UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SeptemberJune 30, 20222023
Commission File No. 001-33037
PRIMIS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Virginia | 20-1417448 |
(State or other jurisdiction | (I.R.S. Employer Identification No.) |
of incorporation or organization) | |
6830 Old Dominion1676 International Drive, Suite 900
McLean, Virginia 2210122102
(Address of principal executive offices) (zip code)
(703) 893-7400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b–2 of the Exchange Act:
| | |
Large accelerated filer ☐ | Accelerated filer ☒ | Smaller reporting company ☐ |
| | |
Non-accelerated filer ☐ | Emerging growth company ☐ | |
| | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of NovemberAugust 2, 2022,2023, there were 24,664,09724,686,764 shares of common stock, $0.01 par value, outstanding.
PRIMIS FINANCIAL CORP.
FORM 10-Q
SeptemberJune 30, 20222023
TABLE OF CONTENTS |
| PAGE |
PART I - FINANCIAL INFORMATION | | |
| | |
Item 1 - Financial Statements | | |
| | |
Condensed Consolidated Balance Sheets as of | | 2 |
| 3 | |
| 4 | |
| 6 | |
Notes to Unaudited Condensed Consolidated Financial Statements | | 7 |
| | |
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3 – Quantitative and Qualitative Disclosures about Market Risk | |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | |
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PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
| | | | | | | ||||||
|
| September 30, |
| December 31, | | | | | | | ||
| | 2022 | | 2021 |
| June 30, |
| December 31, | ||||
| | (unaudited) | | * | | 2023 | | 2022 | ||||
ASSETS | | | | | | | | (unaudited) | | | ||
Cash and cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Cash and due from financial institutions | | $ | 6,147 |
| $ | 8,380 | | $ | 6,720 |
| $ | 6,868 |
Interest-bearing deposits in other financial institutions | |
| 91,591 |
| | 521,787 | |
| 94,148 |
|
| 70,991 |
Total cash and cash equivalents | |
| 97,738 |
| | 530,167 | |
| 100,868 |
|
| 77,859 |
| | | | | | | | | | | | |
Securities available-for-sale, at fair value | |
| 238,891 |
| | 271,332 | ||||||
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 $13,085 and $23,364, respectively) | |
| 14,391 |
| | 22,940 | ||||||
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 | | | 13,388 | | | — | | | 57,704 | | | 27,626 |
| | | | | | | ||||||
Loans held for investment | |
| 2,737,086 |
| | 2,339,986 | |
| 3,173,638 |
|
| 2,946,637 |
Less allowance for credit losses | |
| (31,956) |
| | (29,105) | ||||||
Less: allowance for credit losses | |
| (38,414) |
|
| (34,544) | ||||||
Net loans | |
| 2,705,130 |
| | 2,310,881 | |
| 3,135,224 |
|
| 2,912,093 |
| | | | | | | | | | | | |
Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) | |
| 16,689 |
| | 15,521 | |
| 12,083 |
|
| 25,815 |
Bank premises and equipment, net | |
| 25,534 |
| | 30,410 | |
| 25,298 |
|
| 25,257 |
Assets held for sale | | | 3,127 | | | — | | | 3,115 | | | 3,115 |
Operating lease right-of-use assets | | | 5,511 | | | 5,866 | | | 10,707 | | | 5,335 |
Goodwill | |
| 104,609 |
| | 101,954 | |
| 104,609 |
|
| 104,609 |
Intangible assets, net | |
| 3,561 |
| | 4,462 | |
| 2,606 |
|
| 3,254 |
Bank-owned life insurance | |
| 67,519 |
| | 66,724 | |
| 67,985 |
|
| 67,201 |
Other real estate owned | |
| 1,041 |
| | 1,163 | ||||||
Deferred tax assets, net | |
| 17,892 |
| | 9,571 | |
| 20,391 |
|
| 18,289 |
Other assets | |
| 42,141 |
| | 36,362 | |
| 72,438 |
|
| 49,211 |
Total assets | | $ | 3,357,162 |
| $ | 3,407,353 | | $ | 3,848,493 |
| $ | 3,569,499 |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
|
|
| |
| |
|
|
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|
|
Noninterest-bearing demand deposits | | $ | 687,272 |
| $ | 530,282 | | $ | 480,832 |
| $ | 582,556 |
Interest-bearing deposits: | |
| |
| |
| |
| |
|
| |
NOW accounts | |
| 637,786 |
| | 849,738 | |
| 817,725 |
|
| 617,687 |
Money market accounts | |
| 803,050 |
| | 799,759 | |
| 850,359 |
|
| 811,365 |
Savings accounts | |
| 217,220 |
| | 222,862 | |
| 696,750 |
|
| 245,713 |
Time deposits | |
| 362,992 |
| | 360,575 | |
| 471,330 |
|
| 465,057 |
Total interest-bearing deposits | |
| 2,021,048 |
| | 2,232,934 | |
| 2,836,164 |
|
| 2,139,822 |
Total deposits | |
| 2,708,320 |
| | 2,763,216 | |
| 3,316,996 |
|
| 2,722,378 |
| | | | | | | | | | | | |
Securities sold under agreements to repurchase - short term | |
| 9,886 |
| | 9,962 | |
| 3,921 |
|
| 6,445 |
FHLB advances | |
| 125,000 |
| | 100,000 | |
| — |
|
| 325,000 |
Junior subordinated debt - long term | |
| 9,769 |
| | 9,731 | |
| 9,806 |
|
| 9,781 |
Senior subordinated notes - long term | |
| 85,472 |
| | 85,297 | |
| 85,647 |
|
| 85,531 |
Operating lease liabilities | | | 6,044 | | | 6,498 | | | 11,546 | | | 5,767 |
Other liabilities | |
| 20,863 |
| | 20,768 | |
| 27,361 |
|
| 22,232 |
Total liabilities | |
| 2,965,354 |
| | 2,995,472 | |
| 3,455,277 |
|
| 3,177,134 |
| | | | | | | | | | | | |
Commitments and contingencies (See Note 10) | |
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Commitments and contingencies (See Note 8) | |
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Stockholders' equity: | |
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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; 24,650,239 and 24,574,619 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | |
| 246 |
| | 245 | ||||||
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 | |
| 312,356 |
| | 311,127 | |
| 312,976 |
|
| 312,722 |
Retained earnings | |
| 106,666 |
| | 99,397 | |
| 106,075 |
|
| 105,247 |
Accumulated other comprehensive income (loss) | |
| (27,460) |
| | 1,112 | ||||||
Accumulated other comprehensive loss | |
| (26,081) |
|
| (25,850) | ||||||
Total stockholders' equity | |
| 391,808 |
| | 411,881 | |
| 393,216 |
|
| 392,365 |
Total liabilities and stockholders' equity | | $ | 3,357,162 |
| $ | 3,407,353 | | $ | 3,848,493 |
| $ | 3,569,499 |
* Derived from audited consolidated financial statements
See accompanying notes to unaudited condensed consolidated financial statements.
2
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 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.
3
PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022
(dollars in thousands, except per share amounts) (Unaudited)
| | | | | | | | | | | | | | | | | | |
| | 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.
4
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)
| | | | | | | | | | | | | |
| | | | | | ||||||||
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest and dividend income: |
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | |
Interest and fees on loans | | $ | 30,523 | | $ | 26,181 | | $ | 81,637 | | $ | 80,320 | |
Interest and dividends on taxable securities | |
| 1,417 | |
| 968 | |
| 4,082 | |
| 2,846 | |
Interest and dividends on tax exempt securities | |
| 101 | |
| 115 | |
| 311 | |
| 352 | |
Interest and dividends on other earning assets | |
| 555 | |
| 537 | |
| 1,409 | |
| 1,222 | |
Total interest and dividend income | |
| 32,596 | |
| 27,801 | |
| 87,439 | |
| 84,740 | |
Interest expense: | |
|
| |
|
| |
|
| |
|
| |
Interest on deposits | |
| 3,287 | |
| 3,160 | |
| 7,971 | |
| 10,365 | |
Interest on borrowings | |
| 1,859 | |
| 1,434 | |
| 4,558 | |
| 4,413 | |
Total interest expense | |
| 5,146 | |
| 4,594 | |
| 12,529 | |
| 14,778 | |
Net interest income | |
| 27,450 | |
| 23,207 | |
| 74,910 | |
| 69,962 | |
Provision for (recovery of) credit losses | |
| 2,890 | |
| 1,085 | |
| 3,411 | |
| (4,502) | |
Net interest income after provision for (recovery of) credit losses | |
| 24,560 | |
| 22,122 | |
| 71,499 | |
| 74,464 | |
| | | | | | | | | | | | | |
Noninterest income: | |
|
| |
|
| |
|
| |
|
| |
Account maintenance and deposit service fees | |
| 1,525 | |
| 1,509 | |
| 4,318 | |
| 4,759 | |
Income from bank-owned life insurance | |
| 394 | |
| 387 | |
| 1,147 | |
| 1,152 | |
Mortgage banking income | |
| 2,197 | |
| — | |
| 2,790 | |
| — | |
Other noninterest income | |
| 1,504 | |
| 455 | |
| 2,085 | |
| 1,207 | |
Total noninterest income | |
| 5,620 | |
| 2,351 | |
| 10,340 | |
| 7,118 | |
| | | | | | | | | | | | | |
Noninterest expenses: | |
|
| |
|
| |
|
| |
|
| |
Salaries and benefits | |
| 12,594 | |
| 9,032 | |
| 32,792 | |
| 27,214 | |
Occupancy expenses | |
| 1,402 | |
| 1,552 | |
| 4,277 | |
| 4,538 | |
Furniture and equipment expenses | |
| 1,455 | |
| 971 | |
| 3,683 | |
| 2,651 | |
Amortization of intangible assets | |
| 326 | |
| 341 | |
| 1,008 | |
| 1,023 | |
Virginia franchise tax expense | |
| 813 | |
| 732 | | | 2,440 | |
| 2,166 | |
Data processing expense | |
| 1,528 | |
| 1,003 | |
| 4,311 | |
| 2,818 | |
Telephone and communication expense | |
| 342 | |
| 415 | |
| 1,090 | |
| 1,351 | |
Net (gain) loss on other real estate owned | |
| — | |
| — | |
| (59) | |
| 17 | |
Loss on bank premises and equipment | | | 64 | | | — | | | 684 | | | — | |
Professional fees | |
| 1,261 | |
| 874 | |
| 3,182 | |
| 3,099 | |
Other operating expenses | |
| 3,976 | |
| 1,640 | |
| 9,770 | |
| 6,901 | |
Total noninterest expenses | |
| 23,761 | |
| 16,560 | |
| 63,178 | |
| 51,778 | |
Income from continuing operations before income taxes | |
| 6,419 | |
| 7,913 | |
| 18,661 | |
| 29,804 | |
Income tax expense | |
| 1,365 | |
| 1,702 | |
| 4,005 | |
| 6,438 | |
Income from continuing operations | | | 5,054 | | | 6,211 | | | 14,656 | | | 23,366 | |
Income (loss) from discontinued operation before income taxes | | | — | |
| (2,899) | | | — | |
| 294 | |
Income tax expense (benefit) | | | — | | | (627) | | | — | | | 63 | |
Income (loss) from discontinued operation | | | — | |
| (2,272) | | | — | |
| 231 | |
Net income | | $ | 5,054 | | $ | 3,939 | | $ | 14,656 | | $ | 23,597 | |
Other comprehensive income (loss): | |
|
| |
| | |
|
| |
| | |
Unrealized loss on available-for-sale securities | | $ | (12,068) | | $ | (104) | | $ | (36,167) | | $ | (602) | |
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale | |
| — | | | — | |
| — | | | 189 | |
Net unrealized gain (loss) | |
| (12,068) | | | (104) | |
| (36,167) | | | (413) | |
Tax (benefit) expense | |
| (2,534) | | | (22) | |
| (7,595) | | | (87) | |
Other comprehensive income (loss) | |
| (9,534) | | | (82) | |
| (28,572) | |
| (326) | |
Comprehensive income (loss) | | $ | (4,480) | | $ | 3,857 | | $ | (13,916) | | $ | 23,271 | |
Earnings per share from continuing operations, basic | | $ | 0.21 | | $ | 0.25 | | $ | 0.60 | | $ | 0.96 | |
Earnings per share from discontinued operation, basic | | $ | 0.00 | | $ | (0.09) | | $ | 0.00 | | $ | 0.01 | |
Earnings per share from continuing operations, diluted | | $ | 0.20 | | $ | 0.25 | | $ | 0.59 | | $ | 0.95 | |
Earnings per share from discontinued operation, diluted | | $ | 0.00 | | $ | (0.09) | | $ | 0.00 | | $ | 0.01 | |
See accompanying notes to unaudited consolidated financial statements.
3
PRIMIS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(dollars in thousands, except per share amounts) (Unaudited)
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2022 | |||||||||||||
| | | | | | | | | | | Accumulated | | | | |
| | | | Additional | | | | Other | | | |||||
| | Common | | Paid in | | Retained | | Comprehensive | | | |||||
|
| Stock |
| Capital |
| Earnings |
| Income (loss) |
| Total | |||||
Balance - June 30, 2022 | | $ | 246 | | $ | 312,240 | | $ | 104,077 | | $ | (17,926) | | $ | 398,637 |
Net income | |
| — | |
| — | |
| 5,054 | |
| — | |
| 5,054 |
Changes in other comprehensive loss on investment securities (net of tax benefit, $2,534) | | | — | | | — | | | — | | | (9,534) | | | (9,534) |
Dividends on common stock ($0.10 per share) | |
| — | |
| — | |
| (2,465) | |
| — | |
| (2,465) |
Stock-based compensation expense | |
| — | |
| 116 | |
| — | |
| — | |
| 116 |
Balance - September 30, 2022 | | $ | 246 | | $ | 312,356 | | $ | 106,666 | | $ | (27,460) | | $ | 391,808 |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2021 | |||||||||||||
| | | | | | | | | | | Accumulated | | | | |
| | | | Additional | | | | Other | | | |||||
| | Common | | Paid in | | Retained | | Comprehensive | | | |||||
|
| Stock |
| Capital |
| Earnings |
| Income |
| Total | |||||
Balance June 30, 2021 | | $ | 245 | | $ | 310,735 | | $ | 92,719 | | $ | 3,241 | | $ | 406,940 |
Net income | |
| — | |
| — | |
| 3,939 | |
| — | |
| 3,939 |
Changes in other comprehensive loss on investment securities (net of tax benefit, $22) | | | — | | | — | | | — | | | (82) | | | (82) |
Dividends on common stock ($0.10 per share) | |
| — | |
| — | |
| (2,454) | |
| — | |
| (2,454) |
Issuance of common stock under Stock Incentive Plan | |
| — | |
| 202 | |
| — | |
| — | |
| 202 |
Stock-based compensation expense | |
| — | |
| 84 | |
| — | |
| — | |
| 84 |
Balance - September 30, 2021 | | $ | 245 | | $ | 311,021 | | $ | 94,204 | | $ | 3,159 | | $ | 408,629 |
| | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
4
PRIMIS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(dollars in thousands, except per share amounts) (Unaudited)
| | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2022 | |||||||||||||
| | | | | | | | | | | Accumulated | | | | |
| | | | Additional | | | | Other | | | |||||
| | Common | | Paid in | | Retained | | Comprehensive | | | |||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
Balance - December 31, 2021 | | $ | 245 | | $ | 311,127 | | $ | 99,397 | | $ | 1,112 | | $ | 411,881 |
Net income | |
| — | |
| — | |
| 14,656 | |
| — | |
| 14,656 |
Changes in other comprehensive loss on investment securities (net of tax benefit, $7,595) | | | — | | | — | | | — | | | (28,572) | | | (28,572) |
Dividends on common stock ($0.30 per share) | |
| — | |
| — | |
| (7,387) | |
| — | |
| (7,387) |
Stock option exercises | |
| 1 | |
| 278 | |
| — | |
| — | |
| 279 |
Repurchase of restricted stock | | | — | | | (8) | | | — | | | — | | | (8) |
Stock-based compensation expense | |
| — | |
| 959 | |
| — | |
| — | |
| 959 |
Balance - September 30, 2022 | | $ | 246 | | $ | 312,356 | | $ | 106,666 | | $ | (27,460) | | $ | 391,808 |
| | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2021 | |||||||||||||
| | | | | | | | | | | Accumulated | | | | |
| | | | Additional | | | | Other | | | |||||
| | Common | | Paid in | | Retained | | Comprehensive | | | |||||
|
| Stock |
| Capital |
| Earnings |
| Income |
| Total | |||||
Balance - December 31, 2020 | | $ | 243 | | $ | 308,870 | | $ | 77,956 | | $ | 3,485 | | $ | 390,554 |
Net income | |
| — | |
| — | |
| 23,597 | |
| — | |
| 23,597 |
Changes in other comprehensive income on investment securities (net of tax benefit, $87) | | | — | | | — | | | — | | | (326) | | | (326) |
Dividends on common stock ($0.30 per share) | |
| — | |
| — | |
| (7,349) | |
| — | |
| (7,349) |
Stock option exercises | |
| 2 | |
| 1,524 | |
| — | |
| — | |
| 1,526 |
Repurchase of restricted stock | | | — | | | (14) | | | — | | | — | | | (14) |
Stock-based compensation expense | |
| — | |
| 641 | |
| — | |
| — | |
| 641 |
Balance - September 30, 2021 | | $ | 245 | | $ | 311,021 | | $ | 94,204 | | $ | 3,159 | | $ | 408,629 |
| | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
| | | | | | | | | | | | | | | | | | |
| | | | | 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 |
| | | | | | | | | | | | | | | | | | |
5
PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20222023 AND 20212022
(dollars in thousands, except per share amounts) (Unaudited)
| | | | | | |
| | For the Nine Months Ended September 30, | ||||
|
| 2022 |
| 2021 | ||
Operating activities: |
| |
|
| |
|
Net income from continuing operations | | $ | 14,656 | | $ | 23,366 |
Adjustments to reconcile net income from continuing operations to net cash and cash equivalents provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 4,941 | |
| 4,702 |
Net amortization (accretion) of premiums and discounts | |
| 505 | |
| (227) |
Provision for (recovery of) for credit losses | |
| 3,411 | |
| (4,502) |
Origination of loans held for sale | | | (90,021) | | | — |
Proceeds from sale of loans held for sale | | | 97,326 | | | — |
Loss on bank premises and equipment | | | 684 | | | — |
Net gains on sale of mortgage loans | | | (2,790) | | | — |
Earnings on bank-owned life insurance and gain on death benefit | |
| (1,147) | |
| (1,146) |
Stock-based compensation expense | |
| 959 | |
| 641 |
Gain on bank-owned life insurance death benefit | | | — | |
| (6) |
(Gain) loss on other real estate owned | |
| (59) | | | 17 |
Provision (benefit) for deferred income taxes | |
| (700) | |
| 1,161 |
Net (increase) decrease in other assets | |
| (1,732) | |
| 2,098 |
Net decrease in other liabilities | |
| (2,884) | |
| (3,624) |
Net cash and cash equivalents provided by operating activities from continuing operations | | | 23,149 | |
| 22,480 |
Investing activities: | |
|
| |
|
|
Purchases of securities available-for-sale | |
| (32,486) | |
| (84,959) |
Proceeds from paydowns, maturities and calls of securities available-for-sale | |
| 27,650 | |
| 29,693 |
Proceeds from paydowns, maturities and calls of securities held-to-maturity | |
| 8,478 | |
| 14,269 |
Net (increase) decrease of FRB and FHLB stock | | | (1,168) | | | 1,406 |
Net (increase) decrease in loans | |
| (396,983) | |
| 125,836 |
Proceeds from bank-owned life insurance death benefit | | | 352 | | | 224 |
Proceeds from sales of other real estate owned, net of improvements | | | 181 | | | 1,901 |
Purchases of bank premises and equipment | |
| (706) | |
| (2,133) |
Business acquisition, net of cash acquired | |
| (4,554) | |
| — |
Net cash and cash equivalents (used in) provided by investing activities from continuing operations | |
| (399,236) | |
| 86,237 |
Financing activities: | |
|
| |
|
|
Net (decrease) increase in deposits | |
| (54,896) | |
| 374,461 |
Cash dividends paid on common stock | |
| (7,387) | |
| (7,349) |
Proceeds from exercised stock options | |
| 279 | |
| 1,526 |
Repurchase of restricted stock | | | (8) | | | (14) |
Extinguishment of senior subordinated notes | |
| — | |
| (20,000) |
Proceeds from FHLB advances, net of repayments | | | 25,000 | | | — |
Repayment of short-term borrowings acquired | | | (19,254) | | | — |
Increase decrease in securities sold under agreements to repurchase | |
| (76) | |
| (2,717) |
Net cash and cash equivalents (used in) provided by financing activities from continuing operations | |
| (56,342) | |
| 345,907 |
Net change in cash and cash equivalents from continuing operations | |
| (432,429) | |
| 454,624 |
| | | | | | |
Cash flows used in discontinued operation: | | | | | | |
Net cash and cash equivalents used in operating activities | | | — | | | (63) |
Net change in cash and cash equivalents from discontinued operation | | | — | | | (63) |
| | | | | | |
Net change in cash and cash equivalents | | | (432,429) | | | 454,561 |
Cash and cash equivalents at beginning of period | |
| 530,167 | |
| 196,185 |
Cash and cash equivalents at end of period | | $ | 97,738 | | $ | 650,746 |
Supplemental disclosure of cash flow information | |
|
| |
| |
Cash payments for: | |
|
| |
| |
Interest | | $ | 12,286 | | $ | 16,710 |
Income taxes | |
| 3,035 | |
| 6,146 |
| | | | | | |
| | 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 | | $ | — |
| | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
6
PRIMIS FINANCIAL CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
1. ACCOUNTING POLICIES
Primis Financial Corp. (“Primis,” “we,” “us,” “our” or the “Company”) is the bank holding company for Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. Primis Bank provides a range of financial services to individuals and small and medium-sized businesses.
At SeptemberJune 30, 2022,2023, Primis Bank had 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 and two full-service retail branches are in Maryland. The Company is headquartered in McLean, Virginia and has an administrative officesoffice in Warrenton,Glen Allen, Virginia and Glen Allen,an operations center in Atlee, Virginia. Primis Mortgage Company, a residential mortgage lender Our deposits are insured, upheadquartered in Wilmington, North Carolina, is also a consolidated subsidiary of Primis Bank.
The accounting policies and practices of Primis and its subsidiaries conform to applicable limits, by the Federal Deposit Insurance Corporation (the “FDIC”U.S. generally accepted accounting principles (“U.S. GAAP”).
Primis offers a wide range of commercial banking services; however, we are focused on making loans secured primarily by commercial real estate and 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, including home equity lines of credit. We are a Small Business Administration (“SBA”) lender with Preferred Lending Partner (“PLP”) status that allows us to offer this program nationwide. We also invest in real estate-related securities, including collateralized mortgage obligations and agency mortgage backed securities. Our principal sources of funds for loans and investing in securities are deposits and to a lesser extent, borrowings. We offer a broad range of deposit products, including checking, NOW, savings,general practice within the banking industry. Major policies and money market accounts and certificates of deposit, supporting the needs of businesses and individuals. We actively pursue business relationships by utilizing the business contacts of our senior management, other bank officers and our directors, thereby capitalizing on our knowledge of our local market areas.
practices are described below.
Principles of Consolidation
The consolidated financial statements include the accounts of Primis and its subsidiaries Primis Bank, Primis Mortgage Company and EVB Statutory Trust I (the “Trust”). Significant inter-company accounts and transactions have been eliminated in consolidation. 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 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. 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.
On April 28, 2022, Primis Bank entered intoWe determine whether we have a definitive agreementcontrolling 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 acquire 100%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 issued and outstanding capital stock of SeaTrust Mortgage Company (“SeaTrust”), a North Carolina corporation. On May 31, 2022, Primis Bank completed the acquisition (the “Acquisition”) of 100%voting interest. As defined in applicable accounting standards, VIEs are entities that lack one or more of the outstanding capital stockcharacteristics of SeaTrust from Community First Bank, Inc. (the “Seller”) pursuanta 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 Stock Purchase Agreement, datedVIE. The enterprise with a controlling financial interest, known as of April 28, 2022 (the “Purchase Agreement”) bythe primary beneficiary, consolidates the VIE. The Company has investments in VIE’s for which we are not the primary beneficiary and, among the Bank, Seller, and SeaTrust. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022. Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to Primis Mortgage Company (“Primis Mortgage”). Primis Mortgage originates mortgages primarilyas such, are not included in North and South Carolina, Florida and Tennessee from eight offices. Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3 million of SeaTrust’s indebtedness under certain warehouse lending facilities.
our consolidated financial statements.
Discontinued OperationOperating Segments
Primis Bank had an interest in one mortgage company, Southern Trust Mortgage, LLC (“STM”). Prior to December 31, 2021, Primis Bank owned 43.28% and 100% of STM’s common and preferred stock, respectively, and STM was considered an unconsolidated affiliate of the Company. On September 23, 2021, Primis Bank entered into an agreement
7
with STM, whereby STM agreed to purchase all of the Bank's common membership interests and a portion of the Bank's preferred interests in STM for a combination of $1.6 million in cash and the assumption of a promissory note in the amount of $8.5 million. The transaction closed on December 31, 2021. Upon closing, STM continued to be a borrower of the Bank, but the Bank is no longer a minority owner of STM and STM is no longer considered an affiliate of the Company. The Company still holds 100% of STM’s preferred stock at September 30, 2022 but no longer has a position on STM’s board of directors and STM no longer represents a reportable operating segment of the Company.
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. Accordingly,Management has determined that the Company’s bankingCompany has two reportable operating segments: Primis Mortgage and finance operations are not considered by management to constitute more than one reportable operating segment.Primis Bank, as 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
7
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 Primis’ Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Loans Held for Sale
Loans held for sale are originated and held until sold to permanent investors. The Company has elected to carry these loans at fair value on a recurring basis in accordance with the fair value option under FASB ASC 825, Financial Instruments. The fair value is determined by utilizing quoted prices from dealers in such securities. Gains and losses on loan sales are recorded in mortgage banking income and direct loan origination costs are included in noninterest expense in the consolidated statements of income.
Assets Held for Sale
The Company classifies its assets as held for sale in accordance with FASB ASC 360, Property, Plant, and Equipment. When assets are identified as held for sale, the Company discontinues depreciating (amortizing) the assets and estimates the fair value, net of selling costs, of such assets. Assets held for sale is recorded at the lower of the net carrying amount of the assets or the estimated net fair value. If the estimated net fair value of the assets held for sale is less than the net carrying amount of the assets, an impairment charge is recorded in the condensed consolidated statements of income.
The Company assesses the net fair value of assets held for sale each reporting period the assets remain classified as held for sale. Subsequent changes, if any, in the net fair value of the assets held for sale that require an adjustment to the carrying amount are recorded in the condensed consolidated statements of income, unless the adjustment causes the carrying amount of the assets to exceed the net carrying amount upon initial classification as held for sale.
If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell assets previously classified as held for sale, they are reclassified to another classification. Assets that are reclassified are measured at the lower of (a) their carrying amount before they were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the assets remained in their previous classification, or (b) their fair value at the date of the subsequent decision not to sell.
8
Derivative Assets and Liabilities
Derivative assets and liabilities are recorded at fair value.
Mortgage loan commitments known as interest rate lock commitments that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments under the derivatives accounting guidance FASB ASC 815, Derivatives and Hedging. Loan commitments that are classified as derivatives are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income.
To-be-announced mortgage-backed securities trades (“TBA”) is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from interest rate lock commitments. TBAs are accounted for under the derivatives accounting guidance FASB ASC 815, Derivatives and Hedging when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value on the consolidated balance sheets as other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.
