0001325670us-gaap:~~EmployeeStockOptionMember2022-04-012022-06-30~~FinancialAssetAcquiredWithCreditDeteriorationMemberus-gaap:CommercialPortfolioSegmentMember2023-09-30

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 ~~June~~September 30, 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)

1676 International Drive, Suite 900

McLean, Virginia 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 ~~August~~November 2, 2023, there were ~~24,686,764~~24,681,764 shares of common stock, $0.01 par value, outstanding.

Table of Contents

PRIMIS FINANCIAL CORP.

FORM 10-Q

~~June~~September 30, 2023

TABLE OF CONTENTS		PAGE
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

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

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

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		5153

Item 4 – Controls and Procedures		5355

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		5455

Item 1A – Risk Factors		5455

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		5455

Item 3 – Defaults Upon Senior Securities		5456

Item 4 – Mine Safety Disclosures		5456

Item 5 – Other Information		5456

Item 6 - Exhibits		5557

Signatures		5759

Table of Contents

PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	June 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022
ASSETS	(unaudited)				(unaudited)
Cash and cash equivalents:
Cash and due from financial institutions	$	6,720	$	6,868	$	23,966	$	6,868
Interest-bearing deposits in other financial institutions		94,148		70,991		69,899		70,991
Total cash and cash equivalents		100,868		77,859		93,865		77,859

Securities available-for-sale, at fair value (amortized cost of $256,101 and $269,036, respectively)		223,087		236,315
Securities available-for-sale, at fair value (amortized cost of $255,446 and $269,036, respectively)						216,875		236,315

Securities held-to-maturity, at amortized cost (fair value of $11,369 and $12,449, respectively)		12,378		13,520
Securities held-to-maturity, at amortized cost (fair value of $10,582 and $12,449, respectively)						11,975		13,520

Loans held for sale, at fair value		57,704		27,626		57,511		27,626
Loans held for sale, at lower of cost or market						8,755		—
Total loans held for sale						66,266		27,626

Loans held for investment		3,173,638		2,946,637		3,145,867		2,946,637
Less: allowance for credit losses		(38,414)		(34,544)		(35,767)		(34,544)
Net loans		3,135,224		2,912,093		3,110,100		2,912,093

Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB)		12,083		25,815		12,796		25,815
Bank premises and equipment, net		25,298		25,257		24,878		25,257
Assets held for sale		3,115		3,115
Operating lease right-of-use assets		10,707		5,335
Goodwill		104,609		104,609		93,459		104,609
Intangible assets, net		2,606		3,254		2,282		3,254
Bank-owned life insurance		67,985		67,201		67,176		67,201
Deferred tax assets, net		20,391		18,289		22,456		18,289
Other assets		72,438		49,211		91,647		57,661
Total assets	$	3,848,493	$	3,569,499	$	3,813,775	$	3,569,499

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	480,832	$	582,556	$	490,719	$	582,556
Interest-bearing deposits:
NOW accounts		817,725		617,687		803,276		617,687
Money market accounts		850,359		811,365		800,951		811,365
Savings accounts		696,750		245,713		746,608		245,713
Time deposits		471,330		465,057		451,850		465,057
Total interest-bearing deposits		2,836,164		2,139,822		2,802,685		2,139,822
Total deposits		3,316,996		2,722,378		3,293,404		2,722,378

Securities sold under agreements to repurchase - short term		3,921		6,445
Securities sold under agreements to repurchase						3,838		6,445
FHLB advances		—		325,000		—		325,000
Junior subordinated debt - long term		9,806		9,781
Senior subordinated notes - long term		85,647		85,531
Operating lease liabilities		11,546		5,767
Junior subordinated debt						9,818		9,781
Senior subordinated notes						85,706		85,531
Other liabilities		27,361		22,232		38,143		27,999
Total liabilities		3,455,277		3,177,134		3,430,909		3,177,134

Commitments and contingencies (See Note 8)

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		—		—		—		—
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,690,064 and 24,680,097 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		246		246
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,686,764 and 24,680,097 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively						246		246
Additional paid in capital		312,976		312,722		313,052		312,722
Retained earnings		106,075		105,247		100,039		105,247
Accumulated other comprehensive loss		(26,081)		(25,850)		(30,471)		(25,850)
Total stockholders' equity		393,216		392,365		382,866		392,365
Total liabilities and stockholders' equity	$	3,848,493	$	3,569,499	$	3,813,775	$	3,569,499

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

PRIMIS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME ~~(LOSS)~~ AND COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

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



	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Interest and dividend income:
Interest and fees on loans	$	43,970	$	26,337	$	85,276	$	51,060	$	47,771	$	30,488	$	133,047	$	81,548
Interest and dividends on taxable securities		1,449		1,340		2,932		2,665		1,491		1,417		4,423		4,082
Interest and dividends on tax exempt securities		102		105		203		210		102		101		305		311
Interest and dividends on other earning assets		7,158		448		11,382		854		1,122		555		12,504		1,409
Total interest and dividend income		52,679		28,230		99,793		54,789		50,486		32,561		150,279		87,350
Interest expense:
Interest on deposits		24,783		2,311		39,827		4,684		21,576		3,287		61,403		7,971
Interest on other borrowings		1,739		1,341		5,444		2,699		1,785		1,859		7,229		4,558
Total interest expense		26,522		3,652		45,271		7,383		23,361		5,146		68,632		12,529
Net interest income		26,157		24,578		54,522		47,406		27,125		27,415		81,647		74,821
Provision for credit losses		4,301		422		9,488		521		1,648		2,890		11,136		3,411
Net interest income after provision for credit losses		21,856		24,156		45,034		46,885		25,477		24,525		70,511		71,410

Noninterest income:
Account maintenance and deposit service fees		1,430		1,442		2,646		2,793		1,503		1,525		4,149		4,318
Income from bank-owned life insurance		394		378		814		753		787		394		1,601		1,147
Mortgage banking income		5,198		593		9,513		593		4,922		2,197		14,435		2,790
Gain on sale of loans		182		—		660		—		451		—		1,111		—
Credit enhancement income		1,152		—		6,038		—		2,047		1,220		8,085		1,220
Other noninterest income		130		217		347		581		232		284		579		865
Total noninterest income		8,486		2,630		20,018		4,720		9,942		5,620		29,960		10,340

Noninterest expenses:
Salaries and benefits		15,283		10,573		30,311		20,198		13,809		12,594		44,120		32,792
Occupancy expenses		1,593		1,418		3,038		2,875		1,633		1,402		4,671		4,277
Furniture and equipment expenses		1,852		1,128		3,429		2,228		1,537		1,455		4,966		3,683
Amortization of intangible assets		318		341		635		682		317		326		952		1,008
Virginia franchise tax expense		848		814		1,697		1,627		849		813		2,546		2,440
FDIC insurance assessment										820		199		2,254		658
Data processing expense		2,828		1,293		5,079		2,783		2,250		1,528		7,329		4,311
Marketing expense		521		731		1,090		1,196		377		938		1,467		2,134
Telephone and communication expense		416		366		793		748		356		342		1,149		1,090
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		1,118		1,261		3,055		3,182
Credit enhancement costs		515		—		1,388		—		337		—		1,725		—
Goodwill impairment										11,150		—		11,150		—
Other operating expenses		5,303		2,366		8,559		4,690		2,521		2,903		9,646		7,695
Total noninterest expenses		30,552		20,477		57,956		39,509		37,074		23,761		95,030		63,270
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
(Loss) income before income taxes										(1,655)		6,384		5,441		18,480
Income tax expense										1,912		1,359		3,243		3,971
Net (loss) income									$	(3,567)	$	5,025	$	2,198	$	14,509
Other comprehensive loss:
Unrealized loss on available-for-sale securities	$	(3,299)	$	(10,723)		(293)		(24,099)	$	(5,557)	$	(12,068)		(5,850)		(36,167)
Tax benefit		(693)		(2,252)		(62)		(5,061)		(1,167)		(2,534)		(1,229)		(7,595)
Other comprehensive loss		(2,606)		(8,471)		(231)		(19,038)		(4,390)		(9,534)		(4,621)		(28,572)
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
Comprehensive loss									$	(7,957)	$	(4,509)	$	(2,423)	$	(14,063)
(Loss) earnings per share, basic									$	(0.14)	$	0.21	$	0.09	$	0.60
(Loss) earnings per share, diluted									$	(0.14)	$	0.20	$	0.09	$	0.59

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~~SEPTEMBER 30, 2023 AND 2022

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


	For the Three Months Ended June 30, 2023												For the Three Months Ended September 30, 2023
									Accumulated												Accumulated
					Additional				Other								Additional				Other
	Common Stock				Paid in		Retained		Comprehensive				Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss		Total		Shares		Amount		Capital		Earnings		Loss		Total
Balance March 31, 2023		24,685,064	$	246	$	312,903	$	108,732	$	(23,475)	$	398,406
Balance - June 30, 2023														24,690,064	$	246	$	312,976	$	106,075	$	(26,081)	$	393,216
Net loss		—		—		—		(188)		—		(188)		—		—		—		(3,567)		—		(3,567)
Changes in other comprehensive loss on investment securities (net of tax benefit, $693)		—		—		—		—		(2,606)		(2,606)
Other comprehensive loss														—		—		—		—		(4,390)		(4,390)
Dividends on common stock ($0.10 per share)		—		—		—		(2,469)		—		(2,469)		—		—		—		(2,469)		—		(2,469)
Restricted stock granted		5,000		—		—		—		—		—
Restricted stock forfeited														(3,300)		—		—		—		—		—
Stock-based compensation expense		—		—		73		—		—		73		—		—		76		—		—		76
Balance - June 30, 2023		24,690,064	$	246	$	312,976	$	106,075	$	(26,081)	$	393,216
Balance - September 30, 2023														24,686,764	$	246	$	313,052	$	100,039	$	(30,471)	$	382,866

		For the Three Months Ended June 30, 2022												For the Three Months Ended September 30, 2022
									Accumulated												Accumulated
					Additional				Other								Additional				Other
	Common Stock				Paid in		Retained		Comprehensive				Common Stock				Paid in		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss		Total		Shares		Amount		Capital		Earnings		Loss		Total
Balance March 31, 2022		24,622,739	$	245	$	311,872	$	99,710	$	(9,455)	$	402,372
Balance - June 30, 2022														24,650,239	$	246	$	312,240	$	102,194	$	(17,926)	$	396,754
Net income		—		—		—		4,948		—		4,948		—		—		—		5,025		—		5,025
Changes in other comprehensive loss on investment securities (net of tax benefit, $2,252)		—		—		—		—		(8,471)		(8,471)
Other comprehensive loss														—		—		—		—		(9,534)		(9,534)
Dividends on common stock ($0.10 per share)		—		—		—		(2,465)		—		(2,465)		—		—		—		(2,465)		—		(2,465)
Stock option exercises		27,500		1		278		—		—		279
Repurchase of restricted stock		—		—		(2)		—		—		(2)
Stock-based compensation expense		—		—		92		—		—		92		—		—		116		—		—		116
Balance - June 30, 2022		24,650,239	$	246	$	312,240	$	102,193	$	(17,926)	$	396,753
Balance - September 30, 2022														24,650,239	$	246	$	312,356	$	104,754	$	(27,460)	$	389,896

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~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022

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

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


			For the Nine Months Ended September 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		—		—		—		2,198		—		2,198
Other comprehensive loss		—		—		—		—		(4,621)		(4,621)
Dividends on common stock ($0.30 per share)		—		—		—		(7,406)		—		(7,406)
Shares retired to unallocated		(1,033)		—		—		—		—		—
Stock option exercises		8,000		—		85		—		—		85
Restricted stock granted		5,000		—		—		—		—		—
Restricted stock forfeited		(5,300)		—		—		—		—		—
Repurchase of restricted stock		—		—		(12)		—		—		(12)
Stock-based compensation expense		—		—		257		—		—		257
Balance - September 30, 2023		24,686,764	$	246	$	313,052	$	100,039	$	(30,471)	$	382,866

			For the Nine Months Ended September 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	$	97,632	$	1,112	$	410,116
Net income		—		—		—		14,509		—		14,509
Other comprehensive loss		—		—		—		—		(28,572)		(28,572)
Dividends on common stock ($0.30 per share)		—		—		—		(7,387)		—		(7,387)
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		—		—		959		—		—		959
Shares issued in lieu of bonus		47,158		—		—		—		—		—
Balance - September 30, 2022		24,650,239	$	246	$	312,356	$	104,754	$	(27,460)	$	389,896

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

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

For the Six Months Ended June 30,


2023

2022
Operating activities:




Net income

$
5,765

$
9,484
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:




Depreciation and amortization

4,547

3,515
Net amortization (accretion) of premiums and discounts

(635)

312
Provision for credit losses

9,488

521
Origination of loans held for sale

(301,161)

(26,998)
Proceeds from sale of loans held for sale

270,852

31,273
Net gains on mortgage banking

(9,513)

(593)
Net gains on sale of loans

(660)

—
Loss on bank premises and equipment and assets held for sale

—

620
Earnings on bank-owned life insurance

(784)

(753)
Gain on bank-owned life insurance death benefit

(30)

—
Stock-based compensation expense

181

843
Gain on other real estate owned

—

(59)
Credit enhancement income

(6,038)

—
Benefit for deferred income taxes

(2,040)

—
Net increase in other assets

(8,830)

(3,008)
Net increase (decrease) in other liabilities

4,345

(2,631)
Net cash and cash equivalents (used in) provided by operating activities

(34,513)

12,526
Investing activities:




Purchases of securities available-for-sale

(5,000)

(27,573)
Proceeds from paydowns, maturities and calls of securities available-for-sale

17,373

16,896
Proceeds from paydowns, maturities and calls of securities held-to-maturity

1,124

7,907
Net decrease of FRB and FHLB stock

13,732

2,581
Net increase in loans

(231,405)

(287,754)
Proceeds from bank-owned life insurance death benefit

873

138
Proceeds from sales of other real estate owned, net of improvements

—

181
Purchases of bank premises and equipment

(1,405)

(536)
Business acquisition, net of cash acquired

—

(4,554)
Net cash and cash equivalents used in investing activities

(204,708)

(292,714)
Financing activities:



Net (decrease) increase in deposits

594,618

(80,411)
Cash dividends paid on common stock

(4,937)

(4,922)
Proceeds from exercised stock options

85

279
Repurchase of restricted stock

(12)

(8)
Repayment of short-term FHLB advances, net of proceeds

—

(75,000)
Repayment of short-term borrowings

(325,000)

(19,254)
Increase (decrease) in securities sold under agreements to repurchase

(2,524)

58
Net cash and cash equivalents provided by (used in) financing activities

262,230

(179,258)
Net change in cash and cash equivalents

23,009

(459,446)
Cash and cash equivalents at beginning of period

77,859

530,167
Cash and cash equivalents at end of period

$
100,868

$
70,721
Supplemental disclosure of cash flow information



Cash payments for:



Interest

$
41,182

$
7,698
Income taxes

$
3,908

$
1,556
Non-cash investing and financing activities:

Initial recognition of operating lease right-of-use assets

$
5,372

$
—


	For the Nine Months Ended September 30,
	2023		2022
Operating activities:
Net income	$	2,198	$	14,509
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization		6,943		4,941
Net amortization of premiums and (accretion of discounts)		(710)		505
Amortization of FDIC indemnification asset		11		—
Provision for credit losses		11,136		3,411
Origination of loans held for sale		(292,406)		(90,021)
Proceeds from sale of loans held for sale		270,852		97,326
Net gains on mortgage banking		(14,435)		(2,790)
Net gains on sale of loans		(1,111)		—
Earnings on bank-owned life insurance		(1,571)		(1,147)
Gain on bank-owned life insurance death benefit		(30)		—
Stock-based compensation expense		257		959
Gain on other real estate owned		—		(59)
Credit enhancement income		(8,085)		(1,220)
Goodwill impairment		11,150		—
Deferred income tax benefit		(2,939)		(700)
Net increase in other assets		(33,189)		(903)
Net increase (decrease) in other liabilities		10,144		(1,662)
Net cash and cash equivalents (used in) provided by operating activities		(41,785)		23,149
Investing activities:
Purchases of securities available-for-sale		(10,487)		(32,486)
Proceeds from paydowns, maturities and calls of securities available-for-sale		23,496		27,650
Proceeds from paydowns, maturities and calls of securities held-to-maturity		1,518		8,478
Net decrease (increase) of FRB and FHLB stock		13,019		(1,168)
Net increase in loans		(206,714)		(396,983)
Proceeds from bank-owned life insurance death benefit		873		352
Proceeds from sales of other real estate owned, net of improvements		—		181
Purchases of bank premises and equipment		—		(706)
Business acquisition, net of cash acquired		—		(4,554)
Net cash and cash equivalents used in investing activities		(178,295)		(399,236)
Financing activities:
Net (decrease) increase in deposits		571,026		(54,896)
Cash dividends paid on common stock		(7,406)		(7,387)
Proceeds from exercised stock options		85		279
Repurchase of restricted stock		(12)		(8)
Repayment of short-term FHLB advances		(325,000)		25,000
Repayment of short-term borrowings		—		(19,254)
Decrease in securities sold under agreements to repurchase		(2,607)		(76)
Net cash and cash equivalents provided by (used in) financing activities		236,086		(56,342)
Net change in cash and cash equivalents		16,006		(432,429)
Cash and cash equivalents at beginning of period		77,859		530,167
Cash and cash equivalents at end of period	$	93,865	$	97,738
Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	65,430	$	12,286
Income taxes	$	3,908	$	3,035
Non-cash investing and financing activities:
Initial recognition of operating lease right-of-use assets	$	6,067	$	—
Loans held for investment transferred to loans held for sale	$	8,755	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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PRIMIS FINANCIAL CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

1. ACCOUNTING POLICIES

At ~~June~~September 30, 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 office in Glen Allen, Virginia and an operations center in Atlee, Virginia. Primis Mortgage Company, a residential mortgage lender 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 U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practice within the banking industry. ~~Major~~A discussion of the Company’s material accounting policies ~~and practices~~ are ~~described below.~~located in our 2022 Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) .

