4 unchanged sentences
This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report.
−Removed: Impact of COVID-19 Pandemic
−Removed: The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused and continue to cause unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve.
−Removed: As the restrictive measures eased during the latter part of 2020 and continued to ease during 2021, the U.S.
−Removed: economy has begun to improve, and with the availability and distribution of COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S.
−Removed: While positive trends existed in 2021, we recognized that our business and consumer customers were continuing to experience varying degrees of financial distress, though to a lesser degree.
−Removed: Commercial activity has improved in our market area, but has not returned to the levels existing prior to the outbreak of the COVID-19 pandemic, which may result in our customers’ inability to meet their loan obligations to us.
−Removed: In addition, the economic pressures and uncertainties related to the COVID-19 pandemic, including the emergence and spread of variants, have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer.
−Removed: Labor shortages and supply chain interruptions continue to present obstacles to economic recovery and have contributed to inflationary conditions.
−Removed: These conditions have and are expected to continue to result in overall economic and financial market instability and affect businesses’ profitability and individuals’ purchasing power, all of which could also result in our customers’ inability to make scheduled loan payments.
−Removed: Our borrowing base includes customers in industries such as hotels, restaurants, retail and commercial real estate, which have been significantly impacted by the COVID-19 pandemic.
−Removed: We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID-19 pandemic.
−Removed: We continue to monitor these customers closely.
−Removed: We have taken deliberate actions to meet our goal of ensuring that we have the balance sheet strength to serve our clients and communities, including by seeking to increase our liquidity and manage our assets and liabilities in order to maintain a strong capital position;
−Removed: however, future economic conditions are subject to significant uncertainty.
−Removed: Uncertainties associated with the COVID-19 pandemic include the duration of the COVID-19 outbreak and any related variants, the effectiveness and acceptance of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole.
−Removed: COVID-19 had a significant adverse impact on our business, financial position and operating results and while uncertainty still exists, we believe we are well-positioned to operate effectively through the present economic environment.
−Removed: Our branch locations are currently open and operating during normal business hours.
−Removed: We continue to take additional precautions within our branch locations, including enhanced cleaning procedures, to ensure the safety of our customers and our employees.
CRITICAL ACCOUNTING POLICIES
3 unchanged sentences
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
+Added: Allowance for credit losses
Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management.
−Removed: As discussed in Note 1 - Organization and significant accounting policies, our policies related to allowances for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses.
−Removed: In the case of loans, the allowance for credit losses 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.
+Added: In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, which is deducted from the amortized cost basis of loans to present the net amount expected to be collected.
In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326.
5 unchanged sentences
While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.
−Removed: See the section captioned “Allowance for Credit Losses” elsewhere in this discussion as well as Note 1 – Organization and significant accounting policies and Note 3 - Loans in the notes to consolidated financial statements included in Item 8.
−Removed: Financial Statements and Supplementary Data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for credit losses.
−Removed: On March 31, 2021, Southern National Bancorp of Virginia, Inc.
−Removed: (“Southern National”) changed its name to Primis Financial Corp.
−Removed: (“Primis,” “we,” “us,” “our” or the “Company”) and Sonabank changed its name to Primis Bank.
−Removed: Primis 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.
+Added: Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in a business combination.
+Added: As of December 31, 2022 and 2021, the balance of goodwill was $104.6 million and $101.9 million, respectively.
+Added: has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired.
+Added: An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
+Added: In January 2017, the FASB issued ASU No.
+Added: 2017-04, which simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on Step one of the previous accounting guidance’s two-step impairment test under ASC Topic 350.
+Added: Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference.
+Added: The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.
+Added: The new standard eliminates the requirement to calculate a goodwill impairment charge using Step two which involved calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment.
+Added: The standard does not change the guidance on completing Step one of the goodwill impairment test.
+Added: An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before proceeding to the quantitative step of determining whether the reporting unit’s carrying amount exceeds it fair value.
+Added: For our assessment of goodwill as of September 30, 2022, our annual test date, we performed a step one quantitative assessment to determine if the fair value of all our Bank reporting unit was less than its carrying amount.
+Added: We concluded that the fair value of all our Bank reporting unit exceeded their carrying amounts and no impairment was present based on management’s assessment.
+Added: No impairment was indicated in 2022, 2021 or 2020.
+Added: We determined that for Primis Mortgage, we did not need a quantitative assessment and performed a qualitative assessment.
