Table of Contents
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 March 31, 2024
Commission File No. 001-33037
PRIMIS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Virginia
20-1417448
(State or other jurisdiction
(I.R.S. Employer Identification No.)
of incorporation or organization)
1676 International Drive, Suite 900
McLean, Virginia 22102
(Address of principal executive offices) (zip code)
(703) 893-7400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading symbol
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
FRST
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b–2 of the Exchange Act:
Large accelerated filer ☐
Accelerated filer ☒
Smaller reporting company ☐
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of October 17, 2024, there were 24,722,734 shares of common stock, $0.01 par value, outstanding.
March 31, 2024
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023
2
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2024 and 2023
3
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023
4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023
5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
48
Item 4 – Controls and Procedures
49
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings
50
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 – Defaults Upon Senior Securities
Item 4 – Mine Safety Disclosures
Item 5 – Other Information
Item 6 - Exhibits
51
Signatures
53
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
March 31,
December 31,
2024
2023
(unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions
$
5,817
1,863
Interest-bearing deposits in other financial institutions
82,900
75,690
Total cash and cash equivalents
88,717
77,553
Securities available-for-sale, at fair value (amortized cost of $260,415 and $255,891, respectively)
230,617
228,420
Securities held-to-maturity, at amortized cost (fair value of $10,052 and $10,839, respectively)
10,992
11,650
Loans held for sale, at fair value
72,217
57,691
Loans held for investment, collateralizing secured borrowings
21,406
20,505
Loans held for investment
3,206,259
3,198,909
Less: allowance for credit losses
(53,456)
(52,209)
Net loans
3,174,209
3,167,205
Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB)
14,225
14,246
Bank premises and equipment, net
20,412
20,611
Assets held for sale
6,359
6,735
Operating lease right-of-use assets
10,206
10,646
Cloud computing arrangement assets, net
9,953
10,699
Goodwill
93,459
Intangible assets, net
1,633
1,958
Bank-owned life insurance
67,685
67,588
Deferred tax assets, net
24,513
22,395
Consumer Program derivative asset
10,685
10,806
Other assets
54,097
54,884
Total assets
3,889,979
3,856,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits
463,190
472,941
Interest-bearing deposits:
NOW accounts
771,116
773,028
Money market accounts
834,514
794,530
Savings accounts
823,325
783,758
Time deposits
422,778
445,898
Total interest-bearing deposits
2,851,733
2,797,214
Total deposits
3,314,923
3,270,155
Securities sold under agreements to repurchase
3,038
3,044
Secured borrowings
21,298
20,393
FHLB advances
25,000
30,000
Junior subordinated debt
9,843
9,830
Senior subordinated notes
85,823
85,765
Operating lease liabilities
11,353
11,686
Other liabilities
24,102
28,080
Total liabilities
3,495,380
3,458,953
Commitments and contingencies (See Note 9)
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; 24,696,672 and 24,693,172 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
247
Additional paid in capital
313,812
313,548
Retained earnings
84,133
84,143
Accumulated other comprehensive loss
(23,615)
(21,777)
Total Primis stockholders' equity
374,577
376,161
Noncontrolling interests
20,022
21,432
Total stockholders' equity
394,599
397,593
Total liabilities and stockholders' equity
See accompanying notes to unaudited condensed consolidated financial statements.
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share amounts) (Unaudited)
For the Three Months Ended March 31,
Interest and dividend income:
Interest and fees on loans
47,732
38,450
Interest and dividends on taxable securities
1,615
1,483
Interest and dividends on tax exempt securities
100
101
Interest and dividends on other earning assets
898
4,224
Total interest and dividend income
50,345
44,258
Interest expense:
Interest on deposits
23,014
15,044
Interest on other borrowings
2,062
3,892
Total interest expense
25,076
18,936
Net interest income
25,269
25,322
Provision for credit losses
6,508
5,263
Net interest income after provision for credit losses
18,761
20,059
Noninterest income:
Account maintenance and deposit service fees
1,393
1,224
Income from bank-owned life insurance
564
420
Mortgage banking income
5,574
4,315
Gain on sale of loans
336
Gain (loss) on other investments
206
(39)
Consumer Program derivative
2,041
11,443
Other noninterest income
193
256
Total noninterest income
10,307
17,670
Noninterest expenses:
Salaries and benefits
15,735
15,028
Occupancy expenses
1,490
1,445
Furniture and equipment expenses
1,616
1,577
Amortization of intangible assets
317
Virginia franchise tax expense
631
849
FDIC insurance assessment
610
364
Data processing expense
2,231
2,251
Marketing expense
459
569
Telephone and communication expense
346
377
Professional fees
1,365
862
Miscellaneous lending expenses
451
885
Other operating expenses
2,287
2,430
Total noninterest expenses
27,538
26,954
Income before income taxes
1,530
10,775
Income tax expense
718
2,412
Net income
812
8,363
Net loss attributable to noncontrolling interests
1,654
Net income attributable to Primis' common stockholders
2,466
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities
(2,327)
3,006
Tax expense (benefit)
(489)
Other comprehensive income (loss)
(1,838)
2,375
Comprehensive income
628
10,738
Earnings per share, basic
0.10
0.34
Earnings per share, diluted
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
For the Three Months Ended March 31, 2024
Accumulated
Additional
Other
Common Stock
Paid in
Retained
Comprehensive
Noncontrolling
Shares
Amount
Capital
Earnings
Loss
Interests
Total
Balance - December 31, 2023
24,693,172
Issuance of Panacea Financial Holdings stock, net of costs
244
Dividends on common stock ($0.10 per share)
(2,476)
Stock option exercises
3,500
37
Stock-based compensation expense
227
Net income (loss)
(1,654)
Other comprehensive loss
Balance - March 31, 2024
24,696,672
For the Three Months Ended March 31, 2023 (As Restated)
Income (Loss)
Balance - December 31, 2022
24,680,097
246
312,722
101,850
(25,850)
388,968
(2,469)
Shares retired to unallocated
(1,033)
8,000
85
Restricted stock forfeited
(2,000)
Repurchase of restricted stock
(12)
108
Other comprehensive income
Balance - March 31, 2023
24,685,064
312,903
107,744
(23,475)
397,418
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
Operating activities:
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization
2,270
2,138
Net accretion of discounts
(264)
(794)
Proceeds from sales of loans
10,880
Net change in mortgage loans held for sale
(14,802)
(15,416)
Net gains on mortgage banking
(5,574)
(4,315)
Net gains on sale of loans
(336)
(51)
Earnings on bank-owned life insurance
(417)
(390)
Gain on bank-owned life insurance death benefit
(148)
(30)
(Gain) loss on other investments
(206)
39
Deferred income tax benefit
(1,629)
(1,772)
Net change in fair value of Consumer Program derivative
121
(10,514)
Net increase in other assets
5,904
(684)
Net increase (decrease) in other liabilities
(4,311)
6,126
Net cash and cash equivalents (used in) provided by operating activities
(965)
(11,929)
Investing activities:
Purchases of securities available-for-sale
(8,815)
Proceeds from paydowns, maturities and calls of securities available-for-sale
4,165
7,599
Proceeds from paydowns, maturities and calls of securities held-to-maturity
651
395
Net decrease in FRB and FHLB stock
21
13,732
Net change in loans held for investment
(23,658)
(112,113)
Proceeds from bank-owned life insurance death benefit
918
873
Proceeds from sales of bank premise and equipment and assets held for sale
373
Purchases of bank premises and equipment, net
(461)
Purchases of other investments
Net cash and cash equivalents used in investing activities
(26,343)
(89,975)
Financing activities:
Net increase in deposits
44,768
945,627
Cash dividends paid on common stock
Proceeds from exercised stock options
Proceeds from secured borrowings, net of repayments
905
15,038
Repayment of short-term FHLB advances
(5,000)
Repayment of short-term borrowings
(325,000)
Decrease in securities sold under agreements to repurchase
(6)
(2,099)
Increase in secured borrowings
-
Net cash and cash equivalents provided by financing activities
38,472
631,170
Net change in cash and cash equivalents
11,164
529,266
Cash and cash equivalents at beginning of period
77,859
Cash and cash equivalents at end of period
607,125
Supplemental disclosure of cash flow information
Cash payments for:
Interest
24,739
16,420
Income taxes
23
Supplemental schedule of noncash investing and financing activities:
Initial recognition of operating lease right-of-use assets
4,017
1. ACCOUNTING POLICIES
Primis Financial Corp. (“Primis,” “we,” “us,” “our” or the “Company”) is the bank holding company for Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. Primis Bank provides a range of financial services to individuals and small and medium-sized businesses.
As of March 31, 2024, Primis Bank had twenty-four full-service branches in Virginia and Maryland and also provided services to customers through certain online and mobile applications. The Company is headquartered in McLean, Virginia and has an administrative office in Glen Allen, Virginia and an operations center in Atlee, Virginia. Primis Mortgage Company (“PMC”), a residential mortgage lender headquartered in Wilmington, North Carolina, is a consolidated subsidiary of Primis Bank. Panacea Financial Holdings, Inc. (“PFH”), headquartered in Little Rock, Arkansas, is consolidated into the Company. PFH owns the rights to the Panacea Financial brand and its intellectual property and partners with the Bank to offer a suite of financial products and services for doctors, their practices, and ultimately the broader healthcare industry.
