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, 2025
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 April 30, 2025, there were 24,722,734 shares of common stock, $0.01 par value, outstanding.
March 31, 2025
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024
2
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 2025 and 2024
3
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 2025 and 2024
4
Condensed Consolidated Statements of Cash Flows for the three months ended March 2025 and 2024
5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
55
Item 4 – Controls and Procedures
57
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
58
Item 3 – Defaults Upon Senior Securities
Item 4 – Mine Safety Disclosures
Item 5 – Other Information
Item 6 - Exhibits
59
Signatures
61
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
March 31,
December 31,
2025
2024
(unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions
$
7,972
8,059
Interest-bearing deposits in other financial institutions
49,072
56,446
Total cash and cash equivalents
57,044
64,505
Securities available-for-sale, at fair value (amortized cost of $263,795 and $262,632, respectively)
241,638
235,903
Securities held-to-maturity, at amortized cost (fair value of $8,445 and $8,602, respectively)
9,153
9,448
Loans held for sale, at fair value
74,439
83,276
Loans held for sale, at lower of cost or market
—
163,832
Total loans held for sale
247,108
Loans held for investment, collateralizing secured borrowings
16,811
17,287
Loans held for investment
3,026,537
2,870,160
Less: allowance for credit losses
(44,021)
(53,724)
Net loans
2,999,327
2,833,723
Stock in Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB)
12,983
13,037
Bank premises and equipment, net
19,210
19,432
Assets held for sale
2,420
5,497
Operating lease right-of-use assets
10,352
10,279
Cloud computing arrangement assets, net
7,485
8,065
Goodwill
93,459
Intangible assets, net
345
665
Bank-owned life insurance
67,609
67,184
Deferred tax assets, net
21,399
26,466
Consumer Program derivative asset
1,597
4,511
Investment in Panacea Financial Holdings, Inc. common stock
21,227
Other assets
57,623
50,833
Total assets
3,697,310
3,690,115
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits
455,768
438,917
Interest-bearing deposits:
NOW accounts
819,606
817,715
Money market accounts
785,552
798,506
Savings accounts
777,736
775,719
Time deposits
330,210
340,178
Total interest-bearing deposits
2,713,104
2,732,118
Total deposits
3,168,872
3,171,035
Securities sold under agreements to repurchase
4,019
3,918
Secured borrowings
16,729
17,195
Junior subordinated debt
9,892
9,880
Senior subordinated notes
86,057
85,998
Operating lease liabilities
11,639
11,566
Other liabilities
24,539
25,541
Total liabilities
3,321,747
3,325,133
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; 24,722,734 shares issued and outstanding at March 31, 2025 and December 31, 2024
247
Additional paid in capital
314,725
314,694
Retained earnings
78,211
58,047
Accumulated other comprehensive loss
(17,620)
(21,232)
Total Primis stockholders' equity
375,563
351,756
Noncontrolling interests
13,226
Total stockholders' equity
364,982
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
44,964
47,732
Interest and dividends on taxable securities
1,811
1,615
Interest and dividends on tax exempt securities
95
100
Interest and dividends on other earning assets
853
898
Total interest and dividend income
47,723
50,345
Interest expense:
Interest on deposits
19,392
23,014
Interest on other borrowings
1,967
2,062
Total interest expense
21,359
25,076
Net interest income
26,364
25,269
Provision for credit losses
1,596
6,508
Net interest income after provision for credit losses
24,768
18,761
Noninterest income:
Account maintenance and deposit service fees
1,339
1,393
Income from bank-owned life insurance
425
564
Gain on deconsolidation of Panacea Financial Holdings, Inc.
24,578
Mortgage banking income
5,615
5,574
Gain on sale of loans
336
Gain on other investments
53
206
Consumer Program derivative (loss) income
(292)
2,041
Other noninterest income
617
193
Total noninterest income
32,335
10,307
Noninterest expenses:
Salaries and benefits
17,941
15,735
Occupancy expenses
1,428
1,490
Furniture and equipment expenses
1,857
1,616
Amortization of intangible assets
313
317
Virginia franchise tax expense
577
631
FDIC insurance assessment
793
610
Data processing expense
2,849
2,231
Marketing expense
514
459
Telephone and communication expense
287
346
Loss on bank premises and equipment and assets held for sale
106
Professional fees
2,225
1,365
Miscellaneous lending expenses
834
451
Other operating expenses
2,792
2,287
Total noninterest expenses
32,516
27,538
Income before income taxes
24,587
1,530
Income tax expense
5,553
718
Net income
19,034
812
Net loss attributable to noncontrolling interests
3,602
1,654
Net income attributable to Primis' common stockholders
22,636
2,466
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities
4,572
(2,327)
Tax expense (benefit)
960
(489)
Other comprehensive income (loss)
3,612
(1,838)
Comprehensive income
26,248
628
Earnings per share, basic
0.92
0.10
Earnings per share, diluted
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
For the Three Months Ended March 31, 2025
Accumulated
Additional
Other
Common Stock
Paid in
Retained
Comprehensive
Noncontrolling
Shares
Amount
Capital
Earnings
Loss
Interests
Total
Balance - December 31, 2024
24,722,734
Net income (loss)
(3,602)
Other comprehensive income
Panacea Financial Holdings, Inc. deconsolidation
(9,624)
Dividends on common stock ($0.10 per share)
(2,472)
Stock-based compensation expense
31
Balance - March 31, 2025
For the Three Months Ended March 31, 2024
Balance - December 31, 2023
24,693,172
313,548
84,143
(21,777)
21,432
397,593
Issuance of Panacea Financial Holdings stock, net of costs
244
(1,654)
Other comprehensive loss
(2,476)
Stock option exercises
3,500
37
227
Balance - March 31, 2024
24,696,672
313,812
84,133
(23,615)
20,022
394,599
PRIMIS FINANCIAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
Operating activities:
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization
2,228
2,270
Net amortization of premiums and (accretion of discounts)
88
(264)
Proceeds from sales of loans originated to sell
12,224
10,880
Net change in mortgage loans held for sale
26,193
(14,802)
Net gains on mortgage banking
(5,615)
(5,574)
Net gains on sale of loans
(336)
Earnings on bank-owned life insurance
(425)
(417)
Gain on bank-owned life insurance death benefit
(148)
(24,578)
(53)
(206)
Deferred income tax benefit
4,106
(1,629)
Net change in fair value of loan derivative
2,914
121
Net (increase) decrease in other assets
(6,143)
5,904
Net decrease in other liabilities
2,687
(4,311)
Net cash and cash equivalents provided by (used in) operating activities
34,393
(965)
Investing activities:
Purchases of securities available-for-sale
(8,604)
(8,815)
Proceeds from paydowns, maturities and calls of securities available-for-sale
7,290
4,165
Proceeds from paydowns, maturities and calls of securities held-to-maturity
288
651
Net decrease in FRB and FHLB stock
54
21
Net change in loans held for investment
(78,256)
(23,658)
Proceeds from sales of loans initially originated to be held for investment
50,994
Proceeds from bank-owned life insurance death benefit
918
Proceeds from sales of assets held for sale
748
373
Purchases of other investments
179
Net cash and cash equivalents used in investing activities
(27,307)
(26,343)
Financing activities:
Net increase (decrease) in deposits
(11,710)
44,768
Cash dividends paid on common stock
Proceeds from exercised stock options
Proceeds from secured borrowings, net of repayments
(466)
905
Proceeds from (repayment of) short-term FHLB advances
(5,000)
Increase (decrease) in securities sold under agreements to repurchase
101
(6)
Net cash and cash equivalents provided (used in) by financing activities
(14,547)
38,472
Net change in cash and cash equivalents
(7,461)
11,164
Cash and cash equivalents at beginning of period
77,553
Cash and cash equivalents at end of period
88,717
Supplemental disclosure of cash flow information
Cash payments for:
Interest
22,199
24,739
Income taxes
23
Supplemental schedule of noncash activities:
Loans held for sale transferred to held for investment
152,092
Assets held for sale transferred to other assets
2,221
Deconsolidation of Panacea Financial Holdings, Inc.
9,624
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, 2025, 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, 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. PFH was de-consolidated from the Company on March 31, 2025 as further discussed below in “PFH Deconsolidation”. The operating results of PFH are included in the Company’s consolidated operating results during the three months ended March 31, 2025.
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 2024 Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).
