UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

Commission File No. 001-33037

PRIMIS FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


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

6830 Old Dominion Drive

McLean, Virginia 22101

(Address of principal executive offices) (zip code)

(703) 893-7400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b–2 of the Exchange Act:


Large accelerated filer ☐	Accelerated filer ☒	Smaller reporting company ☐

Non-accelerated filer ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 2, 2022, there were 24,664,097 shares of common stock, $0.01 par value, outstanding.

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PRIMIS FINANCIAL CORP.

FORM 10-Q

September 30, 2022

TABLE OF CONTENTS		PAGE
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

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

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		54

Item 4 – Controls and Procedures		55

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		56

Item 1A – Risk Factors		56

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 3 – Defaults Upon Senior Securities		56

Item 4 – Mine Safety Disclosures		56

Item 5 – Other Information		56

Item 6 - Exhibits		57

Signatures		59

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PRIMIS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	September 30,		December 31,
	2022		2021
	(unaudited)		*
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	6,147	$	8,380
Interest-bearing deposits in other financial institutions		91,591		521,787
Total cash and cash equivalents		97,738		530,167

Securities available-for-sale, at fair value		238,891		271,332

Securities held-to-maturity, at amortized cost (fair value of $13,085 and $23,364, respectively)		14,391		22,940

Loans held for sale, at fair value		13,388		—
Loans held for investment		2,737,086		2,339,986
Less allowance for credit losses		(31,956)		(29,105)
Net loans		2,705,130		2,310,881

Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB)		16,689		15,521
Bank premises and equipment, net		25,534		30,410
Assets held for sale		3,127		—
Operating lease right-of-use assets		5,511		5,866
Goodwill		104,609		101,954
Intangible assets, net		3,561		4,462
Bank-owned life insurance		67,519		66,724
Other real estate owned		1,041		1,163
Deferred tax assets, net		17,892		9,571
Other assets		42,141		36,362
Total assets	$	3,357,162	$	3,407,353

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	687,272	$	530,282
Interest-bearing deposits:
NOW accounts		637,786		849,738
Money market accounts		803,050		799,759
Savings accounts		217,220		222,862
Time deposits		362,992		360,575
Total interest-bearing deposits		2,021,048		2,232,934
Total deposits		2,708,320		2,763,216

Securities sold under agreements to repurchase - short term		9,886		9,962
FHLB advances		125,000		100,000
Junior subordinated debt - long term		9,769		9,731
Senior subordinated notes - long term		85,472		85,297
Operating lease liabilities		6,044		6,498
Other liabilities		20,863		20,768
Total liabilities		2,965,354		2,995,472

Commitments and contingencies (See Note 10)

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		—		—
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,650,239 and 24,574,619 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		246		245
Additional paid in capital		312,356		311,127
Retained earnings		106,666		99,397
Accumulated other comprehensive income (loss)		(27,460)		1,112
Total stockholders' equity		391,808		411,881
Total liabilities and stockholders' equity	$	3,357,162	$	3,407,353

* Derived from audited consolidated financial statements

See accompanying notes to unaudited consolidated financial statements.

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

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and dividend income:

Interest and fees on loans	$	30,523	$	26,181	$	81,637	$	80,320
Interest and dividends on taxable securities		1,417		968		4,082		2,846
Interest and dividends on tax exempt securities		101		115		311		352
Interest and dividends on other earning assets		555		537		1,409		1,222
Total interest and dividend income		32,596		27,801		87,439		84,740
Interest expense:
Interest on deposits		3,287		3,160		7,971		10,365
Interest on borrowings		1,859		1,434		4,558		4,413
Total interest expense		5,146		4,594		12,529		14,778
Net interest income		27,450		23,207		74,910		69,962
Provision for (recovery of) credit losses		2,890		1,085		3,411		(4,502)
Net interest income after provision for (recovery of) credit losses		24,560		22,122		71,499		74,464

Noninterest income:
Account maintenance and deposit service fees		1,525		1,509		4,318		4,759
Income from bank-owned life insurance		394		387		1,147		1,152
Mortgage banking income		2,197		—		2,790		—
Other noninterest income		1,504		455		2,085		1,207
Total noninterest income		5,620		2,351		10,340		7,118

Noninterest expenses:
Salaries and benefits		12,594		9,032		32,792		27,214
Occupancy expenses		1,402		1,552		4,277		4,538
Furniture and equipment expenses		1,455		971		3,683		2,651
Amortization of intangible assets		326		341		1,008		1,023
Virginia franchise tax expense		813		732		2,440		2,166
Data processing expense		1,528		1,003		4,311		2,818
Telephone and communication expense		342		415		1,090		1,351
Net (gain) loss on other real estate owned		—		—		(59)		17
Loss on bank premises and equipment		64		—		684		—
Professional fees		1,261		874		3,182		3,099
Other operating expenses		3,976		1,640		9,770		6,901
Total noninterest expenses		23,761		16,560		63,178		51,778
Income from continuing operations before income taxes		6,419		7,913		18,661		29,804
Income tax expense		1,365		1,702		4,005		6,438
Income from continuing operations		5,054		6,211		14,656		23,366
Income (loss) from discontinued operation before income taxes		—		(2,899)		—		294
Income tax expense (benefit)		—		(627)		—		63
Income (loss) from discontinued operation		—		(2,272)		—		231
Net income	$	5,054	$	3,939	$	14,656	$	23,597
Other comprehensive income (loss):
Unrealized loss on available-for-sale securities	$	(12,068)	$	(104)	$	(36,167)	$	(602)
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale		—		—		—		189
Net unrealized gain (loss)		(12,068)		(104)		(36,167)		(413)
Tax (benefit) expense		(2,534)		(22)		(7,595)		(87)
Other comprehensive income (loss)		(9,534)		(82)		(28,572)		(326)
Comprehensive income (loss)	$	(4,480)	$	3,857	$	(13,916)	$	23,271
Earnings per share from continuing operations, basic	$	0.21	$	0.25	$	0.60	$	0.96
Earnings per share from discontinued operation, basic	$	0.00	$	(0.09)	$	0.00	$	0.01
Earnings per share from continuing operations, diluted	$	0.20	$	0.25	$	0.59	$	0.95
Earnings per share from discontinued operation, diluted	$	0.00	$	(0.09)	$	0.00	$	0.01

See accompanying notes to unaudited consolidated financial statements.

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PRIMIS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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


	For the Three Months Ended September 30, 2022
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income (loss)		Total
Balance - June 30, 2022	$	246	$	312,240	$	104,077	$	(17,926)	$	398,637
Net income		—		—		5,054		—		5,054
Changes in other comprehensive loss on investment securities (net of tax benefit, $2,534)		—		—		—		(9,534)		(9,534)
Dividends on common stock ($0.10 per share)		—		—		(2,465)		—		(2,465)
Stock-based compensation expense		—		116		—		—		116
Balance - September 30, 2022	$	246	$	312,356	$	106,666	$	(27,460)	$	391,808

	For the Three Months Ended September 30, 2021
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income		Total
Balance June 30, 2021	$	245	$	310,735	$	92,719	$	3,241	$	406,940
Net income		—		—		3,939		—		3,939
Changes in other comprehensive loss on investment securities (net of tax benefit, $22)		—		—		—		(82)		(82)
Dividends on common stock ($0.10 per share)		—		—		(2,454)		—		(2,454)
Issuance of common stock under Stock Incentive Plan		—		202		—		—		202
Stock-based compensation expense		—		84		—		—		84
Balance - September 30, 2021	$	245	$	311,021	$	94,204	$	3,159	$	408,629

See accompanying notes to unaudited consolidated financial statements.

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PRIMIS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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


	For the Nine Months Ended September 30, 2022
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income (Loss)		Total
Balance - December 31, 2021	$	245	$	311,127	$	99,397	$	1,112	$	411,881
Net income		—		—		14,656		—		14,656
Changes in other comprehensive loss on investment securities (net of tax benefit, $7,595)		—		—		—		(28,572)		(28,572)
Dividends on common stock ($0.30 per share)		—		—		(7,387)		—		(7,387)
Stock option exercises		1		278		—		—		279
Repurchase of restricted stock		—		(8)		—		—		(8)
Stock-based compensation expense		—		959		—		—		959
Balance - September 30, 2022	$	246	$	312,356	$	106,666	$	(27,460)	$	391,808

	For the Nine Months Ended September 30, 2021
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income		Total
Balance - December 31, 2020	$	243	$	308,870	$	77,956	$	3,485	$	390,554
Net income		—		—		23,597		—		23,597
Changes in other comprehensive income on investment securities (net of tax benefit, $87)		—		—		—		(326)		(326)
Dividends on common stock ($0.30 per share)		—		—		(7,349)		—		(7,349)
Stock option exercises		2		1,524		—		—		1,526
Repurchase of restricted stock		—		(14)		—		—		(14)
Stock-based compensation expense		—		641		—		—		641
Balance - September 30, 2021	$	245	$	311,021	$	94,204	$	3,159	$	408,629

See accompanying notes to unaudited consolidated financial statements.

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

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


	For the Nine Months Ended September 30,
	2022		2021
Operating activities:
Net income from continuing operations	$	14,656	$	23,366
Adjustments to reconcile net income from continuing operations to net cash and cash equivalents provided by operating activities:
Depreciation and amortization		4,941		4,702
Net amortization (accretion) of premiums and discounts		505		(227)
Provision for (recovery of) for credit losses		3,411		(4,502)
Origination of loans held for sale		(90,021)		—
Proceeds from sale of loans held for sale		97,326		—
Loss on bank premises and equipment		684		—
Net gains on sale of mortgage loans		(2,790)		—
Earnings on bank-owned life insurance and gain on death benefit		(1,147)		(1,146)
Stock-based compensation expense		959		641
Gain on bank-owned life insurance death benefit		—		(6)
(Gain) loss on other real estate owned		(59)		17
Provision (benefit) for deferred income taxes		(700)		1,161
Net (increase) decrease in other assets		(1,732)		2,098
Net decrease in other liabilities		(2,884)		(3,624)
Net cash and cash equivalents provided by operating activities from continuing operations		23,149		22,480
Investing activities:
Purchases of securities available-for-sale		(32,486)		(84,959)
Proceeds from paydowns, maturities and calls of securities available-for-sale		27,650		29,693
Proceeds from paydowns, maturities and calls of securities held-to-maturity		8,478		14,269
Net (increase) decrease of FRB and FHLB stock		(1,168)		1,406
Net (increase) decrease in loans		(396,983)		125,836
Proceeds from bank-owned life insurance death benefit		352		224
Proceeds from sales of other real estate owned, net of improvements		181		1,901
Purchases of bank premises and equipment		(706)		(2,133)
Business acquisition, net of cash acquired		(4,554)		—
Net cash and cash equivalents (used in) provided by investing activities from continuing operations		(399,236)		86,237
Financing activities:
Net (decrease) increase in deposits		(54,896)		374,461
Cash dividends paid on common stock		(7,387)		(7,349)
Proceeds from exercised stock options		279		1,526
Repurchase of restricted stock		(8)		(14)
Extinguishment of senior subordinated notes		—		(20,000)
Proceeds from FHLB advances, net of repayments		25,000		—
Repayment of short-term borrowings acquired		(19,254)		—
Increase decrease in securities sold under agreements to repurchase		(76)		(2,717)
Net cash and cash equivalents (used in) provided by financing activities from continuing operations		(56,342)		345,907
Net change in cash and cash equivalents from continuing operations		(432,429)		454,624

Cash flows used in discontinued operation:
Net cash and cash equivalents used in operating activities		—		(63)
Net change in cash and cash equivalents from discontinued operation		—		(63)

Net change in cash and cash equivalents		(432,429)		454,561
Cash and cash equivalents at beginning of period		530,167		196,185
Cash and cash equivalents at end of period	$	97,738	$	650,746
Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	12,286	$	16,710
Income taxes		3,035		6,146

See accompanying notes to unaudited consolidated financial statements.

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PRIMIS FINANCIAL CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2022

1. ACCOUNTING POLICIES

At September 30, 2022, 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 administrative offices in Warrenton, Virginia and Glen Allen, Virginia. Our deposits are insured, up to applicable limits, by the Federal Deposit Insurance Corporation (the “FDIC”).

Primis offers a wide range of commercial banking services; however, we are focused on making loans secured primarily by commercial real estate and other types of secured and unsecured commercial loans to small and medium-sized businesses in a number of industries, as well as loans to individuals for a variety of purposes, including home equity lines of credit. We are a Small Business Administration (“SBA”) lender with Preferred Lending Partner (“PLP”) status that allows us to offer this program nationwide. We also invest in real estate-related securities, including collateralized mortgage obligations and agency mortgage backed securities. Our principal sources of funds for loans and investing in securities are deposits and, to a lesser extent, borrowings. We offer a broad range of deposit products, including checking, NOW, savings, and money market accounts and certificates of deposit, supporting the needs of businesses and individuals. We actively pursue business relationships by utilizing the business contacts of our senior management, other bank officers and our directors, thereby capitalizing on our knowledge of our local market areas.

