Management’s Discussion and Analysis of Financial Condition and Results of Operations
NII
Net interest income
NIST
National Institute of Standards and Technology
NASDAQ
National Association of Securities Dealers Automated Quotations
OCC
Office of the Comptroller of the Currency
OFAC
Office of Foreign Assets Control
OREO
Other real estate owned
PCA
Prompt corrective action
PCD
Purchased credit deteriorated
PPP
Paycheck Protection Program
PRN
Pro re nata
SABL
Secured Asset Based Lending
SBA
Small Business Administration
SEC
Securities and Exchange Commission
SOFR
Secured Overnight Financing Rate
TBA
To-Be-Announced Mortgage-Backed Securities Trades
TPOS
Third Party Originator/Servicer
VBFI
Virginia Bureau of Financial Institutions
VIE
Variable interest entity
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements about future expectations, activities and events that constitute forward-looking statements within the meaning of, and subject to the protection of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provided by the same. 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 other factors discussed in the “Risk Factors” section of this Annual Report on Form 10-K, 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;
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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 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;
changes in interest rates, inflation, stagflation, loan demand, real estate values, or competition, as well as labor shortages, supply chain disruptions, the threat of recession and volatile equity capital markets;
changes in the availability of funds resulting in increased costs or reduced liquidity, as well as the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;
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;
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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 weaknesses in our internal controls deemed ineffective;
failure to maintain effective internal controls and procedures, including the ability to remediate identified material weaknesses in internal control over financial reporting expediently;
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 Annual Report on Form 10-K 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 Annual Report on Form 10-K (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.
PART I
Item 1. Business
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.
As of December 31, 2025, Primis had $4.0 billion in total assets, $3.3 billion in total loans held for investment, $3.4 billion in total deposits and $423 million in total stockholders’ equity. As of December 31, 2025, Primis Bank had 24 full-service branches in Virginia and Maryland and also provides services to customers through certain online and mobile applications. Headquartered in McLean, Virginia, the Company has an administrative office in Glen Allen, Virginia and an operations center in Atlee, Virginia. PMC, a residential mortgage lender headquartered in Wilmington, North Carolina, is a consolidated subsidiary of Primis Bank. PFH owns the rights to the Panacea Financial brand and its intellectual property and partners with the Bank to offer a suite of financial products and services for doctors, their practices, and ultimately the broader healthcare industry. PFH was deconsolidated from the Company on March 31, 2025, as further
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discussed below in “PFH Deconsolidation and Sale of Shares”. The operating results of PFH were included in the Company’s consolidated operating results through March 31, 2025. Primis Bank’s deposits are insured, up to applicable limits, by the FDIC.
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on our website at www.primisbank.com as soon as reasonably practicable after we electronically file such material with the SEC. These reports are also available without charge on the SEC’s website at www.sec.gov. We include our website address throughout this filing only as textual references. The information contained on our website is not incorporated in this document by reference.
Strategy
Primis is focused on building a new, innovative, and better banking experience for its consumers and small and medium-sized businesses. The Bank intends to grow its business, expand its customer base and improve profitability by focusing on the following three areas:
Maintaining a strong and efficient community bank in desirable markets.
The Bank maintains twenty-four office locations in attractive markets in Virginia, Maryland and the Greater Washington, D.C. market
In these markets, we increased deposits per branch (excluding digital platform deposits) to $100 million as of December 31, 2025 versus $69 million as of December 31, 2021
Supplementing core community bank growth and profitability with business lines that we believe can generate above-average risk-adjusted returns such as:
The Panacea Financial Division, the Bank’s health-care focused brand which ended 2025 with $544 million of loans and $128 million of deposits. This was up from December 31, 2024 when loans were $434 million and deposits were $92 million.
Primis Mortgage Company, the Bank’s retail mortgage company which had funded production of approximately $1.2 billion in 2025, up from approximately $800 million in 2024; and
Mortgage Warehouse Lending, which focuses on lending to the independent mortgage company space and which ended 2025 with approximately $1.2 billion in approved lines, $318 million in outstanding loan balances and $29 million of low or no interest customer deposits.
Perfecting enhanced digital offerings that allow Primis to attract and retain deposit customers at scale both in and out of our footprint.
Deposits on the Bank’s digital platform ended 2025 at $992 million with an average balance of $48 thousand. As of December 31, 2025, 82% of those customers had been with the Bank’s digital platform for more than 2 years.
Critical to executing this approach:
Utilizing the Primis Management Team’s Strength . The experience and market knowledge of the Bank’s management team is one of its greatest strengths and competitive advantages. Since the Company’s board of directors appointed Mr. Dennis J. Zember, Jr. as the Chief Executive Officer, effective February 19, 2020, Mr. Zember has added several members to the executive management team. These additional members all bring strong expertise and years of experience.
Leveraging the Existing Foundation for Additional Growth. Based on the management team’s depth of experience and previous infrastructure investments, Primis looks to take advantage of certain economies of scale typically enjoyed by larger organizations, thus expanding its operations both organically and through strategic cost-effective branch or bank acquisitions.
Investing in Technology to Differentiate the Bank in the Marketplace. The success of the Bank’s technology offerings, particularly its digital platform and its V1BE app-based fulfillment offering, was the direct result of a
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visionary approach to crafting new products and services. Management constantly looks for ways to adopt and deploy technology solutions that provide a competitive advantage and advance the strategies outlined above.
Pursuing Selective Acquisition Opportunities . Primis has the skillsets and experience necessary to execute and successfully integrate financial institution acquisitions. This, along with its strong capital position, well-positions Primis to take advantage of acquisition opportunities.
Focusing on the Business Owner . Primis looks to be the primary bank for small- and medium-sized businesses by offering a suite of competitive electronic banking services, robust treasury services and comprehensive lending options. We believe that Primis’ localized decision-making capabilities, prompt credit decisions, and superior customer service, supported by a highly experienced and knowledgeable management team, offers Primis a distinct competitive advantage in the marketplace.
Focusing on Asset Quality and Underwriting . Strong asset quality is of primary importance. Management believes the lending in its chosen business lines, particularly healthcare and mortgage warehouse, has inherently better asset quality than other asset classes or industry verticals on average. Because of the growth in these businesses lines, management also believes it can be more selective when lending in its core markets, which should lead to steady growth for the Bank with attractive relative asset quality over time.
Building a Stable Core Deposit Base . Primis continues to grow a stable core deposit base of business and retail customers. Primis intends to continue its practice of developing a deposit relationship with each of its loan customers.
BANKING SERVICES
Our principal business is the acquisition of deposits from the general public through our branch offices, digital platform, and deposit intermediaries and the use of these deposits to fund our loan and investment security portfolios. We seek to be a full-service bank that provides a wide variety of financial services to our middle market corporate clients as well as to our retail clients. We are an active commercial lender, and also invest funds in mortgage-backed securities, collateralized mortgage obligations, securities issued by agencies of the federal government and obligations of states and political subdivisions.
Lending Activities Overview
Primis offers a wide range of commercial banking services; however, we are focused on making loans secured primarily by commercial real estate and other types of secured and unsecured commercial loans to small and medium-sized businesses in a number of industries, as well as loans to individuals for a variety of purposes, including home equity lines of credit. We are an SBA lender with Preferred Lending Partner status that allows us to offer this program nationwide. We also invest in real estate-related securities, including collateralized mortgage obligations and agency mortgage-backed securities. Our principal sources of funds for loans and investing in securities are deposits and, to a lesser extent, borrowings.
The following is a discussion of each of the major types of lending in which we engage. For more information on our lending activities, see “Item 7. Management’s Discussion and Analysis of Financial Condition” (“MD&A”).
Commercial Lending
Commercial Business Lending. These loans consist of lines of credit, revolving credit facilities, demand loans, term loans, equipment loans, SBA loans, stand-by letters of credit, and unsecured loans. Commercial business loans are generally secured by business assets, equipment, accounts receivable, inventory and other collateral, such as readily marketable stocks and bonds with adequate margins, cash value in life insurance policies and savings and time deposits at the Bank.
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Commercial Real Estate Lending. Commercial real estate lending includes loans for permanent financing. Commercial real estate lending typically involves higher loan principal amounts and the repayment of loans is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Owner occupied real estate is evaluated in conjunction with the operations of the business.
Construction Lending. Primis provides construction loans for commercial, multi-family, assisted living and other non-residential properties, and builder/developer lines for established companies in our market footprint. Construction loan borrowers are generally pre-qualified for the permanent loan by us or a third party.
Secured Asset Based Lending. Primis has developed a proprietary Asset Based Lending software system that allows the Bank to monitor the collateral of its commercial borrowers who have pledged their working assets (accounts receivables and other qualifying assets such as inventory) as collateral. SABL has the ability to track other offsets (e.g. other loans the customer has with the Bank) to the line of credit. SABL serves to provide more stringent controls and supervision that this type of lending requires.
SBA Lending. Primis has developed expertise in the federally guaranteed SBA programs. The SBA programs provide economic development programs which finance start-up and expansion of small businesses. We are a nationwide Preferred Lender. As an SBA Preferred Lender, our pre-approved status allows us to quickly respond to customers’ needs. Under the SBA program, we generally originate and fund SBA 7(a) and 504 loans. Benefits to Primis are low LTV commercial loans and government guarantees up to 80%.