Principles of Consolidation
The consolidated financial statements include the accounts of Primis and its subsidiaries Primis Bank and PMC. PFH results of operations is included until its deconsolidation as of March 31, 2025 as further described below. 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 consolidated PFH through March 31, 2025 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.
PFH Deconsolidation
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. 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 resulted in a change in that determination as of December 31, 2024.
As of March 31, 2025, the three primary executives of PFH resigned from their positions as management-level employees of Primis’ Panacea Financial Division of the Bank. Additionally, Primis and PFH modified their partnership agreement as of March 31, 2025 to allow PFH more control over the type and amount of lending it can perform through the Bank. As a result of these changes in the relationship between the Company and PFH a re-assessment of PFH under the VIE accounting guidance was performed. The Company determined that PFH continues to be a VIE because it lacks one or more of the characteristics of a voting interest entity. However, as of March 31, 2025, the Company has determined based on the relationship changes described above that it was no longer the primary beneficiary of the VIE because it no longer has the power to direct the activities that most significantly impact the VIE’s economic performance. Accordingly, the Company deconsolidated PFH as of March 31, 2025.
Upon deconsolidation, the Company performed an analysis of its 1.7 million common share investment in PFH. The Company determined that a combination of its level of voting share ownership (19% of total outstanding voting shares) along with meaningful continued involvement in PFH’s lending and operating activities that the investment met the requirements to be accounted for in accordance with ASC 323, Investments - Equity Method and Joint Ventures. As of the time of deconsolidation and initial application of ASC 323, the Company decided to elect the fair value option (“FVO”) allowed under ASC 323 and will account for its investment in PFH common stock as of March 31, 2025 at fair value under ASC 825, Financial Instruments. The FVO is irrevocable and must be used in all future periods following election.
For the three months ended March 31, 2025, the Company recognized a gain from deconsolidation of PFH of $24.6 million which is recorded in the income statement in “Gain on deconsolidation of Panacea Financial Holdings, Inc.” within noninterest income. The gain resulted from recognition as of March 31, 2025 of the Company’s retained interest in PFH common stock of $21.2 million, at fair value, and the deconsolidation as of the same date of noncontrolling interest in PFH of $9.6 million and PFH’s net assets of $6.2 million. The Company engaged a third-party valuation specialist to perform a valuation of the Company’s PFH common shares as of March 31, 2025. The valuation included an assessment of the value of PFH primarily using an income approach leveraging a discounted cash flow technique. Key inputs and assumptions in the valuation included projected financial growth of PFH driven by future loan growth assumptions, growth in new services offerings of PFH, and cost savings from fundings provided by customer growth. Following deconsolidation, the Company will continue to originate loans for PFH through its Panacea Division of the Bank, retaining some of the originated loans and selling the remaining. Any loans retained by the Company will be included within Net Loans in the balance sheet and will be included in the Company’s determination of future expected credit losses, which is the Company’s primary exposure to losses as a result of its continued involvement with PFH. For any originated loans that are intended to be sold, the Company will also include these on its balance sheet until the time of sale but through an agreement with PFH any exposure to a decline in value prior to sale will be reimbursed to the Company by PFH. The Company will also continue, through the Division, to provide loan origination support to PFH and servicing of loans retained by the Division.
Following deconsolidation, the Company determined that any transactions between the Company and PFH would be related party transactions under relevant accounting guidance. The primary transactions between the Company and PFH relate to quarterly payments between the parties driven by financial performance of loans PFH originates in the Division of the Bank. As of March 31, 2025, the Company had a receivable of $3.4 million included within other assets in the balance sheet related to this quarterly payment due from PFH. As of March 31, 2025, the Company did not hold any assets on its balance sheet related to PFH which could be used by PFH to settle their obligations. The Company does not have an obligation to provide any future monetary support to PFH. The maximum exposure to loss as of March 31, 2025 as a result
7
of continued involvement with PFH is the common stock investment of $21.2 million, the receivable of $3.4 million, and any potential credit losses on loans originated in the division of the Bank as discussed above.
Disposition of the Life Premium Finance Division
On October 24, 2024, the Company entered into a purchase and assumption agreement with EverBank, N.A. (“EverBank”) for sale of the Company’s Life Premium Finance division (“LPF”). EverBank acquired LPF from the Company, except for a subset of mostly fixed rate and rate-capped loans that were retained by the Bank. All of the LPF operations, including its employees, were assumed by EverBank following the close of the transaction, which took place in two parts. EverBank acquired approximately $370 million of loans from the division at a $6.0 million premium at the first close on October 31, 2024. Between the first and second closing, which happened on January 31, 2025, EverBank purchased loans generated by the division in ordinary course at par. The Bank provided interim servicing from the first closing until the transition of the business at the final closing when EverBank began servicing the purchased loans and serviced the Bank’s retained portfolio for the duration of the portfolio. From the first closing through December 31, 2024, the Bank sold approximately $400 million of loans and related accrued interest and recorded a pre-tax gain of $4.7 million, net of advisory and legal fees. As of December 31, 2024, the Bank had an additional $50.7 million of loans to be sold to EverBank which were recorded in loans held for sale at lower of cost or market. The Bank subsequently sold approximately $64 million of additional loans at par to EverBank (inclusive of the loans in held for sale at year end) from January 1, 2025 through the second close on January 31, 2025.
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 2024 Form 10-K.
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
8
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.
As of March 31, 2025, the gross amounts of interest rate swap derivative assets and liabilities were $0.6 million and $0.4 million, respectively, and are recorded net in other assets in the consolidated balance sheets. As of December 31, 2024 the gross amounts of interest rate swap derivative assets and liabilities were $1.1 million and $0.3 million, respectively, and are recorded net in other assets in the consolidated balance sheets.
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, 2025 and December 31, 2024:
December 31, 2024
(dollars in thousands)
Amortized Cost Basis
Hedged Asset
Basis Adjustment
Fixed rate assets
911,540
249,788
(212)
818,375
249,190
(810)
Recent Accounting Pronouncements
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 the annual financial statement disclosures in its Form 10-K for the year ending December 31, 2025.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires more disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses, but does not change the requirements for the presentation of expenses on the face of the income statement. The amendments in this standard will be effective for the Company on January 1, 2027, and is required to be applied prospectively, with early adoption permitted. The Company does not believe this standard will have a material impact on its consolidated financial statements.
9
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
105,126
74
(12,118)
93,082
Obligations of states and political subdivisions
33,180
(3,451)
29,735
Corporate securities
16,000
(662)
15,338
Residential government-sponsored collateralized mortgage obligations
60,597
539
(1,260)
59,876
Government-sponsored agency securities
16,328
(2,115)
14,213
Agency commercial mortgage-backed securities
25,373
(3,087)
22,286
SBA pool securities
7,191
(89)
7,108
263,795
625
(22,782)
105,655
(14,253)
91,407
33,500
(3,798)
29,705
(920)
15,080
57,908
223
(1,741)
56,390
16,315
(2,479)
13,836
25,750
(3,572)
22,178
7,504
(203)
7,307
262,632
237
(26,966)
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
7,477
(629)
6,850
1,519
(74)
1,445
157
(7)
150
(710)
8,445
7,760
(764)
6,998
(75)
1,444
169
(9)
160
(848)
8,602
Available-for-sale investment securities of $8.6 million were purchased during the three months ended March 31, 2025 and $8.8 million were purchased during the three months ended March 31, 2024, respectively. No held-to-maturity investments were purchased during the three months ended March 31, 2025 and 2024. No investment securities were sold during the three months ended March 31, 2025 and 2024.
10
The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2025, 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
1,757
1,737
Due in one to five years
11,546
10,947
1,014
969
Due in five to ten years
39,197
35,216
505
476
Due after ten years
13,008
11,386
Investment securities with a carrying amount of approximately $138.8 million and $141.1 million at March 31, 2025 and December 31, 2024, 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 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, 2025, Primis did not have a material allowance for credit losses on held-to-maturity securities.