Principles of Consolidation

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

On April 28, 2022, Primis Bank entered into a definitive agreement to acquire 100% of the issued and outstanding capital stock of SeaTrust Mortgage Company (“SeaTrust”), a North Carolina corporation. On May 31, 2022, Primis Bank completed the acquisition (the “Acquisition”) of 100% of the outstanding capital stock of SeaTrust from Community First Bank, Inc. (the “Seller”) pursuant to the Stock Purchase Agreement, dated as of April 28, 2022 (the “Purchase Agreement”) by and among the Bank, Seller, and SeaTrust. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022. Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to Primis Mortgage Company (“Primis Mortgage”). Primis Mortgage originates mortgages primarily in North and South Carolina, Florida and Tennessee from eight offices. Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3 million of SeaTrust’s indebtedness under certain warehouse lending facilities.

Discontinued Operation

Primis Bank had an interest in one mortgage company, Southern Trust Mortgage, LLC (“STM”). Prior to December 31, 2021, Primis Bank owned 43.28% and 100% of STM’s common and preferred stock, respectively, and STM was considered an unconsolidated affiliate of the Company. On September 23, 2021, Primis Bank entered into an agreement

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with STM, whereby STM agreed to purchase all of the Bank's common membership interests and a portion of the Bank's preferred interests in STM for a combination of $1.6 million in cash and the assumption of a promissory note in the amount of $8.5 million. The transaction closed on December 31, 2021. Upon closing, STM continued to be a borrower of the Bank, but the Bank is no longer a minority owner of STM and STM is no longer considered an affiliate of the Company. The Company still holds 100% of STM’s preferred stock at September 30, 2022 but no longer has a position on STM’s board of directors and STM no longer represents a reportable operating segment of the Company.

Operating Segments

The Company, through its Bank subsidiary, provides a broad range of financial services. While the Company’s decision makers monitor the revenue streams of the various financial products and services, operations are managed and financial performance is evaluated on an organization-wide basis. Accordingly, the Company’s banking and finance operations are not considered by management to constitute more than one reportable operating segment.

Basis of Presentation

The unaudited consolidated financial statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in Primis’ Annual Report on Form 10-K for the year ended December 31, 2021.

Loans Held for Sale

Loans held for sale are originated and held until sold to permanent investors. The Company has elected to carry these loans at fair value on a recurring basis in accordance with the fair value option under FASB ASC 825, Financial Instruments. The fair value is determined by utilizing quoted prices from dealers in such securities. Gains and losses on loan sales are recorded in mortgage banking income and direct loan origination costs are included in noninterest expense in the consolidated statements of income.

Assets Held for Sale

The Company classifies its assets as held for sale in accordance with FASB ASC 360, Property, Plant, and Equipment. When assets are identified as held for sale, the Company discontinues depreciating (amortizing) the assets and estimates the fair value, net of selling costs, of such assets. Assets held for sale is recorded at the lower of the net carrying amount of the assets or the estimated net fair value. If the estimated net fair value of the assets held for sale is less than the net carrying amount of the assets, an impairment charge is recorded in the condensed consolidated statements of income.

The Company assesses the net fair value of assets held for sale each reporting period the assets remain classified as held for sale. Subsequent changes, if any, in the net fair value of the assets held for sale that require an adjustment to the carrying amount are recorded in the condensed consolidated statements of income, unless the adjustment causes the carrying amount of the assets to exceed the net carrying amount upon initial classification as held for sale.

If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell assets previously classified as held for sale, they are reclassified to another classification. Assets that are reclassified are measured at the lower of (a) their carrying amount before they were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the assets remained in their previous classification, or (b) their fair value at the date of the subsequent decision not to sell.

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Derivative Assets and Liabilities

Derivative assets and liabilities are recorded at fair value.

Mortgage loan commitments known as interest rate lock commitments that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments under the derivatives accounting guidance FASB ASC 815, Derivatives and Hedging. Loan commitments that are classified as derivatives are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income.

To-be-announced mortgage-backed securities trades (“TBA”) is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from interest rate lock commitments. TBAs are accounted for under the derivatives accounting guidance FASB ASC 815, Derivatives and Hedging when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value on the consolidated balance sheets as other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.

Forward loan sale commitments are commitments to sell individual mortgage loans using both best efforts and mandatory delivery at a fixed price to an investor at a future date. Forward loan sale commitments that are mandatory delivery are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle the derivative financial instrument at the balance sheet date. Forward loan sale commitments that are best efforts are not derivatives but can be and have been accounted for at fair value, determined in a similar manner to those that are mandatory delivery. Forward loan sale commitments are recorded on the consolidated balance sheets as other assets and other liabilities with changes in their fair values recorded in mortgage banking income in the consolidated statements of income.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Estimates that are particularly susceptible to change in the near term include: the determination of the allowance for credit losses, the fair value of investment securities, credit impairment of investment securities, the valuation of goodwill and deferred tax assets.

Reclassifications

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or net income.

Recent Accounting Pronouncements

New Accounting Standards Not Yet Adopted:

In March 2022, FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amends the

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guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under Accounting Standards Codification (“ASC”) 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods. Early adoption is permitted. Primis is currently in the process of evaluating the impact of adopting the new guidance on its consolidated financial statements and disclosures.

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2. BUSINESS COMBINATION

On April 28, 2022, Primis Bank entered into a definitive agreement to acquire 100% of the issued and outstanding capital stock of SeaTrust. On May 31, 2022, Primis Bank completed the acquisition of 100% of the outstanding capital stock of SeaTrust from the Seller, pursuant to the Purchase Agreement. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022.

Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3 million of SeaTrust’s indebtedness under certain warehouse lending facilities.

Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to Primis Mortgage Company.

In connection with the SeaTrust acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, the subsequent adjustments to estimates, the final valuation of the fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, and the resulting goodwill recorded (in thousands):


	Original		Adjustments		Final
(dollars in thousands)	Estimates		to Estimates		Valuation
Consideration paid:
Cash	$	7,000	$	—	$	7,000
Value of consideration	$	7,000	$	—	$	7,000

Assets acquired:
Cash and due from banks	$	2,446	$	—	$	2,446
Mortgage loans held for sale		20,452		—		20,452
Premises and equipment, net		124		—		124
Leases right-of-use asset		42		—		42
Derivative assets		1,199		—		1,199
Other intangibles		—		135		135
Deferred tax asset, net		26		—		26
Other assets		93		—		93
Total assets		24,382		135		24,517

Liabilities assumed:
Short term borrowings		19,254		—		19,254
Leases liability		42		—		42
Derivative liabilities		221		—		221
Other liabilities		655		—		655
Total liabilities		20,172		—		20,172

Net identifiable assets acquired	$	4,210	$	135	$	4,345

Goodwill resulting from acquisition					$	2,655

The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2021. The unaudited combined pro forma revenue and net income combines the historical results of SeaTrust with the Company's consolidated statements of operations for the periods listed below and, while no material adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they

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are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2021. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Total revenues	$	38,216	$	33,241	$	102,747	$	99,200

Net income	$	5,054	$	4,419	$	14,702	$	24,382

Included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2022 are $2.2 million and $2.8 million, respectively, of mortgage banking income related to Primis Mortgage since its acquisition on May 31, 2022.

3. 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
	Cost		Gains		Losses		Value
September 30, 2022
Residential government-sponsored mortgage-backed securities	$	124,407	$	1	$	(18,129)	$	106,279
Obligations of states and political subdivisions		34,179		1		(5,425)		28,755
Corporate securities		16,000		—		(1,146)		14,854
Collateralized loan obligations		5,023		—		(220)		4,803
Residential government-sponsored collateralized mortgage obligations		25,064		—		(2,021)		23,043
Government-sponsored agency securities		17,707		—		(3,022)		14,685
Agency commercial mortgage-backed securities		44,833		—		(4,733)		40,100
SBA pool securities		6,437		18		(83)		6,372
Total	$	273,650	$	20	$	(34,779)	$	238,891


	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
December 31, 2021
Residential government-sponsored mortgage-backed securities	$	122,506	$	740	$	(636)	$	122,610
Obligations of states and political subdivisions		30,728		755		(252)		31,231
Corporate securities		13,000		685		—		13,685
Collateralized loan obligations		5,026		—		(16)		5,010
Residential government-sponsored collateralized mortgage obligations		19,671		297		(161)		19,807
Government-sponsored agency securities		17,671		32		(215)		17,488
Agency commercial mortgage-backed securities		52,452		513		(298)		52,667
SBA pool securities		8,870		48		(84)		8,834
Total	$	269,924	$	3,070	$	(1,662)	$	271,332

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


	Amortized		Gross Unrecognized				Allowance for		Fair
	Cost		Gains		Losses		Credit Losses		Value
September 30, 2022
Residential government-sponsored mortgage-backed securities	$	10,953	$	—	$	(1,183)	$	—	$	9,770
Obligations of states and political subdivisions		3,120		—		(100)		—		3,020
Residential government-sponsored collateralized mortgage obligations		318		—		(23)		—		295
Total	$	14,391	$	—	$	(1,306)	$	—	$	13,085


	Amortized		Gross Unrecognized				Allowance for		Fair
	Cost		Gains		Losses		Credit Losses		Value
December 31, 2021
Residential government-sponsored mortgage-backed securities	$	13,616	$	296	$	(1)	$	—	$	13,911
Obligations of states and political subdivisions		3,805		93		—		—		3,898
Residential government-sponsored collateralized mortgage obligations		519		13		—		—		532
Government-sponsored agency securities		5,000		23		—		—		5,023
Total	$	22,940	$	425	$	(1)	$	—	$	23,364

During the three months ended September 30, 2022 and 2021, $4.9 million and $16.5 million, respectively, of available-for-sale investment securities were purchased. No held-to-maturity investments were purchased during the three months ended September 30, 2022 and 2021. No investment securities were sold during the three months ended September 30, 2022 and 2021.

During the nine months ended September 30, 2022 and 2021, $32.5 million and $85.0 million, respectively, of available-for-sale investment securities were purchased. No held-to-maturity investments were purchased during the nine months ended September 30, 2022 and 2021. No investment securities were sold during the nine months ended September 30, 2022 and 2021.

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of September 30, 2022, by contractual maturity were as follows (in thousands). Investment securities not due at a single maturity date are shown separately.


	Available-for-Sale				Held-to-Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due within one year	$	1,500	$	1,480	$	400		400
Due in one to five years		10,015		9,086		867		855
Due in five to ten years		29,222		25,912		1,519		1,429
Due after ten years		32,172		26,619		334		336
Residential government-sponsored mortgage-backed securities		124,407		106,279		10,953		9,770
Residential government-sponsored collateralized mortgage obligations		25,064		23,043		318		295
Agency commercial mortgage-backed securities		44,833		40,100		—		—
SBA pool securities		6,437		6,372		—		—
Total	$	273,650	$	238,891	$	14,391	$	13,085

Investment securities with a carrying amount of approximately $102.7 million and $180.7 million at September 30, 2022 and December 31, 2021, 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

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current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities and (iv) internal forecasts. As of September 30, 2022, Primis did not have any allowance for credit losses on held-to-maturity securities.

The unrealized losses related to investment securities available-for-sale identified as of September 30, 2022, or December 31, 2021, relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. Primis performs quantitative analysis and if needed, a qualitative analysis in this determination. As a result, none of the securities were deemed to require an allowance for credit losses. 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 September 30, 2022 and December 31, 2021 by duration of time in a loss position (in thousands):


	Less than 12 months				12 Months or More				Total
September 30, 2022	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	64,600	$	(9,940)	$	41,366	$	(8,189)	$	105,966	$	(18,129)
Obligations of states and political subdivisions		18,212		(2,865)		9,542		(2,560)		27,754		(5,425)
Corporate securities		14,854		(1,146)		—		—		14,854		(1,146)
Collateralized loan obligations		—		—		4,803		(220)		4,803		(220)
Residential government-sponsored collateralized mortgage obligations		18,984		(1,348)		4,059		(673)		23,043		(2,021)
Government-sponsored agency securities		7,547		(810)		7,138		(2,212)		14,685		(3,022)
Agency commercial mortgage-backed securities		22,072		(1,528)		18,028		(3,205)		40,100		(4,733)
SBA pool securities		533		(34)		3,521		(49)		4,054		(83)
Total	$	146,802	$	(17,671)	$	88,457	$	(17,108)	$	235,259	$	(34,779)


	Less than 12 months				12 Months or More				Total
September 30, 2022	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Held-to-Maturity	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	9,699	$	(1,178)	$	70	$	(5)	$	9,769	$	(1,183)
Obligations of states and political subdivisions		2,285		(100)		—		—		2,285		(100)
Residential government-sponsored collateralized mortgage obligations		295		(23)		—		—		295		(23)
Total	$	12,279	$	(1,301)	$	70	$	(5)	$	12,349	$	(1,306)

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	Less than 12 months				12 Months or More				Total
December 31, 2021	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	84,123	$	(636)	$	—	$	—	$	84,123	$	(636)
Obligations of states and political subdivisions		14,472		(252)		—		—		14,472		(252)
Collateralized loan obligations		5,010		(16)		—		—		5,010		(16)
Residential government-sponsored collateralized mortgage obligations		5,589		(161)		—		—		5,589		(161)
Government-sponsored agency securities		15,956		(215)		—		—		15,956		(215)
Agency commercial mortgage-backed securities		20,786		(194)		2,027		(104)		22,813		(298)
SBA pool securities		—		—		4,544		(84)		4,544		(84)
Total	$	145,936	$	(1,474)	$	6,571	$	(188)	$	152,507	$	(1,662)


	Less than 12 months				12 Months or More				Total
December 31, 2021	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Held-to-Maturity	value		Losses		value		Losses		value		Losses
Residential government-sponsored mortgage-backed securities	$	—	$	—	$	324	$	(1)	$	324	$	(1)
Total	$	—	$	—	$	324	$	(1)	$	324	$	(1)

Changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2022 and 2021 are shown in the tables below. All amounts are net of tax (in thousands).