The accounting policies and practices of Primis and its subsidiaries conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practice within the banking industry. A discussion of the Company’s material accounting policies are located in our 2023 Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
Principles of Consolidation
The consolidated financial statements include the accounts of Primis and its subsidiaries Primis Bank, PMC and PFH. 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 EVB Statutory Trust I (the “Trust”) which is an unconsolidated subsidiary and the junior subordinated debt owed to the Trust is reported as a liability of Primis. Primis consolidates PFH, as a result of the determination that it has a controlling financial interest over the entity as further described below.
We determine whether we have a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”) under U.S. GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in which we have all, or at least a majority of, the voting interest. As defined in U.S. GAAP, VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. The Company has investments in VIE’s for which we are not the primary beneficiary and, as such, are not included in our consolidated financial statements. The Company also has an investment in a VIE for which we are the primary beneficiary.
On December 21, 2023, PFH completed a $24.5 million Series B financing round led by a global venture capital firm. As part of the financing round, Primis acquired approximately 19% of PFH’s common stock for an immaterial purchase price due to previous operating losses in the Bank’s Panacea Financial Division. The Company performed an analysis and determined that PFH is a VIE because it lacks one or more of the characteristics of a voting interest entity. The Company’s
analysis further determined that it has a controlling financial interest in PFH due to the substantial historical activities between PFH and the Bank’s Panacea Financial Division coupled with the limited activities of PFH outside of its relationship with Primis as of December 31, 2023. Further, there are employees of Primis that have historically carried out substantially all of the activities of PFH. Accordingly, the Company determined it is the primary beneficiary of PFH and consolidated it as of December 31, 2023 and no circumstances have changed during the three months ended March 31, 2024 that changed this prior determination.
Operating Segments
The Company, through its Bank subsidiary, provides a broad range of financial services. While the Company’s chief operating decision maker monitors the revenue streams of the various financial products and services, operations are managed and financial performance is evaluated on an organization-wide basis. Management has determined that the Company has two reportable operating segments: Primis Mortgage and Primis Bank, as discussed in Note 11 – Segment Information.
Basis of Presentation
The unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with U.S. GAAP for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required 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 the 2023 Form 10-K.
Reclassifications
In certain instances, amounts reported in the prior year annual audited consolidated financial statements or the interim condensed consolidated financial statements have been reclassified to conform to the current financial statement presentation.
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, the credit impairment of investment securities, the mortgage banking derivatives, interest rate swap derivatives, Consumer Program derivative, the valuation of goodwill, and deferred tax assets. Management monitors and continually reassess these at each reporting period.
Interest Rate Swaps
The Company is subject to interest rate risk exposure in the normal course of business through its core lending operations. Primarily to help mitigate interest rate risk associated with its loan portfolio, the Company entered into interest rate swaps in May and August 2023 with a large U.S. financial institution as the counterparty. Interest rate swaps are contractual agreements whereby one party pays a floating interest rate on a notional principal amount and receives a fixed-rate payment on the same notional principal, or vice versa, for a fixed period of time. Interest rate swaps change in value with movements in benchmark interest rates, such as Prime or the Secured Overnight Financing Rate (“SOFR”). Interest rate swaps subject the Company to market risk associated with changes in interest rates, changes in interest rate volatility, as well as the credit risk that the counterparty will fail to perform. The Company’s interest rate swaps are pay-fixed and receive-floating whereby the Company receives a variable rate of interest based on SOFR.
7
The Company’s interest rate swaps meet the definition of derivative instruments under ASC 815, Derivatives and Hedging, and are accounted for both initially and subsequently at their fair value. The Company assessed the derivative instruments at inception and determined they met the requirements under ASC 815 to be accounted for as fair value hedges. Fair value hedge relationships mitigate exposure to the change in fair value of the hedged risk in an asset, liability or firm commitment. The Company’s interest rate swaps are fair value hedges that are accounted for using the portfolio layer method, which allows the Company to hedge the interest rate risk of prepayable loans by designating as the hedged item a stated amount of two separate and distinct closed portfolios of consumer and commercial loans that are expected to be outstanding for the designated hedge periods. Under the fair value hedging model, gains or losses attributable to the change in fair value of the derivative instruments, as well as the gains and losses attributable to the change in fair value of the hedged items, are recognized in interest income in the same income statement line item with the hedged item in the period in which the change in fair value occurs. The corresponding adjustment to the hedged asset or liability are included in the basis of the hedged items, while the corresponding change in the fair value of the derivative instruments are recorded as an adjustment to other assets or other liabilities, as applicable. The Company presents interest rate swaps on the balance sheets on a net basis when a right of offset exists, based on transactions with a single counterparty and any cash collateral paid to and/or received from that counterparty are subject to legally enforceable master netting arrangements. As of March 31, 2024, the gross amounts of interest rate swap derivative assets and liabilities were $3.2 million and $17 thousand, respectively, and are recorded net in other assets in the consolidated balance sheet.
The following table represents the carrying value of the portfolio layer method hedged assets and the cumulative fair value hedging adjustments included in the carrying value of the hedged assets as of March 31, 2024 and December 31, 2023:
December 31, 2023
(dollars in thousands)
Amortized Cost Basis
Hedged Asset
Basis Adjustment
Fixed rate assets
911,540
246,771
(3,229)
946,185
248,906
(1,094)
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands current disclosure requirements primarily through enhanced disclosures about significant segment expenses. Specifically, the ASU (i) requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), (ii) requires disclosure of an amount for other segment items by reportable segment and a description of its composition, (iii) requires providing in each interim period all current annual disclosures of a reportable segment’s profit or loss and assets, and (iv) allows an entity to provide additional measures of profit or loss used by the CODM in assessing performance and deciding how to allocate resources in addition to providing the measure for this that is most consistent with GAAP, (v) requires disclosure of the title and position of the CODM and an explanation of how the CODM uses reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources, and (vi) requires an entity that has a single reportable segment to provide all disclosures required by this ASU and Topic 280. This ASU is effective for the Company’s annual disclosures beginning for the year ended December 31, 2024 and its interim disclosures thereafter, with early adoption permitted. The Company is currently evaluating the impact of this ASU to its consolidated financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The ASU also eliminates certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. This ASU is effective for the Company’s annual disclosures beginning for the year ended December 31, 2025. The Company is currently evaluating the impact of this ASU to its consolidated financial statement disclosures.
8
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This ASU adds an illustrative example to clarify how an entity should determine whether a profits interest or similar award is within the scope of ASC 718. The amendments in this standard will be effective for the Company on January 1, 2025. The Company does not believe this standard will have a material impact on its consolidated financial statements.
2. INVESTMENT SECURITIES
The amortized cost and fair value of available-for-sale investment securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands):
Amortized
Gross Unrealized
Fair
Cost
Gains
Losses
Value
Residential government-sponsored mortgage-backed securities
108,200
26
(14,907)
93,319
Obligations of states and political subdivisions
33,725
1
(3,857)
29,869
Corporate securities
16,000
(2,357)
13,643
Collateralized loan obligations
5,017
(9)
5,008
Residential government-sponsored collateralized mortgage obligations
43,299
(1,839)
41,497
Government-sponsored agency securities
16,279
(2,654)
13,625
Agency commercial mortgage-backed securities
33,838
(4,191)
29,647
SBA pool securities
4,057
(53)
4,009
260,415
69
(29,867)
110,562
72
(13,826)
96,808
33,801
12
(3,733)
30,080
(1,952)
14,048
5,018
(36)
4,982
35,927
175
(1,631)
34,471
16,267
(2,556)
13,711
34,059
(3,949)
30,110
4,257
4,210
255,891
265
(27,736)
9
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):
Gross Unrecognized
Allowance for
Credit Losses
8,714
(869)
7,845
2,067
(56)
2,011
211
(15)
196
(940)
10,052
9,040
(754)
8,286
2,391
(42)
2,349
219
204
(811)
10,839
Available-for-sale investment securities of $8.8 million were purchased during the three months ended March 31, 2024 and none were purchased during the three months ended March 31, 2023. No held-to-maturity investments were purchased during the three months ended March 31, 2024 and 2023. No investment securities were sold during the three months ended March 31, 2024 and 2023.
The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2024, 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
Fair Value
Due within one year
245
242
548
545
Due in one to five years
9,788
9,094
795
773
Due in five to ten years
36,719
31,595
724
693
Due after ten years
24,269
21,214
Investment securities with a carrying amount of approximately $159.2 million and $200.2 million as of March 31, 2024 and December 31, 2023, respectively, were pledged to secure public deposits, certain other deposits, a line of credit for advances from the FHLB of Atlanta, and repurchase agreements.
Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by states and political subdivisions and other held-to-maturity securities, management
10
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 March 31, 2024, Primis did not have a material allowance for credit losses on held-to-maturity securities.