As of both March 31, 2025 and December 31, 2024, there were 155 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, 2025 and December 31, 2024, 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
11
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, 2025 and December 31, 2024 by duration of time in a loss position (in thousands):
Less than 12 months
12 Months or More
Unrealized
value
3,648
(21)
78,556
(12,097)
82,204
513
(2)
28,215
(3,449)
28,728
4,963
(38)
10,376
(624)
15,339
12,440
(110)
14,316
(1,150)
26,756
22,285
4,380
(56)
2,223
(33)
6,603
25,944
(227)
170,184
(22,555)
196,128
Unrecognized
6,781
573
872
(67)
149
7,802
(703)
8,375
10,233
(102)
80,700
(14,151)
90,933
2,060
26,642
(3,777)
28,702
16,488
(339)
14,739
(1,402)
31,227
4,359
(161)
2,426
(42)
6,785
33,140
(623)
175,601
208,741
6,927
572
(8)
7,959
(840)
8,531
12
3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table summarizes the composition of our loan portfolio as of March 31, 2025 and December 31, 2024 (in thousands):
Loans secured by real estate:
Commercial real estate - owner occupied (1)
477,233
475,898
Commercial real estate - non-owner occupied
600,872
610,482
Secured by farmland
3,742
3,711
Construction and land development
104,301
101,243
Residential 1-4 family
576,837
588,859
Multi-family residential
157,443
158,426
Home equity lines of credit
60,321
62,954
Total real estate loans
1,980,749
2,001,573
Commercial loans (2)
698,097
608,595
Paycheck Protection Program loans
1,738
1,927
Consumer loans
357,652
270,063
Total Non-PCD loans
3,038,236
2,882,158
PCD loans
5,112
5,289
Total loans held for investment
3,043,348
2,887,447
Loans held for sale, at the lower of cost or market
As of December 31, 2024, $113.3 million of Consumer Program loans and $50.5 million of life premium finance loans were included in loans held for sale, at the lower of cost or market, based on the Company’s decision to sell the loans. The life premium finance loans were sold during the three months ended March 31, 2025. At March 31, 2025, the Company determined it would no longer sell the Consumer Program loans and has the intent and ability to hold these loans for the foreseeable future as it intends to run-off the portfolio and therefore transferred the loans back to the consumer loans category within loans held for investment at their amortized cost of $101.6 million as of that date.
Consumer Program Loans
The Company has $131.5 million and $152.1 million of principal balance of loans outstanding in the Consumer Program as of March 31, 2025 and December 31, 2024, respectively, or 4% and 5%, respectively of our total gross loan portfolio as of each date. Loans in the Consumer Program are included within the consumer loans category disclosures in this footnote as of March 31, 2025 and $113.3 million is included in loans held for sale, at the lower of cost or market, and $39.0 million in the consumer loans category in loans held for investment as of December 31, 2024. As of March 31, 2025, 12% of the loans were in a promotional period requiring no payment of interest on their loans with 91% of these promotional loan periods ending in the second quarter of 2025 through the first quarter of 2026.
13
Accrued Interest Receivable
Accrued interest receivable on loans totaled $18.8 million and $16.5 million as of March 31, 2025 and December 31, 2024, 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.
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, 2025 and December 31, 2024 (in thousands):
30 - 59
60 - 89
90
Days
Loans Not
Past Due
or More
Loans
Commercial real estate - owner occupied
191
1,535
1,726
475,507
4,274
69
4,343
596,529
127
3,615
17
104,284
2,051
393
1,538
3,982
572,855
Multi- family residential
567
156,876
181
85
266
60,055
Commercial loans
2,585
37,714
3,080
43,379
654,718
1,713
25
6,242
3,751
219
10,212
347,440
15,541
42,621
8,170
66,332
2,971,904
238
4,874
15,779
66,570
2,976,778
14
456
52
4,021
4,529
471,369
9,539
4,290
13,829
596,653
656
668
100,575
6,694
318
1,462
8,474
580,385
1,098
168
1,504
61,450
24,101
1,279
1,954
27,334
581,261
1,886
41
6,625
7,013
13,638
256,425
48,525
13,776
9,561
71,862
2,810,296
2,815,585
The amortized cost, by class, of loans and leases on nonaccrual status as of March 31, 2025 and December 31, 2024, were as follows (in thousands):
90 Days
Less Than
Nonaccrual With
Nonaccrual
No Credit
Loss Allowance
422
1,957
632
383
384
352
125
2,329
3,867
3,800
582
667
666
217
3,297
1,043
807
1,026
6,457
5,217
11,674
8,028
1,276
6,493
12,950
9,304
431
4,452
641
378
130
2,417
3,879
542
780
720
2,674
846
173
864
7,848
5,875
13,723
8,084
1,303
7,178
15,026
9,387
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, 2025 and December 31, 2024, respectively.
15
The following table presents nonaccrual loans as of March 31, 2025 by class and year of origination (in thousands):
Revolving
Converted
2023
2022
2021
Prior
To Term
210
1,747
156
67
531
2,140
296
677
652
32
207
970
933
649
123
128
477
397
1
Total non-PCD nonaccruals
188
402
1,978
990
5,681
838
Total nonaccrual loans
6,957
Interest received on nonaccrual loans was immaterial for both the three months ended March 31, 2025 and 2024.
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.
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
16
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.
The following provides a summary of loans modified to borrowers experiencing financial difficulty as of March 31, 2025, excluding Consumer Program loans ($ in thousands):
# of
%
cost
of loan
modified
class
405
0.08
28,755
4.79
257
0.04
0.15
1,206
0.17
190
0.05
30,901
All financial difficulty modifications originated prior to the three months ended March 31, 2025, have been paid as agreed in accordance with the modified terms, with the exception of two loans still in modification and one loan returned to contractual payments.
Two loans with a total $55 thousand in amortized cost were modified to borrowers experiencing financial difficulty, representing 0.02% of the other consumer loans segment. One of these two, with $25 thousand in amortized cost was modified to defer payments for three months, followed by six months of reduced payments, resuming original contractual payments July 2, 2025. Total contractual payments, prior to this modification, for three months ended March 31, 2025, would have been $1,632. The other modification, totaling $30 thousand, was granted four months of deferred payments, followed by nine months of reduced payments reamortizing the loan from a five to seven-year term. Total contractual payments, prior to this modification, for three months ended March 31, 2025, would have been $1,173.
Two loans, totaling $126 thousand, representing 0.09% of total revolving 1-4 family and 0.01% of total secured by first lien loans were modified to one borrower experiencing financial difficulty. Payments for both loans were deferred, first of the two with $57 thousand, in amortized cost (and $987 in originally scheduled payments for the first quarter 2025) for three months and the second with $68 thousand in amortized cost (and $2,112 in originally scheduled payments for the first quarter 2025) for six months, with accrued principal and interest added to the back of each note extending their maturity dates accordingly. One loan modification, secured by first liens, with a total $108 thousand in amortized cost and representing 0.02% of this segment, has had three 30–59 day payment delinquencies in the last three months. No payment modifications were made to this first lien loan which retained its original $1,262 monthly payment and 6.68% interest rate for a one-year period. If the interest rate for this loan had been adjusted as scheduled to 7.98%, total contractual payments for the three months ended March 31, 2025, would have totaled $4,572 versus the $3,442 paid. The other modification of $31 thousand in amortized cost resides in revolving 1-4 family and represents 0.01% of the loan pool. This loan was modified from its original 8.5% rate to a fixed 6% for a 5-year term and total contractual payments, prior to modification, for three months ended March 31, 2025, would have been $714.
Two existing financial difficulty modifications with $1.21 million in amortized cost represent 0.23% of the commercial and industrial category. One of these two, with $38 thousand in amortized cost, was modified to $627 in principal payments repaid over 83 months compared to its original $845 payments over 60 months term. The other modification, totaling $12 million was modified under a forbearance agreement, to monthly payments of $8,000 through its June 2026 maturity. Total
contractual payments, prior to this modification, for the three months ended March 31, 2025, would have been $57 thousand.
During the three months ended March 31, 2025, two loans totaling $28.7 million in amortized cost, in the non-owner-occupied category and representing 4.8% of total non-owner occupied loans, remain modified to borrowers experiencing financial difficulty. The first of the two with $393 thousand in amortized cost was extended at interest only for 18 months This loan was to have been paid in full at its original March 2024 maturity. The second loan modified with $28.4 million in amortized cost was restructured to allow for the extension of its interest only period for an additional 24 months. Prior to this restructure total principal and interest payments, for the three months ended March 31,2025, would have been $16 million compared to the total $263 thousand in interest only payments received.
