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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 ~~September~~June 30, ~~2022~~2023

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 Dominion~~1676 International Drive, Suite 900

McLean, Virginia ~~22101~~22102

(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 ~~November~~August 2, ~~2022,~~2023, there were ~~24,664,097~~24,686,764 shares of common stock, $0.01 par value, outstanding.

Table of Contents

PRIMIS FINANCIAL CORP.

FORM 10-Q

~~September~~June 30, ~~2022~~2023

TABLE OF CONTENTS		PAGE
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022		2
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		3
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		4
Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		6
Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		3935

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		5451

Item 4 – Controls and Procedures		5553

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		5654

Item 1A – Risk Factors		5654

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		5654

Item 3 – Defaults Upon Senior Securities		5654

Item 4 – Mine Safety Disclosures		5654

Item 5 – Other Information		5654

Item 6 - Exhibits		5755

Signatures		5957

Table of Contents

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
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)
Commitments and contingencies (See Note 8)

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		—		—		—		—
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,650,239 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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

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

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.~~

~~Table of Contents~~

~~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~~.

~~Table of Contents~~

~~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

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PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(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.

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PRIMIS FINANCIAL CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

~~September 30, 2022~~

1. ACCOUNTING POLICIES

At ~~September~~June 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 ~~offices~~office 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, up~~headquartered 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 into~~We determine whether we have a ~~definitive agreement~~controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”) under U.S. GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to ~~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 stock~~characteristics of ~~SeaTrust from Community First Bank, Inc. (the “Seller”) pursuant~~a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the ~~Stock Purchase Agreement, dated~~VIE. The enterprise with a controlling financial interest, known as ~~of April 28, 2022 (the “Purchase Agreement”) by~~the 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 Operation~~Operating 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

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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 banking~~Company 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

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by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in 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.

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~~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.

~~Reclassifications~~Interest Rate Swaps

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

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

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


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

Revisions

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

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Management believes, on the advice of its counsel, its insurance broker and a third party forensic auditor, that the losses are recoverable under the Company’s insurance policies and is working through the claims process. The Company has evaluated the effect of the error, both qualitatively and quantitatively, and believes the impact to prior years is immaterial to each respective period assessed. However, the Company’s quantitative and qualitative assessments of the fraud losses on the projected 2023 annual earnings is expected to be material. Accordingly, the Company made the decision to revise the losses to the respective periods in which they were incurred in its future Form 10-Q and Form 10-K filings by revising those periods. For all of its future filings, the Company will revise opening retained earnings of the earliest period presented for losses incurred in periods prior to that and revise all prior periods presented in the filing for losses incurred related to 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 to~~of 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, ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting 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 ~~310-402~~310-40 and amends the

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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 is~~2022-01, 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 periods~~fiscal years beginning after December 15, 2022, ~~including~~and interim periods within those ~~annual periods. Early~~fiscal years. The Company adopted the update as it became applicable to us on May 11, 2023. The adoption ~~is permitted. Primis is currently in~~of 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 ~~and~~or disclosures.

109

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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

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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-

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~~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-sale~~for-sale investment securities were purchased. No held-to-maturity investments were purchased during the three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. No investment securities were sold during the three and six months ended ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 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

~~Table of Contents~~

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 ~~bases~~basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities and (iv) internal forecasts. As of ~~September~~June 30, ~~2022,~~2023, Primis ~~did not have any~~had an immaterial allowance for credit losses on held-to-maturity securities.

The unrealized losses related to investment securities available-for-sale identified as of ~~September~~June 30, ~~2022, or~~2023 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 ability~~losses 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)

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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)

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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

~~Table of Contents~~


	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)

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4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the composition of our loan portfolio as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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 ~~September~~June 30, ~~2022~~2023 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 ~~nine~~six months) of repayment performance by the borrower.