	Unrealized Holding
	Gains (Losses) on		Held-to-Maturity
For the three months ended September 30, 2022	Available-for-Sale		Securities		Total
Beginning balance	$	(17,926)	$	—	$	(17,926)
Current period other comprehensive income (loss)		(9,534)		—		(9,534)
Ending balance	$	(27,460)	$	—	$	(27,460)


	Unrealized Holding
	Gains on		Held-to-Maturity
For the three months ended September 30, 2021	Available-for-Sale		Securities		Total
Beginning balance	$	3,243		(2)	$	3,241
Current period other comprehensive income (loss)		(82)		—		(82)
Ending balance	$	3,161	$	(2)	$	3,159


	Unrealized Holding
	Gains (Losses) on		Held-to-Maturity
For the nine months ended September 30, 2022	Available-for-Sale		Securities		Total
Beginning balance	$	1,112	$	—	$	1,112
Current period other comprehensive income (loss)		(28,572)		—		(28,572)
Ending balance	$	(27,460)	$	—	$	(27,460)


	Unrealized Holding
	Gains (Losses) on		Held-to-Maturity
For the nine months ended September 30, 2021	Available-for-Sale		Securities		Total
Beginning balance	$	3,636	$	(151)	$	3,485
Current period other comprehensive income (loss)		(475)		149		(326)
Ending balance	$	3,161	$	(2)	$	3,159

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4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the composition of our loan portfolio as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Loans held for sale	$	13,388	$	—
Loans held for investment
Loans secured by real estate:
Commercial real estate - owner occupied	$	436,354	$	387,703
Commercial real estate - non-owner occupied		572,279		588,000
Secured by farmland		7,514		8,612
Construction and land development		138,297		121,444
Residential 1-4 family		615,529		547,560
Multi-family residential		137,253		164,071
Home equity lines of credit		65,852		73,846
Total real estate loans		1,973,078		1,891,236

Commercial loans		469,618		301,980
Paycheck Protection Program loans		8,014		77,319
Consumer loans		279,678		60,996
Total Non-PCD loans		2,730,388		2,331,531
PCD loans		6,698		8,455
Total loans	$	2,737,086	$	2,339,986

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

Accrued Interest Receivable

Accrued interest receivable on loans totaled $9.1 million and $10.8 million at September 30, 2022 and December 31, 2021, respectively, and is included in other assets in the consolidated balance sheets.

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least nine months) of repayment performance by the borrower.

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


	30 - 59		60 - 89		90
	Days		Days		Days		Total		Loans Not		Total
September 30, 2022	Past Due		Past Due		or More		Past Due		Past Due		Loans
Commercial real estate - owner occupied	$	116	$	—	$	—	$	116	$	436,238	$	436,354
Commercial real estate - non-owner occupied		24		3,255		21,413		24,692		547,587		572,279
Secured by farmland		—		—		625		625		6,889		7,514
Construction and land development		30		—		—		30		138,267		138,297
Residential 1-4 family		770		386		120		1,276		614,253		615,529
Multi- family residential		—		—		—		—		137,253		137,253
Home equity lines of credit		360		98		195		653		65,199		65,852
Commercial loans		—		5		2,956		2,961		466,657		469,618
Paycheck Protection Program loans		2,289		1,263		1,855		5,407		2,607		8,014
Consumer loans		1,073		616		272		1,961		277,717		279,678
Total Non-PCD loans		4,662		5,623		27,436		37,721		2,692,667		2,730,388
PCD loans		—		—		1,328		1,328		5,370		6,698
Total	$	4,662	$	5,623	$	28,764	$	39,049	$	2,698,037	$	2,737,086


	30 - 59		60 - 89		90
	Days		Days		Days		Total		Loans Not		Total
December 31, 2021	Past Due		Past Due		or More		Past Due		Past Due		Loans
Commercial real estate - owner occupied	$	194	$	346	$	—	$	540	$	387,163	$	387,703
Commercial real estate - non-owner occupied		—		—		—		—		588,000		588,000
Secured by farmland		791		—		—		791		7,821		8,612
Construction and land development		204		131		4,575		4,910		116,534		121,444
Residential 1-4 family		9,384		254		137		9,775		537,785		547,560
Multi- family residential		—		—		—		—		164,071		164,071
Home equity lines of credit		331		—		171		502		73,344		73,846
Commercial loans		387		—		1,246		1,633		300,347		301,980
Paycheck Protection Program loans		4,954		8,559		283		13,796		63,523		77,319
Consumer loans		193		130		2		325		60,671		60,996
Total Non-PCD loans		16,438		9,420		6,414		32,272		2,299,259		2,331,531
PCD loans		1,717		—		—		1,717		6,738		8,455
Total	$	18,155	$	9,420	$	6,414	$	33,989	$	2,305,997	$	2,339,986

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The amortized cost, by class, of loans and leases on nonaccrual status at September 30, 2022 and December 31, 2021, were as follows (in thousands):


	90			Less Than	Total		Nonaccrual With
	Days			90 Days	Nonaccrual		No Credit
September 30, 2022	or More			Past Due	Loans ⁽¹⁾		Loss Allowance ⁽²⁾
Commercial real estate - owner occupied	$	—	$	458	$	458	$	455
Commercial real estate - non-owner occupied		21,413		—		21,413		21,501
Secured by farmland		625		204		829		798
Construction and land development		—		30		30		30
Residential 1-4 family		120		8,786		8,906		8,792
Home equity lines of credit		195		308		503		519
Commercial loans		2,956		155		3,111		150
Consumer loans		272		1		273		270
Total Non-PCD loans		25,581		9,942		35,523		32,515
PCD loans		1,328		—		1,328		1,297
Total	$	26,909	$	9,942	$	36,851	$	33,812

	90			Less Than	Total		Nonaccrual With
	Days			90 Days	Nonaccrual		No Credit
December 31, 2021	or More			Past Due	Loans ⁽¹⁾		Loss Allowance ⁽²⁾
Commercial real estate - owner occupied	$	—	$	842	$	842	$	842
Secured by farmland		—		836		836		836
Construction and land development		4,575		34		4,609		4,609
Residential 1-4 family		137		411		548		548
Multi- family residential		—		4,301		4,301		4,301
Home equity lines of credit		171		253		424		424
Commercial loans		1,246		476		1,722		745
Consumer loans		2		16		18		10
Total Non-PCD loans		6,131		7,169		13,300		12,315
PCD loans		—		1,729		1,729		—
Total	$	6,131	$	8,898	$	15,029	$	12,315

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

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

There were $1.9 million and $0.3 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing at September 30, 2022 and December 31, 2021, respectively.

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The following table presents nonaccrual loans as of September 30, 2022 by class and year of origination (in thousands):



															Revolving
															Loans
													Revolving		Converted
	2022		2021		2020		2019		2018		Prior		Loans		To Term		Total
Commercial real estate - owner occupied	$	—	$	—	$	—	$	—	$	—	$	458	$		$	—	$	458
Commercial real estate - non-owner occupied		—		—				—		14,113		7,300		—		—		21,413
Secured by farmland		—		—		—		16		—		813		—		—		829
Construction and land development		—		—		—		—		—		30		—		—		30
Residential 1-4 family		—		—		—		8,234		—		416		—		256		8,906
Multi- family residential		—		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		481		22		503
Commercial loans		—		—		6		—		—		1,515		1,590		—		3,111
Paycheck Protection Program loans		—		—		—		—		—		—		—		—		—
Consumer loans		—		272		—		—		—		1		—		—		273
Total non-PCD nonaccruals		—		272		6		8,250		14,113		10,533		2,071		278		35,523
PCD loans		—		—		—		—		—		1,328		—		—		1,328
Total nonaccrual loans	$	—	$	272	$	6	$	8,250	$	14,113	$	11,861	$	2,071	$	278	$	36,851

Interest received on nonaccrual loans was $0.6 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.9 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Troubled Debt Restructurings

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

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

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As of September 30, 2022, there were 14 TDR loans outstanding in the amount of $3.2 million primarily due to the economic impact of COVID-19 on certain of the Bank’s borrowers. There have been no defaults of TDRs modified during the past twelve months.

Credit Quality Indicators

Through its system of internal controls, Primis evaluates and segments loan portfolio credit quality using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified.

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

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

Doubtful loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Primis had no loans classified Doubtful at September 30, 2022 or December 31, 2021.

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.

Table of Contents

The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of September 30, 2022 (in thousands):


															Revolving
															Loans
														Revolving	Converted
	2022		2021		2020		2019		2018		Prior		Loans		To Term		Total
Commercial real estate - owner occupied
Pass	$	68,378	$	61,605	$	19,526	$	22,472	$	27,680	$	215,097	$	10,893	$	6,789	$	432,440
Special Mention		—		—		—		—		—		1,007		—		—		1,007
Substandard		—		—		—		—		—		2,907		—		—		2,907
Doubtful		—		—		—		—		—		—		—		—		—
	$	68,378	$	61,605	$	19,526	$	22,472	$	27,680	$	219,011	$	10,893	$	6,789	$	436,354
Weighted average risk grade		3.15		3.48		3.38		3.26		3.43		3.52		3.18		3.96		3.43
Commercial real estate - nonowner occupied
Pass	$	23,807	$	122,557	$	37,279	$	41,826	$	56,016	$	227,360	$	4,452	$	3,083	$	516,380
Special Mention		—		—		—		—		926		29,706		—		601		31,233
Substandard		—		—		—		—		14,113		10,553		—		—		24,666
Doubtful		—		—		—		—		—		—		—		—		—
	$	23,807	$	122,557	$	37,279	$	41,826	$	71,055	$	267,619	$	4,452	$	3,684	$	572,279
Weighted average risk grade		3.25		3.17		3.69		3.95		4.04		3.87		2.92		3.33		3.70
Secured by farmland
Pass	$	451	$	21	$	53	$	—	$	—	$	3,553	$	1,578	$	90	$	5,746
Special Mention		—		—		—		—		—		820		—		119		939
Substandard		—		—		—		16		—		813		—		—		829
Doubtful		—		—		—		—		—		—		—		—		—
	$	451	$	21	$	53	$	16	$	—	$	5,186	$	1,578	$	209	$	7,514
Weighted average risk grade		4.00		4.00		4.00		6.00		N/A		4.19		3.98		3.71		4.12
Construction and land development
Pass	$	32,207	$	67,234	$	9,172	$	2,317	$	6,960	$	19,521	$	835	$	21	$	138,267
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		30		—		—		30
Doubtful		—		—		—		—		—		—		—		—		—
	$	32,207	$	67,234	$	9,172	$	2,317	$	6,960	$	19,551	$	835	$	21	$	138,297
Weighted average risk grade		3.28		3.09		3.96		3.47		3.17		3.68		3.36		4.00		3.29
Residential 1-4 family
Pass	$	144,981	$	156,300	$	43,922	$	64,739	$	41,806	$	148,151	$	2,023	$	3,438	$	605,360
Special Mention		—		—		425		—		—		—		—		—		425
Substandard		—		—		—		8,235		—		1,058		—		451		9,744
Doubtful		—		—		—		—		—		—		—		—		—
	$	144,981	$	156,300	$	44,347	$	72,974	$	41,806	$	149,209	$	2,023	$	3,889	$	615,529
Weighted average risk grade		3.08		3.04		3.09		3.40		3.12		3.23		3.90		3.37		3.15
Multi- family residential
Pass	$	5,045	$	22,059	$	18,473	$	7,101	$	1,819	$	76,047	$	5,001	$	690	$	136,235
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		721		—		297		1,018
Doubtful		—		—		—		—		—		—		—		—		—
	$	5,045	$	22,059	$	18,473	$	7,101	$	1,819	$	76,768	$	5,001	$	987	$	137,253
Weighted average risk grade		3.43		3.00		3.90		3.00		3.21		3.31		4.00		4.60		3.36
Home equity lines of credit
Pass	$	249	$	506	$	54	$	68	$	230	$	4,353	$	58,741	$	822	$	65,023
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		807		22		829
Doubtful		—		—		—		—		—		—		—		—		—
	$	249	$	506	$	54	$	68	$	230	$	4,353	$	59,548	$	844	$	65,852
Weighted average risk grade		3.00		3.00		3.00		3.00		3.00		3.86		3.07		4.05		3.13
Commercial loans
Pass	$	231,370	$	66,762	$	8,911	$	7,714	$	9,611	$	22,648	$	95,503	$	21,386	$	463,905
Special Mention		—		—		—		—		—		—		—		402		402
Substandard		—		—		6		1,997		—		1,718		1,590		—		5,311
Doubtful		—		—		—		—		—		—		—		—		—
	$	231,370	$	66,762	$	8,917	$	9,711	$	9,611	$	24,366	$	97,093	$	21,788	$	469,618
Weighted average risk grade		3.09		3.40		3.38		4.23		3.42		3.71		3.51		3.45		3.31
Paycheck Protection Program loans
Pass	$	—	$	5,312	$	2,702	$	—	$	—	$	—	$	—	$	—	$	8,014
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	5,312	$	2,702	$	—	$	—	$	—	$	—	$	—	$	8,014
Weighted average risk grade		N/A		2.00		2.00		N/A		N/A		N/A		N/A		N/A		2.00