Forward loan sale commitments are commitments to sell individual mortgage loans using both best efforts and mandatory delivery at a fixed price to an investor at a future date. Forward loan sale commitments that are mandatory delivery are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle the derivative financial instrument at the balance sheet date. Forward loan sale commitments that are best efforts are not derivatives but can be and have been accounted for at fair value, determined in a similar manner to those that are mandatory delivery. Forward loan sale commitments are recorded on the consolidated balance sheets as other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income.
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. Estimates that are particularly susceptible to change in the near term include: the determination of the allowance for credit losses, the fair value of investment securities, credit impairment of investment securities, the valuation of goodwill and deferred tax assets. Management monitors and continually reassess these at each reporting period.
ReclassificationsInterest Rate Swaps
In certain instances, amountsThe 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 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.
8
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 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 years’periods. Additionally, the revisions resulted in a decrease in loans held for investment 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.
The table below discloses the net change (increase or (decrease)) included in all the consolidated financial statements have been reclassified to conform toof net income (loss) line items in this Form 10-Q, as a result of the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or net income.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
New Accounting Standards Not Yet Adopted:
In March 2022, FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Codification (“ASC”) 2022-02,Troubled Debt Restructurings and Vintage Disclosures. Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402310-40 and amends the
9
guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under Accounting Standards Codification (“ASC”)FASB ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The Company adopted the guidance in the first quarter of 2023, which did not have a material impact on the Company’s consolidated financial statements and disclosures.
In March 2022, FASB issued ASU 2022-02 is2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method, to expand the current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method was renamed the portfolio layer method. The amendments in this update were effective for annual periodsfiscal years beginning after December 15, 2022, includingand interim periods within those annual periods. Earlyfiscal years. The Company adopted the update as it became applicable to us on May 11, 2023. The adoption is permitted. Primis is currently inof this standard did not have a material impact on the process of evaluating the impact of adopting the new guidance on its consolidated financial statements andor disclosures.
109
2. BUSINESS COMBINATION
On April 28, 2022, Primis Bank entered into a definitive agreement to acquire 100% of the issued and outstanding capital stock of SeaTrust. On May 31, 2022, Primis Bank completed the acquisition of 100% of the outstanding capital stock of SeaTrust from the Seller, pursuant to the Purchase Agreement. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022.
Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3 million of SeaTrust’s indebtedness under certain warehouse lending facilities.
Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to Primis Mortgage Company.
In connection with the SeaTrust acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, the subsequent adjustments to estimates, the final valuation of the fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, and the resulting goodwill recorded (in thousands):
| | | | | | | | | |
|
| Original |
| Adjustments |
| Final | |||
(dollars in thousands) | | Estimates | | to Estimates | | Valuation | |||
Consideration paid: |
| |
|
| |
|
| |
|
Cash |
| $ | 7,000 |
| $ | — | | $ | 7,000 |
Value of consideration |
| $ | 7,000 |
| $ | — | | $ | 7,000 |
| | | | | | | | | |
Assets acquired: |
| |
|
| |
| |
|
|
Cash and due from banks | | $ | 2,446 | | $ | — | | $ | 2,446 |
Mortgage loans held for sale | | | 20,452 | |
| — | |
| 20,452 |
Premises and equipment, net | |
| 124 | |
| — | |
| 124 |
Leases right-of-use asset | | | 42 | | | — | | | 42 |
Derivative assets | | | 1,199 | | | — | | | 1,199 |
Other intangibles | | | — | | | 135 | | | 135 |
Deferred tax asset, net | | | 26 | | | — | | | 26 |
Other assets | |
| 93 | |
| — | |
| 93 |
Total assets | |
| 24,382 | |
| 135 | |
| 24,517 |
| | | | | | | | | |
Liabilities assumed: | |
|
| |
|
| |
|
|
Short term borrowings | |
| 19,254 | |
| — | |
| 19,254 |
Leases liability | | | 42 | | | — | | | 42 |
Derivative liabilities | |
| 221 | |
| — | |
| 221 |
Other liabilities | |
| 655 | |
| — | |
| 655 |
Total liabilities | |
| 20,172 | |
| — | |
| 20,172 |
| | | | | | | | | |
Net identifiable assets acquired | | $ | 4,210 | | $ | 135 | | $ | 4,345 |
| | | | | | | | | |
Goodwill resulting from acquisition | |
|
| |
|
| | $ | 2,655 |
The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2021. The unaudited combined pro forma revenue and net income combines the historical results of SeaTrust with the Company's consolidated statements of operations for the periods listed below and, while no material adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they
11
are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2021. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.
| | | | | | | | | | | | |
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
(dollars in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | ||||
Total revenues | | $ | 38,216 | | $ | 33,241 | | $ | 102,747 | | $ | 99,200 |
| | | | | | | | | | | | |
Net income | | $ | 5,054 | | $ | 4,419 | | $ | 14,702 | | $ | 24,382 |
Included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2022 are $2.2 million and $2.8 million, respectively, of mortgage banking income related to Primis Mortgage since its acquisition on May 31, 2022.
3. 2. INVESTMENT SECURITIES
The amortized cost and fair value of 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 | | Amortized | | Gross Unrealized | | Fair | ||||||||||||
|
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
September 30, 2022 | | | | | | | | | | | | | ||||||||||||
June 30, 2023 | | | | | | | | | | | | | ||||||||||||
Residential government-sponsored mortgage-backed securities | | $ | 124,407 | | $ | 1 | | $ | (18,129) | | $ | 106,279 | | $ | 113,816 | | $ | — | | $ | (15,802) | | $ | 98,014 |
Obligations of states and political subdivisions | |
| 34,179 | |
| 1 | |
| (5,425) | |
| 28,755 | |
| 33,951 | |
| 2 | |
| (4,280) | |
| 29,673 |
Corporate securities | |
| 16,000 | |
| — | |
| (1,146) | |
| 14,854 | |
| 16,000 | |
| — | |
| (3,044) | |
| 12,956 |
Collateralized loan obligations | |
| 5,023 | |
| — | |
| (220) | |
| 4,803 | |
| 5,020 | |
| — | |
| (119) | |
| 4,901 |
Residential government-sponsored collateralized mortgage obligations | |
| 25,064 | |
| — | |
| (2,021) | |
| 23,043 | |
| 30,813 | |
| — | |
| (2,245) | |
| 28,568 |
Government-sponsored agency securities | |
| 17,707 | |
| — | |
| (3,022) | |
| 14,685 | |
| 16,243 | |
| — | |
| (2,883) | |
| 13,360 |
Agency commercial mortgage-backed securities | |
| 44,833 | | | — | | | (4,733) | |
| 40,100 | |
| 35,374 | | | — | | | (4,580) | |
| 30,794 |
SBA pool securities | |
| 6,437 | |
| 18 | |
| (83) | |
| 6,372 | |
| 4,884 | |
| 10 | |
| (73) | |
| 4,821 |
Total | | $ | 273,650 | | $ | 20 | | $ | (34,779) | | $ | 238,891 | | $ | 256,101 | | $ | 12 | | $ | (33,026) | | $ | 223,087 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Fair | | Amortized | | Gross Unrealized | | Fair | ||||||||||||
|
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
December 31, 2021 | | | | | | | | | | | | | ||||||||||||
December 31, 2022 | | | | | | | | | | | | | ||||||||||||
Residential government-sponsored mortgage-backed securities | | $ | 122,506 | | $ | 740 | | $ | (636) | | $ | 122,610 | | $ | 119,371 | | $ | 1 | | $ | (16,491) | | $ | 102,881 |
Obligations of states and political subdivisions | |
| 30,728 | |
| 755 | |
| (252) | |
| 31,231 | |
| 34,103 | |
| 2 | |
| (4,927) | |
| 29,178 |
Corporate securities | |
| 13,000 | |
| 685 | |
| — | |
| 13,685 | |
| 16,000 | |
| — | |
| (1,172) | |
| 14,828 |
Collateralized loan obligations | |
| 5,026 | |
| — | |
| (16) | |
| 5,010 | |
| 5,022 | |
| — | |
| (146) | |
| 4,876 |
Residential government-sponsored collateralized mortgage obligations | |
| 19,671 | |
| 297 | |
| (161) | |
| 19,807 | |
| 28,643 | |
| — | |
| (2,048) | |
| 26,595 |
Government-sponsored agency securities | |
| 17,671 | |
| 32 | |
| (215) | |
| 17,488 | |
| 17,719 | |
| — | |
| (3,103) | |
| 14,616 |
Agency commercial mortgage-backed securities | |
| 52,452 | | | 513 | | | (298) | |
| 52,667 | |
| 42,180 | | | — | | | (4,763) | |
| 37,417 |
SBA pool securities | |
| 8,870 | |
| 48 | |
| (84) | |
| 8,834 | |
| 5,998 | |
| 13 | |
| (87) | |
| 5,924 |
Total | | $ | 269,924 | | $ | 3,070 | | $ | (1,662) | | $ | 271,332 | | $ | 269,036 | | $ | 16 | | $ | (32,737) | | $ | 236,315 |
The amortized cost, gross unrecognized gains and losses, allowance for credit losses and fair value of investment securities held-to-maturity were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrecognized | | Allowance for | | Fair | |||||||
|
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
June 30, 2023 | | | | | | | | | | | | | | | |
Residential government-sponsored mortgage-backed securities | | $ | 9,753 | | $ | — | | $ | (927) | | $ | — | | $ | 8,826 |
Obligations of states and political subdivisions | |
| 2,388 |
| | 1 |
| | (63) |
| | — | |
| 2,326 |
Residential government-sponsored collateralized mortgage obligations | |
| 237 |
| | — |
| | (20) |
| | — | |
| 217 |
Total | | $ | 12,378 | | $ | 1 | | $ | (1,010) | | $ | — | | $ | 11,369 |
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrecognized | | Allowance for | | Fair | |||||||
|
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
December 31, 2022 | | | | | | | | | | | | | | | |
Residential government-sponsored mortgage-backed securities | | $ | 10,522 | | $ | — | | $ | (1,007) | | $ | — | | $ | 9,515 |
Obligations of states and political subdivisions |
|
| 2,721 |
| | 3 |
| | (46) |
| | — | |
| 2,678 |
Residential government-sponsored collateralized mortgage obligations |
|
| 277 |
| | — |
| | (21) |
| | — | |
| 256 |
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-
1210
The amortized cost, gross unrecognized gains and losses, allowance for credit losses and fair value of investment securities held-to-maturity were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrecognized | | Allowance for | | Fair | |||||||
|
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
September 30, 2022 | | | | | | | | | | | | | | | |
Residential government-sponsored mortgage-backed securities | | $ | 10,953 | | $ | — | | $ | (1,183) | | $ | — | | $ | 9,770 |
Obligations of states and political subdivisions | |
| 3,120 |
| | — |
| | (100) |
| | — | |
| 3,020 |
Residential government-sponsored collateralized mortgage obligations | |
| 318 |
| | — |
| | (23) |
| | — | |
| 295 |
Total | | $ | 14,391 | | $ | — | | $ | (1,306) | | $ | — | | $ | 13,085 |
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrecognized | | Allowance for | | Fair | |||||||
|
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
December 31, 2021 | | | | | | | | | | | | | | | |
Residential government-sponsored mortgage-backed securities | | $ | 13,616 | | $ | 296 | | $ | (1) | | $ | — | | $ | 13,911 |
Obligations of states and political subdivisions |
| | 3,805 |
| | 93 |
| | — |
| | — | |
| 3,898 |
Residential government-sponsored collateralized mortgage obligations |
| | 519 |
| | 13 |
| | — |
| | — | |
| 532 |
Government-sponsored agency securities |
| | 5,000 |
| | 23 |
| | — |
| | — | |
| 5,023 |
Total | | $ | 22,940 | | $ | 425 | | $ | (1) | | $ | — | | $ | 23,364 |
During the three months ended September 30, 2022 and 2021, $4.9 million and $16.5 million, respectively, of available-for-salefor-sale investment securities were purchased. No held-to-maturity investments were purchased during the three and six months ended SeptemberJune 30, 20222023 and 2021.2022. No investment securities were sold during the three and six months ended SeptemberJune 30, 20222023 and 2021.
During the nine months ended September 30, 2022 and 2021, $32.5 million and $85.0 million, respectively, of available-for-sale investment securities were purchased. No held-to-maturity investments were purchased during the nine months ended September 30, 2022 and 2021. No investment securities were sold during the nine months ended September 30, 2022 and 2021.2022.
The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of SeptemberJune 30, 2022,2023, 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 | | Available-for-Sale | | Held-to-Maturity | ||||||||||||||||
|
| Amortized |
| | |
| Amortized |
| | |
| Amortized |
| | |
| Amortized |
| | | ||||
| | Cost | | Fair Value | | Cost | | Fair Value | | Cost | | Fair Value | | Cost | | Fair Value | ||||||||
Due within one year | | $ | 1,500 | | $ | 1,480 | | $ | 400 | | | 400 | | $ | — | | $ | — | | $ | 325 | | $ | 324 |
Due in one to five years | | | 10,015 | | | 9,086 | | | 867 | | | 855 | | | 10,024 | | | 9,121 | | | 1,124 | | | 1,121 |
Due in five to ten years | |
| 29,222 | |
| 25,912 | |
| 1,519 | |
| 1,429 | |
| 34,261 | |
| 28,718 | |
| 939 | |
| 881 |
Due after ten years | |
| 32,172 | |
| 26,619 | |
| 334 | |
| 336 | |
| 26,929 | |
| 23,051 | |
| — | |
| — |
Residential government-sponsored mortgage-backed securities | |
| 124,407 | |
| 106,279 | |
| 10,953 | |
| 9,770 | |
| 113,816 | |
| 98,014 | |
| 9,753 | |
| 8,826 |
Residential government-sponsored collateralized mortgage obligations | |
| 25,064 | |
| 23,043 | |
| 318 | |
| 295 | |
| 30,813 | |
| 28,568 | |
| 237 | |
| 217 |
Agency commercial mortgage-backed securities | |
| 44,833 | |
| 40,100 | |
| — | |
| — | |
| 35,374 | |
| 30,794 | |
| — | |
| — |
SBA pool securities | |
| 6,437 | |
| 6,372 | |
| — | |
| — | |
| 4,884 | |
| 4,821 | |
| — | |
| — |
Total | | $ | 273,650 | | $ | 238,891 | | $ | 14,391 | | $ | 13,085 | | $ | 256,101 | | $ | 223,087 | | $ | 12,378 | | $ | 11,369 |
Investment securities with a carrying amount of approximately $102.7$193.3 million and $180.7$99.4 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, 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, 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
13
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 basesbasis 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 SeptemberJune 30, 2022,2023, Primis did not have anyhad an immaterial allowance for credit losses on held-to-maturity securities.
The unrealized losses related to investment securities available-for-sale identified as of SeptemberJune 30, 2022, or2023 and December 31, 2021,2022, relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. Primis performs quantitative analysis and if needed, a 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. Primis has the abilitylosses at June 30, 2023 and intent to retain these securities for a period of time sufficient to 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 30, 2022 and December 31, 2021 by duration of time in a loss position (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 Months or More | | Total | ||||||||||||
September 30, 2022 |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
Available-for-Sale | | value | | Losses | | value | | Losses | | value | | Losses | ||||||
Residential government-sponsored mortgage-backed securities | | $ | 64,600 | | $ | (9,940) | | $ | 41,366 | | $ | (8,189) | | $ | 105,966 | | $ | (18,129) |
Obligations of states and political subdivisions | | | 18,212 | | | (2,865) | | | 9,542 | | | (2,560) | | | 27,754 | | | (5,425) |
Corporate securities | | | 14,854 | | | (1,146) | | | — | | | — | | | 14,854 | | | (1,146) |
Collateralized loan obligations | | | — | | | — | | | 4,803 | | | (220) | | | 4,803 | | | (220) |
Residential government-sponsored collateralized mortgage obligations | | | 18,984 | | | (1,348) | | | 4,059 | | | (673) | | | 23,043 | | | (2,021) |
Government-sponsored agency securities | |
| 7,547 | |
| (810) | |
| 7,138 | |
| (2,212) | |
| 14,685 | |
| (3,022) |
Agency commercial mortgage-backed securities | |
| 22,072 | |
| (1,528) | |
| 18,028 | |
| (3,205) | |
| 40,100 | |
| (4,733) |
SBA pool securities | |
| 533 | |
| (34) | |
| 3,521 | |
| (49) | |
| 4,054 | |
| (83) |
Total | | $ | 146,802 | | $ | (17,671) | | $ | 88,457 | | $ | (17,108) | | $ | 235,259 | | $ | (34,779) |
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 Months or More | | Total | ||||||||||||
September 30, 2022 |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized | ||||||
Held-to-Maturity | | value | | Losses | | value | | Losses | | value | | Losses | ||||||
Residential government-sponsored mortgage-backed securities | | $ | 9,699 | | $ | (1,178) | | $ | 70 | | $ | (5) | | $ | 9,769 | | $ | (1,183) |
Obligations of states and political subdivisions | |
| 2,285 | |
| (100) | |
| — | |
| — | |
| 2,285 | |
| (100) |
Residential government-sponsored collateralized mortgage obligations | |
| 295 | |
| (23) | |
| — | |
| — | |
| 295 | |
| (23) |
Total | | $ | 12,279 | | $ | (1,301) | | $ | 70 | | $ | (5) | | $ | 12,349 | | $ | (1,306) |
1411
December 31, 2022. Primis has the ability and intent to retain these securities for a period of time sufficient to 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 June 30, 2023 and December 31, 2022 by duration of time in a loss position (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) |
| | | | | | | | | | | | | | | | | | |
| | 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) |
12
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 Months or More | | Total | ||||||||||||
December 31, 2021 |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
Available-for-Sale | | value | | Losses | | value | | Losses | | value | | Losses | ||||||
Residential government-sponsored mortgage-backed securities | | $ | 84,123 | | $ | (636) | | $ | — | | $ | — | | $ | 84,123 | | $ | (636) |
Obligations of states and political subdivisions | | | 14,472 | | | (252) | | | — | | | — | | | 14,472 | | | (252) |
Collateralized loan obligations | | | 5,010 | | | (16) | | | — | | | — | | | 5,010 | | | (16) |
Residential government-sponsored collateralized mortgage obligations | | | 5,589 | | | (161) | | | — | | | — | | | 5,589 | | | (161) |
Government-sponsored agency securities | |
| 15,956 | |
| (215) | |
| — | |
| — | |
| 15,956 | |
| (215) |
Agency commercial mortgage-backed securities | |
| 20,786 | |
| (194) | |
| 2,027 | |
| (104) | |
| 22,813 | |
| (298) |
SBA pool securities | |
| — | |
| — | |
| 4,544 | |
| (84) | |
| 4,544 | |
| (84) |
Total | | $ | 145,936 | | $ | (1,474) | | $ | 6,571 | | $ | (188) | | $ | 152,507 | | $ | (1,662) |
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 Months or More | | Total | ||||||||||||
December 31, 2021 |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized | ||||||
Held-to-Maturity | | value | | Losses | | value | | Losses | | value | | Losses | ||||||
Residential government-sponsored mortgage-backed securities | | $ | — | | $ | — | | $ | 324 | | $ | (1) | | $ | 324 | | $ | (1) |
Total | | $ | — | | $ | — | | $ | 324 | | $ | (1) | | $ | 324 | | $ | (1) |
Changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2022 and 2021 are shown in the tables below. All amounts are net of tax (in thousands).
| | | | | | | | | |
| | Unrealized Holding | | | | | | | |
| | Gains (Losses) on | | Held-to-Maturity | | | | ||
For the three months ended September 30, 2022 |
| Available-for-Sale |
| Securities |
| Total | |||
Beginning balance | | $ | (17,926) | | $ | — | | $ | (17,926) |
Current period other comprehensive income (loss) | |
| (9,534) | |
| — | |
| (9,534) |
Ending balance | | $ | (27,460) | | $ | — | | $ | (27,460) |
| | | | | | | | | |
| | Unrealized Holding | | | | | | | |
| | Gains on | | Held-to-Maturity | | | | ||
For the three months ended September 30, 2021 | | Available-for-Sale | | Securities | | Total | |||
Beginning balance | | $ | 3,243 | | | (2) | | $ | 3,241 |
Current period other comprehensive income (loss) | |
| (82) | |
| — | |
| (82) |
Ending balance | | $ | 3,161 | | $ | (2) | | $ | 3,159 |
| | | | | | | | | |
| | Unrealized Holding | | | | | | | |
| | Gains (Losses) on | | Held-to-Maturity | | | | ||
For the nine months ended September 30, 2022 | | Available-for-Sale | | Securities | | Total | |||
Beginning balance | | $ | 1,112 | | $ | — | | $ | 1,112 |
Current period other comprehensive income (loss) | |
| (28,572) | |
| — | |
| (28,572) |
Ending balance | | $ | (27,460) | | $ | — | | $ | (27,460) |
| | | | | | | | | |
| | Unrealized Holding | | | | | | | |
| | Gains (Losses) on | | Held-to-Maturity | | | | ||
For the nine months ended September 30, 2021 | | Available-for-Sale | | Securities | | Total | |||
Beginning balance | | $ | 3,636 | | $ | (151) | | $ | 3,485 |
Current period other comprehensive income (loss) | |
| (475) | |
| 149 | |
| (326) |
Ending balance | | $ | 3,161 | | $ | (2) | | $ | 3,159 |
15
| | | | | | | | | | | | | | | | | | |
| | 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 six months ended June 30, 2023 and 2022 are shown in the tables below. All amounts are net of tax (in thousands).
| | | |
| | 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) |
| | | |
| | 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) |
13
4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table summarizes the composition of our loan portfolio as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | |
|
| September 30, 2022 |
| December 31, 2021 |
| June 30, 2023 |
| December 31, 2022 | ||||
Loans held for sale | | $ | 13,388 | | $ | — | | $ | 57,704 | | $ | 27,626 |
Loans held for investment | | | | | | | | | | | | |
Loans secured by real estate: | | | |
| |
| | | |
| | |
Commercial real estate - owner occupied | | $ | 436,354 | | $ | 387,703 | | $ | 447,407 | | $ | 459,866 |
Commercial real estate - non-owner occupied | |
| 572,279 | |
| 588,000 | |
| 595,805 | |
| 579,733 |
Secured by farmland | |
| 7,514 | |
| 8,612 | |
| 5,271 | |
| 5,970 |
Construction and land development | |
| 138,297 | |
| 121,444 | |
| 175,073 | |
| 148,690 |
Residential 1-4 family | |
| 615,529 | |
| 547,560 | |
| 591,938 | |
| 609,694 |
Multi-family residential | |
| 137,253 | |
| 164,071 | |
| 133,754 | |
| 140,321 |
Home equity lines of credit | |
| 65,852 | |
| 73,846 | |
| 62,808 | |
| 65,152 |
Total real estate loans | |
| 1,973,078 | |
| 1,891,236 | |
| 2,012,056 | |
| 2,009,426 |
| | | | | | | | | | | | |
Commercial loans | |
| 469,618 | |
| 301,980 | |
| 584,251 | |
| 520,741 |
Paycheck Protection Program loans | | | 8,014 | | | 77,319 | | | 2,143 | | | 4,564 |
Consumer loans | |
| 279,678 | |
| 60,996 | |
| 569,139 | |
| 405,278 |
Total Non-PCD loans | |
| 2,730,388 | |
| 2,331,531 | |
| 3,167,589 | |
| 2,940,009 |
PCD loans | | | 6,698 | | | 8,455 | | | 6,049 | | | 6,628 |
Total loans | | $ | 2,737,086 | | $ | 2,339,986 | ||||||
Total loans held for investment | | $ | 3,173,638 | | $ | 2,946,637 | ||||||
| | | | | | | | | | | | |
The accounting policy related to the allowance for credit 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 expected losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.
Accrued Interest Receivable
Accrued interest receivable on loans totaled $9.1$19.0 million and $10.8$13.7 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, and is included in other assets in the consolidated balance sheets.
Nonaccrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the 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 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 loan is both well secured and in the process of collection or (ii) full payment of principal and 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 ninesix months) of repayment performance by the borrower.