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.

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

Operating Segments

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

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Basis of Presentation

The unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with U.S. GAAP for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited condensed 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~~the 2022 Form ~~10-K for the year ended December 31, 2022.~~10-K.

Use of Estimates

The preparation of the condensed 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.

Interest Rate Swaps

The Company is subject to interest rate risk exposure in the normal course of business through its core lending operations. Primarily to help mitigate interest rate risk associated with its loan portfolio, the Company entered into interest rate swaps in May and August 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.~~the Secured Overnight Financing Rate (“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~~meet the definition of a derivative ~~instrument~~instruments under ~~ASC~~Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and isare accounted for both initially and subsequently at its fair value. The Company assessed the derivative ~~instrument~~instruments at inception and determined itthey met the requirements under ASC 815 to be accounted for as a fair value ~~hedge.~~hedges. 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~~hedges that isare 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 and commercial loans that isare 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,~~instruments, as well as the gains and losses attributable to the change in fair value of the hedged ~~item,~~items, 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 isare included in the basis of the hedged ~~item,~~items, while the corresponding change in the fair value of the derivative ~~instrument is~~instruments are recorded as an adjustment to other assets or other liabilities, as applicable.

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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~~September 30, 2023 and December 31, 2022:


	June 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022
(dollars in thousands)		Amortized Cost Basis		Hedged Asset		Basis Adjustment		Amortized Cost Basis		Hedged Asset		Basis Adjustment		Amortized Cost Basis		Hedged Asset		Basis Adjustment		Amortized Cost Basis		Hedged Asset		Basis Adjustment
Fixed rate assets	$	440,935	$	195,739	$	(4,261)	$	—	$	—	$	—	$	971,810	$	244,646	$	(5,354)	$	—	$	—	$	—

Goodwill

Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which is referred to as a component. The Company’s reporting units for goodwill are its two primary operating segments, Primis Bank and Primis Mortgage Company. The Company completed the annual goodwill impairment testing for its two reporting units as of September 30, 2023. The testing for Primis Mortgage Company concluded that the fair value of the reporting unit was in excess of its carrying amount and no impairment charge was required. The Company’s testing of the Primis Bank reporting unit revealed that its carrying amount was in excess of its calculated fair value as of September 30, 2023, resulting in an impairment charge.

The Company’s impairment testing included the use of three approaches, each receiving various weightings to determine an ultimate fair value estimate: (1) the comparable transactions method that is based on comparison to pricing ratios recently paid in the sale or merger of comparable banking institutions; (2) the public market peers control premium approach that is based on market pricing ratios of public banking companies adjusted for an industry based control premium, and (3) a discounted cash flow method (an income method), taking into consideration expectations of the Company’s growth and profitability going forward. The results of the combined weighted approaches indicated that the Primis Bank reporting unit’s fair value was approximately 2.4% less than its book value, resulting in a goodwill impairment charge of $11.2 million. This was a non-cash charge to earnings and had no impact on tangible or regulatory capital, cash flows or the Company’s liquidity position.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment testing as of September 30, 2023 will prove to be an accurate prediction of the future. Changes in assumptions, market data (for market-based assessments), or the discount rate (for income based assessments) could produce different results that lead to higher or lower fair value determinations compared to the results of the annual impairment testing performed as of September 30, 2023.

Transfers of Financial Assets

The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan participations and other partial loan sales. Transfers of an entire financial asset (i.e. loan sales), a group of entire financial assets, or a participating interest in an entire financial asset (i.e. loan participations sold) are accounted for as sales when control over the assets have been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Participations or other partial loan sales that do not meet the definition of a participating interest would remain on the balance sheet and the proceeds are recorded as a secured borrowing. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value. There were no loan participations that were accounted for as secured borrowings during the period. The Company transferred $25 million of loans to third-parties during the quarter that met the requirements to be accounted for as a sale.

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The Company retained servicing rights on the loans sold and recorded a servicing asset for each of the sold loans at the time of sale. Subsequent to the date of transfer, the Company has elected to measure servicing assets under the amortization method. Under the amortization method, servicing assets are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of servicing assets is analyzed each reporting period and is adjusted to reflect changes in prepayment speeds, as well as other factors. Servicing assets are evaluated for impairment based on the fair value of those assets. Impairment is determined by assessing the servicing assets based on groupings of predominant risk characteristics, such as interest rate and loan type. If, by servicing asset grouping, the carrying amount of the servicing assets exceeds fair value, a valuation allowance is established through a charge to earnings. The valuation allowance is adjusted as the fair value changes. The Company recorded no impairment of its servicing assets during the three and nine months ended September 30, 2023. Servicing assets are included in other assets in the accompanying condensed consolidated balance sheets. During the three and nine months ended September 30, 2023, the Company had the following activity in regard to its servicing assets (amounts in thousands):


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
(dollars in thousands)	2023		2023
Beginning balance	$	574	$	—
Assets acquired		183		792
Amortization		(31)		(66)
Ending Balance	$	726	$	726

Retained Earnings 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 the origination of several loans to ~~an actual~~a 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~~its projected 2023 annual earnings iswas expected to be ~~material.~~material at the time the evaluation was performed as of June 30, 2023. Accordingly, the Company made the decision to ~~revise~~report the losses toin the respective periods in which they were incurred in its future Form 10-Q and Form 10-K filings by revising ~~those periods.~~impacted periods beginning with the Quarterly Report on Form 10-Q as of June 30, 2023. For all of its ~~future~~ filings on and after June 30, 2023, the Company will revise opening retained earnings of the earliest period presented for losses incurred in earlier 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 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~~nine months ended ~~June~~September 30, 2022, of ~~$61~~$29 thousand and ~~$118~~$147 thousand, respectively.

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




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

Income Statement:
Effect to interest income	$	(28)	$	(45)	$	(54)	$	(35)	$	(89)
Effect to noninterest expenses		47		7		92		—		92
Effect on income tax expense (benefit)		(14)		(230)		(28)		(6)		(34)
Net effect to net income (loss)	$	(61)	$	179	$	(118)	$	(29)	$	(147)

Recent Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards ~~Codification~~Update (“~~ASC”~~ASU”) 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under 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 2022-01, 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 fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the update ~~as it became applicable to us on May 11,~~in the second quarter of 2023. The adoption of this standard did not have a material impact on the consolidated financial statements or disclosures.

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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
June 30, 2023
September 30, 2023
Residential government-sponsored mortgage-backed securities	$	113,816	$	—	$	(15,802)	$	98,014	$	113,087	$	—	$	(19,222)	$	93,865
Obligations of states and political subdivisions		33,951		2		(4,280)		29,673		33,876		—		(5,564)		28,312
Corporate securities		16,000		—		(3,044)		12,956		16,000		—		(2,686)		13,314
Collateralized loan obligations		5,020		—		(119)		4,901		5,019		—		(64)		4,955
Residential government-sponsored collateralized mortgage obligations		30,813		—		(2,245)		28,568		32,324		—		(2,579)		29,745
Government-sponsored agency securities		16,243		—		(2,883)		13,360		16,255		—		(3,287)		12,968
Agency commercial mortgage-backed securities		35,374		—		(4,580)		30,794		34,391		—		(5,111)		29,280
SBA pool securities		4,884		10		(73)		4,821		4,494		8		(66)		4,436
Total	$	256,101	$	12	$	(33,026)	$	223,087	$	255,446	$	8	$	(38,579)	$	216,875


	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
December 31, 2022
Residential government-sponsored mortgage-backed securities	$	119,371	$	1	$	(16,491)	$	102,881
Obligations of states and political subdivisions		34,103		2		(4,927)		29,178
Corporate securities		16,000		—		(1,172)		14,828
Collateralized loan obligations		5,022		—		(146)		4,876
Residential government-sponsored collateralized mortgage obligations		28,643		—		(2,048)		26,595
Government-sponsored agency securities		17,719		—		(3,103)		14,616
Agency commercial mortgage-backed securities		42,180		—		(4,763)		37,417
SBA pool securities		5,998		13		(87)		5,924
Total	$	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		Amortized		Gross Unrecognized				Allowance for		Fair
	Cost		Gains		Losses		Credit Losses		Value		Cost		Gains		Losses		Credit Losses		Value
June 30, 2023
September 30, 2023
Residential government-sponsored mortgage-backed securities	$	9,753	$	—	$	(927)	$	—	$	8,826	$	9,357	$	—	$	(1,219)	$	—	$	8,138
Obligations of states and political subdivisions		2,388		1		(63)		—		2,326		2,390		—		(153)		—		2,237
Residential government-sponsored collateralized mortgage obligations		237		—		(20)		—		217		228		—		(21)		—		207
Total	$	12,378	$	1	$	(1,010)	$	—	$	11,369	$	11,975	$	—	$	(1,393)	$	—	$	10,582


	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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~~for-sale~~Available-for-sale investment securities of $5.5 million and $10.5 million, respectively, were purchased during the three and nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, $4.9 million and $32.5 million, respectively, of available-for-sale investment securities were purchased. No held-to-maturity investments were purchased during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. No investment securities were sold during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of ~~June~~September 30, 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	$	—	$	—	$	325	$	324	$	—	$	—	$	871	$	861
Due in one to five years		10,024		9,121		1,124		1,121		10,027		9,076		580		557
Due in five to ten years		34,261		28,718		939		881		34,242		28,494		939		819
Due after ten years		26,929		23,051		—		—		26,881		21,979		—		—
Residential government-sponsored mortgage-backed securities		113,816		98,014		9,753		8,826		113,087		93,865		9,357		8,138
Residential government-sponsored collateralized mortgage obligations		30,813		28,568		237		217		32,324		29,745		228		207
Agency commercial mortgage-backed securities		35,374		30,794		—		—		34,391		29,280		—		—
SBA pool securities		4,884		4,821		—		—		4,494		4,436		—		—
Total	$	256,101	$	223,087	$	12,378	$	11,369	$	255,446	$	216,875	$	11,975	$	10,582

Investment securities with a carrying amount of approximately ~~$193.3~~$183.2 million and $99.4 million at ~~June~~September 30, 2023 and December 31, 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 current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities and (iv) internal forecasts. As of ~~June~~September 30, 2023, Primis ~~had an immaterial~~did not have a material allowance for credit losses on held-to-maturity securities.

The unrealized losses related to investment securities available-for-sale ~~identified~~ as of ~~June~~September 30, 2023 and December 31, 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 and qualitative analysis in this determination. As a result of the Company’s analysis, none of the securities were deemed to require an allowance for credit losses ~~at June~~as of September 30, 2023 ~~and~~

1113

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and 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~~September 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				Less than 12 months				12 Months or More				Total
June 30, 2023	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2023													Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale	value		Losses		value		Losses		value		Losses		value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	4,796	$	(281)	$	93,218	$	(15,521)	$	98,014	$	(15,802)	$	2,643	$	(81)	$	91,222	$	(19,141)	$	93,865	$	(19,222)
Obligations of states and political subdivisions		6,850		(84)		21,821		(4,196)		28,671		(4,280)		5,915		(198)		21,397		(5,366)		27,312		(5,564)
Corporate securities		5,591		(409)		7,365		(2,635)		12,956		(3,044)		895		(104)		12,418		(2,582)		13,313		(2,686)
Collateralized loan obligations		—		—		4,901		(119)		4,901		(119)		—		—		4,955		(64)		4,955		(64)
Residential government-sponsored collateralized mortgage obligations		13,910		(338)		14,658		(1,907)		28,568		(2,245)		12,186		(281)		17,554		(2,298)		29,740		(2,579)
Government-sponsored agency securities		—		—		13,360		(2,883)		13,360		(2,883)		—		—		12,968		(3,287)		12,968		(3,287)
Agency commercial mortgage-backed securities		—		—		30,794		(4,580)		30,794		(4,580)		—		—		29,280		(5,111)		29,280		(5,111)
SBA pool securities		—		—		3,009		(73)		3,009		(73)		356		—		2,776		(66)		3,132		(66)
Total	$	31,147	$	(1,112)	$	189,126	$	(31,914)	$	220,273	$	(33,026)	$	21,995	$	(664)	$	192,570	$	(37,915)	$	214,565	$	(38,579)


	Less than 12 months				12 Months or More				Total				Less than 12 months				12 Months or More				Total
June 30, 2023	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
September 30, 2023													Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Held-to-Maturity	value		Losses		value		Losses		value		Losses		value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	586	$	(35)	$	8,240	$	(892)	$	8,826	$	(927)	$	—	$	—	$	8,138	$	(1,219)	$	8,138	$	(1,219)
Obligations of states and political subdivisions		1,357		(17)		388		(46)		1,745		(63)		1,870		(86)		367		(67)		2,237		(153)
Residential government-sponsored collateralized mortgage obligations		58		(4)		159		(16)		217		(20)		—		—		207		(21)		207		(21)
Total	$	2,001	$	(56)	$	8,787	$	(954)	$	10,788	$	(1,010)	$	1,870	$	(86)	$	8,712	$	(1,307)	$	10,582	$	(1,393)


	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)

1214

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

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)

~~Table of Contents~~

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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


	June 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Loans held for sale	$	57,704	$	27,626
Loans held for sale, at fair value					$	57,511	$	27,626
Loans held for sale, at lower of cost or market						8,755		—
Total loans held for sale					$	66,266	$	27,626

Loans held for investment
Loans secured by real estate:
Commercial real estate - owner occupied	$	447,407	$	459,866	$	431,840	$	459,866
Commercial real estate - non-owner occupied		595,805		579,733		576,881		579,733
Secured by farmland		5,271		5,970		5,082		5,970
Construction and land development		175,073		148,690		172,005		148,690
Residential 1-4 family		591,938		609,694		600,389		609,694
Multi-family residential		133,754		140,321		129,586		140,321
Home equity lines of credit		62,808		65,152		59,996		65,152
Total real estate loans		2,012,056		2,009,426		1,975,779		2,009,426

Commercial loans		584,251		520,741		592,528		520,741
Paycheck Protection Program loans		2,143		4,564		2,105		4,564
Consumer loans		569,139		405,278		569,463		405,278
Total Non-PCD loans		3,167,589		2,940,009		3,139,875		2,940,009
PCD loans		6,049		6,628		5,992		6,628
Total loans held for investment	$	3,173,638	$	2,946,637	$	3,145,867	$	2,946,637

Accrued Interest Receivable

Accrued interest receivable on loans totaled ~~$19.0~~$24.1 million and $13.7 million at ~~June~~September 30, 2023 and December 31, 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

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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 ~~six~~nine months) of repayment performance by the borrower.