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The following tables present the aging of the recorded investment in past due loans by class of loans held for investment as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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

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The amortized cost, by class, of loans and leases on nonaccrual status at ~~September~~June 30, ~~2022~~2023 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

~~(1)~~

~~Nonaccrual loans include SBA guaranteed amounts totaling $0.7 million and $1.1 million at September 30, 2022 and December 31, 2021, respectively.~~

~~(2)~~

~~Nonaccrual loans with no credit loss allowance include SBA guaranteed amounts totaling $0.7 million and $1.1 million at September 30, 2022 and December 31, 2021, respectively.~~


	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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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The following table presents nonaccrual loans as of ~~September~~June 30, ~~2022~~2023 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 million~~zero and ~~$0.2~~$0.1 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively and ~~$0.9~~$0.01 million and $0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

~~Troubled Debt Restructurings~~Modifications 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 whether~~at the time a concession has been granted is subjective in nature and management’s judgment is required when determining whether the concession results in a modification that is accounted for as a ~~TDR.~~new loan or a continuation of the existing loan under U.S. GAAP.

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

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

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~~As of September 30, 2022, there were 14 TDR~~period would have totaled $0.03 million. The modified loans ~~outstanding~~had 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 due~~the 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 impact~~allowance for credit losses.

If it is determined that a modified loan (or portion of ~~COVID-19 on certain~~a loan) has subsequently been deemed uncollectible, the loan (or a portion of the ~~Bank’s borrowers. There have been no defaults~~loan) 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 ~~September~~June 30, ~~2022~~2023 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.

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Table of Contents

The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of ~~September~~June 30, ~~2022~~2023 (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
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
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
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
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
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

2119

Table of Contents

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

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
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

Table of Contents

The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, ~~2021~~2022 (in thousands):



															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
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

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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 ~~2022~~the 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 ~~investments~~investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $0.3 million and $0.1 million at ~~September~~June 30, ~~2022~~2023 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.~~

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

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

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

The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of ~~September~~June 30, ~~2022~~2023 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.

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Activity in the allowance for credit losses by class of loan for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 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.

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The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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

~~(1)~~

~~Includes SBA guarantees of $2.1 million and $0.7 million at September 30, 2022 and December 31, 2021, respectively.~~


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

4. FAIR VALUE

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

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

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

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

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

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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

Table of Contents


			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 ~~recurring~~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)
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

(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

(dollars in thousands)

December 31, 2022

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

47,832

—

47,832

Assets held for sale

3,115

—

3,115

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Table of Contents

~~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.

~~Table of Contents~~

~~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:~~

~~Table of Contents~~

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.

Table of Contents

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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, our net operating lease ~~cost was~~costs were $0.6 million and $0.4 million, respectively and for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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).

~~Table of Contents~~

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 ~~September~~June 30, ~~2022,~~2023, the Company had ~~two~~one operating ~~leases~~lease that ~~have~~has not yet commenced that will create additional lease liabilities and right-of-use assets for the Company.

7. ~~SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE~~6. DEBT AND OTHER BORROWINGS

Other borrowings can consist of FHLB convertible advances, FHLB of Atlanta overnight advances, FHLB advances maturing within one year, federal funds purchased, Federal Reserve Board Discount Window and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers. The balance in repo accounts at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$9.9~~$3.9 million and ~~$10.0~~$6.5 million, respectively.

Table of Contents

At ~~September~~June 30, ~~2022~~2023 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 NOTES~~In June 2023, the Bank began participating in the Federal Reserve discount window borrowing program. At June 30, 2023, the Bank had borrowing capacity of $489.6 million within the program.

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

In 2017, the Company assumed $10.3 million of trust preferred securities that were issued on September 17, 2003 and placed through a trust in a pooled underwriting totaling approximately $650 million. ~~The trust issuer invested the total proceeds from the sale of the trust preferred securities in Floating Rate Junior Subordinated Deferrable Interest Debentures.~~ At ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 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.~~

~~Table of Contents~~

~~The~~payable 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 ~~September~~June 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; interest~~Interest is currently payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption. At ~~September~~June 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 interest~~Interest 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 including~~after 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 interest~~at a floating rate equal to ~~the Benchmark~~a 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 ~~September~~June 30, ~~2022,~~2023, all of these notes qualified as Tier 2 capital.