Panacea Practice Solutions. The Bank, through its Panacea Financial division, provides financing for medical, dental and veterinary businesses. Financing purposes cover a range of borrower needs, including acquisition, start-up, expansion, real estate purchase and refinance, leasehold, equipment financing, as well as practice buy-ins.
Mortgage Warehouse Lending. Primis provides warehouse lending lines of credit to residential mortgage originators. Program parameters and underwriting guidelines are processed and monitored through our Warehouse Loan System to ensure program compliance.
Consumer Lending
Primis offers various types of secured and unsecured consumer loans. We make consumer loans primarily for personal, family or household purposes.
Residential Mortgage. Primis originates residential mortgage loans for its portfolio through PMC. Primis also purchases originated residential mortgages from our Warehouse Line clients, as well as other loan originators. We have no sub-prime loans.
Residential Construction. Primis originates residential construction loans through PMC and other Warehouse Line clients. Primis provides short-term construction management for these loans, which have a permanent mortgage take-out.
Home Equity Lines of Credit. Primis offers credit lines secured by primary residential properties with maximum loan-to-values of 80%. The product provides for a 10 year draw period followed by a 20 year repayment period.
Secured Personal Loans. Primis offers secured personal loans for a variety of purposes including auto, motorcycle, boats, and recreational vehicles. Pledged collateral could also include marketable securities and certificates of deposits.
Life Premium Finance (“LPF”). Primis previously offered life insurance premium financing. These loans were utilized to pay the annual premiums due on whole or universal life policies. These loans were fully secured by the cash value of the policy and personal liquid assets of the borrower or guarantor. We sold a majority of these loans to EverBank, N.A. (“EverBank”) in 2024 and no longer offer these loans as of January 31, 2025. Additional discussion of this sale can be found below in “Lines of Business” and in the MD&A section of this Report.
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Unsecured Personal Loans. Primis offers unsecured personal loans up to $50,000 and overdraft protection loans up to $10,000, based on specified underwriting criteria. We also offered these types of loans through an agreement with a third-party that sources and originates them for us based on our credit underwriting criteria. In 2024, we made the decision to discontinue the program with the third-party that sources and originates these loans, effective January 31, 2025, and are running-off the existing portfolio on our balance sheet. Additional discussion of this decision can be found in the MD&A.
Panacea Consumer Loans. Panacea Financial offers several unsecured consumer loan products, including student loan refinancing and PRN loans. PRN loans may be utilized by in-school, in-training and in-practice doctors, veterinarians and dentists to fund costs associated with their chosen professions. Strict credit underwriting criteria has been established around these products.
Because future loan losses are so closely intertwined with our underwriting policy, we have instituted what management believes is a stringent loan underwriting policy. Our underwriting guidelines are tailored for particular credit types, including lines of credit, revolving credit facilities, demand loans, term loans, equipment loans, real estate loans, SBA loans, stand-by letters of credit and unsecured loans. We have instituted a no exceptions policy for our consumer credit programs where borrowers must meet all underwriting criteria.
Deposit Activities Overview
We offer a broad range of deposit products, including checking, NOW, savings, and money market accounts and certificates of deposit, supporting the needs of businesses and individuals. We actively pursue business relationships by utilizing the business contacts of our senior management, other bank officers and our directors, thereby capitalizing on our knowledge of our local market areas.
Commercial deposit products are enhanced by a robust suite of treasury and cash management services, including:
Investment/sweep accounts
Wire transfer services
Employer services/payroll processing services
Zero balance accounts
Night depository services
Depository transfers
Merchant services (third party)
ACH originations
Business debit cards
Controlled disbursement accounts
Remote deposit capture
Mobile and online banking
Other products and services offered by the Bank include debit cards, ATM services, notary services, and wire transfer.
Lines of Businesses
Panacea Financial. In November 2020, the Company launched the Panacea Financial division, which focuses on providing unique financial products and services for the medical, dental and veterinary communities. Panacea Financial offers personal loans, student debt refinance and practice loans as well as deposit products nationally. Panacea Financial has partnerships with national and state associations. Additionally, its In-Training Medical/Dental School Loan Refinance product allows physicians and dentists that are in training the opportunity to refinance their student debt at a lower interest rate, while benefiting from affordable monthly payments during training. As of December 31, 2025, Panacea Financial had approximately $544 million in outstanding loans. The division has successfully built a nationally-recognized brand
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with a growing team of industry-leading commercial bankers experienced in providing financial services to its target communities across the United States.
Life Premium Financing. The Company launched a division in the fourth quarter of 2021 focused on financing life insurance premiums for high net-worth individuals across the United States. On October 24, 2024, the Company entered into a purchase and assumption agreement with EverBank for sale of the Company’s LPF division. EverBank acquired LPF from the Company, except for a subset of mostly fixed rate and rate-capped loans that were retained by the Bank and are currently being run-off. All of the LPF operations, including its employees, were assumed by EverBank following the close of the transaction, on January 31, 2025.
Primis Mortgage Company. In May 2022, Primis Bank acquired Primis Mortgage Company (previously SeaTrust Mortgage Company), a regional residential mortgage company headquartered in Wilmington, North Carolina. Primis Mortgage Company has since expanded to offer residential mortgages in the majority of the U.S. Residential mortgage loans originated through Primis Mortgage Company are primarily sold in the secondary market for fee income. During the year ended December 31, 2025, Primis Mortgage originated over $1 billion of loans.
Warehouse Lending . Mortgage warehouse lending involves providing temporary funding to independent mortgage companies that originate residential loans for sale in the secondary market. The loans are predominantly secured by marketable residential mortgages underwritten to agency guidelines. The underlying mortgage is typically funded on the warehouse line for 10 to 15 days before being sold to upstream investors. In October 2024, we hired a seasoned team of mortgage warehouse lenders from another bank that had recently decided to exit the warehouse lending business. This team has grown our warehouse lending business since that time leveraging their years of experience and industry contacts. As of December 31, 2025, we had over $1 billion of commitments with 125 customers.
Digital Banking
In 2021, Primis launched its V1BE service, the first bank delivery app for on-demand ordering of branch services. V1BE brings in-branch banking services directly to the customer, including cash delivery/withdrawals, cash pick-up/deposits, check deposits, change orders, cashier checks, and the instant issue of replacement debit cards. V1BE was initially piloted in the Richmond market but now covers the majority of our footprint, including the greater Washington, D.C. region. With V1BE, Primis is able to support any market and grow customer relationships without the need for a large branch presence. During 2025 we expanded into other markets to support a growing customer base and are implementing enhancements to make V1BE easier to license to other banks and expect to have our first bank customer onboard in 2026.
In 2022, Primis successfully launched its digital bank platform. The platform includes an all-new mobile banking application that provides a quick and seamless account opening process all from within the app. As of December 31, 2025, the balance of digital deposits were $1 billion.
Funding and Revenue Sources
The principal sources of funds for our lending and investment activities are deposits, repayment of loans, prepayments from mortgage-backed securities, repayments of maturing investment securities, FHLB advances and other borrowed money.
Principal sources of revenue are interest and fees on loans and investment securities as well as fee income derived from the maintenance of deposit accounts and income from bank-owned life insurance policies. Our principal expenses include interest paid on deposits, advances from the FHLB, junior subordinated debt, senior subordinated notes and other borrowings, and other operating expenses.
CREDIT ADMINISTRATION
Because future loan losses are so closely intertwined with our underwriting policy, we have instituted what management believes are well-defined loan underwriting criteria and portfolio management practices. Our underwriting
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guidelines are tailored for individual credit types, including lines of credit, revolving credit facilities, demand loans, term loans, equipment loans, real estate loans, SBA loans, stand-by letters of credit and unsecured loans. We will make extensions of credit based, among other factors, on the potential borrower’s creditworthiness and likelihood of repayment.
The Board of Directors has delegated assignment of individual credit authorities up to $10 million to the Chief Executive Officer and Chief Credit Officer. For loans up to $5 million, we have named Credit Officers. We also have a Specialty Executive Credit Officer with extensive industry specific experience with individual credit authority up to $7.5 million. These individual lending authorities are based on the individual’s technical ability and experience. All credits over $10 million are reviewed and approved by the Executive Loan Committee, as defined in our credit policy. For approval of third-party originated loans, we have delegated authority within an approved framework. All credit extensions in excess of 60% of the Bank’s legal lending limit are also reviewed and approved by the Board of Directors. As of December 31, 2025, our legal lending limit was approximately $63 million.
Portfolio management is an integral part of sound credit practices. The responsible relationship manager in conjunction with credit administration will service loan credits through their life cycle. Primis has a dedicated Special Assets team that provides oversight on credit collection activities, to include legal negotiations, forbearance agreements, collateral sale, foreclosures and management of OREO. We believe that coordinated approach to credit supports a high-quality portfolio. Credit Administration is responsible for monthly reporting to the Board of Directors on asset quality and performance.