1614
The following tables present the aging of the recorded investment in past due loans by class of loans held for investment as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 |
| | |
| | |
| | |
| 30 - 59 |
| 60 - 89 |
| 90 |
| | |
| | |
| | | ||||||
| | Days | | Days | | Days | | Total | | Loans Not | | Total | | Days | | Days | | Days | | Total | | Loans Not | | Total | ||||||||||||
September 30, 2022 | | Past Due | | Past Due | | or More | | Past Due | | Past Due | | Loans | ||||||||||||||||||||||||
June 30, 2023 | | Past Due | | Past Due | | or More | | Past Due | | Past Due | | Loans | ||||||||||||||||||||||||
Commercial real estate - owner occupied | | $ | 116 | | $ | — | | $ | — | | $ | 116 | | $ | 436,238 | | $ | 436,354 | | $ | 83 | | $ | 53 | | $ | — | | $ | 136 | | $ | 447,271 | | $ | 447,407 |
Commercial real estate - non-owner occupied | |
| 24 | |
| 3,255 | |
| 21,413 | |
| 24,692 | |
| 547,587 | |
| 572,279 | |
| — | |
| — | | | 19,187 | |
| 19,187 | |
| 576,618 | |
| 595,805 |
Secured by farmland | | | — | | | — | | | 625 | | | 625 | | | 6,889 | | | 7,514 | | | 2 | | | — | | | 503 | | | 505 | | | 4,766 | | | 5,271 |
Construction and land development | |
| 30 | | | — | | | — | | | 30 | | | 138,267 | |
| 138,297 | |
| 41 | | | — | | | — | | | 41 | | | 175,032 | |
| 175,073 |
Residential 1-4 family | |
| 770 | | | 386 | | | 120 | | | 1,276 | | | 614,253 | |
| 615,529 | |
| 2,277 | | | 904 | | | 715 | | | 3,896 | | | 588,042 | |
| 591,938 |
Multi- family residential | | | — | | | — | | | — | | | — | | | 137,253 | | | 137,253 | | | 101 | | | — | | | — | | | 101 | | | 133,653 | | | 133,754 |
Home equity lines of credit | |
| 360 | | | 98 | |
| 195 | | | 653 | | | 65,199 | |
| 65,852 | |
| 670 | | | 294 | |
| 254 | | | 1,218 | | | 61,590 | |
| 62,808 |
Commercial loans | | | — | | | 5 | | | 2,956 | | | 2,961 | | | 466,657 | | | 469,618 | | | 10,437 | | | 184 | | | 1,371 | | | 11,992 | | | 572,259 | | | 584,251 |
Paycheck Protection Program loans | | | 2,289 | | | 1,263 | | | 1,855 | | | 5,407 | | | 2,607 | | | 8,014 | | | 7 | | | — | | | 1,775 | | | 1,782 | | | 361 | | | 2,143 |
Consumer loans | |
| 1,073 | | | 616 | |
| 272 | |
| 1,961 | |
| 277,717 | |
| 279,678 | |
| 2,628 | | | 1,872 | | | 129 | |
| 4,629 | |
| 564,510 | |
| 569,139 |
Total Non-PCD loans | | | 4,662 | | | 5,623 | | | 27,436 | | | 37,721 | | | 2,692,667 | | | 2,730,388 | | | 16,246 | | | 3,307 | | | 23,934 | | | 43,487 | | | 3,124,102 | | | 3,167,589 |
PCD loans | | | — | | | — | | | 1,328 | | | 1,328 | | | 5,370 | | | 6,698 | | | 443 | | | — | | | 1,242 | | | 1,685 | | | 4,364 | | | 6,049 |
Total | | $ | 4,662 | | $ | 5,623 | | $ | 28,764 | | $ | 39,049 | | $ | 2,698,037 | | $ | 2,737,086 | | $ | 16,689 | | $ | 3,307 | | $ | 25,176 | | $ | 45,172 | | $ | 3,128,466 | | $ | 3,173,638 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 |
| | |
| | |
| | |
|
| 30 - 59 |
| 60 - 89 |
| 90 |
| | |
| | |
| | |
| ||||||
| | Days | | Days | | Days | | Total | | Loans Not | | Total | | | Days | | Days | | Days | | Total | | Loans Not | | Total | | ||||||||||||
December 31, 2021 | | Past Due | | Past Due | | or More | | Past Due | | Past Due | | Loans | | |||||||||||||||||||||||||
December 31, 2022 | | Past Due | | Past Due | | or More | | Past Due | | Past Due | | Loans | | |||||||||||||||||||||||||
Commercial real estate - owner occupied | | $ | 194 | | $ | 346 | | $ | — | | $ | 540 | | $ | 387,163 | | $ | 387,703 | | | $ | 55 | | $ | — | | $ | — | | $ | 55 | | $ | 459,811 | | $ | 459,866 | |
Commercial real estate - non-owner occupied | |
| — | |
| — | |
| — | |
| — | |
| 588,000 | |
| 588,000 | | |
| 290 | |
| 169 | | | 19,641 | |
| 20,100 | |
| 559,633 | |
| 579,733 | |
Secured by farmland | | | 791 | | | — | | | — | | | 791 | | | 7,821 | | | 8,612 | | | | — | | | — | | | — | | | — | | | 5,970 | | | 5,970 | |
Construction and land development | |
| 204 | | | 131 | |
| 4,575 | |
| 4,910 | |
| 116,534 | |
| 121,444 | | |
| 46 | | | — | | | — | | | 46 | | | 148,644 | |
| 148,690 | |
Residential 1-4 family | |
| 9,384 | | | 254 | |
| 137 | |
| 9,775 | |
| 537,785 | |
| 547,560 | | |
| 2,180 | | | 410 | | | 304 | | | 2,894 | | | 606,800 | |
| 609,694 | |
Multi- family residential | | | — | | | — | | | — | | | — | | | 164,071 | | | 164,071 | | | | — | | | — | | | — | | | — | | | 140,321 | | | 140,321 | |
Home equity lines of credit | |
| 331 | | | — | |
| 171 | |
| 502 | |
| 73,344 | |
| 73,846 | | |
| 431 | | | 96 | |
| 249 | | | 776 | | | 64,376 | |
| 65,152 | |
Commercial loans | | | 387 | | | — | | | 1,246 | | | 1,633 | | | 300,347 | | | 301,980 | | | | 39 | | | — | | | 2,956 | | | 2,995 | | | 517,746 | | | 520,741 | |
Paycheck Protection Program loans | | | 4,954 | | | 8,559 | | | 283 | | | 13,796 | | | 63,523 | | | 77,319 | | | | 16 | | | 15 | | | 3,360 | | | 3,391 | | | 1,173 | | | 4,564 | |
Consumer loans | |
| 193 | | | 130 | |
| 2 | |
| 325 | |
| 60,671 | |
| 60,996 | | |
| 2,079 | | | 1,421 | | | 200 | |
| 3,700 | |
| 401,578 | |
| 405,278 | |
Total Non-PCD loans | | | 16,438 | | | 9,420 | | | 6,414 | | | 32,272 | | | 2,299,259 | | | 2,331,531 | | | | 5,136 | | | 2,111 | | | 26,710 | | | 33,957 | | | 2,906,052 | | | 2,940,009 | |
PCD loans | | | 1,717 | | | — | | | — | | | 1,717 | | | 6,738 | | | 8,455 | | | | — | | | — | | | 1,328 | | | 1,328 | | | 5,300 | | | 6,628 | |
Total | | $ | 18,155 | | $ | 9,420 | | $ | 6,414 | | $ | 33,989 | | $ | 2,305,997 | | $ | 2,339,986 | | | $ | 5,136 | | $ | 2,111 | | $ | 28,038 | | $ | 35,285 | | $ | 2,911,352 | | $ | 2,946,637 | |
1715
The amortized cost, by class, of loans and leases on nonaccrual status at SeptemberJune 30, 20222023 and December 31, 2021,2022, were as follows (in thousands):
| | | | | | | | | | | | |
|
| 90 |
| | Less Than |
| Total |
| Nonaccrual With | |||
| | Days | | | 90 Days | | Nonaccrual | | No Credit | |||
September 30, 2022 | | or More | | | Past Due | | Loans (1) | | Loss Allowance (2) | |||
Commercial real estate - owner occupied | | $ | — | | $ | 458 | | $ | 458 | | $ | 455 |
Commercial real estate - non-owner occupied | |
| 21,413 | |
| — | |
| 21,413 | |
| 21,501 |
Secured by farmland | | | 625 | | | 204 | | | 829 | | | 798 |
Construction and land development | |
| — | |
| 30 | |
| 30 | |
| 30 |
Residential 1-4 family | |
| 120 | |
| 8,786 | |
| 8,906 | |
| 8,792 |
Home equity lines of credit | | | 195 | | | 308 | | | 503 | | | 519 |
Commercial loans | |
| 2,956 | |
| 155 | |
| 3,111 | |
| 150 |
Consumer loans | |
| 272 | |
| 1 | |
| 273 | |
| 270 |
Total Non-PCD loans | | | 25,581 | | | 9,942 | | | 35,523 | | | 32,515 |
PCD loans | | | 1,328 | | | — | | | 1,328 | | | 1,297 |
Total | | $ | 26,909 | | $ | 9,942 | | $ | 36,851 | | $ | 33,812 |
| | | | | | | | | | | | |
|
| 90 |
| | Less Than |
| Total |
| Nonaccrual With | |||
| | Days | | | 90 Days | | Nonaccrual | | No Credit | |||
December 31, 2021 | | or More | | | Past Due | | Loans (1) | | Loss Allowance (2) | |||
Commercial real estate - owner occupied | | $ | — | | $ | 842 | | $ | 842 | | $ | 842 |
Secured by farmland | | | — | | | 836 | | | 836 | | | 836 |
Construction and land development | |
| 4,575 | |
| 34 | |
| 4,609 | |
| 4,609 |
Residential 1-4 family | |
| 137 | |
| 411 | |
| 548 | |
| 548 |
Multi- family residential | | | — | | | 4,301 | | | 4,301 | | | 4,301 |
Home equity lines of credit | | | 171 | | | 253 | | | 424 | | | 424 |
Commercial loans | |
| 1,246 | |
| 476 | |
| 1,722 | |
| 745 |
Consumer loans | |
| 2 | |
| 16 | |
| 18 | |
| 10 |
Total Non-PCD loans | | | 6,131 | | | 7,169 | | | 13,300 | | | 12,315 |
PCD loans | | | — | | | 1,729 | | | 1,729 | | | — |
Total | | $ | 6,131 | | $ | 8,898 | | $ | 15,029 | | $ | 12,315 |
| | | | | | | | | | | | |
|
| 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 |
There were $1.9$1.7 million and $0.3$3.4 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
1816
The following table presents nonaccrual loans as of SeptemberJune 30, 20222023 by class and year of origination (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | | | ||
| | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | ||||
| | 2022 | | 2021 | | 2020 | | 2019 |
| 2018 | | Prior | | Loans | | To Term |
| Total | | 2023 | | 2022 | | 2021 | | 2020 |
| 2019 | | Prior | | Loans | | To Term |
| Total | ||||||||||||||||||
Commercial real estate - owner occupied | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 458 | | $ | | | $ | — | | $ | 458 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 491 | | $ | — | | $ | — | | $ | 491 |
Commercial real estate - non-owner occupied | |
| — | |
| — | |
| | |
| — | |
| 14,113 | |
| 7,300 | |
| — | |
| — | |
| 21,413 | |
| — | |
| — | |
| | |
| — | |
| — | |
| 19,187 | |
| — | |
| — | |
| 19,187 |
Secured by farmland | | | — | | | — | | | — | | | 16 | | | — | | | 813 | | | — | | | — | | | 829 | | | — | | | — | | | — | | | — | | | 2 | | | 503 | | | — | | | — | | | 505 |
Construction and land development | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 30 | |
| — | |
| — | |
| 30 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 26 | |
| — | |
| — | |
| 26 |
Residential 1-4 family | | | — | |
| — | | | — | | | 8,234 | | | — | | | 416 | | | — | | | 256 | | | 8,906 | | | — | |
| | | | — | | | — | | | — | | | 981 | | | — | | | 263 | | | 1,244 |
Multi- family residential | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||
Home equity lines of credit | | | — | | | — | | | — | | | — | | | — | | | — | | | 481 | | | 22 | | | 503 | | | — | | | — | | | — | | | — | | | — | | | 54 | | | 457 | | | 19 | | | 530 |
Commercial loans | |
| — | |
| — | |
| 6 | |
| — | |
| — | |
| 1,515 | |
| 1,590 | |
| — | |
| 3,111 | |
| — | |
| — | |
| — | |
| 3 | |
| — | |
| 1,428 | |
| — | |
| — | |
| 1,431 |
Paycheck Protection Program loans | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 61 | |
| — | |
| — | |
| — | |
| — | |
| 61 |
Consumer loans | | | — | |
| 272 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 273 | | | — | |
| 379 | | | 194 | | | — | | | — | | | — | | | — | | | — | | | 573 |
Total non-PCD nonaccruals | | | — | | | 272 | | | 6 | | | 8,250 | | | 14,113 | | | 10,533 | | | 2,071 | | | 278 | | | 35,523 | | | — | | | 379 | | | 194 | | | 64 | | | 2 | | | 22,670 | | | 457 | | | 282 | | | 24,048 |
PCD loans | | | — | | | — | | | — | | | — | | | — | | | 1,328 | | | — | | | — | | | 1,328 | | | — | | | — | | | — | | | — | | | — | | | 1,242 | | | — | | | — | | | 1,242 |
Total nonaccrual loans | | $ | — | | $ | 272 | | $ | 6 | | $ | 8,250 | | $ | 14,113 | | $ | 11,861 | | $ | 2,071 | | $ | 278 | | $ | 36,851 | | $ | — | | $ | 379 | | $ | 194 | | $ | 64 | | $ | 2 | | $ | 23,912 | | $ | 457 | | $ | 282 | | $ | 25,290 |
Interest received on nonaccrual loans was $0.6 millionzero and $0.2$0.1 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively and $0.9$0.01 million and $0.3 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
Troubled Debt RestructuringsModifications Provided to Borrowers Experiencing Financial Difficulty
A modification is classified as a 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 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 whetherat 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, TDRsloans 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.
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 month
1917
As of September 30, 2022, there were 14 TDRperiod would have totaled $0.03 million. The modified loans outstandinghad no payment delinquencies in the second quarter of 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 $3.2 million primarily duethe principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the economic impactallowance for credit losses.
If it is determined that a modified loan (or portion of COVID-19 on certaina loan) has subsequently been deemed uncollectible, the loan (or a portion of the Bank’s borrowers. There have been no defaultsloan) is written off. At that time, the amortized cost basis of TDRs modified during the past twelve months.loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Credit Quality Indicators
Through its system of internal controls, Primis evaluates and segments loan portfolio credit quality 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.
Special Mention loans are loans that have a potential weakness that 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. Primis had no loans classified as Doubtful at SeptemberJune 30, 20222023 or December 31, 2021.2022.
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 weighted-average risk grade of each class of loan.
2018
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of SeptemberJune 30, 20222023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | | | ||
| | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | ||
| | 2022 | | 2021 | | 2020 | | 2019 |
| 2018 | | Prior | | Loans | | To Term |
| Total | | 2023 | | 2022 | | 2021 | | 2020 |
| 2019 | | Prior | | Loans | | To Term |
| Total | ||||||||||||||||||
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 68,378 | | $ | 61,605 | | $ | 19,526 | | $ | 22,472 | | $ | 27,680 | | $ | 215,097 | | $ | 10,893 | | $ | 6,789 | | $ | 432,440 | | $ | 21,276 | | $ | 89,674 | | $ | 61,730 | | $ | 18,444 | | $ | 21,553 | | $ | 214,548 | | $ | 2,832 | | $ | 6,821 | | $ | 436,878 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 1,007 | | | — | | | — | | | 1,007 | | | — | | | — | | | 220 | | | — | | | — | | | 5,081 | | | — | | | — | | | 5,301 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 2,907 | | | — | | | — | | | 2,907 | | | — | | | — | | | — | | | — | | | 97 | | | 5,131 | | | — | | | — | | | 5,228 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 68,378 | | $ | 61,605 | | $ | 19,526 | | $ | 22,472 | | $ | 27,680 | | $ | 219,011 | | $ | 10,893 | | $ | 6,789 | | $ | 436,354 | | $ | 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 | | | 3.15 | | | 3.48 | | | 3.38 | | | 3.26 | | | 3.43 | | | 3.52 | | | 3.18 | | | 3.96 | | | 3.43 | | | 3.49 | | | 3.31 | | | 3.44 | | | 3.39 | | | 3.28 | | | 3.53 | | | 3.66 | | | 3.97 | | | 3.46 |
Commercial real estate - nonowner occupied | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 23,807 | | $ | 122,557 | | $ | 37,279 | | $ | 41,826 | | $ | 56,016 | | $ | 227,360 | | $ | 4,452 | | $ | 3,083 | | $ | 516,380 | | $ | 1,472 | | $ | 59,088 | | $ | 120,978 | | $ | 43,528 | | $ | 41,039 | | $ | 281,105 | | $ | 1,884 | | $ | 5,085 | | $ | 554,179 |
Special Mention | | | — | | | — | | | — | | | — | | | 926 | | | 29,706 | | | — | | | 601 | | | 31,233 | | | — | | | — | | | — | | | 1,548 | | | — | | | 20,291 | | | — | | | 601 | | | 22,440 |
Substandard | | | — | | | — | | | — | | | — | | | 14,113 | | | 10,553 | | | — | | | — | | | 24,666 | | | — | | | — | | | — | | | — | | | — | | | 19,186 | | | — | | | — | | | 19,186 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 23,807 | | $ | 122,557 | | $ | 37,279 | | $ | 41,826 | | $ | 71,055 | | $ | 267,619 | | $ | 4,452 | | $ | 3,684 | | $ | 572,279 | | $ | 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 | | | 3.25 | | | 3.17 | | | 3.69 | | | 3.95 | | | 4.04 | | | 3.87 | | | 2.92 | | | 3.33 | | | 3.70 | | | 3.15 | | | 3.27 | | | 3.08 | | | 3.83 | | | 3.95 | | | 3.84 | | | 2.86 | | | 3.21 | | | 3.63 |
Secured by farmland | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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Pass | | $ | 451 | | $ | 21 | | $ | 53 | | $ | — | | $ | — | | $ | 3,553 | | $ | 1,578 | | $ | 90 | | $ | 5,746 | | $ | 514 | | $ | — | | $ | 13 | | $ | 108 | | $ | — | | $ | 3,627 | | $ | 328 | | $ | 176 | | $ | 4,766 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 820 | | | — | | | 119 | | | 939 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | 16 | | | — | | | 813 | | | — | | | — | | | 829 | | | — | | | — | | | — | | | — | | | 2 | | | 503 | | | — | | | — | | | 505 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 451 | | $ | 21 | | $ | 53 | | $ | 16 | | $ | — | | $ | 5,186 | | $ | 1,578 | | $ | 209 | | $ | 7,514 | | $ | 514 | | $ | — | | $ | 13 | | $ | 108 | | $ | 2 | | $ | 4,130 | | $ | 328 | | $ | 176 | | $ | 5,271 |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |||||||||||||||||||||||||||
Weighted average risk grade | | | 4.00 | | | 4.00 | | | 4.00 | | | 6.00 | | | N/A | | | 4.19 | | | 3.98 | | | 3.71 | | | 4.12 | | | N/A | | | N/A | | | 4.00 | | | 4.00 | | | 6.00 | | | 4.02 | | | 3.92 | | | 3.12 | | | 3.97 |
Construction and land development | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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Pass | | $ | 32,207 | | $ | 67,234 | | $ | 9,172 | | $ | 2,317 | | $ | 6,960 | | $ | 19,521 | | $ | 835 | | $ | 21 | | $ | 138,267 | | $ | 15,392 | | $ | 61,912 | | $ | 71,105 | | $ | 544 | | $ | 2,522 | | $ | 21,805 | | $ | 807 | | $ | 9 | | $ | 174,096 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 951 | | | — | | | — | | | 951 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 30 | | | — | | | — | | | 30 | | | — | | | — | | | — | | | — | | | — | | | 26 | | | — | | | — | | | 26 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 32,207 | | $ | 67,234 | | $ | 9,172 | | $ | 2,317 | | $ | 6,960 | | $ | 19,551 | | $ | 835 | | $ | 21 | | $ | 138,297 | | $ | 15,392 | | $ | 61,912 | | $ | 71,105 | | $ | 544 | | $ | 2,522 | | $ | 22,782 | | $ | 807 | | $ | 9 | | $ | 175,073 |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |||||||||||||||||||||||||||
Weighted average risk grade | | | 3.28 | | | 3.09 | | | 3.96 | | | 3.47 | | | 3.17 | | | 3.68 | | | 3.36 | | | 4.00 | | | 3.29 | | | 3.55 | | | 3.21 | | | 3.39 | | | 3.39 | | | 3.29 | | | 3.57 | | | 3.37 | | | 4.00 | | | 3.36 |
Residential 1-4 family | |
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Pass | | $ | 144,981 | | $ | 156,300 | | $ | 43,922 | | $ | 64,739 | | $ | 41,806 | | $ | 148,151 | | $ | 2,023 | | $ | 3,438 | | $ | 605,360 | | $ | 12,664 | | $ | 153,892 | | $ | 154,811 | | $ | 42,560 | | $ | 57,486 | | $ | 162,489 | | $ | 1,908 | | $ | 2,736 | | $ | 588,546 |
Special Mention | | | — | | | — | | | 425 | | | — | | | — | | | — | | | — | | | — | | | 425 | | | — | | | — | | | — | | | — | | | — | | | 179 | | | — | | | — | | | 179 |
Substandard | | | — | | | — | | | — | | | 8,235 | | | — | | | 1,058 | | | — | | | 451 | | | 9,744 | | | — | | | — | | | — | | | — | | | 118 | | | 2,363 | | | — | | | 732 | | | 3,213 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 144,981 | | $ | 156,300 | | $ | 44,347 | | $ | 72,974 | | $ | 41,806 | | $ | 149,209 | | $ | 2,023 | | $ | 3,889 | | $ | 615,529 | | $ | 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 | | | 3.08 | | | 3.04 | | | 3.09 | | | 3.40 | | | 3.12 | | | 3.23 | | | 3.90 | | | 3.37 | | | 3.15 | | | 3.16 | | | 3.08 | | | 3.04 | | | 3.07 | | | 3.07 | | | 3.22 | | | 3.92 | | | 3.64 | | | 3.12 |
Multi- family residential | |
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Pass | | $ | 5,045 | | $ | 22,059 | | $ | 18,473 | | $ | 7,101 | | $ | 1,819 | | $ | 76,047 | | $ | 5,001 | | $ | 690 | | $ | 136,235 | | $ | — | | $ | 8,257 | | $ | 21,678 | | $ | 18,045 | | $ | 6,997 | | $ | 76,520 | | $ | 649 | | $ | 648 | | $ | 132,794 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 721 | | | — | | | 297 | | | 1,018 | | | — | | | — | | | — | | | — | | | — | | | 669 | | | — | | | 291 | | | 960 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 5,045 | | $ | 22,059 | | $ | 18,473 | | $ | 7,101 | | $ | 1,819 | | $ | 76,768 | | $ | 5,001 | | $ | 987 | | $ | 137,253 | | $ | — | | $ | 8,257 | | $ | 21,678 | | $ | 18,045 | | $ | 6,997 | | $ | 77,189 | | $ | 649 | | $ | 939 | | $ | 133,754 |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |||||||||||||||||||||||||||
Weighted average risk grade | | | 3.43 | | | 3.00 | | | 3.90 | | | 3.00 | | | 3.21 | | | 3.31 | | | 4.00 | | | 4.60 | | | 3.36 | | | N/A | | | 3.69 | | | 3.00 | | | 3.90 | | | 3.00 | | | 3.41 | | | 4.00 | | | 4.62 | | | 3.42 |
Home equity lines of credit | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 249 | | $ | 506 | | $ | 54 | | $ | 68 | | $ | 230 | | $ | 4,353 | | $ | 58,741 | | $ | 822 | | $ | 65,023 | | $ | 75 | | $ | 492 | | $ | 423 | | $ | 50 | | $ | 52 | | $ | 3,201 | | $ | 57,009 | | $ | 880 | | $ | 62,182 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | 807 | | | 22 | | | 829 | | | — | | | — | | | — | | | — | | | — | | | 54 | | | 553 | | | 19 | | | 626 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 249 | | $ | 506 | | $ | 54 | | $ | 68 | | $ | 230 | | $ | 4,353 | | $ | 59,548 | | $ | 844 | | $ | 65,852 | | $ | 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 | | | 3.86 | | | 3.07 | | | 4.05 | | | 3.13 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.89 | | | 3.05 | | | 3.93 | | | 3.11 |
Commercial loans | |
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Pass | | $ | 231,370 | | $ | 66,762 | | $ | 8,911 | | $ | 7,714 | | $ | 9,611 | | $ | 22,648 | | $ | 95,503 | | $ | 21,386 | | $ | 463,905 | | $ | 116,586 | | $ | 283,911 | | $ | 54,530 | | $ | 6,648 | | $ | 2,888 | | $ | 28,008 | | $ | 81,285 | | $ | 6,947 | | $ | 580,803 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 402 | | | 402 | | | — | | | — | | | — | | | 12 | | | 144 | | | — | | | 1,311 | | | 360 | | | 1,827 |
Substandard | | | — | | | — | | | 6 | | | 1,997 | | | — | | | 1,718 | | | 1,590 | | | — | | | 5,311 | | | — | | | — | | | — | | | 3 | | | 66 | | | 1,552 | | | — | | | — | | | 1,621 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 231,370 | | $ | 66,762 | | $ | 8,917 | | $ | 9,711 | | $ | 9,611 | | $ | 24,366 | | $ | 97,093 | | $ | 21,788 | | $ | 469,618 | | $ | 116,586 | | $ | 283,911 | | $ | 54,530 | | $ | 6,663 | | $ | 3,098 | | $ | 29,560 | | $ | 82,596 | | $ | 7,307 | | $ | 584,251 |
Weighted average risk grade | | | 3.09 | | | 3.40 | | | 3.38 | | | 4.23 | | | 3.42 | | | 3.71 | | | 3.51 | | | 3.45 | | | 3.31 | |||||||||||||||||||||||||||
Paycheck Protection Program loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Pass | | $ | — | | $ | 5,312 | | $ | 2,702 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 8,014 | |||||||||||||||||||||||||||
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||
| | $ | — | | $ | 5,312 | | $ | 2,702 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 8,014 | |||||||||||||||||||||||||||
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,590 | | $ | — | | $ | — | | $ | 1,590 | |||||||||||||||||||||||||||
Weighted average risk grade | | | N/A | | | 2.00 | | | 2.00 | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | 2.00 | | | 2.74 | | | 3.01 | | | 3.36 | | | 3.36 | | | 3.98 | | | 3.47 | | | 3.20 | | | 3.82 | | | 3.06 |
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2119
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| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | |
| | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | |
| | 2022 | | 2021 | | 2020 | | 2019 |
| 2018 | | Prior | | Loans | | To Term |
| Total | |||||||||
Consumer loans | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 238,776 | | $ | 29,571 | | $ | 1,638 | | $ | 432 | | $ | 604 | | $ | 4,635 | | $ | 3,613 | | $ | — | | $ | 279,269 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 66 | | | — | | | — | | | 66 |
Substandard | | | 25 | | | 317 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 343 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 238,801 | | $ | 29,888 | | $ | 1,638 | | $ | 432 | | $ | 604 | | $ | 4,702 | | $ | 3,613 | | $ | — | | $ | 279,678 |
Weighted average risk grade | | | 3.32 | | | 3.80 | | | 3.99 | | | 3.98 | | | 4.00 | | | 4.01 | | | 3.95 | | | N/A | | | 3.40 |
PCD | |
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Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 3,741 | | $ | — | | $ | — | | $ | 3,741 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 1,338 | | | — | | | — | | | 1,338 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 1,619 | | | — | | | — | | | 1,619 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 6,698 | | $ | — | | $ | — | | $ | 6,698 |
Weighted average risk grade | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | 4.53 | | | N/A | | | N/A | | | 4.53 |
Total | | $ | 745,289 | | $ | 532,244 | | $ | 142,161 | | $ | 156,917 | | $ | 159,765 | | $ | 777,463 | | $ | 185,036 | | $ | 38,211 | | $ | 2,737,086 |
Weighted average risk grade | | | 3.18 | | | 3.20 | | | 3.46 | | | 3.56 | | | 3.61 | | | 3.59 | | | 3.36 | | | 3.56 | | | 3.38 |
| | | | | | | | | | | | | | | | | | | | | | | 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 | |
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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 |
2220
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, 20212022 (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | | | ||
| | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | ||
| | 2021 | | 2020 | | 2019 | | 2018 |
| 2017 | | Prior | | Loans | | To Term |
