Item 2. Management’s Discussion and Analysis
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 in conjunction 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, 2025. Results of operations for the three months ended March 31, 2026, are not necessarily indicative of results that may be achieved for any other period. The emphasis of this discussion will be on the three months ended March 31, 2026, compared to the three months ended March 31, 2025 for the condensed consolidated income statements. For the condensed consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2026 compared to December 31, 2025. This discussion and analysis contain 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 instead 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 inherently 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 previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, and the other reports we file with the Securities and Exchange Commission, factors that could contribute to those differences include, but are not limited to:
● the effects of future economic, business and market conditions and disruptions in the credit and financial markets, domestic and foreign;
● potential increases in the provision for credit losses and other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services;
● uncertainties surrounding geopolitical events, trade policy, taxation policy and federal monetary policy, which continue to impact the outlook for future economic growth (including an economic downturn or recession), including the U.S. imposition of tariffs on other countries and consideration of responsive actions by these nations or the expansion of import fees and tariffs among a larger group of nations, which is bringing greater ambiguity to the outlook for future economic growth;
● fraudulent and negligent acts by loan applicants, mortgage brokers and our employees;
● our ability to implement our various strategic and growth initiatives, including our Panacea Financial Division, digital banking platform, V1BE fulfillment service, Mortgage Warehouse lending, and Primis Mortgage Company, as well as with respect to use and implementation of artificial intelligence and our cost saving projects to reduce technology vendor expenses and administrative and branch expenses;
● adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions;
● changes in the local economies in our market areas which adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;
39
Table of Contents
● changes in interest rates, inflation, stagflation, loan demand, real estate values, commodity prices, or competition, as well as labor shortages, supply chain disruptions, the threat of recession and volatile equity capital markets;
● changes in the availability of funds resulting in increased costs or reduced liquidity, as well as the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;
● a deterioration or downgrade in the credit quality and credit agency ratings of the investment securities in our investment securities portfolio;
● impairment concerns and risks related to our investment securities portfolio of collateralized mortgage obligations, agency mortgage-backed securities and obligations of states and political subdivisions;
● the incurrence and impairment of goodwill associated with current or future acquisitions and adverse short-term effects on our results of operations;
● increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio, including as a result of rising or elevated interest rates, inflation and recessionary concerns;
● the concentration of our loan portfolio in loans collateralized by real estate;
● our level of construction and land development and commercial real estate loans;
● risk related to a third-party’s ability to satisfy its contractual obligation to reimburse us for waived interest on loans with promotional features that pay off early;
● our ability to identify and address potential cybersecurity risks on our systems and/or third party vendors and service providers on which we rely, heightened by the developments in generative artificial intelligence and increased use of our virtual private network platform, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation;
● changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;
● the failure of assumptions and estimates underlying the establishment of and provisions made for credit losses;
● our ability to expand and grow our business and operations, including the acquisition of additional banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities;
● government intervention in the U.S. financial system, including the effects of legislative, tax, accounting and regulatory actions and reforms, and the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;
● the implementation of a regulatory reform agenda under the presidential administration that is significantly different than that of the prior administration, impacting rulemaking, supervision, examination and enforcement priorities of the federal banking agencies;
● increased competition for deposits and loans adversely affecting rates and terms;
● the continued service of key management personnel;
● the potential payment of interest on demand deposit accounts to effectively compete for customers;
● the potential environmental liability risk associated with properties that we assume upon foreclosure;
● increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;
● risks of current or future mergers and acquisitions, including the related time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;
● increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business;
● acts of God or of war or other conflicts, civil unrest, acts of terrorism, pandemics or other catastrophic events that may affect general economic conditions;
● changes in accounting policies, rules and practices and applications or determinations made thereunder;
● any inability or failure to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to expediently remediate our existing material weakness in our internal controls deemed ineffective;
● failure to maintain effective internal controls and procedures, including the ability to remediate identified material weakness in internal control over financial reporting expediently;
40
Table of Contents
● the risk that our deferred tax assets could be reduced if future taxable income is less than currently estimated, if corporate tax rates in the future are less than current rates, or if sales of our capital stock trigger limitations on the amount of net operating loss carryforwards that we may utilize for income tax purposes;
● our ability to attract and retain qualified employees, including as a result of heightened labor shortages;
● risks related to DEI and ESG strategies and initiatives, the scope and pace of which could alter our reputation and shareholder, associate, customer and third-party affiliations or result in litigation in connection with anti-DEI and anti-ESG laws, rules or activism;
● negative publicity and the impact on our reputation;
● our ability to realize the value of derivative assets that are recorded at fair value due to changes in fair value driven by actual results being materially different than our assumptions;
● our ability to grow the mortgage warehouse business and achievement of certain margin results; and
● other factors and risks described under “Risk Factors” herein and in any of the reports that we file with the SEC under the Exchange Act.
Forward-looking statements are not guarantees of performance or results and should not be relied upon as representing management’s views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our periodic and current reports filed with the SEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to publicly updated or revise these forward-looking statements in light of new information or future events.
OVERVIEW
Primis Financial Corp. is the bank holding company for Primis 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. Primis Bank has 24 full-service branches in Virginia and Maryland and also provides services to customers through certain online and mobile applications. As of March 31, 2026, Primis had $4.3 billion in total assets, $3.4 billion in total loans held for investment, $3.4 billion in total deposits and $427 million in total stockholders’ equity.
We organized the core bank and lines of business in a way that we believe will drive premium operating results. Our strategy centers on growing earning assets, growing non-interest deposits, and achieving higher production and profitability in our retail mortgage business and the first quarter of 2026 was reflective of progress in these areas.