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


	30 - 59		60 - 89		90
	Days		Days		Days		Total		Loans Not		Total
September 30, 2023	Past Due		Past Due		or More		Past Due		Past Due		Loans
Commercial real estate - owner occupied	$	801	$	53	$	—	$	854	$	430,986	$	431,840
Commercial real estate - non-owner occupied		225		—		13,066		13,291		563,590		576,881
Secured by farmland		—		—		479		479		4,603		5,082
Construction and land development		997		682		—		1,679		170,326		172,005
Residential 1-4 family		2,152		408		1,178		3,738		596,651		600,389
Multi- family residential		—		—		—		—		129,586		129,586
Home equity lines of credit		551		141		234		926		59,070		59,996
Commercial loans		1,012		—		1,366		2,378		590,150		592,528
Paycheck Protection Program loans		3		—		1,771		1,774		331		2,105
Consumer loans		3,069		2,308		186		5,563		563,900		569,463
Total Non-PCD loans		8,810		3,592		18,280		30,682		3,109,193		3,139,875
PCD loans		1,201		—		1,241		2,442		3,550		5,992
Total	$	10,011	$	3,592	$	19,521	$	33,124	$	3,112,743	$	3,145,867


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

1416

Table of Contents

The amortized cost, by class, of loans and leases on nonaccrual status at September 30, 2023 and December 31, 2022, were as follows (in thousands):


	90			Less Than	Total		Nonaccrual With
	Days			90 Days	Nonaccrual		No Credit
September 30, 2023	or More			Past Due	Loans		Loss Allowance
Commercial real estate - owner occupied	$	—	$	427	$	427	$	427
Commercial real estate - non-owner occupied		13,066		—		13,066		—
Secured by farmland		479		—		479		479
Construction and land development		—		24		24		24
Residential 1-4 family		1,178		841		2,019		2,019
Home equity lines of credit		234		483		717		717
Commercial loans		1,366		47		1,413		45
Paycheck Protection Program loans		57		—		57		57
Consumer loans		186		542		728		728
Total Non-PCD loans		16,566		2,364		18,930		4,496
PCD loans		1,241		—		1,241		1,241
Total	$	17,807	$	2,364	$	20,171	$	5,737

	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 $1.7 million and $3.4 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing as of September 30, 2023 and December 31, 2022, respectively.

Table of Contents

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

30 - 59

60 - 89

90






Days

Days

Days

Total

Loans Not

Total
June 30, 2023

Past Due

Past Due

or More

Past Due

Past Due

Loans
Commercial real estate - owner occupied

$
83

$
53

$
—

$
136

$
447,271

$
447,407
Commercial real estate - non-owner occupied

—

—

19,187

19,187

576,618

595,805
Secured by farmland

2

—

503

505

4,766

5,271
Construction and land development

41

—

—

41

175,032

175,073
Residential 1-4 family

2,277

904

715

3,896

588,042

591,938
Multi- family residential

101

—

—

101

133,653

133,754
Home equity lines of credit

670

294

254

1,218

61,590

62,808
Commercial loans

10,437

184

1,371

11,992

572,259

584,251
Paycheck Protection Program loans

7

—

1,775

1,782

361

2,143
Consumer loans

2,628

1,872

129

4,629

564,510

569,139
Total Non-PCD loans

16,246

3,307

23,934

43,487

3,124,102

3,167,589
PCD loans

443

—

1,242

1,685

4,364

6,049
Total

$
16,689

$
3,307

$
25,176

$
45,172

$
3,128,466

$
3,173,638

30 - 59

60 - 89

90








Days

Days

Days

Total

Loans Not

Total

December 31, 2022

Past Due

Past Due

or More

Past Due

Past Due

Loans

Commercial real estate - owner occupied

$
55

$
—

$
—

$
55

$
459,811

$
459,866

Commercial real estate - non-owner occupied

290

169

19,641

20,100

559,633

579,733

Secured by farmland

—

—

—

—

5,970

5,970

Construction and land development

46

—

—

46

148,644

148,690

Residential 1-4 family

2,180

410

304

2,894

606,800

609,694

Multi- family residential

—

—

—

—

140,321

140,321

Home equity lines of credit

431

96

249

776

64,376

65,152

Commercial loans

39

—

2,956

2,995

517,746

520,741

Paycheck Protection Program loans

16

15

3,360

3,391

1,173

4,564

Consumer loans

2,079

1,421

200

3,700

401,578

405,278

Total Non-PCD loans

5,136

2,111

26,710

33,957

2,906,052

2,940,009

PCD loans

—

—

1,328

1,328

5,300

6,628

Total

$
5,136

$
2,111

$
28,038

$
35,285

$
2,911,352

$
2,946,637

~~Table of Contents~~

~~The amortized cost, by class, of loans and leases on nonaccrual status at June 30, 2023 and December 31, 2022, were as follows (in thousands):~~

90


Less Than

Total

Nonaccrual With

Days

90 Days

Nonaccrual

No Credit
June 30, 2023

or More

Past Due

Loans

Loss Allowance
Commercial real estate - owner occupied

$
—

$
491

$
491

$
491
Commercial real estate - non-owner occupied

19,187

—

19,187

1,323
Secured by farmland

503

2

505

505
Construction and land development

—

26

26

26
Residential 1-4 family

715

529

1,244

1,244
Home equity lines of credit

254

276

530

530
Commercial loans

1,371

60

1,431

61
Paycheck Protection Program loans

61

—

61

61
Consumer loans

129

444

573

573
Total Non-PCD loans

22,220

1,828

24,048

4,814
PCD loans

1,242

—

1,242

1,242
Total

$
23,462

$
1,828

$
25,290

$
6,056


90


Less Than

Total

Nonaccrual With

Days

90 Days

Nonaccrual

No Credit
December 31, 2022

or More

Past Due

Loans

Loss Allowance
Commercial real estate - owner occupied

$
—

$
509

$
509

$
509
Commercial real estate - non-owner occupied

19,641

—

19,641

19,641
Secured by farmland

—

713

713

713
Construction and land development

—

29

29

29
Residential 1-4 family

304

8,995

9,299

9,299
Home equity lines of credit

249

301

550

550
Commercial loans

2,956

121

3,077

121
Paycheck Protection Program loans

—

4

4

4
Consumer loans

200

134

334

299
Total Non-PCD loans

23,350

10,806

34,156

31,165
PCD loans

1,328

—

1,328

1,328
Total

$
24,678

$
10,806

$
35,484

$
32,493

~~There were $1.7 million and $3.4 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing at June 30, 2023 and December 31, 2022, respectively~~.

~~Table of Contents~~

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


															Revolving																		Revolving
															Loans																		Loans
													Revolving		Converted																Revolving		Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total		2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Commercial real estate - owner occupied	$	—	$	—	$	—	$	—	$	—	$	491	$	—	$	—	$	491	$	—	$	—	$	—	$	—	$	—	$	427	$	—	$	—	$	427
Commercial real estate - non-owner occupied		—		—				—		—		19,187		—		—		19,187		—		—		—		—		—		13,066		—		—		13,066
Secured by farmland		—		—		—		—		2		503		—		—		505		—		—		—		—		—		479		—		—		479
Construction and land development		—		—		—		—		—		26		—		—		26		—		—		—		—		—		24		—		—		24
Residential 1-4 family		—				—		—		—		981		—		263		1,244		—		589		—		44		162		991		—		233		2,019
Home equity lines of credit		—		—		—		—		—		54		457		19		530		—		—		—		—		—		54		646		17		717
Commercial loans		—		—		—		3		—		1,428		—		—		1,431		—		—		—		2		—		1,411		—		—		1,413
Paycheck Protection Program loans		—		—		—		61		—		—		—		—		61		—		—		—		57		—		—		—		—		57
Consumer loans		—		379		194		—		—		—		—		—		573		—		379		345		4		—		—		—		—		728
Total non-PCD nonaccruals		—		379		194		64		2		22,670		457		282		24,048		—		968		345		107		162		16,452		646		250		18,930
PCD loans		—		—		—		—		—		1,242		—		—		1,242		—		—		—		—		—		1,241		—		—		1,241
Total nonaccrual loans	$	—	$	379	$	194	$	64	$	2	$	23,912	$	457	$	282	$	25,290	$	—	$	968	$	345	$	107	$	162	$	17,693	$	646	$	250	$	20,171

Interest received on nonaccrual loans was zero and ~~$0.1~~$0.6 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively and $0.01 million and ~~$0.3~~$0.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Modifications Provided to Borrowers Experiencing Financial Difficulty

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 financial difficulty 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 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, loans modified as a result of borrowers experiencing financial difficulty are typically modified through ~~reduction~~reductions 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~~September 30, 2023, ~~two loans from our owner occupied commercial real estate loan portfolio with~~on an amortized cost basis, ~~of $0.4~~three other consumer loans totaling $0.3 million were modified ~~for a borrower~~to borrowers experiencing financial difficulty. This ~~modification resulted in reamortization~~represents 0.10% 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 monthother consumer loan portfolio.

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~~period~~Two of the other consumer loans, totaling $0.2 million in amortized cost, were to one borrower and received payment deferrals for three months, with principal and interest payments resuming in August 2023. Total contractual payments for these loans for the quarter, prior to modification, would have been approximately $11 thousand. Both loans are current on principal and interest following the deferral period.

The third other consumer loan modified to a borrower experiencing financial difficulty had an amortized cost of $0.1 million and the Company reduced monthly payments on the loan for the remaining 84-month term with no change to the original rate or maturity. The contractual payments for the quarter would have totaled ~~$0.03 million.~~approximately $9 thousand if the modification had not been provided. The ~~modified loans had~~loan is paying as agreed following the modification.

An existing modification of a 1-4 family residential loan in the first quarter of 2023, with an amortized cost of $0.9 million, resumed contractual payments in August following its payment deferral period and has experienced no payment delinquencies since the deferral period ended. This modification is 0.14% of the 1-4 family residential loan portfolio.

Two loans modified in the second quarter of 2023 ~~and represents 0.09% of~~from our ~~total~~ owner occupied commercial real estate ~~loans.~~

~~An existing modification performed in the first quarter of 2023, and was comprised of one loan~~portfolio with ~~a $0.9 million~~an 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%~~balance of ~~our total 1-4 family residential loans.~~$0.4 million are paying as agreed following the modifications. These loans represent 0.10% of the owner occupied commercial real estate portfolio.

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 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 allowance for credit losses.

If it is determined that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. At that time, the amortized cost basis of the loan is reduced by the uncollectible amount and 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,~~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~~or improbable. Primis had no loans classified as Doubtful ~~at June~~as of September 30, 2023 or December 31, 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.

1819

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


															Revolving																		Revolving
															Loans																		Loans
														Revolving	Converted																	Revolving	Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total		2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Commercial real estate - owner occupied
Pass	$	21,276	$	89,674	$	61,730	$	18,444	$	21,553	$	214,548	$	2,832	$	6,821	$	436,878	$	22,331	$	89,372	$	61,246	$	18,243	$	21,367	$	199,826	$	2,256	$	6,770	$	421,411
Special Mention		—		—		220		—		—		5,081		—		—		5,301		—		—		219		—		—		5,073		—		—		5,292
Substandard		—		—		—		—		97		5,131		—		—		5,228		—		—		—		—		96		5,041		—		—		5,137
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	21,276	$	89,674	$	61,950	$	18,444	$	21,650	$	224,760	$	2,832	$	6,821	$	447,407	$	22,331	$	89,372	$	61,465	$	18,243	$	21,463	$	209,940	$	2,256	$	6,770	$	431,840
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.49		3.31		3.44		3.39		3.28		3.53		3.66		3.97		3.46		3.45		3.31		3.44		3.39		3.28		3.54		3.83		3.97		3.46
Commercial real estate - nonowner occupied
Pass	$	1,472	$	59,088	$	120,978	$	43,528	$	41,039	$	281,105	$	1,884	$	5,085	$	554,179	$	1,581	$	56,242	$	120,282	$	43,124	$	40,817	$	272,053	$	2,421	$	5,067	$	541,587
Special Mention		—		—		—		1,548		—		20,291		—		601		22,440		—		—		—		1,539		—		20,126		—		601		22,266
Substandard		—		—		—		—		—		19,186		—		—		19,186		—		—		—		—		—		13,028		—		—		13,028
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	1,472	$	59,088	$	120,978	$	45,076	$	41,039	$	320,582	$	1,884	$	5,686	$	595,805	$	1,581	$	56,242	$	120,282	$	44,663	$	40,817	$	305,207	$	2,421	$	5,668	$	576,881
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	183	$	—	$	—	$	183
Weighted average risk grade		3.15		3.27		3.08		3.83		3.95		3.84		2.86		3.21		3.63		31.21		3.70		3.08		3.83		3.95		3.80		2.91		3.21		3.72
Secured by farmland
Pass	$	514	$	—	$	13	$	108	$	—	$	3,627	$	328	$	176	$	4,766	$	512	$	—	$	11	$	108	$	—	$	3,535	$	271	$	166	$	4,603
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		2		503		—		—		505		—		—		—		—		—		479		—		—		479
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	514	$	—	$	13	$	108	$	2	$	4,130	$	328	$	176	$	5,271	$	512	$	—	$	11	$	108	$	—	$	4,014	$	271	$	166	$	5,082
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	3
Weighted average risk grade		N/A		N/A		4.00		4.00		6.00		4.02		3.92		3.12		3.97		3.86		N/A		4.00		4.00		N/A		4.01		3.99		3.12		3.96
Construction and land development
Pass	$	15,392	$	61,912	$	71,105	$	544	$	2,522	$	21,805	$	807	$	9	$	174,096	$	20,833	$	51,205	$	74,119	$	521	$	2,505	$	21,075	$	763	$	5	$	171,026
Special Mention		—		—		—		—		—		951		—		—		951		—		—		—		—		—		955		—		—		955
Substandard		—		—		—		—		—		26		—		—		26		—		—		—		—		—		24		—		—		24
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	15,392	$	61,912	$	71,105	$	544	$	2,522	$	22,782	$	807	$	9	$	175,073	$	20,833	$	51,205	$	74,119	$	521	$	2,505	$	22,054	$	763	$	5	$	172,005
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2
Weighted average risk grade		3.55		3.21		3.39		3.39		3.29		3.57		3.37		4.00		3.36		3.45		3.27		3.38		3.37		3.29		3.58		3.39		4.00		3.38
Residential 1-4 family
Pass	$	12,664	$	153,892	$	154,811	$	42,560	$	57,486	$	162,489	$	1,908	$	2,736	$	588,546	$	23,985	$	160,057	$	152,131	$	41,421	$	56,527	$	155,694	$	2,654	$	2,559	$	595,028
Special Mention		—		—		—		—		—		179		—		—		179		—		1,036		—		—		—		514		—		—		1,550
Substandard		—		—		—		—		118		2,363		—		732		3,213		—		589		—		44		162		2,510		—		506		3,811
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	12,664	$	153,892	$	154,811	$	42,560	$	57,604	$	165,031	$	1,908	$	3,468	$	591,938	$	23,985	$	161,682	$	152,131	$	41,465	$	56,689	$	158,718	$	2,654	$	3,065	$	600,389
Current period gross charge offs	$	—	$	—	$	—	$	—	$	94	$	—	$	—	$	—	$	94	$	—	$	—	$	—	$	—	$	755	$	—	$	—	$	—	$	755
Weighted average risk grade		3.16		3.08		3.04		3.07		3.07		3.22		3.92		3.64		3.12		3.14		3.10		3.04		3.07		3.08		3.23		3.72		3.50		3.12
Multi- family residential
Pass	$	—	$	8,257	$	21,678	$	18,045	$	6,997	$	76,520	$	649	$	648	$	132,794	$	—	$	8,132	$	21,545	$	17,893	$	6,965	$	68,951	$	4,520	$	638	$	128,644
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		669		—		291		960		—		—		—		—		—		653		—		289		942
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	—	$	8,257	$	21,678	$	18,045	$	6,997	$	77,189	$	649	$	939	$	133,754	$	—	$	8,132	$	21,545	$	17,893	$	6,965	$	69,604	$	4,520	$	927	$	129,586
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		N/A		3.69		3.00		3.90		3.00		3.41		4.00		4.62		3.42		N/A		3.70		3.00		3.90		3.00		3.35		4.00		4.62		3.41
Home equity lines of credit
Pass	$	75	$	492	$	423	$	50	$	52	$	3,201	$	57,009	$	880	$	62,182	$	317	$	486	$	421	$	49	$	50	$	3,087	$	53,795	$	865	$	59,070
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		113		—		113
Substandard		—		—		—		—		—		54		553		19		626		—		—		—		—		—		54		742		17		813
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	75	$	492	$	423	$	50	$	52	$	3,255	$	57,562	$	899	$	62,808	$	317	$	486	$	421	$	49	$	50	$	3,141	$	54,650	$	882	$	59,996
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average risk grade		3.00		3.00		3.00		3.00		3.00		3.89		3.05		3.93		3.11		3.03		3.00		3.00		3.00		3.00		3.92		3.07		3.93		3.13
Commercial loans
Pass	$	116,586	$	283,911	$	54,530	$	6,648	$	2,888	$	28,008	$	81,285	$	6,947	$	580,803	$	139,527	$	275,889	$	53,161	$	6,029	$	2,623	$	27,253	$	78,140	$	6,641	$	589,263
Special Mention		—		—		—		12		144		—		1,311		360		1,827		—		—		—		11		130		—		967		347		1,455
Substandard		—		—		—		3		66		1,552		—		—		1,621		—		—		—		218		60		1,532		—		—		1,810
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	116,586	$	283,911	$	54,530	$	6,663	$	3,098	$	29,560	$	82,596	$	7,307	$	584,251	$	139,527	$	275,889	$	53,161	$	6,258	$	2,813	$	28,785	$	79,107	$	6,988	$	592,528
Current period gross charge offs	$	—	$	—	$	—	$	—	$	—	$	1,590	$	—	$	—	$	1,590	$	—	$	—	$	—	$	—	$	—	$	1,776	$	—	$	—	$	1,776
Weighted average risk grade		2.74		3.01		3.36		3.36		3.98		3.47		3.20		3.82		3.06		2.76		3.10		3.36		3.41		4.01		3.46		3.22		3.81		3.09