The following table depicts the amortized cost basis as of March 31, 2025, of the performance of loans that have been modified to borrowers experiencing financial difficulty in the last 12 months and returned to contractual payments ($ in thousands):
Payment Status
Current
30-59 days past due
60-89 days past due
90 days or more
81
82
Consumer Program modifications
During the three months ended March 31, 2025, the Company began offering modifications to Consumer Program borrowers in an attempt to enhance collections of delinquent loans and mitigate charge-offs. The primary type of modifications were settlements of amounts owed for less than the current outstanding principal balance and term modifications to extend maturity dates. In certain cases, a partial loan settlement occurred with the original maturity extended for the remaining balance that was not settled.
Consumer Program modifications are within the consumer loans category and included 667 loans modified with an amortized cost of $5.7 million during the three months ended March 31, 2025. During the three months ended March 31, 2025, 145 loans with an amortized cost of $1.8 million were provided only a term extension. During the three months ended March 31, 2025, 50 loans with an amortized cost of $0.5 million were provided a modification that allowed partial settlement of principal owed of $0.1 million with the remaining principal maturity date extended. The average term modification provided on the aggregate population of loans that received a term extension was 3.3 years and if these terms modifications had not been provided the balance of principal and interest due during the three months ended March 31, 2025 would have been $0.3 million, instead of $0.1 million actually collected during the period on these modified loans. During the three months ended March 31, 2025, 472 loans with an amortized cost of $3.4 million were provided a modification that allowed for partial or full settlement of their principal balance outstanding. All loans that were provided modifications during the three months ended March 31, 2025 were performing under their modified terms as of March 31, 2025.
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.
18
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, 2025 or December 31, 2024.
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.
19
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of March 31, 2025 (in thousands):
Pass
15,725
43,749
63,207
79,361
59,956
198,577
1,174
8,215
469,964
Special Mention
3,179
Substandard
3,880
4,090
Doubtful
60,166
205,636
Current period gross charge offs
Weighted average risk grade
3.22
3.24
3.52
3.41
3.43
3.45
3.66
3.74
Commercial real estate - nonowner occupied
1,189
21,884
37,413
55,565
113,996
333,171
3,221
3,207
569,646
2,569
28,372
285
28,657
142,368
336,025
3.00
3.72
3.55
3.17
4.16
3.71
3.11
2.91
3.75
224
203
68
2,334
463
96
3,390
2,686
4.00
N/A
4.25
3.99
3.04
4.14
2,556
30,750
22,009
36,271
3,692
7,520
980
103,778
(5)
528
8,043
3.02
3.92
3.68
3.03
3.30
3.48
5,117
30,289
31,581
155,652
132,873
207,133
6,300
2,865
571,810
603
159
2,695
295
4,424
30,448
31,648
156,183
210,431
6,595
3,542
3.09
3.19
3.73
3.96
3.12
1,338
448
21,632
23,584
85,796
4,865
549
138,212
18,387
277
844
41,971
86,363
826
3.88
3.42
4.67
3.53
243
430
468
504
56,813
116
58,952
(1)
707
633
501
57,552
749
3.13
3.07
5.60
3.10
49,566
208,459
79,078
168,996
31,150
25,386
100,032
6,627
669,294
841
946
1,800
33
211
22,379
1,127
2,747
27,003
208,492
79,289
192,216
31,533
26,514
102,791
7,696
3.35
3.39
3.83
3.40
3.90
3.32
20
863
875
2.00
2,382
140,594
16,705
165,172
20,383
3,367
7,293
602
356,498
29
35
126
517
418
1,086
16,835
165,718
20,801
3,404
480
3,043
10,439
14,128
2.77
3.25
6.12
2.45
4.07
3.34
PCD
1,836
1,866
1,410
4.82
76,759
477,701
251,347
707,324
434,737
885,590
184,934
24,956
14,334
3.15
3.60
3.50
3.29
3.80
The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, 2024 (in thousands):
2020
41,807
58,979
79,927
65,362
14,830
193,528
1,623
9,280
465,336
3,960
6,392
6,602
65,572
203,880
3.51
3.76
3.44
21,857
37,292
56,104
117,439
45,057
295,756
2,486
3,216
579,207
2,904
28,371
145,810
298,660
4.13
3.84
3.14
270
76
2,408
400
107
3,333
2,786
4.26
3.89
3.06
28,796
22,554
36,762
3,957
8,224
821
101,113
8,354
3.01
3.69
3.36
3.46
32,866
33,350
161,816
134,244
37,927
174,569
6,054
2,985
583,811
605
263
2,680
262
537
4,443
33,025
33,613
162,358
177,854
6,316
3,522
3.20
3.85
1,356
21,692
23,703
17,147
69,360
4,863
139,136
18,438
279
852
42,141
69,933
843
3.91
4.66
428
348
458
44
3,017
140
61,459
1,464
3,027
57,657
781
3.08
5.53
152,489
85,049
179,070
32,374
4,125
22,008
97,721
579,617
2,404
21,967
1,108
2,782
26,574
152,520
85,053
202,313
32,757
4,294
23,117
101,630
6,911
196
347
926
3.21
3.38
22
870
884
1,754
2.66
2.36
51,194
17,987
166,307
21,621
3,044
7,718
637
269,045
104
40
447
398
914
51,196
18,031
166,813
22,019
3,087
662
19,199
9,777
19,790
1,293
50,092
4.27
3.37
2.88
4.01
2.46
1,890
1,960
1,439
4.81
331,038
256,469
726,317
448,005
120,795
795,987
183,514
25,322
10,160
356
51,035
3.59
3.49
3.31
Revolving loans that converted to term during the three months ended March 31, 2025 and 2024 were as follows (in thousands):
For the three months ended March 31, 2025
For the three months ended March 31, 2024
167
71
Total loans
1,129
There were no foreclosed residential real estate property held or in the process of foreclosure as of both March 31, 2025 and December 31, 2024.
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. The accounting policy related to the allowance for credit losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the expected losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.
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, 2025 and December 31, 2024, 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
5,010
4,148
929
6,123
840
439
4,211
5,087
26,788
Q-factor and other qualitative adjustments
353
692
158
648
681
274
3,194
Specific allocations
334
2,072
6,207
5,139
220
14,039
5,697
6,912
1,087
6,537
1,488
11,099
10,500
44,021
4,623
4,194
1,045
6,423
971
511
4,062
3,932
25,762
321
698
396
694
362
3,319
955
2,074
6,038
15,331
245
24,643
5,899
6,966
1,203
6,819
1,620
533
10,794
19,625
53,724
No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
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Activity in the allowance for credit losses by class of loan for the three months ended March 31, 2025 and 2024 is summarized below (in thousands):
Home Equity
Three Months Ended March 31, 2025
Allowance for credit losses:
Beginning balance
Provision (recovery)
(202)
(54)
(116)
(282)
(132)
1,969
(25)
Charge offs
(14,128)
(14,334)
Recoveries
3,034
3,035
Ending balance
Three Months Ended March 31, 2024
4,255
5,822
4,938
1,590
364
6,320
26,088
1,672
52,209
308
(158)
(49)
(18)
953
5,249
(347)
(5,032)
(5,379)
118
4,563
5,664
26
1,196
5,107
1,541
6,926
26,421
1,664
53,456
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 become 90 days past due.
The following table presents the principal balance of 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, 2025 and December 31, 2024 (in thousands):
Loan
Specific
Balance
Allocations
3,759
6,266
28,764
403
2,044
2,268
618
26,348
25,947
Consumer loans (1)
43,779
22,885
Total non-PCD loans
106,902
13,819
87,988
24,398
112,014
93,277
(1) In addition to the specific allocations as of March 31, 2025, there is $11.4 million of discount due to prior charge-offs of the outstanding principal balance of Consumer Program loans.
The following table presents a breakdown between loans at amortized cost 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, 2025 and December 31, 2024 (in thousands):
Non
Collateral
Dependent
Assets (1)
3,545
4,229
30,100
30,130
1,192
1,277
2,801
3,038
856
857
622
635
26,576
26,424
66,097
66,590
Collateral value
74,134
75,375
(1) Loan balances include PCD loans and are presented net of SBA guarantees
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 $1.6 million and $4.5 million as of March 31, 2025 and December 31, 2024, respectively. The underlying cash flows were $1.5 million and $4.8 million as of March 31, 2025 and December 31, 2024, respectively. The Company calculates the fair value of this derivative using a discounted cash flow model using inputs that are inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate the fair value. The most significant inputs and assumptions in determining the value of the derivative are noted below ($ in thousands).