OPERATIONAL HIGHLIGHTS
Executive Overview
Our growth strategy is focused on driving higher production and profitability in four key areas of the company identified as the core community bank, mortgage warehouse, Panacea financial lending, and PMC. The following highlights key metrics from these four areas during the first quarter of 2026:
Core Community Bank
● $66 million of closed loans in the first quarter of 2026 with a pipeline of $123 million as of March 31, 2026.
● Low concentrations of investor commercial real estate loans, making up just 25% of total loans as of March 31, 2026.
● The core Bank’s cost of deposits was 1.59% in the first quarter of 2026, compared to 1.83% in the first quarter of 2025. Approximately 23% of the core Bank’s deposit base as of March 31, 2026, are noninterest bearing deposits.
● The core Bank had zero brokered deposits.
41
Table of Contents
Panacea Financial Division of the Bank
● Outstanding loan balances grew 10% to $600 million during the three months ended March 31, 2026 from $544 million as of December 31, 2025. The balance as of March 31, 2026 included $38 million classified as HFS that subsequently sold in April 2026.
● Outstanding deposits were $153 million as of March 31, 2026, up 20% from December 31, 2025.
Mortgage Warehouse
● Outstanding loan balances as of March 31, 2026 were $460 million, up 45% from $318 million as of December 31, 2025.
● Mortgage warehouse funded on average approximately 12% of its outstanding loans with associated customer noninterest bearing deposit balances during the three months ended March 31, 2026.
Primis Mortgage Company
● Funded loan volume was $367 million in the first quarter of 2026, up 122% from the first quarter of 2025.
● Pre-tax earnings was $2 million during the three months ended March 31, 2026 compared to $800 thousand during the three months ended March 31, 2025, an increase of 162%.
Funding for many of our strategies (all of the above excluding the core community bank) is provided exclusively by the Bank’s digital platform powered by what we believe is one of the safest and most functional deposit accounts in the nation. Because of the scalability of the platform, there is significantly less pressure on the core community bank to provide this funding and risk the profitable, decades old relationships with core customers. The digital platform ended the first quarter of 2026 with approximately $1.0 billion of deposits with a cost of deposits of 3.79%. The digital platform successfully grew business accounts in 2026 with small business balances reaching $28 million as of March 31, 2026, up substantially from $16 million at December 31, 2025. Over 1,200 of our digital accounts have come from referrals from other customers and approximately 81% of our consumer accounts have been with the Bank for over two years.
42
Table of Contents
SUMMARY OF FINANCIAL RESULTS
Results of Operations Highlights
The quarter ended March 31, 2026 was strong, earning $7 million, or $0.30 basic and diluted earnings per common share, compared to net income available to common shareholders of $23 million, or $0.92 basic and diluted earnings per common share, for the three months ended March 31, 2025. Net income available to common shareholders included $25 million in one-time gains related to the deconsolidation of PFH during the three months ended March 31, 2025. When excluding the one-time gains, net income available to common shareholders grew $9 million in the first quarter of 2026 when compared to the same quarter last year.
The key financial drivers of the year over year results are noted in the following table with additional discussions following the table ($ in thousands).
Three Months Ended
March 31, 2026
compared to
March 31, 2025
Favorable (unfavorable) change
Net interest income
$
5,710
Provision for credit losses
47
Noninterest income
(18,780)
Noninterest expenses
(1,238)
Provision for income taxes
2,539
Noncontrolling interest
(3,602)
Net income attributable to Primis' common stockholders
$
(15,324)
● The net interest income increase was driven by an increase in interest and dividend income and flat interest expense in 2026 compared to 2025. The interest income increases were driven primarily by $400 million higher average loans held for investment balances, while we maintained flat interest expense due to lower rates on interest bearing deposit accounts despite a growth in those accounts of $144 million. We also grew noninterest bearing deposits by an average of $87 million from the three months ended March 31, 2025 to March 31, 2026, reducing the need to seek additional higher cost borrowings.
● Net interest margin increased to 3.43% for the three months ended March 31, 2026, compared to 3.15% for the three months ended March 31, 2025. Continued rebuilding of earning asset levels coupled with favorable deposit pricing was responsible for the improvement during the first quarter of 2026.
● Noninterest income declined by $19 million during the three month period of 2026 compared to 2025 primarily driven by the $25 million one-time gain on de-consolidation of PFH. When excluding the one-time gain, noninterest income grew $8 million driven by $5 million higher mortgage banking income, $700 thousand higher Consumer Program derivative income, and $600 thousand higher loan sale gains. The increase in mortgage banking income gains was a result of 122% increase in funded loan volume and subsequent sale of a large amount of these funded loans during the quarter along with a $2 million increase in fair value gains on the portfolio in the first quarter of 2026 compared to the same quarter in 2025.
● Noninterest expense increased $1 million, or 4%, primarily due to increases in personnel and occupancy expenses. Personnel expenses grew primarily as a result of PMC due to the significant growth of the business year-over-year and occupancy expenses grew primarily as a result of increased lease expense related to the sale-leaseback transaction in December of 2025. We experienced declines in most remaining noninterest expense categories, led by $700 thousand less data processing and $700 thousand less other operating expenses, as a result of our new data processing contract executed in the second half of 2025 and continued overall expense discipline across the company.
43
Table of Contents
Balance Sheet Highlights
● Total assets increased to $4.3 billion, or 5%, as of March 31, 2026 when compared to December 31, 2025 primarily due to growth in PMC, Mortgage Warehouse, and the Panacea Division that drove growth in LHFI and LHFS.
● Total LHFI as of March 31, 2026 were $3.4 billion, an increase of $113 million, or 3%, from December 31, 2025. The increase was led by growth in the Mortgage Warehouse loans of $142 million since December 31, 2025.
● Total deposits increased $28 million or 1%, from December 31, 2025 to March 31, 2026. Increases were seen in money market and savings, partially offset by declines in NOW and noninterest bearing demand accounts. Growth was partially driven by increased Mortgage Warehouse business and Panacea Division deposit account balances. We have no wholesale deposit funding as of March 31, 2026.