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															Revolving																		Revolving
															Loans																		Loans
														Revolving	Converted																	Revolving	Converted
	2023		2022		2021		2020		2019		Prior		Loans		To Term		Total		2023		2022		2021		2020		2019		Prior		Loans		To Term		Total
Paycheck Protection Program loans
Pass	$	—	$	—	$	1,115	$	967	$	—	$	—	$	—	$	—	$	2,082	$	—	$	—	$	1,100	$	948	$	—	$	—	$	—	$	—	$	2,048
Special Mention		—		—		—		61		—		—		—		—		61		—		—		—		57		—		—		—		—		57
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	1,115	$	1,028	$	—	$	—	$	—	$	—	$	2,143	$	—	$	—	$	1,100	$	1,005	$	—	$	—	$	—	$	—	$	2,105
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		N/A		N/A		2.00		2.23		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	$	272,384	$	257,348	$	26,590	$	1,032	$	127	$	3,904	$	6,444	$	372	$	568,201
Special Mention		—		—		—		—		—		67		—		—		67		—		—		—		—		—		67		—		—		67
Substandard		—		382		387		—		—		—		—		—		769		75		768		349		3		—		—		—		—		1,195
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	281,151	$	249,012	$	27,266	$	1,209	$	200	$	4,243	$	5,872	$	186	$	569,139	$	272,459	$	258,116	$	26,939	$	1,035	$	127	$	3,971	$	6,444	$	372	$	569,463
Current period gross charge offs	$	—	$	3,729	$	751	$	—	$	—	$	—	$	—	$	—	$	4,480	$	495	$	6,305	$	1,076	$	—	$	—	$		$	—	$	80	$	7,956
Weighted average risk grade		3.50		2.70		3.67		3.99		3.97		4.02		2.93		4.00		3.16		3.48		2.66		3.60		4.01		3.96		5.79		2.84		4.00		3.12
PCD
Pass	$	—	$	—	$	—	$	—	$	—	$	2,908	$	—	$	—	$	2,908	$	—	$	—	$	—	$	—	$	—	$	2,875	$	—	$	—	$	2,875
Special Mention		—		—		—		—		—		1,618		—		—		1,618		—		—		—		—		—		1,601		—		—		1,601
Substandard		—		—		—		—		—		1,523		—		—		1,523		—		—		—		—		—		1,516		—		—		1,516
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	6,049	$	—	$	—	$	6,049	$	—	$	—	$	—	$	—	$	—	$	5,992	$	—	$	—	$	5,992
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		N/A		N/A		N/A		N/A		N/A		4.68		N/A		N/A		4.68
Total	$	449,130	$	906,238	$	513,869	$	133,727	$	133,164	$	857,581	$	154,438	$	25,491	$	3,173,638	$	481,545	$	901,124	$	511,174	$	131,240	$	131,429	$	811,426	$	153,086	$	24,843	$	3,145,867
Current period gross charge offs	$	—	$	3,729	$	751	$	—	$	94	$	1,590	$	—	$	—	$	6,164	$	495	$	6,305	$	1,076	$	—	$	755	$	1,964	$	—	$	80	$	10,675
Weighted average risk grade		3.29		3.00		3.21		3.50		3.40		3.59		3.16		3.73		3.29		3.34		3.05		3.21		3.50		3.40		3.58		3.19		3.71		3.30

2021

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, 2022 (in thousands):



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

2122

Table of Contents


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

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


	For the three months ended June 30, 2023		For the six months ended June 30, 2023		For the three months ended September 30, 2023		For the nine months ended September 30, 2023
Commercial real estate - owner occupied	$	214	$	214	$	—	$	213
Commercial real estate - non-owner occupied		—		2,057		—		2,057
Secured by farmland		—		—
Construction and land development		—		—
Residential 1-4 family		142		142		—		124
Multi- family residential		—		—
Home equity lines of credit		—		—
Commercial loans		—		186		—		179
Paycheck Protection Program loans		—		—
Consumer loans		—		—		187		371
Total loans	$	356	$	2,599	$	187	$	2,944

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

Allowance For Credit Losses – Loans

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

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

~~Table of Contents~~

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

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

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

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

Commercial

Commercial









Home








Real Estate

Real Estate

Construction

Equity

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

June 30, 2023

Occupied

Occupied

Farmland

Development

Residential

Residential

Credit

Loans

Loans

Loans

Total
Modeled expected credit losses

$
4,747

$
6,360

$
3

$
914

$
4,067

$
1,641

$
307

$
5,225

$
7,011

$
—

$
30,275
Q-factor and other qualitative adjustments

268

625

29

372

385

352

19

855

5

—

2,910
Specific allocations

—

2,454

—

—

—

—

—

843

—

1,932

5,229
Total

$
5,015

$
9,439

$
32

$
1,286

$
4,452

$
1,993

$
326

$
6,923

$
7,016

$
1,932

$
38,414


Commercial

Commercial









Home








Real Estate

Real Estate

Construction

Equity

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

December 31, 2022

Occupied

Occupied

Farmland

Development

Residential

Residential

Credit

Loans

Loans

Loans

Total
Modeled expected credit losses

$
5,297

$
6,652

$
4

$
997

$
3,579

$
1,814

$
310

$
5,006

$
3,851

$
—

$
27,510
Q-factor and other qualitative adjustments

261

495

21

376

512

387

19

654

2

—

2,727
Specific allocations

—

—

—

—

—

—

—

2,193

42

2,072

4,307
Total

$
5,558

$
7,147

$
25

$
1,373

$
4,091

$
2,201

$
329

$
7,853

$
3,895

$
2,072

$
34,544

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

Table of Contents

Qualitative factor (“Q-Factor”) adjustments are driven by key risk indicators that management tracks on a pool-by-pool basis.

The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 2023 and December 31, 2022, calculated in accordance with ASC 326 (in thousands).


	Commercial		Commercial										Home
	Real Estate		Real Estate				Construction						Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
September 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Modeled expected credit losses	$	4,394	$	5,686	$	3	$	852	$	4,797	$	1,321	$	354	$	4,424	$	6,652	$	—	$	28,483
Q-factor and other qualitative adjustments		267		797		28		322		420		442		23		584		—		—		2,883
Specific allocations		—		960		—		—		—		—		—		1,149		377		1,915		4,401
Total	$	4,661	$	7,443	$	31	$	1,174	$	5,217	$	1,763	$	377	$	6,157	$	7,029	$	1,915	$	35,767

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

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

Activity in the allowance for credit losses by class of loan for the three months ended ~~June~~September 30, 2023 and 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 June 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Three Months Ended September 30, 2023																							Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	5,274	$	7,161	$	21	$	1,280	$	4,343	$	2,087	$	350	$	6,464	$	6,802	$	1,945	$	35,727	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414
Provision (recovery)		(259)		2,278		11		6		203		(94)		(19)		468		1,720		(13)		4,301		(354)		(1,923)		2		(110)		1,250		(230)		44		(766)		3,752		(17)		1,648
Charge offs		—		—		—		—		(94)		—		(7)		(10)		(1,629)		—		(1,740)		—		(183)		(3)		(2)		(486)		—		7		—		(3,844)		—		(4,511)
Recoveries		—		—		—		—		—		—		2		1		123		—		126		—		110		—		—		1		—		—		—		105		—		216
Ending balance	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414	$	4,661	$	7,443	$	31	$	1,174	$	5,217	$	1,763	$	377	$	6,157	$	7,029	$	1,915	$	35,767

Three Months Ended June 30, 2022
Three Months Ended September 30, 2022
Allowance for credit losses:
Beginning balance	$	4,173	$	8,913	$	49	$	1,029	$	3,888	$	2,289	$	376	$	5,466	$	1,025	$	2,171	$	29,379	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209
Provision (recovery)		142		(1,498)		—		(5)		384		(129)		(14)		962		625		(45)		422		532		(1,287)		(23)		116		(273)		(219)		(59)		2,256		1,884		(37)		2,890
Charge offs		(14)		—		—		—		—		—		—		—		(84)		—		(98)		—		—		—		—		—		—		—		(1,007)		(146)		—		(1,153)
Recoveries		—		502		—		—		—		—		1		—		3		—		506		—		—		—		—		1		—		1		—		8		—		10
Ending balance	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209	$	4,833	$	6,630	$	26	$	1,140	$	4,000	$	1,941	$	305	$	7,677	$	3,315	$	2,089	$	31,956

Table of Contents

Activity in the allowance for credit losses by class of loan for the ~~six~~nine months ended ~~June~~September 30, 2023 and 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
Six Months Ended June 30, 2023	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Nine Months Ended September 30, 2023																							Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	5,558	$	7,147	$	25	$	1,373	$	4,091	$	2,201	$	329	$	7,853	$	3,895	$	2,072	$	34,544	$	5,558	$	7,147	$	25	$	1,373	$	4,091	$	2,201	$	329	$	7,853	$	3,895	$	2,072	$	34,544
Provision (recovery)		(543)		2,292		7		(199)		469		(208)		2		845		6,963		(140)		9,488		(897)		369		9		(309)		1,719		(438)		46		79		10,715		(157)		11,136
Charge offs		—		—		—		—		(269)		—		(7)		(1,776)		(4,112)		—		(6,164)		—		(183)		(3)		(2)		(755)		—		—		(1,776)		(7,956)		—		(10,675)
Recoveries		—		—		—		112		161		—		2		1		270		—		546		—		110		—		112		162		—		2		1		375		—		762
Ending balance	$	5,015	$	9,439	$	32	$	1,286	$	4,452	$	1,993	$	326	$	6,923	$	7,016	$	1,932	$	38,414	$	4,661	$	7,443	$	31	$	1,174	$	5,217	$	1,763	$	377	$	6,157	$	7,029	$	1,915	$	35,767

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022
Allowance for credit losses:
Beginning balance	$	4,562	$	9,028	$	56	$	998	$	3,588	$	3,280	$	437	$	4,088	$	787	$	2,281	$	29,105	$	4,562	$	9,028	$	56	$	998	$	3,588	$	3,280	$	437	$	4,088	$	787	$	2,281	$	29,105
Provision (recovery)		(247)		(1,613)		(7)		26		627		(1,120)		(61)		2,170		901		(155)		521		285		(2,900)		(30)		142		354		(1,339)		(120)		4,426		2,785		(192)		3,411
Charge offs		(14)		—		—		—		—		—		(14)		—		(131)		—		(159)		(14)		—		—		—		—		—		(14)		(1,007)		(277)		—		(1,312)
Recoveries		—		502		—		—		57		—		1		170		12		—		742		—		502		—		—		58		—		2		170		20		—		752
Ending balance	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209	$	4,833	$	6,630	$	26	$	1,140	$	4,000	$	1,941	$	305	$	7,677	$	3,315	$	2,089	$	31,956

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.

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 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023				December 31, 2022
	Loan		Specific		Loan		Specific
	Balance		Allocations		Balance		Allocations
Commercial real estate - owner occupied	$	5,041	$	—	$	2,795	$	—
Commercial real estate - non-owner occupied		13,066		960		19,641		—
Secured by farmland		479		—		525		—
Residential 1-4 family		2,234		—		9,636		—
Multi- family residential		942		—		996		—
Home equity lines of credit		—		—		21		—
Commercial loans		1,369		1,149		2,979		2,193
Consumer loans		367		377		259		42
Total non-PCD loans		23,498		2,486		36,852		2,235
PCD loans		5,992		1,915		6,628		2,072
Total loans	$	29,490	$	4,401	$	43,480	$	4,307

2425

Table of Contents

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

June 30, 2023

December 31, 2022

Loan

Specific

Loan

Specific

Balance

Allocations

Balance

Allocations
Commercial real estate - owner occupied

$
5,073

$
—

$
2,795

$
—
Commercial real estate - non-owner occupied

19,187

2,454

19,641

—
Secured by farmland

503

—

525

—
Construction and land development

—

—

—

—
Residential 1-4 family

1,655

—

9,636

—
Multi- family residential

960

—

996

—
Home equity lines of credit

—

—

21

—
Commercial loans

1,369

843

2,979

2,193
Consumer loans

—

—

259

42
Total non-PCD loans

28,747

3,297

36,852

2,235
PCD loans

6,051

1,932

6,628

2,072
Total loans

$
34,798

$
5,229

$
43,480

$
4,307

4. FAIR VALUE

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

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

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

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

~~Table of Contents~~

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


			Fair Value Measurements Using								Fair Value Measurements Using
					Significant								Significant
			Quoted Prices in		Other		Significant				Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable				Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs		Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	June 30, 2023		(Level 1)		(Level 2)		(Level 3)		September 30, 2023		(Level 1)		(Level 2)		(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities	$	98,014	$	—	$	98,014	$	—	$	93,865	$	—	$	93,865	$	—
Obligations of states and political subdivisions		29,673		—		29,673		—		28,312		—		28,312		—
Corporate securities		12,956		—		12,956		—		13,314		—		13,314		—
Collateralized loan obligations		4,901		—		4,901		—		4,955		—		4,955		—
Residential government-sponsored collateralized mortgage obligations		28,568		—		28,568		—		29,745		—		29,745		—
Government-sponsored agency securities		13,360		—		13,360		—		12,968		—		12,968		—
Agency commercial mortgage-backed securities		30,794		—		30,794		—		29,280		—		29,280		—
SBA pool securities		4,821		—		4,821		—		4,436		—		4,436		—
		223,087		—		223,087		—		216,875		—		216,875		—
Loans held for investment		195,739		—		—		195,739		244,646		—		—		244,646
Loans held for sale		57,704		—		57,704		—		57,511		—		57,511		—
Mortgage banking financial assets		269		—		—		269		244		—		—		244
Derivative assets		2,032		—		2,032		—
Mortgage banking derivative assets										1,937		—		1,937		—
Interest rate swaps		4,232		—		4,232		—		5,307		—		5,307		—
Total assets	$	483,063	$	—	$	287,055	$	196,008	$	526,520	$	—	$	281,630	$	244,890

Liabilities:
Derivative liabilities	$	126	$	—	$	—	$	—
Mortgage banking derivative liabilities									$	463	$	—	$	463	$	—
Total liabilities	$	126	$	—	$	—	$	—	$	463	$	—	$	463	$	—

Table of Contents


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

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

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


			Fair Value Measurements Using								Fair Value Measurements Using
					Significant								Significant
			Quoted Prices in		Other		Significant				Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable				Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs		Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	June 30, 2023		(Level 1)		(Level 2)		(Level 3)		September 30, 2023		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans	$	34,408	$	—	$	—	$	34,408	$	28,778	$	—	$	—	$	28,778
Assets held for sale		3,115		—		—		3,115		3,115		—		—		3,115

Fair Value Measurements Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

(dollars in thousands)

December 31, 2022

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

47,832

—

47,832

Assets held for sale

3,115

—

3,115

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:


		June 30, 2023				December 31, 2022					September 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	$	100,868	$	100,868	$	77,859	$	77,859	Level 1	$	93,865	$	93,865	$	77,859	$	77,859
Securities available-for-sale	Level 2		223,087		223,087		236,315		236,315	Level 2		216,875		216,875		236,315		236,315
Securities held-to-maturity	Level 2		12,378		11,369		13,520		12,449	Level 2		11,975		10,582		13,520		12,449
Stock in Federal Reserve Bank and Federal Home Loan Bank	Level 2		12,083		12,083		25,815		25,815	Level 2		12,796		12,796		25,815		25,815
Preferred investment in mortgage company	Level 2		3,005		3,005		3,005		3,005	Level 2		3,005		3,005		3,005		3,005
Net loans	Level 3		3,135,224		2,995,950		2,912,093		2,809,163	Level 3		3,110,100		3,000,499		2,912,093		2,809,163
Loans held for sale	Level 2		57,704		57,704		27,626		27,626	Level 2		57,511		57,511		27,626		27,626
Accrued interest receivable	Level 2		20,238		20,238		14,938		14,938	Level 2		25,585		25,585		14,938		14,938
Mortgage banking financial assets	Level 3		269		269		21		21	Level 3		244		244		21		21
Derivative assets	Level 2 and 3		2,032		2,032		1,410		1,410
Mortgage banking derivative assets										Level 2 and 3		1,937		1,937		1,410		1,410
Interest rate swaps	Level 2		4,232		4,232		—		—	Level 2		5,307		5,307		—		—
Credit enhancement	Level 2		4,247		4,247		1,504		1,504	Level 2		5,643		5,643		1,504		1,504
Financial liabilities:
Demand deposits and NOW accounts	Level 2	$	1,298,557	$	1,298,557	$	1,200,243	$	1,200,243	Level 2	$	1,293,995	$	1,293,995	$	1,200,243	$	1,200,243
Money market and savings accounts	Level 2		1,547,109		1,547,109		1,057,078		1,057,078	Level 2		1,547,559		1,547,559		1,057,078		1,057,078
Time deposits	Level 3		471,330		468,551		465,057		462,376	Level 3		451,850		449,733		465,057		462,376
Securities sold under agreements to repurchase	Level 1		3,921		3,921		6,445		6,445	Level 1		3,838		3,838		6,445		6,445
FHLB advances	Level 1		—		—		325,000		325,000	Level 1		—		—		325,000		325,000
Junior subordinated debt	Level 2		9,806		9,018		9,781		9,181	Level 2		9,818		9,070		9,781		9,181
Senior subordinated notes	Level 2		85,647		83,123		85,531		84,347	Level 2		85,706		83,380		85,531		84,347
Accrued interest payable	Level 2		7,350		7,350		3,261		3,261	Level 2		6,464		6,464		3,261		3,261
Mortgage banking financial liabilities	Level 3		—		—		4		4	Level 3		—		—		4		4
Derivative liabilities	Level 2 and 3		126		126		122		122
Mortgage banking derivative liabilities										Level 2 and 3		463		463		122		122

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

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

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5. LEASES

The Company leases certain premises under operating leases. In recognizing lease right-of-use assets and related liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. At ~~June~~September 30, 2023 and December 31, 2022, the Company had operating lease liabilities totaling ~~$11.5~~$12.3 million and $5.8 million, respectively, and right-of-use assets totaling ~~$10.7~~$11.4 million and $5.3 million, respectively, ~~related to these leases. Operating lease~~reflected in other liabilities and ~~right-of-use~~other assets, ~~are reflected~~respectively, in our consolidated balance ~~sheets.~~sheets related to these leases. We do not currently have any financing leases. For the three months ended ~~June~~September 30, 2023 and 2022, our net operating lease costs were ~~$0.6~~$0.7 million and ~~$0.4~~$0.6 million, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, our net operating lease costs were ~~$1.2~~$1.9 million and ~~$1.0~~$1.8 million, respectively. These net operating lease costs are reflected in occupancy expenses on our condensed consolidated statements of income and comprehensive income (loss).

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


	For the Six Months Ended						For the Nine Months Ended
(in thousands except for percent and period data)	June 30, 2023			June 30, 2022
							September 30, 2023			September 30, 2022
Other information:
Weighted-average remaining lease term - operating leases, in years		7.5			4.5			7.2			4.5
Weighted-average discount rate - operating leases		3.8	%		2.8	%		3.9	%		2.8	%

The following table summarizes the maturity of remaining lease liabilities:



	As of		As of
(dollars in thousands)	June 30, 2023		September 30, 2023
Lease payments due:
2023	$	1,019	$	551
2024		1,829		2,123
2025		1,683		1,972
2026		1,657		1,925
2027		1,635		1,911
Thereafter		5,729		5,893
Total lease payments		13,552		14,375
Less: imputed interest		(2,006)		(2,028)
Lease liabilities	$	11,546	$	12,347

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

6. DEBT AND OTHER BORROWINGS

Other borrowings can consist of FHLB convertible advances, FHLB of Atlanta overnight advances, FHLB advances maturing within one year, federal funds purchased, Federal Reserve Board Discount Window and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers. The balance in repo accounts ~~at June~~as of September 30, 2023 and December 31, 2022 was ~~$3.9~~$3.8 million and $6.5 million, respectively.

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~~At June~~As of September 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~~$6.3 million and $14.2 million, respectively, to customers who require collateral for overnight repurchase agreements and deposits.

We repaid our short-term FHLB advances of $325.0 million that were outstanding as of December 31, 2022 and matured in the first quarter of 2023. As a result, we have all of our FHLB capacity available for future liquidity needs. ~~At June~~As of September 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~~$558.9 million from the FHLB.

In June 2023, the Bank began participating in the Federal Reserve discount window borrowing program. ~~At June~~As of September 30, 2023, the Bank had borrowing capacity of ~~$489.6~~$548.9 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~~As of September 30, 2023, we had securities available of ~~$138.0~~$133.8 million for utilization with the BTFP, with no borrowings outstanding under the program ~~at June~~as of September 30, 2023.

In 2017, the Company assumed $10.3 million of trust preferred securities that were issued on September 17, 2003 and placed through a trust in a pooled underwriting totaling approximately $650 million. At ~~June~~September 30, 2023 and December 31, 2022, there was $10.3 million outstanding, net of approximately $0.5 million of debt issuance costs. As of ~~June~~September 30, 2023 and December 31, 2022, the interest rate payable on the trust preferred securities was ~~8.46%~~8.62% and 7.69%, respectively. ~~At June~~As of September 30, 2023, all of the trust preferred securities qualified as Tier 1 capital.

On January 20, 2017, Primis completed the sale of $27.0 million of its fixed-to-floating rate senior Subordinated Notes due 2027. Interest is currently payable at an annual floating rate equal to three-month ~~LIBOR~~CME Term SOFR plus a tenor spread adjustment of ~~3.95%~~0.26% until maturity or early redemption. ~~At June~~As of September 30, 2023, 60% of these ~~notes~~Notes qualified as Tier 2 capital.

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

~~At June~~As of September 30, 2023 and December 31, 2022, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled ~~$1.4~~$1.3 million and $1.5 million, respectively.

7. STOCK-BASED COMPENSATION

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

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


				Weighted						Weighted
		Weighted		Average	Aggregate			Weighted		Average	Aggregate
		Average		Remaining	Intrinsic			Average		Remaining	Intrinsic
		Exercise		Contractual	Value			Exercise		Contractual	Value
	Shares	Price		Term	(in thousands)		Shares	Price		Term	(in thousands)
Options outstanding, beginning of period	203,300	$	11.41	1.3	$	102	203,300	$	11.41	1.3	$	102
Forfeited							(4,000)
Expired	(113,500)						(121,000)
Exercised	(8,000)						(8,000)
Options outstanding, end of period	81,800	$	11.49	2.1		—	70,300	$	11.48	1.7		—

Exercisable at end of period	81,800	$	11.49	2.1	$	—	70,300	$	11.48	1.7	$	—

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

A summary of time vested restricted stock awards for the ~~six~~nine months ended ~~June~~September 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	68,700	$	14.24	2.4	68,700	$	14.24	2.4
Granted	5,000		7.58		5,000		7.58
Vested	(21,350)		14.28		(24,050)		14.36
Forfeited	(2,000)		15.43		(5,300)		15.31
Unvested restricted stock outstanding, end of period	50,350	$	13.51	2.4	44,350	$	13.30	2.2

Stock-based compensation expense for time vested restricted stock awards totaled $0.1 million for the three months ended both ~~June~~September 30, 2023 and 2022, and ~~$0.1~~$0.2 million and ~~$0.8~~$1.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. As of ~~June~~September 30, 2023, unrecognized compensation expense associated with restricted stock awards was ~~$0.5~~$0.4 million, which is expected to be recognized over a weighted average period of ~~2.4~~2.2 years.

A summary of performance-based restricted stock units (the “Units”) for the ~~six~~nine months ended ~~June~~September 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	153,960	$	13.02	3.6	153,960	$	13.02	3.6
Granted	—		—
Vested	—		—
Forfeited					(9,000)		12.89
Unvested Units outstanding, end of period	153,960		13.02	2.6	144,960		13.03	2.4

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

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measured for the Performance Period and 2) performance factor achieved. Payouts between performance levels will be determined based on straight line interpolation.

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The Company did not recognize any stock-based compensation expense associated with these Units for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 because it is not probable that these Units will vest. The potential unrecognized compensation expense associated with these Units was ~~$3.0~~$2.9 million and $1.3 million at ~~June~~September 30, 2023 and 2022, respectively.

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 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 $10.6 million and $10.7 million as of ~~both June~~September 30, 2023 and December 31, ~~2022.~~2022, respectively.

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

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

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

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


	2023		2022		2023		2022
Balance as of January 1	$	1,416	$	977	$	1,416	$	977
Credit loss expense (recovery)		(143)		92		(392)		92
Balance as of June 30,	$	1,273	$	1,069	$	1,024	$	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

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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 ~~$81.5~~$84.5 million of Primis mortgage loan commitments outstanding as of ~~June~~September 30, 2023, all of which contractually expire within thirty years.

At ~~June~~September 30, 2023 and December 31, 2022, we had unfunded lines of credit and undisbursed construction loan funds totaling ~~$495.4~~$467.3 million and $540.6 million, respectively, not all of which will ultimately be drawn. Virtually all of our unfunded lines of credit and undisbursed construction loan funds are variable rate. The amount of certificate of deposit accounts maturing in less than one year was ~~$379.6~~$394.7 million as of ~~June~~September 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 investments in non-marketable equity securities of ~~$2.4~~$1.9 million and $3.2 million at ~~June~~September 30, 2023 and December 31, 2022, respectively.

9. ~~EARNINGS PER SHARE~~

9. EARNINGS PER SHARE

The following is a reconciliation of the denominators of the basic and diluted (loss) 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 June 30, 2023
For the three months ended September 30, 2023
Basic EPS	$	(188)	24,639	$	(0.01)	$	(3,567)	24,642	$	(0.14)
Effect of dilutive stock options and unvested restricted stock		—	—		—		—	—		—
Diluted EPS	$	(188)	24,639	$	(0.01)	$	(3,567)	24,642	$	(0.14)

For the three months ended June 30, 2022
For the three months ended September 30, 2022
Basic EPS	$	4,948	24,563	$	0.20	$	5,025	24,577	$	0.21
Effect of dilutive stock options and unvested restricted stock		—	118		—		—	111		(0.01)
Diluted EPS	$	4,948	24,681	$	0.20	$	5,025	24,688	$	0.20

For the six months ended June 30, 2023
For the nine months ended September 30, 2023
Basic EPS	$	5,765	24,632	$	0.23	$	2,198	24,636	$	0.09
Effect of dilutive stock options and unvested restricted stock		—	53		—		—	—		—
Diluted EPS	$	5,765	24,685	$	0.23	$	2,198	24,636	$	0.09

For the six months ended June 30, 2022
For the nine months ended September 30, 2022
Basic EPS	$	9,484	24,534	$	0.39	$	14,509	24,548	$	0.60
Effect of dilutive stock options and unvested restricted stock		—	132		(0.01)		—	126		(0.01)
Diluted EPS	$	9,484	24,666	$	0.38	$	14,509	24,674	$	0.59

The Company had ~~81,800~~114,650 anti-dilutive options as of ~~June~~September 30, 2023 and did not have any anti-dilutive options as of ~~June~~September 30, 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						As of and for the three months ended September 30, 2023						As of and for the nine months ended September 30, 2023
	Primis Mortgage		Primis Bank		Consolidated		Primis Mortgage		Primis Bank		Consolidated		Primis Mortgage		Primis Bank		Consolidated		Primis Mortgage		Primis Bank		Consolidated

Interest income	$	701	$	51,978	$	52,679	$	1,097	$	98,696	$	99,793	$	873	$	49,613	$	50,486	$	1,971	$	148,308	$	150,279
Interest expense		—		26,522		26,522		—		45,271		45,271		—		23,361		23,361		—		68,632		68,632
Net interest income		701		25,456		26,157		1,097		53,425		54,522		873		26,252		27,125		1,971		79,676		81,647
Provision for credit losses		—		4,301		4,301		—		9,488		9,488		—		1,648		1,648		—		11,136		11,136
Noninterest income		5,217		3,269		8,486		9,532		10,486		20,018		4,932		5,010		9,942		14,463		15,497		29,960
Noninterest expense		5,271		25,281		30,552		10,259		47,697		57,956		5,108		31,966		37,074		15,366		79,664		95,030
Income (loss) before income taxes		647		(857)		(210)		370		6,726		7,096		697		(2,352)		(1,655)		1,068		4,373		5,441
Income tax expense (benefit)		162		(184)		(22)		96		1,235		1,331
Income tax expense														174		1,738		1,912		270		2,973		3,243
Net income (loss)	$	485	$	(673)	$	(188)	$	274	$	5,491	$	5,765	$	523	$	(4,090)	$	(3,567)	$	798	$	1,400	$	2,198
Assets	$	63,563	$	3,784,930	$	3,848,493	$	63,563	$	3,784,930	$	3,848,493	$	66,384	$	3,747,391	$	3,813,775	$	66,384	$	3,747,391	$	3,813,775

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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 condensed consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, 2022. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2023 are not necessarily indicative of results that may be attained for any other period. The emphasis of this discussion will be on the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to the three and ~~six~~nine months ended ~~June~~September 30, 2022 for the consolidated statements of income (loss) and comprehensive income (loss). For the consolidated balance sheets, the emphasis of this discussion will be the balances as of ~~June~~September 30, 2023 compared to December 31, 2022. This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.

FORWARD-LOOKING STATEMENTS

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 ~~recent~~ adverse developments in the banking industry during 2023 highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto;

●

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

●

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

●

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

●

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

●

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

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●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

the continued service of key management personnel;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

failure to maintain effective internal controls and procedures;

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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, 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~~As of September 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~~consolidated eight branch locations, reducing total branches from thirty-two to twenty-four, ~~with an expected effective date of~~in late 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~~economic growth accelerated in the ~~second~~third quarter of 2023, with Real Gross Domestic Product growing by an annualized ~~2.4%~~4.9%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment was ~~relatively stable compared to year end~~3.8% in September 2023 and nonfarm payrolls grew at ~~3.5% in July 2023.~~a robust pace. The Federal Reserve (the “Fed”) has ~~now~~ raised interest rates 525 bps in total since March of 2022, a pace that has not been experienced in more than 40 ~~years.~~ years, and sits at a range of 5.25% to 5.50%. Inflation, while beginning to show signs of moderating, remains higher than the Fed’s long term target rate of 2.0% and

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the Fed appears committed to maintaining high rates until inflation is back at their target rate. The Fed has indicated that future rate adjustments will be data-dependent. Continued higher inflation, as well as strong employment numbers, could lead to at least one more rate increase in 2023 or early 2024.

This higher rate ~~level~~environment is continuing to put strong margin pressure on all banks, including Primis, as the cost of deposits ~~is increasing~~has increased alongside the Fed rate increases while many loans in banks’ portfolios 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~~However, loan growth in the ~~Fed continuing to raise borrowing~~current environment will benefit from the higher rates and should assist 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~~partially offsetting growth 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.deposit costs.

FINANCIAL HIGHLIGHTS

●

Net loss for the three months ended ~~June~~September 30, 2023 totaled ~~$0.2~~$3.6 million, or ~~$0.01~~$0.14 basic and diluted loss per share, compared to net income of $5.0 million, or $0.21 basic and $0.20 diluted earnings per share for the three months ended September 30, 2022. Net income for the nine months ended September 30, 2023 totaled $2.2 million, or $0.09 basic and diluted earnings per share, compared to $14.5 million, or $0.60 basic and $0.59 per diluted earnings per share for the nine months ended September 30, 2022.

●

When excluding the non-cash goodwill impairment charge that was incurred in the three and nine months ended September 30, 2023, we had net income of $7.6 million and $13.3 million, respectively.