| Total | | 2022 | | 2021 | | 2020 | | 2019 |
| 2018 | | Prior | | Loans | | To Term |
| Total | ||||||||||||||||||
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 58,596 | | $ | 18,411 | | $ | 35,498 | | $ | 28,163 | | $ | 45,013 | | $ | 187,461 | | $ | 3,010 | | $ | 6,937 | | $ | 383,089 | | $ | 116,545 | | $ | 58,202 | | $ | 19,178 | | $ | 21,985 | | $ | 27,397 | | $ | 202,484 | | $ | 3,389 | | $ | 6,740 | | $ | 455,920 |
Special Mention | | | — | | | — | | | — | | | — | | | 140 | | | 1,184 | | | — | | | — | | | 1,324 | | | — | | | — | | | — | | | — | | | — | | | 988 | | | — | | | — | | | 988 |
Substandard | | | — | | | — | | | 475 | | | — | | | — | | | 2,815 | | | — | | | — | | | 3,290 | | | — | | | — | | | — | | | — | | | — | | | 2,958 | | | — | | | — | | | 2,958 |
Doubtful | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 58,596 | | $ | 18,411 | | $ | 35,973 | | $ | 28,163 | | $ | 45,153 | | $ | 191,460 | | $ | 3,010 | | $ | 6,937 | | $ | 387,703 | | $ | 116,545 | | $ | 58,202 | | $ | 19,178 | | $ | 21,985 | | $ | 27,397 | | $ | 206,430 | | $ | 3,389 | | $ | 6,740 | | $ | 459,866 |
Weighted average risk grade | | | 3.43 | | | 3.42 | | | 3.47 | | | 3.43 | | | 3.55 | | | 3.53 | | | 3.29 | | | 3.96 | | | 3.51 | | | 3.25 | | | 3.45 | | | 3.38 | | | 3.27 | | | 3.43 | | | 3.50 | | | 3.52 | | | 3.96 | | | 3.42 |
Commercial real estate - nonowner occupied | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 107,572 | | $ | 55,956 | | | 19,816 | | $ | 76,076 | | $ | 58,883 | | $ | 235,676 | | $ | 3,668 | | $ | — | | $ | 557,647 | | $ | 28,128 | | $ | 126,291 | | $ | 44,696 | | $ | 41,631 | | $ | 55,702 | | $ | 228,735 | | $ | 4,173 | | $ | 3,065 | | $ | 532,421 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 12,097 | | | — | | | — | | | 12,097 | | | — | | | — | | | 1,566 | | | — | | | 926 | | | 24,580 | | | — | | | 601 | | | 27,673 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 17,655 | | | — | | | 601 | | | 18,256 | | | — | | | — | | | — | | | — | | | 13,066 | | | 6,573 | | | — | | | — | | | 19,639 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 107,572 | | $ | 55,956 | | $ | 19,816 | | $ | 76,076 | | $ | 58,883 | | $ | 265,428 | | $ | 3,668 | | $ | 601 | | $ | 588,000 | | $ | 28,128 | | $ | 126,291 | | $ | 46,262 | | $ | 41,631 | | $ | 69,694 | | $ | 259,888 | | $ | 4,173 | | $ | 3,666 | | $ | 579,733 |
Weighted average risk grade | | | 3.05 | | | 3.47 | | | 3.83 | | | 3.45 | | | 3.81 | | | 3.81 | | | 2.94 | | | 6.00 | | | 3.59 | | | 3.36 | | | 3.16 | | | 3.82 | | | 3.95 | | | 4.01 | | | 3.82 | | | 2.87 | | | 3.33 | | | 3.68 |
Secured by farmland | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 320 | | $ | 66 | | $ | — | | $ | — | | $ | 445 | | $ | 3,734 | | $ | 1,955 | | $ | — | | $ | 6,520 | | $ | 141 | | $ | 16 | | $ | 110 | | $ | — | | $ | — | | $ | 2,279 | | $ | 1,697 | | $ | 85 | | $ | 4,328 |
Special Mention | | | — | | | — | | | — | | | — | | | 852 | | | 404 | | | — | | | — | | | 1,256 | | | — | | | — | | | — | | | — | | | — | | | 649 | | | — | | | 112 | | | 761 |
Substandard | | | — | | | — | | | 24 | | | — | | | 681 | | | — | | | 131 | | | — | | | 836 | | | — | | | — | | | — | | | 6 | | | — | | | 875 | | | — | | | — | | | 881 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 320 | | $ | 66 | | $ | 24 | | $ | — | | $ | 1,978 | | $ | 4,138 | | $ | 2,086 | | $ | — | | $ | 8,612 | | $ | 141 | | $ | 16 | | $ | 110 | | $ | 6 | | $ | — | | $ | 3,803 | | $ | 1,697 | | $ | 197 | | $ | 5,970 |
Weighted average risk grade | | | 3.17 | | | 4.00 | | | 6.00 | | | N/A | | | 5.04 | | | 3.61 | | | 4.09 | | | N/A | | | 4.05 | | | 4.00 | | | 4.00 | | | 4.00 | | | 6.00 | | | N/A | | | 4.20 | | | 3.98 | | | 3.70 | | | 4.13 |
Construction and land development | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 57,320 | | $ | 14,003 | | $ | 13,360 | | $ | 7,061 | | $ | 8,414 | | $ | 15,664 | | $ | 982 | | $ | 31 | | $ | 116,835 | | $ | 44,253 | | $ | 73,226 | | $ | 847 | | $ | 3,006 | | $ | 6,937 | | $ | 19,553 | | $ | 822 | | $ | 17 | | $ | 148,661 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | 4,575 | | | — | | | — | | | 34 | | | — | | | — | | | 4,609 | | | — | | | — | | | — | | | — | | | — | | | 29 | | | — | | | — | | | 29 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 57,320 | | $ | 14,003 | | $ | 17,935 | | $ | 7,061 | | $ | 8,414 | | $ | 15,698 | | $ | 982 | | $ | 31 | | $ | 121,444 | | $ | 44,253 | | $ | 73,226 | | $ | 847 | | $ | 3,006 | | $ | 6,937 | | $ | 19,582 | | $ | 822 | | $ | 17 | | $ | 148,690 |
Weighted average risk grade | | | 3.15 | | | 3.56 | | | 4.48 | | | 3.26 | | | 3.91 | | | 3.54 | | | 3.31 | | | 4.00 | | | 3.50 | | | 3.21 | | | 3.06 | | | 3.60 | | | 3.42 | | | 3.17 | | | 3.69 | | | 3.36 | | | 4.00 | | | 3.20 |
Residential 1-4 family | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 165,106 | | $ | 54,037 | | $ | 81,905 | | $ | 49,694 | | $ | 43,173 | | $ | 138,711 | | $ | 1,845 | | $ | 3,484 | | $ | 537,955 | | $ | 152,178 | | $ | 157,233 | | $ | 43,812 | | $ | 61,268 | | $ | 40,707 | | $ | 138,782 | | $ | 1,837 | | $ | 3,437 | | $ | 599,254 |
Special Mention | | | — | | | — | | | 8,514 | | | — | | | — | | | — | | | — | | | — | | | 8,514 | | | — | | | — | | | — | | | — | | | — | | | 30 | | | — | | | — | | | 30 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 795 | | | — | | | 296 | | | 1,091 | | | 285 | | | — | | | — | | | 8,099 | | | — | | | 1,310 | | | — | | | 716 | | | 10,410 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 165,106 | | $ | 54,037 | | $ | 90,419 | | $ | 49,694 | | $ | 43,173 | | $ | 139,506 | | $ | 1,845 | | $ | 3,780 | | $ | 547,560 | | $ | 152,463 | | $ | 157,233 | | $ | 43,812 | | $ | 69,367 | | $ | 40,707 | | $ | 140,122 | | $ | 1,837 | | $ | 4,153 | | $ | 609,694 |
Weighted average risk grade | | | 3.04 | | | 3.06 | | | 3.24 | | | 3.13 | | | 3.07 | | | 3.26 | | | 3.98 | | | 3.30 | | | 3.15 | | | 3.09 | | | 3.04 | | | 3.07 | | | 3.41 | | | 3.13 | | | 3.23 | | | 3.92 | | | 3.54 | | | 3.15 |
Multi- family residential | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 37,030 | | $ | 18,866 | | $ | 7,228 | | $ | 6,328 | | $ | 36,574 | | $ | 42,310 | | $ | 5,031 | | $ | — | | $ | 153,367 | | $ | 9,953 | | $ | 21,927 | | $ | 18,338 | | $ | 7,064 | | $ | 1,804 | | $ | 75,370 | | $ | 4,192 | | $ | 676 | | $ | 139,324 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 5,326 | | | — | | | — | | | 5,326 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 5,076 | | | — | | | 302 | | | 5,378 | | | — | | | — | | | — | | | — | | | — | | | 702 | | | — | | | 295 | | | 997 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 37,030 | | $ | 18,866 | | $ | 7,228 | | $ | 6,328 | | $ | 36,574 | | $ | 52,712 | | $ | 5,031 | | $ | 302 | | $ | 164,071 | | $ | 9,953 | | $ | 21,927 | | $ | 18,338 | | $ | 7,064 | | $ | 1,804 | | $ | 76,072 | | $ | 4,192 | | $ | 971 | | $ | 140,321 |
Weighted average risk grade | | | 3.40 | | | 3.90 | | | 3.00 | | | 3.59 | | | 3.00 | | | 3.92 | | | 4.00 | | | 6.00 | | | 3.55 | | | 3.58 | | | 3.00 | | | 3.90 | | | 3.00 | | | 3.21 | | | 3.31 | | | 4.00 | | | 4.61 | | | 3.37 |
Home equity lines of credit | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 715 | | $ | 59 | | $ | 75 | | $ | 235 | | $ | 425 | | $ | 4,337 | | $ | 67,157 | | $ | 143 | | $ | 73,146 | | $ | 463 | | $ | 431 | | $ | 52 | | $ | 63 | | $ | 230 | | $ | 4,093 | | $ | 58,312 | | $ | 957 | | $ | 64,601 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | 276 | | | — | | | 276 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | 398 | | | 26 | | | 424 | | | — | | | — | | | — | | | — | | | — | | | 54 | | | 476 | | | 21 | | | 551 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 715 | | $ | 59 | | $ | 75 | | $ | 235 | | $ | 425 | | $ | 4,337 | | $ | 67,831 | | $ | 169 | | $ | 73,846 | | $ | 463 | | $ | 431 | | $ | 52 | | $ | 63 | | $ | 230 | | $ | 4,147 | | $ | 58,788 | | $ | 978 | | $ | 65,152 |
Weighted average risk grade | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.77 | | | 3.79 | | | 3.09 | | | 4.31 | | | 3.14 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.00 | | | 3.94 | | | 3.05 | | | 3.89 | | | 3.12 |
Commercial loans | |
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| | |
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| |
Pass | | $ | 95,085 | | $ | 10,415 | | $ | 11,923 | | $ | 10,648 | | $ | 10,522 | | $ | 18,284 | | $ | 134,302 | | $ | 5,338 | | $ | 296,517 | | $ | 295,459 | | $ | 59,642 | | $ | 7,332 | | $ | 6,658 | | $ | 9,228 | | $ | 19,830 | | $ | 100,407 | | $ | 17,381 | | $ | 515,937 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | 845 | | | — | | | 845 | | | — | | | 396 | | | 64 | | | 74 | | | — | | | — | | | 519 | | | 388 | | | 1,441 |
Substandard | | | — | | | 9 | | | — | | | 1,508 | | | — | | | 1,938 | | | 1,163 | | | — | | | 4,618 | | | — | | | — | | | 5 | | | 90 | | | — | | | 1,678 | | | 1,590 | | | — | | | 3,363 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 95,085 | | $ | 10,424 | | $ | 11,923 | | $ | 12,156 | | $ | 10,522 | | $ | 20,222 | | $ | 136,310 | | $ | 5,338 | | $ | 301,980 | | $ | 295,459 | | $ | 60,038 | | $ | 7,401 | | $ | 6,822 | | $ | 9,228 | | $ | 21,508 | | $ | 102,516 | | $ | 17,769 | | $ | 520,741 |
Weighted average risk grade | | | 3.43 | | | 3.36 | | | 3.79 | | | 3.77 | | | 2.95 | | | 3.96 | | | 3.43 | | | 3.95 | | | 3.48 | | | 3.14 | | | 3.41 | | | 3.38 | | | 3.90 | | | 3.42 | | | 3.70 | | | 3.47 | | | 3.33 | | | 3.29 |
Paycheck Protection Program loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 56,087 | | $ | 21,232 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 77,319 | | $ | — | | $ | 2,119 | | $ | 2,435 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,554 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 10 | | | — | | | — | | | — | | | — | | | — | | | — | | | 10 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 56,087 | | $ | 21,232 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 77,319 | | $ | — | | $ | 2,129 | | $ | 2,435 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,564 |
Weighted average risk grade | | | 2.00 | | | 2.00 | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | 2.00 | | | N/A | | | 2.02 | | | 2.00 | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | 2.01 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2321
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | |
| | | | | | | | | | | | | | | | | | | | | Revolving | | Converted | | | | |
| | 2021 | | 2020 | | 2019 | | 2018 |
| 2017 | | Prior | | Loans | | To Term |
| Total | |||||||||
Consumer loans | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 48,107 | | $ | 2,351 | | $ | 1,002 | | $ | 914 | | $ | 237 | | $ | 5,766 | | $ | 2,519 | | $ | — | | $ | 60,896 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 82 | | | — | | | — | | | 82 |
Substandard | | | — | | | — | | | — | | | 7 | | | 9 | | | 2 | | | — | | | — | | | 18 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | 48,107 | | $ | 2,351 | | $ | 1,002 | | $ | 921 | | $ | 246 | | $ | 5,850 | | $ | 2,519 | | $ | — | | $ | 60,996 |
Weighted average risk grade | | | 3.55 | | | 3.99 | | | 3.99 | | | 4.02 | | | 4.07 | | | 4.01 | | | 4.00 | | | N/A | | | 3.65 |
PCD | |
| | | | | | | | | | | | | | | | | | | | |
| | |
| |
Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5,145 | | $ | 30 | | $ | — | | $ | 5,175 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 1,391 | | | — | | | — | | | 1,391 |
Substandard | | | — | | | — | | | — | | | — | | | 1,717 | | | 172 | | | — | | | — | | | 1,889 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,717 | | $ | 6,708 | | $ | 30 | | $ | — | | $ | 8,455 |
Weighted average risk grade | | | N/A | | | N/A | | | N/A | | | N/A | | | 6.00 | | | 4.08 | | | 3.00 | | | N/A | | | 4.47 |
Total | | $ | 625,938 | | $ | 195,405 | | $ | 184,395 | | $ | 180,634 | | $ | 207,085 | | $ | 706,059 | | $ | 223,312 | | $ | 17,158 | | $ | 2,339,986 |
Weighted average risk grade | | | 3.12 | | | 3.24 | | | 3.50 | | | 3.38 | | | 3.45 | | | 3.64 | | | 3.35 | | | 3.92 | | | 3.39 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 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 2022the reported periods were as follows (in thousands):
| | | | | | | | | | | | | ||
| | For the three months ended September 30, 2022 | | | For the nine months ended September 30, 2022 | | For the three months ended June 30, 2023 | | | For the six months ended June 30, 2023 | ||||
Commercial real estate - owner occupied | | $ | — | | | $ | 3,083 | | $ | 214 | | | $ | 214 |
Commercial real estate - non-owner occupied | | | — | | | | 209 | | | — | | | | 2,057 |
Secured by farmland | | | — | | | | — | |||||||
Construction and land development | |
| 677 | | |
| 1,086 | |
| — | | |
| — |
Residential 1-4 family | | | — | | | | 690 | | | 142 | | | | 142 |
Multi- family residential | | | — | | | | 692 | | | — | | | | — |
Home equity lines of credit | | | — | | | | — | |||||||
Commercial loans | |
| 496 | | |
| 16,879 | |
| — | | |
| 186 |
Paycheck Protection Program loans | | | — | | | | — | |||||||
Consumer loans | |
| — | | |
| — | |||||||
Total loans | | $ | 1,173 | | | $ | 22,639 | | $ | 356 | | | $ | 2,599 |
The amount of foreclosed residential real estate property held at September 30, 2022 and December 31, 2021 was $0.8 million and $0.9 million, respectively. There were no recorded investmentsinvestment 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 SeptemberJune 30, 20222023 and December 31, 2021.2022, 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. 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.
2422
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 SeptemberJune 30, 20222023 and December 31, 2021,2022, calculated in accordance with the current expected credit losses (“CECL”) methodology described above (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Commercial |
| Commercial |
| | |
| | |
| | |
| | |
| Home |
| | |
| | |
| | |
| | |
| Commercial |
| Commercial |
| | |
| | |
| | |
| | |
| Home |
| | |
| | |
| | |
| | | ||||||
| | Real Estate | | Real Estate | | | | Construction | | | | | | | | Equity | | | | | | | | |
| | | Real Estate | | Real Estate | | | | Construction | | | | | | | | Equity | | | | | | | | |
| | ||||||||||||||
| | Owner | | Non-owner | | Secured by | | and Land | | 1-4 Family | | Multi-Family | | Lines Of | | Commercial | | Consumer | | PCD | |
| | | Owner | | Non-owner | | Secured by | | and Land | | 1-4 Family | | Multi-Family | | Lines Of | | Commercial | | Consumer | | PCD | |
| | ||||||||||||||||||||
September 30, 2022 | | Occupied | | Occupied | | Farmland | | Development | | Residential | | Residential | | Credit | | Loans | | Loans | | Loans | | Total | ||||||||||||||||||||||||||||||||||||||||||||
June 30, 2023 | | Occupied | | Occupied | | Farmland | | Development | | Residential | | Residential | | Credit | | Loans | | Loans | | Loans | | Total | ||||||||||||||||||||||||||||||||||||||||||||
Modeled expected credit losses | | $ | 4,564 |
| $ | 6,099 |
| $ | 7 |
| $ | 800 |
| $ | 3,353 |
| $ | 1,701 |
| $ | 286 |
| $ | 4,422 |
| $ | 3,269 |
| $ | — | | $ | 24,501 | | $ | 4,747 | | $ | 6,360 | | $ | 3 | | $ | 914 | | $ | 4,067 | | $ | 1,641 | | $ | 307 | | $ | 5,225 | | $ | 7,011 | | $ | — | | $ | 30,275 |
Q-factor and other qualitative adjustments | | | 269 | | | 531 | | | 19 | | | 340 | | | 647 | | | 240 | | | 19 | | | 802 | | | 2 | | | — | | | 2,869 | | | 268 | | | 625 | | | 29 | | | 372 | | | 385 | | | 352 | | | 19 | | | 855 | | | 5 | | | — | | | 2,910 |
Specific allocations | |
| — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,453 | | | 44 | | | 2,089 | |
| 4,586 | |
| — | | | 2,454 | | | — | | | — | | | — | | | — | | | — | | | 843 | | | — | | | 1,932 | |
| 5,229 |
Total | | $ | 4,833 | | $ | 6,630 | | $ | 26 | | $ | 1,140 | | $ | 4,000 | | $ | 1,941 | | $ | 305 | | $ | 7,677 | | $ | 3,315 | | $ | 2,089 | | $ | 31,956 | | $ | 5,015 | | $ | 9,439 | | $ | 32 | | $ | 1,286 | | $ | 4,452 | | $ | 1,993 | | $ | 326 | | $ | 6,923 | | $ | 7,016 | | $ | 1,932 | | $ | 38,414 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Commercial |
| Commercial |
| | |
| | |
| | |
| | |
| Home |
| | |
| | |
| | |
| | |
| Commercial |
| Commercial |
| | |
| | |
| | |
| | |
| Home |
| | |
| | |
| | |
| | | ||||||
| | Real Estate | | Real Estate | | | | Construction | | | | | | | | Equity | | | | | | | | |
| | | Real Estate | | Real Estate | | | | Construction | | | | | | | | Equity | | | | | | | | |
| | ||||||||||||||
| | Owner | | Non-owner | | Secured by | | and Land | | 1-4 Family | | Multi-Family | | Lines Of | | Commercial | | Consumer | | PCD | |
| | | Owner | | Non-owner | | Secured by | | and Land | | 1-4 Family | | Multi-Family | | Lines Of | | Commercial | | Consumer | | PCD | |
| | ||||||||||||||||||||
December 31, 2021 | | Occupied | | Occupied | | Farmland | | Development | | Residential | | Residential | | Credit | | Loans | | Loans | | Loans | | Total | ||||||||||||||||||||||||||||||||||||||||||||
December 31, 2022 | | Occupied | | Occupied | | Farmland | | Development | | Residential | | Residential | | Credit | | Loans | | Loans | | Loans | | Total | ||||||||||||||||||||||||||||||||||||||||||||
Modeled expected credit losses | | $ | 4,281 | | $ | 8,020 | | $ | 9 | | $ | 540 | | $ | 3,012 | | $ | 1,885 | | $ | 273 | | $ | 2,154 | | $ | 786 | | $ | — | | $ | 20,960 | | $ | 5,297 |
| $ | 6,652 |
| $ | 4 |
| $ | 997 |
| $ | 3,579 |
| $ | 1,814 |
| $ | 310 |
| $ | 5,006 |
| $ | 3,851 |
| $ | — | | $ | 27,510 |
Q-factor and other qualitative adjustments | | | 281 | | | 1,008 | | | 47 | | | 458 | | | 576 | | | 1,395 | | | 164 | | | 1,276 | | | — | | | — | | | 5,205 | | | 261 | | | 495 | | | 21 | | | 376 | | | 512 | | | 387 | | | 19 | | | 654 | | | 2 | | | — | | | 2,727 |
Specific allocations | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 658 | |
| 1 | |
| 2,281 | |
| 2,940 | |
| — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,193 | | | 42 | | | 2,072 | |
| 4,307 |
Total | | $ | 4,562 | | $ | 9,028 | | $ | 56 | | $ | 998 | | $ | 3,588 | | $ | 3,280 | | $ | 437 | | $ | 4,088 | | $ | 787 | | $ | 2,281 | | $ | 29,105 | | $ | 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.
2523
Activity in the allowance for credit losses by class of loan for the three months ended SeptemberJune 30, 20222023 and 20212022 is summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial |
| |
| |
| |
| |
| |
| |
| |
| |
| | Commercial |
| |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
| Real Estate | | Construction | | | | | Home Equity | | | | | |
| | Real Estate | | Construction | | | | | Home Equity | | | | | |
| | ||||||||||||||
| Owner | Non-owner | Secured by | and Land | 1-4 Family | Multi-Family | Lines Of | Commercial | Consumer | PCD | | Owner | Non-owner | Secured by | and Land | 1-4 Family | Multi-Family | Lines Of | Commercial | Consumer | PCD | | ||||||||||||||||||||||
Three Months Ended September 30, 2022 | Occupied | Occupied | Farmland | Development | Residential | Residential | Credit | Loans | Loans | Loans | Total | |||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2023 | Occupied | Occupied | Farmland | Development | Residential | Residential | Credit | Loans | Loans | Loans | Total | |||||||||||||||||||||||||||||||||
Allowance for credit losses: | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Beginning balance | $ | 4,301 | $ | 7,917 | $ | 49 | $ | 1,024 | $ | 4,272 | $ | 2,160 | $ | 363 | $ | 6,428 | $ | 1,569 | $ | 2,126 | $ | 30,209 | $ | 5,274 | $ | 7,161 | $ | 21 | $ | 1,280 | $ | 4,343 | $ | 2,087 | $ | 350 | $ | 6,464 | $ | 6,802 | $ | 1,945 | $ | 35,727 |
Provision (recovery) | | 532 |
| (1,287) |
| (23) |
| 116 |
| (273) |
| (219) |
| (59) |
| 2,256 |
| 1,884 |
| (37) | | 2,890 | | (259) |
| 2,278 |
| 11 |
| 6 |
| 203 |
| (94) |
| (19) |
| 468 |
| 1,720 |
| (13) | | 4,301 |
Charge offs |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (1,007) |
| (146) |
| — |
| (1,153) |
| — |
| — |
| — |
| — |
| (94) |
| — |
| (7) |
| (10) |
| (1,629) |
| — |
| (1,740) |
Recoveries |
| — |
| — |
| — |
| — |
| 1 |
| — |
| 1 |
| — |
| 8 |
| — |
| 10 |
| — |
| — |
| — |
| — |
| — |
| — |
| 2 |
| 1 |
| 123 |
| — |
| 126 |
Ending balance | $ | 4,833 | $ | 6,630 | $ | 26 | $ | 1,140 | $ | 4,000 | $ | 1,941 | $ | 305 | $ | 7,677 | $ | 3,315 | $ | 2,089 | $ | 31,956 | $ | 5,015 | $ | 9,439 | $ | 32 | $ | 1,286 | $ | 4,452 | $ | 1,993 | $ | 326 | $ | 6,923 | $ | 7,016 | $ | 1,932 | $ | 38,414 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Three Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 4,769 | $ | 11,235 | $ | 80 | $ | 2,691 | $ | 4,451 | $ | 1,090 | $ | 601 | $ | 3,582 | $ | 428 | $ | 2,338 | $ | 31,265 | $ | 4,173 | $ | 8,913 | $ | 49 | $ | 1,029 | $ | 3,888 | $ | 2,289 | $ | 376 | $ | 5,466 | $ | 1,025 | $ | 2,171 | $ | 29,379 |
Provision (recovery) |
| 354 | | (863) | | (22) | | (1,295) | | (44) | | 2,266 | | (100) | | 537 | | 279 | | (27) |
| 1,085 | | 142 |
| (1,498) |
| — |
| (5) |
| 384 |
| (129) |
| (14) |
| 962 |
| 625 |
| (45) | | 422 |
Charge offs |
| (7) | | — | | — | | — | | (383) | | (1) | | — | | (1,528) | | (53) | | — | | (1,972) |
| (14) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (84) |
| — |
| (98) |
Recoveries |
| — | | — | | — | | — | | 1 | | — | | 1 | | 1 | | 5 | | — | | 8 |
| — |
| 502 |
| — |
| — |
| — |
| — |
| 1 |
| — |
| 3 |
| — |
| 506 |
Ending balance | $ | 5,116 | $ | 10,372 | $ | 58 | $ | 1,396 | $ | 4,025 | $ | 3,355 | $ | 502 | $ | 2,592 | $ | 659 | $ | 2,311 | $ | 30,386 | $ | 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 is summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial |
| |
| |
| |
| |
| |
| |
| |
| |
| | Commercial |
| |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
| Real Estate | | Construction | | | | | Home Equity | | | | | |
| | Real Estate | | Construction | | | | | Home Equity | | | | | |
| | ||||||||||||||
| Owner | Non-owner | Secured by | and Land | 1-4 Family | Multi-Family | Lines Of | Commercial | Consumer | PCD | | Owner | Non-owner | Secured by | and Land | 1-4 Family | Multi-Family | Lines Of | Commercial | Consumer | PCD | | ||||||||||||||||||||||
Nine Months Ended September 30, 2022 | Occupied | Occupied | Farmland | Development | Residential | Residential | Credit | Loans | Loans | Loans | Total | |||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2023 | Occupied | Occupied | Farmland | Development | Residential | Residential | Credit | Loans | Loans | Loans | Total | |||||||||||||||||||||||||||||||||
Allowance for credit losses: | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Beginning balance | $ | 4,562 | $ | 9,028 | $ | 56 | $ | 998 | $ | 3,588 | $ | 3,280 | $ | 437 | $ | 4,088 | $ | 787 | $ | 2,281 | $ | 29,105 | $ | 5,558 | $ | 7,147 | $ | 25 | $ | 1,373 | $ | 4,091 | $ | 2,201 | $ | 329 | $ | 7,853 | $ | 3,895 | $ | 2,072 | $ | 34,544 |
Provision (recovery) | | 285 | | (2,900) | | (30) | | 142 | | 354 | | (1,339) | | (120) | | 4,426 | | 2,785 | | (192) | | 3,411 | | (543) | | 2,292 | | 7 | | (199) | | 469 | | (208) | | 2 | | 845 | | 6,963 | | (140) | | 9,488 |
Charge offs |
| (14) |
| — |
| — |
| — |
| — |
| — |
| (14) |
| (1,007) |
| (277) |
| — |
| (1,312) |
| — |
| — |
| — |
| — |
| (269) |
| — |
| (7) |
| (1,776) |
| (4,112) |
| — |
| (6,164) |
Recoveries |
| — |
| 502 |
| — |
| — |
| 58 |
| — |
| 2 |
| 170 |
| 20 |
| — |
| 752 |
| — |
| — |
| — |
| 112 |
| 161 |
| — |
| 2 |
| 1 |
| 270 | | — |
| 546 |
Ending balance | $ | 4,833 | $ | 6,630 | $ | 26 | $ | 1,140 | $ | 4,000 | $ | 1,941 | $ | 305 | $ | 7,677 | $ | 3,315 | $ | 2,089 | $ | 31,956 | $ | 5,015 | $ | 9,439 | $ | 32 | $ | 1,286 | $ | 4,452 | $ | 1,993 | $ | 326 | $ | 6,923 | $ | 7,016 | $ | 1,932 | $ | 38,414 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Six Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 6,699 | $ | 11,426 | $ | 104 | $ | 1,815 | $ | 9,579 | $ | 1,412 | $ | 901 | $ | 1,498 | $ | 517 | $ | 2,394 | $ | 36,345 | $ | 4,562 | $ | 9,028 | $ | 56 | $ | 998 | $ | 3,588 | $ | 3,280 | $ | 437 | $ | 4,088 | $ | 787 | $ | 2,281 | $ | 29,105 |
Provision (recovery) | | (1,407) | | (1,054) | | (46) | | (419) | | (5,182) | | 1,943 | | (400) | | 1,930 | | 216 | | (83) | | (4,502) | | (247) | | (1,613) | | (7) | | 26 | | 627 | | (1,120) | | (61) | | 2,170 | | 901 | | (155) | | 521 |
Charge offs |
| (176) |
| — |
| — |
| — |
| (383) |
| — |
| — |
| (1,602) |
| (107) |
| — |
| (2,268) |
| (14) |
| — |
| — |
| — |
| — |
| — |
| (14) |
| — |
| (131) |
| — |
| (159) |
Recoveries |
| — |
| — |
| — |
| — |
| 11 |
| — |
| 1 |
| 766 |
| 33 |
| — |
| 811 |
| — |
| 502 |
| — |
| — |
| 57 |
| — |
| 1 |
| 170 |
| 12 |
| — |
| 742 |
Ending balance | $ | 5,116 | $ | 10,372 | $ | 58 | $ | 1,396 | $ | 4,025 | $ | 3,355 | $ | 502 | $ | 2,592 | $ | 659 | $ | 2,311 | $ | 30,386 | $ | 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.