● The ratio of gross loans (excluding loans held for sale) to deposits increased to 99.2% as of March 31, 2026, from 96.7% as of December 31, 2025.
● Allowance for credit losses to total loans was down 3 basis points to 1.37% as of March 31, 2026, compared to 1.40% as of December 31, 2025. The decline was driven by continued decline in promo and overall balances in the Consumer Program portfolio and a c hanging mix of the Bank’s loan portfolio to loan categories with lower reserve requirements .
● Asset quality declined from year end with nonperforming assets as a percentage of total assets (excluding SBA guarantees) at 2.35% as of March 31, 2026, compared to 2.03% as of December 31, 2025, a 32 basis point change. This decline was primarily driven by one commercial relationship comprising two loans that became 90 days past due as of March 31, 2026, but were still accruing. The borrower subsequently made multiple payments in April that brought the loans under 40 days past due. Excluding this relationship, our asset quality was stable from December 31, 2025 to March 31, 2026.
● Our capital ratios continued to exceed requirements to be considered well capitalized as of March 31, 2026, with decreases in Common Equity Tier 1 and Tier 1 and total risk-based capital of 18, 19 and 39 basis points, respectively, compared to December 31, 2025.
RESULTS OF OPERATIONS
Net Income
Net income available to common shareholders for the three months ended March 31, 2026 totaled $7 million, or $0.30 basic and diluted earnings per share, compared to $23 million, or $0.92 basic and diluted earnings per share, for the three months ended March 31, 2025. Net income available to common shareholders during the three months ended March 31, 2025 included a $25 million one-time gain related to the deconsolidation of PFH. When excluding the one-time gain, net income available to common shareholders grew $9 million in the first quarter of 2026 when compared to the same quarter last year and reflects an increase in noninterest income of $6 million primarily due to higher mortgage banking income in the first quarter of 2026 driven by growth of PMC and higher loan sales and related gains. The results also reflect a $6 million increase in net interest income driven by an increase in interest and dividend income primarily from higher average loans held for investment balances. These are partially offset by an increase in noninterest expenses of $1 million driven by personnel expenses due to growth in PMC and a decrease in noncontrolling income of $4 million. Additional details of the changes in net income will be discussed in the remaining sections of this Results of Operations section.
44
Table of Contents
Net Interest Income and Net Interest Margin
Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and investments, and interest expense on interest-bearing liabilities such as deposits and borrowings.
The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:
Average Balance Sheets and Net Interest Margin
Analysis For the Three Months Ended
March 31, 2026
March 31, 2025
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
Balance
Expense
Rate
Balance
Expense
Rate
($ amounts in thousands)
Assets
Interest-earning assets:
Loans held for sale
$
159,007
$
2,376
6.06
%
$
170,509
$
2,564
6.10
%
Loans, net of deferred fees (1) (2)
3,297,456
47,758
5.87
%
2,897,481
42,400
5.93
%
Investment securities
176,582
1,911
4.39
%
245,216
1,906
3.15
%
Other earning assets
161,199
1,481
3.73
%
86,479
853
4.00
%
Total earning assets
3,794,244
53,526
5.72
%
3,399,685
47,723
5.69
%
Allowance for credit losses
(45,204)
(47,039)
Total non-earning assets
306,670
288,951
Total assets
$
4,055,710
$
3,641,597
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts
$
838,845
$
4,244
2.05
%
$
805,522
$
4,515
2.27
%
Money market accounts
750,380
4,539
2.45
%
788,067
5,420
2.79
%
Savings accounts
922,152
7,202
3.17
%
754,304
6,418
3.45
%
Time deposits
316,281
2,517
3.23
%
335,702
3,039
3.67
%
Total interest-bearing deposits
2,827,658
18,502
2.65
%
2,683,595
19,392
2.93
%
Borrowings
181,185
2,950
6.60
%
116,955
1,967
6.82
%
Total interest-bearing liabilities
3,008,843
21,452
2.89
%
2,800,550
21,359
3.09
%
Noninterest-bearing liabilities:
Demand deposits
533,570
446,404
Other liabilities
86,090
38,280
Total liabilities
3,628,503
3,285,234
Primis common stockholders' equity
427,207
344,381
Noncontrolling interest
—
11,982
Total stockholders' equity
427,207
356,363
Total liabilities and stockholders' equity
$
4,055,710
$
32,074
$
3,641,597
$
26,364
Interest rate spread
2.83
%
2.60
%
Net interest margin
3.43
%
3.15
%
(1) Includes loan fees in both interest income and the calculation of the yield on loans.
(2) Calculations include non-accruing loans in average loan amounts outstanding.
45
Table of Contents
Net interest income was $32 million for the three months ending March 31, 2026, compared to $26 million for the three months ended March 31, 2025. Net interest income increased primarily as a result of higher average net loans balances in the first quarter of 2026 compared to same period in prior year while rates over this same time remained relatively stable. Interest expense remained relatively flat due to lower rates on interest bearing deposit accounts despite deposit growth in the current year. Our net interest margin for the three months ending March 31, 2026 was 3.43%, compared to 3.15% for the three months ending March 31, 2025. Continued rebuilding of earning asset levels coupled with favorable deposit pricing was responsible for the improvement during the first quarter of 2026. Margin increased by 28 basis points primarily from higher average interest-earning asset balances and higher net interest income when comparing the three months ending March 31, 2026 to the three months ending March 31, 2025.
● Average earning assets increased by $395 million, or 12%, primarily due to an increase in average total loans of $388 million, or 13%, and growth in other earning assets of $75 million, or 86%, partially offset by a decrease in average investment securities of $69 million, or 28%. Average earning asset balances were driven higher by a $400 million increase in average loans held for investment balances which was primarily a result of continued growth of average Panacea Division loans and Mortgage Warehouse loans during the three months ended March 31, 2026 compared to the same period in 2025.