As of March 31, 2024, there were 140 investment securities available-for-sale that were in an unrealized loss position. The unrealized losses related to investment securities available-for-sale as of March 31, 2024 and December 31, 2023, relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. Primis performs quantitative analysis and if needed, a qualitative analysis in this determination. As a result of the Company’s analysis, none of the securities were deemed to require an allowance for credit losses. Primis has the ability 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 March 31, 2024 and December 31, 2023 by duration of time in a loss position (in thousands):
Less than 12 months
12 Months or More
Unrealized
value
145
90,378
90,523
3,153
(13)
25,715
(3,844)
28,868
13,373
(137)
16,630
(1,702)
30,003
359
(2)
2,540
2,899
17,030
(152)
197,186
(29,715)
214,216
Unrecognized
576
(4)
1,435
(52)
9,476
(936)
93,782
3,945
(19)
23,002
(3,714)
26,947
939
(61)
13,109
(1,891)
17,306
301
(1)
2,693
2,994
5,185
(81)
198,695
(27,655)
203,880
11
1,373
396
(38)
1,769
8,886
(807)
10,259
3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table summarizes the composition of our loan portfolio as of March 31, 2024 and December 31, 2023 (in thousands):
Loans secured by real estate:
Commercial real estate - owner occupied (1)
458,026
455,397
Commercial real estate - non-owner occupied
577,752
578,600
Secured by farmland
4,341
5,044
Construction and land development
146,908
164,742
Residential 1-4 family
602,124
606,226
Multi-family residential
128,599
127,857
Home equity lines of credit
57,765
59,670
Total real estate loans
1,975,515
1,997,536
Commercial loans (2)
623,804
602,623
Paycheck Protection Program loans
2,003
2,023
Consumer loans
620,745
611,583
Total Non-PCD loans
3,222,067
3,213,765
PCD loans
5,598
5,649
Total loans held for investment
3,227,665
3,219,414
Consumer Program Loans
The Company originates a portion of its consumer loans using a third-party that sources and subsequently manages the portfolio of loans (the “Consumer Program”). The Company has $205.1 million and $199.3 million of loans outstanding in the Consumer Program as of March 31, 2024 and December 31, 2023, respectively, or 6% of our total gross loan portfolio as of each date. Loans in the Consumer Program are included within the Consumer Loan category disclosures in this footnote. As of March 31, 2024, 44% of the loans were in a promotional period requiring no payment of interest on their loans with 69% of these promotional loan periods ending in the second half of 2024 through the second quarter of 2025. As of December 31, 2023, 45% of the loans were in a promotional period requiring no payment of interest on their loans with 70% of these promotional loan periods ending in the second half of 2024 through the first quarter of 2025. During the three months ended March 31, 2024, $5.6 million of promotional loans paid off prior to the end of their
promotional periods while $4.8 million of promotional loans reached the end of the promotional period and began amortizing. See “Item 2. Financial Condition – Loans” for more detailed information on the “Consumer Program.”
Accrued Interest Receivable
Accrued interest receivable on loans totaled $22.9 million and $20.1 million at March 31, 2024 and December 31, 2023, 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 six months) of repayment performance by the borrower.
13
The following tables present the aging of the recorded investment in past due loans by class of loans held for investment as of March 31, 2024 and December 31, 2023 (in thousands):
30 - 59
60 - 89
90
Days
Loans Not
Past Due
or More
Loans
Commercial real estate - owner occupied
2,661
455,365
225
577,527
25
129
167
146,741
568
818
2,079
600,045
Multi- family residential
792
805
382
1,979
55,786
Commercial loans
331
21,600
2,037
23,968
599,836
188
1,721
1,909
94
4,000
2,267
456
6,723
614,022
8,602
25,566
5,543
39,711
3,182,356
887
1,241
2,128
3,470
26,453
6,784
41,839
3,185,826
75
294
455,103
1,155
577,445
143
169
164,573
1,850
838
1,376
4,064
602,162
416
378
556
1,350
58,320
40
588
1,203
1,831
600,792
18
1,714
1,732
291
3,805
2,093
310
6,208
605,375
7,385
4,040
5,378
16,803
3,196,962
2,061
128
3,430
2,219
9,446
4,168
6,619
20,233
3,199,181
14
The amortized cost, by class, of loans and leases on nonaccrual status as of March 31, 2024 and December 31, 2023, were as follows (in thousands):
90 Days
Less Than
Nonaccrual With
Nonaccrual
No Credit
Loss Allowance
671
455
150
2,221
3,039
766
1,148
2,046
801
1,257
3,830
4,944
8,774
6,282
1,240
125
5,070
5,069
10,139
469
688
480
1,437
2,813
571
1,127
1,779
207
634
944
3,664
4,190
7,854
4,905
9,095
7,523
There were $1.7 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing as of both March 31, 2024 and December 31, 2023.
15
The following table presents nonaccrual loans as of March 31, 2024 by class and year of origination (in thousands):
Revolving
Converted
2022
2021
2020
Prior
To Term
212
151
1,868
589
1,061
615
383
1,047
2,045
47
695
419
96
Total non-PCD nonaccruals
662
1,259
1,022
4,052
1,157
604
Total nonaccrual loans
5,417
Interest received on nonaccrual loans was zero and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.
Modifications Provided to Borrowers Experiencing Financial Difficulty
The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rates for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers.
The assessments of whether a borrower is experiencing financial difficulty at the time a concession has been granted is subjective in nature and management’s judgment is required when determining whether the concession results in a modification that is accounted for as a new loan or a continuation of the existing loan under U.S. GAAP.
Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, loans modified as a result of borrowers experiencing financial difficulty are typically modified through reductions in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.
For the quarter-ended March 31, 2024, one loan in the 1-4 family loan segment with an amortized cost basis of $30 thousand, was modified to a borrower experiencing financial difficulty, representing less than 0.01% of that loan segment. This loan was converted to an amortizing note, with a reduction in interest rate to fixed at 6% from variable at 8.5%.
Two existing, other consumer loan modifications, with a total $40 thousand in amortized cost and representing 0.01% of this segment, have had no payment delinquencies in the first quarter of 2024. Of these two modifications, one loan with
16
$20 thousand in amortized cost, was modified to interest only payments for eleven months, with a return to principal and interest payments in August 2024. Total contractual payments during the first quarter of 2024 for this loan prior to modification would have been $549. The other existing consumer loan, with $20 thousand in amortized cost was modified to interest only payments for nine months, with principal and interest payments to resume in June 2024. Total contractual payments, prior to modification, for this quarter would have been $645.
The following table depicts the amortized costs basis as of March 31, 2024, of the performance of loans that have been modified to borrowers experiencing financial difficulty in the last 12 months and returned to contractual payments ($ in thousands):
Payment Status
Current
30-59 days past due
60-89 days past due
90 days or more
415
941
58
166
1,413
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies certain loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the loan is written off against the allowance. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
If it is determined that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. At that time, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Credit Quality Indicators
Through its system of internal controls, Primis evaluates and segments loan portfolio credit quality using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified.
Special Mention loans are loans that have a potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position.
Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful loans have all the weaknesses inherent in those classified as Substandard, 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 or improbable. Primis had no loans classified as Doubtful as of March 31, 2024 or December 31, 2023.
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.
17
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of March 31, 2024 (in thousands):
Pass
21,109
47,525
81,672
57,690
17,711
212,198
2,970
6,450
447,325
Special Mention
7,803
Substandard
2,686
2,898
Doubtful
57,902
222,687
Current period gross charge offs
Weighted average risk grade
3.61
3.49
3.42
3.46
3.38
3.50
3.97
Commercial real estate - nonowner occupied
1,587
33,778
62,208
118,479
42,397
306,198
3,140
5,828
573,615
1,519
2,618
4,137
43,916
308,816
3.74
3.18
3.08
3.83
3.67
3.16
2.86
3.48
2,939
323
144
3,886
3,394
4.00
3.81
N/A
4.11
3.10
4.04
6,063
31,386
49,700
44,362
501
12,962
829
145,803
954
14,067
3.04
3.51
3.31
3.03
3.37
3.36
3.28
2,816
37,339
167,246
146,401
39,749
195,824
2,108
596,861
1,030
507
1,537
2,523
621
3,726
168,840
39,767
198,854
2,729
3.24
3.09
3.07
3.19
3.76
3.69
3.12
8,498
21,273
17,580
74,368
4,911
605
127,694
620
285
74,988
890
3.00
3.66
3.91
3.33
3.98
4.64
3.41
523
423
3,106
50,892
845
56,450
111
110
71
1,119
1,205
3,176
52,122
860
3.92
3.11
3.93
50,999
124,040
243,507
70,194
5,362
29,358
87,859
6,596
617,915
2,422
3,425
1,270
2,464
124,655
244,392
70,577
5,576
30,728
90,281
347
2.96
3.75
3.39
3.53
3.68
1,073
922
1,995
1,081
2.03
2.00
2.02
210,628
92,980
282,592
23,831
847
3,564
4,180
370
618,992
45
57
107
1,077
425
1,646
93,032
283,714
24,256
3,622
4,276
1,274
3,206
439
5,032
2.31
2.56
5.83
3.17
3.05
PCD
2,808
1,282
1,508
5.11
293,364
369,056
899,493
484,762
126,963
865,930
164,230
23,867
5,379
3.70
2.94
2.99
3.22
3.26
19
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, 2023 (in thousands):
2019
42,262
97,259
61,316
17,914
23,675
191,674
4,054
6,503
444,657
5,368
95
5,058
5,372
61,535
23,770
202,100
3.52
3.35
3.44
3.54
19,474
65,355
119,065
42,781
37,446
282,497
1,847
5,856
574,321
1,529
2,750
4,279
44,310
285,247
1,170
3.95
3.64
361
98
3,333
607
155
4,564
3,813
3.99
32,496
41,304
72,337
512
2,478
13,912
727
163,767
952
14,887
3.06
3.40
3.29
37,097
163,464
148,845
40,697
56,117
148,066
3,293
2,499
600,078
1,036
511
1,547
585
160
3,328
488
4,601
165,085
40,737
56,277
151,905
2,987
572
198
770
3.25
3.62
544
8,105
21,404
17,738
6,925
68,238
3,360
619
126,933
637
287
924
68,875
906
4.63
521
487
417
3,012
52,923
856
58,336
1,131
1,223
3,087
54,165
32
3.01
3.15
155,238
269,011
50,804
5,683
2,370
30,240
78,984
7,104
599,434
114
1,180
1,315
56
1,874
51,187
5,916
31,463
80,164
1,597
2,854
2.97
4.02
3.14
20
1,087
936
294,825
277,640
25,695
916
89
3,661
6,998
368
610,192
63
831
479
1,328
294,833
278,471
26,174
3,725
2,379
7,910
11,866
3.43
2.59
3.55
4.13
5.81
2.80
2,842
1,295
1,512
4.66
582,826
925,077
502,061
129,125
129,606
770,751
155,215
24,753
3,554
1,638
16,694
3.20
3.59
Revolving loans that converted to term during the three months ended March 31, 2024 and 2023 were as follows (in thousands):
For the three months ended March 31, 2024
For the three months ended March 31, 2023
216
Total loans
82
371
There were no foreclosed residential real estate property held as of both March 31, 2024 and December 31, 2023. The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $0.8 million as of both March 31, 2024 and December 31, 2023.