2624
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 SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | |
| | September 30, 2022 |
| December 31, 2021 | ||||||||
| | Loan | | Specific | | Loan | | Specific | ||||
| | Balance (1) | | Allocations | | Balance (1) | | Allocations | ||||
Commercial real estate - owner occupied | | $ | 2,800 | | $ | — | | $ | 3,291 | | $ | — |
Commercial real estate - non-owner occupied | |
| 24,669 | |
| — | |
| 18,256 | |
| — |
Secured by farmland | | | 625 | | | — | | | 681 | | | — |
Construction and land development | |
| — | |
| — | |
| 4,575 | |
| — |
Residential 1-4 family | | | 9,221 | | | — | | | 541 | | | — |
Multi- family residential | | | 1,017 | | | — | | | 5,378 | | | — |
Home equity lines of credit | | | 72 | | | — | | | — | | | — |
Commercial loans | |
| 4,982 | |
| 2,453 | |
| 3,688 | |
| 658 |
Consumer loans | | | 55 | | | 44 | | | 7 | | | 1 |
Total non-PCD loans | | | 43,441 | | | 2,497 | | | 36,417 | | | 659 |
PCD loans | | | 6,698 | | | 2,089 | | | 8,455 | | | 2,281 |
Total loans | | $ | 50,139 | | $ | 4,586 | | $ | 44,872 | | $ | 2,940 |
| | | | | | | | | | | | |
| | 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 |
5.
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
The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Assets and Liabilities Measured on a Recurring Basis:
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 include highly liquid government bonds and mortgage products. If quoted market prices are 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 include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, collateralized loan obligations and other securities. In certain cases where there is limited activity or less transparency around inputs to the
2725
valuation, investment securities are classified within Level 3 of the valuation hierarchy. Currently, all of Primis’ available-for-sale debt investment securities are considered to be Level 2 investment securities.
Loans Held for Sale
The fair value of loans held for sale is determined by obtaining prices at which they could be sold in the principal market at the measurement date and are classified within Level 2 of the fair value hierarchy. The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities.
Derivative Assets and Liabilities
Interest Rate Lock Commitments (“IRLC”): The Company determines the value of IRLCs by comparing the market price to the price locked in with the customer, adding fees or points to be collected at closing, subtracting commissions to be paid at closing, and subtracting estimated remaining loan origination costs to the bank based on the processing status of the loan. IRLCs are classified within Level 3 of the valuation hierarchy.
Best Efforts Forward Loan Sales Commitments: Best efforts forward loan sales commitments are classified within Level 2 of the valuation hierarchy. Best efforts forward loan sales commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Best efforts forward loan sales commitments are entered into for loans at the time the borrower commitment is made. These best efforts forward loan sales commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale.
Mandatory Forward Loan Sales Commitments: Fair values for mandatory forward loan sales commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. Due to the observable inputs used by Primis, best efforts mandatory loan sales commitments are classified within Level 2 of the valuation hierarchy.
To-Be-Announced Mortgage-Backed Securities Trades: Fair values for TBA’s are based on the gain or loss that would occur if the Company were to pair-off transaction at the measurement date and are classified within Level 2 of the valuation hierarchy. TBA’s are recordedliabilities measured at fair value on a recurring basis.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 | | $ | — | | $ | — | | $ | — |
2826
| | | | | | | | | | | | |
| | | | | 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 and liabilities measured at fair value on a recurringnon-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, 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | |
Residential government-sponsored mortgage-backed securities | | $ | 106,279 | | $ | — | | $ | 106,279 | | $ | — |
Obligations of states and political subdivisions | |
| 28,755 | |
| — | |
| 28,755 | |
| — |
Corporate securities | |
| 14,854 | |
| — | |
| 14,854 | |
| — |
Collateralized loan obligations | |
| 4,803 | |
| — | |
| 4,803 | |
| — |
Residential government-sponsored collateralized mortgage obligations | |
| 23,043 | |
| — | |
| 23,043 | |
| — |
Government-sponsored agency securities | |
| 14,685 | |
| — | |
| 14,685 | |
| — |
Agency commercial mortgage-backed securities | |
| 40,100 | |
| — | |
| 40,100 | |
| — |
SBA pool securities | |
| 6,372 | |
| — | |
| 6,372 | |
| — |
|
| | 238,891 |
| | — |
| | 238,891 |
| | — |
Loans held for sale | | | 13,388 | |
| — | |
| 13,388 | |
| — |
Derivative assets | | | 1,103 | |
| — | |
| 1,066 | |
| 37 |
Total assets | | $ | 253,382 | | $ | — | | $ | 253,345 | | $ | 37 |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Derivative liabilities | | $ | 189 | | $ | — | | $ | 176 | | $ | 13 |
Total liabilities | | $ | 189 | | $ | — | | $ | 176 | | $ | 13 |
| | | | | | | | | | | | |
| | | | | 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) | ||||
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 | | Inputs | ||||
(dollars in thousands) |
| December 31, 2021 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: | | | | | | | | | | | | |
Available-for-sale securities |
| |
|
| |
|
| |
|
| |
|
Residential government-sponsored mortgage-backed securities | | $ | 122,610 | | $ | — | | $ | 122,610 | | $ | — |
Obligations of states and political subdivisions | |
| 31,231 | |
| — | |
| 31,231 | |
| — |
Corporate securities | |
| 13,685 | |
| — | |
| 13,685 | |
| — |
Collateralized loan obligations | |
| 5,010 | |
| — | |
| 5,010 | |
| — |
Residential government-sponsored collateralized mortgage obligations | |
| 19,807 | |
| — | |
| 19,807 | |
| — |
Government-sponsored agency securities | |
| 17,488 | |
| — | |
| 17,488 | |
| — |
Agency commercial mortgage-backed securities | |
| 52,667 | |
| — | |
| 52,667 | |
| — |
SBA pool securities | |
| 8,834 | |
| — | |
| 8,834 | |
| — |
Total assets | | $ | 271,332 | | $ | — | | $ | 271,332 | | $ | — |
| | | | | | | | | | | | |
| | | | | 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) | ||||
Collateral dependent loans | | $ | 47,832 | | $ | — | | $ | — |
| $ | 47,832 |
Assets held for sale | | | 3,115 | | | — | | | — | | | 3,115 |
2927
The following tables present additional information about the assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):
| | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | ||||||||
| | 2022 | 2021 | | | 2022 | 2021 | ||||
Derivative assets: | | | | | | | | | | | |
Interest Rate Lock Commitments | | | | | | | | | | | |
Balance at beginning of the period | $ | 24 | | $ | — | | $ | — | | $ | — |
Acquired | | — | | | — | | | 14 | | | — |
Gain included in net income | | — | | | — | | | 10 | | | — |
Settlements | | 13 | | | — | | | 13 | | | — |
Balance at end of the period | $ | 37 | | $ | — | | $ | 37 | | $ | — |
The following tables present additional information about the liabilities measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):
| | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | ||||||||
| | 2022 | 2021 | | | 2022 | 2021 | ||||
Derivative liabilities: | | | | | | | | | | | |
Interest Rate Lock Commitments | | | | | | | | | | | |
Balance at beginning of the period | $ | 3 | | $ | — | | $ | — | | $ | — |
Acquired | | — | | | — | | | 44 | | | |
Loss included in net income | | — | | | — | | | (41) | | | — |
Settlements | | 10 | | | — | | | 10 | | | — |
Balance at end of the period | $ | 13 | | $ | — | | $ | 13 | | $ | — |
Assets and Liabilities Measured on a Non-recurring Basis:
Loans
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.
Collateral-dependent loans are measured at fair value on a non-recurring basis and are evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 5% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied was 6%.
Assets Held for Sale
Assets held for sale are valued based on third-party appraisals less estimated disposal costs. Primis considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation of assets held for sale is subject to significant external and internal judgment. Primis periodically reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly.
30
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% to 10% of collateral valuation at September 30, 2022 and December 31, 2021. Fair value is classified as Level 3 in the fair value hierarchy. OREO is further evaluated quarterly for any additional impairment. At September 30, 2022 and December 31, 2021, the total amount of OREO was $1.0 million and $1.2 million, respectively.
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, 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Collateral dependent loans | | $ | 45,742 | | $ | — | | $ | — |
| $ | 45,742 |
Assets held for sale | | | 3,127 | | | — | | | — | | | 3,127 |
Other real estate owned: | |
| | |
| | |
|
|
| | |
Construction and land development | | | 266 | | | — | | | — |
| | 266 |
Residential 1-4 family | |
| 775 | |
| — | |
| — |
| | 775 |
| | | | | | | | | | | | |
| | | | | 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, 2021 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Collateral dependent loans | | $ | 44,331 | | $ | — | | $ | — |
| $ | 44,331 |
Other real estate owned: | |
| | |
| | |
|
|
| | |
Construction and land development | |
| 266 | |
| — | |
| — |
| | 266 |
Residential 1-4 family | |
| 897 | |
| — | |
| — |
| | 897 |
31
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 | | | | June 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Fair Value |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Fair Value |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||||
| | Hierarchy Level | | Amount | | Value | | Amount | | Value | | Hierarchy Level | | Amount | | Value | | Amount | | Value | ||||||||
Financial assets: |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents |
| Level 1 | | $ | 97,738 | | $ | 97,738 | | $ | 530,167 | | $ | 530,167 |
| Level 1 | | $ | 100,868 | | $ | 100,868 | | $ | 77,859 | | $ | 77,859 |
Securities available-for-sale |
| Level 2 | |
| 238,891 | |
| 238,891 | |
| 271,332 | |
| 271,332 |
| Level 2 | |
| 223,087 | |
| 223,087 | |
| 236,315 | |
| 236,315 |
Securities held-to-maturity |
| Level 2 | |
| 14,391 | |
| 13,085 | |
| 22,940 | |
| 23,364 |
| Level 2 | |
| 12,378 | |
| 11,369 | |
| 13,520 | |
| 12,449 |
Stock in Federal Reserve Bank and Federal Home Loan Bank |
| Level 2 | |
| 16,689 | |
| 16,689 | |
| 15,521 | |
| 15,521 |
| 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 | |
| 2,705,130 | |
| 2,589,870 | |
| 2,310,881 | |
| 2,278,456 |
| Level 3 | |
| 3,135,224 | |
| 2,995,950 | |
| 2,912,093 | |
| 2,809,163 |
Loans held for sale |
| Level 2 | |
| 13,388 | | | 13,388 | | | — | | | — |
| Level 2 | |
| 57,704 | | | 57,704 | |
| 27,626 | | | 27,626 |
Accrued interest receivable |
| Level 2 | |
| 10,258 | |
| 10,258 | |
| 13,643 | |
| 13,643 |
| 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 | |
| 1,103 | |
| 1,103 | |
| — | |
| — |
| 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 | | $ | 1,325,058 | | $ | 1,325,058 | | $ | 1,380,020 | | $ | 1,380,020 |
| Level 2 | | $ | 1,298,557 | | $ | 1,298,557 | | $ | 1,200,243 | | $ | 1,200,243 |
Money market and savings accounts |
| Level 2 | |
| 1,020,270 | |
| 1,020,270 | |
| 1,022,621 | |
| 1,022,621 |
| Level 2 | |
| 1,547,109 | |
| 1,547,109 | |
| 1,057,078 | |
| 1,057,078 |
Time deposits |
| Level 3 | |
| 362,992 | |
| 358,763 | |
| 360,575 | |
| 362,902 |
| Level 3 | |
| 471,330 | |
| 468,551 | |
| 465,057 | |
| 462,376 |
Securities sold under agreements to repurchase |
| Level 1 | |
| 9,886 | |
| 9,886 | |
| 9,962 | |
| 9,962 |
| Level 1 | |
| 3,921 | |
| 3,921 | |
| 6,445 | |
| 6,445 |
FHLB advances |
| Level 1 | |
| 125,000 | |
| 125,000 | |
| 100,000 | |
| 100,000 |
| Level 1 | |
| — | |
| — | |
| 325,000 | |
| 325,000 |
Junior subordinated debt |
| Level 2 | |
| 9,769 | |
| 9,076 | |
| 9,731 | |
| 10,367 |
| Level 2 | |
| 9,806 | |
| 9,018 | |
| 9,781 | |
| 9,181 |
Senior subordinated notes |
| Level 2 | |
| 85,472 | |
| 84,022 | |
| 85,297 | |
| 91,141 |
| Level 2 | |
| 85,647 | |
| 83,123 | |
| 85,531 | |
| 84,347 |
Accrued interest payable |
| Level 2 | |
| 1,369 | |
| 1,369 | |
| 1,864 | |
| 1,864 |
| Level 2 | |
| 7,350 | |
| 7,350 | |
| 3,261 | |
| 3,261 |
Mortgage banking financial liabilities | | Level 3 | | | — | | | — | | | 4 | | | 4 | ||||||||||||||
Derivative liabilities |
| Level 2 and 3 | |
| 189 | |
| 189 | |
| — | |
| — |
| Level 2 and 3 | |
| 126 | |
| 126 | |
| 122 | |
| 122 |
Carrying amount is the estimated fair value for cash and cash equivalents, (including federal funds sold),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.
28
6.5. LEASES
The Company leases certain premises and equipment 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 SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company had operating lease liabilities totaling $6.0$11.5 million and $6.5$5.8 million, respectively, and right-of-use assets totaling $5.5$10.7 million and $5.9$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 SeptemberJune 30, 20222023 and 2021,2022, our net operating lease cost wascosts were $0.6 million and $0.4 million, respectively and for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, our net operating lease cost was $1.8 million.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 statements.and comprehensive income (loss).
32
The following table presents other information related to our operating leases:
| | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | | For the Six Months Ended | | ||||||||||
(in thousands except for percent and period data) | | September 30, 2022 | | | September 30, 2021 | | | June 30, 2023 | | | June 30, 2022 | | ||||
Other information: | | | | | | | | | | | | | | | | |
Weighted-average remaining lease term - operating leases, in years | | | 4.5 | | | | 4.5 | | | | 7.5 | | | | 4.5 | |
Weighted-average discount rate - operating leases | |
| 2.8 | % | |
| 2.5 | % | |
| 3.8 | % | |
| 2.8 | % |
The following table summarizes the maturity of remaining lease liabilities:
| | | | | | |
| | | | | | |
| | As of | | As of | ||
(dollars in thousands) | | September 30, 2022 | | June 30, 2023 | ||
Lease payments due: | | | | | | |
2022 (remaining) | | $ | 578 | |||
2023 | | | 2,051 | | $ | 1,019 |
2024 | | | 1,151 | | | 1,829 |
2025 | | | 629 | | | 1,683 |
2026 | | | 571 | | | 1,657 |
2027 | | | 1,635 | |||
Thereafter | |
| 1,553 | |
| 5,729 |
Total lease payments | | | 6,533 | | | 13,552 |
Less: imputed interest | | | (489) | | | (2,006) |
Lease liabilities | | $ | 6,044 | | $ | 11,546 |
As of SeptemberJune 30, 2022,2023, the Company had twoone operating leaseslease that havehas not yet commenced that will create additional lease liabilities and right-of-use assets for the Company.
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE6. 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 SeptemberJune 30, 20222023 and December 31, 20212022 was $9.9$3.9 million and $10.0$6.5 million, respectively.
29
At SeptemberJune 30, 20222023 and December 31, 2021,2022, we had pledged callable agency securities, residential government-sponsored mortgage-backed securities and collateralized mortgage obligations with a carrying value of $16.6$4.6 million and $21.7$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.
8. JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTESIn 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. The trust issuer invested the total proceeds from the sale of the trust preferred securities in Floating Rate Junior Subordinated Deferrable Interest Debentures. At SeptemberJune 30, 20222023 and December 31, 2021,2022, there was $10.3 million outstanding, net of approximately $0.6$0.5 million of debt issuance costs. These securities pay cumulative cash distributions quarterly at a variable rate per annum, reset quarterly, equal to the three-month LIBOR plus 2.95%. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the interest rate was 6.48% and 3.17%, respectively. The dividends paid to holders of these securities, which are recorded as interest expense, are deductible for income tax purposes.
33
Thepayable on 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.was 8.46% and 7.69%, respectively. At SeptemberJune 30, 2022,2023, 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. These notes initially bore interest at 5.875% per annum until January 31, 2022; interestInterest 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 SeptemberJune 30, 2022, 80%2023, 60% of these notes qualified as Tier 2 capital.
In 2017, the Company assumed a Senior Subordinated Note Purchase Agreement, dated April 22, 2015, entered into with certain institutional accredited investors, pursuant to which $20.0 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025 was sold to the investors. On February 1, 2021, the Company redeemed all of these notes.
On August 25, 2020, Primis completed the sale of $60.0 million of its fixed-to-floating rate Subordinated Notes due 2030. These notes will bear interestInterest is payable at an initial annual fixed rate of 5.40% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. From and includingafter September 1, 2025, to, but excluding the maturity date or the date of earlier redemption (the “floating rate period”), the interest rate will reset quarterly to an annual interestat a floating rate equal to the Benchmarka benchmark rate, which is expected to be three-month term Secured Overnight Financing Rate,Three-Month Term SOFR, plus a spread of 531 basis points, for each quarterly interest period during the floating rate period, payable quarterly in arrears on March 1, September 1, September 1, and December 1 of each year, commencing on December 1, 2025. Notwithstanding the foregoing, in the event that the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero.points. At SeptemberJune 30, 2022,2023, all of these notes qualified as Tier 2 capital.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled $1.5$1.4 million and $1.7$1.5 million, respectively.
9. 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.
A summary of stock option activity for the nine months ended September 30, 2022 follows:
| | | | | | | | | | |
|
| |
| | |
| Weighted |
|
| |
| | | | Weighted | | Average | | Aggregate | ||
| | | | Average | | Remaining | | Intrinsic | ||
| | | | Exercise | | Contractual | | Value | ||
| | Shares | | Price | | Term | | (in thousands) | ||
Options outstanding, beginning of period |
| 283,800 | | $ | 10.98 |
| 2.2 | | $ | 1,153 |
Expired | | (13,500) | | | 9.58 | | | | | |
Exercised |
| (27,500) | | | — |
| |
| |
|
Options outstanding, end of period |
| 242,800 | | $ | 11.15 |
| 1.5 | | $ | 238 |
| | | | | | | | | | |
Exercisable at end of period |
| 242,800 | | $ | 11.15 |
| 1.5 | | $ | 238 |
There was no stock-based compensation expense associated with stock options for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, we do not have any unrecognized compensation expense associated with the stock options.
3430
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 2022the six months ended June 30, 2023 follows:
| | | | | | | | | | | | | | | | |
|
| |
| Weighted |
| Weighted |
|
| |
| Weighted |
| Weighted |
| ||
| | | | Average | | Average | | | | | Average | | Average | | ||
| | | | Grant-Date | | Remaining | | | | | Grant-Date | | Remaining | | ||
| | | | Fair Value | | Contractual | | | | | Fair Value | | Contractual | | ||
| | Shares | | Per Share | | Term | | | Shares | | Per Share | | Term | | ||
Unvested restricted stock outstanding, beginning of period |
| 98,050 | | $ | 14.58 |
| 3.3 |
|
| 68,700 | | $ | 14.24 | | 2.4 |
|
Granted |
| 48,658 | | | 13.85 |
|
|
|
| 5,000 | | | 7.58 |
|
|
|
Vested |
| (73,508) | | | 14.04 |
|
|
|
| (21,350) | | | 14.28 |
|
|
|
Forfeited |
| (2,000) | | | 15.43 |
| |
| ||||||||
Unvested restricted stock outstanding, end of period |
| 73,200 | | $ | 14.30 | | 2.6 | |
| 50,350 | | $ | 13.51 | | 2.4 | |
Stock-based compensation expense for time vested restricted stock awards totaled $0.1 million for each of the three months ended Septemberboth June 30, 2023 and 2022, and 2021 and $1.0$0.1 million and $0.6$0.8 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. As of SeptemberJune 30, 2022,2023, unrecognized compensation expense associated with restricted stock awards was $0.8$0.5 million, which is expected to be recognized over a weighted average period of 2.72.4 years.
A summary of performance-based restricted stock units (the “Units”) for 2022the six months ended June 30, 2023 follows:
| | | | | | | | | | | | | | |
|
| |
| | Weighted |
| Weighted |
| |
| | Weighted |
| Weighted |
| | | | | Average | | Average | | | | | Average | | Average |
| | | | | Grant-Date | | Remaining | | | | | Grant-Date | | Remaining |
| | | | | Fair Value | | Contractual | | | | | Fair Value | | Contractual |
| | Shares | | | Per Share | | Term | | Shares | | | Per Share | | Term |
Unvested Units outstanding, beginning of period |
| 59,335 | | $ | 15.00 |
| 4.0 |
| 153,960 | | $ | 13.02 |
| 3.6 |
Granted |
| — | | | — |
|
|
| — | | | — |
|
|
Vested |
| — | | | — |
|
|
| — | | | — |
|
|
Forfeited |
| — | | | — |
| | |||||||
Unvested Units outstanding, end of period |
| 59,335 | | $ | 15.00 |
| 3.3 |
| 153,960 | | | 13.02 | | 2.6 |
In September 2021, the Company issued 59,335 non-transferrable Units convertible, on a one-on-one basis, into shares of stock to eligible employees, granted pursuant to and subject to the provisions of the 2017 Plan.
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.
31
The Company did not recognize any stock-based compensation expense associated with these Units for the three and ninesix months ended SeptemberJune 30, 2023 and 2022 because it is not probable that these Units will vest. The grant date fair value of these Units was $15.00 per Unit. The potential unrecognized compensation expense associated with these Units iswas $3.0 million and $1.3 million at SeptemberJune 30, 2022.2023 and 2022, respectively.
35
10. 8. COMMITMENTS AND CONTINGENCIES
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. 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 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 $12.3 million and $13.1$10.7 million as of Septemberboth June 30, 20222023 and December 31, 2021, 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 43 - 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:
| | | | | | | | | | | | |
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Balance as of January 1 | | $ | 977 | | $ | 740 | | $ | 1,416 | | $ | 977 |
Credit loss expense | |
| 403 | |
| 859 | ||||||
Credit loss expense (recovery) | |
| (143) | |
| 92 | ||||||
Balance as of June 30, | | $ | 1,380 | | $ | 1,599 | | $ | 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 creditworthiness on a case-by-case basis.
32
We had $35.4$81.5 million of Primis mortgage loan commitments outstanding as of SeptemberJune 30, 2022,2023, all of which contractually expire within thirty years.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, we had unfunded lines of credit and undisbursed construction loan funds totaling $495.5$495.4 million and $411.0$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.
36
Table The amount of Contentscertificate 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.
Primis also had commitments on the subscription agreements entered into for the investments in non-marketable equity securities of $3.9$2.4 million and $3.5$3.2 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
11. 9. EARNINGS PER SHARE
The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations (amounts in thousands, except per share data):
| | | | | | | | | | | | | | | | |
|
| | |
| Weighted |
|
| |
| | |
| Weighted |
|
| |
| | | | | Average | |
| | | | | | Average | |
| |
| | Income | | Shares | | Per Share | | Income | | Shares | | Per Share | ||||
| | (Numerator) | | (Denominator) | | Amount | | (Numerator) | | (Denominator) | | Amount | ||||
For the three months ended September 30, 2022 |
| |
|
|
|
| |
| ||||||||
Basic EPS from continuing operations | | $ | 5,054 |
| 24,577 | | $ | 0.21 | ||||||||
For the three months ended June 30, 2023 | | | | | | | | | ||||||||
Basic EPS | | $ | (188) |
| 24,639 | | $ | (0.01) | ||||||||
Effect of dilutive stock options and unvested restricted stock | |
| — |
| 111 | |
| (0.01) | |
| — |
| — | |
| — |
Diluted EPS from continuing operations | | $ | 5,054 |
| 24,688 | | $ | 0.20 | ||||||||
Diluted EPS | | $ | (188) |
| 24,639 | | $ | (0.01) | ||||||||
| | | | | | | | | | | | | | | | |
Basic EPS from discontinued operations | | $ | — |
| 24,577 | | $ | 0.00 | ||||||||
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 | |
| — |
| 111 | |
| — | |
| — |
| 118 | |
| — |
Diluted EPS from discontinued operations | | $ | — |
| 24,688 | | $ | 0.00 | ||||||||
Diluted EPS | | $ | 4,948 |
| 24,681 | | $ | 0.20 | ||||||||
| | | | | | | | | | | | | | | | |
For the three months ended September 30, 2021 | |
|
|
|
| |
|
| ||||||||
Basic EPS from continuing operations | | $ | 6,211 |
| 24,474 | | $ | 0.25 | ||||||||
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 | |
| — |
| 160 | |
| — | |
| — |
| 53 | |
| — |
Diluted EPS from continuing operations | | $ | 6,211 |
| 24,634 | | $ | 0.25 | ||||||||
Diluted EPS | | $ | 5,765 |
| 24,685 | | $ | 0.23 | ||||||||
| |
| |
|
| |
|
| | | | | | | | |
Basic EPS from discontinued operations | | $ | (2,272) |
| 24,474 | | $ | (0.09) | ||||||||
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 | |
| — |
| 160 | |
| — | |
| — |
| 132 | |
| (0.01) |
Diluted EPS from discontinued operations | | $ | (2,272) |
| 24,634 | | $ | (0.09) | ||||||||
Diluted EPS | | $ | 9,484 |
| 24,666 | | $ | 0.38 | ||||||||
| | | | | | | | | | | | | | | | |
For the nine months ended September 30, 2022 | |
|
|
|
| |
|
| ||||||||
Basic EPS from continuing operations | | $ | 14,656 |
| 24,548 | | $ | 0.60 | ||||||||
Effect of dilutive stock options and unvested restricted stock | |
| — |
| 126 | |
| (0.01) | ||||||||
Diluted EPS from continuing operations | | $ | 14,656 |
| 24,674 | | $ | 0.59 | ||||||||
| | | | | | | | | | | | | | | | |
Basic EPS from discontinued operation | | $ | — |
| 24,548 | | $ | 0.00 | ||||||||
Effect of dilutive stock options and unvested restricted stock | |
| — |
| 126 | |
| — | ||||||||
Diluted EPS from discontinued operation | | $ | — |
| 24,674 | | $ | 0.00 | ||||||||
| | | | | | | | | | | | | | | | |
For the nine months ended September 30, 2021 | |
|
|
|
| |
|
| ||||||||
Basic EPS from continuing operations | | $ | 23,366 |
| 24,425 | | $ | 0.96 | ||||||||
Effect of dilutive stock options and unvested restricted stock | |
| — |
| 158 | |
| (0.01) | ||||||||
Diluted EPS from continuing operations | | $ | 23,366 |
| 24,583 | | $ | 0.95 | ||||||||
| | | | | | | | | | | | | | | | |
Basic EPS from discontinued operation | | $ | 231 | | 24,425 | | $ | 0.01 | ||||||||
Effect of dilutive stock options and unvested restricted stock | |
| — | | 158 | |
| — | ||||||||
Diluted EPS from discontinued operation | | $ | 231 | | 24,583 | | $ | 0.01 | ||||||||
| | | | | | | | |
The Company had 81,800 anti-dilutive options as of June 30, 2023 and did not have any anti-dilutive options as of SeptemberJune 30, 2022 and 2021.
37
12. SUBSEQUENT EVENT
On October 3, 2022, Infinex Financial Services was acquired by Advisor Group for a mix of cash and contingent consideration. Primis was an investor in Infinex Financial Services. As a result of the acquisition, Primis expects to record a pre-tax gain of approximately $4.1 million in the fourth quarter of 2022.