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															Revolving
															Loans
														Revolving	Converted
	2022		2021		2020		2019		2018		Prior		Loans		To Term		Total
Consumer loans
Pass	$	238,776	$	29,571	$	1,638	$	432	$	604	$	4,635	$	3,613	$	—	$	279,269
Special Mention		—		—		—		—		—		66		—		—		66
Substandard		25		317		—		—		—		1		—		—		343
Doubtful		—		—		—		—		—		—		—		—		—
	$	238,801	$	29,888	$	1,638	$	432	$	604	$	4,702	$	3,613	$	—	$	279,678
Weighted average risk grade		3.32		3.80		3.99		3.98		4.00		4.01		3.95		N/A		3.40
PCD
Pass	$	—	$	—	$	—	$	—	$	—	$	3,741	$	—	$	—	$	3,741
Special Mention		—		—		—		—		—		1,338		—		—		1,338
Substandard		—		—		—		—		—		1,619		—		—		1,619
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	6,698	$	—	$	—	$	6,698
Weighted average risk grade		N/A		N/A		N/A		N/A		N/A		4.53		N/A		N/A		4.53
Total	$	745,289	$	532,244	$	142,161	$	156,917	$	159,765	$	777,463	$	185,036	$	38,211	$	2,737,086
Weighted average risk grade		3.18		3.20		3.46		3.56		3.61		3.59		3.36		3.56		3.38

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



															Revolving
															Loans
														Revolving	Converted
	2021		2020		2019		2018		2017		Prior		Loans		To Term		Total
Commercial real estate - owner occupied
Pass	$	58,596	$	18,411	$	35,498	$	28,163	$	45,013	$	187,461	$	3,010	$	6,937	$	383,089
Special Mention		—		—		—		—		140		1,184		—		—		1,324
Substandard		—		—		475		—		—		2,815		—		—		3,290
Doubtful		—				—		—		—		—		—		—		—
	$	58,596	$	18,411	$	35,973	$	28,163	$	45,153	$	191,460	$	3,010	$	6,937	$	387,703
Weighted average risk grade		3.43		3.42		3.47		3.43		3.55		3.53		3.29		3.96		3.51
Commercial real estate - nonowner occupied
Pass	$	107,572	$	55,956		19,816	$	76,076	$	58,883	$	235,676	$	3,668	$	—	$	557,647
Special Mention		—		—		—		—		—		12,097		—		—		12,097
Substandard		—		—		—		—		—		17,655		—		601		18,256
Doubtful		—		—		—		—		—		—		—		—		—
	$	107,572	$	55,956	$	19,816	$	76,076	$	58,883	$	265,428	$	3,668	$	601	$	588,000
Weighted average risk grade		3.05		3.47		3.83		3.45		3.81		3.81		2.94		6.00		3.59
Secured by farmland
Pass	$	320	$	66	$	—	$	—	$	445	$	3,734	$	1,955	$	—	$	6,520
Special Mention		—		—		—		—		852		404		—		—		1,256
Substandard		—		—		24		—		681		—		131		—		836
Doubtful		—		—		—		—		—		—		—		—		—
	$	320	$	66	$	24	$	—	$	1,978	$	4,138	$	2,086	$	—	$	8,612
Weighted average risk grade		3.17		4.00		6.00		N/A		5.04		3.61		4.09		N/A		4.05
Construction and land development
Pass	$	57,320	$	14,003	$	13,360	$	7,061	$	8,414	$	15,664	$	982	$	31	$	116,835
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		4,575		—		—		34		—		—		4,609
Doubtful		—		—		—		—		—		—		—		—		—
	$	57,320	$	14,003	$	17,935	$	7,061	$	8,414	$	15,698	$	982	$	31	$	121,444
Weighted average risk grade		3.15		3.56		4.48		3.26		3.91		3.54		3.31		4.00		3.50
Residential 1-4 family
Pass	$	165,106	$	54,037	$	81,905	$	49,694	$	43,173	$	138,711	$	1,845	$	3,484	$	537,955
Special Mention		—		—		8,514		—		—		—		—		—		8,514
Substandard		—		—		—		—		—		795		—		296		1,091
Doubtful		—		—		—		—		—		—		—		—		—
	$	165,106	$	54,037	$	90,419	$	49,694	$	43,173	$	139,506	$	1,845	$	3,780	$	547,560
Weighted average risk grade		3.04		3.06		3.24		3.13		3.07		3.26		3.98		3.30		3.15
Multi- family residential
Pass	$	37,030	$	18,866	$	7,228	$	6,328	$	36,574	$	42,310	$	5,031	$	—	$	153,367
Special Mention		—		—		—		—		—		5,326		—		—		5,326
Substandard		—		—		—		—		—		5,076		—		302		5,378
Doubtful		—		—		—		—		—		—		—		—		—
	$	37,030	$	18,866	$	7,228	$	6,328	$	36,574	$	52,712	$	5,031	$	302	$	164,071
Weighted average risk grade		3.40		3.90		3.00		3.59		3.00		3.92		4.00		6.00		3.55
Home equity lines of credit
Pass	$	715	$	59	$	75	$	235	$	425	$	4,337	$	67,157	$	143	$	73,146
Special Mention		—		—		—		—		—		—		276		—		276
Substandard		—		—		—		—		—		—		398		26		424
Doubtful		—		—		—		—		—		—		—		—		—
	$	715	$	59	$	75	$	235	$	425	$	4,337	$	67,831	$	169	$	73,846
Weighted average risk grade		3.00		3.00		3.00		3.00		3.77		3.79		3.09		4.31		3.14
Commercial loans
Pass	$	95,085	$	10,415	$	11,923	$	10,648	$	10,522	$	18,284	$	134,302	$	5,338	$	296,517
Special Mention		—		—		—		—		—		—		845		—		845
Substandard		—		9		—		1,508		—		1,938		1,163		—		4,618
Doubtful		—		—		—		—		—		—		—		—		—
	$	95,085	$	10,424	$	11,923	$	12,156	$	10,522	$	20,222	$	136,310	$	5,338	$	301,980
Weighted average risk grade		3.43		3.36		3.79		3.77		2.95		3.96		3.43		3.95		3.48
Paycheck Protection Program loans
Pass	$	56,087	$	21,232	$	—	$	—	$	—	$	—	$	—	$	—	$	77,319
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
	$	56,087	$	21,232	$	—	$	—	$	—	$	—	$	—	$	—	$	77,319
Weighted average risk grade		2.00		2.00		N/A		N/A		N/A		N/A		N/A		N/A		2.00

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															Revolving
															Loans
														Revolving	Converted
	2021		2020		2019		2018		2017		Prior		Loans		To Term		Total
Consumer loans
Pass	$	48,107	$	2,351	$	1,002	$	914	$	237	$	5,766	$	2,519	$	—	$	60,896
Special Mention		—		—		—		—		—		82		—		—		82
Substandard		—		—		—		7		9		2		—		—		18
Doubtful		—		—		—		—		—		—		—		—		—
	$	48,107	$	2,351	$	1,002	$	921	$	246	$	5,850	$	2,519	$	—	$	60,996
Weighted average risk grade		3.55		3.99		3.99		4.02		4.07		4.01		4.00		N/A		3.65
PCD
Pass	$	—	$	—	$	—	$	—	$	—	$	5,145	$	30	$	—	$	5,175
Special Mention		—		—		—		—		—		1,391		—		—		1,391
Substandard		—		—		—		—		1,717		172		—		—		1,889
Doubtful		—		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	1,717	$	6,708	$	30	$	—	$	8,455
Weighted average risk grade		N/A		N/A		N/A		N/A		6.00		4.08		3.00		N/A		4.47
Total	$	625,938	$	195,405	$	184,395	$	180,634	$	207,085	$	706,059	$	223,312	$	17,158	$	2,339,986
Weighted average risk grade		3.12		3.24		3.50		3.38		3.45		3.64		3.35		3.92		3.39

Revolving loans that converted to term during 2022 were as follows (in thousands):


	For the three months ended September 30, 2022		For the nine months ended September 30, 2022
Commercial real estate - owner occupied	$	—	$	3,083
Commercial real estate - non-owner occupied		—		209
Construction and land development		677		1,086
Residential 1-4 family		—		690
Multi- family residential		—		692
Commercial loans		496		16,879
Total loans	$	1,173	$	22,639

The amount of foreclosed residential real estate property held at September 30, 2022 and December 31, 2021 was $0.8 million and $0.9 million, respectively. There were no recorded investments in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure at September 30, 2022 and December 31, 2021.

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 (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction and land development, (iv) commercial, (v) agricultural loans, (vi) residential 1-4 family and (vii) consumer loans. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of inputs: (i) probability of default, (ii) probability of attrition, (iii) loss given default and (iv) exposure at default. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the probability of default input. The various pool-specific inputs may be adjusted for current macroeconomic assumptions. Significant macroeconomic variables utilized in our allowance models include, among other things, (i) VA Gross Domestic Product, (ii) VA House Price Index, and (iii) VA unemployment rates.

Table of Contents

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

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

The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 2022 and December 31, 2021, calculated in accordance with the current expected credit losses (“CECL”) methodology described above (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, 2022	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Modeled expected credit losses	$	4,564	$	6,099	$	7	$	800	$	3,353	$	1,701	$	286	$	4,422	$	3,269	$	—	$	24,501
Q-factor and other qualitative adjustments		269		531		19		340		647		240		19		802		2		—		2,869
Specific allocations		—		—		—		—		—		—		—		2,453		44		2,089		4,586
Total	$	4,833	$	6,630	$	26	$	1,140	$	4,000	$	1,941	$	305	$	7,677	$	3,315	$	2,089	$	31,956

	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, 2021	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Modeled expected credit losses	$	4,281	$	8,020	$	9	$	540	$	3,012	$	1,885	$	273	$	2,154	$	786	$	—	$	20,960
Q-factor and other qualitative adjustments		281		1,008		47		458		576		1,395		164		1,276		—		—		5,205
Specific allocations		—		—		—		—		—		—		—		658		1		2,281		2,940
Total	$	4,562	$	9,028	$	56	$	998	$	3,588	$	3,280	$	437	$	4,088	$	787	$	2,281	$	29,105

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

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Activity in the allowance for credit losses by class of loan for the three months ended September 30, 2022 and 2021 is summarized below (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate				Construction						Home Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
Three Months Ended September 30, 2022	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	4,301	$	7,917	$	49	$	1,024	$	4,272	$	2,160	$	363	$	6,428	$	1,569	$	2,126	$	30,209
Provision (recovery)		532		(1,287)		(23)		116		(273)		(219)		(59)		2,256		1,884		(37)		2,890
Charge offs		—		—		—		—		—		—		—		(1,007)		(146)		—		(1,153)
Recoveries		—		—		—		—		1		—		1		—		8		—		10
Ending balance	$	4,833	$	6,630	$	26	$	1,140	$	4,000	$	1,941	$	305	$	7,677	$	3,315	$	2,089	$	31,956

Three Months Ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	4,769	$	11,235	$	80	$	2,691	$	4,451	$	1,090	$	601	$	3,582	$	428	$	2,338	$	31,265
Provision (recovery)		354		(863)		(22)		(1,295)		(44)		2,266		(100)		537		279		(27)		1,085
Charge offs		(7)		—		—		—		(383)		(1)		—		(1,528)		(53)		—		(1,972)
Recoveries		—		—		—		—		1		—		1		1		5		—		8
Ending balance	$	5,116	$	10,372	$	58	$	1,396	$	4,025	$	3,355	$	502	$	2,592	$	659	$	2,311	$	30,386