COMPETITION
The banking business is highly competitive, and our profitability depends principally on our ability to compete in the market areas in which our banking operations are located. We experience substantial competition in attracting and retaining deposits and in lending funds. The primary factors we encounter in competing for deposits are convenient office locations and rates offered. Direct competition for deposits comes from other commercial bank and thrift institutions, money market mutual funds and corporate and government securities which may offer more attractive rates than insured depository institutions are willing to pay. The primary factors we encounter in competing for loans include, among others, interest rate and loan origination fees and the range of services offered. Competition for origination of loans normally comes from other commercial banks, thrift institutions, mortgage bankers, mortgage brokers, insurance companies and fintech or digital lending companies. We have been able to compete effectively with other financial institutions by:
emphasizing customer service and technology;
establishing long-term customer relationships and building customer loyalty; and
providing products and services designed to address the specific needs of our customers.
HUMAN CAPITAL
At Primis, we are committed to ensuring that our employees reach their personal, professional and financial peaks. We are attracting, developing, retaining and planning for the succession of key talent and executives to achieve our strategic objectives. Primis is continually investing in our workforce to further emphasize inclusivity and recognizing that diverse perspectives, backgrounds, and experiences strengthen our ability to meet the needs of our associates, communities, clients and shareholders and to foster our employees' growth and career development. As of December 31, 2025, we had 593 employees, nearly all of whom are full-time and of which approximately 63% were female and 23% were minorities. All of our employees are chosen on the basis of their qualifications and merit.
Employee Feedback. Fostering an inclusive environment requires that all employees are heard. Our Intranet contains the “Employee Voice,” which is a vehicle for employees to make suggestions, asks questions or voice opinions regarding the Company’s practices.
Recruitment. While the majority of our employees reside in Virginia, our recruitment efforts are both local and nationwide. We utilize a wide range of recruitment vehicles ranging from college recruitment sites such as “Handshake”, a “V3” program to recruit veterans to posting on popular job boards and conducting nationwide profile searches to find diverse and qualified candidates. Primis realizes that great people know other great people, so we also offer a referral bonus to our employees.
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Benefits. Primis offers a comprehensive and competitive benefits package to meet a variety of individual needs. We offer three different medical plans, two of which allow the employee to make contributions and receive an employer match on a Health Savings Account. In addition to dental insurance, supplemental insurance and a 401k, we offer employer paid short-term and long-term disability and life insurance. Our employees also enjoy an incentive for participating in our Wellness Program.
Development. All new employees benefit from training to learn how to utilize our key systems. New employees are also required to complete multiple learning modules that cover important compliance and regulatory requirements in the banking industry. Continuing education and advanced training is offered to employees throughout their tenure. We encourage all employees to obtain job related training by covering the cost of the classes and/or learning materials and tests. Our talent acquisition, development and retention focus is on rewarding merit and achievement while nurturing and progressing skilled talent across various business segments.
Volunteerism . Primis is committed to the communities we serve and to supporting our employees in their volunteerism. Each employee receives up to sixteen paid hours to volunteer in their community or charity of choice each year. We maintain a commitment to the prosperity of each community we serve, donating to community, civic and philanthropic organizations in 2025. In addition to providing financial products built for the needs of our customers, we use associate volunteerism and corporate philanthropy to build strong community partnerships. Our employees volunteered 225 hours in 2025.
SUPERVISION AND REGULATION
This discussion is a summary and is qualified in its entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an exhaustive description of the statutes or regulations applicable to Primis or the Bank. The business of Primis and the Bank is subject to extensive regulation and supervision under federal and state law, including oversight by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the VBFI, a regulatory division of the Virginia State Corporation Commission, as well as applicable regulation by the FDIC.
Changes in laws and regulations may alter the structure, regulation and competitive relationships of financial institutions. In addition, bank regulatory agencies may issue enforcement actions, policy statements, interpretive letters and similar written guidance applicable to us. It cannot be predicted whether and in what form new laws and regulations, or interpretations thereof, may be adopted or the extent to which the business of Primis and the Bank may be affected thereby, but they may have a material adverse effect on our business, operations, and earnings.
Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees and other parties participating in the affairs of a bank or bank holding company. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, federal and state banking regulators have the authority to compel or restrict certain actions on our part if they determine that we have insufficient capital or other resources, or are otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.
If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly including consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of dividends on our common stock and preferred stock. If our regulators were to take such additional supervisory actions, then we could, among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. The terms of any such
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supervisory action could have a material negative effect on our business, reputation, operating flexibility, financial condition, and the value of our capital stock.
Supervision, regulation, and examination of Primis, the Bank, and our respective subsidiaries by the appropriate regulatory agencies, as described herein, are intended primarily for the protection of consumers, bank depositors, the DIF of the FDIC, and the U.S. banking and financial system, rather than holders of our capital stock.
Bank Holding Company Regulation
Primis is subject to extensive supervision and regulation by the Federal Reserve pursuant to the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). We are required to file with the Federal Reserve periodic reports and such other information as the Federal Reserve may request. Ongoing supervision is provided through regular examinations by the Federal Reserve and other means that allow the regulators to gauge management’s ability to identify, assess and control risk in all areas of operations in a safe and sound manner and to ensure compliance with laws and regulations. In addition to regulation by the Federal Reserve as a bank holding company, Primis is subject to supervision and regulation by the VBFI under the banking and general business corporation laws of the Commonwealth of Virginia.
Activity Limitations. Primis is registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act and has elected to be a financial holding company. As a financial holding company, Primis is permitted to engage directly or indirectly in a broader range of activities than those permitted for a bank holding company. Bank holding companies generally are limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve determines to be closely related to banking, or managing or controlling banks as to be a proper incident thereto. Bank holding companies are prohibited from acquiring or obtaining control of more than five percent (5%) of the outstanding voting interests of any company that engages in activities other than those activities permissible for bank holding companies. Financial holding companies, such as us, may also engage in activities that are considered to be financial in nature, as well as those incidental or, if so determined by the Federal Reserve, complementary to financial activities. Primis and the Bank must each remain “well-capitalized” and “well-managed” and the Bank must receive a Community Reinvestment Act (“CRA”) rating of at least “Satisfactory” at its most recent examination in order for the Company to maintain its status as a financial holding company. In addition, the Federal Reserve has the power to order a financial holding company or its subsidiaries to terminate any non-banking activity or terminate its ownership or control of any non-bank subsidiary, when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that financial holding company. As further described below, each of Primis and the Bank is well-capitalized as of December 31, 2025, and Primis Bank achieved a rating of “Satisfactory” in its most recent CRA evaluation.
Source of Strength Obligations. A bank holding company is required to act as a source of financial and managerial strength to its subsidiary bank. The term “source of financial strength” means the ability of a company, such as us, that directly or indirectly owns or controls an insured depository institution, such as the Bank, to provide financial assistance to such insured depository institution in the event of financial distress. The appropriate federal banking agency for the depository institution (in the case of the Bank, this agency is the Federal Reserve) may require reports from us to assess our ability to serve as a source of strength and to enforce compliance with the source of strength requirements by requiring us to provide financial assistance to the Bank in the event of financial distress. If we were to enter bankruptcy or become subject to the orderly liquidation process established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment. In addition, the FDIC provides that any insured depository institution generally will be liable for any loss incurred by the FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled insured depository institution. The Bank is an FDIC-insured depository institution and thus subject to these requirements.
Acquisitions. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve or waiver of such prior approval before it (1) acquires ownership or control of any voting shares of any bank if, after such acquisition, such bank holding company will own or control more than five percent (5%) of the voting shares of such bank, (2) acquires all of the assets of a bank, or (3) merges with any other bank holding company.
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In reviewing a proposed covered acquisition, among other factors, the Federal Reserve considers (1) the financial and managerial resources of the companies involved, including pro forma capital ratios; (2) the risk to the stability of the United States banking or financial system; (3) the convenience and needs of the communities to be served, including performance under the CRA; and (4) the effectiveness of the companies in combatting money laundering. The Federal Reserve also reviews any indebtedness to be incurred by a bank holding company in connection with a proposed acquisition to ensure that the bank holding company can service such indebtedness without adversely affecting its ability to serve as a source of strength to its bank subsidiaries. Well capitalized and well managed bank holding companies are permitted to acquire control of banks in any state, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state. However, a bank holding company may not, following an interstate acquisition, control more than 10% of nationwide insured deposits or 30% of deposits within any state in which the acquiring bank operates.
Change in Control. Federal law restricts the amount of voting stock of a bank holding company or a bank that a person (including an entity) may acquire without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to and obtain approval from the Federal Reserve before acquiring control of any bank holding company, such as Primis. The Change in Bank Control Act creates a rebuttable presumption of control if a person or group acquires the power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to acquire a bank holding company or a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of our stock.
Virginia Law. Certain state corporation laws may have an anti-takeover effect. Virginia law restricts transactions between a Virginia corporation and its affiliates and potential acquirers. The following discussion summarizes the two Virginia statutes that may discourage an attempt to acquire control of Primis.
Virginia Code Sections 13.1-725 – 727.1 govern “Affiliated Transactions.” These provisions, with several exceptions discussed below, require approval by the holders of at least two-thirds of the remaining voting shares of material acquisition transactions between a Virginia corporation and any holder of more than 10% of its outstanding voting shares. Affiliated Transactions include mergers, share exchanges, material dispositions of corporate assets not in the ordinary course of business, any dissolution of the corporation proposed by or on behalf of an interested shareholder, or any reclassification, including a reverse stock split, recapitalization, or merger of the corporation with its subsidiaries which increases the percentage of voting shares owned beneficially by any 10% shareholder by more than 5%.