At ~~September~~June 30, ~~2022~~2023 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.

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


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

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

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

A summary of time vested restricted stock awards for ~~2022~~the 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 ~~September~~both June 30, 2023 and 2022, and ~~2021 and $1.0~~$0.1 million and ~~$0.6~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. As of ~~September~~June 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 ~~2.7~~2.4 years.

A summary of performance-based restricted stock units (the “Units”) for ~~2022~~the 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.

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The Company did not recognize any stock-based compensation expense associated with these Units for the three and ~~nine~~six months ended ~~September~~June 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 ~~September~~June 30, ~~2022.~~2023 and 2022, respectively.

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~~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 ~~September~~both June 30, ~~2022~~2023 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.

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We had ~~$35.4~~$81.5 million of Primis mortgage loan commitments outstanding as of ~~September~~June 30, ~~2022,~~2023, all of which contractually expire within thirty years.

At ~~September~~June 30, ~~2022~~2023 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.

~~Table~~ The amount of ~~Contents~~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.

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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022 and 2021.~~

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~~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.

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10. SEGMENT INFORMATION

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

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

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

The following 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of results that may be attained for any other period. The emphasis of this discussion will be on the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 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 ~~September~~June 30, ~~2022~~2023 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 ~~ongoing impact of COVID-19 pandemic~~recent adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on ~~our assets, business, cash flows, financial condition,~~customer confidence, deposit outflows, liquidity ~~prospects~~ and ~~results of operations;~~ the regulatory response thereto;

●

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

●

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

●

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

●

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

●

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

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●

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

●

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

●

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

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●

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 financial impact of COVID-19,~~rising interest rates, inflation and recessionary concerns;

●

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

●

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

●

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

●

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

●

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

●

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

●

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, ~~and~~ the Tax Cuts and Jobs Act of 2017 and the CARES Act, as well as the possibility that the U.S. could default on its debt obligations and the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;

●

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

●

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

●

the continued service of key management personnel;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

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borrowers locking in historic low rates in the past few years. Inflation, while beginning to show signs of moderating, remains higher than the Fed’s long term target rate. This has resulted in the Fed continuing to raise borrowing rates in an attempt to get inflation to its 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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	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

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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

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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.

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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.

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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	%

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


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

Asset Quality

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

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

Our 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.

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


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

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

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

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.

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Investment Securities

Our investment securities portfolio provides us with required liquidity and collateral to pledge secure public deposits, certain other deposits, advances from the 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.

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Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in 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.

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

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

In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) in response to recent industry disruption, offering loans with up to one year 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.

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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 accounting~~Three-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 accepted~~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 ~~United States~~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 ~~general practices within~~higher data processing expense driven by substantially higher application volume on the ~~financial services industry. The preparation~~digital deposit platform as a result of ~~financial statements in conformity with accounting principles generally accepted~~a savings account rate promotion offered during 2023. We also experienced a $3.9 million increase in the ~~United States requires management~~provision for loan losses, a substantial amount of which was due to ~~make estimates and assumptions~~specific loans that ~~affect the amounts reported~~are in the ~~financial statements~~process of resolution. These decreases were partially offset by higher interest income and ~~accompanying notes. While we base estimates~~from mortgage banking income in the second quarter of 2023.