●

Basic and diluted earnings per share for the three months ended ~~June 30, 2022. Net income for the six months ended June~~September 30, 2023 ~~totaled $5.8~~when excluding the $11.2 million ~~or $0.23 basic~~impairment and ~~diluted earnings per share,~~$200 thousand of fraud related expenses due to an employee fraud discovered in the second quarter, was $0.32 which was an increase of $0.11 compared to ~~$9.5 million, or $0.39 basic~~the same period in 2022.

●

Basic and ~~$0.38 per~~ diluted earnings per share for the ~~six~~nine months ended ~~June~~September 30, 2023 when excluding the $11.2 million impairment, $200 thousand of fraud related expenses due to an employee fraud discovered in the second quarter, and $1.5 million of branch consolidation costs in the second quarter, was $0.60 which was a small decrease compared to $0.63 and $0.62 basic and diluted, respectively, in the same period in 2022.

●

Total assets as of ~~June~~September 30, 2023 were ~~$3.85~~$3.81 billion, an increase of 8%7% 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~~September 30, 2023, were ~~$3.17~~$3.14 billion, an increase of ~~$229.4~~$201.7 million, or 8%7%, from December 31, 2022.

●

Total deposits were ~~$3.32~~$3.29 billion at ~~June~~September 30, 2023, an increase of ~~22%~~21% compared to December 31, 2022.

●

Non-time deposits increased to ~~$2.85~~$2.84 billion at ~~June~~September 30, 2023, an increase of ~~$588.3~~$584.2 million, or 26%, compared to December 31, 2022.

●

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

●

Net interest margin of 3.02% in the third quarter of 2023 was down from 3.57% in the third quarter of 2022and up from 2.65% in the second quarter of ~~2023 was down from 3.33% in the second quarter of 2022.~~2023.

●

Allowance for credit losses to total loans was ~~1.21%~~1.14% at ~~June~~September 30, 2023, compared to 1.17% at December 31, 2022.

●

~~Recently~~We continued to execute on our loan sale strategy during the third quarter, as previously announced, and sold $15 million in loans and realized a pre-tax gain of $0.4 million. Additionally, we transferred another $9 million of loans to held for sale pending finalization of diligence efforts by a potential third-party buyer.

●

We began to realize costs savings from administrative reductions and other cost ~~savings initiative and structural changes to branch and digital deposit gathering is expected to reduce costs by an estimated $9.4~~controls with noninterest expense, excluding the goodwill impairment charge, of $25.9 million ~~per year and is expected to be fully implemented by October~~in the third quarter of 2023 versus $30.6 million in the second quarter of 2023.

●

~~Reduction in branch count will push~~Asset quality improved meaningfully from year end with nonperforming assets as a percent of total ~~deposits per branch to approximately $153 million~~assets (excluding SBA guarantees) at 0.51% at September 30, 2023 compared to ~~approximately $85 million per branch~~0.98% 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.~~2022.

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RESULTS OF OPERATIONS

Net Income (Loss)

Three-Month Comparison. Net loss for the three months ended ~~June~~September 30, 2023 totaled ~~$0.2~~$3.6 million, or ~~$0.01~~$0.14 basic and diluted loss per share, compared to net income of ~~$4.9~~$5.0 million, or ~~$0.20~~$0.21 basic and $0.20 diluted earnings per share for the three months ended ~~June~~September 30, 2022. The ~~104%~~171% decrease in net income (loss) during the three months ended ~~June~~September 30, 2023 compared to the three months ended ~~June~~September 30, 2022 was driven by ~~higher noninterest~~an $11.2 million of goodwill impairment charge in the third quarter.

Net income for the three months ended September 30, 2023, excluding the goodwill impairment charge and $200 thousand of fraud related expenses ~~mainly~~ from an ~~increase in~~ employee ~~compensation and benefits expense~~fraud previously disclosed in the second quarter, was $7.7 million. Earnings per basic and diluted share was $0.32 when excluding these items, which is an increase of ~~2023 related to increased head count at~~$0.11 per share from the ~~Bank, Primis Mortgage~~same period last year. The increase from prior year in income and ~~Panacea. The decrease in net income~~earnings per share when excluding these items 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, ingains associated with the ~~second quarter~~sale of ~~2023.~~loans and improved core expense levels when adjusting for mortgage related expenses.

~~Six-Month~~Nine-Month Comparison. Net income for the ~~six~~nine months ended ~~June~~September 30, 2023 totaled ~~$5.8~~$2.2 million, or ~~$0.23~~$0.09 basic and diluted earnings per share, compared to ~~$9.5~~$14.5 million, or ~~$0.39~~$0.60 basic and ~~$0.38 per~~$0.59 diluted earnings per share for the ~~six~~nine months ended ~~June~~September 30, 2022. The ~~39%~~85% decrease in net income during the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily related to a $11.2 million of goodwill impairment charge in the third quarter of 2023. The decrease was also driven by higher noninterest expenses from an increase in employee compensation and benefits expense ~~and~~due to the growth of Primis Mortgage, higher data processing expense driven by the increase in customer accounts and related transactions on our digital deposit platform, and an increase in provision for loan losses associated with several specific loan relationships in the current year, partially offset by higher mortgage banking income due to the growth of Primis Mortgage, net interest income as a result of growth in loans and ~~credit enhancement income~~higher interest rates, and gains associated with the sale of loans in 2023.

Net income for the nine months ended September 30, 2023, excluding the goodwill impairment charge, $200 thousand of fraud related expenses from an employee fraud previously disclosed in the second quarter, and $1.5 million of branch consolidation expenses in the second quarter, was $14.7 million. Earnings per basic and diluted share was $0.60 when excluding these items, compared to $0.63 basic and $0.62 diluted earnings per share from the same period last year. The decrease from the prior year in net income and earnings per share when excluding these items was driven by the previously described factors related to the current year net loss and loss per share inclusive of the goodwill impairment.

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~~$27.1 million for the three months ended ~~June~~September 30, 2023, compared to ~~$24.6~~$27.4 million for the three months ended ~~June~~September 30, 2022. Primis’ net interest margin for the three months ended ~~June~~September 30, 2023 was ~~2.65%~~3.02%, compared to ~~3.33%~~3.57% for the three months ended ~~June~~September 30, 2022. Net interest margin for three months ended ~~June~~September 30, 2023 compared to the same period in 2022 was affected primarily by ~~excess cash balances that were not earning~~ the ~~higher rates~~interest spread being less, indicative of ~~our loans combined with~~ the ~~climbing rates~~cost of ~~our~~ interest bearing ~~deposits.~~liabilities increasing more than the yield on interest bearing assets. We also had interest-bearing liabilities grow, on average, quicker than interest-earning assets over the periods. Total income on interest-earning assets was ~~$52.7~~$50.5 million and ~~$28.2~~$32.6 million for the three months ended ~~June~~September 30, 2023 and 2022, ~~respectively.~~respectively, as average interest-earning assets grew approximately $510 million. The yield on average interest-earning assets was ~~5.34%~~5.63% and ~~3.82%~~4.24% for the three months ended ~~June~~September 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~~September 30, 2023 compared to the three months ended ~~June~~September 30, 2022. The cost of average interest-bearing deposits increased ~~265~~239 basis points to ~~3.10%~~3.03% for the three months ended ~~June~~September 30, 2023, compared to ~~0.45%~~0.64% for the three months ended ~~June~~September 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.~~

as average interest-bearing liabilities grew approximately $727 million. The increase

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was driven by higher costs in every interest-bearing category with the largest driver being an increase in average savings deposits of $485 million with an average increase in cost of these deposits of 3.55%. This increase was primarily a result of the use of our digital deposit platform by new and existing customers which generated approximately $1.0 billion in new deposits during the first quarter.

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												Average Balance Sheets and Net Interest Margin
	Analysis For the Three Months Ended												Analysis For the Three Months Ended
	June 30, 2023						June 30, 2022						September 30, 2023						September 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	$	48,698	$	700	5.77	%	$	6,936	$	93	5.38	%	$	55,775	$	873	6.21	%	$	21,199	$	263	4.92	%
Loans, net of deferred fees ^{(1) (2)}		3,101,946		43,270	5.60	%		2,507,779		26,244	4.20	%		3,175,454		46,898	5.86	%		2,667,406		30,225	4.50	%
Investment securities		240,700		1,551	2.58	%		287,722		1,445	2.01	%		234,601		1,593	2.69	%		269,780		1,518	2.23	%
Other earning assets		568,251		7,158	5.05	%		158,817		448	1.13	%		93,159		1,122	4.78	%		90,268		555	2.44	%
Total earning assets		3,959,595		52,679	5.34	%		2,961,254		28,230	3.82	%		3,558,989		50,486	5.63	%		3,048,653		32,561	4.24	%
Allowance for credit losses		(35,694)						(29,844)						(37,135)						(29,830)
Total non-earning assets		294,742						259,052						305,300						264,472
Total assets	$	4,218,643					$	3,190,462					$	3,827,154					$	3,283,295

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	826,598	$	4,343	2.11	%	$	695,481	$	557	0.32	%	$	806,339	$	4,460	2.19	%	$	660,387	$	536	0.32	%
Money market accounts		858,532		6,231	2.91	%		810,781		938	0.46	%		850,892		6,555	3.06	%		803,860		1,667	0.82	%
Savings accounts		1,026,085		10,405	4.07	%		222,274		142	0.26	%		703,809		6,760	3.81	%		219,167		141	0.26	%
Time deposits		495,721		3,804	3.08	%		329,198		674	0.82	%		460,961		3,801	3.27	%		343,986		943	1.09	%
Total interest-bearing deposits		3,206,936		24,783	3.10	%		2,057,734		2,311	0.45	%		2,822,001		21,576	3.03	%		2,027,400		3,287	0.64	%
Borrowings		99,794		1,739	6.99	%		107,784		1,341	4.99	%		99,104		1,785	7.15	%		166,621		1,859	4.43	%
Total interest-bearing liabilities		3,306,730		26,522	3.22	%		2,165,518		3,652	0.68	%		2,921,105		23,361	3.17	%		2,194,021		5,146	0.93	%
Noninterest-bearing liabilities:
Demand deposits		473,295						596,714						472,485						665,020
Other liabilities		37,265						22,095						37,741						23,832
Total liabilities		3,817,290						2,784,327						3,431,331						2,882,873
Stockholders' equity		401,353						406,135						395,823						400,422
Total liabilities and stockholders' equity	$	4,218,643					$	3,190,462					$	3,827,154					$	3,283,295
Net interest income			$	26,157					$	24,578					$	27,125					$	27,415
Interest rate spread					2.12	%					3.15	%					2.46	%					3.31	%
Net interest margin					2.65	%					3.33	%					3.02	%					3.57	%

(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~~Nine-Month Comparison. Net interest income was ~~$54.5~~$81.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$47.4~~$74.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022. Primis’ net interest margin for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~2.89%~~2.93%, compared to ~~3.14%~~3.28% for the ~~six~~nine months ended ~~June~~September 30, 2022. ~~Continued upward pressure on~~The combination in the industry of growth in deposit account rates and consumer preferences shifting from non-interest bearing to higher rate products ~~are impacting~~impacted interest expense and net interest income ~~for~~during the ~~Company and the industry as a whole.~~period. Net interest margin ~~for the Company~~ was further affected by excess cash balances during the first half of the year, that are part of average other earning assets that earned lower rates compared to the rates earned by our loan ~~portfolio.~~portfolio and paid on the related deposits that brought the cash onto the balance sheet. Total income on interest-earning assets was ~~$99.8~~$150.3 million and ~~$54.8~~$87.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, ~~respectively.~~respectively, driven by average interest-earning asset growth of $676 million. The yield on

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average interest-earning assets was ~~5.29%~~5.40% and ~~3.63%~~3.83% for the ~~six~~nine months ended ~~June~~September 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~~233 basis points to ~~2.75%~~2.84% for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~0.44%~~0.51% for the ~~six~~nine months ended ~~June~~September 30, ~~2022. Interest and fees on loans totaled $85.3~~2022 as average interest-bearing liabilities grew approximately $804 million. The increase was driven by higher costs in every interest-bearing category with the largest driver being an increase in average savings deposits of $553 million ~~and $51.1 million for~~with an average increase in cost of those deposits of 3.52%. This increase was primarily a result of the ~~six months ended June 30, 2023 and 2022, respectively.~~aforementioned growth of the digital deposit platform. Average loans during the ~~six~~nine months ended ~~June~~September 30, 2023 were ~~$3.08~~$3.13 billion, compared to ~~$2.44~~$2.52 billion during the ~~six~~nine months ended ~~June~~September 30, 2022.

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	Average Balance Sheets and Net Interest Margin												Average Balance Sheets and Net Interest Margin
	Analysis For the Six Months Ended												Analysis For the Nine Months Ended
	June 30, 2023						June 30, 2022						September 30, 2023						September 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	$	37,086	$	1,091	5.93	%	$	3,487	$	93	5.38	%	$	43,384	$	1,964	6.05	%	$	9,456	$	356	5.03	%
Loans, net of deferred fees ^{(1) (2)}		3,047,259		84,185	5.57	%		2,433,593		50,967	4.22	%		3,089,010		131,083	5.67	%		2,512,388		81,192	4.32	%
Investment securities		243,536		3,135	2.60	%		295,036		2,875	1.96	%		240,525		4,728	2.63	%		286,525		4,393	2.05	%
Other earning assets		478,786		11,382	4.79	%		312,033		854	0.55	%		348,831		12,504	4.79	%		237,299		1,409	0.79	%
Total earning assets		3,806,667		99,793	5.29	%		3,044,149		54,789	3.63	%		3,721,750		150,279	5.40	%		3,045,668		87,350	3.83	%
Allowance for credit losses		(34,901)						(29,543)						(35,654)						(29,640)
Total non-earning assets		291,459						257,472						296,351						259,826
Total assets	$	4,063,225						3,272,078					$	3,982,447					$	3,275,854

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	774,878	$	6,610	1.72	%	$	756,118	$	1,222	0.33	%	$	785,480	$	11,070	1.88	%	$	723,857	$	1,758	0.32	%
Money market accounts		841,630		11,032	2.64	%		810,124		1,797	0.45	%		844,752		17,587	2.78	%		808,013		3,464	0.57	%
Savings accounts		811,148		15,156	3.77	%		223,489		291	0.26	%		775,024		21,915	3.78	%		222,032		432	0.26	%
Time deposits		492,412		7,029	2.88	%		339,724		1,374	0.82	%		481,813		10,831	3.01	%		341,160		2,317	0.91	%
Total interest-bearing deposits		2,920,068		39,827	2.75	%		2,129,455		4,684	0.44	%		2,887,069		61,403	2.84	%		2,095,062		7,971	0.51	%
Borrowings		191,859		5,444	5.72	%		139,363		2,699	3.91	%		160,601		7,229	6.02	%		148,549		4,558	4.10	%
Total interest-bearing liabilities		3,111,927		45,271	2.93	%		2,268,818		7,383	0.66	%		3,047,670		68,632	3.01	%		2,243,611		12,529	0.75	%
Noninterest-bearing liabilities:
Demand deposits		514,657						571,264						500,456						602,872
Other liabilities		33,135						22,573						34,589						22,985
Total liabilities		3,659,719						2,862,655						3,582,715						2,869,468
Stockholders' equity		403,506						409,423						399,732						406,386
Total liabilities and stockholders' equity	$	4,063,225						3,272,078					$	3,982,447					$	3,275,854
Net interest income			$	54,522					$	47,406					$	81,647					$	74,821
Interest rate spread					2.35	%					2.97	%					2.39	%					3.09	%
Net interest margin					2.89	%					3.14	%					2.93	%					3.28	%

(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,

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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~~nine months ended ~~June~~September 30, 2023 of ~~$4.3~~$1.6 million and ~~$9.5~~$11.1 million, respectively, compared to a provision for credit losses for the three and ~~six~~nine months ended ~~June~~September 30, 2022 of ~~$0.4~~$2.9 million and ~~$0.5~~$3.4 million, respectively. ~~For the three and six months ended June 30,~~The provision during 2023 ~~$1.1 million and $6.0 million, respectively, were due to charge-offs and additional reserve~~included amounts calculated in our normal reserve process for a portfolio of third party-managed loans that includes a credit enhancement from the third-party ~~credit enhancement.~~for losses on the portfolio which totaled $2.0 million and $8.1 million during the three and nine months ended September 30, 2023, respectively. As a result of the credit enhancement, 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~~the provision ~~amount,~~amounts related to the third-party managed portfolio, we would have recorded a recovery for credit losses of $0.4 million for the three months ended September 30, 2023 and a provision for credit losses ~~would have been $3.2 million and $3.5~~of $3.1 million for the ~~three and six~~nine months ended ~~June~~September 30, ~~2023, respectively.~~2023. We had charge-offs totaling ~~$1.7~~$4.5 million and ~~$0.1~~$1.2 million during the three months ended ~~June~~September 30, 2023 and 2022, respectively, and ~~$6.2~~$10.7 million and ~~$0.2~~$1.3 million during ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. During the three and nine months ended ~~June~~September 30, 2023, the charge-offs were ~~almost entirely~~mostly related to the third-party managed loans with a 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~~related to ~~three specific borrowers~~the partial resolution of the assisted living relationship that had been reserved for in ~~which we determined portions of their loans were uncollectible.~~prior quarters. There were recoveries totaling ~~$0.1~~$0.2 million and ~~$0.5~~$0.01 million during three months ended ~~June~~September 30, 2023 and 2022, respectively, and ~~$0.6 million and $0.7~~$0.8 million during ~~six~~both nine months ended ~~June~~September 30, 2023 and ~~2022, respectively.~~2022.