Allowance For Credit Losses – Loans
The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. For allowance modeling purposes, our loan pools include but are not limited to (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction and land development, (iv) commercial, (v) agricultural loans, (vi) residential 1-4 family and (vii) consumer loans. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether
further segmentation is necessary. For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of inputs: (i) probability of default, (ii) probability of attrition, (iii) loss given default and (iv) exposure at default. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the probability of default input. The various pool-specific inputs may be adjusted for current macroeconomic assumptions. Significant macroeconomic variables utilized in our allowance models include, among other things, (i) Virginia Gross Domestic Product, (ii) Virginia House Price Index, and (iii) Virginia unemployment rates.
Management qualitatively adjusts allowance model results for risk factors that are not considered within our quantitative modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Qualitative factor (“Q-Factor”) adjustments are driven by key risk indicators that management tracks on a pool-by-pool basis.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.
The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of March 31, 2024 and December 31, 2023, calculated in accordance with ASC 326 (in thousands).
Commercial
Home
Real Estate
Construction
Equity
Owner
Non-owner
Secured by
and Land
1-4 Family
Multi-Family
Lines Of
Consumer
Occupied
Farmland
Development
Residential
Credit
Modeled expected credit losses
4,248
4,931
846
4,854
1,072
316
4,832
19,798
40,899
Q-factor and other qualitative adjustments
315
733
24
350
253
1,177
3,353
Specific allocations
917
6,623
1,664
9,204
4,563
5,664
1,196
5,107
1,541
348
6,926
26,421
53,456
3,981
5,024
745
4,559
1,144
332
4,493
20,098
40,378
274
798
29
384
379
446
1,246
3,588
581
5,990
1,672
8,243
4,255
5,822
31
1,129
4,938
1,590
6,320
26,088
52,209
No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
Activity in the allowance for credit losses by class of loan for the three months ended March 31, 2024 and 2023 is summarized below (in thousands):
Home Equity
Three Months Ended March 31, 2024
Allowance for credit losses:
Beginning balance
Provision (recovery)
308
(158)
(5)
67
(49)
(18)
953
5,249
(8)
Charge offs
(347)
(5,032)
(5,379)
Recoveries
116
118
Ending balance
Three Months Ended March 31, 2023
5,558
7,147
4,091
2,201
329
7,853
3,895
2,072
34,544
(254)
(205)
266
(114)
5,243
(127)
(175)
(1,766)
(2,483)
(4,424)
112
161
147
5,304
7,161
1,280
4,343
2,087
6,510
6,802
1,945
35,803
22
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 with the exception of the Consumer Program loans that are charged-off once they are 90 days past due.
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 March 31, 2024 and December 31, 2023 (in thousands):
Loan
Specific
Balance
Allocations
2,547
5,404
1,810
2,695
904
923
282
290
2,930
6,634
6,002
Total non-PCD loans
14,669
7,540
18,724
6,571
20,267
24,373
The following table presents a breakdown between loans that were evaluated on an individual basis and identified as collateral dependent loans and non-collateral dependent loans, by loan portfolio segment and their collateral value as of March 31, 2024 and December 31, 2023 (in thousands):
Non
Collateral
Dependent
Assets
3,444
5,986
1,345
1,317
1,338
64
65
2,610
3,512
925
289
1,750
2,097
397
393
11,718
1,012
15,577
Collateral value
25,987
30,907
4. DERIVATIVES
Consumer Program Derivative
The Company has a derivative instrument in connection with its agreement with a third-party that originates loans that are held on the Company’s balance sheet. The third-party provides credit support and reimbursement for lost interest under the agreement and the Company provides performance fees to the third-party on performing loans. Specifically, a portion of the originated loans are originated with a promotional period where interest accrues on the loans but is not owed to the Company unless and until the loan begins to amortize. If the borrower prepays the principal on the loan prior to the end of the promotional period the accrued interest is waived, but becomes due to the Company from the third-party under the agreement. This expected payment of waived interest to the Company along with performance fees due to the third-party comprise the value of the derivative. The fair value of the derivative instrument was an asset of $10.7 million and $10.8 million as of March 31, 2024 and December 31, 2023, respectively. The underlying cash flows were $12.1 million and $12.4 million as of March 31, 2024 and December 31, 2023, respectively. The Company calculates the fair value of this derivative using a discounted cash flow model using inputs that are inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate the fair value. The most significant inputs and assumptions in determining the value of the derivative are noted below ($ in thousands).
Weighted
Low
High
Average
Remaining cumulative charge-offs
32,544
40,932
n/a
Remaining cumulative promotional prepayments
43,393
79,304
53,611
Average life (years)
0.8
Discount rate
4.99%
15.05%
25,661
35,334
41,085
75,086
49,716
1.0
4.63%
14.64%
Mortgage Banking Derivatives and Financial Instruments
The Company enters into IRLCs (“interest rate lock commitments”) to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 90 days), with borrowers who have applied for a loan and have met certain credit and underwriting criteria. The IRLCs are adjusted for estimated costs to originate the loan as well as the probability that the mortgage loan will fund within the terms of the IRLC (the pullthrough rate). Estimated costs to originate include loan officer commissions and overrides. The pullthrough rate is estimated on changes in market conditions, loan stage, and actual borrower behavior using a historical analysis of IRLC closing rates. The Company obtains an analysis from a third party on a monthly basis to support the reasonableness of the pullthrough estimate.
Best efforts and mandatory 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.
Our IRLCs are recorded within other liabilities in the condensed consolidated balance sheets. Forward loan sale commitments and best efforts assets are recorded in other assets and forward loan sale commitments and best efforts liabilities are recorded in other liabilities, respectively, in the condensed consolidated balance sheets. Gains and losses on these financial instruments are recorded in mortgage banking income in the condensed consolidated statements of income and comprehensive income. For the three months ended March 31, 2024 and 2023 we recorded gains of $44 thousand and losses of $1.1 million, respectively, on these financial instruments.
The key unobservable inputs used in determining the fair value of IRLCs are as follows for the three months ended March 31, 2024:
Inputs
Average pullthrough rates
86.01
%
Average costs to originate
1.31
The following summarizes derivative and non-derivative financial instruments as of March 31, 2024 and December 31, 2023:
Notional
Derivative financial instruments:
Derivative assets (1)
1,113
41,202
Derivative liabilities
156
74,250
(1) Pullthrough rate adjusted
Non-derivative financial instruments:
Best efforts assets
404
18,699
611
23,077
200
62,250
91
4,677
The notional amounts of mortgage loans held for sale not committed to investors was $40.5 million and $46.2 million as of March 31, 2024 and December 31, 2023, respectively.
The Company has exposure to credit loss in the event of contractual non-performance by its trading counterparties in derivative instruments that the Company uses in its rate risk management activities. The Company manages this credit risk by selecting only counterparties that the Company believes to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty and by entering into netting agreements with counterparties, as appropriate.