+Added: No impairment was indicated for 2022 for the Primis Mortgage segment.
+Added: We will continue to monitor the impact of current economic conditions and other events on the Company’s business, operating results, cash flows and financial condition.
+Added: If the current economic conditions and other events were to deteriorate and our stock price falls below current levels, we will have to reevaluate the impact on our financial condition and potential impairment of goodwill.
+Added: Primis Financial Corp.
+Added: (“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.
−Removed: At December 31, 2021, Primis Bank had forty full-service branches in Virginia and Maryland and provides services to customers through certain online and mobile applications.
−Removed: Thirty-five full-service retail branches are in Virginia (Ashland, Burgess, Callao, Central Garage, Charlottesville, Chester, Clifton Forge, Colonial Heights, Courtland, Fairfax, Front Royal, Gloucester, Gloucester Point, Hampton, Hartfield, Heathsville, Kilmarnock, Leesburg, McLean, Mechanicsville (2), Middleburg, Midlothian, New Market, Newport News, Quinton, Reston, Richmond, Surry, Tappahannock (2), Urbanna, Warrenton, Waverly, and Williamsburg) and five full-service retail branches are in Maryland (Bethesda,
−Removed: Brandywine, Owings, Rockville, and Upper Marlboro).
−Removed: The Company has administrative offices in Warrenton and Glen Allen, Virginia.
+Added: At December 31, 2022, Primis Bank had thirty-two full-service branches in Virginia and Maryland and also provides services to customers through certain online and mobile applications.
+Added: Thirty full-service retail branches are in Virginia and two full-service retail branches are in Maryland.
+Added: The Company is headquartered in McLean, Virginia and has administrative offices in Tysons Corner, Virginia and Glen Allen, Virginia and an operations center in Atlee, Virginia.
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.
4 unchanged sentences
FINANCIAL HIGHLIGHTS
−Removed: ● Net income for the year ended December 31, 2021 totaled $31.2 million, or $1.28 per basic and $1.27 per diluted share, compared to $23.3 million, or $0.96 per basic and diluted share for the year ended December 31, 2020 .
+Added: ● Net income for the year ended December 31, 2022 totaled $17.7 million, or $0.72 per basic and per diluted share, compared to $31.2 million, or $1.28 per basic and $1.27 per diluted share for the year ended December 31, 2021 .
● Total assets as of December 31, 2022 were $3.57 billion, an increase of 4.8% compared to December 31, 2021.
● Total loans, excluding Paycheck Protection Program ( PPP) balances as of December 31, 2022, were $2.94 billion, an increase of $681.6 million, or 30.1%, from December 31, 2021.
−Removed: ● Total deposits were $2.76 billion at December 31, 2021, an increase of 13.6% compared to December 31, 2020 .
−Removed: ● Non-time deposits increased to $2.40 billion at December 31, 2021, an increase of $460.0 million over the past year.
−Removed: ● Non-interest bearing demand deposits increased to $530.3 million or 19.2% of total deposits while time deposits decreased to 13.0% of total deposits at December 31, 2021.
−Removed: ● Cost of deposits declined to 0.48% for the year ended December 31, 2021 compared to 0.92% for the year ended December 31, 2020.
+Added: ● Total deposits were $2.72 billion at December 31, 2022, a decrease of 1.5% compared to December 31, 2021 .
+Added: ● Non-time deposits decreased to $2.26 billion at December 31, 2022, a decrease of $145.3 million compared to December 31, 2021 .
+Added: ● Non-interest bearing demand deposits increased to $582.6 million, or 21.4% of total deposits, at December 31, 2022.
+Added: Time deposits also increased to 17.1% of total deposits at December 31, 2022.
+Added: ● Cost of deposits increased to 0.49% for the year ended December 31, 2022, compared to 0.48% for the year ended December 31, 2021.
● Return on average assets from continuing operations totaled 0.53% for the year ended December 31, 2022, compared to 0.93% for the year ended December 31, 2021.
−Removed: ● Recovery of credit losses were $5.8 million for the year ended December 31, 2021 compared to provision for credit losses of $19.5 million for the year ended December 31, 2020.
+Added: ● Net interest margin increased to 3.39% for the year ended December 31, 2022, compared to 3.01% for the year ended December 31, 2021.
+Added: ● Provision for credit losses were $11.3 million for the year ended December 31, 2022, compared to recovery of credit losses of $5.8 million for the year ended December 31, 2021.