Weighted
Low
High
Average
Remaining cumulative charge-offs
29,815
42,919
n/a
Remaining cumulative promotional prepayments (1)
8,101
14,587
10,226
Average life (years)
0.7
Discount rate
4.06%
15.07%
28,387
41,994
24,322
53,661
34,366
0.5
4.28%
14.39%
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
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be necessary to settle the derivative financial instrument at the balance sheet date. Forward loan sale commitments that are best efforts are not derivatives but can be and have been accounted for at fair value, determined in a similar manner to those that are mandatory delivery. Forward loan sale commitments are recorded on the balance sheet as derivative assets and derivative liabilities with changes in their fair values recorded in mortgage banking income in the statement of operations.
The key unobservable inputs used in determining the fair value of IRLCs are as follows as of March 31, 2025 and December 31, 2024:
Average pullthrough rates
82.95
89.19
Average costs to originate
1.35
1.31
The following summarizes derivative and non-derivative financial instruments as of March 31, 2025 and December 31, 2024:
Notional
Derivative financial instruments:
Derivative assets (1)
1,415
60,165
Derivative liabilities
(1) Pullthrough rate adjusted
Non-derivative financial instruments:
Best efforts assets
194
13,815
1,000
34,593
6,352
The notional amounts of mortgage loans held for sale not committed to investors was $51.6 million and $54.7 million as of March 31, 2025 and December 31, 2024, 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.
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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
Inputs
(Level 1)
(Level 2)
(Level 3)
Assets:
Available-for-sale securities
Consumer Program derivative
Mortgage banking financial assets
Mortgage banking derivative assets
Interest rate swaps, net
151
Investment in Panacea Financial Holdings, Inc. common stock (1)
590,449
565,865
24,433
573,962
568,369
5,593
Assets measured at fair value on a non-recurring basis are summarized below:
Collateral dependent loans
50,662
113,170
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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
2,866,310
2,564,623
Loans held for sale
Level 3
752
Financial liabilities:
Demand deposits and NOW accounts
1,275,374
1,256,632
Money market and savings accounts
1,563,288
1,574,225
329,591
339,767
8,992
9,016
86,302
85,987
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 and NOW accounts, 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. The net loans that use level 2 inputs are related to the portfolio of loans underlying our interest rate swaps as previously discussed in “Note 1 – Accounting Policies”.
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, 2025 and December 31, 2024, the Company had operating lease liabilities totaling $11.6 million, and right-of-use assets totaling $10.4 million and $10.3 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, 2025 and 2024, 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.
The following table presents other information related to our operating leases:
For the Three Months Ended
March 31, 2024
Other information:
Weighted-average remaining lease term - operating leases, in years
5.9
7.1
Weighted-average discount rate - operating leases
4.0
The following table summarizes the maturity of remaining lease liabilities:
As of
Lease payments due:
1,870
2026
2,462
2027
2,405
2028
2,155
2029
1,608
Thereafter
2,667
Total lease payments
13,167
Less: imputed interest
(1,528)
Lease liabilities
As of March 31, 2025, 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, 2025 and December 31, 2024 was $4.0 million and $3.9 million, respectively.
As of March 31, 2025 and December 31, 2024, we had pledged callable agency securities, residential government-sponsored mortgage-backed securities and collateralized mortgage obligations with a carrying value of $6.9 million and $6.8 million, respectively, to customers who require collateral for overnight repurchase agreements and deposits.
As of March 31, 2025, 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 $541.3 million from the FHLB.
In June 2023, the Bank took the necessary steps to participate in the Federal Reserve discount window borrowing program. As of March 31, 2025, the Bank had borrowing capacity of $550.5 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, 2025 and December 31, 2024, there was $10.3 million outstanding, net of approximately $0.4 million of debt issuance costs as of March 31, 2025 and December 31, 2024. As of March 31, 2025 and December 31, 2024, the interest rate payable on the trust preferred securities was 7.51% and 7.56%, respectively. As of March 31, 2025, 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, 2025, 20% 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, 2025, all of these notes qualified as Tier 2 capital.
As of March 31, 2025 and December 31, 2024, the remaining unamortized debt issuance costs related to the senior Subordinated Notes totaled $0.9 million and $1.0 million, respectively.
Secured Borrowings
The Company transferred $1.1 million and $23.4 million in principal balance of loans to another financial institution in 2024 and 2023, respectively, that were accounted for as secured borrowings. The balance of secured borrowings was $16.7 million and $17.2 million as of March 31, 2025 and December 31, 2024, respectively, and the remaining amortized cost balance of the underlying loans was $16.8 million and $17.3 million, respectively. None of the loans underlying the secured borrowings were past due 30 days or greater or on nonaccrual as of March 31, 2025 and December 31, 2024 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, 2025. 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.
A summary of stock option activity for the three months ended March 31, 2025 follows:
Aggregate
Remaining
Intrinsic
Exercise
Contractual
Price
Term
(in thousands)
Options outstanding, beginning of period
35,800
11.73
1.0
Exercised
Options outstanding, end of period
Exercisable at end of period
There was no stock-based compensation expense associated with stock options for the three months ended March 31, 2025 and 2024. As of March 31, 2025, 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, 2025 follows:
Grant-Date
Per Share
Unvested restricted stock outstanding, beginning of period
20,900
13.18
1.8
Vested
(9,050)
15.15
Unvested restricted stock outstanding, end of period
11,850
11.67
2.5
Stock-based compensation expense for time vested restricted stock awards totaled $31 thousand and $0.2 million for the three months ended March 31, 2025 and 2024, respectively. Unrecognized compensation expense associated with restricted stock awards was $0.1 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, 2025 follows:
Unvested Units outstanding, beginning of period
223,460
11.79
2.1
Forfeited
Unvested Units outstanding, end of period
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, 2025 and 2024 as a result of the probability of a portion of the Units vesting because it is not probable that these Units will vest. The
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potential unrecognized compensation expense associated with these Units was $4.2 million as of March 31, 2025 and December 31, 2024.
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. The Company had letters of credit outstanding totaling $17.7 million and $9.9 million as of March 31, 2025 and December 31, 2024, respectively.
The Company’s 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. Primis uses 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 Primis is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has 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 the consolidated balance sheets.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures:
Balance as of January 1
1,121
1,579
Credit loss expense
(458)
Balance as of March 31
1,134
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.
The Company had $133.1 million of mortgage loan commitments outstanding as of March 31, 2025, all of which contractually expire within thirty years.
As of March 31, 2025 and December 31, 2024, we had unfunded lines of credit and undisbursed construction loan funds totaling $403.5 million and $459.2 million, respectively, not all of which will ultimately be drawn. Virtually all of our unfunded lines of credit and undisbursed construction loan funds are variable rate. The amount of certificate of deposit accounts maturing in less than one year was $282.8 million as of March 31, 2025. 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 $1.7 million and $0.9 million as of March 31, 2025 and December 31, 2024, 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
24,707
Effect of dilutive stock options and unvested restricted stock
Diluted EPS
24,723
24,674
The Company had 35,800 anti-dilutive options as of March 31, 2025. The Company did not have any anti-dilutive options as of March 31, 2024.
11. SEGMENT INFORMATION
The Company’s reportable operating segments are determined based on its internal organizational structure, which is overseen by the Chief Executive Officer (“CEO”), the Company’s designated Chief Operating Decision Maker (“CODM”). While the CEO consults with key members of his leadership team, the ultimate responsibility for making operational decisions and resource allocations resides with the CEO. For the three months ended March 31, 2025 and 2024, the Company’s internal organizational structure and resulting management reporting was concentrated around the Bank and Primis Mortgage, which resulted in the Company determining these to be its two reportable segments.
Primis’ organizational structure and its operational segments are determined by attributes such as products, services, and customer base which are then aggregated based on similarities around these attributes. The operating results for each segment are regularly reviewed by the CEO using a broad set of financial and operational data. Key financial data utilized by the CEO to assess financial performance and allocate resources includes loan and deposit growth, certain direct expenses, net interest income and mortgage banking income along with overall net income attributable to Primis’ common shareholders. The CEO also considers actual results compared to budgeted results in these metrics when assessing performance and making determinations related to resource allocations. The following is a description of our reportable segments.