● Average interest-bearing liabilities increased by $208 million largely due to growth in average savings deposit balances of $168 million. We also experienced growth in NOW and demand deposits of $33 million, partially offset by declines in average money market deposit accounts of $38 million and time deposit balances of $19 million. The increase in demand deposits was driven by growth in the Panacea Division and Mortgage Warehouse business, each of which has been successful in growing deposits alongside their loan growth. Rates on average interest-bearing deposits declined 28 basis points in total, despite a growth in those accounts, due to lower rates on interest bearing deposit accounts. Interest paid on average borrowings increased $1 million due to an increase of $64 million in average borrowings compared to the first quarter of the prior year.
● Yields on average interest earning assets increased by 3 basis points comparing the three months ended March 31, 2026 to 2025. The increase was primarily driven by higher yields on investments of 124 basis points during the three months ending March 31, 2026 compared to the three months ending March 31, 2025 due to the reinvestment in higher yielding securities in fourth quarter of 2025. Partially offsetting higher investment yields was a decrease in yield on other earning assets of 27 basis points. Yields on interest-bearing liabilities declined by 20 basis points during the three months ending March 31, 2026 compared to the three months ending March 31, 2025, primarily driven by the decline in benchmark borrowing rates over that time.
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.
For both the three months ended March 31, 2026 and 2025, we had a provision for credit losses of $2 million. The provision was flat when comparing the three months ended March 31, 2026 to March 31, 2025 as a result of provision increases in our commercial, commercial owner occupied, and warehouse loan portfolio growth being largely offset by net charge-offs in the consumer loan portfolio. See additional discussion in the Asset Quality section of this MD&A.
The Financial Condition section of this MD&A provides information on our loan portfolio, past due loans, nonperforming assets and the allowance for credit losses.
46
Table of Contents
Noninterest Income
For the Three Months Ended
March 31,
($ in thousands)
2026
2025
Change
Account maintenance and deposit service fees
$
1,246
$
1,339
$
(93)
Income from bank-owned life insurance
472
425
47
Gain on Panacea Financial Holdings investment
—
24,578
(24,578)
Mortgage banking income
10,760
5,615
5,145
Gains on sale of loans
567
—
567
Consumer Program derivative income (loss)
396
(292)
688
Other noninterest income
114
670
(556)
Total noninterest income
$
13,555
$
32,335
$
(18,780)
Noninterest income decreased 58% to $14 million for the three months ended March 31, 2026, compared to $32 million for the three months ended March 31, 2025. Noninterest income included a $25 million one-time gain related to the deconsolidation of PFH during the three months ended March 31, 2025. When excluding the one-time gain, noninterest income for the three months ended March 31, 2026 grew $8 million compared to the same period in 2025. The increase was primarily driven by $5 million of higher income from mortgage banking activity during the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The 92% increase in mortgage banking income was related to an increase in funded loan volume and subsequent sale of a large amount of these funded loans during the first quarter of 2026 along with a $2 million increase in fair value gains on the portfolio in the first quarter of 2026 compared to the same quarter in 2025.
Noninterest income also had increases year-over-year as a result of gains on sale of loans of $567 thousand during the three months ended March 31, 2026, primarily related to the sale of the guaranteed portion of SBA loans driven by the Panacea Division. Consumer Program related income increased $688 thousand, driven by positive fair value adjustments on the related derivative in the first quarter of 2026 compared to negative adjustments in the same quarter in 2025. Noninterest income from the Consumer Program is expected to be increasingly immaterial going forward as promotional loans continue to decline. Meanwhile, we anticipate additional gains from loan sales during the remainder of the year generated by the Panacea Division.
Income from bank-owned life insurance increased $47 thousand for the three months ended March 31, 2026 compared to March 31, 2025. The Company is currently in the process of restructuring its bank-owned life insurance portfolio which is anticipated to improve noninterest income by approximately $1.2 million annually, beginning late in the second quarter of 2026.
Noninterest Expense
For the Three Months Ended
March 31,
($ in thousands)
2026
2025
Change
Salaries and benefits
$
19,556
$
17,941
$
1,615
Occupancy expenses
2,552
1,428
1,124
Furniture and equipment expenses
2,065
1,857
208
Virginia franchise tax expense
611
577
34
FDIC insurance assessment
738
793
(55)
Data processing expense
2,188
2,849
(661)
Marketing expense
760
514
246
Telephone and communication expense
311
287
24
Loss on bank premises and equipment and assets held for sale
—
106
(106)
Professional fees
1,860
2,225
(365)
Miscellaneous lending expenses
728
834
(106)
Other operating expenses
2,385
3,105
(720)
Total noninterest expenses
$
33,754
$
32,516
$
1,238
47
Table of Contents
Noninterest expenses increased 4% to $34 million during the three months ended March 31, 2026, compared to $33 million during the three months ended March 31, 2025. The increase was primarily driven by higher salaries and benefits expenses and occupancy expenses, partially offset by declines in most of our other noninterest expense categories.
Salaries and benefits expenses increased $2 million during the three months ended March 31, 2026, compared to the same period in 2025. PMC accounted for most of the growth in salaries and benefits due to the significant growth of the business in the last year.
Occupancy expenses grew $1 million during the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily as a result of increased lease expense related to the sale-leaseback transaction executed in December of 2025.
Data processing expense decreased $661 thousand during the three months ended March 31, 2026, compared to the same period in 2025 driven by the reduced cost of data processing for our core loan and deposit system as a result of renegotiating our core data processing contract with our vendor in the second half of 2025.