Net Interest Income

Our operating results depend primarily on ~~historical experience, current information~~our net interest income, which is the difference between interest and ~~other factors deemed~~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 ~~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 estimates~~39

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	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 management~~six months ended June 30, 2022. Continued upward pressure on deposit account rates and consumer preferences shifting from non-interest bearing to ~~make assumptions about matters~~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 ~~highly uncertain~~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 ~~(ii) different estimates that management reasonably could have used~~$54.8 million for the ~~accounting estimate~~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 ~~current period, or changes in~~six months ended June 30, 2023, compared to 0.44% for the ~~accounting estimate that are reasonably likely~~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 ~~occur from period to period, could have a material impact~~$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 ~~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 related~~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 ~~financial instruments including loans~~an 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 judgment~~volume of lending, historical loan experience and ~~estimation by management. In the case of loans, the~~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 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 as~~our normal reserve process for a ~~component~~portfolio of ~~other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as~~loans that includes a ~~component of other expenses.~~

~~The amount of each allowance account represents management's best estimate of current expected~~third-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 term~~enhancement. 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 upon~~fully 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~~ ~~Envir~~~~onment~~

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

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~~OVERVIEW~~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.

~~Primis~~The Financial ~~Corp. (“Primis,” “we,” “us,” “our” or~~Condition Section of Management’s Discussion and Analysis provides information on our loan portfolio, past due loans, nonperforming assets and the ~~“Company”) is~~allowance for credit losses.

Noninterest Income

The following table presents the ~~bank holding company~~major 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 range~~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 ~~financial services to individuals~~mortgage 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 headquartered~~began accounting for certain third party credit enhancements on consumer lending during the third quarter of 2022, resulting in ~~McLean, Virginia~~no income in the prior year and ~~has administrative offices in Warrenton, Virginia and Glen Allen, Virginia. We consolidated six branches~~purchased Primis Mortgage late in the second quarter of 2022, ~~and two branches~~which resulted in the ~~third~~lower 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~~

●

Net income from continuing operations of $5.1 million for the three months ended September 30, 2022, or $0.21 basic and $0.20 diluted earnings per share, compared to $6.2 million, or $0.25 basic and diluted earnings per share, for the three months ended September 30, 2021. Net income for the nine months ended September 30, 2022 totaled $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 per diluted earnings per share, for the nine months ended September 30, 2021.

●

~~Total assets as of September 30, 2022 were $3.36 billion, a decrease of 2% compared to December 31, 2021.~~

●

~~Total loans, excluding Paycheck Protection Program (“PPP”) balances as of September 30, 2022, were $2.73 billion, an increase of $466.4 million, or 21%, from December 31, 2021.~~

●

~~Total deposits were $2.71 billion at September 30, 2022, a decrease of 2% compared to December 31, 2021.~~

●

~~Non-time deposits decreased to $2.35 billion at September 30, 2022, a decrease of $57.3 million, or 2%, compared to December 31, 2021.~~

●

~~Deposit mix continued to improve with non-interest bearing checking deposits of $687.3 million, representing 25.4% of total deposits at September 30, 2022.~~

●

~~Total revenue of $33.0 million in the third quarter of 2022, up 29.4% from the third quarter of 2021.~~

●

~~Net interest margin of 3.57% in the third quarter of 2022 was up substantially from 2.87% in the third quarter of 2021.~~

●

~~Allowance for credit losses to total loans was 1.17% at September 30, 2022, compared to 1.24% at December 31, 2021.~~


	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

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~~RESULTS OF OPERATIONS~~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

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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

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FINANCIAL CONDITION

Balance Sheet Overview

Loans

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


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

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

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			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

Table of Contents

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	%

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Investment Securities


	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

Deposits

Table of Contents

Liquidity and Funds Management

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

Table of Contents

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.

Capital Resources

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	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 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 operations~~loss for the three months ended ~~September~~June 30, ~~2022 was $5.1~~2023 totaled $0.2 million, or ~~$0.21~~$0.01 basic and ~~$0.20~~ diluted ~~earnings~~loss per share, compared to ~~$6.2~~net income of $4.9 million, or ~~$0.25~~$0.20 basic and diluted earnings per share for the three months ended ~~September~~June 30, ~~2021.~~2022. The ~~19%~~104% decrease in net income during the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021~~2022 was driven by higher noninterest expenses ~~in the current year~~ mainly from an increase in employee compensation and benefits expense in the ~~third~~second quarter of 2023 related to ~~branch closures and consolidations and higher expenses 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 ~~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 over~~income and from mortgage banking income in the ~~past several quarters and the improved asset mix has been the driver~~second quarter of ~~positive movements in both margins and net interest income.~~2023.