These provisions were designed to deter certain takeovers of Virginia corporations. In addition, the statute provides that, a corporation's initial articles of incorporation may expressly provide that the corporation shall not be governed by the Affiliated Transactions provisions and that by affirmative vote of a majority of the voting shares other than shares owned by any 10% shareholder, a corporation can adopt an amendment to its articles of incorporation or bylaws providing that the Affiliated Transactions provisions shall not apply to the corporation. Primis “opted out” of the Affiliated Transactions provisions when it incorporated.
Virginia law also provides that shares acquired in a transaction that would cause the acquiring person’s voting strength to meet or exceed any of the three thresholds (20%, 33.33% or 50%) have no voting rights for those shares exceeding that threshold, unless granted by a majority vote of shares not owned by the acquiring person. This provision empowers an acquiring person to require the Virginia Corporation to hold a special meeting of shareholders to consider whether to vote on granting voting rights to control shares within 50 days of the request, unless the acquiring person agrees to another date. Primis also “opted out” of these provisions at the time of its incorporation.
Governance and Financial Reporting Obligations. We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board, and NASDAQ. In particular, we are required to include management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including
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compliance with the SEC rules on internal controls, and have and expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the values of our securities.
Incentive Compensation. The Dodd-Frank Act required the federal banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and the Bank, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The federal banking agencies issued proposed rules in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the federal banking agencies and the SEC proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2025, these rules have not been implemented. In addition, the Dodd-Frank Act required the federal banking agencies and the SEC to issue regulations requiring covered financial institutions to prohibit incentive compensation arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the institution. In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (“clawback”) provisions mandated by Section 954 of the Dodd-Frank Act. The final rules directed U.S. stock exchanges to require listed companies to implement, disclose and enforce clawback policies to recover excess incentive-based compensation that current or former executive officers received based on financial reporting measures that are later restated. In June 2023, the SEC approved the proposed clawback listing standards of the Nasdaq Stock Market, LLC, which required Nasdaq-listed companies, to (i) adopt and implement a compliant clawback policy; (ii) file the clawback policy as an exhibit to their annual reports; and (iii) provide certain disclosures relating to any compensation recovery triggered by the clawback policy. Our clawback policy was approved by the board in November 2023 and is incorporated by reference as Exhibit 97 of this Annual Report on Form 10-K.
Shareholder Say-On-Pay Votes. The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control transactions. Public companies must give shareholders the opportunity to vote on compensation at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be held annually, biennially, or triennially.
Anti-tying rules. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit, leases or sales of property, or furnishing of services.
Capital Requirements
Primis and the Bank are each required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the federal banking agencies may determine that a banking organization, based on its size, complexity, or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks are important factors that are to be considered in assessing an institution’s overall capital adequacy. The following is a brief description of the relevant provisions of these capital rules and their potential impact on our capital levels.
Primis and the Bank are each subject to the following risk-based capital ratios: a common equity Tier 1 ("CET1") risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total risk-based capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock, plus retained earnings and certain qualifying minority interests, less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt, other preferred stock and certain hybrid capital instruments, and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and off-balance
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sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain “high volatility” commercial real estate, past due assets, structured securities and equity holdings.
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average total consolidated assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks is 4%.
In addition, effective January 1, 2019, the capital rules require a capital conservation buffer of CET1 of 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress. These buffer requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction.
The FDICIA, among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five regulatory capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”. A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified.
To be well-capitalized, the Bank must maintain at least the following capital ratios:
● 6.5% CET1 to risk-weighted assets;
● 8.0% Tier 1 capital to risk-weighted assets;
● 10.0% Total capital to risk-weighted assets; and
● 5.0% leverage ratio.
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the current capital rules. For purposes of the Federal Reserve’s Regulation Y, bank holding companies, such as Primis, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized. If the Federal Reserve were to apply the same or a similar well-capitalized standard to bank holding companies as that applicable to the Bank, Primis’ capital ratios as of December 31, 2025 would exceed such revised well-capitalized standard. Also, the Federal Reserve may require bank holding companies, including Primis, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or financial condition. Failure to meet minimum capital requirements could also result in restrictions on Primis’ or the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.
Both Primis and the Bank’s regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer as of December 31, 2025. Based on current estimates, we believe that Primis and the Bank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2026.
On October 29, 2019, the federal banking agencies jointly issued a final rule to simplify the regulatory capital requirements for eligible banks and holding companies with less than $10 billion in consolidated assets that opt into the CBLR framework. A qualifying community banking organization with total consolidated assets of less than $10 billion that exceeds the CBLR threshold would be exempt from the agencies’ current capital framework, including the risk-based
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capital requirements and capital conservation buffer described above, and would be deemed well-capitalized under the agencies’ prompt corrective action regulations. Under the final rule, if a qualifying community banking organization elects to use the CBLR framework, it will be considered “well-capitalized” so long as its CBLR is greater than 9%. Primis does not use the CBLR framework.
Payment of Dividends
Primis is a legal entity separate and distinct from the Bank and other subsidiaries. Its primary source of cash, other than securities offerings, is dividends from the Bank. Under the Federal Deposit Insurance Act, no dividends may be paid by an insured bank if the bank is in arrears in the payment of any insurance assessment due to the FDIC. The payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as the maintenance of adequate capital. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that the bank cease and desist from that practice. The Federal Reserve has formal and informal policies which provide that insured banks should generally pay dividends only out of current operating earnings.
Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider certain factors to ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:
its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;
its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or
it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Bank Regulation
The operation of the Bank is subject to state and federal statutes applicable to state banks and the regulations of the Federal Reserve, the FDIC and the CFPB. The operations of the Bank may also be subject to applicable OCC regulation to the extent state banks are granted parity with national banks. Such statutes and regulations relate to, among other things, required reserves, investments, loans, mergers and consolidations, issuances of securities, payments of dividends, establishment of branches, consumer protection and other aspects of the Bank’s operations. Violations of laws and regulations, or other unsafe and unsound practices, may result in these agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees and other parties participating in the affairs of a bank or bank holding company.
Safety and Soundness. The Federal Deposit Insurance Act requires the federal prudential bank regulatory agencies, such as the Federal Reserve, to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6) asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to
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submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
Examinations . The Bank is subject to regulation, reporting, and periodic examinations by the Federal Reserve and the VBFI. These regulatory authorities routinely examine the Bank’s reserves, loan and investment quality, consumer compliance, management policies, procedures and practices and other aspects of operations. The Federal Reserve has adopted the Federal Financial Institutions Examination Council’s rating system and assigns each financial institution a confidential composite rating based on an evaluation and rating of six essential components of an institution’s financial condition and operations, including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk, as well as the quality of risk management practices.
Consumer Protection. The Dodd-Frank Act established the CFPB, an independent regulatory authority housed within the Federal Reserve having centralized authority, including examination and enforcement authority, for consumer protection in the banking industry. The CFPB has rule writing, examination, and enforcement authority with regard to the Bank’s (and Primis’) compliance with a wide array of consumer financial protection laws, including the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the S.A.F.E. Mortgage Licensing Act, the Fair Credit Reporting Act (except Sections 615(e) and 628), the Fair Debt Collection Practices Act, and the Gramm-Leach-Bliley Act (sections 502 through 509 relating to privacy), among others. The CFPB has broad authority to enforce a prohibition on unfair, deceptive, or abusive acts and practices. Authority to supervise and examine Primis and the Bank for compliance with federal consumer laws remains largely with the Federal Reserve. However, the CFPB may participate in examinations on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
Deposit Insurance Assessments. The DIF of the FDIC insures the deposits of the Bank generally up to a maximum of $250,000 per depositor, per insured bank, for each account ownership category. The FDIC charges insured depository institutions quarterly premiums to maintain the DIF. Deposit insurance assessments are based on average total consolidated assets minus its average tangible equity and take into account certain risk-based financial ratios and other factors. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.
As of September 30, 2025, the DIF reserve ratio reached 1.40%, exceeding the statutory minimum of 1.35%. The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years. On October 18, 2022, the FDIC adopted a final plan and increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC could further increase the deposit insurance assessments for certain insured depository institutions, including Primis Bank, if the DIF reserve ratio is not maintained.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a bank’s federal regulatory agency. In addition, the Federal Deposit Insurance Act provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution, including those of the parent bank holding company.
Insider Transactions. The Federal Reserve has adopted regulations that restrict preferential loans and loan amounts to “affiliates” and “insiders” of banks, require banks to keep information on loans to major shareholders and executive officers, and bar certain director and officer interlocks between financial institutions.
Reserves. The Bank is subject to Federal Reserve regulations that require the Bank to maintain reserves against transaction accounts (primarily checking accounts). These reserve requirements are subject to annual adjustment by the
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Federal Reserve. Effective March 26, 2020, reserve requirement ratios were reduced to zero percent and remain at that level as of December 31, 2025.