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
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements Using
Significant
Quoted Prices in
Active Markets for
Observable
Unobservable
Total at
Identical Assets
(Level 1)
(Level 2)
(Level 3)
Assets:
Available-for-sale securities
Loans held for sale
Mortgage banking financial assets
Mortgage banking derivative assets
Interest rate swaps, net
3,178
564,985
552,783
12,202
Liabilities:
Mortgage banking derivative liabilities
1,068
547,593
536,085
11,508
Assets measured at fair value on a non-recurring basis are summarized below:
Collateral dependent loans
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Fair Value of Financial Instruments
The carrying amount, estimated fair values and fair value hierarchy levels of financial instruments were as follows (in thousands) for the periods indicated:
Carrying
Hierarchy Level
Financial assets:
Cash and cash equivalents
Level 1
Securities available-for-sale
Level 2
Securities held-to-maturity
Stock in Federal Reserve Bank and Federal Home Loan Bank
Preferred investment in mortgage company
3,005
Level 2 and 3
3,021,081
3,068,663
Level 3
Financial liabilities:
Demand deposits and NOW accounts
1,234,306
1,245,969
Money market and savings accounts
1,657,839
1,578,288
419,785
443,765
9,083
9,039
84,267
84,513
Carrying amount is the estimated fair value for cash and cash equivalents, loans held for sale, mortgage banking financial assets and liabilities, mortgage banking derivative assets and liabilities, Consumer Program derivative, interest rate swaps, demand deposits, savings accounts, money market accounts, FHLB advances, secured borrowings and securities sold under agreements to repurchase.
Fair value of junior subordinated debt and senior subordinated notes are based on current rates for similar financing. Carrying amount of Federal Reserve Bank and FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are based on the ultimate recoverability of the par value. The fair value of off-balance sheet items is not considered material. Fair value of net loans, time deposits, junior subordinated debt, and senior subordinated notes are measured using the exit-price notion.
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6. LEASES
The Company leases certain premises under operating leases. In recognizing lease right-of-use assets and related liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. As of March 31, 2024 and December 31, 2023, the Company had operating lease liabilities totaling $11.4 million and $11.7 million, respectively, and right-of-use assets totaling $10.2 million and $10.6 million, respectively, reflected in our condensed consolidated balance sheets related to these leases. We do not currently have any financing leases. For the three months ended March 31, 2024 and 2023, our net operating lease costs were $0.6 million. These net operating lease costs are reflected in occupancy expenses on our condensed consolidated statements of income and comprehensive income.
The following table presents other information related to our operating leases:
For the Three Months Ended
March 31, 2023
Other information:
Weighted-average remaining lease term - operating leases, in years
7.1
7.6
Weighted-average discount rate - operating leases
4.0
3.7
The following table summarizes the maturity of remaining lease liabilities:
As of
Lease payments due:
1,462
2025
2026
1,925
2027
1,911
2028
1,839
Thereafter
Total lease payments
13,149
Less: imputed interest
(1,796)
Lease liabilities
As of March 31, 2024, the Company did not have any operating lease that has not yet commenced that will create additional lease liabilities and right-of-use assets for the Company.
7. DEBT AND OTHER BORROWINGS
Other borrowings can consist of FHLB convertible advances, FHLB of Atlanta overnight advances, FHLB advances maturing within one year, federal funds purchased, Federal Reserve Board Discount Window, secured borrowings and securities sold under agreements to repurchase (“repo”) that mature within one year, which are secured transactions with customers. The balance in repo accounts as of March 31, 2024 and December 31, 2023 was $3.0 million.
As of March 31, 2024 and December 31, 2023, we had pledged callable agency securities, residential government-sponsored mortgage-backed securities and collateralized mortgage obligations with a carrying value of $6.8 million, to customers who require collateral for overnight repurchase agreements and deposits.
As of March 31, 2024, Primis Bank had lendable collateral value in the form of residential 1-4 family mortgages, HELOCs, commercial mortgage loans, and investment securities supporting borrowing capacity of approximately $603.5 million from the FHLB, of which the Company has used $125.0 million. As of December 31, 2023 the Company had $596.1 million of capacity and had $30.0 million of borrowings outstanding from the FHLB.
In June 2023, the Bank began participating in the Federal Reserve discount window borrowing program. As of March 31, 2024, the Bank had borrowing capacity of $709.9 million within the program and has not borrowed under the program.
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. As of March 31, 2024 and December 31, 2023, there was $10.3 million outstanding, net of approximately $0.5 million of debt issuance costs. As of March 31, 2024 and December 31, 2023, the interest rate payable on the trust preferred securities was 8.59% and 7.86%, respectively. As of March 31, 2024, all of the trust preferred securities qualified as Tier 1 capital.
On January 20, 2017, Primis completed the sale of $27.0 million of its fixed-to-floating rate senior Subordinated Notes due 2027. Interest is currently payable at an annual floating rate equal to three-month CME Term SOFR plus a tenor spread adjustment of 0.26% until maturity or early redemption. As of March 31, 2024, 40% of these notes qualified as Tier 2 capital.
On August 25, 2020, Primis completed the sale of $60.0 million of its fixed-to-floating rate Subordinated Notes due 2030. Interest is payable at an initial annual fixed rate of 5.40% and after September 1, 2025, at a floating rate equal to a benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 531 basis points. As of March 31, 2024, all of these notes qualified as Tier 2 capital.
As of both March 31, 2024 and December 31, 2023, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled $1.2 million.
Secured Borrowings
The Company transferred $23.4 million in principal balance of loans to another financial institution in 2023 that were accounted for as secured borrowings and transferred another $1.1 million under the same agreement during the three months ended March 31, 2024. The balance of secured borrowings was $21.3 million and $20.4 million as of March 31, 2024 and December 31, 2023, respectively, and the remaining amortized cost balance of the underlying loans was $21.4 million and $20.5 million, respectively. None of the loans underlying the secured borrowings were past due 30 days or greater or on nonaccrual as of March 31, 2024 and December 31, 2023 and were all internally rated as “pass” loans as presented in our “credit quality indicators” section of “Note 3 – Loans and Allowance for Credit Losses”. The loans were included in our allowance for credit losses process and an allowance was calculated on the loans as part of their inclusion in a pool with other loans with similar credit risk characteristics. There were no charge-offs of the loans underlying the secured borrowings during the three months ended March 31, 2024. The underlying loans collateralize the borrowings and cannot be sold or pledged by the Company.
8. STOCK-BASED COMPENSATION
The 2017 Equity Compensation Plan (the “2017 Plan”) has a maximum number of 750,000 shares reserved for issuance. The purpose of the 2017 Plan is to promote the success of the Company by providing greater incentives to employees, non-employee directors, consultants and advisors to associate their personal financial interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices.
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A summary of stock option activity for the three months ended March 31, 2024 follows:
Aggregate
Remaining
Intrinsic
Exercise
Contractual
Price
Term
(in thousands)
Options outstanding, beginning of period
54,800
11.49
1.7
Exercised
(3,500)
10.47
Options outstanding, end of period
51,300
11.56
1.5
Exercisable at end of period
There was no stock-based compensation expense associated with stock options for the three months ended March 31, 2024 and 2023. As of March 31, 2024, we do not have any unrecognized compensation expense associated with the stock options.
A summary of time vested restricted stock awards for the three months ended March 31, 2024 follows:
Grant-Date
Per Share
Unvested restricted stock outstanding, beginning of period
40,300
13.59
2.3
Granted
Vested
(14,800)
15.07
Forfeited
Unvested restricted stock outstanding, end of period
25,500
12.73
Stock-based compensation expense for time vested restricted stock awards totaled $0.2 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, unrecognized compensation expense associated with restricted stock awards was $0.3 million, which is expected to be recognized over a weighted average period of 2.5 years.
A summary of performance-based restricted stock units (the “Units”) for the three months ended March 31, 2024 follows:
Unvested Units outstanding, beginning of period
244,710
11.77
3.1
(11,916)
12.24
(9,334)
10.67
Unvested Units outstanding, end of period
223,460
11.79
2.8
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 recognized no stock-based compensation expense during the three months ended March 31, 2024 and 2023 as a result of the probability of a portion of the Units vesting because it is not probable that these Units will vest. The potential unrecognized compensation expense associated with these Units was $4.4 million and $3.0 million at March 31, 2024 and 2023, respectively.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
Primis is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and guarantees of credit card accounts. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance sheets. Letters of credit are written conditional commitments issued by Primis to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling $9.9 million and $9.6 million as of March 31, 2024 and December 31, 2023, respectively.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is based on the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The allowance for credit losses on off-balance sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 3 - Loans and Allowance for Credit Losses, as if such commitments were funded. The allowance for credit losses on off-balance-sheet credit exposures is reflected in other liabilities in our condensed consolidated balance sheets.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures for the three months ended March 31:
Balance as of January 1
1,579
1,416
Credit loss expense (benefit)
Balance as of March 31
1,514
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 $88.5 million of PMC loan commitments outstanding as of March 31, 2024, all of which contractually expire within thirty years.
At March 31, 2024 and December 31, 2023, we had unfunded lines of credit and undisbursed construction loan funds totaling $434.2 million and $473.1 million, respectively, not all of which will ultimately be drawn. Almost all of our unfunded lines of credit and undisbursed construction loan funds are variable rate. The amount of certificate of deposit accounts maturing in less than one year was $378.9 million as of March 31, 2024, including $75.0 million of brokered CDs. Management anticipates that funding requirements for these commitments can be met in the normal course of business.