Activity in the allowance for credit losses by class of loan for the nine months ended September 30, 2022 and 2021 is summarized below (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate				Construction						Home Equity
	Owner		Non-owner		Secured by		and Land		1-4 Family		Multi-Family		Lines Of		Commercial		Consumer		PCD
Nine Months Ended September 30, 2022	Occupied		Occupied		Farmland		Development		Residential		Residential		Credit		Loans		Loans		Loans		Total
Allowance for credit losses:
Beginning balance	$	4,562	$	9,028	$	56	$	998	$	3,588	$	3,280	$	437	$	4,088	$	787	$	2,281	$	29,105
Provision (recovery)		285		(2,900)		(30)		142		354		(1,339)		(120)		4,426		2,785		(192)		3,411
Charge offs		(14)		—		—		—		—		—		(14)		(1,007)		(277)		—		(1,312)
Recoveries		—		502		—		—		58		—		2		170		20		—		752
Ending balance	$	4,833	$	6,630	$	26	$	1,140	$	4,000	$	1,941	$	305	$	7,677	$	3,315	$	2,089	$	31,956

Nine Months Ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	6,699	$	11,426	$	104	$	1,815	$	9,579	$	1,412	$	901	$	1,498	$	517	$	2,394	$	36,345
Provision (recovery)		(1,407)		(1,054)		(46)		(419)		(5,182)		1,943		(400)		1,930		216		(83)		(4,502)
Charge offs		(176)		—		—		—		(383)		—		—		(1,602)		(107)		—		(2,268)
Recoveries		—		—		—		—		11		—		1		766		33		—		811
Ending balance	$	5,116	$	10,372	$	58	$	1,396	$	4,025	$	3,355	$	502	$	2,592	$	659	$	2,311	$	30,386

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

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


	September 30, 2022				December 31, 2021
	Loan		Specific		Loan		Specific
	Balance ⁽¹⁾		Allocations		Balance ⁽¹⁾		Allocations
Commercial real estate - owner occupied	$	2,800	$	—	$	3,291	$	—
Commercial real estate - non-owner occupied		24,669		—		18,256		—
Secured by farmland		625		—		681		—
Construction and land development		—		—		4,575		—
Residential 1-4 family		9,221		—		541		—
Multi- family residential		1,017		—		5,378		—
Home equity lines of credit		72		—		—		—
Commercial loans		4,982		2,453		3,688		658
Consumer loans		55		44		7		1
Total non-PCD loans		43,441		2,497		36,417		659
PCD loans		6,698		2,089		8,455		2,281
Total loans	$	50,139	$	4,586	$	44,872	$	2,940

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

5. FAIR VALUE

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

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

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

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

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Assets and Liabilities Measured on a Recurring Basis:

Investment Securities Available-for-Sale

Where quoted prices are available in an active market, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include highly liquid government bonds and mortgage products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of investment securities with similar characteristics or discounted cash flow. Level 2 investment securities include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, collateralized loan obligations and other securities. In certain cases where there is limited activity or less transparency around inputs to the

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valuation, investment securities are classified within Level 3 of the valuation hierarchy. Currently, all of Primis’ available-for-sale debt investment securities are considered to be Level 2 investment securities.

Loans Held for Sale

The fair value of loans held for sale is determined by obtaining prices at which they could be sold in the principal market at the measurement date and are classified within Level 2 of the fair value hierarchy. The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities.

Derivative Assets and Liabilities

Interest Rate Lock Commitments (“IRLC”): The Company determines the value of IRLCs by comparing the market price to the price locked in with the customer, adding fees or points to be collected at closing, subtracting commissions to be paid at closing, and subtracting estimated remaining loan origination costs to the bank based on the processing status of the loan. IRLCs are classified within Level 3 of the valuation hierarchy.

Best Efforts Forward Loan Sales Commitments: Best efforts forward loan sales commitments are classified within Level 2 of the valuation hierarchy. Best efforts forward loan sales commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Best efforts forward loan sales commitments are entered into for loans at the time the borrower commitment is made. These best efforts forward loan sales commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale.

Mandatory Forward Loan Sales Commitments: Fair values for mandatory forward loan sales commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. Due to the observable inputs used by Primis, best efforts mandatory loan sales commitments are classified within Level 2 of the valuation hierarchy.

To-Be-Announced Mortgage-Backed Securities Trades: Fair values for TBA’s are based on the gain or loss that would occur if the Company were to pair-off transaction at the measurement date and are classified within Level 2 of the valuation hierarchy. TBA’s are recorded at fair value on a recurring basis.

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


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	September 30, 2022		(Level 1)		(Level 2)		(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities	$	106,279	$	—	$	106,279	$	—
Obligations of states and political subdivisions		28,755		—		28,755		—
Corporate securities		14,854		—		14,854		—
Collateralized loan obligations		4,803		—		4,803		—
Residential government-sponsored collateralized mortgage obligations		23,043		—		23,043		—
Government-sponsored agency securities		14,685		—		14,685		—
Agency commercial mortgage-backed securities		40,100		—		40,100		—
SBA pool securities		6,372		—		6,372		—
		238,891		—		238,891		—
Loans held for sale		13,388		—		13,388		—
Derivative assets		1,103		—		1,066		37
Total assets	$	253,382	$	—	$	253,345	$	37

Liabilities:
Derivative liabilities	$	189	$	—	$	176	$	13
Total liabilities	$	189	$	—	$	176	$	13


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	December 31, 2021		(Level 1)		(Level 2)		(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities	$	122,610	$	—	$	122,610	$	—
Obligations of states and political subdivisions		31,231		—		31,231		—
Corporate securities		13,685		—		13,685		—
Collateralized loan obligations		5,010		—		5,010		—
Residential government-sponsored collateralized mortgage obligations		19,807		—		19,807		—
Government-sponsored agency securities		17,488		—		17,488		—
Agency commercial mortgage-backed securities		52,667		—		52,667		—
SBA pool securities		8,834		—		8,834		—
Total assets	$	271,332	$	—	$	271,332	$	—

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The following tables present additional information about the assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021
Derivative assets:
Interest Rate Lock Commitments
Balance at beginning of the period	$	24	$	—	$	—	$	—
Acquired		—		—		14		—
Gain included in net income		—		—		10		—
Settlements		13		—		13		—
Balance at end of the period	$	37	$	—	$	37	$	—

The following tables present additional information about the liabilities measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021
Derivative liabilities:
Interest Rate Lock Commitments
Balance at beginning of the period	$	3	$	—	$	—	$	—
Acquired		—		—		44
Loss included in net income		—		—		(41)		—
Settlements		10		—		10		—
Balance at end of the period	$	13	$	—	$	13	$	—

Assets and Liabilities Measured on a Non-recurring Basis:

Loans

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.

Collateral-dependent loans are measured at fair value on a non-recurring basis and are evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 5% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied was 6%.

Assets Held for Sale

Assets held for sale are valued based on third-party appraisals less estimated disposal costs. Primis considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation of assets held for sale is subject to significant external and internal judgment. Primis periodically reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly.

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Other Real Estate Owned (“OREO”)

OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or evaluation less cost to sell. In some cases appraised value is net of costs to sell. Selling costs have been in the range from 5% to 10% of collateral valuation at September 30, 2022 and December 31, 2021. Fair value is classified as Level 3 in the fair value hierarchy. OREO is further evaluated quarterly for any additional impairment. At September 30, 2022 and December 31, 2021, the total amount of OREO was $1.0 million and $1.2 million, respectively.

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


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	September 30, 2022		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans	$	45,742	$	—	$	—	$	45,742
Assets held for sale		3,127		—		—		3,127
Other real estate owned:
Construction and land development		266		—		—		266
Residential 1-4 family		775		—		—		775


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	December 31, 2021		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans	$	44,331	$	—	$	—	$	44,331
Other real estate owned:
Construction and land development		266		—		—		266
Residential 1-4 family		897		—		—		897

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Fair Value of Financial Instruments

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


		September 30, 2022				December 31, 2021
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	97,738	$	97,738	$	530,167	$	530,167
Securities available-for-sale	Level 2		238,891		238,891		271,332		271,332
Securities held-to-maturity	Level 2		14,391		13,085		22,940		23,364
Stock in Federal Reserve Bank and Federal Home Loan Bank	Level 2		16,689		16,689		15,521		15,521
Net loans	Level 3		2,705,130		2,589,870		2,310,881		2,278,456
Loans held for sale	Level 2		13,388		13,388		—		—
Accrued interest receivable	Level 2		10,258		10,258		13,643		13,643
Derivative assets	Level 2 and 3		1,103		1,103		—		—
Financial liabilities:
Demand deposits and NOW accounts	Level 2	$	1,325,058	$	1,325,058	$	1,380,020	$	1,380,020
Money market and savings accounts	Level 2		1,020,270		1,020,270		1,022,621		1,022,621
Time deposits	Level 3		362,992		358,763		360,575		362,902
Securities sold under agreements to repurchase	Level 1		9,886		9,886		9,962		9,962
FHLB advances	Level 1		125,000		125,000		100,000		100,000
Junior subordinated debt	Level 2		9,769		9,076		9,731		10,367
Senior subordinated notes	Level 2		85,472		84,022		85,297		91,141
Accrued interest payable	Level 2		1,369		1,369		1,864		1,864
Derivative liabilities	Level 2 and 3		189		189		—		—

Carrying amount is the estimated fair value for cash and cash equivalents (including federal funds sold), accrued interest receivable and payable, 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.

6. LEASES

The Company leases certain premises and equipment under operating leases. In recognizing lease right-of-use assets and related liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. At September 30, 2022 and December 31, 2021, the Company had operating lease liabilities totaling $6.0 million and $6.5 million, respectively, and right-of-use assets totaling $5.5 million and $5.9 million, respectively, related to these leases. Operating lease liabilities and right-of-use assets are reflected in our consolidated balance sheets. We do not currently have any financing leases. For the three months ended September 30, 2022 and 2021, our net operating lease cost was $0.6 million and for the nine months ended September 30, 2022 and 2021, our net operating lease cost was $1.8 million. These net operating lease costs are reflected in occupancy expenses on our consolidated income statements.

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


	For the Nine Months Ended
(in thousands except for percent and period data)	September 30, 2022			September 30, 2021
Other information:
Weighted-average remaining lease term - operating leases, in years		4.5			4.5
Weighted-average discount rate - operating leases		2.8	%		2.5	%

The following table summarizes the maturity of remaining lease liabilities:



	As of
(dollars in thousands)	September 30, 2022
Lease payments due:
2022 (remaining)	$	578
2023		2,051
2024		1,151
2025		629
2026		571
Thereafter		1,553
Total lease payments		6,533
Less: imputed interest		(489)
Lease liabilities	$	6,044

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

7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 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 and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers. The balance in repo accounts at September 30, 2022 and December 31, 2021 was $9.9 million and $10.0 million, respectively.

At September 30, 2022 and December 31, 2021, we had pledged callable agency securities, residential government-sponsored mortgage-backed securities and collateralized mortgage obligations with a carrying value of $16.6 million and $21.7 million, respectively, to customers who require collateral for overnight repurchase agreements and deposits.

8. JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTES

In 2017, the Company assumed $10.3 million of trust preferred securities that were issued on September 17, 2003 and placed through a trust in a pooled underwriting totaling approximately $650 million. The trust issuer invested the total proceeds from the sale of the trust preferred securities in Floating Rate Junior Subordinated Deferrable Interest Debentures. At September 30, 2022 and December 31, 2021, there was $10.3 million outstanding, net of approximately $0.6 million of debt issuance costs. These securities pay cumulative cash distributions quarterly at a variable rate per annum, reset quarterly, equal to the three-month LIBOR plus 2.95%. As of September 30, 2022 and December 31, 2021, the interest rate was 6.48% and 3.17%, respectively. The dividends paid to holders of these securities, which are recorded as interest expense, are deductible for income tax purposes.

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The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. At September 30, 2022, all of the trust preferred securities qualified as Tier 1 capital.

On January 20, 2017, Primis completed the sale of $27.0 million of its fixed-to-floating rate senior Subordinated Notes due 2027. These notes initially bore interest at 5.875% per annum until January 31, 2022; interest is currently payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption. At September 30, 2022, 80% of these notes qualified as Tier 2 capital.

In 2017, the Company assumed a Senior Subordinated Note Purchase Agreement, dated April 22, 2015, entered into with certain institutional accredited investors, pursuant to which $20.0 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025 was sold to the investors. On February 1, 2021, the Company redeemed all of these notes.

On August 25, 2020, Primis completed the sale of $60.0 million of its fixed-to-floating rate Subordinated Notes due 2030. These notes will bear interest at an initial rate of 5.40% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. From and including September 1, 2025 to, but excluding the maturity date or the date of earlier redemption (the “floating rate period”), the interest rate will reset quarterly to an annual interest rate equal to the Benchmark rate, which is expected to be three-month term Secured Overnight Financing Rate, plus 531 basis points, for each quarterly interest period during the floating rate period, payable quarterly in arrears on March 1, September 1, September 1, and December 1 of each year, commencing on December 1, 2025. Notwithstanding the foregoing, in the event that the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero. At September 30, 2022, all of these notes qualified as Tier 2 capital.

At September 30, 2022 and December 31, 2021, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled $1.5 million and $1.7 million, respectively.