Anti-Money Laundering . A continued focus of governmental policy relating to financial institutions in recent years has been combating money laundering and terrorist financing. The USA PATRIOT Act broadened the application of anti-money laundering regulations to apply to additional types of financial institutions such as broker-dealers, investment advisors and insurance companies, and strengthened the ability of the U.S. Government to help prevent, detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA PATRIOT Act require that regulated financial institutions, including state member banks: (i) establish an anti-money laundering program that includes training and audit components; (ii) comply with regulations regarding the verification of the identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements could have serious legal and reputational consequences for the institution. Primis Bank has augmented its systems and procedures to meet the requirements of these regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by law.
FinCEN has adopted rules that require financial institutions to obtain beneficial ownership information with respect to legal entities with which such institutions conduct business, subject to certain exclusions and exemptions. Bank regulators are focusing their examinations on anti-money laundering compliance, and we continue to monitor and augment, where necessary, our anti-money laundering compliance programs.
Bank regulators routinely examine institutions for compliance with these anti-money laundering obligations and have been active in imposing “cease and desist” and other regulatory orders and money penalty sanctions against institutions found to be in violation of these requirements. In 2024, US federal regulators proposed amendments to modernize Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) program requirements. Aligned with the Anti-Money Laundering Act of 2020, the rules mandate a risk-based approach requiring institutions to identify, evaluate, and document risks based on business activities and national priorities.
Economic Sanctions . The OFAC is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes, and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and we must notify the appropriate authorities.
Concentrations in Lending. During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) and advised financial institutions of the risks posed by CRE lending concentrations. The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. Higher allowances for credit losses and capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:
Total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk based capital; or
Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land of 300% or more of a bank’s total risk-based capital.
The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type.
Community Reinvestment Act. The Bank is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits, including low- and moderate-income neighborhoods. The Federal Reserve’s assessment of the Bank’s CRA record is made available to the public. Further, a less than satisfactory CRA rating will slow, if not
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preclude, expansion of banking activities and prevent a company from becoming or remaining a financial holding company. Federal CRA regulations require, among other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation. In 2023 the Federal Reserve, OCC, and FDIC issued a final rule to modernize their respective CRA regulations. The revised rules would substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027. The revised CRA regulations have been subject to an injunction since March 29, 2024. On July 16, 2025, the Federal Reserve, OCC, and FDIC issued a joint proposal to rescind the 2023 modernization rule. The agencies continue to apply the CRA rules as they existed before the 2023 modernization, considering the injunction and pending finalization of the recission of the modernization rule .
Consumer Regulation. Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations include, among numerous other things, provisions that:
limit the interest and other charges collected or contracted for by the Bank, including rules respecting the terms of credit cards and of debit card overdrafts;
govern the Bank’s disclosures of credit terms to consumer borrowers;
require the Bank to provide information to enable the public and public officials to determine whether it is fulfilling its obligation to help meet the housing needs of the community it serves;
prohibit the Bank from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit;
govern the manner in which the Bank may collect consumer debts; and
prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.
Mortgage Rules. Pursuant to rules adopted by the CFPB, banks that make residential mortgage loans are required to make a good faith determination that a borrower has the ability to repay a mortgage loan prior to extending such credit, require that certain mortgage loans contain escrow payments, obtain new appraisals under certain circumstances, comply with integrated mortgage disclosure rules, and follow specific rules regarding the compensation of loan originators and the servicing of residential mortgage loans.
Transactions with affiliates. There are various restrictions that limit the ability of the Bank to finance, pay dividends or otherwise supply funds to Primis or other affiliates. In addition, banks are subject to certain restrictions under Section 23A and B of the Federal Reserve Act on certain transactions, including any extension of credit to its bank holding company or any of its other affiliates, on investments in the securities thereof, and on the taking of such securities as collateral for loans to any borrower.
Privacy and Cybersecurity . The Bank is subject to federal and state banking regulations that limit its ability to disclose non-public information about consumers to non-affiliated third parties. These limitations require us to periodically disclose our privacy policies to consumers and allow consumers to prevent disclosure of certain personal information to a non-affiliated third party under certain circumstances. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Banking institutions are required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of confidential and personal information are in effect across our lines of business. Furthermore, the federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management. A financial institution is expected to implement multiple lines of defense against cyber-attacks and ensure that their risk management procedures address the risk posed by potential cyber threats. A financial institution is further expected to maintain procedures to effectively respond to a cyber-attack and resume operations following any such attack. Primis has adopted and implemented policies and procedures to comply with these privacy, information security, and cybersecurity requirements. The federal banking agencies require banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.”
Non-Discrimination Policies. Primis Bank is also subject to, among other things, the provisions of the Equal Credit Opportunity Act and the Fair Housing Act, both of which prohibit discrimination based on race or color, religion, national
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origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department of Justice, and the federal bank regulatory agencies have issued an Interagency Policy Statement on Discrimination in Lending that provides guidance to financial institutions in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The Department of Justice has increased its efforts to prosecute what it regards as violations of the Equal Credit Opportunity Act and Federal Housing Administration.
Audit Reports . Effective January 1, 2026, certain changes in FDICIA audit requirements took effect. Insured institutions with total assets of $1 billion or more, such as the Bank, must submit annual audit reports prepared by independent auditors to federal and state regulators. In some instances, the audit report of the institution’s holding company can be used to satisfy this requirement. Independent auditors must receive examination reports, supervisory agreements and reports of enforcement actions. Further, the Bank’s audit committee must be comprised of mainly independent members.
The Bank is no longer subject to certain requirements under the changes. Under the revised thresholds, for insured institutions with total assets of $5 billion or more, financial statements prepared in accordance with U.S. GAAP, management’s certifications concerning responsibility for the financial statements, internal controls and compliance with legal requirements designated by the FDIC, and an attestation by the independent auditor regarding the statements of management relating to the internal controls must be submitted. Further, independent auditors may be required to review quarterly financial statements, and such institutions must have independent audit committees consisting of outside directors only, must also include members with experience in banking or financial management, must have access to outside counsel, and must not include representatives of large customers.
The foregoing is only a brief summary of certain statutes, rules, and regulations that may affect Primis and the Bank. Numerous other statutes and regulations also will have an impact on the operations of Primis and the Bank. Supervision, regulation and examination of banks by the regulatory agencies are intended primarily for the protection of depositors, not shareholders.
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Item 1A. Risk Factors
An investment in our common stock involves risks. The following is a description of the material risks and uncertainties that Primis Financial Corp. believes affect its business and should be considered before making an investment in our common stock. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us and our business. If any of the risks described in this Annual Report on Form 10-K were to actually occur, our financial condition, results of operations and cash flows could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly and you could lose part or all of your investment. This Form 10-K also contains forward-looking statements that may not be realized as a result of certain factors, including, but not limited to, the risks described herein and in our other public filings with the SEC. Please refer to the section in this Form 10-K entitled “Special Cautionary Notice Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.
Summary
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully after the summary, and risks include, but are not limited to, the following:
We are subject to risks related to our concentration of commercial real estate and construction and land development loans.
We have a meaningful amount of consumer loans that are unsecured and if the borrower defaults on the loan, we have no collateral to recover potential losses.
A portion of our consumer loan portfolio is originated and serviced by a third-party and includes a credit enhancement, which may not be realizable; the inability to utilize such credit enhancement could be detrimental to our financial condition and results of operations.
A significant amount of our third-party serviced consumer loans were originated during a zero-interest promotional period, exposing us to third-party credit risk for interest foregone in the event of borrower prepayment; the failure of such third-party to perform under its reimbursement obligation could be detrimental to our financial condition and results of operations.
A significant amount of our loans are secured by real estate and any declines in real estate values in our primary markets could be detrimental to our financial condition and results of operations.
If our nonperforming assets increase, our earnings will suffer.
If our allowance for credit losses is not adequate to cover actual loan losses, our earnings will decrease.
We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses.
Our mortgage revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact our profits.
Our profitability depends significantly on local economic conditions in the areas where our operations and loans are concentrated, and our geographic concentration makes us vulnerable to local weather catastrophes, public health issues, and other external events, which could adversely affect our results of operations and financial condition.
Our earnings are subject to interest rate risk.
Unstable global economic conditions may have serious adverse consequences on our business, financial condition, and operations.
Declines in asset values may result in impairment charges and adversely affect the value of our investment securities, financial performance and capital.
Our stock price can be volatile.
The trading volume in our common stock is less than that of other larger financial services companies.
Inflation could negatively impact our business, our profitability and our stock price.
ESG and DEI risks could adversely affect our reputation and shareholder, employee, client, and third party relationships and may negatively affect our stock price.
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Our business strategy includes strategic growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.
We must respond to rapid technological changes and these changes may be more difficult or expensive than anticipated.
New lines of business, products or services and technological advancements may subject us to additional risks.
The development and use of artificial intelligence presents risks and challenges that may adversely impact our business.
We may not be able to successfully integrate our acquisitions or to realize the anticipated benefits of them.
The carrying value of goodwill and other intangible assets may be adversely affected.
We rely on third-party vendors to provide key components of our business infrastructure, which could expose us to operational and financial risks.
Industry adoption of real-time payments networks could negatively impact financial performance through reductions in product profitability, increased liquidity reserves and the potential for increased fraud losses, among other risks.
We face significant cyber and data security risk that could result in the disclosure of or access to sensitive, confidential and/or nonpublic personal information, adversely affect our business or reputation and expose us to significant liabilities.