Six-Month Comparison.Net income ~~from discontinued operations~~ for the ~~three~~six months ended ~~September~~June 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 ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~37%~~39% decrease in net income during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~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. The decrease~~year, 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

Three-Month Comparison. Net interest income was ~~$27.5~~$26.2 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$23.2~~$24.6 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Primis’ net interest margin for the three months ended ~~September~~June 30, ~~2022~~2023 was ~~3.57%~~2.65%, compared to ~~2.87%~~3.33% for the three months ended ~~September~~June 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 ~~September~~June 30, ~~2022 versus $2.7~~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 ~~September~~June 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 ~~September~~June 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 ~~September~~June 30, ~~2022,~~2023, compared to ~~0.56% cost on average interest-bearing deposits~~0.45% for the three months ended ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Average loans during the three months ended ~~September~~June 30, ~~2022~~2023 were ~~$2.69~~$3.15 billion, compared to ~~$2.29~~$2.51 billion during the three months ended ~~September~~June 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.

4339

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	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-Month~~Six-Month Comparison. Net interest income was ~~$74.9~~$54.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$70.0~~$47.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Primis’ net interest margin for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~3.29%~~2.89%, compared to ~~3.02%~~3.14% for the ~~nine~~six months ended ~~September~~June 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 quarter~~Company 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The yield on average interest-earning assets was ~~3.84%~~5.29% and ~~3.65%~~3.63% for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. ~~The increase~~Increase 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 12~~increased 231 basis points to ~~0.51%~~2.75% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~0.63% cost on average interest-bearing deposits~~0.44% for the ~~nine~~six months ended ~~September~~June 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.

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~~totaled $81.6 million~~The following table details average balances of interest-earning assets and ~~$80.3 million~~interest-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/
	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	$	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.

~~Table of Contents~~

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 ~~September~~June 30, ~~2022 and 2021~~2023 of ~~$2.9~~$4.3 million and ~~$1.1~~$9.5 million, ~~respectively. For the nine months ended September 30, 2022, the Company recorded~~respectively, compared to a provision for credit losses for the three and six months ended June 30, 2022 of ~~$3.4~~$0.4 million ~~compared~~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 ~~recovery~~portfolio of loans that includes a third-party credit enhancement. As a result, this portion of the provision is fully offset by a gain

Table of Contents

recorded in noninterest income due to credit enhancement and has no effect on net income. Excluding this provision amount, the provision for credit losses would have been $3.2 million and $3.5 million for the ~~nine~~three and six months ended ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$1.3~~$6.2 million and ~~$2.3~~$0.2 million during ~~nine~~six months ended ~~September~~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 ~~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 nine~~three months ended ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022,~~2023, compared to ~~$2.4~~$2.6 million for the three months ended ~~September~~June 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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

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Noninterest income increased ~~45%~~324% to ~~$10.3~~$20.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$7.1~~$4.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in noninterest income was primarily ~~driven by a $2.8~~related to $8.9 million ~~increase in~~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 ~~current~~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 ~~Primis Mortgage acquisition~~sale 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 ~~due~~related 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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022,~~2023, compared to ~~$16.6~~$20.5 million during the three months ended ~~September~~June 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 by~~in the second quarter of 2023 related to increased head count at the Bank, Primis Mortgage and ~~higher benefits expense~~Panacea 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 ~~September~~June 30, ~~2022~~2023 was also attributable to a ~~$0.5~~$1.5 million increase in data processing expense ~~in 2022~~ driven by substantially higher ~~technology~~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 ~~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 ~~increased~~increase 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 ~~include~~of 2023 included higher ~~marketing and advertising~~FDIC insurance costs ~~tied~~due to the ~~digital bank launch and V1BE adoption campaigns, increase~~significant growth in ~~legal fees for initiatives and increase in fraud related expenses.~~deposits.