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Primis Bank. This segment specializes in providing financing services to businesses in various industries along with consumer and residential loans to individuals. The segment also provides deposit-related services to businesses, non-profits, municipalities, and individual consumers. The primary source of revenue for this segment is interest income from the origination of loans, while the primary expenses are interest expenses on deposits, provisions for loan losses, personnel costs, and data processing expenses.
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 generated from the origination and sale of mortgage loans, while the primary expense of the segment is personnel costs.
The following table provides financial information for the Company's reportable segments. In additional to the Company’s two reportable segments as described above, the caption “Other” has been included to provide reconciliation to the Company’s consolidated results and includes operational costs that are not a part of the two reportable segments but don’t qualify to be considered a separate reportable segment. “Other” primarily includes the Primis Bank Holding Company and PFH, which are generally cost centers to the consolidated entity, along with elimination adjustments to reconcile the results of the reportable segments to the consolidated financial statements prepared in conformity with U.S. GAAP.
As of and for the three months ended March 31, 2025
Primis Mortgage
Primis Bank
Other (1)
Consolidated Company
($ in thousands)
Interest income
1,056
46,617
50
Interest expense
19,691
1,668
26,926
(1,618)
Provision for loan losses
Net interest income after provision for loan losses
25,330
5,722
(107)
1,831
24,889
26,720
1,724
4,680
9,686
3,575
131
2,718
9,267
1,489
11,726
5,781
21,671
5,064
997
5,383
18,207
225
1,116
4,212
772
4,267
13,995
17,597
89,531
3,665,760
(57,981)
As of and for the three months ended March 31, 2024
907
49,372
66
23,390
1,686
25,982
(1,620)
19,474
4,655
78
4,733
4,231
9,772
1,732
87
2,144
804
7,943
825
9,572
5,122
19,859
2,557
1,359
4,270
(4,099)
327
859
(468)
1,032
3,411
(3,631)
Net income (loss) attributable to Primis' common stockholders
(1,977)
81,840
3,881,301
(73,162)
3,889,979
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis (“MD&A”) 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, 2024. Results of operations for the three months ended March 31, 2025 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, 2025 compared to the three months ended March 31, 2024 for the consolidated income statements. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2025 compared to December 31, 2024. 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, 2024, 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, 2025, 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 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, veterinarians, dentists, their practices, and ultimately the broader healthcare industry. PFH was a consolidated subsidiary of Primis until March 31, 2025, when it was deconsolidated in accordance with applicable accounting guidance.
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, 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.
OPERATIONAL HIGHLIGHTS
Our strategy centers on growing earning assets back to previous levels after the sale of our Life Premium Finance division and achieving higher production and profitability in our retail mortgage business. We continued to execute successfully during the first quarter of 2025 these strategies including the following:
Core Community Bank
Mortgage Warehouse
Panacea Financial Division
Changes in the relationship between PFH and Primis during the first quarter of 2025 resulted in a determination to deconsolidate PFH from Primis as of March 31, 2025. The deconsolidation resulted in recognition of a $24.6 million gain for Primis during the three months ended March 31, 2025, as a result of recording the fair value of our retained interest in common stock of PFH. We will continue to assess the fair value of our common stock investment each reporting period and record the changes in fair value in our financial results for the respective period. The deconsolidation results in us no longer including PFH’s financial results in our financial results after March 31, 2025. PFH will continue to work with the Panacea Division of the Bank to originate loans, some of which the Bank will retain and others will be sold to investors and other financial institutions.
FINANCIAL HIGHLIGHTS
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RESULTS OF OPERATIONS
Net Income
Net income available to common shareholders for the three months ended March 31, 2025 totaled $22.6 million, or $0.92 basic and diluted earnings per share, compared to $2.5 million, or $0.10 basic and diluted earnings per share for the three months ended March 31, 2024. The results reflect an increase in noninterest income of $22.0 million, primarily due to the gain on deconsolidation of PFH, an increase in net interest income of $1.1 million, a decrease in provision for credit losses of $4.9 million, and an increase in noncontrolling interest of $1.9 million, partially offset by an increase in noninterest expense of $5.0 million. The increase in noncontrolling interests were related to losses attributable to other stockholders of PFH prior to de-consolidation as of March 31, 2025. Additional details of the remaining changes in net income will be discussed in the remaining sections of this Results of Operations section.
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. Net interest income was $26.4 million for the three months ended March 31, 2025, compared to $25.3 million for the three months ended March 31, 2024. Net interest income increased as a result of interest-bearing liability cost declines offsetting lower interest-earning asset income. Our net interest margin for the three months ended March 31, 2025 was 3.15%, compared to 2.84% for the three months ended March 31, 2024. Margin increased by 31 basis points primarily as a result of lower average interest-bearing liabilities coupled with a decline of 34 basis points paid on these liabilities, while yields on interest-earning assets increased by 4 basis points on $184 million of lower average interest-earning asset balances.
Average interest-bearing liabilities declined by $139 million due in large part because of maturing time deposits driving average time deposit balances down by $96 million. We also experienced declines in average money market and savings balances of $72 million, partially offset by growth in demand deposits of $32 million. Rates on average interest-bearing deposits declined 35 basis points in total, in large part due to a decline in the fed funds borrowing rate during the last twelve months of 100 basis points.
Yields on average interest earning assets increased, but the $184 million decline in associated average balances resulted in a $2.6 million decline in interest income. Average earning asset balances were driven lower by a $309 million decline in average loan balances which was primarily a result of the sale of approximately $400 million of our loan portfolio in the fourth quarter of 2024. These average loan balance declines were partially offset by continue growth of Panacea and Mortgage Warehouse loan portfolios during the first quarter of 2025. Loans held for investment had a $4.8 million decline in interest income that was due in large part to these lower average balances, partially offset by yields across the remaining portfolio that were 15 basis points higher compared to the first quarter of 2024. The higher yields for loans were fueled by an increase in benchmark rates since 2022 resulting in new loans at higher rates replacing maturing and paid off loans at lower rates. Partially offsetting this decline in average loan balances and loan interest income was an increase of $112 million in average loans held for sale balances due primarily to the Consumer Program loan transfers at year end that
43
remained in held for sale during the entire first quarter. The higher average loans held for sale balances drove interest income higher on loans held for sale by $1 million compared to first quarter of 2024.
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)
Assets
Interest-earning assets:
170,509
2,564
6.10
58,896
6.19
Loans, net of deferred fees (1) (2)
2,897,481
42,400
5.93
3,206,888
46,825
5.87
Investment securities
245,216
1,906
241,179
1,715
2.86
Other earning assets
86,479
77,067
4.69
Total earning assets
3,399,685
5.69
3,584,030
5.65
Allowance for credit losses
(47,039)
(51,110)
Total non-earning assets
288,951
299,192
3,641,597
3,832,112
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts
805,522
4,515
2.27
773,943
4,467
2.32
788,067
5,420
2.79
814,147
6,512
754,304
6,418
800,328
8,045
4.04
335,702
3,039
3.67
431,340
3,990
2,683,595
2.93
2,819,758
3.28
Borrowings
116,955
6.82
120,188
6.90
Total interest-bearing liabilities
2,800,550
2,939,946
Noninterest-bearing liabilities:
Demand deposits
446,404
458,306
38,280
34,900
3,285,234
3,433,152
Primis common stockholders' equity
344,381
378,008
Noncontrolling interest
11,982
20,952
356,363
398,960
Interest rate spread
2.60
2.22
Net interest margin
2.84
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, 2025 and 2024, of $1.6 million and $6.5 million, respectively. The provision included amounts calculated in our normal reserve process for the Consumer Program loans which totaled $1.9 million and $4.9 million during the three months ended March 31, 2025 and 2024, respectively. These provisions related to the Consumer Program loan portfolio were primarily due to provisioning driven by credit weakness we continue to experience on loans originated in this portfolio from the third quarter of 2022 through the first quarter of 2023. As of March 31, 2025, $59.7 million, or 45%, of our remaining Consumer Program loan balance was originated during that time, with 77% of these loans current and 88% are either current or less than 30 days past due. As of March 31, 2025 we have allowances and discounts to the outstanding principal balance of Consumer Program loans due to charge-offs taken when we moved the loans to held for sale of $23.8 million. Excluding the Consumer Program, we had a benefit for expected losses of $0.3 million and provision for expected credit losses of $1.6 million during the three months ended March 31, 2025 and 2024, 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, 2025 and 2024:
Change
(139)
(153)
Consumer Program income
(2,333)
424
22,028
Noninterest income increased 214% to $32.3 million for the three months ended March 31, 2025, compared to $10.3 million for the three months ended March 31, 2024. The increase in noninterest income was primarily driven by the $24.6 million gain on the deconsolidation of PFH, partially offset by declines in Consumer Program derivative income. The Company deconsolidated PFH as of March 31, 2025 and upon deconsolidation recognized a gain of $24.6 million. The gain was driven by recognition of our remaining common stock investment in PFH at fair value. The Consumer Program derivative income declined primarily due to fair value loss adjustments on the derivative asset of $2.9 million during the three months ended March 31, 2025 compared to losses of $0.1 million during the three months ended March 31, 2024. The derivative asset and related losses are driven by anticipated cash payments due to us from the third-party when borrowers prepay their loans in a no-interest promotional period. During the first three months of 2025, the value of the derivative and related losses were primarily driven by $21.1 million of loans ending their no-interest promotional period by either paying off the loan or allowing their loan to begin amortizing. This resulted in a decrease in total remaining promotional loans to $17.8 million as of March 31, 2025. Offsetting the fair value loss adjustments during the three months ended March 31, 2025 was $2.6 million of realized income as a result of borrowers paying off their promotional period loans before the end of the promotional period which triggers payment from the derivative counterparty of the interest accrued during the promotional period, along with other income due to us under the agreement.