Financial services companies depend on the accuracy and completeness of information about customers and counterparties and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition and results of operations.
We are dependent on key personnel and the loss of one or more of those key personnel could impair our relationship with our customers and adversely affect our business.
Deposit insurance premiums levied against us could increase.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, results of operations and cash flows.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.
Future growth or operating results may require us to raise additional capital, but that capital may not be available, be available on unfavorable terms or may be dilutive.
We may issue a new series of preferred stock or debt securities, which would be senior to our common stock and may cause the market price of our common stock to decline.
We currently intend to pay dividends on our common stock; however, our future ability to pay dividends is subject to restrictions.
We are heavily regulated by federal and state agencies; changes in laws and regulations or failures to comply with such laws and regulations may adversely affect our operations and our financial results.
As a regulated entity, Primis and the Bank must maintain certain required levels of regulatory capital that may limit our operations and potential growth.
We are subject to commercial real estate lending guidance issued by the federal banking regulators that impacts our operations and capital requirements.
Changes in accounting standards or assumptions in applying accounting policies could adversely affect us.
Failure to maintain an effective system of disclosure controls and procedures could have a material adverse effect on our business, results of operations and financial condition and could impact the price of our common stock.
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Credit Risks
We are subject to risks related to our concentration of commercial real estate and construction and land development loans.
As of December 31, 2025, we had $1.2 billion of commercial real estate loans outstanding, or 37% of our loan portfolio, including multi-family residential loans and loans secured by farmland. Commercial real estate lending typically involves higher loan principal amounts, and the repayment is dependent, in large part, on sufficient income from the properties securing the loan to cover operating expenses and debt service. As of December 31, 2025, we had $42 million in nonperforming commercial real estate loans.
As of December 31, 2025, we had $132 million of construction and land development loans outstanding, or 4% of our loan portfolio. Construction and land development loans are subject to risks during the construction phase that are not present in standard residential real estate and commercial real estate loans. These risks include:
the viability of the contractor;
the contractor’s ability to successfully complete the project, to meet deadlines and time schedules and to stay within cost estimates, especially in the event of supply disruptions and labor shortages; and
concentrations of such loans with a single contractor and its affiliates.
Real estate construction and land development loans may involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan and also present risks of default in the event of declines in property values or volatility in the real estate market during the construction phase. Our practice, in the majority of instances, is to secure the personal guaranty of individuals in support of our real estate construction and land development loans which provides us with an additional source of repayment. As of December 31, 2025, we did not have any nonperforming construction and land development loans. However, if one or more of our larger borrowers were to default on their construction and land development loans and we did not have alternative sources of repayment through personal guarantees or other sources, or if any of the aforementioned risks were to occur, we could incur significant losses.
We have a meaningful amount of consumer loans that are unsecured and if the borrower defaults on the loan, we have no collateral to recover potential losses.
Our unsecured consumer loan portfolio balance is $183 million, or approximately 6% of our total held for investment loan portfolio, as of December 31, 2025. Included in this portfolio is $90 million of loans sourced based on our credit underwriting criteria and managed by a third party. Consumer loan repayment is primarily driven by the borrower’s personal income, which is impacted by various factors that are outside of the control of the borrower, including macroeconomic conditions such as inflation and fluctuating interest rates. A downturn in the economy or job losses could impact a borrower’s ability to make loan payments. Each of these factors could cause a borrower to evaluate their debts and prioritize payments of other debts above consumer loans due to us. If macroeconomic conditions and the economy worsen, borrowers may stop paying their loans, which could in turn require us to increase our provision for credit losses and adversely affect our financial condition and results of operations.
A portion of our consumer loan portfolio is originated and serviced by a third-party and includes a credit enhancement, which may not be realizable; the inability to utilize such credit enhancement could be detrimental to our financial condition and results of operations.
We receive credit enhancement from a third-party managing $90 million of consumer loans that are recorded on our balance sheet in held for investment as of December 31, 2025. The credit enhancement is primarily provided through cash flows derived from loan originations. We elected on December 31, 2024 to discontinue originations of these loans, effective January 31, 2025. As a result, our monthly cash receipts related to this credit enhancement ceased, which could adversely affect our financial condition and results of operations while loan balances in this portfolio run-off.
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A significant amount of our third-party serviced consumer loans were originated during a zero-interest promotional period, exposing us to third-party credit risk for interest foregone in the event of borrower prepayment; the failure of such third-party to perform under its reimbursement obligation could be detrimental to our financial condition and results of operations.
Within our $90 million third-party originated and serviced consumer loan portfolio, there is $3 million of the portfolio that is in a promotional zero interest rate period as of December 31, 2025. The loans in these promotional interest periods legally accrue interest at the stated rate of the note agreement, but the interest is not required to be paid during the promotional period. Further, if the borrower repays all of the principal on the note prior to the end of the promotional period the accrued interest is waived, but if there is any principal balance remaining at the end of the promotional period the borrower must repay all of the interest that has accrued. As of December 31, 2025, the amount of deferred interest on these loans was $390 thousand. Through an agreement with the third-party servicer, we are entitled to payment of all accrued interest that is waived on loans that repay all principal within the promotional period. If a high percentage of these loans repay at or before the end of their promotional period, a large amount of interest reimbursement will be due from the third-party servicer. If the third-party servicer cannot reimburse us, we may not be able to realize any income on these loans in our portfolio.
As of December 31, 2025, we had $10 million aggregate receivable on our balance sheet due from the third-party related to prior reimbursements of interest on promotional loans where borrowers paid in full prior to the end of the promotional period. Of this amount, $8 million is included in a commercial loan extended to the third-party under our normal loan origination and credit underwriting process to allow the third-party a deferred payment schedule to support their operational and cash flow needs. Should the third party be unable to make the scheduled payments under this commercial loan once they become due or be unable to pay the $2 million trade receivable due, it may adversely affect our financial condition and results of operations.
A significant amount of our loans are secured by real estate and any declines in real estate values in our primary markets could be detrimental to our financial condition and results of operations.
Real estate lending (including commercial, construction, land development, and residential loans) is a large portion of our loan portfolio, constituting $2.0 billion, or approximately 61% of our total loan portfolio, as of December 31, 2025. Although residential and commercial real estate values are currently strong in our market area, such values may not remain elevated. If loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then we may not be able to realize the full value of the collateral that we anticipated at the time of loan origination, which could require us to increase our provision for credit losses and adversely affect our financial condition and results of operations.
As of December 31, 2025, 37% of our loan portfolio was comprised of loans secured by commercial real estate, including multi-family residential loans and loans secured by farmland. As of December 31, 2025, $639 million, or approximately 19% of our total loans, were secured by single-family residential real estate. This includes $577 million in residential 1-4 family loans and $62 million in home equity lines of credit. If housing prices in our market areas do not remain strong or deteriorate, we may experience an increase in nonperforming loans, provision for credit losses and charge-offs. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.
If our nonperforming assets increase, our earnings will suffer.
As of December 31, 2025, our nonperforming assets (which consist of nonaccrual loans, loans past due 90 days and accruing and OREO) totaled $87 million, or 3% of total loans and OREO, which is an increase of $70 million, or 417%, compared with nonperforming assets of $17 million, or 1% of total loans and OREO, as of December 31, 2024.
Economic and market conditions have been unstable recently, and although we believe that our nonperforming assets as a percentage of total loans and OREO remains manageable, we may incur losses if there is an increase in nonperforming assets in the future. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our net interest income, and increasing loan
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administration costs. When we take collateral in foreclosures and similar proceedings, we are required to mark the related loan to the then fair value of the collateral, which may ultimately result in a loss. We must reserve for expected losses, which is established through a current period charge to the provision for credit losses as well as from time to time, as appropriate, a write down of the value of properties in our OREO portfolio to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to our OREO. Further, the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity. Finally, an increase in the level of nonperforming assets increases our regulatory risk profile. There can be no assurance that we will not experience future increases in nonperforming assets, which could negatively impact our earnings.
If our allowance for credit losses is not adequate to cover actual loan losses, our earnings will decrease.
As a lender, we are exposed to the risk that our borrowers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to ensure repayment. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of the borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. If our assumptions prove to be incorrect or if we experience significant loan losses, our current allowance may not be sufficient to cover actual loan losses and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. A material addition to the allowance for credit losses could cause our earnings to decrease. Due to the relatively unseasoned nature of portions of our loan portfolio, we may experience an increase in delinquencies and losses as these loans continue to mature.
In addition, federal regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further charge-offs, based on judgments different from those of our management. Any significant increase in our allowance for credit losses or charge-offs required by these regulatory agencies would result in a decrease in net income and capital and could have a material adverse effect on our results of operations and financial condition.
We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses.
We are subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay interest and principal amounts on their loans. Although we maintain credit policies and credit underwriting, monitoring and collection procedures, these policies and procedures may not prevent losses, particularly during periods in which the local, regional or national economy suffers a general decline. If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.
Our mortgage revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact our profits.