● Allowance for credit losses to total loans (excluding PPP balances) were 1.17% at December 31, 2022, compared to 1.29% at December 31, 2021.
−Removed: ● Book value per share of $16.76 at December 31, 2021, representing an increase of $0.73 from December 31, 2020 after $0.40 in dividends paid over the last twelve months.
+Added: ● Book value per share of $15.98 at December 31, 2022, representing a decrease of $0.78 from December 31, 2021 after $0.40 in dividends paid over the last twelve months.
RESULTS OF OPERATIONS
−Removed: Net income from continuing operations for the year ended December 31, 2021 was $31.0 million, or $1.27 basic and $1.26 diluted earnings per share, compared to $14.9 million, or $0.61 basic and diluted earnings per share, for the year ended December 31, 2020.
−Removed: The 108.4% increase in the net income during the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by recoveries for credit losses in 2021 compared to provision for credit losses in 2020 as loans on deferral and the economic impact of COVID-19 declined dramatically in 2021.
−Removed: The increase in net income was offset by a decrease in recoveries related to acquired charged-off loans and investment securities in the current year.
−Removed: Net income from discontinued operation for the year ended December 31, 2021 was $0.23 million, or $0.01 basic and diluted earnings per share, compared to net income from discontinued operation of $8.4 million, or $0.35 basic and diluted earnings per share, for the year ended December 31, 2020.
−Removed: The decline in net income from discontinued operation is
−Removed: primarily driven by the pre-tax charge of approximately $2.9 million related to the closing of the STM transaction in 2021, as discussed in Note 1 - Organization and significant accounting policies.
+Added: Net income from continuing operations for the year ended December 31, 2022 was $17.7 million, or $0.72 per basic and per diluted share, compared to $31.0 million, or $1.27 basic and $1.26 diluted earnings per share, for the year ended December 31, 2021.
+Added: The 42.8% decrease in the net income during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by higher noninterest expenses from an increase in employee compensation and benefits expense in the current year.
+Added: The decrease in net income was also attributable to provision for credit losses in 2022 compared to a recovery of credit losses in 2021 primarily as a result of robust loan growth.
+Added: Net income from discontinued operations for the year ended December 31, 2022 was zero, or zero basic and diluted earnings per share, compared to net income from discontinued operation for the year ended December 31, 2021 of $0.23 million, or $0.01 basic and diluted earnings per share.
+Added: The net income from discontinued operation for the year ended December 31, 2021 was related to the closing of the STM transaction in 2021, as discussed in Note 1 - Organization and significant accounting policies.
Net Interest Income
2 unchanged sentences
Primis’ net interest margin for the year ended December 31, 2022 was 3.39%, compared to 3.01% for the year ended December 31, 2021.
−Removed: Net interest margin was impacted heavily by the origination of PPP loans.
+Added: Net interest margin was impacted heavily by the origination of PPP loans in 2021.
Net PPP fee income recognized was $0.3 million for the year ended December 31, 2022 versus $11.7 million for the year ended December 31, 2021.
−Removed: Net interest margin excluding the effects of PPP loans was 2.79% for the year ended December 31, 2021, comparted to 3.33% for the year ended December 31, 2020.
−Removed: Net interest margin, excluding the effects of PPP loans, continues to be negatively impacted by high cash balances at the Bank.
Total income on interest-earning assets was $126.1 million and $113.2 million for the years ended December 31, 2022 and 2021, respectively.
The yield on average interest-earning assets was 4.09% and 3.62% for the years ended December 31, 2022 and 2021, respectively.
−Removed: The decrease was primarily driven by market conditions.
−Removed: The cost of average interest-bearing deposits decreased 53 basis points to 0.60% for the year ended December 31, 2021, compared to 1.13% cost on average interest-bearing deposits for the year ended December 31, 2020.
+Added: The increase was primarily driven by market conditions.
+Added: The cost of average interest-bearing deposits increased 4 basis points to 0.64% for the year ended December 31, 2022, compared to 0.60% cost on average interest-bearing deposits for the year ended December 31, 2021.
Interest and fees on loans totaled $117.9 million and $107.0 million for the years ended December 31, 2022 and 2021, respectively.
−Removed: The accretion of the discount on loans acquired in the acquisitions contributed $2.0 million to net interest income during the year ended December 31, 2021, compared to $4.3 million during the year ended December 31, 2020.
+Added: accretion of the discount on loans acquired in the acquisitions contributed $0.9 million to net interest income during the year ended December 31, 2022, compared to $2.0 million during the year ended December 31, 2021.