Primis also had commitments on the subscription agreements entered into for investments in non-marketable equity securities of $1.5 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively.
10. EARNINGS PER SHARE
The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations (amounts in thousands, except per share data):
Income
(Numerator)
(Denominator)
Basic EPS
24,674
Effect of dilutive stock options and unvested restricted stock
33
Diluted EPS
24,707
24,626
59
24,685
The Company did not have any anti-dilutive options as of March 31, 2024 and an immaterial amount as of March 31, 2023.
11. SEGMENT INFORMATION
The Company's management reporting process measures the performance of its operating segments based on internal operating structure, which is subject to change from time to time. As of March 31, 2024, the Company operates two reportable segments for management reporting purposes as discussed below:
Primis Bank. This segment specializes in providing financing services to businesses in various industries and deposit-related services to businesses, consumers and other customers. The primary source of revenue for this segment is net interest income from the origination of loans.
Primis Mortgage. This segment specializes in originating mortgages in a majority of the U.S. The primary source of revenue for this segment is noninterest income and the origination and sale of mortgage loans.
The following table provides financial information for the Company's reportable segments. The information provided under the caption “Primis Bank” includes operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company and elimination adjustments to reconcile the results of the operating segment to the consolidated financial statements prepared in conformity with U.S. GAAP.
As of and for the three months ended March 31, 2024
Primis Mortgage
Primis Bank
Consolidated
($ in thousands)
Interest income
907
49,438
Interest expense
24,362
Noninterest income
4,733
Noninterest expense
5,122
22,416
1,359
171
327
391
1,032
(220)
81,840
3,808,139
As of and for the three months ended March 31, 2023
43,862
24,926
13,355
4,988
21,966
Income (loss) before income taxes
(277)
11,052
Income tax expense (benefit)
(65)
2,477
(212)
8,575
46,877
4,172,105
4,218,982
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Primis. This discussion and analysis should be read with the condensed consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of operations for the three months ended March 31, 2024 are not necessarily indicative of results that may be attained for any other period. The emphasis of this discussion will be on the three months ended March 31, 2024 compared to the three months ended March 31, 2023 for the consolidated statements of income and comprehensive income. For the condensed consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2024 compared to December 31, 2023. 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, 2023, and the other reports we file with the Securities and Exchange Commission, factors that could contribute to those differences include, but are not limited to:
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Forward-looking statements are not guarantees of performance or results and should not be relied upon as representing management’s views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our periodic and current reports filed with the SEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.
OVERVIEW
Primis Financial Corp. (“Primis,” “we,” “us,” “our” or the “Company”) is the bank holding company for Primis Bank (“Primis Bank” or the “Bank”), a Virginia state-chartered bank which commenced operations on April 14, 2005. Primis Bank provides a range of financial services to individuals and small and medium-sized businesses. As of March 31, 2024, Primis Bank had twenty-four full-service branches in Virginia and Maryland and also provides services to customers through certain online and mobile applications. Twenty-two full-service retail branches are in Virginia and two full-service retail branches are in Maryland. The Company is headquartered in McLean, Virginia and has an administrative office in Glen Allen, Virginia and an operations center in Atlee, Virginia. Primis Mortgage Company, a residential mortgage lender headquartered in Wilmington, North Carolina, is a consolidated subsidiary of Primis Bank. PFH is a consolidated subsidiary of Primis and owns the rights to the Panacea Financial brand and its intellectual property and partners with the Bank to offer a suite of financial products and services for doctors, their practices, and ultimately the broader healthcare industry.
While Primis Bank offers a wide range of commercial banking services, it focuses on making loans secured primarily by commercial real estate and other types of secured and unsecured commercial loans to small and medium-sized businesses in a number of industries, as well as loans to individuals for a variety of purposes. Primis Bank invests in real estate-related securities, including collateralized mortgage obligations and agency mortgage backed securities. Primis Bank’s principal sources of funds for loans and investing in securities are deposits and, to a lesser extent, borrowings. Primis Bank offers a broad range of deposit products, including checking (NOW), savings, money market accounts and certificates of deposit. Primis Bank actively pursues business relationships by utilizing the business contacts of its senior management, other bank officers and its directors, thereby capitalizing on its knowledge of its local market areas.
Current Economic Environment
U.S. economic growth accelerated in the first quarter of 2024, with Real Gross Domestic Product growing by an annualized 1.6%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment was 3.8% in March 2024 and nonfarm payrolls grew at a robust pace. The Federal Reserve (the “Fed”) raised interest rates 500 bps from May of 2022 through July of 2023, a pace that has not been experienced in more than 40 years, and sits at a range of 5.25% to 5.50% as of March 31, 2024. Inflation, while beginning to show signs of moderating, remains higher than the Fed’s long term target rate of 2.0% and the Fed appears committed to maintaining high rates until inflation is back at their target rate. The Fed has indicated that future rate adjustments will be data-dependent.
This higher rate environment is continuing to put strong margin pressure on all banks, including Primis, as the cost of deposits has increased alongside the Fed rate increases while many loans in banks’ portfolios are fixed due to borrowers locking in historic low rates in the past few years. However, loan growth in the current environment will benefit from the higher rates and should assist in partially offsetting growth in deposit costs.
FINANCIAL HIGHLIGHTS
RESULTS OF OPERATIONS
Net Income
Net income for the three months ended March 31, 2024 totaled $2.5 million, or $0.10 basic and diluted earnings per share, compared to net income of $8.4 million, or $0.34 basic and diluted earnings per share for the three months ended March 31, 2023. The 71% decrease in net income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was driven primarily by a decrease in derivative gains of $9.4 million, an increase in credit loss provisions of $1.2 million, and personnel expenses of $0.7 million, partially offset by an increase in mortgage banking income of $1.3 million, increases in all other noninterest income categories of $2.0 million, and a decrease in income tax provision of $1.7 million.
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.
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Net interest income remained steady at $25.3 million for the three months ended March 31, 2024 and 2023. Primis’ net interest margin for the three months ended March 31, 2024 was 2.84%, compared to 2.81% for the three months ended March 31, 2023. Total income on interest-earning assets was $50.3 million and $44.3 million for the three months ended March 31, 2024 and 2023, respectively. The yield on average interest-earning assets was 5.65% and 4.92% for the three months ended March 31, 2024 and 2023, respectively. Increase in yield on average interest-earnings assets was driven by a 71 basis point increase on loans in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The cost of average interest-bearing deposits increased 96 basis points to 3.28% for the three months ended March 31, 2024, compared to 2.32% for the three months ended March 31, 2023, as average interest-bearing liabilities grew approximately $0.2 billion and the rates paid on these liabilities grew significantly due to the consistent increases in benchmark interest rates during 2023. The increase was driven by higher costs in every interest-bearing deposit category with the largest driver being an increase in average savings deposits of $206.4 million with an average increase in cost of those deposits of 80 basis points. This increase was primarily a result of the growth of the digital deposit platform during 2023 and increase in benchmark interest rates. Average loans during the three months ended March 31, 2024 were $3.2 billion, compared to $3.0 billion during the three months ended March 31, 2023. The $0.2 billion increase in average loans combined with the 71 basis point increase in yield on the loan portfolio drove the $9.3 million increase in income on loans.
The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:
Average Balance Sheets and Net Interest Margin
Analysis For the Three Months Ended
Income/
Yield/
Expense
Rate
(Dollar amounts in thousands)
Interest-earning assets:
58,896
6.19
25,346
6.26
Loans, net of deferred fees (1) (2)
3,206,888
46,825
5.87
2,989,925
38,059
5.16
Investment securities
241,179
1,715
246,402
1,584
2.61
Other earning assets
77,067
4.69
388,327
4.41
Total earning assets
3,584,030
5.65
3,650,000
4.92
Allowance for credit losses
(51,110)
(34,099)
Total non-earning assets
299,192
284,339
3,832,112
3,900,240
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts
773,943
4,467
2.32
722,583
1.27
814,147
6,512
824,541
4,801
2.36
800,328
8,045
593,896
4,750
431,340
3,990
3.72
489,066
3,226
2.68
2,819,758
2,630,086
Borrowings
120,188
6.90
285,113
5.54
Total interest-bearing liabilities
2,939,946
2,915,199
2.63
Noninterest-bearing liabilities:
Demand deposits
458,306
556,495
34,900
28,544
3,433,152
3,500,238
Primis common stockholders' equity
378,008
400,002
Noncontrolling interest
20,952
398,960
Interest rate spread
2.22
2.28
Net interest margin
2.84
2.81
Provision for Credit Losses
The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses for current expected losses in the loan portfolio based on an evaluation of the loan portfolio characteristics, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability, and assessment of reasonable and supportable forecasts of future economic conditions that would impact collectability of the loans. 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 March 31, 2024 and 2023, of $6.5 million and $5.3 million, respectively. The provision included amounts calculated in our normal reserve process for the Consumer Program loans which totaled $4.9 million and $4.7 million during the three months ended March 31, 2024 and 2023, respectively. Our provision for credit losses was driven by provisions related to the Consumer Program loan portfolio primarily centered around loans originated from the third quarter of 2022 through the first quarter of 2023. Excluding the provision amounts related to the Consumer Program portfolio, we recorded a provision for credit losses of $1.6 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively.