Noninterest income was generally consistent with the prior year when excluding the gain on PFH and the impact of the Consumer Program income with the remaining changes in noninterest income primarily due to various impacts in the prior year period that did not reoccur in 2025. Income from bank-owned life insurance included death-benefit payments in the prior year due to a former executive’s death, and we had gains on sales of loans and certain other investments in first quarter of 2024 that did not reoccur in the first quarter of 2025. These were partially offset by an increase in loan
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servicing income in the first quarter of 2025 related to the sales of LPF loans in 2024. The servicing income on sold LPF loans will not continue because at the final sale of LPF loans in first quarter of 2025, the servicing transferred to the buyer.
Noninterest Expense
The following table presents the major categories of noninterest expense for the three months ended March 31, 2025 and 2024:
2,206
(62)
241
Amortization of core deposit intangible
(4)
183
(59)
(Gain) loss on bank premises and equipment and assets held for sale
860
4,978
Noninterest expenses increased 18% to $32.5 million during the three months ended March 31, 2025, compared to $27.5 million during the three months ended March 31, 2024. The increase was primarily driven by higher salaries and benefits expenses, professional fees, data processing expense, miscellaneous lending expenses, and other operating expenses in 2025. The higher salaries and benefits expense was driven by growth in activity in the mortgage line of business and also from the growth in expenses of PFH that we were required to include in our results through deconsolidation as of March 31, 2025, as discussed in footnote 1 to the condensed consolidated financial statements in Item 1. in this Form 10-Q, each seeing growth of $0.5 million and $1.8 million, respectively. The increase in professional fees was related to higher audit fees in the first quarter of 2025 compared to 2024 due to the amount of work required by our new auditors in a compressed timeline as a result of our inability to engage them earlier in 2024 due to the completion of our prior auditors work being delayed by the SEC pre-approval process as discussed in our 2023 Form 10-K. Data processing expense continued to be higher in the first quarter of 2025 due to continued growth in transaction levels and the use of two operational core processing systems. We have begun an analysis to consolidate our operational core and believe the annual savings from consolidating systems could be approximately $6 million to $8 million annually, with an expectation of this potential core consolidation impacting noninterest expense beginning early to mid-2026. Miscellaneous lending expense increases were primarily driven by an increase of $0.3 million in servicing fees we pay the third-party that services the Consumer Program loan portfolio. Other operating expenses grew primarily as a result of the growth in PFH other operating expenses in the first quarter of 2025 compared to the same period in 2024. As a result of deconsolidation of PFH, future periods noninterest expenses will not include their operating results.
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FINANCIAL CONDITION
The following illustrates key balance sheet categories as of March 31, 2025 and December 31, 2024 (in thousands):
5,735
(295)
(8,837)
(163,832)
165,604
315,709
299,428
16,281
7,195
(2,163)
116,697
116,991
(294)
36,178
37,107
(929)
(3,386)
Total equity
10,581
Total liabilities and equity
Loans held for sale declined $172.7 million from December 31, 2024 primarily due to the sale of $50.7 million of LPF loans during the first quarter and the transfer back to Net loans (held for investment) of $101.7 million of Consumer Program loans as of March 31, 2025 after the decision to retain these for the foreseeable future or until maturity. The remaining declines were due to paydowns on the Consumer Program loans prior to transfer back to held for investment and sales of Primis Mortgage loans held at fair value, net of new originations.
Gross loans held for investment were $3.0 billion and $2.9 billion as of March 31, 2025 and December 31, 2024, respectively. The increase in loans was driven by the transfer back into the held for investment portfolio of Consumer Program loans along with growth of the mortgage warehouse and Panacea division loans, partially offset by loan paydowns concentrated in loans secured by real estate. As of March 31, 2025 and December 31, 2024, a majority of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.
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The composition of our loans held for investment portfolio consisted of the following as of March 31, 2025 and December 31, 2024 (in thousands):
Percent
15.7
16.5
19.7
21.1
0.1
3.4
3.5
19.0
20.4
5.2
5.4
2.0
2.2
65.1
69.2
22.9
Paycheck protection program loans
11.7
9.4
99.8
0.2
100.0
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, 2025 (in thousands):
After 1 Year
After 5 Years
Through 5 Years
Through 15 Years
After 15 Years
One Year
Fixed
Floating
or Less
19,989
81,888
22,302
169,097
131,558
1,673
50,726
57,705
189,878
35,624
76,973
84,628
9,425
146,639
701
688
939
1,152
52,540
1,818
26,092
3,868
19,926
8,661
49,872
17,637
23,234
48,827
66,688
361,918
20,233
86,716
21,592
6,458
22,444
3,830
7,235
56
790
47,527
163,659
411,724
130,556
273,416
293,126
77,805
630,463
126,805
102,677
136,550
291,575
36,806
1,082
2,602
1,215
523
2,263
225,001
54,691
66,886
6,857
1,949
293,942
739,925
321,797
631,877
336,789
80,836
633,070
1,159
2,461
1,008
380
295,101
742,386
321,901
337,797
81,216
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The following table sets forth the contractual maturity ranges of our Consumer Program loan portfolio as of March 31, 2025, which is only originated at fixed rates. The amounts do not include the $16.3 million of remaining fair market value adjustments related to the original $20.0 million write-down of portfolio when transferred to HFS as of December 31, 2024 (in thousands):
One Year or Less
After One Year to Five Years
After Five Through Ten Years
After Ten Years
Total Consumer Program Loans (1)
1,236
59,524
50,482
36,574
147,816
(1) Does not include $16.3 million of remaining fair market value adjustments related to the original $20.0 million write-down of portfolio when transferred to HFS as of December 31, 2024.
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 3/31/25
16,173
1,611
17,784
During the three months ended March 31, 2025, $21.1 million of loans either paid off during the no interest promo period or converted to amortizing at the end of the promo period.
Asset Quality; Past Due Loans and Nonperforming Assets
The following table presents a comparison of nonperforming assets as of March 31, 2025 and December 31, 2024 (in thousands):
Nonaccrual loans
Loans past due 90 days and accruing interest
Total nonperforming assets
14,663
16,739
SBA guaranteed amounts included in nonperforming loans
4,307
5,921
Allowance for credit losses to total loans
1.45
1.86
Allowance for credit losses to nonaccrual loans
339.79
357.53
Allowance for credit losses to nonperforming loans
300.10
320.94
Nonaccrual to total loans
0.43
0.52
Nonperforming assets excluding SBA guaranteed loans to total assets
0.28
0.29
Nonperforming assets declined during the first quarter of 2025, driven by a decrease in nonaccrual loans of $2.1 million. The decrease in nonaccrual loans was driven primarily by $2.5 million of paydowns during the quarter on one relationship that included two commercial loans in nonaccrual and was partially offset by several loans placed on nonaccrual during the quarter. We will generally place a loan on nonaccrual status when it becomes 90 days past due, with the exception of most consumer loans which are charged off at 120 days past due and Consumer Program loans which are charged off once they reach 90 days past due. Loans will also be placed on nonaccrual status in cases where we are
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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.