3833
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 table provides financial information for the Company's reportable segments. The information provided under the caption “Primis Bank” includes operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company and elimination adjustments to reconcile the results of the operating segment to the consolidated financial statements 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 |
| | | | | | | | | | | | | | | | | | |
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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 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, 2021.2022. Results of operations for the three and ninesix months ended SeptemberJune 30, 20222023 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 ninesix months ended SeptemberJune 30, 20222023 compared to the three and ninesix months ended SeptemberJune 30, 20212022 for the consolidated statements of income.income (loss) and comprehensive income (loss). For the consolidated balance sheets, the emphasis of this discussion will be the balances as of SeptemberJune 30, 20222023 compared to December 31, 2021.2022. 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. 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 not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of 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” or similar words, or the negatives of these words, identify forward-looking statements.
Forward-looking statements involve risks and 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 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, 2021,2022, 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 disruptions in the credit and financial markets, domestic and foreign; |
● | potential impacts of the |
● | potential increases in the provision for credit |
● | 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 |
● | adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions; |
35
● | 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; |
39
● | 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 |
● | 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 |
● | 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 |
● | 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, |
● | 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; |
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● | 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; |
● | 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 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,
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and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Quarterly Report on Form 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 (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
Primis Financial Corp. (“Primis,” “we,” “us,” “our” or the “Company”) is the bank holding company for Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. Primis Bank provides a range of financial services to individuals and small and medium-sized businesses. At June 30, 2023, Primis Bank had 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 and two full-service retail branches are in Maryland. The Company is headquartered in McLean, Virginia and has an administrative office in Glen Allen, Virginia and an operations center in 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 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 continuing to put strong margin pressure on all banks, including Primis, as the cost of deposits is increasing while many loans are fixed due to
37
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 2% target rate. The path of 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 growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions. The full extent of the impact of these factors is uncertain and may have a negative impact on the U.S. economy, including the possibility of an economic recession in the near or mid-term.
FINANCIAL HIGHLIGHTS
● | 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. |
● | 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. |
● | 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. |
● | Total deposits were $3.32 billion at June 30, 2023, an increase of 22% compared to December 31, 2022. |
● | 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. |
● | The ratio of gross loans to deposits has declined to 96% at June 30, 2023, from 108% at December 31, 2022. |
● | Net interest margin of 2.65% in the second quarter of 2023 was down from 3.33% in the second quarter of 2022. |
● | Allowance for credit losses to total loans was 1.21% at June 30, 2023, compared to 1.17% at December 31, 2022. |
● | 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. |
● | 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. |
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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 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. The 39% decrease in net income during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense and higher data processing expense in the current year, partially offset by higher mortgage banking and credit enhancement income in 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 $26.2 million for the three months ended June 30, 2023, compared to $24.6 million for the three months ended June 30, 2022. Primis’ net interest margin for the three months ended June 30, 2023 was 2.65%, compared to 3.33% for the 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 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 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 3.10% for the three months ended June 30, 2023, compared to 0.45% for the three months ended June 30, 2022. Interest and fees on loans totaled $44.0 million and $26.3 million for the three months ended June 30, 2023 and 2022, respectively. Average loans during the three months ended June 30, 2023 were $3.15 billion, compared to $2.51 billion during the three months ended June 30, 2022.
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The following 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 | % |
(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 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 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 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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The following 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 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. |
Provision for Credit Losses
The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses for 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 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 Company recorded a provision for credit losses for the three and six months ended June 30, 2023 of $4.3 million and $9.5 million, respectively, compared to a provision for credit losses for the three and six months ended June 30, 2022 of $0.4 million and $0.5 million, respectively. 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 provision is fully offset by a gain
41
recorded in noninterest income due to credit enhancement and has no effect on net income. Excluding this provision amount, the provision for 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 months ended June 30, 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 credit enhancement portfolio of loans. Approximately half of the charge-offs during the six months ended June 30, 2023, were related to the credit enhancement portfolio of loans and a majority of 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 table presents the major categories of noninterest income for the three months ended June 30, 2023 and 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 |
Noninterest income increased 223% to $8.5 million for the 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 2023. The Company began accounting for certain third party credit enhancements on consumer lending during the third quarter of 2022, resulting in no income in the prior year and purchased Primis Mortgage late in the second quarter of 2022, which resulted in the lower level of income when compared to current year. During the second quarter of 2023, the Bank also realized $0.2 million of gains associated with a small sale of Panacea commercial loans.
The following table presents the major categories of noninterest income for the six months ended June 30, 2023 and 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 |
| | | | | | | | | |
42
Noninterest income increased 324% to $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 mortgage banking income is related to the purchase of Primis Mortgage in May 2022 coupled with meaningful growth in the year since the purchase. Mortgage banking income includes fair value adjustments, origination income, and gains on sales of 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 charge-offs in that portfolio over that time. Increase in noninterest income was also attributable to $0.7 million of gains associated with the sale of loans in 2023, primarily related to Panacea commercial loans.
Noninterest Expense
The following table presents the major categories of noninterest expense for the three months ended June 30, 2023 and 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 |
Noninterest expenses were $30.6 million during the three months ended June 30, 2023, compared to $20.5 million during the three months ended June 30, 2022. The 49% increase in noninterest expenses was primarily due to a $4.7 million increase in employee compensation in the second quarter of 2023 related to increased head count at the Bank, Primis Mortgage and Panacea compared to the second quarter of 2022, along with costs related to the cost savings initiative announced in the second quarter of 2023. The increase in noninterest expense during the 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 a savings account rate promotion offered during 2023. Furniture and equipment expenses increased $0.7 million due in large part to write-downs of assets related to the 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 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.
43
The following table presents the major categories of noninterest expense for the six months ended June 30, 2023 and 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 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 and second quarter of 2023. Noninterest expense for the six months ended June 30, 2023 included $1.4 million of credit enhancement costs related to servicing and other expenses for a third-party managed loan portfolio due to significant growth and charge-offs in that loan portfolio during 2023. Furniture and equipment expenses increased $1.2 million due to growth in the 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 2023. Other expenses increased during the 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.
44
FINANCIAL CONDITION
Balance Sheet Overview
Total assets were $3.85 billion as of June 30, 2023 and $3.57 billion as of December 31, 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 increased 7%, from $2.95 billion at December 31, 2022 to $3.17 billion at June 30, 2023. Total deposits were $3.32 billion at June 30, 2023, compared to $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, 2022, respectively. Excluding PPP loans, loans outstanding increased $229.4 million, or 8%, since December 31, 2022.
As of June 30, 2023 and December 31, 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 | % |
| |
| |
| | |
| |
|
| |
45
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 loan portfolio losses and delinquencies have been primarily limited by our underwriting standards and portfolio management practices. Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, rising interest rates, historically high inflation, and recessionary concerns.
Total calculated reserves increased by $3.9 million to $38.4 million at the end of June 30, 2023 compared to $34.5 million at December 31, 2022, driven by growth in the third-party managed loan portfolio and secondarily due to the $227.0 million in overall loan growth experienced in 2023.
46
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 | % |
Nonaccrual loans decreased 29% to $25.3 million (excluding $0.6 million of loans fully covered by SBA guarantees) at June 30, 2023, compared to $35.5 million (excluding $0.6 million of loans fully covered by SBA guarantees) at December 31, 2022. A substantial portion of the Bank’s nonperforming assets in previous periods were comprised of 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 second quarter of 2023. The other relationship, primarily consisting of assisted living facilities, is currently at the end of a receiver-managed marketing process with all three facilities under contract to close in the third quarter of 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 June 30, 2023, an 86% decrease from year end.
At June 30, 2023, our total substandard loans were $33.7 million compared to $41.0 million at December 31, 2022, an 18% decline. Included in the 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 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 our total owner occupied commercial real estate loans.
An existing modification performed in the first quarter of 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.
47
Investment Securities
Our investment securities portfolio provides us with required liquidity and collateral to pledge secure public deposits, certain other deposits, advances from the 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 30, 2023, a decrease of 6% from $249.8 million at December 31, 2022, primarily due to paydowns, maturities, and calls of the investments over the past six months.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available-for-sale investment securities are reported at fair value, and 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 |
We recognized an immaterial amount of credit impairment charges related to credit losses on our held-to-maturity investment securities during the three and six months ended June 30, 2023 and no 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.
48
Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in deposits from year-end was primarily driven by the substantial growth in the Bank’s new digital deposit platform in the first and second quarter of 2023. The majority of the growth was in savings accounts with the remainder largely in NOW accounts. Savings accounts increased 184% from $245.7 million as of December 31, 2022 to $696.8 million at June 30, 2023. NOW accounts increased 32% from $617.7 million at December 31, 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 sources of liquidity and as of June 30, 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 banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be, significantly affected by the general economy and market rates of interest.
For our deposit agreements with certain customers, we hold the collateral in a 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 over-collateralization.
Liquidity and Funds Management
The objective of our liquidity management is to 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. If our level of core deposits are not sufficient to fully fund our lending activities, we have access to funding from additional sources, including but not limited to borrowing from the Federal Home Loan Bank of Atlanta and institutional certificates of deposits. In addition, we maintain federal funds lines of credit with two correspondent banks, totaling $65 million, and utilize securities sold under agreements to repurchase (“repo”) and reverse repurchase agreement borrowings from approved securities dealers, as needed.
We prepare a cash flow forecast on a 30, 60 and 90 day basis along with a one and 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.
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 in digital platform deposits described above.
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.
The balance in repo accounts at June 30, 2023 and December 31, 2022 was $3.9 million and $6.5 million, respectively.
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,
49
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 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.
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, 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 in the normal course.
As of 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.
50
The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp. and Primis Bank at the periods indicated to the minimum and well-capitalized required regulatory standards:
| | | | | | | | | |
| | 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) | 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.
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 PCA.
CRITICAL ACCOUNTING POLICIES
Net Income
We follow accountingThree-Month Comparison.Net loss for the three months ended June 30, 2023 totaled $0.2 million, or $0.01 basic and reporting policies that conform,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 all material respects,net income during the three months ended June 30, 2023 compared to accounting principles generally acceptedthe three months ended June 30, 2022 was driven by higher noninterest expenses mainly from an increase in employee compensation and benefits expense in the United Statessecond quarter of 2023 related to increased head count at the Bank, Primis Mortgage and Panacea. The decrease in net income was also attributable to general practices withinhigher data processing expense driven by substantially higher application volume on the financial services industry. The preparationdigital deposit platform as a result of financial statements in conformity with accounting principles generally accepteda savings account rate promotion offered during 2023. We also experienced a $3.9 million increase in the United States requires managementprovision for loan losses, a substantial amount of which was due to make estimates and assumptionsspecific loans that affect the amounts reportedare in the financial statementsprocess of resolution. These decreases were partially offset by higher interest income and accompanying notes. While we base estimatesfrom mortgage banking income in the second quarter of 2023.
Six-Month Comparison.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. The 39% decrease in net income during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense and higher data processing expense in the current year, partially offset by higher mortgage banking and credit enhancement income in 2023.
Net Interest Income
Our operating results depend primarily on historical experience, current informationour net interest income, which is the difference between interest and other factors deemeddividend 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 $26.2 million for the three months ended June 30, 2023, compared to be relevant, actual results could differ from those estimates.$24.6 million for the three months ended June 30, 2022. Primis’ net interest margin for the three months ended June 30, 2023 was 2.65%, compared to 3.33% for the 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 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 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 3.10% for the three months ended June 30, 2023, compared to 0.45% for the three months ended June 30, 2022. Interest and fees on loans totaled $44.0 million and $26.3 million for the three months ended June 30, 2023 and 2022, respectively. Average loans during the three months ended June 30, 2023 were $3.15 billion, compared to $2.51 billion during the three months ended June 30, 2022.
We consider accounting estimates39
The following 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 | % |
(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 be critical$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 reported financial results if (i)3.14% for the accounting estimate requires managementsix months ended June 30, 2022. Continued upward pressure on deposit account rates and consumer preferences shifting from non-interest bearing to make assumptions about mattershigher rate products are impacting interest expense and net interest income for the Company and the industry as a whole. Net interest margin for the Company was further affected by excess cash balances, that are highly uncertainpart 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 (ii) different estimates that management reasonably could have used$54.8 million for the accounting estimatesix months ended June 30, 2023 and 2022, respectively. The yield on 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 interest-bearing deposits increased 231 basis points to 2.75% for the current period, or changes insix months ended June 30, 2023, compared to 0.44% for the accounting estimate that are reasonably likelysix 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 occur from period to period, could have a material impact$2.44 billion during the six months ended June 30, 2022.
40
The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on our financial statements.such assets and liabilities, and the yield/rate for the 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. |
Accounting policies relatedProvision for Credit Losses
The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses for current expected losses in the loan portfolio based on financial instruments including loansan evaluation of the loan portfolio, current economic conditions, changes in the nature and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgmentvolume of lending, historical loan experience and estimation by management. In the case of loans, theother known internal and external factors affecting loan collectability. Our 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 Company recorded a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) 326, which is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowanceprovision for credit losses isfor the three and six months ended June 30, 2023 of $4.3 million and $9.5 million, respectively, compared to a liability account,provision for credit losses for the three and six months ended June 30, 2022 of $0.4 million and $0.5 million, respectively. 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 accordance with ASC 326. The allowance is reported asour normal reserve process for a componentportfolio of other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement asloans that includes a component of other expenses.
The amount of each allowance account represents management's best estimate of current expectedthird-party credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual termenhancement. As a result, this portion of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accountsprovision is dependent uponfully offset by a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2021 Form 10-K for additional information regarding critical accounting policies.
Current Economic Environment
The U.S. economy expanded in the third quarter of 2022, with Real Gross Domestic Product growing by an annualized 2.6%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment dropped back to 3.5% in September 2022. Lingering and pervasive economic effects of the pandemic remain, including supply chain backlogs, labor shortages and increased input costs, resulting in continued escalating inflationary conditions. Further, the continued military conflict between Russia and Ukraine has contributed to the inflationary pressures. While certain economic data suggests the economy is beginning to soften, the Federal Reserve appears to be strongly focused on reverting inflation back to its long term rate of 2%. The Federal Reserve has now raised rates 375 bps in total since March, a pace that has not been experienced in more than 40 years. The Federal Reserve is expected to continue to raise rates in its last meeting of the year, but with weakening economic data and rates entering restrictive territory, its actions in 2023 are unclear.
gain
41
OVERVIEWrecorded in noninterest income due to credit enhancement and has no effect on net income. Excluding this provision amount, the provision for 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 months ended June 30, 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 credit enhancement portfolio of loans. Approximately half of the charge-offs during the six months ended June 30, 2023, were related to the credit enhancement portfolio of loans and a majority of 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.
PrimisThe Financial Corp. (“Primis,” “we,” “us,” “our” orCondition Section of Management’s Discussion and Analysis provides information on our loan portfolio, past due loans, nonperforming assets and the “Company”) isallowance for credit losses.
Noninterest Income
The following table presents the bank holding companymajor categories of noninterest income for Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. Primis Bank provides a rangethree months ended June 30, 2023 and 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 |
Noninterest income increased 223% to $8.5 million for the 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 financial services to individualsmortgage banking income and small and medium-sized businesses. At September 30, 2022, Primis Bank had thirty-two full-service branches$1.2 million of credit enhancement income in Virginia and Maryland and also provides services to customers through certain online and mobile applications. Thirty full-service retail branches are in Virginia and two full-service retail branches are in Maryland.the second quarter of 2023. The Company is headquarteredbegan accounting for certain third party credit enhancements on consumer lending during the third quarter of 2022, resulting in McLean, Virginiano income in the prior year and has administrative offices in Warrenton, Virginia and Glen Allen, Virginia. We consolidated six branchespurchased Primis Mortgage late in the second quarter of 2022, and two brancheswhich resulted in the thirdlower level of income when compared to current year. During the second quarter of 2022. Our deposits are insured, up to applicable limits, by the Federal Deposit Insurance Corporation (the “FDIC”).
On April 28, 2022, Primis Bank entered into a definitive agreement to acquire 100% of the issued and outstanding capital stock of SeaTrust Mortgage Company (“SeaTrust”), a North Carolina corporation. On May 31, 2022, Primis Bank completed the acquisition (the “Acquisition”) of 100% of the outstanding capital stock of SeaTrust from Community First Bank, Inc. (the “Seller”) pursuant to the Stock Purchase Agreement, dated as of April 28, 2022 (the “Purchase Agreement”) by and among2023, the Bank Seller, and SeaTrust. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022. Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to “Primis Mortgage Company”. Primis Mortgage Company originates mortgages primarily in the Carolinas, Florida and Tennessee from eight offices. Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3also realized $0.2 million of SeaTrust’s indebtedness under certain warehouse lending facilities.gains associated with a small sale of Panacea commercial loans.
The following table presents the major categories of noninterest income for the six months ended June 30, 2023 and 2022:
FINANCIAL HIGHLIGHTS
| | | | | | | | | |
| | 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 |
| | | | | | | | | |
42
RESULTS OF OPERATIONSNoninterest income increased 324% to $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 mortgage banking income is related to the purchase of Primis Mortgage in May 2022 coupled with meaningful growth in the year since the purchase. Mortgage banking income includes fair value adjustments, origination income, and gains on sales of 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 charge-offs in that portfolio over that time. Increase in noninterest income was also attributable to $0.7 million of gains associated with the sale of loans in 2023, primarily related to Panacea commercial loans.
Noninterest Expense
The following table presents the major categories of noninterest expense for the three months ended June 30, 2023 and 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 |
Noninterest expenses were $30.6 million during the three months ended June 30, 2023, compared to $20.5 million during the three months ended June 30, 2022. The 49% increase in noninterest expenses was primarily due to a $4.7 million increase in employee compensation in the second quarter of 2023 related to increased head count at the Bank, Primis Mortgage and Panacea compared to the second quarter of 2022, along with costs related to the cost savings initiative announced in the second quarter of 2023. The increase in noninterest expense during the 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 a savings account rate promotion offered during 2023. Furniture and equipment expenses increased $0.7 million due in large part to write-downs of assets related to the 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 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.
43
The following table presents the major categories of noninterest expense for the six months ended June 30, 2023 and 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 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 and second quarter of 2023. Noninterest expense for the six months ended June 30, 2023 included $1.4 million of credit enhancement costs related to servicing and other expenses for a third-party managed loan portfolio due to significant growth and charge-offs in that loan portfolio during 2023. Furniture and equipment expenses increased $1.2 million due to growth in the 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 2023. Other expenses increased during the 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.
44
FINANCIAL CONDITION
Balance Sheet Overview
Total assets were $3.85 billion as of June 30, 2023 and $3.57 billion as of December 31, 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 increased 7%, from $2.95 billion at December 31, 2022 to $3.17 billion at June 30, 2023. Total deposits were $3.32 billion at June 30, 2023, compared to $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, 2022, respectively. Excluding PPP loans, loans outstanding increased $229.4 million, or 8%, since December 31, 2022.
As of June 30, 2023 and December 31, 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 | % |
| |
| |
| | |
| |
|
| |
45
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 loan portfolio losses and delinquencies have been primarily limited by our underwriting standards and portfolio management practices. Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, rising interest rates, historically high inflation, and recessionary concerns.
Total calculated reserves increased by $3.9 million to $38.4 million at the end of June 30, 2023 compared to $34.5 million at December 31, 2022, driven by growth in the third-party managed loan portfolio and secondarily due to the $227.0 million in overall loan growth experienced in 2023.
46
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 | % |
Nonaccrual loans decreased 29% to $25.3 million (excluding $0.6 million of loans fully covered by SBA guarantees) at June 30, 2023, compared to $35.5 million (excluding $0.6 million of loans fully covered by SBA guarantees) at December 31, 2022. A substantial portion of the Bank’s nonperforming assets in previous periods were comprised of 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 second quarter of 2023. The other relationship, primarily consisting of assisted living facilities, is currently at the end of a receiver-managed marketing process with all three facilities under contract to close in the third quarter of 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 June 30, 2023, an 86% decrease from year end.
At June 30, 2023, our total substandard loans were $33.7 million compared to $41.0 million at December 31, 2022, an 18% decline. Included in the 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 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 our total owner occupied commercial real estate loans.
An existing modification performed in the first quarter of 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.
47
Investment Securities
Our investment securities portfolio provides us with required liquidity and collateral to pledge secure public deposits, certain other deposits, advances from the 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 30, 2023, a decrease of 6% from $249.8 million at December 31, 2022, primarily due to paydowns, maturities, and calls of the investments over the past six months.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available-for-sale investment securities are reported at fair value, and 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 |
We recognized an immaterial amount of credit impairment charges related to credit losses on our held-to-maturity investment securities during the three and six months ended June 30, 2023 and no 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.
48
Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in deposits from year-end was primarily driven by the substantial growth in the Bank’s new digital deposit platform in the first and second quarter of 2023. The majority of the growth was in savings accounts with the remainder largely in NOW accounts. Savings accounts increased 184% from $245.7 million as of December 31, 2022 to $696.8 million at June 30, 2023. NOW accounts increased 32% from $617.7 million at December 31, 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 sources of liquidity and as of June 30, 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 banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be, significantly affected by the general economy and market rates of interest.
For our deposit agreements with certain customers, we hold the collateral in a 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 over-collateralization.
Liquidity and Funds Management
The objective of our liquidity management is to 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. If our level of core deposits are not sufficient to fully fund our lending activities, we have access to funding from additional sources, including but not limited to borrowing from the Federal Home Loan Bank of Atlanta and institutional certificates of deposits. In addition, we maintain federal funds lines of credit with two correspondent banks, totaling $65 million, and utilize securities sold under agreements to repurchase (“repo”) and reverse repurchase agreement borrowings from approved securities dealers, as needed.
We prepare a cash flow forecast on a 30, 60 and 90 day basis along with a one and 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.
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 in digital platform deposits described above.
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.
The balance in repo accounts at June 30, 2023 and December 31, 2022 was $3.9 million and $6.5 million, respectively.
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,
49
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 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.
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, 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 in the normal course.
As of 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.
50
The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp. and Primis Bank at the periods indicated to the minimum and well-capitalized required regulatory standards:
| | | | | | | | | |
| | 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. |
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| |
|
| |
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) | 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.
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 PCA.
Net Income
Three-Month Comparison. Net income from continuing operationsloss for the three months ended SeptemberJune 30, 2022 was $5.12023 totaled $0.2 million, or $0.21$0.01 basic and $0.20 diluted earningsloss per share, compared to $6.2net income of $4.9 million, or $0.25$0.20 basic and diluted earnings per share for the three months ended SeptemberJune 30, 2021.2022. The 19%104% decrease in net income during the three months ended SeptemberJune 30, 20222023 compared to the three months ended SeptemberJune 30, 20212022 was driven by higher noninterest expenses in the current year mainly from an increase in employee compensation and benefits expense in the thirdsecond quarter of 2023 related to branch closures and consolidations and higher expenses related toincreased 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 third quarter.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. The Company’s loan growth overincome and from mortgage banking income in the past several quarters and the improved asset mix has been the driversecond quarter of positive movements in both margins and net interest income.2023.
Six-Month Comparison.Net income from discontinued operations for the threesix months ended SeptemberJune 30, 2022 was zero,2023 totaled $5.8 million, or zero$0.23 basic and diluted earnings per share, compared to net loss from discontinued operation of $2.3$9.5 million, or $(0.09)$0.39 basic and diluted earnings per share, for the three months ended September 30, 2021. The decline in net income from discontinued operations is related to the closing of the STM transaction in 2021, as discussed in Note 1 - Accounting Policies.
Nine-Month Comparison.Net income from continuing operations for the nine months ended September 30, 2022 was $14.7 million, or $0.60 basic and $0.59 diluted earnings per share, compared to $23.4 million, or $0.96 basic and $0.95$0.38 per diluted earnings per share for the ninesix months ended SeptemberJune 30, 2021.2022. The 37%39% decrease in net income during the ninesix months ended SeptemberJune 30, 20222023 compared to the ninesix months ended SeptemberJune 30, 20212022 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense and higher data processing expense in the current year. The decreaseyear, partially offset by higher mortgage banking and credit enhancement income in net income was also attributable to provision for credit losses in 2022 compared to a recovery of credit losses in 2021 primarily as a result of robust loan growth.2023.
Net income from discontinued operations for the nine months ended September 30, 2022 was zero, or zero basic and diluted earnings per share, compared to net income from discontinued operation of $0.2 million, or $0.10 basic and diluted earnings per share, for the nine months ended September 30, 2021.
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 $27.5$26.2 million for the three months ended SeptemberJune 30, 2022,2023, compared to $23.2$24.6 million for the three months ended SeptemberJune 30, 2021.2022. Primis’ net interest margin for the three months ended SeptemberJune 30, 20222023 was 3.57%2.65%, compared to 2.87%3.33% for the three months ended SeptemberJune 30, 2021.2022. Net interest margin was impacted heavily by the origination of PPP loans in 2021 and 2020. Net PPP fee income recognized was zero for the three months ended SeptemberJune 30, 2022 versus $2.72023 was affected by excess cash balances that were not earning the higher rates of 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 SeptemberJune 30, 2021, a decline from the third quarter of 2021. Net interest margin, excluding the effects of PPP loans, was 3.58% for the three months ended September 30,2023 and 2022, compared to 2.66% for the three months ended September 30, 2021. Total income on interest-earning assets was $32.6 million and $27.8 million for the three months ended September 30, 2022 and 2021, respectively. The yield on average interest-earning assets was 4.24%5.34% and 3.44%3.82% for the three months ended SeptemberJune 30, 2023 and 2022, respectively. Increase in yield on average interest-earnings assets was driven by higher rates on cash and 2021, respectively.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 9265 basis points to 0.64%3.10% for the three months ended SeptemberJune 30, 2022,2023, compared to 0.56% cost on average interest-bearing deposits0.45% for the three months ended SeptemberJune 30, 2021.2022. Interest and fees on loans totaled $30.5$44.0 million and $26.2$26.3 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Average loans during the three months ended SeptemberJune 30, 20222023 were $2.69$3.15 billion, compared to $2.29$2.51 billion during the three months ended SeptemberJune 30, 2021. The Company’s loan growth over the past several quarters and the improved asset mix has been the driver of positive movements in both margins and net interest income.2022.