The decrease in accretion was due to slowdown in the volume of acquired loan prepayments and payoffs.
Average loans during the year ended December 31, 2022 were $2.61 billion compared to $2.34 billion during the year ended December 31, 2021.
+Added: The Company’s loan growth over the past year and the improved asset mix has been the driver of positive movements in both margins and net interest income.
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:
6 unchanged sentences
Interest-earning assets:
+Added: Loans held for sale
Loans, net of deferred fees (1) (2)
34 unchanged sentences
Interest-earning assets:
+Added: Loans held for sale
Loans, net of deferred fees
11 unchanged sentences
Provision for Credit Losses
−Removed: The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses to an appropriate level for inherent probable losses in the loan portfolio based on an evaluation of the loan portfolio, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability.
+Added: The provision for credit losses is a current charge to earnings made in order to adjust the allowance for credit losses to an appropriate level for current expected losses in the loan portfolio based on an evaluation of the loan portfolio, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability.
Our allowance for credit losses is calculated by segmenting the loan portfolio by loan type and applying risk factors to each segment.
The risk factors are determined by considering historical loss data, peer data, as well as applying management’s judgment.
−Removed: In 2020, the Company elected to defer the adoption of ASC Topic 326, Financial Instruments-Credit Losses , under the CARES Act.
−Removed: At December 31, 2020, ASC Topic 326 became effective for the Company and the Company recorded a gross cumulative effect adjustment of $8.3 million as of January 1, 2020.
−Removed: Prior periods, including December 31, 2019 and interim periods ending September 30, 2020 and prior, were not restated to reflect the adoption of ASC Topic 326.
−Removed: The recovery for credit losses for the year ended December 31, 2021 was $5.8 million, primarily as a result of an improving economic outlook.
−Removed: The provision for credit losses for the year ended December 31, 2020 was $19.5 million and the provision for loan losses for the year ended December 31, 2019 was $0.35 million.
+Added: For the year ended December 31, 2022, the Company recorded a provision for credit losses of $11.3 million, compared to a recovery for credit losses for the year ended December 31, 2021 of $5.8 million, primarily as a result of robust loan growth.
+Added: The provision for credit losses for the year ended December 31, 2020 was $19.5 million.
We had charge-offs totaling $8.1 million during 2022, $2.5 million during 2021 and $2.3 million during 2020.
7 unchanged sentences
Income from bank-owned life insurance
+Added: Mortgage banking income
Gain on debt extinguishment
−Removed: Loss on sales of investment securities
−Removed: Recoveries related to acquired charged-off loans and investment securities
+Added: Gain on sale of other investments
+Added: Credit enhancement income
+Added: Other noninterest income
Total noninterest income
−Removed: Noninterest income decreased 24.1% to $11.1 million for the year ended December 31, 2021, compared to $14.7 million for the year ended December 31, 2020.
−Removed: Noninterest income no longer includes equity in earnings (loss) related to Southern Trust Mortgage which is now included in discontinued operation.
−Removed: The decrease in noninterest income was driven by a $5.7 million decrease in recoveries related to acquired charged-off loans and investment securities, primarily attributable to a recovery related to a previously charged-off acquired loan of approximately $2.0 million during 2020.
−Removed: This decrease was partially offset by a $0.79 million increase in account maintenance and deposit service fees primarily in account service charges and non-sufficient funds fee, $0.62 million loss on sales of investments securities in the prior year and $0.57 million gain on debt extinguishment in 2021.
+Added: Noninterest income increased 91.5% to $21.3 million for the year ended December 31, 2022, compared to $11.1 million for the year ended December 31, 2021.
+Added: The increase in noninterest income was primarily driven by a $5.1 million increase in mortgage banking income in the current year associated with the Primis Mortgage acquisition in the second quarter of 2022, a $4.1 million gain on sale of other investments, and $3.0 million of credit enhancement income related to third party loan originations.
+Added: These increases were offset by a decrease of $1.6 million from the previous year period in income on account maintenance and deposit service fees primarily due to a reduction in income from new debit card contracts driven by lower fees and $0.6 million gain on debt extinguishment in 2021.
Noninterest Expense
8 unchanged sentences
Data processing expense
+Added: Marketing expense
Telephone and communication expense
Net (gain) loss on other real estate owned
+Added: Net loss on bank premises and equipment
Professional fees
+Added: Credit enhancement costs
Other operating expenses
1 unchanged sentence
Noninterest expenses were $92.3 million during the year ended December 31, 2022, compared to $71.4 million during the year ended December 31, 2021.