Professional fees decreased $365 thousand in the first quarter of 2026 compared to the first quarter of 2025 primarily due to legal, accounting, and audit related costs in the current year starting to normalize after the prior year increases that were attributable to specific non-recurring accounting events. Other operating expenses decreased $720 thousand during the three months ended March 31, 2026, compared to the same period in 2025 attributable to continued overall general expense discipline across the company.
FINANCIAL CONDITION
The following illustrates key balance sheet categories as of March 31, 2026 and December 31, 2025 ($ in thousands):
March 31,
December 31,
2026
2025
Change
Total cash and cash equivalents
$
159,881
$
143,607
$
16,274
Securities available-for-sale
171,877
171,377
500
Securities held-to-maturity
6,792
6,981
(189)
Loans held for sale, at fair value
181,715
166,066
15,649
Loans held for sale, at lower of cost or market
41,465
—
41,465
Net loans
3,349,985
3,237,800
112,185
Other assets
344,953
321,557
23,396
Total assets
$
4,256,668
$
4,047,388
$
209,280
Total deposits
$
3,423,065
$
3,395,585
$
27,480
Borrowings
317,286
139,487
177,799
Other liabilities
89,119
89,420
(301)
Total liabilities
3,829,470
3,624,492
204,978
Total equity
427,198
422,896
4,302
Total liabilities and equity
$
4,256,668
$
4,047,388
$
209,280
LOAN PORTFOLIO
Loans Held for Sale
LHFS increased $57 million during the first quarter of 2026 from December 31, 2025 primarily due to the origination for sale during the quarter of $41 million of Panacea Financial division commercial loans and an increase of $16 million in PMC loans. A majority of the Panacea loans were sold to another financial institution a few weeks after March 31, 2026 and the remainder is anticipated to be sold to the same financial institution before June 30, 2026. The increase in PMC loans is a result of overall increase in origination volume during the quarter.
48
Table of Contents
Loans Held for Investment
Gross LHFI were $3.4 billion and $3.3 billion as of March 31, 2026 and December 31, 2025, respectively. The increase in loans was driven by growth of mortgage warehouse loans and Panacea Division commercial loans. The growth was partially offset by loan paydowns during the three months ended March 31, 2026 of consumer loans and non-owner occupied commercial real estate loans. As of March 31, 2026 and December 31, 2025, a majority of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.
The composition of our loans HFI portfolio consisted of the following as of March 31, 2026 and December 31, 2025 ($ in thousands):
March 31, 2026
December 31, 2025
Amount
Percent
Amount
Percent
Loans secured by real estate:
Commercial real estate - owner occupied
$
534,897
15.7
%
$
510,088
15.5
%
Commercial real estate - non-owner occupied
540,154
15.9
%
567,091
17.3
%
Secured by farmland
2,386
0.1
%
3,408
0.1
%
Construction and land development
151,426
4.5
%
131,757
4.0
%
Residential 1-4 family
560,711
16.5
%
576,866
17.5
%
Multi- family residential
150,475
4.4
%
140,261
4.3
%
Home equity lines of credit
61,786
1.8
%
61,738
1.9
%
Total real estate loans
2,001,835
58.9
%
1,991,209
60.6
%
Commercial loans
1,104,438
32.5
%
970,492
29.6
%
Paycheck protection program loans
1,716
0.1
%
1,719
0.1
%
Consumer loans
283,605
8.4
%
315,407
9.6
%
Total Non-PCD loans
3,391,594
99.9
%
3,278,827
99.9
%
PCD loans
4,772
0.1
%
4,856
0.1
%
Total loans
$
3,396,366
100.0
%
$
3,283,683
100.0
%
The following table sets forth the contractual maturity ranges of our LHFI portfolio and the amount of those loans with fixed and floating interest rates in each maturity range as of March 31, 2026 ($ in thousands):
After 1 Year
After 5 Years
Through 5 Years
Through 15 Years
After 15 Years
One Year
Fixed
Floating
Fixed
Floating
Fixed
Floating
or Less
Rate
Rate
Rate
Rate
Rate
Rate
Total
Loans secured by real estate:
Commercial real estate - owner occupied
$
36,367
$
67,239
$
40,872
$
205,941
$
137,277
$
1,615
$
45,586
$
534,897
Commercial real estate - non-owner occupied
104,069
140,524
29,798
78,167
74,767
9,129
103,700
540,154
Secured by farmland
876
412
117
214
518
—
249
2,386
Construction and land development
83,017
12,263
47,987
—
8,117
—
42
151,426
Residential 1-4 family
23,201
34,619
18,199
20,150
36,281
68,476
359,785
560,711
Multi- family residential
52,555
47,235
22,843
431
5,779
—
21,632
150,475
Home equity lines of credit
2,477
133
6,140
1
635
62
52,338
61,786
Total real estate loans
302,562
302,425
165,956
304,904
263,374
79,282
583,332
2,001,835
Commercial loans
124,608
65,586
540,940
322,681
46,437
1,022
3,164
1,104,438
Paycheck protection program loans
1,716
-
—
—
—
—
—
1,716
Consumer loans
31,078
144,331
41,209
58,414
6,802
1,767
4
283,605
Total Non-PCD loans
459,964
512,342
748,105
685,999
316,613
82,071
586,500
3,391,594
PCD loans
2,291
1,090
138
—
883
370
—
4,772
Total loans
$
462,255
$
513,432
$
748,243
$
685,999
$
317,496
$
82,441
$
586,500
$
3,396,366
49
Table of Contents
Our highest concentration of credit by loan type is in commercial real estate. As of March 31, 2026, 36% of our loan portfolio was comprised of loans secured by commercial real estate, including multi-family residential loans and loans secured by farmland. Commercial real estate loans are generally viewed as having a higher risk of default than residential real estate loans and depend on cash flows from the owner’s business or the property’s tenants to service the debt. The borrower’s cash flows may be affected significantly by general economic conditions, a downturn in the local economy, or in occupancy rates in the market where the property is located, any of which could increase the likelihood of default.