9. 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 interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices.

A summary of stock option activity for the nine months ended September 30, 2022 follows:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contractual	Value
	Shares	Price		Term	(in thousands)
Options outstanding, beginning of period	283,800	$	10.98	2.2	$	1,153
Expired	(13,500)		9.58
Exercised	(27,500)		—
Options outstanding, end of period	242,800	$	11.15	1.5	$	238

Exercisable at end of period	242,800	$	11.15	1.5	$	238

There was no stock-based compensation expense associated with stock options for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, we do not have any unrecognized compensation expense associated with the stock options.

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A summary of time vested restricted stock awards for 2022 follows:


		Weighted		Weighted
		Average		Average
		Grant-Date		Remaining
		Fair Value		Contractual
	Shares	Per Share		Term
Unvested restricted stock outstanding, beginning of period	98,050	$	14.58	3.3
Granted	48,658		13.85
Vested	(73,508)		14.04
Unvested restricted stock outstanding, end of period	73,200	$	14.30	2.6

Stock-based compensation expense for time vested restricted stock awards totaled $0.1 million for each of the three months ended September 30, 2022 and 2021 and $1.0 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, unrecognized compensation expense associated with restricted stock awards was $0.8 million, which is expected to be recognized over a weighted average period of 2.7 years.

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


			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
			Fair Value	Contractual
	Shares		Per Share	Term
Unvested Units outstanding, beginning of period	59,335	$	15.00	4.0
Granted	—		—
Vested	—		—
Forfeited	—		—
Unvested Units outstanding, end of period	59,335	$	15.00	3.3

In September 2021, the Company issued 59,335 non-transferrable Units convertible, on a one-on-one basis, into shares of stock to eligible employees, granted pursuant to and subject to the provisions of the 2017 Plan.

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

The Company did not recognize any stock-based compensation expense associated with these Units for the three and nine months ended September 30, 2022 because it is not probable that these Units will vest. The grant date fair value of these Units was $15.00 per Unit. The potential unrecognized compensation expense associated with these Units is $1.3 million at September 30, 2022.

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10. COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

Primis is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and guarantees of credit card accounts. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance sheet. Letters of credit are written conditional commitments issued by Primis to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling $12.3 million and $13.1 million as of September 30, 2022 and December 31, 2021, 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 4 - Loans and Allowance for Credit Losses, as if such commitments were funded. The allowance for credit losses on off-balance-sheet credit exposures is reflected in other liabilities in our consolidated balance sheets.

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


	2022		2021
Balance as of January 1	$	977	$	740
Credit loss expense		403		859
Balance as of June 30,	$	1,380	$	1,599

Commitments

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

We had $35.4 million of loan commitments outstanding as of September 30, 2022, all of which contractually expire within thirty years.

At September 30, 2022 and December 31, 2021, we had unfunded lines of credit and undisbursed construction loan funds totaling $495.5 million and $411.0 million, respectively. Virtually all of our unfunded lines of credit and undisbursed construction loan funds are variable rate.

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Primis also had commitments on the subscription agreements entered into for the investments in non-marketable equity securities of $3.9 million and $3.5 million at September 30, 2022 and December 31, 2021, respectively.

11. EARNINGS PER SHARE

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


			Weighted
			Average
	Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount
For the three months ended September 30, 2022
Basic EPS from continuing operations	$	5,054	24,577	$	0.21
Effect of dilutive stock options and unvested restricted stock		—	111		(0.01)
Diluted EPS from continuing operations	$	5,054	24,688	$	0.20

Basic EPS from discontinued operations	$	—	24,577	$	0.00
Effect of dilutive stock options and unvested restricted stock		—	111		—
Diluted EPS from discontinued operations	$	—	24,688	$	0.00

For the three months ended September 30, 2021
Basic EPS from continuing operations	$	6,211	24,474	$	0.25
Effect of dilutive stock options and unvested restricted stock		—	160		—
Diluted EPS from continuing operations	$	6,211	24,634	$	0.25

Basic EPS from discontinued operations	$	(2,272)	24,474	$	(0.09)
Effect of dilutive stock options and unvested restricted stock		—	160		—
Diluted EPS from discontinued operations	$	(2,272)	24,634	$	(0.09)

For the nine months ended September 30, 2022
Basic EPS from continuing operations	$	14,656	24,548	$	0.60
Effect of dilutive stock options and unvested restricted stock		—	126		(0.01)
Diluted EPS from continuing operations	$	14,656	24,674	$	0.59

Basic EPS from discontinued operation	$	—	24,548	$	0.00
Effect of dilutive stock options and unvested restricted stock		—	126		—
Diluted EPS from discontinued operation	$	—	24,674	$	0.00

For the nine months ended September 30, 2021
Basic EPS from continuing operations	$	23,366	24,425	$	0.96
Effect of dilutive stock options and unvested restricted stock		—	158		(0.01)
Diluted EPS from continuing operations	$	23,366	24,583	$	0.95

Basic EPS from discontinued operation	$	231	24,425	$	0.01
Effect of dilutive stock options and unvested restricted stock		—	158		—
Diluted EPS from discontinued operation	$	231	24,583	$	0.01

The Company did not have any anti-dilutive options as of September 30, 2022 and 2021.

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12. SUBSEQUENT EVENT

On October 3, 2022, Infinex Financial Services was acquired by Advisor Group for a mix of cash and contingent consideration. Primis was an investor in Infinex Financial Services. As a result of the acquisition, Primis expects to record a pre-tax gain of approximately $4.1 million in the fourth quarter of 2022.

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

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Primis. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form 10-K for the year ended December 31, 2021. Results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results that may be attained for any other period. The emphasis of this discussion will be on the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2022 compared to December 31, 2021. This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the Risk Factors contained in this Quarterly Report on Form 10-Q, as well as the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, 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;

●

the ongoing impact of COVID-19 pandemic on our assets, business, cash flows, financial condition, liquidity, prospects and results of operations; 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;

●

our ability to implement our various strategic and growth initiatives, including our recently established Panacea Financial and Life Premium Finance Divisions, new digital bank and V1BE fulfillment service and recent acquisition of SeaTrust;

●

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

●

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

●

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

●

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

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●

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

●

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

●

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

●

increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio, including as a result of the financial impact of COVID-19, 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;

●

failure to prevent a breach to our Internet-based system and online commerce security;

●

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

●

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

●

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

●

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

●

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

●

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

●

the continued service of key management personnel;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

failure to maintain effective internal controls and procedures;

●

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; and

●

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

Forward-looking statements are not guarantees of performance or results and should not be relied upon as representing management’s views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results,

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and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our periodic and current reports filed with the SEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.

CRITICAL ACCOUNTING POLICIES

We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.

Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) 326, which is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326. The allowance is reported as a component of other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of other expenses.

The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2021 Form 10-K for additional information regarding critical accounting policies.

Current Economic Environment

The U.S. economy expanded in the third quarter of 2022, with Real Gross Domestic Product growing by an annualized 2.6%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment dropped back to 3.5% in September 2022. Lingering and pervasive economic effects of the pandemic remain, including supply chain backlogs, labor shortages and increased input costs, resulting in continued escalating inflationary conditions. Further, the continued military conflict between Russia and Ukraine has contributed to the inflationary pressures. While certain economic data suggests the economy is beginning to soften, the Federal Reserve appears to be strongly focused on reverting inflation back to its long term rate of 2%. The Federal Reserve has now raised rates 375 bps in total since March, a pace that has not been experienced in more than 40 years. The Federal Reserve is expected to continue to raise rates in its last meeting of the year, but with weakening economic data and rates entering restrictive territory, its actions in 2023 are unclear.

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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 September 30, 2022, 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 administrative offices in Warrenton, Virginia and Glen Allen, Virginia. We consolidated six branches in the second quarter of 2022 and two branches in the third quarter of 2022. Our deposits are insured, up to applicable limits, by the Federal Deposit Insurance Corporation (the “FDIC”).

On April 28, 2022, Primis Bank entered into a definitive agreement to acquire 100% of the issued and outstanding capital stock of SeaTrust Mortgage Company (“SeaTrust”), a North Carolina corporation. On May 31, 2022, Primis Bank completed the acquisition (the “Acquisition”) of 100% of the outstanding capital stock of SeaTrust from Community First Bank, Inc. (the “Seller”) pursuant to the Stock Purchase Agreement, dated as of April 28, 2022 (the “Purchase Agreement”) by and among the Bank, Seller, and SeaTrust. As a result, SeaTrust became a wholly owned subsidiary of Primis Bank on May 31, 2022. Following the closing of the Acquisition, on June 1, 2022, the Bank changed the name of SeaTrust to “Primis Mortgage Company”. Primis Mortgage Company originates mortgages primarily in the Carolinas, Florida and Tennessee from eight offices. Pursuant to the Purchase Agreement, the Bank paid an aggregate purchase price of $7.0 million in cash to Seller at closing and assumed $19.3 million of SeaTrust’s indebtedness under certain warehouse lending facilities.

FINANCIAL HIGHLIGHTS

●

Net income from continuing operations of $5.1 million for the three months ended September 30, 2022, or $0.21 basic and $0.20 diluted earnings per share, compared to $6.2 million, or $0.25 basic and diluted earnings per share, for the three months ended September 30, 2021. Net income for the nine months ended September 30, 2022 totaled $14.7 million, or $0.60 basic and $0.59 diluted earnings per share, compared to $23.4 million, or $0.96 basic and $0.95 per diluted earnings per share, for the nine months ended September 30, 2021.

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

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RESULTS OF OPERATIONS

Net Income

Three-Month Comparison. Net income from continuing operations for the three months ended September 30, 2022 was $5.1 million, or $0.21 basic and $0.20 diluted earnings per share, compared to $6.2 million, or $0.25 basic and diluted earnings per share, for the three months ended September 30, 2021. The 19% decrease in net income during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was driven by higher noninterest expenses in the current year mainly from an increase in employee compensation and benefits expense in the third quarter related to branch closures and consolidations and higher expenses related to Primis Mortgage in the third quarter. These decreases were offset by higher interest income. The Company’s loan growth over the past several quarters and the improved asset mix has been the driver of positive movements in both margins and net interest income.

Net income from discontinued operations for the three months ended September 30, 2022 was zero, or zero basic and diluted earnings per share, compared to net loss from discontinued operation of $2.3 million, or $(0.09) basic and diluted earnings per share, for the three months ended September 30, 2021. The decline in net income from discontinued operations is related to the closing of the STM transaction in 2021, as discussed in Note 1 - Accounting Policies.

Nine-Month Comparison. Net income from continuing operations for the nine months ended September 30, 2022 was $14.7 million, or $0.60 basic and $0.59 diluted earnings per share, compared to $23.4 million, or $0.96 basic and $0.95 per diluted earnings per share, for the nine months ended September 30, 2021. The 37% decrease in net income during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense in the current year. The decrease in net income was also attributable to provision for credit losses in 2022 compared to a recovery of credit losses in 2021 primarily as a result of robust loan growth.

Net income from discontinued operations for the nine months ended September 30, 2022 was zero, or zero basic and diluted earnings per share, compared to net income from discontinued operation of $0.2 million, or $0.10 basic and diluted earnings per share, for the nine months ended September 30, 2021.

Net Interest Income

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

Three-Month Comparison. Net interest income was $27.5 million for the three months ended September 30, 2022, compared to $23.2 million for the three months ended September 30, 2021. Primis’ net interest margin for the three months ended September 30, 2022 was 3.57%, compared to 2.87% for the three months ended September 30, 2021. Net interest margin was impacted heavily by the origination of PPP loans in 2021 and 2020. Net PPP fee income recognized was zero for the three months ended September 30, 2022 versus $2.7 million for the three months ended September 30, 2021, a decline from the third quarter of 2021. Net interest margin, excluding the effects of PPP loans, was 3.58% for the three months ended September 30, 2022, compared to 2.66% for the three months ended September 30, 2021. Total income on interest-earning assets was $32.6 million and $27.8 million for the three months ended September 30, 2022 and 2021, respectively. The yield on average interest-earning assets was 4.24% and 3.44% for the three months ended September 30, 2022 and 2021, respectively. The cost of average interest-bearing deposits increased 9 basis points to 0.64% for the three months ended September 30, 2022, compared to 0.56% cost on average interest-bearing deposits for the three months ended September 30, 2021. Interest and fees on loans totaled $30.5 million and $26.2 million for the three months ended September 30, 2022 and 2021, respectively. Average loans during the three months ended September 30, 2022 were $2.69 billion, compared to $2.29 billion during the three months ended September 30, 2021. The Company’s loan growth over the past several quarters and the improved asset mix has been the driver of positive movements in both margins and net interest income.