−Removed: The 5.4% increase in noninterest expenses was primarily due to an increase in other operating expenses in 2021.
−Removed: Other operating expenses increased in 2021 compared to 2020, largely driven by a $0.24 million increase in the reserve for unfunded commitments and a $0.49 million increase in marketing and advertising expenses related to general promotional activities as well as marketing related to the new V1BE service.
+Added: The 29.2% increase in noninterest expenses was primarily attributable to a $12.3 million increase in employee compensation driven by increased head count at the Bank, Primis Mortgage and Panacea and higher benefits expense mainly related to branch closures and consolidations in 2022.
+Added: The increase in noninterest expense during the year ended December 31, 2022 was also driven by a $2.2 million increase in data processing expense in 2022 driven by higher technology expenses in the current year.
+Added: Other notable drivers of the increase in the current year include
+Added: $1.3 million of higher marketing and advertising costs tied to the digital bank launch and V1BE adoption campaigns and $1.4 million of credit enhancement costs related to third party loan originations.
Occupancy and furniture and equipment expenses increased $1.3 million during the year ended December 31, 2022 compared to year ended December 31, 2021.
−Removed: Professional fees increased $0.74 million in 2021 compared to 2020 due to increased consulting fees and legal expenses largely related to the STM transaction and from increased recruiter fees for management and Life Premium hires.
−Removed: The increase in noninterest expense during the year ended December 31, 2021 was also attributable to a
−Removed: $0.67 million increase in data processing expense.
−Removed: Virginia franchise tax expense increased $0.44 million in 2021 compared to 2020.
+Added: Professional fees decreased $0.7 million in 2022 compared to 2021 due to increased consulting fees and legal expenses in 2021 largely related to the STM transaction and from increased recruiter fees for management and Life Premium hires.
FINANCIAL CONDITION
Balance Sheet Overview
−Removed: Total assets were $3.40 billion and $3.09 billion as of December 31, 2021 and 2020, respectively.
−Removed: Total loans decreased 4.1%, from $2.44 billion at December 31, 2020 to $2.34 billion at December 31, 2021.
+Added: Total assets were $3.57 billion as of December 31, 2022 and $3.40 billion as of December 31, 2021.
+Added: Total cash and cash equivalents were $77.9 million as of December 31, 2022 and $530.2 million as of December 31, 2021.
+Added: Investment securities decreased from $294.3 million as of December 31, 2021 to $249.8 million as of December 31, 2022.
+Added: Total loans increased 26.0%, from $2.34 billion at December 31, 2021 to $2.95 billion at December 31, 2022.
Excluding PPP loans, loans outstanding increased $681 million, or 30.1%, since December 31, 2021.
−Removed: Total deposits were $2.76 billion and $2.43 billion at December 31, 2021 and 2020, respectively, and total equity was $411.9 million and $390.6 million at December 31, 2021 and 2020, respectively.
+Added: Total deposits were $2.72 billion at December 31, 2022, compared to $2.76 billion at December 31, 2021 and total equity was $394.4 million and $411.9 million at December 31, 2022 and December 31, 2021, respectively.
+Added: Stockholder’s equity balances decreased $27.0 million from December 31, 2021 to December 31, 2022 as a result of unrealized mark-to-market adjustments on the Company’s available-for-sale securities portfolio due to dramatic increases in market interest rates during 2022.
+Added: The Company expects to hold these securities until maturity or recovery of the value and does not anticipate realizing any losses on the investments.
Total loans were $2.95 billion and $2.34 billion at December 31, 2022 and 2021, respectively.
−Removed: PPP loan originations totaled $77.0 million and $319.4 million at December 31, 2021 and 2020, respectively.
+Added: PPP loans totaled $4.6 million and $77.0 million at December 31, 2022 and 2021, respectively.
Excluding PPP loans, loans outstanding increased $681.6 million, or 30.1%, since December 31, 2021.
−Removed: At December 31, 2021, the Company had no loans on deferral compared to $122.0 million of loans on deferral, or 5.75% of total loans excluding PPP loans, at December 31, 2020.
−Removed: As of December 31, 2021 and 2020, substantially all of our loans were to customers located in Virginia and Maryland.
−Removed: We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on operations.