We seek to mitigate risks attributable to our most highly concentrated portfolios and our portfolios that pose unique risks to our balance sheet through our credit underwriting and monitoring processes, including oversight by a centralized credit administration function, approval process, credit policy, and risk management committee, as well as through our seasoned bankers that focus on lending to borrowers with proven track records in markets with which we are familiar.
The following table presents the composition of the industry classification for commercial real estate non-owner occupied loans as a percentage of total loans for the periods ended March 31, 2026 and December 31, 2025 ($ in thousands):
March 31, 2026
December 31, 2025
Amount
Percent
Amount
Percent
Commercial real estate - non-owner occupied
Hotel/ Motel
$
154,861
28.7
%
$
163,487
28.8
%
Office
134,768
24.9
%
131,638
23.2
%
Retail
83,271
15.4
%
80,918
14.3
%
Assisted living
40,971
7.6
%
54,382
9.6
%
Mixed use
44,047
8.2
%
44,626
7.9
%
Warehouse/ Industrial
23,624
4.4
%
20,691
3.6
%
Daycare/Schools/Churches
10,677
2.0
%
10,760
1.9
%
Self-storage
10,343
1.9
%
10,402
1.8
%
Leisure/Recreational
5,988
1.1
%
10,695
1.9
%
Other
31,604
5.8
%
39,492
7.0
%
Total Commercial real estate - non-owner occupied
$
540,154
100.0
%
$
567,091
100.0
%
The following table presents the composition of office portfolio loans for commercial real estate non-owner occupied loans, their loan count and their weighted average loan-to-value as of March 31, 2026 and December 31, 2025 ($ in thousands):
March 31, 2026
December 31, 2025
Commercial real estate - non-owner occupied - Office Portfolio (1)
Loan count
Amount
Weighted Average Loan-to-Value
Loan count
Amount
Weighted Average Loan-to-Value
Commercial medical office
10
$
9,228
66.3
%
10
$
9,303
66.7
%
Commercial office building
30
111,913
66.9
%
28
108,586
65.9
%
Commercial office/ warehouse
12
13,627
36.6
%
12
13,749
36.8
%
Total
52
$
134,768
63.8
%
50
$
131,638
62.9
%
(1) The office portfolio is a subset of our Commercial real estate non-owner occupied loans.
The shift to work-from-home and hybrid work environments has caused a decreased utilization of office space. As such, we have additional monitoring for our exposure to office space, within our non-owner occupied commercial real estate portfolio, including periodic credit risk assessment of expiring office leases for most of the office portfolio. We do not currently finance large, high-rise, or major metropolitan central business district office buildings, and the office portfolio is generally in suburban markets with strong occupancy levels.
50
Table of Contents
Consumer Program Loans
The following table sets forth the contractual maturity ranges of our Consumer Program loan portfolio as of March 31, 2026, which is only originated at fixed rates ($ in thousands):
One Year or Less
After One Year to Five Years
After Five Through Ten Years
After Ten Years
Total
Total Consumer Program Loans
$
467
$
19,009
$
62,609
$
—
$
82,085
Over the past two years our Consumer Program loan portfolio comprised a significant amount of loans that had a no-interest promotional period. A majority of these have paid-off or converted to an amortization period and as of March 31, 2026 we only had approximately $800 thousand of principal amount of promotional loans that remain in a promotional period. All of these loans will end their promotional period in the next eight months.
ASSET QUALITY
Nonperforming Assets
The following table presents a comparison of nonperforming assets as of March 31, 2026 and December 31, 2025 ($ in thousands):
March 31,
December 31,
2026
2025
Nonaccrual loans
$
84,949
$
84,823
Loans past due 90 days and accruing interest
20,222
1,713
Total nonperforming assets
$
105,171
$
86,536
SBA guaranteed amounts included in nonperforming loans
$
5,033
$
4,482
Allowance for credit losses to total loans
1.37
%
1.40
%
Allowance for credit losses to nonaccrual loans
54.60
%
54.09
%
Allowance for credit losses to nonperforming loans
44.10
%
53.02
%
Nonaccrual to total loans
2.51
%
2.59
%
Nonperforming assets excluding SBA guaranteed loans to total assets
2.35
%
2.03
%
Nonperforming assets increased $19 million, or 22%, as of March 31, 2026 compared to December 31, 2025, which was driven by an increase in loans past due greater than 90 days and still accruing interest. This increase was driven by one relationship comprised of two commercial loans to a small business located within our core community bank lending footprint. Subsequent to March 31, 2026, multiple payments were made to the loans that resulted in the status of each loan reducing to approximately 40 days past due.
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 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.
51
Table of Contents
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
We are focused on the asset quality of our loan portfolio, both before and after a loan is made. We have established underwriting standards that we believe are effective in maintaining high credit quality in our loan portfolio. We have experienced loan officers who take personal responsibility for the loans they originate, a skilled underwriting team and highly qualified credit officers that review each loan application carefully.
Our allowance for credit losses is established through charges to earnings in the form of a provision for credit losses. Management evaluates the allowance at least quarterly. In addition, on a quarterly basis, our Board of Directors reviews our loan portfolio, evaluates credit quality, reviews the loan loss provision and the allowance for credit losses and requests management to make changes as may be required. In evaluating the allowance, management and the Board of Directors consider the growth, composition and industry diversification of the loan portfolio, historical loan loss experience, current delinquency levels and all other known factors affecting loan collectability.
The allowance for credit losses is based on the CECL methodology and represents management’s estimate of an amount appropriate to provide for expected credit losses in the loan portfolio. This estimate is based on historical credit loss information adjusted for current conditions and reasonable and supportable forecasts applied to various loan types that compose our portfolio, including the effects of known factors such as the economic environment within our market area will have on net losses. The allowance is also subject to regulatory examinations and determination by the regulatory agencies as to the appropriate level of the allowance.