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The following table presents the major categories of noninterest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$51.8~~$39.5 million during the ~~nine~~six months ended ~~September~~June 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 closures~~increased head count at the Bank, Primis Mortgage and ~~consolidations~~Panacea in the ~~second and third quarter of~~six months ended June 30, 2023 compared to 2022. The increase in noninterest expense during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was also driven by a ~~$1.5~~$2.3 million increase in data processing expense in ~~2022~~2023 driven by substantially higher ~~technology~~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 ~~the current year. Occupancy and furniture~~that loan portfolio during 2023. Furniture and equipment expenses increased ~~$0.8~~$1.2 million ~~during~~due to growth in the ~~nine months ended September 30, 2022 compared~~Bank, 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, largely driven by ~~merger~~higher expenses ~~incurred~~related to Primis Mortgage and higher FDIC insurance costs in ~~the second quarter~~2023.

Table of 2022. Other notable drivers of the increase in the current year other operating expenses include higher marketing and advertising costs tied to the digital bank launch and V1BE adoption campaigns, and increases in legal and other professional fees for initiatives.Contents

FINANCIAL CONDITION

Balance Sheet Overview

Total assets were ~~$3.36~~$3.85 billion as of ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022.~~2023. Total loans increased ~~17%~~7%, from ~~$2.34~~$2.95 billion at December 31, ~~2021~~2022 to ~~$2.74~~$3.17 billion at ~~September~~June 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 ~~September~~June 30, ~~2022,~~2023, compared to ~~$2.76~~$2.72 billion at December 31, ~~2021~~2022 and total equity was ~~$391.8~~$393.2 million and ~~$411.9~~$392.4 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Stockholder’s equity balances decreased ~~$28.6~~$0.2 million from December 31, ~~2021~~2022 to ~~September~~June 30, ~~2022~~2023 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 ~~wherewithal~~intention to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

~~Table of Contents~~

Loans

Total loans were ~~$2.74~~$3.17 billion and ~~$2.34~~$2.95 billion at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. PPP loans totaled ~~$8.0~~$2.1 million at ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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	%

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			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 during~~While the ~~first, second and third quarters~~impact of ~~2022, noting an increase~~COVID-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 different~~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 and~~instability. 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.

Our ~~loss and delinquency experience on our~~ loan portfolio ~~has~~losses 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.

~~Calculated~~Total calculated reserves ~~(prior~~increased by $3.9 million to ~~qualitative adjustments) increased~~$38.4 million at the end of ~~September~~June 30, ~~2022~~2023 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 observed~~2022, driven by growth in the ~~third quarter of 2022 is attributed to adjustments~~third-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.

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The following table presents a comparison of nonperforming assets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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 $36.9~~decreased 29% to $25.3 million (excluding ~~$0.7~~$0.6 million of loans fully covered by SBA guarantees) at ~~September~~June 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 increase~~2022. A substantial portion of ~~145%. These increases~~the Bank’s nonperforming assets in previous periods were ~~driven largely by one relationship~~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 ~~criticized~~sold in the second quarter of ~~2022 and was subsequently downgraded further~~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 ~~2022~~2023. When including the receipt of funds and ~~placed on nonaccrual. The primary businesses in~~removal of these loans, the ~~relationship are multiple assisted living facilities. Recent appraisals~~Bank would have ~~been completed with no impairment required at this time. The ratio~~had approximately $5.0 million of nonperforming ~~assets (excluding the SBA guaranteed loans) to total assets was 1.11% and 0.44%~~loans at ~~September~~June 30, ~~2022 and December 31, 2021, respectively.~~2023, an 86% decrease from year end.