+Added: As of December 31, 2022 and 2021, majority of our loans were to customers located in Virginia and Maryland.
+Added: We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.
The following table summarizes the composition of our loans, net of unearned income, at December 31 for the years indicated (in thousands):
+Added: December 31, 2022
+Added: December 31, 2021
Loans secured by real estate:
31 unchanged sentences
Past Due Loans and Nonperforming Assets
−Removed: Asset quality remained solid during 2021.
−Removed: The outbreak of COVID-19 and resulting economic instability has had and will likely continue to have an impact on our asset quality.
−Removed: While COVID-19 cases are no longer at their peak and vaccinations have stemmed the outbreak, the residual effect of COVID-19 and the different variants continue to cause economic instability and uncertainty in evaluating the impact on our asset quality.
+Added: Asset quality remained good during 2022, despite an increase in classified balances, which was largely due to a downgrade of one secured relationship, recognizing anticipated loss in the fourth quarter of 2022.
+Added: While the impact of COVID-19 subsided, the residual effect of COVID-19 and its variants, as well as new risks emerging from geopolitical conflict, inflation and the threat of recession continue to cause economic instability and uncertainty in evaluating the impact on our asset quality.
We will generally place a loan on nonaccrual status when it becomes 90 days past due.
−Removed: 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.
−Removed: Cash payments received while a
−Removed: loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections.
−Removed: We defer COVID-impacted loans to the end of the deferral date and track delinquency from the end of that new deferral date.
−Removed: During the third and fourth quarters of 2020 and 2021, the Company saw deferred loans return to traditional loan terms.
+Added: Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual
+Added: terms of the loan agreement.
+Added: 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.
1 unchanged sentence
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.
−Removed: Our loss and delinquency experience on our loan portfolio has been limited by a number of factors, including our underwriting standards and the relatively short period of time since the loans were originated.
−Removed: Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, including as a result of the impact of COVID-19.
+Added: Our loan portfolio losses and delinquencies have been primarily limited by our underwriting standards and portfolio management practices.
+Added: Whether losses and delinquencies in our portfolio will increase significantly depends upon the value of the real estate securing the loans and economic factors, such as the overall economy in our market area, rising interest rates, historically high inflation, global supply chain issues and potential recession.
+Added: Calculated reserves (prior to qualitative adjustments) increased at the end of December 31, 2022 compared to December 31, 2021, primarily due to a growth in unguaranteed loan balances, coupled with worsened economic forecasts, specifically in the House Price Index and Gross State Product factors.
+Added: At December 31, 2022, the qualitative reserve decreased $2.5 million from the qualitative reserve applied at December 31, 2021.
+Added: This decrease in qualitative reserves observed in 2022 is attributed to adjustments to the qualitative reserve framework’s thresholds and key risk indicators as part of the annual model refresh.
The following table presents a comparison of nonperforming assets as of December 31, for the years indicated (in thousands):
11 unchanged sentences
Nonperforming assets excluding SBA guaranteed loans to total assets
−Removed: Not included in the table above are $122.0 million of loans that were subject to COVID-related deferrals at December 31, 2020.
−Removed: OREO at December 31, 2021 was $1.2 million, compared to $3.1 million at December 31, 2020.
+Added: OREO at December 31, 2022 was zero, compared to $1.2 million at December 31, 2021.
The decrease was primarily driven by sale of properties and write-downs on OREO during 2022.
Nonaccrual loans were $35.5 million (excluding $0.6 million of loans fully covered by SBA guarantees) at December 31, 2022, compared to 15.0 million (excluding $1.1 million of loans fully covered by SBA guarantees) at December 31, 2021, an increase of 136.1%.
+Added: These increases were driven largely by one relationship that was criticized in the second quarter of 2022 and was subsequently downgraded further in the third quarter of 2022 and placed on nonaccrual.
+Added: The primary businesses in the relationship are multiple assisted living facilities.
+Added: Management has a receiver appointed by the court ahead of an anticipated foreclosure and aggressively valued the properties for that sale.
+Added: Provisions associated with this single borrower in the fourth quarter of 2022 were approximately $5.0 million.
The ratio of nonperforming assets (excluding the SBA guaranteed loans) to total assets was 0.98% and 0.44% at December 31, 2022 and 2021, respectively.
−Removed: At December 31, 2021, our total substandard loans totaled $40.4 million.
+Added: At December 31, 2022, our total substandard loans was $41.0 million.
Included in the total substandard loans were SBA guarantees of $0.8 million.