The Bank originates residential mortgage loans through PMC, which lends to borrowers nationwide. The success of our mortgage business is dependent upon its ability to originate loans and sell them to investors, in each case at or near current volumes. Loan production levels are sensitive to changes in the level of interest rates and changes in economic conditions. Loan production levels may suffer if we experience a slowdown in housing markets, tightening credit conditions or increasing interest rates. Any sustained period of decreased activity caused by fewer refinancing transactions, higher interest rates, housing price pressure, or loan underwriting restrictions would adversely affect our mortgage originations and, consequently, could significantly reduce our income from mortgage activities. As a result, these conditions would also adversely affect our financial condition and results of operations.
Deteriorating economic conditions may also cause home buyers to default on their mortgages. In certain cases, where we have originated loans and sold them to investors, we may be required to repurchase loans or provide a financial settlement to investors if it is proven that the borrower failed to provide full and accurate information on, or related to, their loan application, if appraisals for such properties have not been acceptable or if the loan was not underwritten in
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accordance with the loan program specified by the loan investor. In the ordinary course of business, we record an indemnification reserve relating to mortgage loans previously sold based on historical statistics and loss rates. If such reserves were insufficient to cover claims from investors, such repurchases or settlements would adversely affect our financial condition and results of operations.
Market Risks
Our profitability depends significantly on local economic conditions in the areas where our operations and loans are concentrated, and our geographic concentration makes us vulnerable to local weather catastrophes, public health issues, and other external events, which could adversely affect our results of operations and financial condition.
We operate in a mixed market environment with influences from both rural and urban areas. Our profitability depends on the general economic conditions in our market areas of Northern Virginia, Maryland, Washington, D.C., Charlottesville, Northern Neck, Middle Peninsula, Richmond, Hampton Roads and the surrounding areas. Unlike larger banks that are more geographically diversified, we provide banking and financial services to clients primarily in these market areas. As of December 31, 2025, a significant portion of our commercial real estate, real estate construction and residential real estate loans were made to borrowers in our market area. The local economic conditions in this area have a significant impact on our commercial, real estate and construction and consumer loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. In addition, if the population or income growth in these market areas slows, stops or declines, income levels, deposits and housing starts could be adversely affected and could result in the curtailment of our expansion, growth and profitability. Political conditions, including a change in presidential administrations and related policies, executive orders, and laws, could also impact our earnings.
Our earnings are subject to interest rate risk.
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest earning assets such as loans and securities and interest expense paid on interest bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control, including the rate of inflation, general economic conditions and policies of various governmental and regulatory agencies (in particular, the Federal Reserve). From July 2023 through August of 2024, the federal funds rate remained steady at 5.25% to 5.50%. In each of the third and fourth quarters of 2024, the Federal Reserve reduced the target federal funds rate by 50 basis points to 4.25% to 4.50%. In the third quarter of 2025, the Federal Reserve reduced the target federal funds rate by 25 basis points to 4.00% to 4.25%. In the fourth quarter of 2025, the Federal Reserve reduced the target federal funds rate by 50 basis points to 3.50% to 3.75%. Uncertainty regarding future rates could negatively impact our cost of borrowing and reduce the amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.
Changes in monetary policy, interest rates, the yield curve, or market risk spreads, or a prolonged, flat or inverted yield curve could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect:
our ability to originate loans and obtain deposits;
our ability to retain deposits in an uncertain rate environment;
net interest rate spreads and net interest rate margins;
our ability to enter into instruments to hedge against interest rate risk;
the fair value of our financial assets and liabilities; and
the average duration of our loan and securities portfolio.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
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Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations .
Unstable global economic conditions may have serious adverse consequences on our business, financial condition, and operations.
We are operating in an uncertain economic environment. The global credit and financial markets have experienced extreme volatility and disruptions over the past few years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and uncertainty about economic stability and a potential recession. The U.S. government's decisions regarding appointments at the Federal Reserve, its debt ceiling and the possibility that the U.S. could default on its debt obligations may cause further interest rate adjustments, disrupt access to capital markets, and deepen recessionary conditions. Further, disagreements between the U.S. and significant trading partners over economic or political matters such as international trade may result in new or continued sanctions, tariffs and other similar restrictions on trade and investment between countries, which may result in supply chain disruptions and increased costs that could negatively affect us, our customers and our counterparties. In addition, conflicts between countries such as the Russian military action against Ukraine and ongoing conflicts in the Middle East, could lead to regional instability, a rise in commodity prices, increase inflationary pressures and market volatility, and thereby have an indirect effect on us even when we do not have material exposure to such countries. While our management team continually monitors market conditions and economic factors, throughout our footprint, we are unable to predict the duration or severity of such conditions or factors. If conditions were to worsen nationally, regionally, or locally, then we could see a sharp increase in our total net charge-offs and also be required to significantly increase our allowance for credit losses. Furthermore, the demand for loans and our other products and services could decline. An increase in our non-performing assets and related increases in our provision for loan losses, coupled with a potential decrease in the demand for loans and other products and services, could negatively affect our business and could have a material adverse effect on our capital, financial condition, results of operations, and future growth.
The U.S. government announced changes to its trade policies in 2025 and significantly increased tariffs on certain imports under emergency authorities, including the International Emergency Economic Powers Act (“IEEPA”). In February 2026, the Supreme Court of the United States ruled that IEEPA does not authorize the President to impose tariffs. The current tariff environment remains dynamic and uncertain, including regarding potential refunds of tariffs paid under IEEPA, and the U.S. government could respond with replacement measures under other legal authorities. Replacement measures and changes to tariffs and other trade restrictions may lead to continuing uncertainty and volatility in the U.S. and global financial markets and economic conditions which could cause adverse changes in the availability, terms and cost of capital. Additionally, potential tariffs or other U.S. trade policy measures have triggered and may trigger additional retaliatory actions by other countries such as China. Increased tariffs and trade restrictions may cause the prices of our customers’ products to increase, which could reduce demand for such products, or reduce our customers’ margins, and adversely impact their revenues, financial results, and ability to service debt, which in turn, could adversely impact our business, financial condition and results of operations. Our clients may also be adversely impacted by changes in regulatory and tax policies and laws, all of which could reduce demand for loans and adversely impact our borrowers' ability to repay our loans.
There can be no assurance that further deterioration in markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn or recession, volatile business environment, hostile third-party action, or continued unpredictable and unstable market conditions. The effects of any economic downturn or recession could continue for many years after the downturn or recession is considered to have ended.
Declines in asset values may result in impairment charges and adversely affect the value of our investment securities, financial performance and capital.
We maintain an investment securities portfolio that includes, but is not limited to, collateralized mortgage obligations, agency mortgage-backed securities and municipal securities. The market value of investment securities may be affected by factors other than the underlying performance of the issuer or composition of the bonds themselves, such as ratings downgrades, adverse changes in the business climate and a lack of liquidity for resales of certain investment securities. At
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each reporting period, we evaluate investment securities and other assets for impairment indicators. We may be required to record impairment charges in our income statements through an allowance for credit losses if our investment securities suffer a decline in value below their amortized cost. In 2025, we did not experience any impairment of our investment securities. If in future periods we determine that a significant impairment has occurred, we would be required to charge against earnings the credit-related portion of the impairment, which could have a material adverse effect on our financial condition and results of operations in the periods in which the impairments occur.
Our stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
actual or anticipated variations in quarterly results of operations;
recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services industry;
perceptions in the marketplace regarding us and/or our competitors;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
changes in valuations of Goodwill and other Intangible Assets;
changes in government regulations; and
geopolitical conditions such as acts or threats of terrorism, military conflicts or pandemics.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results.
The trading volume in our common stock is less than that of other larger financial services companies.
Although our common stock is listed for trading on the NASDAQ Global Market, the trading volume is low, and you are not assured liquidity with respect to transactions in our common stock. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.
Inflation could negatively impact our business, our profitability and our stock price.
Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services. Additionally, inflation may lead to a decrease in consumer and client’s purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could be negatively affected by, among other things, decreases in loan collateral values and increased default rates leading to credit losses which could decrease our appetite for new credit extensions. These inflationary pressures could result in missed earnings and budgetary projections causing our stock price to suffer.
ESG and DEI risks could adversely affect our reputation and shareholder, employee, client, and third party relationships and may negatively affect our stock price.
Our business faces increasing public, investor, activist, legislative and regulatory scrutiny related to ESG, anti-ESG, DEI and anti-DEI activities and developments. We risk damage to our brand and reputation if we fail to act responsibly in
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a number of areas, such as DEI, environmental stewardship, including with respect to climate change, human capital management, support for our local communities, corporate governance, and transparency, or fail to consider ESG factors in our business operations.
Furthermore, as a result of our diverse base of clients and business partners, we may face potential negative publicity based on the identity of our clients or business partners and the public’s (or certain segments of the public’s) view of those entities. Such publicity may arise from traditional media sources or from social media and may increase rapidly in size and scope. If our client or business partner relationships were to become intertwined in such negative publicity, our ability to attract and retain clients, business partners, and employees may be negatively impacted, and our stock price may also be negatively impacted. Additionally, we may face pressure not to do business in certain industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations. We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
In response to ESG developments (including, in particular, DEI initiatives), there are increasing instances of anti-ESG legislation and anti-DEI executive orders, adverse media coverage, regulation, and litigation that could have unintended impacts on ordinary banking operations and increase litigation or reputational risk related to actions we choose to take and impact the results of our operations. If legislatures in the states in which we operate or Congress adopts legislation intended to protect certain industries by limiting or prohibiting consideration of business and industry factors in lending activities, certain portions of our lending operations may be impacted.