The following table sets forth the allowance for credit losses allocated by loan category and the percentage of loans in each category to total loans at the dates indicated ($ in thousands):
As of March 31,
As of December 31,
2026
2025
Percent of
Percent of
Allowance
Loans by
Allowance
Loans by
for Credit
Category to
for Credit
Category to
Losses
Total Loans
Losses
Total Loans
Commercial real estate - owner occupied
$
6,053
15.7
%
$
5,682
15.5
%
Commercial real estate - non-owner occupied
14,853
15.9
%
15,329
17.3
%
Secured by farmland
5
0.1
%
30
0.1
%
Construction and land development
1,227
4.5
%
748
4.0
%
Residential 1-4 family
6,680
16.5
%
6,852
17.5
%
Multi- family residential
1,332
4.4
%
1,368
4.3
%
Home equity lines of credit
428
1.8
%
428
1.9
%
Commercial loans
12,052
32.5
%
11,197
29.6
%
Paycheck Protection Program loans
—
0.1
%
—
0.1
%
Consumer loans
3,751
8.4
%
4,249
9.6
%
PCD loans
—
0.1
%
—
0.1
%
Total
$
46,381
100.0
%
$
45,883
100.0
%
52
Table of Contents
The following table presents an analysis of the allowance for credit losses for the periods indicated ($ in thousands):
For the Three Months Ended March 31,
2026
2025
Balance, beginning of period
$
45,883
$
53,724
Provision charged to operations:
Total provisions
1,549
1,596
Recoveries credited to allowance:
Commercial real estate - non-owner occupied
2
—
Home equity lines of credit
1
1
Commercial loans
75
—
Consumer loans
1,472
3,034
Total recoveries
1,550
3,035
Total
48,982
58,355
Loans charged off:
Residential 1-4 family
5
—
Commercial loans
—
206
Consumer loans
2,596
14,128
Total loans charged-off
2,601
14,334
Net charge-offs
1,051
11,299
Balance, end of period
$
46,381
$
44,021
Net charge-offs to average loans, net of unearned income
0.12
%
1.48
%
We believe that the allowance for credit losses as of March 31, 2026 is sufficient to absorb future expected credit losses in our loan portfolio based on our assessment of all known factors affecting the collectability of our loan portfolio. Our assessment involves uncertainty and judgment; therefore, the adequacy of the allowance for credit losses cannot be determined with precision and may be subject to change in future periods. In addition, bank regulatory authorities, as part of their periodic examination, may require additional charges to the provision for credit losses in future periods if the results of their reviews warrant additions to the allowance for credit losses.
Our allowance for credit losses was $46 million as of both March 31, 2026 and December 31, 2025. The allowance was flat during the three months as a result of the provision being mostly offset by net charge-offs during the period. Net charge-offs were driven by the Consumer Program portfolio and other consumer loan net charge-offs. The provision during the three months ended March 31, 2026 was driven by increases in growth in the commercial, commercial owner occupied, and warehouse loan portfolio balances, partially offset by a decline in commercial non-owner occupied loan balances.
Approximately half of our net charge-offs were related to the Consumer Program portfolio during the three months ended March 31, 2026. During the three months ended March 31, 2026, we charged-off $512 thousand net of recoveries, in the Consumer Program portfolio. Comparatively, during the three months ended March 31, 2025, we charged-off $11 million, net of recoveries. This significant improvement in net charge-offs related to the Consumer Program was a result of the reduction of the promotional loans in the portfolio over that time along with enhanced mitigation and collection efforts implemented by us to improve performance of the portfolio. The remaining balance of net charge-offs during the three months ended March 31, 2026 was related primarily to consumer loans in the Panacea division.
As of March 31, 2026, the principal balance outstanding of Consumer Program loans was $82 million, inclusive of a $5 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 LHFI and will be run-off over time. These loans are accounted for like 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 plus the discount amounts to $7 million, or 8% of the portfolio. As of March 31, 2026, 94% of the outstanding principal balance was current and we had 355% coverage of the principal balance of loans greater than 30 days past due by the aggregate allowance and discount.
53
Table of Contents
INVESTMENT SECURITIES
Our investment securities portfolio provides us with required liquidity and collateral to pledge to secure public deposits, certain other deposits, advances from the FHLB, and repurchase agreements.
AFS and HTM investment securities totaled $179 million as of March 31, 2026, compared to $178 million as of December 31, 2025, primarily due to purchases of AFS securities in the first quarter of 2026, partially offset by unrealized losses on AFS securities and paydowns, maturities, and calls of the AFS and HTM investments during that time. We recognized no credit impairment charges related to credit losses on our HTM investment securities during the three months ended March 31, 2026.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. AFS investment securities are reported at fair value, and HTM investment securities are reported at amortized cost ($ in thousands).
March 31,
December 31,
2026
2025
Available-for-sale investment securities:
Residential government-sponsored mortgage-backed securities
$
71,915
$
71,806
Obligations of states and political subdivisions
5,227
5,778
Corporate securities
6,770
6,579
Residential government-sponsored collateralized mortgage obligations
65,628
63,807
Government-sponsored agency securities
—
—
Agency commercial mortgage-backed securities
16,074
16,965
SBA pool securities
6,263
6,442
Total
$
171,877
$
171,377
Held-to-maturity investment securities:
Residential government-sponsored mortgage-backed securities
$
5,273
$
5,462
Obligations of states and political subdivisions
1,519
1,519
Total
$
6,792
$
6,981
Debt investment securities that we have the positive intent and ability to hold to maturity are classified as HTM and are carried at amortized cost. Investment securities classified as AFS are those debt securities that may be sold in response to changes in interest rates, liquidity needs or other similar factors. Investment securities AFS 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 AFS 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.