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


	Average Balance Sheets and Net Interest
	Analysis For the Three Months Ended
	September 30, 2022						September 30, 2021
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate

	(Dollar amounts in thousands)

Assets
Interest-earning assets:
Loans held for sale	$	21,199	$	263	4.92	%	$	—	$	—	—	%
Loans, net of deferred fees ^{(1) (2)}		2,669,605		30,260	4.50	%		2,291,945		26,181	4.53	%
Investment securities		269,780		1,518	2.23	%		229,906		1,083	1.87	%
Other earning assets		90,268		555	2.44	%		689,084		537	0.31	%
Total earning assets		3,050,852		32,596	4.24	%		3,210,935		27,801	3.44	%
Allowance for credit losses		(29,830)						(30,598)
Investments in mortgage affiliate - held for sale		—						12,621
Total non-earning assets		264,185						260,714
Total assets	$	3,285,207					$	3,453,672

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	660,387	$	536	0.32	%	$	920,203	$	1,062	0.46	%
Money market accounts		803,860		1,667	0.82	%		744,280		1,056	0.56	%
Savings accounts		219,167		141	0.26	%		213,859		165	0.31	%
Time deposits		343,986		943	1.09	%		380,233		877	0.92	%
Total interest-bearing deposits		2,027,400		3,287	0.64	%		2,258,575		3,160	0.56	%
Borrowings		166,621		1,859	4.43	%		208,689		1,434	2.73	%
Total interest-bearing liabilities		2,194,021		5,146	0.93	%		2,467,264		4,594	0.74	%
Noninterest-bearing liabilities:
Demand deposits		665,020						547,500
Other liabilities		23,832						28,699
Total liabilities		2,882,873						3,043,463
Stockholders' equity		402,334						410,209
Total liabilities and stockholders' equity	$	3,285,207					$	3,453,672
Net interest income			$	27,450					$	23,207
Interest rate spread					3.31	%					2.70	%
Net interest margin					3.57	%					2.87	%

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

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

Nine-Month Comparison. Net interest income was $74.9 million for the nine months ended September 30, 2022, compared to $70.0 million for the nine months ended September 30, 2021. Primis’ net interest margin for the nine months ended September 30, 2022 was 3.29%, compared to 3.02% for the nine months ended September 30, 2021. Net interest margin was impacted heavily by the origination of PPP loans in 2021 and 2020. Net PPP fee income recognized was $0.3 million for the nine months ended September 30, 2022 versus $9.4 million for the nine months ended September 30, 2021, a material decline from the third quarter of 2021. Net interest margin, excluding the effects of PPP loans, was 3.30% for the nine months ended September 30, 2022, compared to 2.80% for the nine months ended September 30, 2021. Total income on interest-earning assets was $87.4 million and $84.7 million for the nine months ended September 30, 2022 and 2021, respectively. The yield on average interest-earning assets was 3.84% and 3.65% for the nine months ended September 30, 2022 and 2021, respectively. The increase was primarily driven by market conditions. The cost of average interest-bearing deposits decreased 12 basis points to 0.51% for the nine months ended September 30, 2022, compared to 0.63% cost on average interest-bearing deposits for the nine months ended September 30, 2021. Interest and fees on loans

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totaled $81.6 million and $80.3 million for the nine months ended September 30, 2022 and 2021, respectively. Average loans during the nine months ended September 30, 2022 were $2.52 billion, compared to $2.35 billion during the nine months ended September 30, 2021. The Company’s loan growth over the past several quarters and the improved asset mix has been the driver of positive movements in both margins and net interest income.


	Average Balance Sheets and Net Interest
	Analysis For the Nine Months Ended
	September 30, 2022						September 30, 2021
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate

	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans held for sale	$	9,456	$	356	5.03	%	$	-	$	-	-	%
Loans, net of deferred fees ^{(1) (2)}		2,514,587		81,281	4.32	%		2,351,410		80,320	4.57	%
Investment securities		286,525		4,393	2.05	%		213,128		3,198	2.01	%
Other earning assets		237,299		1,409	0.79	%		536,781		1,222	0.30	%
Total earning assets		3,047,867		87,439	3.84	%		3,101,319		84,740	3.65	%
Allowance for credit losses		(29,640)						(34,012)
Investments in mortgage company - held for sale		—						12,659
Total non-earning assets		259,525						262,373
Total assets	$	3,277,752					$	3,342,339

Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	723,857	$	1,758	0.32	%	$	854,360	$	3,178	0.50	%
Money market accounts		808,013		3,464	0.57	%		706,215		3,294	0.62	%
Savings accounts		222,032		432	0.26	%		204,286		464	0.30	%
Time deposits		341,160		2,317	0.91	%		418,161		3,429	1.10	%
Total interest-bearing deposits		2,095,062		7,971	0.51	%		2,183,022		10,365	0.63	%
Borrowings		148,549		4,558	4.10	%		219,947		4,413	2.68	%
Total interest-bearing liabilities		2,243,611		12,529	0.75	%		2,402,969		14,778	0.82	%
Noninterest-bearing liabilities:
Demand deposits		602,872						514,318
Other liabilities		22,985						22,947
Total liabilities		2,869,468						2,940,234
Stockholders' equity		408,284						402,105
Total liabilities and stockholders' equity	$	3,277,752					$	3,342,339
Net interest income			$	74,910					$	69,962
Interest rate spread					3.09	%					2.83	%
Net interest margin					3.29	%					3.02	%

(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.

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Provision for Credit Losses

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

The Company recorded a provision for credit losses for the three months ended September 30, 2022 and 2021 of $2.9 million and $1.1 million, respectively. For the nine months ended September 30, 2022, the Company recorded a provision for credit losses of $3.4 million, compared to a recovery of credit losses for the nine months ended September 30, 2021 of $4.5 million, primarily as a result of robust loan growth. We had charge-offs totaling $1.2 million and $2.0 million during the three months ended September 30, 2022 and 2021, respectively, and $1.3 million and $2.3 million during nine months ended September 30, 2022 and 2021, respectively. There were recoveries totaling $0.8 million during each of the nine months ended September 30, 2022 and 2021.

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

Noninterest Income

The following table presents the major categories of noninterest income for the three months ended September 30, 2022 and 2021:


	For the Three Months Ended
	September 30,
(dollars in thousands)	2022		2021		Change
Account maintenance and deposit service fees	$	1,525	$	1,509	$	16
Income from bank-owned life insurance		394		387		7
Mortgage banking income		2,197		—		2,197
Other		1,504		455		1,049
Total noninterest income	$	5,620	$	2,351	$	3,269

Noninterest income increased 139% to $5.6 million for the three months ended September 30, 2022, compared to $2.4 million for the three months ended September 30, 2021. The increase in noninterest income was primarily related to the $2.2 million of mortgage banking income in the current year.

The following table presents the major categories of noninterest income for the nine months ended September 30, 2022 and 2021:


	For the Nine Months Ended
	September 30,
(dollars in thousands)	2022		2021		Change
Account maintenance and deposit service fees	$	4,318	$	4,759	$	(441)
Income from bank-owned life insurance		1,147		1,152		(5)
Mortgage banking income		2,790		—		2,790
Other		2,085		1,207		878
Total noninterest income	$	10,340	$	7,118	$	3,222

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Noninterest income increased 45% to $10.3 million for the nine months ended September 30, 2022, compared to $7.1 million for the nine months ended September 30, 2021. The increase in noninterest income was primarily driven by a $2.8 million increase in mortgage banking income in the current year associated with the Primis Mortgage acquisition in the second quarter of 2022, and a $0.9 million increase in other noninterest income, offset by an decrease of $0.4 million from the year-ago period in income on account maintenance and deposit service fees primarily due to a reduction in income from new debit card contracts driven by lower fees.

Noninterest Expense

The following table presents the major categories of noninterest expense for the three months ended September 30, 2022 and 2021:


	For the Three Months Ended
	September 30,
(dollars in thousands)	2022		2021		Change
Salaries and benefits	$	12,594	$	9,032	$	3,562
Occupancy expenses		1,402		1,552		(150)
Furniture and equipment expenses		1,455		971		484
Amortization of core deposit intangible		326		341		(15)
Virginia franchise tax expense		813		732		81
Data processing expense		1,528		1,003		525
Telephone and communication expense		342		415		(73)
Net loss on bank premises and equipment		64		—		64
Professional fees		1,261		874		387
Other operating expenses		3,976		1,640		2,336
Total noninterest expenses	$	23,761	$	16,560	$	7,201

Noninterest expenses were $23.8 million during the three months ended September 30, 2022, compared to $16.6 million during the three months ended September 30, 2021. The 44% increase in noninterest expenses was primarily due to a $3.6 million increase in employee compensation driven by increased head count and higher benefits expense in the current year related to branch closures and consolidations. The increase in noninterest expense during the three months ended September 30, 2022 was also attributable to a $0.5 million increase in data processing expense in 2022 driven by higher technology expenses in the current year. A significant driver of the increased other non-interest expenses were higher expenses related to Primis Mortgage in the third quarter. Other notable drivers of the increase in other operating expenses in the quarter include higher marketing and advertising costs tied to the digital bank launch and V1BE adoption campaigns, increase in legal fees for initiatives and increase in fraud related expenses.

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The following table presents the major categories of noninterest expense for the nine months ended September 30, 2022 and 2021:


	For the Nine Months Ended
	September 30,
(dollars in thousands)	2022		2021		Change
Salaries and benefits	$	32,792	$	27,214	$	5,578
Occupancy expenses		4,277		4,538		(261)
Furniture and equipment expenses		3,683		2,651		1,032
Amortization of core deposit intangible		1,008		1,023		(15)
Virginia franchise tax expense		2,440		2,166		274
Data processing expense		4,311		2,818		1,493
Telephone and communication expense		1,090		1,351		(261)
Net (gain) loss on other real estate owned		(59)		17		(76)
Net loss on bank premises and equipment		684		—		684
Professional fees		3,182		3,099		83
Other operating expenses		9,770		6,901		2,869
Total noninterest expenses	$	63,178	$	51,778	$	11,400

Noninterest expenses were $63.2 million during the nine months ended September 30, 2022, compared to $51.8 million during the nine months ended September 30, 2021. The 22% increase in noninterest expenses was primarily attributable to a $5.6 million increase in employee compensation driven by increased head count and higher benefits expense mainly related to branch closures and consolidations in the second and third quarter of 2022. The increase in noninterest expense during the nine months ended September 30, 2022 was also driven by a $1.5 million increase in data processing expense in 2022 driven by higher technology expenses in the current year. Occupancy and furniture and equipment expenses increased $0.8 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 driven by higher equipment expenses related to V1BE adoption. Other expenses increased during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, largely driven by merger expenses incurred in the second quarter of 2022. Other notable drivers of the increase in the current year other operating expenses include higher marketing and advertising costs tied to the digital bank launch and V1BE adoption campaigns, and increases in legal and other professional fees for initiatives.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets were $3.36 billion as of September 30, 2022 and $3.40 billion as of December 31, 2021. Total cash and cash equivalents were $97.7 million as of September 30, 2022 and $530.2 million as of December 31, 2021. Investment securities decreased from $294.3 million as of December 31, 2022 to $253.3 million as of September 30, 2022. Total loans increased 17%, from $2.34 billion at December 31, 2021 to $2.74 billion at September 30, 2022. Excluding PPP loans, loans outstanding increased $466.4 million, or 21%, since December 31, 2021. Total deposits were $2.71 billion at September 30, 2022, compared to $2.76 billion at December 31, 2021 and total equity was $391.8 million and $411.9 million at September 30, 2022 and December 31, 2021, respectively.

Stockholder’s equity balances decreased $28.6 million from December 31, 2021 to September 30, 2022 as a result of unrealized mark-to-market adjustments on the Company’s available-for-sale securities portfolio due to dramatic increases in market interest rates during 2022. The Company has the wherewithal to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.

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Loans

Total loans were $2.74 billion and $2.34 billion at September 30, 2022 and December 31, 2021, respectively. PPP loans totaled $8.0 million at September 30, 2022 and $77.0 million at December 31, 2021, respectively. Excluding PPP loans, loans outstanding increased $466.4 million, or 21%, since December 31, 2021.

As of September 30, 2022, a majority of our loans were to customers located in Virginia and Maryland. As of December 31, 2021, substantially all of our loans were to customers located in Virginia and Maryland We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.