Special mention loans totaled $32.3 million at December 31, 2022.
−Removed: As of December 31, 2021, there were ten TDR loans in the amount of $3.4 million.
+Added: As of December 31, 2022, there were eighteen TDR loans in the amount of $3.6 million.
There have been no defaults of TDRs modified during the past twelve months.
7 unchanged sentences
We have designed a credit matrix, which requires dual authority to approve any credit over $2.5 million.
−Removed: We have three specialty Executive Credit Officers with extensive industry experience in mortgage, medical practice and life premium credit financing with authority up to $6.0 million and joint authority with the Chief Credit Officer up to $10.0 million.
−Removed: All credit exposures over $10.0 million are reviewed and approved by Executive Loan Committee consisting of all named Credit Officers with concurrence from the President/Chief Executive Officer on any credit in excess of $25.0 million.
+Added: We have two specialty Executive Credit Officers with extensive industry experience in medical practice and life premium credit financing with authority up to $4.0 million and joint authority with the Chief Credit Officer up to $10.0 million.
+Added: All credit exposures over $10.0 million are reviewed and approved by Executive Loan Committee consisting of all named Credit Officers with concurrence from the Chief Executive Officer on any credit in excess of $25.0 million.
Loans in excess of 60% of the Bank’s legal lending limit are approved by the full Board of Directors or two outside directors.
6 unchanged sentences
The allowance is also subject to regulatory examinations and determination by the regulatory agencies as to the appropriate level of the allowance.
−Removed: Our loan review program is administrated by the Chief Risk Officer who reports the results directly to the Audit Committee of the Board of Directors.
−Removed: In 2021, internal loan review performed loan reviews on loans and commitments totaling 28.3% of this loan portfolio outstanding as of December 31, 2020.
−Removed: An independent third party consultant performed loan reviews on 74.6% of this portfolio.
−Removed: In 2021, excluding 5 loans totaling $66.1 million reviewed by both internal and external loan review, loan reviews totaling $1.21 billion were performed representing 97.6% of the specified portfolio of loans.
+Added: Our loan review program is administrated by the Chief Risk Officer and the Loan Review Manager who reports the results directly to the Audit Committee of the Board of Directors.
+Added: In 2022, the Loan Review Program performed reviews on loan balances totaling $894.8 million or 56.0% of the commercial loan portfolio outstanding as of December 31, 2021.
+Added: Internal loan review performed reviews on loans totaling 17.9%, and an independent third party consultant performed reviews on 38.1% of this portfolio and $94.9 million in unfunded commitments.
Primis Bank’s 2023 Loan Review Program was approved by the Audit Committee on January 26, 2023.
−Removed: The Program’s goal is to have an overall review penetration rate of at least 50% of the Commercial Loan Portfolio outstanding as of December 31, 2021.
−Removed: The overall lower penetration rate in 2022 as compared to previous years was intended to allow for the Program to incorporate a robust risk-based approach review of the Bank’s Loan Portfolio that will include process, targeted portfolio and full-scope loan reviews.
+Added: The Program’s annual goal is to have an overall review penetration rate of at least 50% of the Commercial Loan Portfolio outstanding as of December 31, 2022.
+Added: The Program incorporates a robust risk-based approach review of the Bank’s Loan Portfolio that will include process, targeted portfolio and full-scope loan reviews.
The Program’s review goal remains well within regulatory standards and industry best practices.
22 unchanged sentences
Recoveries credited to allowance:
−Removed: Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
6 unchanged sentences
Commercial real estate - owner occupied
+Added: Commercial real estate - non-owner occupied
Residential 1-4 family
10 unchanged sentences
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.
+Added: Net charge-offs were $5.8 million for the year ended December 31, 2022, up from $1.4 million for the year ended December 31, 2021.
+Added: Increase in net charge-offs were primarily related to an impaired relationship in the fourth quarter of 2022.
Investment Securities
36 unchanged sentences
During 2022 and 2021, $37.4 million and $160.5 million, respectively, of available-for-sale investment securities were purchased.
−Removed: No held-to-maturity investments were purchased in 2021.
−Removed: During 2020, $15.2 million of held-to-maturity investment securities were purchased.
−Removed: No investment securities were sold during 2021.
−Removed: During 2020, $1.9 million and $1.7 million, respectively, of available-for-sale investment securities and held-to-maturity investment securities were sold.
−Removed: Realized losses on sales of investment securities of $0.62 million were recorded for the year ended December 31, 2020.