Allowance for Credit Losses
Our allowance for credit losses was $44.0 million as of March 31, 2025 compared to $53.7 million as of December 31, 2024. The $9.7 million decline was driven by $11.3 million in net charge-offs during the first quarter of 2025, partially offset by $1.6 million in provision for expected credit losses. The decline in our allowance is also driven by higher credit quality of the remaining Consumer Program loans as of March 31, 2025, not requiring significant additions to the allowance. Net charge-offs were primarily related to charge-offs in the Consumer Program portfolio. During the three months ended March 31, 2025, we charged-off $10.8 million, net of recoveries, in the Consumer Program portfolio. A majority of these charge-offs related to loans originated from the third quarter of 2022 through the first quarter of 2023 where we have experienced significant credit weaknesses. The provision for expected credit losses during the first quarter was also driven primarily by provisions for the Consumer Program portfolio of $1.9 million.
We originate Consumer Program loans using a third party that sources and subsequently manages the portfolio of loans. As of March 31, 2025, the principal balance outstanding was $147.8 million excluding a $16.3 million discount as a result of our prior decision to market a majority of the portfolio for sale, which has since been moved back to held for investment and will be run-off over time. 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 $7.5 million as of March 31, 2025 and represented 17% of our total allowance for credit losses. The allowance on this portfolio plus the discount results in a reduction of the outstanding principal balance of $23.8 million or 16%. As of March 31, 2025, 87% of the outstanding principal balance was current, resulting in 128% coverage by the aggregate allowance and discount of the non-current principal balances.
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 $250.8 million as of March 31, 2025, an increase of 2.2% from $245.4 million as of December 31, 2024, 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 no credit impairment charges related to credit losses on our held-to-maturity investment securities during the three months ended March 31, 2025.
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
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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 $3.2 billion as of both March 31, 2025 and December 31, 2024. The mix of deposits changed during the three months, including an increase in lower-cost demand and NOW deposit balances of $9.2 million, offset by a decline in money market deposit account balances. 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. Deposits are net of excess amounts we sweep off balance sheet to manage liquidity. Deposits swept off balance sheet were $157 million as of March 31, 2025, compared to $137 million as of December 31, 2024.
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 $623.5 million, or 20% of total deposits, as of March 31, 2025.
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, 2025 and December 31, 2024, we had no FHLB borrowings. As of March 31, 2025, we had $366.3 million of unused and available FHLB lines of credit as well as $550.5 million of available credit with the Federal Reserve Bank (FRB), secured by excess collateral pledged to the FHLB and FRB in the form of loans and investment securities.
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, 2025 and December 31, 2024 was $4.0 million and $3.9 million, respectively.
We had secured borrowings of $16.7 million and $17.2 million as of March 31, 2025 and December 31, 2024, respectively, related to loan transfers to other financial institutions during 2023 and 2024 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. For additional information on secured borrowings refer to “Note 7 –Debt and Other Borrowings” in this Form 10-Q.
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.”
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.”
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, 2025, 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, 2025, 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, 2025 and December 31, 2024, 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 Primis to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to average assets (as defined). Management believes, as of March 31, 2025, 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
8.71
7.76
Common equity tier 1 capital ratio
4.50
9.35
8.74
Tier 1 risk-based capital ratio
6.00
9.66
9.05
Total risk-based capital ratio
8.00
12.96
12.53
5.00
9.72
9.10
7.00
6.50
10.96
10.78
8.50
10.50
10.00
12.22
12.04
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 4.22% as of March 31, 2025, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
Primis Bank’s capital position is consistent with being well-capitalized under the regulatory framework for PCA.
CRITICAL ACCOUNTING POLICIES
The critical accounting policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2024. 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, 2024. 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 2025.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are engaged primarily in the business of investing funds obtained from deposits and borrowings into interest-earning loans and investments. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between the interest income on loans and other investments and the interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-earning assets, we are subject to interest rate risk and corresponding fluctuations in net interest income. Our Asset-Liability Committee (“ALCO”) meets regularly and is responsible for reviewing our interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by our Board of Directors. We have employed asset/liability management policies that seek to manage our net interest income, without having to incur unacceptable levels of credit or investment risk.
We use simulation modeling to manage our interest rate risk, and review quarterly interest sensitivity. This approach uses a model which generates estimates of the change in our economic value of equity (“EVE”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts using assumptions including estimated loan prepayment rates, reinvestment rates and deposit decay rates.
The following tables are based on an analysis of our interest rate risk as measured by the estimated change in EVE resulting from instantaneous and sustained parallel shifts in the yield curve (plus 400 basis points or minus 100 basis points, measured in 100 basis point increments) as of March 31, 2025 and December 31, 2024. All changes are within our Asset/Liability Risk Management Policy guidelines (amounts in thousands).
Sensitivity of EVE
As of March 31, 2025
EVE
EVE as a % of
Change in Interest Rates
$ Change
% Change
in Basis Points (Rate Shock)
From Base
Book Value
Up 400
389,471
(143,548)
(26.93)
10.53
103.70
Up 300
426,188
(106,831)
(20.04)
11.53
113.48
Up 200
460,968
(72,051)
(13.52)
12.47
122.74
Up 100
508,135
(24,884)
(4.67)
13.74
135.30
Base
533,019
14.42
141.93
Down 100
542,288
9,269
1.74
14.67
144.39
Down 200
528,091
(4,928)
(0.92)
14.28
140.61
Down 300
499,193
(33,826)
(6.35)
13.50
132.92
Down 400
443,901
(89,118)
(16.72)
12.01
118.20
As of December 31, 2024
438,490
(68,444)
(13.50)
11.88
120.14
451,722
(55,212)
(10.89)
12.24
123.77
464,410
(42,524)
(8.39)
12.59
127.24
493,213
(13,721)
(2.71)
13.37
135.13
506,934
138.89
509,055
2,121
0.42
13.80
139.47
493,913
(13,021)
(2.57)
13.38
135.33
469,048
(37,886)
(7.47)
12.71
128.51
435,781
(71,153)
(14.04)
11.81
119.40
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, 2025 and December 31, 2024 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, 2025 and December 31, 2024 (amounts in thousands).
Sensitivity of NII
Adjusted NII
110,965
(2,166)
111,251
(1,880)
111,527
(1,604)
113,216
113,131
112,908
(223)
111,324
(1,807)
109,553
(3,578)
108,084
(5,047)
95,367
(15,874)
98,941
(12,300)
102,472
(8,769)
107,370
(3,871)
111,241
114,126
2,885
114,960
3,719
115,205
3,964
115,736
4,495
Sensitivity of EVE and NII are modeled using different assumptions and approaches. Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII sensitivity requires the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Accordingly, although the EVE tables and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net worth and NII.
ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. 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 (“CEO”) and Chief Financial Officer (“CFO”), 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). Based upon that evaluation, our CEO and CFO 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 2024 Annual Report on Form 10-K.
Notwithstanding the material weaknesses that have not been fully remediated, the Company’s management, including the CEO and CFO, has concluded that the condensed consolidated financial statements, included in this Form 10-Q, as of and for the three months ended March 31, 2025, fairly present, in all material respects, the Company's financial condition, results of operations and cash-flows for the periods presented in conformity with generally accepted accounting principles for interim financial statements.
(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, 2025 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. During the three months ended March 31, 2025, 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 2024 Annual Report on Form 10-K. Management continues to put controls in place to remediate the previously identified material weaknesses and the material weaknesses will not be remediated until the necessary controls are in place and operating effectively for a sufficient amount of time.
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, 2025.
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 2024 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 2024 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, 2025.
ITEM 6 - EXHIBITS
(a) Exhibits.
Exhibit No.
Description
3.1
Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed August 4, 2006)
3.2
Certificate of Amendment to the Articles of Incorporation dated January 31, 2005 (incorporated herein by reference to Exhibit 3.2 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)
3.3
Certificate of Amendment to the Articles of Incorporation dated April 13, 2006 (incorporated herein by reference to Exhibit 3.3 to Primis Financial Corp.’s (formerly Southern National’s) Registration Statement on Form S-1 (Registration No. 333-136285) filed on August 4, 2006)
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)
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, 2025, 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).
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
60
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)
May 13, 2025
/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