We had net charge-offs totaling $5.3 million and $4.0 million during the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, $4.3 million and $1.9 million, respectively, of net charge-offs were related to the Consumer Program loans. These charge-offs were primarily related to loans originated from the third quarter of 2022 to the first quarter of 2023. Excluding the Consumer Program loan charge-offs we had net charge-offs of $1.0 million and $2.1 million during the three months ended March 31, 2024 and 2023, respectively.
The Financial Condition section of this MD&A provides information on our loan portfolio, past due loans, nonperforming assets and the allowance for credit losses.
Noninterest Income
The following table presents the major categories of noninterest income for the three months ended March 31, 2024 and 2023:
Change
(9,402)
(63)
(7,363)
Noninterest income decreased 42% to $10.3 million for the three months ended March 31, 2024, compared to $17.7 million for the three months ended March 31, 2023. The decrease in noninterest income was primarily related to a decline in the Consumer Program derivative income of $9.4 million during the three months ended March 31, 2024. This decline was driven by $10.5 million of fair value gains on the derivative in the prior year compared to a $0.1 million loss in the current year, partially offset by $1.0 million of additional income under the Consumer Program agreement in the current
year compared to the prior year. The fair value gain in the prior year was driven primarily by higher expected cash flows related to a significant increase in promotional interest loans in the Consumer Program portfolio and higher credit losses in the same portfolio resulting in less expected payments owed by us to the counterparty, which did not re-occur in the current year. The decrease in noninterest income driven by the Consumer Program derivative was partially offset by $1.3 million of higher mortgage banking income due to growth in the mortgage banking business.
Noninterest Expense
The following table presents the major categories of noninterest expense for the three months ended March 31, 2024 and 2023:
707
Amortization of core deposit intangible
(218)
(20)
(110)
(31)
503
(434)
(143)
584
Noninterest expenses were $27.5 million during the three months ended March 31, 2024, compared to $27.0 million during the three months ended March 31, 2023. The 2% increase in noninterest expenses was primarily related to a $0.7 million increase in employee compensation and benefits expense and $0.5 million increase in professional fees. The increase in salaries and benefits expense related to increased head count at the Bank that was driven by the Panacea Financial division and Primis Mortgage during the to the first quarter of 2024 compared to the first quarter of 2023. The increase in professional fees expense was driven by higher attorney costs and expenses related to our annual financial audit. The noninterest expense increase was partially offset by decreases in miscellaneous lending expenses and lower franchise tax expense. The miscellaneous lending expense decline was driven by lower collection expenses due to improving credit quality in the loan portfolio and also due to less servicing expenses on the Consumer Program portfolio. The franchise tax declined as a result of a lower assessment base in the current year compared to the prior year.
41
FINANCIAL CONDITION
The following illustrates key balance sheet categories as of March 31, 2024 and December 31, 2023 (in thousands):
2,197
(658)
14,526
7,004
313,227
314,027
(800)
33,433
145,002
149,032
(4,030)
35,455
39,766
36,427
Total equity
(2,994)
Total liabilities and equity
Total loans were $3.2 billion as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, a majority of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations. Our loan portfolio grew 0.1% in the first quarter of 2024 which included declines in real estate secured loans and increases in commercial and consumer loans. The consumer loan growth was primarily driven by the increase in life insurance premium finance loans followed by originations in the Consumer Program portfolio during the first quarter of 2024. The increase in commercial loans was driven primarily by commercial loan growth in our Panacea Financial division, which are diversified geographically and are spread across the nation.
The composition of our loans held for investment portfolio consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):
Percent
14.2
14.1
17.9
18.0
0.1
0.2
4.6
5.1
18.7
18.8
1.8
1.9
61.2
62.0
19.3
Paycheck protection program loans
19.2
19.0
99.8
100.0
42
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 March 31, 2024 (in thousands):
After 1 Year
After 5 Years
Through 5 Years
Through 15 Years
After 15 Years
One Year
Fixed
Floating
or Less
28,367
98,008
21,025
125,452
124,009
2,248
58,917
43,616
209,772
28,511
53,674
65,594
11,051
165,534
762
154
1,275
91,883
19,780
20,302
2,604
6,289
669
5,381
20,207
41,321
8,599
26,364
53,003
70,286
382,344
9,167
68,731
6,240
18,127
26,334
5,111
3,263
8,184
1,728
39,404
199,575
441,637
93,015
208,272
269,562
84,265
679,189
89,009
131,231
113,597
237,189
49,018
1,102
2,658
1,790
3,491
288,857
143,276
82,444
100,602
2,069
292,100
863,515
349,888
528,093
419,182
87,436
681,853
2,730
1,222
1,214
390
294,830
864,737
349,930
420,396
87,826
The following table sets forth the contractual maturity ranges of our Consumer Program loan portfolio as of March 31, 2024, which is only originated at fixed rates (in thousands):
One Year or Less
After One Year to Five Years
After Five Through Ten Years
After Ten Years
141,367
49,678
14,030
205,085
The following table describes the period over which our Consumer Program loans that are currently in a no interest promotional period will exit that promotional period and begin to amortize. All of these promotional loans amortize over four years from the date they exit the promotional period if not prepaid before the end of the promotional period (in thousands):
Amount ending
No Interest
Total Interest
Promo Period in
Promo
next 12 months
next 13-24 months
as of 3/31/24
68,371
22,461
90,832
During the three months ended March 31, 2024, $5.6 million of loans paid off during the no interest promo period and $4.8 million of loans ended their no interest promo period and began to amortize.
43
Asset Quality; Past Due Loans and Nonperforming Assets
The following table presents a comparison of nonperforming assets as of March 31, 2024 and December 31, 2023 (in thousands):
Nonaccrual loans
Loans past due 90 days and accruing interest
Total nonperforming assets
11,853
10,809
SBA guaranteed amounts included in nonperforming loans
3,095
3,115
Allowance for credit losses to total loans
1.66
1.62
Allowance for credit losses to nonaccrual loans
527.22
574.06
Allowance for credit losses to nonperforming loans
451.00
483.04
Nonaccrual to total loans
0.32
0.28
Nonperforming assets excluding SBA guaranteed loans to total assets
0.23
0.20
Asset quality remained relatively stable during the first quarter of 2024 as noted in the table above. We will generally place a loan on nonaccrual status when it becomes 90 days past due. Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Cash payments received while a loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections.
We maintain appraisals on loans secured by real estate, particularly those categorized as nonperforming loans and potential problem loans. In instances where appraisals reflect reduced collateral values, we make an evaluation of the borrower’s overall financial condition to determine the need, if any, for impairment or write-down to their fair values. If foreclosure occurs, we record OREO at the lower of our recorded investment in the loan or fair value less our estimated costs to sell.
Our loan portfolio losses and delinquencies have been primarily limited by our underwriting standards and portfolio management practices. Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy, rising or elevated interest rates, historically high or persistent inflation, and recessionary concerns.
We originate a portion of our consumer loans (the Consumer Program) using a third party that sources and subsequently manages the portfolio of loans. As of March 31, 2024, the principal balance outstanding was $205.1 million. These loans are accounted for similar to our other consumer loans and are not placed on nonaccrual because they are charged off when they become 90 days past due. The allowance on this portfolio of loans was $23.0 million as of March 31, 2024 and represented 43% of our total allowance for credit losses. Net charge-offs on this portfolio were $4.3 million and $1.9 million during the three months ended March 31, 2024 and 2023, respectively, and represented approximately 82% and 47%, respectively, of net charge-offs recorded during the periods.
The Company tightened its origination criteria in regard to this portfolio in April of 2023 and from that point forward we generally originated loans to consumer borrowers being managed by the third party with FICO scores over 720, whereas prior periods loan production included approximately 40% of loans to borrowers with weaker credit scores. This older vintage lower credit score portion of the portfolio has driven the uptick in related charge-offs during 2023 which continued into the first quarter of 2024 and necessitated the update of the Company’s expected loss rates on this portfolio for purposes of determining the allowance for credit losses as discussed in the Provision for Credit Losses section of this MD&A. The newer production represented approximately 29% of the portfolio at March 31, 2024 and is expected to improve the quality mix of the portfolio and result in lower realized net charge-offs in future periods.
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Investment Securities
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).
Available-for-sale investment securities:
Held-to-maturity investment securities:
Debt investment securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Investment securities classified as available-for-sale are those debt securities that may be sold in response to changes in interest rates, liquidity needs or other similar factors. Investment securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred taxes, included in accumulated other comprehensive income (loss) in stockholders’ equity. Our portfolio of available-for-sale securities currently contains a material amount of unrealized mark-to-market adjustments due to increases in market interest rates since the original purchase of many of these securities. We intend to hold these securities until maturity or recovery of the value and do not anticipate realizing any losses on the investments.
Investment securities, available-for-sale and held-to-maturity, totaled $241.6 million as of March 31, 2024, an increase of 0.6% from $240.1 million as of December 31, 2023, primarily due to purchases of available-for-sale securities, partially offset by paydowns, maturities, and calls of the investments over the past three months. We recognized an immaterial amount of credit impairment charges related to credit losses on our held-to-maturity investment securities during the three months ended March 31, 2023. No credit impairment charges were taken during the three months ended March 31, 2024.