+Added: No held-to-maturity investments were purchased in 2022 or 2021.
+Added: No investment securities were sold during 2022 or 2021.
Investment securities in our portfolio as of December 31, 2022 were as follows:
23 unchanged sentences
Obligations of states and political subdivisions
−Removed: Trust preferred securities
Residential government-sponsored collateralized mortgage obligations
6 unchanged sentences
Obligations of states and political subdivisions
−Removed: Due less than one year
Due after one year through five years
7 unchanged sentences
Government-sponsored agency securities
+Added: Due less than one year
Due after one year through five years
6 unchanged sentences
Residential government-sponsored collateralized mortgage obligations
+Added: Due after one year through five years
Due after five years through ten years
11 unchanged sentences
Obligations of states and political subdivisions
−Removed: Due less than one year
Due after one year through five years
1 unchanged sentence
Due after ten years
−Removed: Government-sponsored agency securities
−Removed: Due after ten years
Residential government-sponsored mortgage-backed securities
+Added: Due after one year through five years
Due after five years through ten years
7 unchanged sentences
We use deposits as a principal source of funding for our lending, purchasing of investment securities and for other business purposes.
−Removed: Total deposits increased 13.6% to $2.76 billion at December 31, 2021 from $2.43 billion at December 31, 2020.
+Added: Total deposits decreased 1.5% to $2.72 billion at December 31, 2022 from $2.76 billion at December 31, 2021.
Noninterest-bearing demand deposits increased from $530.3 million as of December 31, 2021 to $582.6 million as of December 31, 2022.
−Removed: Time deposits decreased from $490.0 million to $360.6 million and savings accounts increased from $183.8 million to $222.9 million over the same period.
+Added: Time deposits increased from $360.6 million to $465.1 million and savings accounts increased from $222.9 million to $245.7 million over the same period.
The following table sets forth the average balance and average rate paid on each of the deposit categories for the years ended December 31, 2022 and 2021:
15 unchanged sentences
We are required to collateralize our borrowings from the FHLB with our FHLB stock and other collateral acceptable to the FHLB.
−Removed: At December 31, 2021 and 2020, total FHLB borrowings were $100.0 million.
+Added: At December 31, 2022 and 2021, total FHLB borrowings were $325.0 million and $100.0 million, respectively.
At December 31, 2022, we had $437.7 million of unused and available FHLB lines of credit.
3 unchanged sentences
FHLB convertible advances maturing 3/1/2030
+Added: Short-term FHLB advances maturing 6/27/2019
+Added: Short-term FHLB advances maturing 6/18/2019
+Added: Short-term FHLB advances maturing 6/12/2019
+Added: Short-term FHLB advances maturing 6/11/2019
Total FHLB advances
8 unchanged sentences
The trust issuer invested the total proceeds from the sale of the trust preferred securities in Floating Rate Junior Subordinated Deferrable Interest Debentures.
−Removed: At December 31, 2021 and 2020, there was $10.3 million outstanding, net of approximately $600 thousand of debt issuance costs.
+Added: At December 31, 2022 and 2021, there was $10.3 million outstanding, net of approximately $0.6 million of debt issuance costs.
These securities pay cumulative cash distributions quarterly at a variable rate per annum, reset quarterly, equal to the three-month LIBOR plus 2.95%.
4 unchanged sentences
On January 20, 2017, Primis completed the sale of $27.0 million of its fixed-to-floating rate senior Subordinated Notes due 2027.
−Removed: These notes initially beared interest at 5.875% per annum until January 31, 2022;
+Added: These notes initially bore interest at 5.875% per annum until January 31, 2022;
interest is currently payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption.
−Removed: At December 31, 2021, all of these notes qualified as Tier 2 capital.
+Added: At December 31, 2022, 80% of these notes qualified as Tier 2 capital.
In 2017, the Company assumed a Senior Subordinated Note Purchase Agreement, dated April 22, 2015, entered into with certain institutional accredited investors, pursuant to which $20.0 million in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025 was sold to the investors.
78 unchanged sentences
Management believes, as of December 31, 2022, that Primis meets all capital adequacy requirements to which it is subject.
−Removed: Business, Supervision and Regulation—Capital Requirements.”
+Added: Business, Supervision and Regulation—Capital Requirements” for more information.
The following table provides a comparison of the leverage and risk-weighted capital ratios of Primis Financial Corp.
68 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.