384	AAA	$	6,544
Aa1		12,496	AA+		7,150
Aa2		4,525	AA		14,626
Aa3		1,899	AA-		1,799
A1		1,941	A+		1,069
A2		1,577	A		868
Baa1		1,053	BBB+		1,053
NA		12,745	NA		8,511
	$	41,620		$	41,620

						Required for Capital					To Be Categorized as
	Actual					Adequacy Purposes (1)					Well Capitalized (2)
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2017
Southern National
Common equity tier 1 capital ratio	$	212,038		10.53	%	$	90,632		4.50	%		n/a		n/a
Tier 1 risk-based capital ratio		219,691		10.91	%		120,843		6.00	%		n/a		n/a
Total risk-based capital ratio		275,945		13.70	%		161,124		8.00	%		n/a		n/a
Leverage ratio		219,691		8.86	%		99,187		4.00	%		n/a		n/a
Sonabank
Common equity tier 1 capital ratio	$	257,369		12.76	%	$	90,783		4.50	%	$	131,131		6.50	%
Tier 1 risk-based capital ratio		257,369		12.76	%		121,044		6.00	%		161,392		8.00	%
Total risk-based capital ratio		266,623		13.22	%		161,392		8.00	%		201,740		10.00	%
Leverage ratio		257,369		10.37	%		99,322		4.00	%		124,152		5.00	%

December 31, 2016
Southern National
Common equity tier 1 capital ratio	$	116,076		12.69	%	$	41,171		4.50	%		n/a		n/a
Tier 1 risk-based capital ratio		116,076		12.69	%		54,894		6.00	%		n/a		n/a
Total risk-based capital ratio		124,686		13.63	%		73,193		8.00	%		n/a		n/a
Leverage ratio		116,076		10.56	%		43,965		4.00	%		n/a		n/a
Sonabank
Common equity tier 1 capital ratio	$	114,779		12.55	%	$	41,151		4.50	%	$	59,440		6.50	%
Tier 1 risk-based capital ratio		114,779		12.55	%		54,868		6.00	%		73,157		8.00	%
Total risk-based capital ratio		123,389		13.49	%		73,157		8.00	%		91,447		10.00	%
Leverage ratio		114,779		10.45	%		43,947		4.00	%		54,934		5.00	%

	Sensitivity of Economic Value of Equity
	As of September 30, 2017
									Economic Value of
	Economic Value of Equity								Equity as a % of
Change in Interest Rates			$ Change			% Change			Total			Equity
in Basis Points (Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(dollar amounts in thousands)

Up 400	$	503,532	$	52,248			11.58	%		19.39	%		154.45	%
Up 300		498,874		47,590			10.55	%		19.21	%		153.02	%
Up 200		490,181		38,897			8.62	%		18.88	%		150.36	%
Up 100		477,193		25,909			5.74	%		18.38	%		146.37	%
Base		451,284		-			0.00	%		17.38	%		138.43	%
Down 100		387,010		(64,274	)		-14.24	%		14.90	%		118.71	%
Down 200		313,519		(137,765	)		-30.53	%		12.07	%		96.17	%

	Sensitivity of Economic Value of Equity
	As of December 31, 2016
									Economic Value of
	Economic Value of Equity								Equity as a % of
Change in Interest Rates			$ Change			% Change			Total			Equity
in Basis Points (Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(dollar amounts in thousands)

Up 400	$	116,120	$	(37,494	)		-24.41	%		10.16	%		91.91	%
Up 300		123,778		(29,836	)		-19.42	%		10.83	%		97.97	%
Up 200		132,243		(21,371	)		-13.91	%		11.58	%		104.67	%
Up 100		141,858		(11,756	)		-7.65	%		12.42	%		112.28	%
Base		153,614		-			0.00	%		13.45	%		121.58	%
Down 100		136,456		(17,158	)		-11.17	%		11.94	%		108.00	%
Down 200		129,485		(24,129	)		-15.71	%		11.33	%		102.49	%