At ~~September~~June 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 ~~September~~June 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 loans~~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 ~~amount~~second quarter and represents 0.09% of ~~$3.2 million. There have been~~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 ~~defaults~~payment 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, both~~47

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

Investment Securities

Investment securities, available-for-sale and held-to-maturity, totaled ~~$253.3~~$235.5 million at ~~September~~June 30, ~~2022,~~2023, a decrease of ~~14%~~6% from ~~$294.3~~$249.8 million at December 31, ~~2021.~~

~~Investment securities in our portfolio as~~2022, primarily due to paydowns, maturities, and calls of ~~September 30, 2022 were as follows:~~

●

~~agency commercial mortgage-backed securities in the amount of $117.2 million;~~

●

~~corporate bonds in the amount of $14.9 million;~~

●

~~collateralized loan obligations of $4.8 million;~~

●

~~residential government-sponsored collateralized mortgage obligations in the amount of $23.4 million;~~

●

~~callable agency securities in the amount of $14.7 million;~~

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●

~~commercial mortgage-backed securities in the amount of $40.1 million;~~

●

~~SBA loan pool securities in the amount of $6.4 million; and~~

●

~~municipal bonds in the amount of $31.8 million with a taxable equivalent yield of 2.58%.~~

the investments over the past six months.


	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 ~~nine~~six months ended ~~September~~June 30, 2023 and no credit losses during the three and six months ended June 30, 2022.

Deposits

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Total deposits increased 22% to $3.32 billion at June 30, 2023 from $2.72 billion at December 31, 2022. The increase in 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.

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. ~~The~~These projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses.

At ~~September~~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 ~~$495.5~~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.

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

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

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 ~~September~~June 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 other~~in the normal ~~sources of funds.~~course.

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As of ~~September~~June 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 ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022,~~2023, that Primis meets all capital adequacy requirements to which it is subject.

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	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 remain well-capitalized under Basel III capital requirements. Primis Bank had a capital conservation buffer of ~~7.28%~~4.92% at ~~September~~June 30, ~~2022,~~2023, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.

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Primis Bank’s capital position is consistent with being ~~well- capitalized~~well-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

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

We use simulation modeling to manage our interest rate risk, and 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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 remains constant over the period being measured and also assumes that a particular change in interest rates is

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reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. All changes are within our ALM Policy guidelines at ~~September~~June 30, ~~2022~~2023 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 officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer have concluded that these controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

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

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

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

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

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 ~~September~~June 30, ~~2022.~~2023.

ITEM 1A – RISK FACTORS

~~The Company disclosed~~In 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 Annual~~Part I, Item 1A of our 2022 Form 10-K, and as disclosed in Part II, Item 1A of our Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2021. The~~2023, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks ~~described~~ may ~~not~~change over time and other risks may prove to be important in the ~~only~~future. New risks ~~facing us. Additional~~may emerge at any time, and we cannot predict such risks ~~and uncertainties not currently known~~or estimate the extent to ~~us or that are currently considered to not be material also~~which 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		Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed August 4, 2006)

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

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

3.4		Articles of Amendment to the Articles of Incorporation dated ~~March 31,~~June 30, 2021 (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s Current Report on Form 8-K filed on ~~March 31,~~June 30, 2021)

3.5		Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s Current Report on Form 8-K filed on ~~March 31,~~June 30, 2021)

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

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

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

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101		The following materials from Primis Financial Corp. Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline XBRL (Extensible Business Reporting Language), filed herewith: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (unaudited), (iii) Consolidated Statement of Changes in Stockholders’ Equity (unaudited), (iv) Consolidated Statements of Cash Flows (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited).

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

+ Management contract or compensatory plan or arrangement

* Filed with this Quarterly Report on Form 10-Q

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

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Signatures

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


			Primis Financial Corp.
			(Registrant)


~~November~~August 9, ~~2022~~2023			/s/ Dennis J. Zember, Jr.
(Date)			Dennis J. Zember, Jr.
			President and Chief Executive Officer



~~November~~August 9, ~~2022~~2023			/s/ Matthew Switzer
(Date)			Matthew Switzer
			Executive Vice President and Chief Financial Officer

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	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


	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