For additional information regarding investment securities refer to “Note 2 - Investment Securities ” in this Form 10-Q.
DEPOSITS AND OTHER BORROWINGS
Deposits
Our deposits are diversified in type and by underlying customers and lack significant concentration in any type of customer (i.e. commercial, consumer, government) or industry. The variety of deposit accounts we offer allows us to be competitive in obtaining funds and in responding to the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be significantly affected by the general economy and market rates of interest.
Total deposits increased by $28 million to $3.4 billion as of March 31, 2026 from $3.4 billion at December 31, 2025. The mix of deposits changed during the three months ended March 31, 2026, including an increase in money market,
54
Table of Contents
savings and time deposit balances of $59 million, offset by a decline in lower-cost demand and NOW deposit balances of $31 million. Deposits are net of excess amounts we sweep off balance sheet to manage liquidity, but we had no swept deposits as of both March 31, 2026 and December 31, 2025.
Approximately $1.0 billion of our total deposits at both March 31, 2026 and December 31, 2025 are from our digital banking platform with a substantial portion of these deposits from customers outside of our local branch footprint. As of March 31, 2026, approximately 81% of the customers on the digital platform have been with us for at least two years.
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 accounts 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 $873 million, or 25% of total deposits at the Bank, as of March 31, 2026.
The following table sets forth the average balance and average rate paid on each of the deposit categories for the nine months ended March 31, 2026 and 2025 ($ in thousands):
2026
2025
Average
Average
Average
Average
Balance
Rate
Balance
Rate
Noninterest-bearing demand deposits
$
533,570
$
446,404
Interest-bearing deposits:
Savings accounts
922,152
3.17
%
754,304
3.45
%
Money market accounts
750,380
2.45
%
788,067
2.79
%
NOW and other demand accounts
838,845
2.05
%
805,522
2.27
%
Time deposits
316,281
3.23
%
335,702
3.67
%
Total interest-bearing deposits
2,827,658
2.65
%
2,683,595
2.93
%
Total deposits
$
3,361,228
$
3,129,999
Other Borrowings
We borrow funds on a short-term basis 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 FHLB with purchases of FHLB stock and other collateral acceptable to the FHLB. As of March 31, 2026 and December 31, 2025, we had $230 million and $25 million of FHLB borrowings, respectively. The borrowings from the FHLB during the three months ended March 31, 2026 are short-term borrowings and were obtained primarily to fund increased loan growth experienced during the quarter. As of March 31, 2026, we had $242 million of unused and available FHLB lines of credit as well as $493 million of available credit with the FRB, secured by excess collateral pledged to the FHLB and FRB in the form of loans and investment securities.
We had secured borrowings of $14 million and $15 million as of March 31, 2026 and December 31, 2025, respectively. 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. For additional information on secured borrowings refer to “Note 7 – Debt and Other Borrowings ” in this Form 10-Q.
55
Table of Contents
JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTES
On January 31, 2026, we repaid $27 million of our fixed-to-floating rate senior Subordinated Notes due 2027. At the time of repayment, interest was payable at a floating rate equal to three-month CME Term SOFR plus a tenor spread adjustment of 0.26 %. The full benefit to our interest expense and interest margin of repayment is anticipated to be realized beginning in the second quarter of 2026.
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 is not sufficient to fully fund our lending activities, we have access to funding from additional sources, including but not limited to, borrowing from the FHLB 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 the discussion previously in “Deposits and Other Borrowings”, “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, 2026, we were 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, 2026, we had no material commitments or long-term debt for capital expenditures.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented in Item 1 “Financial Statements” of this Quarterly Report have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant impact on our performance than the effects of changes in the general rate of inflation and changes in prices do. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Many factors impact interest rates, including the decisions of the FRB, inflation, recession, changes in unemployment, the money supply, and international disorder and instability in domestic and foreign financial markets. Like most financial institutions, changes in interest rates can impact our net interest income, which is the difference between interest earned from interest-earning assets, such as loans and investment securities, and interest paid on interest-bearing liabilities, such as deposits and borrowings, as well as the valuation of our assets and liabilities.
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, 2026 and December
56
Table of Contents
31, 2025, the most recent regulatory notifications categorized the Bank as well capitalized under regulatory framework for PCA. Federal banking agencies do not provide a similar well capitalized threshold for bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to average assets (as defined). Management believes, as of March 31, 2026, that we meet all capital adequacy requirements to which we are subject.
The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp. and Primis Bank at the periods indicated to the minimum and well-capitalized required regulatory standards:
Minimum
Required for
Capital
To Be
Actual Ratio at
Adequacy
Categorized as
March 31,
December 31,
Purposes
Well Capitalized (1)
2026
2025
Primis Financial Corp.
Leverage ratio
4.00
%
n/a
8.76
%
8.80
%
Common equity tier 1 capital ratio
4.50
%
n/a
9.18
%
9.36
%
Tier 1 risk-based capital ratio
6.00
%
n/a
9.45
%
9.64
%
Total risk-based capital ratio
8.00
%
n/a
12.01
%
12.40
%
Primis Bank
Leverage ratio
4.00
%
5.00
%
9.69
%
9.74
%
Common equity tier 1 capital ratio
7.00
%
6.50
%
10.50
%
10.74
%
Tier 1 risk-based capital ratio
8.50
%
8.00
%
10.50
%
10.74
%
Total risk-based capital ratio
10.50
%
10.00
%
11.75
%
11.99
%
(1) Prompt corrective action provisions are not applicable at the bank holding company level.
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 3.76% and 3.99% as of March 31, 2026 and December 31, 2025, respectively, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
CRITICAL ACCOUNTING POLICIES
The critical accounting policies are discussed in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2025. 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, 2025. 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 three months ended March 31, 2026.
57
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.