The composition of our loans held for investment portfolio consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022				December 31, 2021
	Amount		Percent		Amount		Percent
Loans secured by real estate:
Commercial real estate - owner occupied	$	436,354	15.9	%	$	387,703	16.6	%
Commercial real estate - non-owner occupied		572,279	20.9	%		588,000	25.1	%
Secured by farmland		7,514	0.3	%		8,612	0.4	%
Construction and land development		138,297	5.1	%		121,444	5.2	%
Residential 1-4 family		615,529	22.5	%		547,560	23.4	%
Multi- family residential		137,253	5.0	%		164,071	7.0	%
Home equity lines of credit		65,852	2.4	%		73,846	3.2	%
Total real estate loans		1,973,078	72.1	%		1,891,236	80.8	%

Commercial loans		469,618	17.2	%		301,980	12.9	%
Paycheck protection program loans		8,014	0.3	%		77,319	3.3	%
Consumer loans		279,678	10.2	%		60,996	2.6	%
Total Non-PCD loans		2,730,388	99.8	%		2,331,531	99.6	%
PCD loans		6,698	0.2	%		8,455	0.4	%
Total loans	$	2,737,086	100.0	%	$	2,339,986	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 September 30, 2022 (in thousands):


			After 1 Year				After 5 Years
			Through 5 Years				Through 15 Years				After 15 Years
	One Year		Fixed		Floating		Fixed		Floating		Fixed		Floating
	or Less		Rate		Rate		Rate		Rate		Rate		Rate		Total
Loans secured by real estate:
Commercial real estate - owner occupied	$	26,079	$	100,627	$	52,709	$	81,521	$	92,809	$	3,682	$	78,927	$	436,354
Commercial real estate - non-owner occupied		34,079		183,383		13,249		54,119		49,725		1,413		236,311		572,279
Secured by farmland		2,349		1,883		—		552		1,253		—		1,477		7,514
Construction and land development		99,938		19,013		13,297		37		3,685		693		1,634		138,297
Residential 1-4 family		13,168		57,512		7,138		29,541		52,110		76,778		379,282		615,529
Multi- family residential		8,043		56,797		17,726		7,240		19,315		—		28,132		137,253
Home equity lines of credit		10,289		1,192		13,560		—		5,811		—		35,000		65,852
Total real estate loans		193,945		420,407		117,679		173,010		224,708		82,566		760,763		1,973,078
Commercial loans		161,145		82,935		54,271		133,628		33,613		1,143		2,883		469,618
Paycheck protection program loans		1,285		6,729		—		—		—		—		—		8,014
Consumer loans		2,588		138,402		17,253		81,271		37,639		2,520		5		279,678
Total Non-PCD loans		358,963		648,473		189,203		387,909		295,960		86,229		763,651		2,730,388
PCD loans		3,146		1,447		12		—		1,544		405		144		6,698
Total loans	$	362,109	$	649,920	$	189,215	$	387,909	$	297,504	$	86,634	$	763,795	$	2,737,086

Asset Quality

Asset quality remained solid during the first, second and third quarters of 2022, noting an increase in classified balances experienced in the third quarter of 2022, largely due to a downgrade of one, well secured relationship with no loss anticipated. While COVID-19 has resolved into a new normal with the increase in vaccination rates, the residual effect of COVID-19 and the different variants, as well as new risks emerging from geopolitical conflict, inflation and the threat of recession continue to cause economic instability and uncertainty in evaluating the impact on our asset quality. We will generally place a loan on nonaccrual status when it becomes 90 days past due. Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Cash payments received while a loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections.

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

Our loss and delinquency experience on our loan portfolio has been limited by two main factors; our underwriting standards and portfolio management practices. Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, rising interest rates, historically high inflation, global supply chain issues and potential recession.

Calculated reserves (prior to qualitative adjustments) increased at the end of September 30, 2022 compared to December 31, 2021, primarily due to a growth in unguaranteed loan balances, coupled with worsened economic forecasts, specifically in the House Price Index and Gross State Product factors. At September 30, 2022, the qualitative reserve decreased $2.3 million from the qualitative reserve applied at December 31, 2021. This decrease in qualitative reserves observed in the third quarter of 2022 is attributed to adjustments to the qualitative reserve framework’s thresholds and key risk indicators as part of the annual model refresh.

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The following table presents a comparison of nonperforming assets as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30,			December 31,
	2022			2021
Nonaccrual loans	$	36,851		$	15,029
Loans past due 90 days and accruing interest		1,855			283
Total nonperforming loans		38,706			15,312
Other real estate owned		1,041			1,163
Total nonperforming assets	$	39,747		$	16,475

Troubled debt restructurings	$	3,170		$	3,401
SBA guaranteed amounts included in nonperforming loans	$	2,573		$	1,388

Allowance for credit losses to total loans		1.17	%		1.24	%
Allowance for credit losses to nonaccrual loans		86.72	%		193.66	%
Allowance for credit losses to nonperforming loans		82.56	%		190.09	%
Nonaccrual to total loans		1.35	%		0.64	%
Nonperforming assets excluding SBA guaranteed loans to total assets		1.11	%		0.44	%

OREO at September 30, 2022 was $1.0 million, compared to $1.2 million at December 31, 2021. The decrease was primarily driven by sale of properties during 2022.

Nonaccrual loans were $36.9 million (excluding $0.7 million of loans fully covered by SBA guarantees) at September 30, 2022, compared to $15.0 million (excluding $1.1 million of loans fully covered by SBA guarantees) at December 31, 2021, an increase of 145%. These increases were driven largely by one relationship that was criticized in the second quarter of 2022 and was subsequently downgraded further in the third quarter of 2022 and placed on nonaccrual. The primary businesses in the relationship are multiple assisted living facilities. Recent appraisals have been completed with no impairment required at this time. The ratio of nonperforming assets (excluding the SBA guaranteed loans) to total assets was 1.11% and 0.44% at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, our total substandard loans totaled $47.3 million. Included in the total substandard loans were SBA guarantees of $2.3 million. Special mention loans totaled $35.4 million at September 30, 2022.

As of September 30, 2022, there were 14 TDR loans in the amount of $3.2 million. There have been no defaults of TDRs modified during the past twelve months.

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

Investment Securities

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

Investment securities in our portfolio as of September 30, 2022 were as follows:

●

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

●

corporate bonds in the amount of $14.9 million;

●

collateralized loan obligations of $4.8 million;

●

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

●

callable agency securities in the amount of $14.7 million;

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●

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

●

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

●

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

The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available-for-sale investment securities are reported at fair value, and held-to-maturity investment securities are reported at amortized cost (in thousands).


	September 30,		December 31,
	2022		2021
Available-for-sale investment securities:
Residential government-sponsored mortgage-backed securities	$	106,279	$	122,610
Obligations of states and political subdivisions		28,755		31,231
Corporate securities		14,854		13,685
Collateralized loan obligations		4,803		5,010
Residential government-sponsored collateralized mortgage obligations		23,043		19,807
Government-sponsored agency securities		14,685		17,488
Agency commercial mortgage-backed securities		40,100		52,667
SBA pool securities		6,372		8,834
Total	$	238,891	$	271,332

Held-to-maturity investment securities:
Residential government-sponsored mortgage-backed securities	$	10,953	$	13,616
Obligations of states and political subdivisions		3,120		3,805
Residential government-sponsored collateralized mortgage obligations		318		519
Government-sponsored agency securities		—		5,000
Total	$	14,391	$	22,940

We recognized no credit impairment charges related to credit losses during the three and nine months ended September 30, 2022 and 2021, respectively.

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 borrowing from the Federal Home Loan Bank of Atlanta, institutional certificates of deposit and the sale of available-for-sale investment securities. In addition, we maintain federal funds lines of credit with two correspondent banks and utilize securities sold under agreements to repurchase and reverse repurchase agreement borrowings from approved securities dealers.

We prepare a cash flow forecast on a 30, 60 and 90 day basis along with a one and a two year basis. The projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses.

At September 30, 2022, we had $495.5 million of unfunded lines of credit and undisbursed construction loan funds. The amount of certificate of deposit accounts maturing in less than one year was $254.4 million as of September 30, 2022. Management anticipates that funding requirements for these commitments can be met primarily from unused and available FHLB lines of credit and other normal sources of funds.

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As of September 30, 2022, Primis was not aware of any known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of September 30, 2022, Primis has no material commitments or long-term debt for capital expenditures.

Capital Resources

Capital management consists of providing equity to support both current and future operations. Primis Financial Corp. and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. At September 30, 2022 and 2021, the most recent regulatory notifications categorized the Bank as well capitalized under regulatory framework for PCA.

Quantitative measures established by regulation to ensure capital adequacy require Primis to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to average assets (as defined). Management believes, as of September 30, 2022, that Primis meets all capital adequacy requirements to which it is subject.

The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp. and Primis Bank at the periods indicated to the minimum and well-capitalized required regulatory standards:


	Minimum
	Required for
	Capital		To Be		Actual Ratio at
	Adequacy		Categorized as		September 30,		December 31,
	Purposes		Well Capitalized⁽¹⁾		2022		2021
Primis Financial Corp.
Leverage ratio	4.00	%	n/a		10.11	%	9.41	%
Common equity tier 1 capital ratio	4.50	%	n/a		11.17	%	13.09	%
Tier 1 risk-based capital ratio	6.00	%	n/a		11.53	%	13.52	%
Total risk-based capital ratio	8.00	%	n/a		15.71	%	18.52	%

Primis Bank
Leverage ratio	4.00	%	5.00	%	12.26	%	11.14	%
Common equity tier 1 capital ratio	7.00	%	6.50	%	14.08	%	16.18	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	14.08	%	16.18	%
Total risk-based capital ratio	10.50	%	10.00	%	15.28	%	17.43	%

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

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

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

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

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

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

The following tables are based on an analysis of our interest rate risk as measured by the estimated change in EVE resulting from instantaneous and sustained parallel shifts in the yield curve (plus 400 basis points or minus 100 basis points, measured in 100 basis point increments) as of September 30, 2022 and December 31, 2021. All changes are within our Asset/Liability Risk Management Policy guidelines.


	Sensitivity of Economic Value of Equity
	As of September 30, 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	$	544,994	$	(39,192)	(6.71)	%	15.99	%	132.32	%
Up 300		555,689		(28,497)	(4.88)	%	16.31	%	134.91	%
Up 200		565,916		(18,270)	(3.13)	%	16.61	%	137.40	%
Up 100		581,379		(2,807)	(0.48)	%	17.06	%	141.15	%
Base		584,186		—	—	%	17.14	%	141.83	%
Down 100		571,754		(12,432)	(2.13)	%	16.78	%	138.82	%


	Sensitivity of Economic Value of Equity
	As of December 31, 2021
							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	$	419,520	$	10,937	2.68	%	12.31	%	101.85	%
Up 300		419,238		10,655	2.61	%	12.30	%	101.79	%
Up 200		417,156		8,573	2.10	%	12.24	%	101.28	%
Up 100		418,107		9,524	2.33	%	12.27	%	101.51	%
Base		408,583		—	—	%	11.99	%	99.20	%
Down 100		341,573		(67,010)	(16.40)	%	10.02	%	82.93	%

Our interest rate sensitivity is also monitored by management through the use of a model that generates estimates of the change in the net interest income (“NII”) over a range of interest rate scenarios. NII depends upon the relative amounts

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of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. In this regard, the model assumes that the composition of our interest sensitive assets and liabilities existing at September 30, 2022 and December 31, 2021 remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. All changes are within our ALM Policy guidelines at September 30, 2022 and December 31, 2021.


	Sensitivity of Net Interest Income
	As of September 30, 2022
	Adjusted Net Interest Income
Change in Interest Rates			$ Change
in Basis Points (Rate Shock)	Amount		From Base

	(dollar amounts in thousands)
Up 400	$	112,650	$	(5,934)
Up 300		113,669		(4,915)
Up 200		114,678		(3,906)
Up 100		117,052		(1,532)
Base		118,584		—
Down 100		118,037		(547)


	Sensitivity of Net Interest Income
	As of December 31, 2021
	Adjusted Net Interest Income
Change in Interest Rates			$ Change
in Basis Points (Rate Shock)	Amount		From Base

	(dollar amounts in thousands)
Up 400	$	88,531	$	2,341
Up 300		87,863		1,673
Up 200		87,127		937
Up 100		86,713		523
Base		86,190		—
Down 100		82,670		(3,520)

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII sensitivity requires the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Accordingly, although the EVE tables and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net worth and NII. Sensitivity of EVE and NII are modeled using different assumptions and approaches.

ITEM 4 – CONTROLS AND PROCEDURES

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

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(b) Changes in Internal Control over Financial Reporting. As a result of the acquisition of Primis Mortgage, there were changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Such changes related to this acquisition included implementing new procedures, including procedures to integrate existing systems, and changes to our accounting and reporting professionals to reflect their new responsibilities with the compliance process. We are continuing to evaluate and augment our existing controls to appropriately manage the risks inherent in an acquisition of this magnitude and complexity.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Primis and Primis Bank are from time to time a party, as both plaintiff and defendant, to various claims and proceedings arising in the ordinary course of the Bank’s business, including administrative and/or legal proceedings that may include employment-related claims, as well as claims of lender liability, breach of contract, and other similar lending-related claims. While the ultimate resolution of these matters cannot be determined at this time, the Bank’s management presently believes that such matters, individually and in the aggregate, will not have a material adverse effect on the Bank’s financial condition or results of operations. There are no proceedings pending, or to management’s knowledge, threatened, that represent a significant risk against Primis or Primis Bank as of September 30, 2022.

ITEM 1A – RISK FACTORS

The Company disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2021. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

Not applicable.

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ITEM 6 - EXHIBITS

(a) Exhibits.


Exhibit No.		Description

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

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

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

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

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

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

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

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

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

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

+ Management contract or compensatory plan or arrangement

* Filed with this Quarterly Report on Form 10-Q

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

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Signatures

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


			Primis Financial Corp.
			(Registrant)


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



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