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The following 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 | | | Average Balance Sheets and Net Interest Margin | | ||||||||||||||||||||||||||||
| | Analysis For the Three Months Ended | | | Analysis For the Three Months Ended | | ||||||||||||||||||||||||||||
| | September 30, 2022 | | September 30, 2021 | | | June 30, 2023 | | June 30, 2022 | | ||||||||||||||||||||||||
| | | | | Interest | | | | | | | Interest | | | | | | | | Interest | | | | | | | Interest | | | | ||||
| | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ | | | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ | | ||||||||
|
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate |
|
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate |
| ||||||||
| | (Dollar amounts in thousands) | | | (Dollar amounts in thousands) | | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | |
| | | | |
| | |
| | |
| | | | | |
| | | | |
| | |
| | |
| | | |
Loans held for sale | | $ | 21,199 | | $ | 263 | | 4.92 | % | $ | — | | $ | — | | — | % | | $ | 48,698 | | $ | 700 | | 5.77 | % | $ | 6,936 | | $ | 93 | | 5.38 | % |
Loans, net of deferred fees (1) (2) | | | 2,669,605 | | | 30,260 | | 4.50 | % | | 2,291,945 | | | 26,181 | | 4.53 | % | | | 3,101,946 | | | 43,270 | | 5.60 | % | | 2,507,779 | | | 26,244 | | 4.20 | % |
Investment securities | | | 269,780 | | | 1,518 | | 2.23 | % | | 229,906 | | | 1,083 | | 1.87 | % | | | 240,700 | | | 1,551 | | 2.58 | % | | 287,722 | | | 1,445 | | 2.01 | % |
Other earning assets | | | 90,268 | | | 555 | | 2.44 | % | | 689,084 | | | 537 | | 0.31 | % | | | 568,251 | | | 7,158 | | 5.05 | % | | 158,817 | | | 448 | | 1.13 | % |
Total earning assets | | | 3,050,852 | | | 32,596 | | 4.24 | % | | 3,210,935 | | | 27,801 | | 3.44 | % | | | 3,959,595 | | | 52,679 | | 5.34 | % | | 2,961,254 | | | 28,230 | | 3.82 | % |
Allowance for credit losses | | | (29,830) | | | | | | | | (30,598) | | | | | | | | | (35,694) | | | | | | | | (29,844) | | | | | | |
Investments in mortgage affiliate - held for sale | | | — | | | | | | | | 12,621 | | | | | | | |||||||||||||||||
Total non-earning assets | | | 264,185 | | | | | | | | 260,714 | | | | | | | | | 294,742 | | | | | | | | 259,052 | | | | | | |
Total assets | | $ | 3,285,207 | | | | | | | $ | 3,453,672 | | | | | | | | $ | 4,218,643 | | | | | | | $ | 3,190,462 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity | | |
| | |
| | | | |
| | |
| | | | | |
| | |
| | | | |
| | |
| | | |
Interest-bearing liabilities: | | |
| | |
| | | | |
| | |
| | | | | |
| | |
| | | | |
| | |
| | | |
NOW and other demand accounts | | $ | 660,387 | | $ | 536 | | 0.32 | % | $ | 920,203 | | $ | 1,062 | | 0.46 | % | | $ | 826,598 | | $ | 4,343 | | 2.11 | % | $ | 695,481 | | $ | 557 | | 0.32 | % |
Money market accounts | | | 803,860 | | | 1,667 | | 0.82 | % | | 744,280 | | | 1,056 | | 0.56 | % | | | 858,532 | | | 6,231 | | 2.91 | % | | 810,781 | | | 938 | | 0.46 | % |
Savings accounts | | | 219,167 | | | 141 | | 0.26 | % | | 213,859 | | | 165 | | 0.31 | % | | | 1,026,085 | | | 10,405 | | 4.07 | % | | 222,274 | | | 142 | | 0.26 | % |
Time deposits | | | 343,986 | | | 943 | | 1.09 | % | | 380,233 | | | 877 | | 0.92 | % | | | 495,721 | | | 3,804 | | 3.08 | % | | 329,198 | | | 674 | | 0.82 | % |
Total interest-bearing deposits | | | 2,027,400 | | | 3,287 | | 0.64 | % | | 2,258,575 | | | 3,160 | | 0.56 | % | | | 3,206,936 | | | 24,783 | | 3.10 | % | | 2,057,734 | | | 2,311 | | 0.45 | % |
Borrowings | | | 166,621 | | | 1,859 | | 4.43 | % | | 208,689 | | | 1,434 | | 2.73 | % | | | 99,794 | | | 1,739 | | 6.99 | % | | 107,784 | | | 1,341 | | 4.99 | % |
Total interest-bearing liabilities | | | 2,194,021 | | | 5,146 | | 0.93 | % | | 2,467,264 | | | 4,594 | | 0.74 | % | | | 3,306,730 | | | 26,522 | | 3.22 | % | | 2,165,518 | | | 3,652 | | 0.68 | % |
Noninterest-bearing liabilities: | | |
| | |
| | | | |
| | |
| | | | | |
| | |
| | | | |
| | |
| | | |
Demand deposits | | | 665,020 | | | | | | | | 547,500 | | | | | | | | | 473,295 | | | | | | | | 596,714 | | | | | | |
Other liabilities | | | 23,832 | | | | | | | | 28,699 | | | | | | | | | 37,265 | | | | | | | | 22,095 | | | | | | |
Total liabilities | | | 2,882,873 | | | | | | | | 3,043,463 | | | | | | | | | 3,817,290 | | | | | | | | 2,784,327 | | | | | | |
Stockholders' equity | | | 402,334 | | | | | | | | 410,209 | | | | | | | | | 401,353 | | | | | | | | 406,135 | | | | | | |
Total liabilities and stockholders' equity | | $ | 3,285,207 | | | | | | | $ | 3,453,672 | | | | | | | | $ | 4,218,643 | | | | | | | $ | 3,190,462 | | | | | | |
Net interest income | | | | | $ | 27,450 | | | | | | | $ | 23,207 | | | | | | | | $ | 26,157 | | | | | | | $ | 24,578 | | | |
Interest rate spread | | | | | | | | 3.31 | % | | | | | | | 2.70 | % | | | | | | | | 2.12 | % | | | | | | | 3.15 | % |
Net interest margin | | | | | | | | 3.57 | % | | | | | | | 2.87 | % | | | | | | | | 2.65 | % | | | | | | | 3.33 | % |
(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. |
Nine-MonthSix-Month Comparison. Net interest income was $74.9$54.5 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $70.0$47.4 million for the ninesix months ended SeptemberJune 30, 2021.2022. Primis’ net interest margin for the ninesix months ended SeptemberJune 30, 20222023 was 3.29%2.89%, compared to 3.02%3.14% for the ninesix months ended SeptemberJune 30, 2021.2022. 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 industry as a whole. Net interest margin was impacted heavily by the origination of PPP loans in 2021 and 2020. Net PPP fee income recognized was $0.3 million for the nine months ended September 30, 2022 versus $9.4 million for the nine months ended September 30, 2021, a material decline from the third quarterCompany was further affected by excess cash balances, that are part of 2021. Net interest margin, excluding the effects of PPP loans, was 3.30% for the nine months ended September 30, 2022,average other earning assets that earned lower rates compared to 2.80% for the nine months ended September 30, 2021.rates earned by our loan portfolio. Total income on interest-earning assets was $87.4$99.8 million and $84.7$54.8 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The yield on average interest-earning assets was 3.84%5.29% and 3.65%3.63% for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. The increaseIncrease in yield on average interest-earnings assets was primarily driven by market conditions.higher rates on cash and loans in 2023 compared to 2022. The cost of average interest-bearing deposits decreased 12increased 231 basis points to 0.51%2.75% for the ninesix months ended SeptemberJune 30, 2022,2023, compared to 0.63% cost on average interest-bearing deposits0.44% for the ninesix months ended SeptemberJune 30, 2021.2022. 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.
4440
totaled $81.6 millionThe following table details average balances of interest-earning assets and $80.3 millioninterest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the nine months ended September 30, 2022 and 2021, respectively. Average loans during the nine months ended September 30, 2022 were $2.52 billion, compared to $2.35 billion during the nine months ended September 30, 2021. The Company’s loan growth over the past several quarters and the improved asset mix has been the driver of positive movements in both margins and net interest income.periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Balance Sheets and Net Interest | | Average Balance Sheets and Net Interest Margin | ||||||||||||||||||||||||||||||
| | Analysis For the Nine Months Ended | | Analysis For the Six Months Ended | ||||||||||||||||||||||||||||||
| | September 30, 2022 | | September 30, 2021 | | | June 30, 2023 | | June 30, 2022 | | ||||||||||||||||||||||||
| | | | | Interest | | | | | | | Interest | | | | | | | | Interest | | | | | | | Interest | | | | ||||
| | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ | | | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ | | ||||||||
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| Balance |
| Expense |
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| Balance |
| Expense |
| Rate |
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| Balance |
| Expense |
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| Balance |
| Expense |
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| | (Dollar amounts in thousands) | | (Dollar amounts in thousands) | ||||||||||||||||||||||||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | |
| | |
| |
| | |
| | |
| |
| | | |
| | |
| |
| | |
| | |
| |
| |
Loans held for sale | | $ | 9,456 | | $ | 356 | | 5.03 | % | $ | - | | $ | - | | - | % | | $ | 37,086 | | $ | 1,091 | | 5.93 | % | $ | 3,487 | | $ | 93 | | 5.38 | % |
Loans, net of deferred fees (1) (2) | | | 2,514,587 | | | 81,281 | | 4.32 | % | | 2,351,410 | | | 80,320 | | 4.57 | % | | | 3,047,259 | | | 84,185 | | 5.57 | % | | 2,433,593 | | | 50,967 | | 4.22 | % |
Investment securities | | | 286,525 | | | 4,393 | | 2.05 | % | | 213,128 | | | 3,198 | | 2.01 | % | | | 243,536 | | | 3,135 | | 2.60 | % | | 295,036 | | | 2,875 | | 1.96 | % |
Other earning assets | | | 237,299 | | | 1,409 | | 0.79 | % | | 536,781 | | | 1,222 | | 0.30 | % | | | 478,786 | | | 11,382 | | 4.79 | % | | 312,033 | | | 854 | | 0.55 | % |
Total earning assets | | | 3,047,867 | | | 87,439 | | 3.84 | % | | 3,101,319 | | | 84,740 | | 3.65 | % | | | 3,806,667 | | | 99,793 | | 5.29 | % | | 3,044,149 | | | 54,789 | | 3.63 | % |
Allowance for credit losses | | | (29,640) | | | | | | | | (34,012) | | | | | | | | | (34,901) | | | | | | | | (29,543) | | | | | | |
Investments in mortgage company - held for sale | | | — | | | | | | | | 12,659 | | | | | | | |||||||||||||||||
Total non-earning assets | | | 259,525 | | | | | | | | 262,373 | | | | | | | | | 291,459 | | | | | | | | 257,472 | | | | | | |
Total assets | | $ | 3,277,752 | | | | | | | $ | 3,342,339 | | | | | | | | $ | 4,063,225 | | | | | | | | 3,272,078 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NOW and other demand accounts | | $ | 723,857 | | $ | 1,758 | | 0.32 | % | $ | 854,360 | | $ | 3,178 | | 0.50 | % | | $ | 774,878 | | $ | 6,610 | | 1.72 | % | $ | 756,118 | | $ | 1,222 | | 0.33 | % |
Money market accounts | | | 808,013 | | | 3,464 | | 0.57 | % | | 706,215 | | | 3,294 | | 0.62 | % | | | 841,630 | | | 11,032 | | 2.64 | % | | 810,124 | | | 1,797 | | 0.45 | % |
Savings accounts | | | 222,032 | | | 432 | | 0.26 | % | | 204,286 | | | 464 | | 0.30 | % | | | 811,148 | | | 15,156 | | 3.77 | % | | 223,489 | | | 291 | | 0.26 | % |
Time deposits | | | 341,160 | | | 2,317 | | 0.91 | % | | 418,161 | | | 3,429 | | 1.10 | % | | | 492,412 | | | 7,029 | | 2.88 | % | | 339,724 | | | 1,374 | | 0.82 | % |
Total interest-bearing deposits | | | 2,095,062 | | | 7,971 | | 0.51 | % | | 2,183,022 | | | 10,365 | | 0.63 | % | | | 2,920,068 | | | 39,827 | | 2.75 | % | | 2,129,455 | | | 4,684 | | 0.44 | % |
Borrowings | | | 148,549 | | | 4,558 | | 4.10 | % | | 219,947 | | | 4,413 | | 2.68 | % | | | 191,859 | | | 5,444 | | 5.72 | % | | 139,363 | | | 2,699 | | 3.91 | % |
Total interest-bearing liabilities | | | 2,243,611 | | | 12,529 | | 0.75 | % | | 2,402,969 | | | 14,778 | | 0.82 | % | | | 3,111,927 | | | 45,271 | | 2.93 | % | | 2,268,818 | | | 7,383 | | 0.66 | % |
Noninterest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | | 602,872 | | | | | | | | 514,318 | | | | | | | | | 514,657 | | | | | | | | 571,264 | | | | | | |
Other liabilities | | | 22,985 | | | | | | | | 22,947 | | | | | | | | | 33,135 | | | | | | | | 22,573 | | | | | | |
Total liabilities | | | 2,869,468 | | | | | | | | 2,940,234 | | | | | | | | | 3,659,719 | | | | | | | | 2,862,655 | | | | | | |
Stockholders' equity | | | 408,284 | | | | | | | | 402,105 | | | | | | | | | 403,506 | | | | | | | | 409,423 | | | | | | |
Total liabilities and stockholders' equity | | $ | 3,277,752 | | | | | | | $ | 3,342,339 | | | | | | | | $ | 4,063,225 | | | | | | | | 3,272,078 | | | | | | |
Net interest income | | | | | $ | 74,910 | | | | | | | $ | 69,962 | | | | | | | | $ | 54,522 | | | | | | | $ | 47,406 | | | |
Interest rate spread | | | | | | | | 3.09 | % | | | | | | | 2.83 | % | | | | | | | | 2.35 | % | | | | | | | 2.97 | % |
Net interest margin | | | | | | | | 3.29 | % | | | | | | | 3.02 | % | | | | | | | | 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. |
45
Provision for Credit Losses
The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses to an appropriate level for 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 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 Company recorded a provision for credit losses for the three and six months ended SeptemberJune 30, 2022 and 20212023 of $2.9$4.3 million and $1.1$9.5 million, respectively. For the nine months ended September 30, 2022, the Company recordedrespectively, compared to a provision for credit losses for the three and six months ended June 30, 2022 of $3.4$0.4 million comparedand $0.5 million, respectively. 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 recoveryportfolio of loans that includes a third-party credit enhancement. As a result, this portion of the provision is fully offset by a gain
41
recorded in noninterest income due to credit enhancement and has no effect on net income. Excluding this provision amount, the provision for credit losses would have been $3.2 million and $3.5 million for the ninethree and six months ended SeptemberJune 30, 2021 of $4.5 million, primarily as a result of robust loan growth.2023, respectively. We had charge-offs totaling $1.2$1.7 million and $2.0$0.1 million during the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $1.3$6.2 million and $2.3$0.2 million during ninesix months ended SeptemberJune 30, 2023 and 2022, respectively. During the three months ended June 30, 2023, the charge-offs were almost entirely related to the credit enhancement portfolio of loans. Approximately half of the charge-offs during the six months ended June 30, 2023, were related to the credit enhancement portfolio of loans and 2021, respectively.a majority of the remaining were due to three specific borrowers in which we determined portions of their loans were uncollectible. There were recoveries totaling $0.8$0.1 million and $0.5 million during each of the ninethree months ended SeptemberJune 30, 2023 and 2022, respectively, and 2021.$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 table presents the major categories of noninterest income for the three months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Three Months Ended | ||||||||||||||
| | September 30, | | June 30, | ||||||||||||||
(dollars in thousands) |
| 2022 |
| 2021 |
| Change |
| 2023 |
| 2022 |
| Change | ||||||
Account maintenance and deposit service fees | | $ | 1,525 | | $ | 1,509 |
| $ | 16 | | $ | 1,430 | | $ | 1,442 |
| $ | (12) |
Income from bank-owned life insurance | |
| 394 | |
| 387 |
| | 7 | |
| 394 | |
| 378 |
| | 16 |
Mortgage banking income | |
| 2,197 | |
| — |
| | 2,197 | |
| 5,198 | |
| 593 |
| | 4,605 |
Other | |
| 1,504 | |
| 455 |
| | 1,049 | |||||||||
Gain on sale of loans | | | 182 | | | — | | | 182 | |||||||||
Credit enhancement income | | | 1,152 | | | — | | | 1,152 | |||||||||
Other noninterest income | |
| 130 | |
| 217 |
| | (87) | |||||||||
Total noninterest income | | $ | 5,620 | | $ | 2,351 | | $ | 3,269 | | $ | 8,486 | | $ | 2,630 | | $ | 5,856 |
Noninterest income increased 139%223% to $5.6$8.5 million for the three months ended SeptemberJune 30, 2022,2023, compared to $2.4$2.6 million for the three months ended SeptemberJune 30, 2021.2022. The increase in noninterest income was primarily related to the $2.2$5.2 million of mortgage banking income and $1.2 million of credit enhancement income in the second quarter of 2023. The Company began accounting for certain third party credit enhancements on consumer lending during the third quarter of 2022, resulting in no income in the prior year and purchased Primis Mortgage late in the second quarter of 2022, which resulted in the lower level of income when compared to current year. During the second quarter of 2023, the Bank also realized $0.2 million of gains associated with a small sale of Panacea commercial loans.
The following table presents the major categories of noninterest income for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | |
| | For the Nine Months Ended | |||||||
| | September 30, | |||||||
(dollars in thousands) |
| 2022 |
| 2021 |
| Change | |||
Account maintenance and deposit service fees | | $ | 4,318 | | $ | 4,759 |
| $ | (441) |
Income from bank-owned life insurance | |
| 1,147 | |
| 1,152 |
| | (5) |
Mortgage banking income | |
| 2,790 | |
| — |
| | 2,790 |
Other | |
| 2,085 | |
| 1,207 |
| | 878 |
Total noninterest income | | $ | 10,340 | | $ | 7,118 |
| $ | 3,222 |
| | | | | | | | | |
| | | | | | | | | |
| | 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 |
| | | | | | | | | |
4642
Noninterest income increased 45%324% to $10.3$20.0 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $7.1$4.7 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase in noninterest income was primarily driven by a $2.8related to $8.9 million increase inof higher mortgage banking income and $6.0 million of credit enhancement income during the six months ended June 30, 2023. The increase in the currentmortgage banking income is related to the purchase of Primis Mortgage in May 2022 coupled with meaningful growth in the year since the purchase. Mortgage banking income includes fair value adjustments, origination income, and gains on sales of 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 charge-offs in that portfolio over that time. Increase in noninterest income was also attributable to $0.7 million of gains associated with the Primis Mortgage acquisitionsale of loans in the second quarter of 2022, and a $0.9 million increase in other noninterest income, offset by an decrease of $0.4 million from the year-ago period in income on account maintenance and deposit service fees2023, primarily duerelated to a reduction in income from new debit card contracts driven by lower fees.Panacea commercial loans.
Noninterest Expense
The following table presents the major categories of noninterest expense for the three months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Three Months Ended | ||||||||||||||
| | September 30, | | June 30, | ||||||||||||||
(dollars in thousands) |
| 2022 |
| 2021 |
| Change |
| 2023 |
| 2022 |
| Change | ||||||
Salaries and benefits | | $ | 12,594 | | $ | 9,032 | | $ | 3,562 | | $ | 15,283 | | $ | 10,573 | | $ | 4,710 |
Occupancy expenses | |
| 1,402 | |
| 1,552 | |
| (150) | |
| 1,593 | |
| 1,418 | |
| 175 |
Furniture and equipment expenses | |
| 1,455 | |
| 971 | |
| 484 | |
| 1,852 | |
| 1,128 | |
| 724 |
Amortization of core deposit intangible | |
| 326 | |
| 341 | |
| (15) | |
| 318 | |
| 341 | |
| (23) |
Virginia franchise tax expense | |
| 813 | |
| 732 | |
| 81 | |
| 848 | |
| 814 | |
| 34 |
Data processing expense | |
| 1,528 | |
| 1,003 | |
| 525 | |
| 2,828 | |
| 1,293 | |
| 1,535 |
Marketing expense | | | 521 | | | 731 | | | (210) | |||||||||
Telephone and communication expense | |
| 342 | |
| 415 | |
| (73) | |
| 416 | |
| 366 | |
| 50 |
Net loss on bank premises and equipment | | | 64 | | | — | | | 64 | | | — | | | 620 | | | (620) |
Professional fees | |
| 1,261 | |
| 874 | |
| 387 | |
| 1,075 | |
| 827 | |
| 248 |
Credit enhancement costs | | | 515 | | | — | | | 515 | |||||||||
Other operating expenses | |
| 3,976 | |
| 1,640 | |
| 2,336 | |
| 5,303 | |
| 2,366 | |
| 2,937 |
Total noninterest expenses | | $ | 23,761 | | $ | 16,560 | | $ | 7,201 | | $ | 30,552 | | $ | 20,477 | | $ | 10,075 |
Noninterest expenses were $23.8$30.6 million during the three months ended SeptemberJune 30, 2022,2023, compared to $16.6$20.5 million during the three months ended SeptemberJune 30, 2021.2022. The 44%49% increase in noninterest expenses was primarily due to a $3.6$4.7 million increase in employee compensation driven byin the second quarter of 2023 related to increased head count at the Bank, Primis Mortgage and higher benefits expensePanacea compared to the second quarter of 2022, along with costs related to the cost savings initiative announced in the current year related to branch closures and consolidations.second quarter of 2023. The increase in noninterest expense during the three months ended SeptemberJune 30, 20222023 was also attributable to a $0.5$1.5 million increase in data processing expense in 2022 driven by substantially higher technologyapplication volume on the digital deposit platform as a result of a savings account rate promotion offered during 2023. Furniture and equipment expenses increased $0.7 million due in large part to write-downs of assets related to the cost savings initiative announced in the current year.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 increasedincrease in other non-interest expenses were higher expenses related to Primis Mortgage in the third quarter.second quarter of 2023. Other notable drivers of the increase in other operating expenses in the second quarter includeof 2023 included higher marketing and advertisingFDIC insurance costs tieddue to the digital bank launch and V1BE adoption campaigns, increasesignificant growth in legal fees for initiatives and increase in fraud related expenses.deposits.
4743
The following table presents the major categories of noninterest expense for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | |
| | For the Nine Months Ended | |||||||
| | September 30, | |||||||
(dollars in thousands) |
| 2022 |
| 2021 |
| Change | |||
Salaries and benefits | | $ | 32,792 | | $ | 27,214 | | $ | 5,578 |
Occupancy expenses | |
| 4,277 | |
| 4,538 | |
| (261) |
Furniture and equipment expenses | |
| 3,683 | |
| 2,651 | |
| 1,032 |
Amortization of core deposit intangible | |
| 1,008 | |
| 1,023 | |
| (15) |
Virginia franchise tax expense | |
| 2,440 | |
| 2,166 | |
| 274 |
Data processing expense | |
| 4,311 | |
| 2,818 | |
| 1,493 |
Telephone and communication expense | |
| 1,090 | |
| 1,351 | |
| (261) |
Net (gain) loss on other real estate owned | |
| (59) | |
| 17 | |
| (76) |
Net loss on bank premises and equipment | | | 684 | | | — | | | 684 |
Professional fees | |
| 3,182 | |
| 3,099 | |
| 83 |
Other operating expenses | |
| 9,770 | |
| 6,901 | |
| 2,869 |
Total noninterest expenses | | $ | 63,178 | | $ | 51,778 | | $ | 11,400 |
| | | | | | | | | |
| | | | | | | | | |
| | 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 $63.2$58.0 million during the ninesix months ended SeptemberJune 30, 2022,2023, compared to $51.8$39.5 million during the ninesix months ended SeptemberJune 30, 2021.2022. The 22%47% increase in noninterest expenses was primarily attributable to a $5.6$10.1 million increase in employee compensation driven by increased head count and higher benefits expense mainly related to branch closuresincreased head count at the Bank, Primis Mortgage and consolidationsPanacea in the second and third quarter ofsix months ended June 30, 2023 compared to 2022. The increase in noninterest expense during the ninesix months ended SeptemberJune 30, 20222023 was also driven by a $1.5$2.3 million increase in data processing expense in 20222023 driven by substantially higher technologyapplication volume on the digital deposit platform as a result of a savings account rate promotion offered during the first and second quarter of 2023. Noninterest expense for the six months ended June 30, 2023 included $1.4 million of credit enhancement costs related to servicing and other expenses for a third-party managed loan portfolio due to significant growth and charge-offs in the current year. Occupancy and furniturethat loan portfolio during 2023. Furniture and equipment expenses increased $0.8$1.2 million duringdue to growth in the nine months ended September 30, 2022 comparedBank, Primis Mortgage, and Panacea, and also due to write-downs of assets related to the nine months ended September 30, 2021 driven by higher equipment expenses related to V1BE adoption.cost savings initiative announced in the second quarter of 2023. Other expenses increased during the ninesix months ended SeptemberJune 30, 20222023 compared to the ninesix months ended SeptemberJune 30, 2021,2022, largely driven by mergerhigher expenses incurredrelated to Primis Mortgage and higher FDIC insurance costs in the second quarter2023.
44
FINANCIAL CONDITION
Balance Sheet Overview
Total assets were $3.36$3.85 billion as of SeptemberJune 30, 20222023 and $3.40$3.57 billion as of December 31, 2021.2022. Total cash and cash equivalents were $97.7$100.9 million as of SeptemberJune 30, 20222023 and $530.2$77.9 million as of December 31, 2021.2022. Investment securities decreased from $294.3$249.8 million as of December 31, 2022 to $253.3$235.5 million as of SeptemberJune 30, 2022.2023. Total loans increased 17%7%, from $2.34$2.95 billion at December 31, 20212022 to $2.74$3.17 billion at SeptemberJune 30, 2022. Excluding PPP loans, loans outstanding increased $466.4 million, or 21%, since December 31, 2021.2023. Total deposits were $2.71$3.32 billion at SeptemberJune 30, 2022,2023, compared to $2.76$2.72 billion at December 31, 20212022 and total equity was $391.8$393.2 million and $411.9$392.4 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Stockholder’s equity balances decreased $28.6$0.2 million from December 31, 20212022 to SeptemberJune 30, 20222023 as a result of a decrease in unrealized mark-to-market adjustments on the Company’s available-for-sale securities portfolio due to dramatic increases in market interest rates during 2022.the six months ended June 30, 2023. The Company has the wherewithalintention to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.
48
Loans
Total loans were $2.74$3.17 billion and $2.34$2.95 billion at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. PPP loans totaled $8.0$2.1 million at SeptemberJune 30, 20222023 and $77.0$4.6 million at December 31, 2021,2022, respectively. Excluding PPP loans, loans outstanding increased $466.4$229.4 million, or 21%8%, since December 31, 2021.2022.