The Financial Condition ~~Section~~section of ~~Management’s Discussion and Analysis~~this MD&A 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~~September 30, 2023 and 2022:


	For the Three Months Ended						For the Three Months Ended
	June 30,						September 30,
(dollars in thousands)	2023		2022		Change		2023		2022		Change
Account maintenance and deposit service fees	$	1,430	$	1,442	$	(12)	$	1,503	$	1,525	$	(22)
Income from bank-owned life insurance		394		378		16		787		394		393
Mortgage banking income		5,198		593		4,605		4,922		2,197		2,725
Gain on sale of loans		182		—		182		451		—		451
Credit enhancement income		1,152		—		1,152		2,047		1,220		827
Other noninterest income		130		217		(87)		232		284		(52)
Total noninterest income	$	8,486	$	2,630	$	5,856	$	9,942	$	5,620	$	4,322

Noninterest income increased ~~223%~~77% to ~~$8.5~~$9.9 million for the three months ended ~~June~~September 30, 2023, compared to ~~$2.6~~$5.6 million for the three months ended ~~June~~September 30, 2022. The increase in noninterest income was primarily related to ~~$5.2~~$2.7 million of higher mortgage banking income and ~~$1.2~~$0.8 million of increased credit enhancement ~~income in the second quarter of 2023.~~income. The Company began accounting for certain third party credit enhancements on consumer lending during the third quarter of ~~2022, resulting in no income in~~2022. During that time, the ~~prior year~~portfolio of third-party managed loans was materially smaller with a higher percentage of newly originated loans than it was during the third quarter of 2023 with a larger portfolio and more seasoning. We purchased Primis Mortgage ~~late in~~on May 31, 2022, which had smaller operations at that time compared to the ~~second~~third quarter of ~~2022, which resulted~~2023. In the first nine months of 2023, Primis Mortgage grew significantly, resulting in ~~the lower level of income when compared to current year.~~materially more loan origination and sales volume. During the ~~second~~third quarter of 2023, the Bank also realized ~~$0.2~~$0.4 million of gains associated with ~~a small~~the sale of Panacea commercial and consumer loans. Noninterest income also increased during the three months ended September 30, 2023

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compared to September 30, 2022 due to increased BOLI income, partially due to a death benefit recognized during the third quarter.

The following table presents the major categories of noninterest income for the ~~six~~nine months ended ~~June~~September 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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	For the Nine Months Ended
	September 30,
(dollars in thousands)	2023		2022		Change
Account maintenance and deposit service fees	$	4,149	$	4,318	$	(169)
Income from bank-owned life insurance		1,601		1,147		454
Mortgage banking income		14,435		2,790		11,645
Gain on sale of loans		1,111		—		1,111
Credit enhancement income		8,085		1,220		6,865
Other noninterest income		579		865		(286)
Total noninterest income	$	29,960	$	10,340	$	19,620

Noninterest income increased ~~324%~~190% to ~~$20.0~~$30.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$4.7~~$10.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The increase in noninterest income was primarily related to ~~$8.9~~$11.6 million of higher mortgage banking income and ~~$6.0~~$6.9 million of credit enhancement income during the ~~six~~nine months ended ~~June~~September 30, 2023. The increase in the mortgage banking income is related to the purchase of Primis Mortgage in May 2022, resulting in only four months of operations in the results of last year compared to a full nine months in 2023, coupled with meaningful growth in the business 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~~$1.1 million of gains associated with the sale of loans in 2023, primarily related to Panacea commercial and consumer loans.

Noninterest Expense

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


	For the Three Months Ended						For the Three Months Ended
	June 30,						September 30,
(dollars in thousands)	2023		2022		Change		2023		2022		Change
Salaries and benefits	$	15,283	$	10,573	$	4,710	$	13,809	$	12,594	$	1,215
Occupancy expenses		1,593		1,418		175		1,633		1,402		231
Furniture and equipment expenses		1,852		1,128		724		1,537		1,455		82
Amortization of core deposit intangible		318		341		(23)		317		326		(9)
Virginia franchise tax expense		848		814		34		849		813		36
FDIC insurance assessment								820		199		621
Data processing expense		2,828		1,293		1,535		2,250		1,528		722
Marketing expense		521		731		(210)		377		938		(561)
Telephone and communication expense		416		366		50		356		342		14
Net loss on bank premises and equipment		—		620		(620)		—		64		(64)
Professional fees		1,075		827		248		1,118		1,261		(143)
Credit enhancement costs		515		—		515		337		—		337
Goodwill impairment								11,150		—		11,150
Other operating expenses		5,303		2,366		2,937		2,521		2,839		(318)
Total noninterest expenses	$	30,552	$	20,477	$	10,075	$	37,074	$	23,761	$	13,313

Noninterest expenses were ~~$30.6~~$37.1 million during the three months ended ~~June~~September 30, 2023, compared to ~~$20.5~~$23.8 million during the three months ended ~~June~~September 30, 2022. The ~~49%~~56% increase in noninterest expenses was primarily ~~due~~

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related to a ~~$4.7~~$11.2 million of goodwill impairment charge in the third quarter of 2023. Increase in noninterest expense was also driven by a $1.2 million increase in employee compensation in the ~~second~~third quarter of 2023 related to increased head count at the Bank, Primis Mortgage, and Panacea compared to the ~~second~~third quarter of 2022, along with personnel costs incurred related to the cost savings initiative announced inat the end of the second quarter of 2023. We also experienced an increase in occupancy expenses of $0.2 million in the third quarter of 2023 compared to 2022 primarily due to the impact of expenses related to new leases for Primis Mortgage and the Company’s new headquarters. The increase in noninterest expense during the three months ended ~~June~~September 30, 2023 was also attributable to a ~~$1.5~~$0.7 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~~September 30, 2023 included ~~$0.5~~$0.3 million of credit enhancement costs related to servicing and other expenses for athe third-party managed ~~loan. A significant driver~~loan portfolio which were immaterial in the prior year period due to the relatively small size of the ~~increase~~portfolio during the same period in ~~other non-interest expenses were higher expenses related to Primis Mortgage in the second quarter of 2023.~~2022. Other notable drivers of the ~~increase~~change in noninterest expense was higher other operating expenses in the ~~second~~third quarter of 2023 ~~included~~that was driven higher by FDIC insurance costs due to the significant growth in ~~deposits.~~deposits partially offset by a decline in marketing expense.

When excluding the non-cash goodwill impairment charge, total noninterest expenses increased 6% from the three months ended September 30, 2022, compared to the 56% increase described above that includes the impairment charge. The increase was driven by higher salaries and benefits, FDIC insurance, and data processing expenses, partially offset by lower marketing and other operating expenses along with less professional fees.

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


	For the Six Months Ended						For the Nine Months Ended
	June 30,						September 30,
(dollars in thousands)	2023		2022		Change		2023		2022		Change
Salaries and benefits	$	30,311	$	20,198	$	10,113	$	44,120	$	32,792	$	11,328
Occupancy expenses		3,038		2,875		163		4,671		4,277		394
Furniture and equipment expenses		3,429		2,228		1,201		4,966		3,683		1,283
Amortization of core deposit intangible		635		682		(47)		952		1,008		(56)
Virginia franchise tax expense		1,697		1,627		70		2,546		2,440		106
FDIC insurance assessment								2,254		658		1,596
Data processing expense		5,079		2,783		2,296		7,329		4,311		3,018
Marketing expense		1,090		1,196		(106)		1,467		2,134		(667)
Telephone and communication expense		793		748		45		1,149		1,090		59
Net (gain) loss on other real estate owned		—		(59)		59		—		(59)		59
Net loss on bank premises and equipment		—		620		(620)		—		684		(684)
Professional fees		1,937		1,921		16		3,055		3,182		(127)
Credit enhancement costs		1,388		—		1,388		1,725		—		1,725
Goodwill impairment								11,150		—		11,150
Other operating expenses		8,559		4,690		3,869		9,646		7,070		2,576
Total noninterest expenses	$	57,956	$	39,509	$	18,447	$	95,030	$	63,270	$	31,760

Noninterest expenses were ~~$58.0~~$95.0 million during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$39.5~~$63.3 million during the ~~six~~nine months ended ~~June~~September 30, 2022. The ~~47%~~50% increase in noninterest expenses was primarily attributable to a ~~$10.1~~$11.2 million of goodwill impairment charge in the third quarter of 2023 and $11.3 million increase in employee compensation and benefits expense mainly related to increased head count at the Bank, Primis Mortgage and Panacea in the ~~six~~nine months ended ~~June~~September 30, 2023 compared to ~~2022.~~2022 and also due to expenses associated with the branch consolidation announced in the second quarter of 2023. The increase in noninterest expense during the ~~six~~nine months ended ~~June~~September 30, 2023 was also driven by a ~~$2.3~~$3.0 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~~nine months ended ~~June~~September 30, 2023 included ~~$1.4~~$1.7 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~~$1.3 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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in the second quarter of 2023. Other operating expenses increased during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, largely driven by higher expenses related to Primis Mortgage as its operations grew meaningfully since 2022 and included nine months of activity in the current year period compared to only four months in the prior year period and higher FDIC insurance costs in 2023.

When excluding the non-cash goodwill impairment charge and the $1.5 million of branch consolidation expenses incurred in the second quarter, total noninterest expenses were $82.5 million, which is an increase of approximately 30% from the nine months ended September 30, 2022 compared to the 50% increase described above when including these items. The increase was driven by higher salaries and benefits, FDIC insurance, data processing, furniture and equipment, and credit enhancement expenses, partially offset by lower marketing costs and less losses on premises and equipment as previously described in the discussion of the results not excluding the goodwill and branch consolidation costs.

FINANCIAL CONDITION

~~Balance Sheet Overview~~

~~Total assets were $3.85 billion~~The following illustrates key balance sheet categories 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 JuneSeptember 30, 2023 and December 31, 2022 ~~respectively.~~(in thousands):


	September 30,		December 31,
	2023		2022		Change

	(in thousands, except per share amounts)

Total cash and cash equivalents	$	93,865	$	77,859	$	16,006
Securities available-for-sale		216,875		236,315		(19,440)
Securities held-to-maturity		11,975		13,520		(1,545)
Loans held for sale		8,755		—		8,755
Net loans		3,110,100		2,912,093		198,007
Other assets		372,205		329,712		42,493
Total assets	$	3,813,775	$	3,569,499	$	244,276

Total deposits	$	3,293,404	$	2,722,378	$	571,026
Borrowings		99,362		426,757		(327,395)
Other liabilities		38,143		27,999		10,144
Total liabilities		3,430,909		3,177,134		253,775
Total stockholders' equity		382,866		392,365		(9,499)
Total liabilities and stockholders' equity	$	3,813,775	$	3,569,499	$	244,276

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~~$3.15 billion and $2.95 billion at ~~June~~September 30, 2023 and December 31, 2022, respectively. PPP loans totaled $2.1 million at ~~June~~September 30, 2023 and $4.6 million at December 31, 2022, respectively. Excluding PPP loans, loans outstanding increased ~~$229.4~~$201.7 million, or 8%7%, since December 31, 2022.

As of ~~June~~September 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.

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


	June 30, 2023				December 31, 2022				September 30, 2023				December 31, 2022
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Loans secured by real estate:
Commercial real estate - owner occupied	$	447,407	14.1	%	$	459,866	15.6	%	$	431,840	13.7	%	$	459,866	15.6	%
Commercial real estate - non-owner occupied		595,805	18.8	%		579,733	19.7	%		576,881	18.3	%		579,733	19.7	%
Secured by farmland		5,271	0.2	%		5,970	0.2	%		5,082	0.2	%		5,970	0.2	%
Construction and land development		175,073	5.5	%		148,690	5.0	%		172,005	5.5	%		148,690	5.0	%
Residential 1-4 family		591,938	18.7	%		609,694	20.7	%		600,389	19.1	%		609,694	20.7	%
Multi- family residential		133,754	4.2	%		140,321	4.8	%		129,586	4.1	%		140,321	4.8	%
Home equity lines of credit		62,808	2.0	%		65,152	2.2	%		59,996	1.9	%		65,152	2.2	%
Total real estate loans		2,012,056	63.4	%		2,009,426	68.2	%		1,975,779	62.8	%		2,009,426	68.2	%

Commercial loans		584,251	18.4	%		520,741	17.7	%		592,528	18.8	%		520,741	17.7	%
Paycheck protection program loans		2,143	0.1	%		4,564	0.2	%		2,105	0.1	%		4,564	0.2	%
Consumer loans		569,139	17.9	%		405,278	13.8	%		569,463	18.1	%		405,278	13.8	%
Total Non-PCD loans		3,167,589	99.8	%		2,940,009	99.8	%		3,139,875	99.8	%		2,940,009	99.8	%
PCD loans		6,049	0.2	%		6,628	0.2	%		5,992	0.2	%		6,628	0.2	%
Total loans	$	3,173,638	100.0	%	$	2,946,637	100.0	%	$	3,145,867	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~~September 30, 2023 (in thousands):


			After 1 Year				After 5 Years												After 1 Year				After 5 Years
			Through 5 Years				Through 15 Years				After 15 Years								Through 5 Years				Through 15 Years				After 15 Years
	One Year		Fixed		Floating		Fixed		Floating		Fixed		Floating				One Year		Fixed		Floating		Fixed		Floating		Fixed		Floating
	or Less		Rate		Rate		Rate		Rate		Rate		Rate		Total		or Less		Rate		Rate		Rate		Rate		Rate		Rate		Total
Loans secured by real estate:
Commercial real estate - owner occupied	$	31,468	$	120,778	$	17,039	$	103,472	$	107,189	$	2,315	$	65,146	$	447,407	$	27,431	$	111,535	$	20,049	$	101,970	$	103,185	$	2,293	$	65,377	$	431,840
Commercial real estate - non-owner occupied		34,523		192,115		31,175		60,317		65,937		1,384		210,354		595,805		17,328		192,171		39,581		62,609		67,710		1,374		196,108		576,881
Secured by farmland		1,527		891		285		221		1,008		—		1,339		5,271		1,544		853		288		223		864		—		1,310		5,082
Construction and land development		122,162		25,535		19,291		757		5,013		681		1,634		175,073		123,815		24,637		15,430		748		5,068		677		1,630		172,005
Residential 1-4 family		15,602		48,619		8,306		30,035		54,093		72,286		362,997		591,938		17,545		44,730		8,239		28,556		53,692		71,436		376,191		600,389
Multi- family residential		5,677		56,640		18,783		7,078		18,562		—		27,014		133,754		9,391		61,921		11,709		1,351		18,422		—		26,792		129,586
Home equity lines of credit		9,468		996		11,142		30		3,002		33		38,137		62,808		6,322		3,294		9,929		49		2,250		30		38,122		59,996
Total real estate loans		220,427		445,574		106,021		201,910		254,804		76,699		706,621		2,012,056		203,376		439,141		105,225		195,506		251,191		75,810		705,530		1,975,779
Commercial loans		107,138		97,191		153,771		175,287		46,927		1,131		2,806		584,251		110,201		114,276		136,474		178,077		49,586		1,120		2,794		592,528
Paycheck protection program loans		25		1,918		—		200		—		—		—		2,143		24		1,887		—		194		—		—		—		2,105
Consumer loans		2,410		274,374		105,150		92,232		92,553		2,415		5		569,139		3,800		265,179		111,417		87,371		99,567		2,106		23		569,463
Total Non-PCD loans		330,000		819,057		364,942		469,629		394,284		80,245		709,432		3,167,589		317,401		820,483		353,116		461,148		400,344		79,036		708,347		3,139,875
PCD loans		3,060		1,337		—		—		1,114		398		140		6,049		3,036		1,320		—		—		1,241		395		-		5,992
Total loans	$	333,060	$	820,394	$	364,942	$	469,629	$	395,398	$	80,643	$	709,572	$	3,173,638	$	320,437	$	821,803	$	353,116	$	461,148	$	401,585	$	79,431	$	708,347	$	3,145,867

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Asset Quality

While the financial 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~~2023 and ~~second quarter of 2023.~~improved from December 31, 2022. 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~~$1.2 million to ~~$38.4~~$35.7 million at the end of ~~June~~September 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~~$199.2 million in overall loan growth experienced in 2023.