For additional information regarding investment securities refer to “Note 2-Investment Securities” in this Form 10-Q.
Deposits and Other Borrowings
Deposits
The market for deposits is competitive. We offer a line of traditional deposit products that currently include noninterest-bearing and interest-bearing checking (or NOW accounts), commercial checking, money market accounts, savings accounts and certificates of deposit. We compete for deposits through our banking branches with competitive pricing, as well as nationally through advertising and online banking. We use deposits as a principal source of funding for our lending, purchasing of investment securities and for other business purposes.
The variety of deposit accounts we offer allows us to be competitive in obtaining funds and in responding to the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be, significantly affected by the general economy and market rates of interest.
Total deposits were $3.3 billion as of March 31, 2024, a 1% increase from December 31, 2023. The increase in deposits from year end was primarily driven by growth in money market and savings accounts due to our competitive rates on these products. Savings accounts increased 5% from $783.8 million as of December 31, 2023 to $823.3 million as of March 31, 2024. Money market accounts also increased 5% from $794.5 million as of December 31, 2023 to $834.5 million as of March 31, 2024. Our deposits are diversified in type and by underlying customer and lack significant concentrations to any type of customer (i.e. commercial, consumer, government) or industry.
Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits as calculated per regulatory guidance were $1.1 billion, or 34% of total deposits, at March 31, 2024.
Other Borrowings
We use other borrowed funds to support our liquidity needs and to temporarily satisfy our funding needs from increased loan demand and for other shorter term purposes. We are a member of the FHLB and are authorized to obtain advances from the FHLB from time to time as needed. The FHLB has a credit program for members with different maturities and interest rates, which may be fixed or variable. We are required to collateralize our borrowings from the FHLB with purchases of FHLB stock and other collateral acceptable to the FHLB. As of March 31, 2024 and December 31, 2023, total FHLB borrowings were $25.0 million and $30.0 million, respectively. The decrease in FHLB borrowings was a result of the deposit growth during the first quarter of 2024 that primarily funded our loan growth and supported other funding needs. As of March 31, 2024, we had $478.5 million of unused and available FHLB lines of credit.
Other borrowings can consist of federal funds purchased, secured borrowings due to failed loan sales, 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 both March 31, 2024 and December 31, 2023 was $3.0 million.
We had secured borrowings of $21.3 million and $20.4 million as of March 31, 2024 and December 31, 2023, respectively, related to loan transfers to another financial institution during 2023 that did not meet the criteria to be treated as a sale under relevant accounting guidance. These borrowings reflect the cash received for transferring the loans to the other financial institution and any unamortized sale premium and are secured by approximately the same amount of loans held for investment that are recorded in our balance sheet. We retained the servicing of the loans that were transferred and accordingly receive principal and interest from the borrower as contractually required and transfer the interest to the other financial institution net of our contractually agreed upon servicing fee. The loans transferred have an average maturity of approximately ten years which will be the time over which the principal balance of the loans in our balance sheet and secured borrowings will pay down, absent borrower prepayments. During the three months ended March 31, 2024, additional advances were made to borrowers under the loans previously transferred in 2023 and were accordingly treated as additional secured borrowings as of March 31, 2024. For additional information on secured borrowings refer to “Note 1 –Accounting Policies” in this Form 10-Q.
46
Junior Subordinated Debt and Senior Subordinated Notes
For information about junior subordinated debt and senior subordinated notes and their anticipated principal repayments refer to “Note 7 –Debt and Other Borrowings” in this Form 10-Q.
Liquidity and Funds Management
The objective of our liquidity management is to ensure the ability to meet our financial obligations. These obligations include the payment of deposits on demand or at maturity, the repayment of borrowings at maturity and the ability to fund commitments and other new business opportunities. We obtain funding from a variety of sources, including customer deposit accounts, customer certificates of deposit and payments on our loans and investments. If our level of core deposits are not sufficient to fully fund our lending activities, we have access to funding from additional sources, including but not limited to borrowing from the Federal Home Loan Bank of Atlanta and institutional certificates of deposits. In addition, we maintain federal funds lines of credit with two correspondent banks, totaling $75 million, and utilize securities sold under agreements to repurchase and reverse repurchase agreement borrowings from approved securities dealers as needed. For additional information about borrowings and anticipated principal repayments refer to “Note 7 –Debt and Other Borrowings” and “Note 9 – Commitments and Contingencies” in this Form 10-Q.
We prepare a cash flow forecast on a 30, 60 and 90 day basis along with a one and two year basis. These projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses. As of March 31, 2024, 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 March 31, 2024, 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, Primis Bank, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. As of March 31, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as well capitalized under regulatory framework for PCA. Federal banking agencies do not provide a similar well capitalized threshold for bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require us 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 March 31, 2024, 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
To Be
Actual Ratio at
Adequacy
Categorized as
Purposes
Well Capitalized (1)
Primis Financial Corp.
Leverage ratio
8.38
8.37
Common equity tier 1 capital ratio
4.50
8.98
8.96
Tier 1 risk-based capital ratio
6.00
9.27
9.25
Total risk-based capital ratio
8.00
12.62
13.44
5.00
9.91
9.80
7.00
6.50
11.09
10.88
8.50
10.50
10.00
12.35
12.12
Bank regulatory agencies have approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. The Basel III Capital Rules require Primis Financial Corp. and Primis Bank to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer”, (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer and (iv) a minimum leverage ratio of 4.0%. Failure to meet minimum capital requirements may result in certain actions by regulators which could have a direct material effect on the consolidated financial statements.
Primis Financial Corp. and Primis Bank remain well-capitalized under Basel III capital requirements. Primis Bank had a capital conservation buffer of 4.35% as of March 31, 2024, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
CRITICAL ACCOUNTING POLICIES
The critical accounting policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2023. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in “Note 1 - Organization and Significant Accounting Policies” in the Form 10-K for the year ended December 31, 2023. Disclosures regarding changes in our significant accounting policies since year end and the effects of new accounting pronouncements are included in “Note 1 - Accounting Policies” in this Form 10-Q. There have been no changes to the significant accounting policies during the first three months of 2024.
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.
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 March 31, 2024 and December 31, 2023, all changes are within our Asset/Liability Risk Management Policy guidelines.
Our interest rate sensitivity is also monitored by management through the use of a model that generates estimates of the change in the net interest income (“NII”) over a range of interest rate scenarios. NII depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. In this regard, the model assumes that the composition of our interest sensitive assets and liabilities existing as of March 31, 2024 and December 31, 2023 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 as of March 31, 2024 and December 31, 2023.
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 modeling of EVE and NII 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
Evaluation of Disclosure Controls and Procedures. (a) 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.
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 not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. This conclusion was reached as a result of the continued remediation of previously identified material weaknesses in its internal controls over financial reporting as further described in Item 9A in the 2023 Annual Report on Form 10-K.
(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. During the three months ended March 31, 2024, the Company continued to remediate the material weaknesses in its internal control over financial reporting as previously identified and disclosed in Item 9A. in the 2023 Annual Report on Form 10-K. While management believes it has put effective controls in place to remediate the previously identified material weaknesses, the controls have not been operating for a sufficient amount of time to conclude that the material weakness has been fully remediated. The Company will continue to operate and test the new controls until it believes they have been operating effectively for a sufficient amount of time. The Company anticipates the material weaknesses to be fully remediated as soon as possible.
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 March 31, 2024.
ITEM 1A – RISK FACTORS
In addition to the other information set forth in this Report, in evaluating an investment in the Company’s securities, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our 2023 Form 10-K, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.
There are no material changes during the period covered by this Report to the risk factors previously disclosed in our 2023 Form 10-K.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Not applicable.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
ITEM 4 – MINE SAFETY DISCLOSURES
ITEM 5 – OTHER INFORMATION
Pursuant to Item 408(a) of Regulation S-K, none of the Company's directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024.
ITEM 6 - EXHIBITS
(a) Exhibits.
Exhibit No.
Description
Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed August 4, 2006)
3.2
Certificate of Amendment to the Articles of Incorporation dated January 31, 2005 (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)
3.3
Certificate of Amendment to the Articles of Incorporation dated April 13, 2006 (incorporated herein by reference to Exhibit 3.3 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)
3.4
Articles of Amendment to the Articles of Incorporation dated June 30, 2021 (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s Current Report on Form 8-K filed on June 30, 2021)
3.5
Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s Current Report on Form 8-K filed on June 30, 2021)
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from Primis Financial Corp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL (Extensible Business Reporting Language), filed herewith: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (unaudited), (iii) Consolidated Statement of Changes in Stockholders’ Equity (unaudited), (iv) Consolidated Statements of Cash Flows (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited).
104
The cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).
+ Management contract or compensatory plan or arrangement
* Filed with this Quarterly Report on Form 10-Q
** Furnished with this Quarterly Report on Form 10-Q
52
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.
(Registrant)
October 25, 2024
/s/ Dennis J. Zember, Jr.
(Date)
Dennis J. Zember, Jr.
President and Chief Executive Officer
/s/ Matthew Switzer
Matthew Switzer
Executive Vice President and Chief Financial Officer