As of SeptemberJune 30, 2023 and December 31, 2022, a majority of our loans were to customers located in Virginia and Maryland. As of December 31, 2021, substantially all 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 SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | | | June 30, 2023 | | December 31, 2022 | | ||||||||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
|
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
Loans secured by real estate: |
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
Commercial real estate - owner occupied | | $ | 436,354 |
| 15.9 | % | $ | 387,703 | | 16.6 | % | | $ | 447,407 |
| 14.1 | % | $ | 459,866 |
| 15.6 | % |
Commercial real estate - non-owner occupied | |
| 572,279 |
| 20.9 | % |
| 588,000 | | 25.1 | % | |
| 595,805 |
| 18.8 | % |
| 579,733 |
| 19.7 | % |
Secured by farmland | |
| 7,514 |
| 0.3 | % |
| 8,612 | | 0.4 | % | |
| 5,271 |
| 0.2 | % |
| 5,970 |
| 0.2 | % |
Construction and land development | |
| 138,297 |
| 5.1 | % |
| 121,444 | | 5.2 | % | |
| 175,073 |
| 5.5 | % |
| 148,690 |
| 5.0 | % |
Residential 1-4 family | |
| 615,529 |
| 22.5 | % |
| 547,560 | | 23.4 | % | |
| 591,938 |
| 18.7 | % |
| 609,694 |
| 20.7 | % |
Multi- family residential | |
| 137,253 |
| 5.0 | % |
| 164,071 | | 7.0 | % | |
| 133,754 |
| 4.2 | % |
| 140,321 |
| 4.8 | % |
Home equity lines of credit | |
| 65,852 |
| 2.4 | % |
| 73,846 | | 3.2 | % | |
| 62,808 |
| 2.0 | % |
| 65,152 |
| 2.2 | % |
Total real estate loans | |
| 1,973,078 |
| 72.1 | % |
| 1,891,236 |
| 80.8 | % | |
| 2,012,056 |
| 63.4 | % |
| 2,009,426 |
| 68.2 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Commercial loans | |
| 469,618 |
| 17.2 | % | | 301,980 | | 12.9 | % | |
| 584,251 |
| 18.4 | % |
| 520,741 |
| 17.7 | % |
Paycheck protection program loans | | | 8,014 | | 0.3 | % | | 77,319 | | 3.3 | % | | | 2,143 | | 0.1 | % | | 4,564 | | 0.2 | % |
Consumer loans | |
| 279,678 |
| 10.2 | % |
| 60,996 | | 2.6 | % | |
| 569,139 |
| 17.9 | % |
| 405,278 |
| 13.8 | % |
Total Non-PCD loans | |
| 2,730,388 |
| 99.8 | % |
| 2,331,531 |
| 99.6 | % | |
| 3,167,589 |
| 99.8 | % |
| 2,940,009 |
| 99.8 | % |
PCD loans | | | 6,698 | | 0.2 | % | | 8,455 | | 0.4 | % | | | 6,049 | | 0.2 | % | | 6,628 | | 0.2 | % |
Total loans | | $ | 2,737,086 | | 100.0 | % | $ | 2,339,986 | | 100.0 | % | | $ | 3,173,638 | | 100.0 | % | $ | 2,946,637 | | 100.0 | % |
| |
| |
| | |
| |
|
| | |
| |
| | |
| |
|
| |
4945
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 SeptemberJune 30, 20222023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | After 1 Year | | After 5 Years | | | | | | | | |
| | | | | After 1 Year | | After 5 Years | | | | | | | | |
| ||||||||||||||||
| | | | | Through 5 Years | | Through 15 Years | | After 15 Years | | |
| | | | | Through 5 Years | | Through 15 Years | | After 15 Years | | |
| ||||||||||||||||||||||||
| | One Year | | Fixed | | Floating | | Fixed | | Floating | | Fixed | | Floating | | |
| | One Year | | Fixed | | Floating | | Fixed | | Floating | | Fixed | | Floating | | |
| ||||||||||||||
|
| or Less |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Total |
| or Less |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Total | ||||||||||||||||
Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate - owner occupied | | $ | 26,079 | | $ | 100,627 | | $ | 52,709 | | $ | 81,521 | | $ | 92,809 | | $ | 3,682 | | $ | 78,927 | | $ | 436,354 | | $ | 31,468 | | $ | 120,778 | | $ | 17,039 | | $ | 103,472 | | $ | 107,189 | | $ | 2,315 | | $ | 65,146 | | $ | 447,407 |
Commercial real estate - non-owner occupied | | | 34,079 | | | 183,383 | | | 13,249 | | | 54,119 | | | 49,725 | | | 1,413 | | | 236,311 | | | 572,279 | | | 34,523 | | | 192,115 | | | 31,175 | | | 60,317 | | | 65,937 | | | 1,384 | | | 210,354 | | | 595,805 |
Secured by farmland | | | 2,349 | | | 1,883 | | | — | | | 552 | | | 1,253 | | | — | | | 1,477 | | | 7,514 | | | 1,527 | | | 891 | | | 285 | | | 221 | | | 1,008 | | | — | | | 1,339 | | | 5,271 |
Construction and land development | | | 99,938 | | | 19,013 | | | 13,297 | | | 37 | | | 3,685 | | | 693 | | | 1,634 | | | 138,297 | | | 122,162 | | | 25,535 | | | 19,291 | | | 757 | | | 5,013 | | | 681 | | | 1,634 | | | 175,073 |
Residential 1-4 family | | | 13,168 | | | 57,512 | | | 7,138 | | | 29,541 | | | 52,110 | | | 76,778 | | | 379,282 | | | 615,529 | | | 15,602 | | | 48,619 | | | 8,306 | | | 30,035 | | | 54,093 | | | 72,286 | | | 362,997 | | | 591,938 |
Multi- family residential | | | 8,043 | | | 56,797 | | | 17,726 | | | 7,240 | | | 19,315 | | | — | | | 28,132 | | | 137,253 | | | 5,677 | | | 56,640 | | | 18,783 | | | 7,078 | | | 18,562 | | | — | | | 27,014 | | | 133,754 |
Home equity lines of credit | | | 10,289 | | | 1,192 | | | 13,560 | | | — | | | 5,811 | | | — | | | 35,000 | | | 65,852 | | | 9,468 | | | 996 | | | 11,142 | | | 30 | | | 3,002 | | | 33 | | | 38,137 | | | 62,808 |
Total real estate loans | | | 193,945 | | | 420,407 | | | 117,679 | | | 173,010 | | | 224,708 | | | 82,566 | | | 760,763 | | | 1,973,078 | | | 220,427 | | | 445,574 | | | 106,021 | | | 201,910 | | | 254,804 | | | 76,699 | | | 706,621 | | | 2,012,056 |
Commercial loans | | | 161,145 | |
| 82,935 | | | 54,271 | | | 133,628 | | | 33,613 | | | 1,143 | | | 2,883 | | | 469,618 | | | 107,138 | |
| 97,191 | | | 153,771 | | | 175,287 | | | 46,927 | | | 1,131 | | | 2,806 | | | 584,251 |
Paycheck protection program loans | | | 1,285 | | | 6,729 | | | — | | | — | | | — | | | — | | | — | | | 8,014 | | | 25 | | | 1,918 | | | — | | | 200 | | | — | | | — | | | — | | | 2,143 |
Consumer loans | | | 2,588 | | | 138,402 | | | 17,253 | | | 81,271 | | | 37,639 | | | 2,520 | | | 5 | | | 279,678 | | | 2,410 | | | 274,374 | | | 105,150 | | | 92,232 | | | 92,553 | | | 2,415 | | | 5 | | | 569,139 |
Total Non-PCD loans | | | 358,963 | | | 648,473 | | | 189,203 | | | 387,909 | | | 295,960 | | | 86,229 | | | 763,651 | | | 2,730,388 | | | 330,000 | | | 819,057 | | | 364,942 | | | 469,629 | | | 394,284 | | | 80,245 | | | 709,432 | | | 3,167,589 |
PCD loans | |
| 3,146 | | | 1,447 | | | 12 | | | — | | | 1,544 | | | 405 | | | 144 | |
| 6,698 | |
| 3,060 | | | 1,337 | | | — | | | — | | | 1,114 | | | 398 | | | 140 | |
| 6,049 |
Total loans | | $ | 362,109 | | $ | 649,920 | | $ | 189,215 | | $ | 387,909 | | $ | 297,504 | | $ | 86,634 | | $ | 763,795 | | $ | 2,737,086 | | $ | 333,060 | | $ | 820,394 | | $ | 364,942 | | $ | 469,629 | | $ | 395,398 | | $ | 80,643 | | $ | 709,572 | | $ | 3,173,638 |
Asset Quality
Asset quality remained solid duringWhile the first, second and third quartersimpact of 2022, noting an increaseCOVID-19 largely subsided in classified balances experienced in the third quarter of 2022, largely due to a downgrade of one, well secured relationship with no loss anticipated. While COVID-19 has resolved into a new normal with the increase in vaccination rates,2023, the residual effect of COVID-19 and the differentits variants, as well as new risks emerging from geopolitical conflict, inflation, bank failures and the threat of a recession continue to cause economic instability andinstability. Despite this economic uncertainty, in evaluating the impact on our asset quality.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 haslosses and delinquencies have been primarily limited by two main factors; our underwriting standards and portfolio management practices. Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, rising interest rates, historically high inflation, global supply chain issues and potential recession.recessionary concerns.
CalculatedTotal calculated reserves (priorincreased by $3.9 million to qualitative adjustments) increased$38.4 million at the end of SeptemberJune 30, 20222023 compared to December 31, 2021, primarily due to a growth in unguaranteed loan balances, coupled with worsened economic forecasts, specifically in the House Price Index and Gross State Product factors. At September 30, 2022, the qualitative reserve decreased $2.3$34.5 million from the qualitative reserve applied at December 31, 2021. This decrease in qualitative reserves observed2022, driven by growth in the third quarter of 2022 is attributed to adjustmentsthird-party managed loan portfolio and secondarily due to the qualitative reserve framework’s thresholds and key risk indicators as part of the annual model refresh.$227.0 million in overall loan growth experienced in 2023.
5046
The following table presents a comparison of nonperforming assets as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | | | |
|
| September 30, | | December 31, | |
| June 30, | | December 31, | | ||||
| | 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||
Nonaccrual loans | | $ | 36,851 | | $ | 15,029 | | | $ | 25,290 | | $ | 35,484 | |
Loans past due 90 days and accruing interest | |
| 1,855 | |
| 283 | | |
| 1,714 | |
| 3,361 | |
Total nonperforming loans | |
| 38,706 | |
| 15,312 | | |||||||
Other real estate owned | |
| 1,041 | |
| 1,163 | | |||||||
Total nonperforming assets | | $ | 39,747 | | $ | 16,475 | | |
| 27,004 | |
| 38,845 | |
| | | | | | | | | | | | | | |
Troubled debt restructurings | | $ | 3,170 | | $ | 3,401 | | |||||||
SBA guaranteed amounts included in nonperforming loans | | $ | 2,573 | | $ | 1,388 | | | $ | 2,331 | | $ | 3,969 | |
| | | | | | | | | | | | | | |
Allowance for credit losses to total loans | |
| 1.17 | % |
| 1.24 | % | |
| 1.21 | % |
| 1.17 | % |
Allowance for credit losses to nonaccrual loans | |
| 86.72 | % |
| 193.66 | % | |
| 151.90 | % |
| 97.35 | % |
Allowance for credit losses to nonperforming loans | |
| 82.56 | % |
| 190.09 | % | |
| 142.25 | % |
| 88.93 | % |
Nonaccrual to total loans | |
| 1.35 | % |
| 0.64 | % | |
| 0.80 | % |
| 1.20 | % |
Nonperforming assets excluding SBA guaranteed loans to total assets | |
| 1.11 | % |
| 0.44 | % | |
| 0.64 | % |
| 0.98 | % |
OREO at September 30, 2022 was $1.0 million, compared to $1.2 million at December 31, 2021. The decrease was primarily driven by sale of properties during 2022.
Nonaccrual loans were $36.9decreased 29% to $25.3 million (excluding $0.7$0.6 million of loans fully covered by SBA guarantees) at SeptemberJune 30, 2022,2023, compared to $15.0$35.5 million (excluding $1.1$0.6 million of loans fully covered by SBA guarantees) at December 31, 2021, an increase2022. A substantial portion of 145%. These increasesthe Bank’s nonperforming assets in previous periods were driven largely by one relationshipcomprised of 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 criticizedsold in the second quarter of 2022 and was subsequently downgraded further2023. The other relationship, primarily consisting of assisted living facilities, is currently at the end of a receiver-managed marketing process with all three facilities under contract to close in the third quarter of 20222023. When including the receipt of funds and placed on nonaccrual. The primary businesses inremoval of these loans, the relationship are multiple assisted living facilities. Recent appraisalsBank would have been completed with no impairment required at this time. The ratiohad approximately $5.0 million of nonperforming assets (excluding the SBA guaranteed loans) to total assets was 1.11% and 0.44%loans at SeptemberJune 30, 2022 and December 31, 2021, respectively.2023, an 86% decrease from year end.
At SeptemberJune 30, 2022,2023, our total substandard loans totaled $47.3 million.were $33.7 million compared to $41.0 million at December 31, 2022, an 18% decline. Included in the total substandard loans were SBA guarantees of $2.3 million.$0.8 million in both periods. Special mention loans totaled $35.4$32.4 million at SeptemberJune 30, 2023 and $32.3 million at December 31, 2022.
AsFor the quarter ended June 30, 2023, two loans from our owner occupied commercial real estate loan portfolio with an amortized cost basis of September 30, 2022, there$0.4 million, were 14 TDR loansmodified 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 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 amountsecond quarter and represents 0.09% of $3.2 million. There have beenour total owner occupied commercial real estate loans.
An existing modification performed in the first quarter of 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 defaultspayment delinquencies since its modification and accounts for only 0.15% of TDRs modified during the past twelve months.our total 1-4 family residential loans.
We have an internal loan review and a loan committee, both47
Investment Securities
Our investment securities portfolio provides us with required liquidity and collateral to pledge secure public deposits, certain other deposits, advances from the 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 $253.3$235.5 million at SeptemberJune 30, 2022,2023, a decrease of 14%6% from $294.3$249.8 million at December 31, 2021.
Investment securities in our portfolio as2022, primarily due to paydowns, maturities, and calls of September 30, 2022 were as follows:
51
the investments over the past six months.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available-for-sale investment securities are reported at fair value, and held-to-maturity investment securities are reported at amortized cost (in thousands).
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Available-for-sale investment securities: |
| |
|
| |
|
| |
|
| |
|
Residential government-sponsored mortgage-backed securities | | $ | 106,279 | | $ | 122,610 | | $ | 98,014 | | $ | 102,881 |
Obligations of states and political subdivisions | |
| 28,755 | |
| 31,231 | |
| 29,673 | |
| 29,178 |
Corporate securities | |
| 14,854 | |
| 13,685 | |
| 12,956 | |
| 14,828 |
Collateralized loan obligations | |
| 4,803 | |
| 5,010 | |
| 4,901 | |
| 4,876 |
Residential government-sponsored collateralized mortgage obligations | |
| 23,043 | |
| 19,807 | |
| 28,568 | |
| 26,595 |
Government-sponsored agency securities | |
| 14,685 | |
| 17,488 | |
| 13,360 | |
| 14,616 |
Agency commercial mortgage-backed securities | |
| 40,100 | |
| 52,667 | |
| 30,794 | |
| 37,417 |
SBA pool securities | |
| 6,372 | |
| 8,834 | |
| 4,821 | |
| 5,924 |
Total | | $ | 238,891 | | $ | 271,332 | | $ | 223,087 | | $ | 236,315 |
| | | | | | | | | | | | |
Held-to-maturity investment securities: | |
|
| |
|
| |
|
| |
|
|
Residential government-sponsored mortgage-backed securities | | $ | 10,953 | | $ | 13,616 | | $ | 9,753 | | $ | 10,522 |
Obligations of states and political subdivisions | |
| 3,120 | |
| 3,805 | |
| 2,388 | |
| 2,721 |
Residential government-sponsored collateralized mortgage obligations | |
| 318 | |
| 519 | |
| 237 | |
| 277 |
Government-sponsored agency securities | |
| — | |
| 5,000 | ||||||
Total | | $ | 14,391 | | $ | 22,940 | | $ | 12,378 | | $ | 13,520 |
We recognized noan immaterial amount of credit impairment charges related to credit losses on our held-to-maturity investment securities during the three and ninesix months ended SeptemberJune 30, 2023 and no 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.
48
Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in deposits from year-end was primarily driven by the substantial growth in the Bank’s new digital deposit platform in the first and second quarter of 2023. The majority of the growth was in savings accounts with the remainder largely in NOW accounts. Savings accounts increased 184% from $245.7 million as of December 31, 2022 to $696.8 million at June 30, 2023. NOW accounts increased 32% from $617.7 million at December 31, 2022 to $817.7 million at June 30, 2023. Our deposits are diversified in type and 2021, respectively.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 sources of liquidity and as of June 30, 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 banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be, significantly affected by the general economy and market rates of interest.
For our deposit agreements with certain customers, we hold the collateral in a 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 over-collateralization.
Liquidity and Funds Management
The objective of our liquidity management is to 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. If our level of core deposits are not sufficient to fully fund our lending activities, we have 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 federal funds lines of credit with 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 on a 30, 60 and 90 day basis along with a one and a two year basis. TheThese projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses.
At SeptemberJune 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 in digital platform deposits described above.
At June 30, 2023 and December 31, 2022, we had $495.5pledged 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.
The balance in repo accounts at June 30, 2023 and December 31, 2022 was $3.9 million and $6.5 million, respectively.
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,
49
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 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.
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 $254.4$379.6 million as of SeptemberJune 30, 2022.2023, including $75.0 million of brokered CDs. Management anticipates that funding requirements for these commitments can be met primarily from unused and available FHLB lines of credit and otherin the normal sources of funds.course.
52
As of SeptemberJune 30, 2022,2023, 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 SeptemberJune 30, 2022,2023, Primis has no material commitments or long-term debt 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 SeptemberJune 30, 20222023 and 2021,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 SeptemberJune 30, 2022,2023, that Primis meets all capital adequacy requirements to which it is subject.
50
The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp. and Primis Bank at the periods indicated to the minimum and well-capitalized required regulatory standards:
| | | | | | | | | | | | | | | | | | |
| | Minimum | | | | | | |
| | Minimum | | | | | | |
|
| | Required for | | | | | | |
| | Required for | | | | | | |
|
| | Capital | | To Be | | Actual Ratio at |
| | Capital | | To Be | | Actual Ratio at |
| ||||
| | Adequacy | | Categorized as | | September 30, | | December 31, | | | Adequacy | | Categorized as | | June 30, | | December 31, | |
|
| Purposes |
| Well Capitalized (1) |
| 2022 |
| 2021 |
|
| Purposes |
| Well Capitalized (1) |
| 2023 |
| 2022 |
|
Primis Financial Corp. |
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
| |
Leverage ratio |
| 4.00 | % | n/a |
| 10.11 | % | 9.41 | % |
| 4.00 | % | n/a |
| 8.14 | % | 9.68 | % |
Common equity tier 1 capital ratio |
| 4.50 | % | n/a |
| 11.17 | % | 13.09 | % |
| 4.50 | % | n/a |
| 9.38 | % | 10.30 | % |
Tier 1 risk-based capital ratio |
| 6.00 | % | n/a |
| 11.53 | % | 13.52 | % |
| 6.00 | % | n/a |
| 9.68 | % | 10.63 | % |
Total risk-based capital ratio |
| 8.00 | % | n/a |
| 15.71 | % | 18.52 | % |
| 8.00 | % | n/a |
| 13.16 | % | 14.57 | % |
| | | | | | | | | | | | | | | | | | |
Primis Bank |
| |
| | | |
| | |
| |
| | | | | | |
Leverage ratio |
| 4.00 | % | 5.00 | % | 12.26 | % | 11.14 | % |
| 4.00 | % | 5.00 | % | 9.41 | % | 11.39 | % |
Common equity tier 1 capital ratio |
| 7.00 | % | 6.50 | % | 14.08 | % | 16.18 | % |
| 7.00 | % | 6.50 | % | 11.71 | % | 12.64 | % |
Tier 1 risk-based capital ratio |
| 8.50 | % | 8.00 | % | 14.08 | % | 16.18 | % |
| 8.50 | % | 8.00 | % | 11.71 | % | 12.64 | % |
Total risk-based capital ratio |
| 10.50 | % | 10.00 | % | 15.28 | % | 17.43 | % |
| 10.50 | % | 10.00 | % | 12.92 | % | 13.84 | % |
(1) | 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.
Primis Financial Corp. and Primis Bank remain well-capitalized under Basel III capital requirements. Primis Bank had a capital conservation buffer of 7.28%4.92% at SeptemberJune 30, 2022,2023, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
53
Primis Bank’s capital position is consistent with being well- capitalizedwell-capitalized under the regulatory framework for PCA.
CRITICAL ACCOUNTING POLICIES
The critical accounting policies are 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 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
51
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 review quarterly interest 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 including estimated loan prepayment rates, reinvestment rates and deposit decay rates.
The following tables are based on 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 100 basis points, measured in 100 basis point increments) as of SeptemberJune 30, 20222023 and December 31, 2021.2022. All changes are within our Asset/Liability Risk Management Policy guidelines.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sensitivity of Economic Value of Equity |
| | Sensitivity of Economic Value of Equity |
| ||||||||||||||||||||
| | As of September 30, 2022 |
| | As of June 30, 2023 |
| ||||||||||||||||||||
| | | | | | | | | | Economic Value of |
| | | | | | | | | | Economic Value of |
| ||||
| | Economic Value of Equity | | Equity as a % of |
| | Economic Value of Equity | | Equity as a % of |
| ||||||||||||||||
Change in Interest Rates | | | | | $ Change | | % Change | | Total | | Equity | �� | | | | | $ Change | | % Change | | Total | | Equity |
| ||
in Basis Points (Rate Shock) |
| Amount |
| From Base |
| From Base |
| Assets |
| Book Value |
|
| Amount |
| From Base |
| From Base |
| Assets |
| Book Value |
| ||||
| | (dollar amounts in thousands) |
| | (dollar amounts in thousands) |
| ||||||||||||||||||||
Up 400 | | $ | 544,994 | | $ | (39,192) |
| (6.71) | % | 15.99 | % | 132.32 | % | | $ | 503,320 | | $ | (57,915) |
| (10.32) | % | 14.77 | % | 122.20 | % |
Up 300 | |
| 555,689 | |
| (28,497) |
| (4.88) | % | 16.31 | % | 134.91 | % | |
| 515,991 | |
| (45,244) |
| (8.06) | % | 15.14 | % | 125.28 | % |
Up 200 | |
| 565,916 | |
| (18,270) |
| (3.13) | % | 16.61 | % | 137.40 | % | |
| 527,895 | |
| (33,340) |
| (5.94) | % | 15.49 | % | 128.17 | % |
Up 100 | |
| 581,379 | |
| (2,807) |
| (0.48) | % | 17.06 | % | 141.15 | % | |
| 551,187 | |
| (10,048) |
| (1.79) | % | 16.18 | % | 133.82 | % |
Base | |
| 584,186 | |
| — |
| — | % | 17.14 | % | 141.83 | % | |
| 561,235 | |
| — |
| — | % | 16.47 | % | 136.26 | % |
Down 100 | |
| 571,754 | |
| (12,432) |
| (2.13) | % | 16.78 | % | 138.82 | % | |
| 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 |
| | Sensitivity of Economic Value of Equity |
| ||||||||||||||||||||
| | As of December 31, 2021 |
| | As of December 31, 2022 |
| ||||||||||||||||||||
| | | | | | | | | | Economic Value of |
| | | | | | | | | | Economic Value of |
| ||||
| | Economic Value of Equity | | Equity as a % of |
| | Economic Value of Equity | | Equity as a % of |
| ||||||||||||||||
Change in Interest Rates | | | | | $ Change | | % Change | | Total | | Equity |
| | | | | $ Change | | % Change | | Total | | Equity |
| ||
in Basis Points (Rate Shock) |
| Amount |
| From Base |
| From Base |
| Assets |
| Book Value |
|
| Amount |
| From Base |
| From Base |
| Assets |
| Book Value |
| ||||
| | (dollar amounts in thousands) |
| | (dollar amounts in thousands) |
| ||||||||||||||||||||
Up 400 | | $ | 419,520 | | $ | 10,937 |
| 2.68 | % | 12.31 | % | 101.85 | % | | $ | 481,135 | | $ | (63,410) |
| (11.64) | % | 14.12 | % | 116.81 | % |
Up 300 | |
| 419,238 | |
| 10,655 |
| 2.61 | % | 12.30 | % | 101.79 | % | |
| 496,136 | |
| (48,409) |
| (8.89) | % | 14.56 | % | 120.46 | % |
Up 200 | |
| 417,156 | |
| 8,573 |
| 2.10 | % | 12.24 | % | 101.28 | % | |
| 510,807 | |
| (33,738) |
| (6.20) | % | 14.99 | % | 124.02 | % |
Up 100 | |
| 418,107 | |
| 9,524 |
| 2.33 | % | 12.27 | % | 101.51 | % | |
| 534,163 | |
| (10,382) |
| (1.91) | % | 15.68 | % | 129.69 | % |
Base | |
| 408,583 | |
| — |
| — | % | 11.99 | % | 99.20 | % | |
| 544,545 | |
| — |
| — | % | 15.98 | % | 132.21 | % |
Down 100 | |
| 341,573 | |
| (67,010) |
| (16.40) | % | 10.02 | % | 82.93 | % | |
| 539,297 | |
| (5,248) |
| (0.96) | % | 15.83 | % | 130.94 | % |
Our interest rate sensitivity is also monitored by management through the use of a model 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
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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 SeptemberJune 30, 20222023 and December 31, 20212022 remains constant over the period being measured and also assumes that a particular change in interest rates is
52
reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. All changes are within our ALM Policy guidelines at SeptemberJune 30, 20222023 and December 31, 2021.2022.
| | | | | | | | | | | | |
| | Sensitivity of Net Interest Income | | Sensitivity of Net Interest Income | ||||||||
| | As of September 30, 2022 | | As of June 30, 2023 | ||||||||
| | Adjusted Net Interest Income | | Adjusted Net Interest Income | ||||||||
Change in Interest Rates | | | | | $ Change | | | | | $ Change | ||
in Basis Points (Rate Shock) |
| Amount |
| From Base |
| Amount |
| From Base | ||||
| | (dollar amounts in thousands) | | (dollar amounts in thousands) | ||||||||
Up 400 | | $ | 112,650 | | $ | (5,934) | | $ | 101,999 | | $ | (13,566) |
Up 300 | |
| 113,669 | |
| (4,915) | |
| 104,695 | |
| (10,870) |
Up 200 | |
| 114,678 | |
| (3,906) | |
| 107,389 | |
| (8,176) |
Up 100 | |
| 117,052 | |
| (1,532) | |
| 112,004 | |
| (3,561) |
Base | |
| 118,584 | |
| — | |
| 115,565 | |
| — |
Down 100 | |
| 118,037 | |
| (547) | |
| 117,594 | |
| 2,029 |
Down 200 | |
| 117,636 | |
| 2,071 |
| | | | | | | | | | | | |
| | Sensitivity of Net Interest Income | | Sensitivity of Net Interest Income | ||||||||
| | As of December 31, 2021 | | As of December 31, 2022 | ||||||||
| | Adjusted Net Interest Income | | Adjusted Net Interest Income | ||||||||
Change in Interest Rates | | | | | $ Change | | | | | $ Change | ||
in Basis Points (Rate Shock) |
| Amount |
| From Base |
| Amount |
| From Base | ||||
| | (dollar amounts in thousands) | | (dollar amounts in thousands) | ||||||||
Up 400 | | $ | 88,531 | | $ | 2,341 | | $ | 108,514 | | $ | (12,447) |
Up 300 | |
| 87,863 | |
| 1,673 | |
| 111,127 | |
| (9,834) |
Up 200 | |
| 87,127 | |
| 937 | |
| 113,730 | |
| (7,231) |
Up 100 | |
| 86,713 | |
| 523 | |
| 117,811 | |
| (3,150) |
Base | |
| 86,190 | |
| — | |
| 120,961 | |
| — |
Down 100 | |
| 82,670 | |
| (3,520) | |
| 122,070 | |
| 1,109 |
Down 200 | |
| 120,687 | |
| (274) |
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.
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(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 officerChief Executive Officer and chief financial officerChief 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.
55
(b) Changes in Internal Control over Financial Reporting. As a result of the acquisition of Primis Mortgage, there were changes in ourthe Company is continuously working to integrate Primis Mortgage into its internal control over financial reporting (as such term is definedprocess.
53
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 quarterthe three and six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols 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
Primis and Primis Bank are from time to time a party, as both plaintiff and defendant, to various claims and proceedings arising in the ordinary course of 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 Primis or Primis Bank as of SeptemberJune 30, 2022.2023.
ITEM 1A – RISK FACTORS
The Company disclosedIn addition to the other information set forth 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 its AnnualPart I, Item 1A of our 2022 Form 10-K, and as disclosed in Part II, Item 1A of our Quarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2021. The2023, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks described may notchange over time and other risks may prove to be important in the onlyfuture. New risks facing us. Additionalmay emerge at any time, and we cannot predict such risks and uncertainties not currently knownor estimate the extent to us or that are currently considered to not be material alsowhich they may materially adversely affect our business, financial condition and/or operating results.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 previously disclosed in our 2022 Form 10-K or our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Not applicable.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
Not applicable.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.
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ITEM 6 - EXHIBITS
(a) Exhibits.
| | |
Exhibit No. |
| Description |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
3.3 | | |
| | |
3.4 | | |
| | |
3.5 | | |
| | |
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. |
| | |
32.1** | | |
| | |
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101 | | The following materials from Primis Financial Corp. Quarterly Report on Form 10-Q for the quarter ended |
| | |
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
5856
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.
| | | |
|
| Primis Financial Corp. | |
| | (Registrant) | |
| | | |
| | | |
| | /s/ Dennis J. Zember, Jr. | |
(Date) | | Dennis J. Zember, Jr. | |
| | President and Chief Executive Officer | |
| | | |
| | | |
| | | |
| | /s/ Matthew Switzer | |
(Date) | | Matthew Switzer | |
| | Executive Vice President and Chief Financial Officer | |
| | |
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