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


	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022
Nonaccrual loans	$	25,290		$	35,484		$	20,171		$	35,484
Loans past due 90 days and accruing interest		1,714			3,361			1,714			3,361
Total nonperforming assets		27,004			38,845			21,885			38,845

SBA guaranteed amounts included in nonperforming loans	$	2,331		$	3,969		$	2,290		$	3,969

Allowance for credit losses to total loans		1.21	%		1.17	%		1.14	%		1.17	%
Allowance for credit losses to nonaccrual loans		151.90	%		97.35	%		177.32	%		97.35	%
Allowance for credit losses to nonperforming loans		142.25	%		88.93	%		163.44	%		88.93	%
Nonaccrual to total loans		0.80	%		1.20	%		0.64	%		1.20	%
Nonperforming assets excluding SBA guaranteed loans to total assets		0.64	%		0.98	%		0.51	%		0.98	%

Nonaccrual loans decreased ~~29%~~43% to ~~$25.3~~$20.2 million (excluding $0.6 million of loans fully covered by SBA guarantees) ~~at June~~as of September 30, 2023, compared to $35.5 million (excluding $0.6 million of loans fully covered by SBA guarantees) atas of December 31, 2022. ~~A substantial portion of~~Included in the Bank’s nonperforming assets is one remaining assisted living problem credit outstanding as of September 30, 2023 related to the relationship discussed in previous ~~periods were comprised of two relationships~~quarters and with a ~~combined~~book balance of ~~approximately $27.0~~$13.1 million. ~~A large residential property with a balance~~This credit was resolved in early October 2023, bringing pro forma nonperforming assets to $6.5 million as of ~~approximately $8.0 million included in that total was sold in the second quarter of~~September 30, 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~~As of September 30, 2023, our total substandard loans were ~~$33.7~~$28.8 million, compared to $41.0 million at December 31, 2022, ~~an 18%~~a 30% decline. Included in the total substandard loans were SBA guarantees of $0.8 million in both periods. Special mention loans totaled ~~$32.4~~$33.3 million ~~at June~~as of September 30, 2023 and $32.3 million atas of 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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For the quarter ended September 30, 2023, on an amortized cost basis, three other consumer loans totaling $0.3 million were modified to borrowers experiencing financial difficulty. This represents 0.10% of the other consumer loan portfolio.

Two of the loans, totaling $0.2 million in amortized cost, were to one borrower and received payment deferrals for three months, with principal and interest payments resuming August 2023. Total contractual payments for these loans for the quarter, prior to modification, would have been approximately $11 thousand. Both loans are current on principal and interest following the deferral period.

The third other consumer loan modified to a borrower experiencing financial difficulty, had an amortized cost of $0.1 million and the Company reduced monthly payments on the loan for the remaining 84-month term with no change to the original rate or maturity. The contractual payments for the quarter would have totaled approximately $9 thousand if the modification had not been provided. The loan is paying as agreed following the modification.

Two loans modified in the second quarter of 2023 from our owner occupied commercial real estate portfolio with an amortized cost balance of $0.4 million are paying as agreed following the modifications. These loans represent 0.10% of the owner occupied commercial real estate portfolio.

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~~$228.9 million ~~at June~~as of September 30, 2023, a decrease of 6%8% from $249.8 million atas of December 31, 2022, primarily due to paydowns, maturities, and calls of the investments over the past ~~six~~nine months.

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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,		September 30,		December 31,
	2023		2022		2023		2022
Available-for-sale investment securities:
Residential government-sponsored mortgage-backed securities	$	98,014	$	102,881	$	93,865	$	102,881
Obligations of states and political subdivisions		29,673		29,178		28,312		29,178
Corporate securities		12,956		14,828		13,314		14,828
Collateralized loan obligations		4,901		4,876		4,955		4,876
Residential government-sponsored collateralized mortgage obligations		28,568		26,595		29,745		26,595
Government-sponsored agency securities		13,360		14,616		12,968		14,616
Agency commercial mortgage-backed securities		30,794		37,417		29,280		37,417
SBA pool securities		4,821		5,924		4,436		5,924
Total	$	223,087	$	236,315	$	216,875	$	236,315

Held-to-maturity investment securities:
Residential government-sponsored mortgage-backed securities	$	9,753	$	10,522	$	9,357	$	10,522
Obligations of states and political subdivisions		2,388		2,721		2,390		2,721
Residential government-sponsored collateralized mortgage obligations		237		277		228		277
Total	$	12,378	$	13,520	$	11,975	$	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~~nine months ended ~~June~~September 30, 2023 and no credit losses during the three and ~~six~~nine months ended ~~June~~September 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%~~21% to ~~$3.32~~$3.29 billion ~~at June~~as of September 30, 2023 from $2.72 billion atas of 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 overall deposit growth was in savings accounts with the remainder largely in NOW ~~accounts.~~accounts (both largely coming from the digital platform). Savings accounts increased ~~184%~~204% from $245.7 million as of December 31, 2022 to ~~$696.8~~$746.6 million ~~at June~~as of September 30, 2023. NOW accounts increased ~~32%~~30% from $617.7 million atas of December 31, 2022 to ~~$817.7~~$803.3 million ~~at June~~as of September 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~~$1.11 billion, or ~~35%~~34% of total deposits, at ~~June~~September 30, 2023. ~~As further discussed below in “Liquidity and Funds Management” we took steps during the first six months~~Liquidity sources represent almost 185% of ~~2023 to bolster our available sources of liquidity and as of June 30, 2023, our total available sources of liquidity exceeds total~~ uninsured or unsecured deposits, ~~by $100 million.~~up substantially from December 31, 2022.

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.

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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~~$75 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~~As of September 30, 2023, we had substantial liquidity on the balance sheet with cash and equivalents of ~~$100.9~~$93.9 million versus $77.9 million atas of December 31, 2022 largely due to the growth in digital platform deposits described above.

~~At June~~As of September 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~~$6.4 million and $14.2 million, respectively, to customers who require collateral for overnight repurchase agreements and deposits.

The balance in repo accounts ~~at June~~as of September 30, 2023 and December 31, 2022 was ~~$3.9~~$3.8 million and $6.5 million, respectively.

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commercial mortgage loans, and investment securities supporting borrowing capacity of approximately ~~$580.8~~$558.9 million from the FHLB.

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~~As of September 30, 2023, we had securities available of ~~$138.0~~$133.8 million for utilization with the BTFP, with no borrowings outstanding under the program ~~at June~~as of September 30, 2023.

The Bank also utilizes institutional and brokered certificates of deposit to supplement customer funding. ~~At June~~As of September 30, 2023, we had $75.0 million of brokered deposits ~~outstanding.~~outstanding, which are schedule to mature in the fourth quarter of 2023. We had remaining brokered CD capacity under internal policy of approximately $321.0 million.

~~At June~~As of September 30, 2023, we had ~~$495.4~~$467.3 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~~

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$394.7 million as of ~~June~~September 30, 2023, including $75.0 million of brokered ~~CDs.~~CDs as discussed above. Management anticipates that funding requirements for these commitments can be met in the normal ~~course.~~course of our operations.

As of ~~June~~September 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~~September 30, 2023, Primis has no material commitments for capital expenditures.

Stockholder’s equity

Stockholder’s equity balances decreased $4.6 million from December 31, 2022 to September 30, 2023 as a result of an increase in unrealized mark-to-market adjustments on the Company’s available-for-sale securities portfolio due to increases in market interest rates during the nine months ended September 30, 2023 and dividends on common stock exceeding earnings in the period. The Company has the intent and ability to hold the available-for-sale securities that are currently in an unrealized loss position until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

Capital Resources

Capital management consists of providing equity to support both current and future operations. Primis Financial Corp. and its subsidiary, ~~bank~~Primis 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~~As of September 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~~September 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:~~standards. These ratios were not impacted by the goodwill impairment charge incurred during the period because goodwill is not a component of the calculations:


	Minimum								Minimum
	Required for								Required for
	Capital		To Be		Actual Ratio at				Capital		To Be		Actual Ratio at
	Adequacy		Categorized as		June 30,		December 31,		Adequacy		Categorized as		September 30,		December 31,
	Purposes		Well Capitalized⁽¹⁾		2023		2022		Purposes		Well Capitalized⁽¹⁾		2023		2022
Primis Financial Corp.
Leverage ratio	4.00	%	n/a		8.14	%	9.68	%	4.00	%	n/a		8.78	%	9.68	%
Common equity tier 1 capital ratio	4.50	%	n/a		9.38	%	10.30	%	4.50	%	n/a		9.64	%	10.30	%
Tier 1 risk-based capital ratio	6.00	%	n/a		9.68	%	10.63	%	6.00	%	n/a		9.94	%	10.63	%
Total risk-based capital ratio	8.00	%	n/a		13.16	%	14.57	%	8.00	%	n/a		13.37	%	14.57	%

Primis Bank
Leverage ratio	4.00	%	5.00	%	9.41	%	11.39	%	4.00	%	5.00	%	10.60	%	11.39	%
Common equity tier 1 capital ratio	7.00	%	6.50	%	11.71	%	12.64	%	7.00	%	6.50	%	12.27	%	12.64	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	11.71	%	12.64	%	8.50	%	8.00	%	12.27	%	12.64	%
Total risk-based capital ratio	10.50	%	10.00	%	12.92	%	13.84	%	10.50	%	10.00	%	13.42	%	13.84	%

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(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~~5.22% as of September 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

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.

As required under U.S. GAAP, we test goodwill for impairment at least annually and more frequently if there are indications that goodwill could be impaired. Our annual goodwill impairment testing date is September 30 and accordingly, we performed testing as of September 30, 2023 of our two reporting units that include goodwill. For our assessment of goodwill as of September 30, 2023, we performed a step one quantitative assessment to determine if the fair value of the Primis Bank reporting unit and the Primis Mortgage reporting units were less than their carrying amount. As part of the testing, we engaged an independent valuation firm to quantitatively estimate the fair value of each reporting unit so that it could be compared to the carrying value in assisting us in determining if impairment existed. The results of the quantitative assessment of the Primis Mortgage reporting unit indicated that its fair value was in excess of its carrying value, thus no goodwill impairment was necessary.

Our assessment of the Primis Bank reporting unit included the use of three approaches, each receiving various weightings to determine an ultimate fair value estimate: (1) the comparable transactions method that is based on comparison to pricing ratios recently paid in the sale or merger of comparable banking institutions; (2) the public market peers control premium approach that is based on market pricing ratios of public banking companies adjusted for an industry based control premium, and (3) a discounted cash flow method (an income method), taking into consideration expectations of the Company’s growth and profitability going forward. The assessment included use of various assumptions and inputs into the modeling approaches, including creating a baseline and conservative scenarios that stressed certain assumptions such as projected cash flows and the discount rate. We considered the modeled results of each scenario and in light of the sustained depressed stock price during the third quarter compared to our book value we determined it was reasonable to leverage the results of a scenario that utilized more stressed inputs and assumptions. Ultimately, the result of the quantitative assessment indicated the Primis Bank reporting unit’s book value was more than its estimated fair value. Accordingly, we took an impairment charge to Primis Bank’s goodwill of $11.2 million during the three and nine months ended September 30, 2023

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment testing as of September 30, 2023 will prove to be an accurate prediction of the future. Changes in assumptions, market data (for market-based assessments), or the discount rate (for income based assessments) could produce different results that lead to higher or lower fair value determinations compared to the results of our annual impairment testing performed as of September 30, 2023. Further, because the use of inputs and assumptions are highly judgmental an analysis

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performed to assess the fair value of our reporting units by others may results in higher, lower, or the same fair value determination and goodwill impairment decision through the use of their judgment in application of similar inputs and assumptions as we used.

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 ~~June~~September 30, 2023 and December 31, 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 June 30, 2023										As of September 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	$	503,320	$	(57,915)	(10.32)	%	14.77	%	122.20	%	$	520,349	$	(62,585)	(10.74)	%	13.64	%	135.91	%
Up 300		515,991		(45,244)	(8.06)	%	15.14	%	125.28	%		532,343		(50,591)	(8.68)	%	13.96	%	139.04	%
Up 200		527,895		(33,340)	(5.94)	%	15.49	%	128.17	%		544,038		(38,896)	(6.67)	%	14.27	%	142.10	%
Up 100		551,187		(10,048)	(1.79)	%	16.18	%	133.82	%		570,057		(12,877)	(2.21)	%	14.95	%	148.89	%
Base		561,235		—	—	%	16.47	%	136.26	%		582,934		—	—	%	15.28	%	152.26	%
Down 100		556,910		(4,325)	(0.77)	%	16.34	%	135.21	%		583,336		402	0.07	%	15.30	%	152.36	%
Down 200		534,924		(26,311)	(4.69)	%	15.70	%	129.87	%		567,995		(14,939)	(2.56)	%	14.89	%	148.35	%

Sensitivity of Economic Value of Equity

As of December 31, 2022

Economic Value of

Economic Value of Equity

Equity as a % of

Change in Interest Rates

$ Change

% Change

Total

Equity

in Basis Points (Rate Shock)

Amount

From Base

From Base

Assets

Book Value

(dollar amounts in thousands)

Up 400

$
481,135

$
(63,410)

(11.64)
%
14.12
%
116.81
%
Up 300

496,136

(48,409)

(8.89)
%
14.56
%
120.46
%
Up 200

510,807

(33,738)

(6.20)
%
14.99
%
124.02
%
Up 100

534,163

(10,382)

(1.91)
%
15.68
%
129.69
%
Base

544,545

—

—
%
15.98
%
132.21
%
Down 100

539,297

(5,248)

(0.96)
%
15.83
%
130.94
%

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

	(dollar amounts in thousands)
Up 400	$	481,135	$	(63,410)	(11.64)	%	14.12	%	116.81	%
Up 300		496,136		(48,409)	(8.89)	%	14.56	%	120.46	%
Up 200		510,807		(33,738)	(6.20)	%	14.99	%	124.02	%
Up 100		534,163		(10,382)	(1.91)	%	15.68	%	129.69	%
Base		544,545		—	—	%	15.98	%	132.21	%
Down 100		539,297		(5,248)	(0.96)	%	15.83	%	130.94	%
Down 200		513,948		(30,597)	(5.62)	%	14.40	%	130.99	%

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 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 June~~as of September 30, 2023 and December 31, 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 June~~as of September 30, 2023 and December 31, 2022.


	Sensitivity of Net Interest Income				Sensitivity of Net Interest Income
	As of June 30, 2023				As of September 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	$	101,999	$	(13,566)	$	104,691	$	(14,577)
Up 300		104,695		(10,870)		107,573		(11,695)
Up 200		107,389		(8,176)		110,454		(8,814)
Up 100		112,004		(3,561)		115,369		(3,899)
Base		115,565		—		119,268		—
Down 100		117,594		2,029		121,676		2,408
Down 200		117,636		2,071		122,186		2,918


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

	(dollar amounts in thousands)
Up 400	$	108,514	$	(12,447)
Up 300		111,127		(9,834)
Up 200		113,730		(7,231)
Up 100		117,811		(3,150)
Base		120,961		—
Down 100		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.

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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 and Chief Financial Officer have concluded that these controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

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

(b) Changes in Internal Control over Financial Reporting. As a result of the acquisition of Primis Mortgage, the Company is continuously working to integrate Primis Mortgage into its internal control over financial reporting process.

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There were no changes in our internal controls over financial reporting that occurred during the three and ~~six~~nine months ended ~~June~~September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 ~~June~~September 30, 2023.

ITEM 1A – RISK FACTORS

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 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-Q for the quarter ended March 31, 2023, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There are no material changes during the period covered by this Report to the risk factors 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, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable.

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ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

Pursuant to Item 408(a) of Regulation S-K, none of the Company's directors or executive officers adopted,, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 tradingarrangement during the three months ended ~~June~~September 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 June 30, 2021 (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s Current Report on Form 8-K filed on June 30, 2021)

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

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

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

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 ~~June~~September 30, 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)


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



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

5759


	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)