Operational Risks
Our business strategy includes strategic growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.
We intend to continue pursuing a growth strategy for our business. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies such as the continuing need for infrastructure and personnel, the time and costs inherent in integrating a series of different operations and the ongoing expense of acquiring and staffing new lines of business or branches. We may not be able to expand our presence in our existing markets or successfully enter new markets, and any expansion could adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our business strategy. Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas, and our ability to manage our growth.
Although there can be no assurance of success or the availability of branch or financial services acquisitions in the future, we may seek to supplement our internal growth through attractive acquisitions. We cannot predict the number, size or timing of acquisitions, or whether any such acquisition will occur at all. Our acquisition efforts have traditionally focused on targeted entities in markets in which we currently operate and markets in which we believe we can compete effectively. However, as consolidation of the financial services industry continues, the competition for suitable acquisition candidates may increase and, as the number of appropriate targets decreases, the prices for potential acquisitions could increase, which could reduce our potential returns and reduce the attractiveness of these opportunities to us. We may compete with other financial services companies for acquisition opportunities, that may have greater financial resources than we do and may be able to pay more for an acquisition than we are able or willing to pay.
We must respond to rapid technological changes and these changes may be more difficult or expensive than anticipated.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services including those related to or involving artificial intelligence, machine learnings, blockchain and other distributed ledger technologies. The effective use of technology increases efficiency and
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enables financial institutions to better serve customers and reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, and even if we implement such products and services, we may incur substantial costs in doing so. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.
New lines of business, products or services and technological advancements may subject us to additional risks.
From time to time, we implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of a new line of business or a new product or service.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services (including those related to or involving artificial intelligence, machine learning, blockchain and other distributed ledger technologies), and an established and growing demand for mobile and other phone and computer banking applications. Our future success depends, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors may have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. In addition, cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, any new line of business, new products or service and/or new technology could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and results of operations.
The development and use of artificial intelligence (AI) presents risks and challenges that may adversely impact our business.
We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI present a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models
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developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
We may not be able to successfully integrate our acquisitions or to realize the anticipated benefits of them.
A successful integration of each acquired business with ours will depend substantially on our ability to successfully consolidate operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. While we have substantial experience in successfully integrating institutions we have acquired, we may encounter difficulties during integration, such as:
the loss of key employees;
the disruption of operations and businesses;
loan and deposit attrition, customer loss and revenue loss;
possible inconsistencies in standards, control procedures and policies;
unexpected issues with expected branch closures; and/or
unexpected issues with costs, operations, personnel, technology and credit;
all of which could divert resources from regular banking operations. Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit our successful merger integrations.
Further, we acquire businesses with the expectation that these mergers or acquisitions will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company, cross-selling opportunities, technology, cost savings and operating efficiencies. Achieving the anticipated benefits of these mergers and acquisitions is subject to a number of uncertainties, including whether we integrate these institutions in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in a reduction in the price of our shares as well as in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely affect our business, financial condition and operating results.
The carrying value of goodwill and other intangible assets may be adversely affected.
When we complete an acquisition, goodwill and other intangible assets are often recorded on the date of acquisition as an asset. Current accounting guidance requires goodwill to be tested for impairment, and we perform such impairment analysis at least annually. A significant adverse change in expected future cash flows or sustained adverse change in the value of our common stock could require the asset to become impaired. If impaired, we would incur a charge to earnings that would have a significant impact on the results of operations. Our carrying value of goodwill and net amortizable intangibles were approximately $93 million and $36 thousand, respectively, as of December 31, 2025.
We rely on third-party vendors to provide key components of our business infrastructure, which could expose us to operational and financial risks.
Third-party vendors provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, Internet connections and network access. We have selected these third-party vendors carefully and have conducted the due diligence consistent with regulatory guidance and best practices. While we have ongoing programs to review third-party vendors and assess risk, we do not control their actions. Any problems caused by these third parties, including those resulting from disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and compromises at a vendor, failure of a vendor to provide services for any reason or poor performance of services, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. Financial or operational difficulties of a third-
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party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to serve us. Furthermore, our vendors could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
Industry adoption of real-time payments networks could negatively impact financial performance through reductions in product profitability, increased liquidity reserves and the potential for increased fraud losses, among other risks.
With the launch of real-time payments networks, such as RTP® from The Clearing House and FedNow® from the Federal Reserve, instantaneous cash settlement capabilities are available 24 hours a day and 7 days a week. The implications of the new settlement capabilities are far reaching and have not yet significantly affected the banking industry. As market adoption increases, we may be required to hold more liquidity reserves in cash to facilitate cash settlement activity outside of traditional business hours. Additionally, instantaneous settlement will likely reduce float benefits associated with providing deposit and banking services, as well as pose incremental fraud risk due to a reduced ability to reverse fraudulent transactions due to the speed of money movement.
We face significant cyber and data security risk that could result in the disclosure of or access to sensitive, confidential and/or nonpublic personal information, adversely affect our business or reputation and expose us to significant liabilities.
As a financial institution, we are under threat of loss due to cyber-attacks and technical disruptions to the computer systems and network infrastructure we use, including those we maintain with our service providers and vendors. This risk has increased in recent years, and continues to increase, as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face are e-fraud and compromise of sensitive customer data. E-fraud occurs when cybercriminals compromise our systems and networks, or those of our service providers and vendors, and extract funds directly from customers or our accounts. The attempts to compromise sensitive, non-public personal customer data, such as account numbers and Social Security numbers, present potentially significant reputational, legal and/or regulatory costs to us. Our risk and exposure to these matters remain heightened because of the evolving nature and complexity of these threats from cybercriminals, our plans to continue to provide internet banking and mobile banking channels to initiate financial transactions, and our plans to develop additional remote connectivity solutions to serve our customers. While we have not experienced any material losses relating to cyber-attacks or other information security incidents, we have been subject to cyber-attacks and there can be no assurance that we will not suffer additional losses in the future.
We allow a portion of our employees to work remotely from their homes on a full-time or hybrid schedule. Technology in employees’ homes may not be as robust as in our offices and could cause the security of the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risks. These cybersecurity risks, and all those described above, include the potential for increased risk of (i) phishing, malware, and other cybersecurity attacks, (ii) vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, (iii) unauthorized dissemination, access, misuse or destruction of sensitive or confidential information, (iv) our inability to restore the systems in the event of a systems failure or interruption, and (v) impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.
The occurrence of any successful cyber-attack could result in material adverse consequences including damage to our reputation, financial loss, increased operation expenses, remediation costs, and loss of customers. We also could face litigation or additional regulatory scrutiny. Litigation or regulatory actions could lead to significant liability or other sanctions, including fines and penalties (which may not be covered by our insurance policies) or reimbursement of customers adversely affected by a security incident. Even if we do not suffer any material adverse consequences as a result of other future events, successful attacks or systems failures at the Bank or at other financial institutions could lead to a general loss of customer confidence in financial institutions, including the Bank.
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Our ability to mitigate the adverse consequences of occurrences is in part dependent on the effectiveness of our information security procedures, controls, and contracts and our ability to anticipate the timing and nature of any such event that occurs. In recent years, we have incurred significant expense towards improving the reliability of our systems and their security from attacks. Nonetheless, there remains the risk that we may be materially harmed by cyber-attacks and information security incidents in the future. Methods used to attack information systems change frequently (with generally increasing sophistication), often are not recognized until launched against a target, may be supported by foreign governments, criminal organizations, or other financially motivated threat actors, and may originate from less regulated and remote areas around the world. As a result, we may be unable to prevent these methods in advance of attacks, including by implementing adequate preventive measures. If such an attack does occur, we might not be able to fix it timely or adequately. We engage in due diligence and monitoring of third parties, including service providers and vendors, to limit the risk that such an attack relates to products or services provided by others. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
Financial services companies depend on the accuracy and completeness of information about customers and counterparties and inaccuracies in such information, including as a result of fraud, could adversely impact our business, financial condition and results of operations.
In deciding whether to extend credit or enter into other transactions with third parties, we rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors or property appraisers, as to the accuracy and completeness of that information. Such information could be inaccurate, including as a result of fraud on behalf of our customers, counterparties or other third parties. In times of increased economic stress, we are at an increased risk of fraud losses. We cannot assure you that our underwriting and operational controls will prevent or detect such fraud or that we will not experience fraud losses or incur costs or other damage related to such fraud. Our customers may also experience fraud in their businesses, which could adversely affect their ability to repay their loans or make use of our services. Our exposure and the exposure of our customers to fraud may increase our financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in our allowance for loan losses. Reliance on inaccurate or misleading information from our customers, counterparties and other third parties, including as a result of fraud, could have a material adverse impact on our business, financial condition and results of operations.
We are dependent on key personnel and the loss of one or more of those key personnel could impair our relationship with our customers and adversely affect our business.
Many community banks attract customers based on the personal relationships that the banks’ officers and customers establish with each other and the confidence that the customers have in the officers. We significantly depend on the continued service and performance of our key management personnel. We also believe our management team’s depth and breadth of experience in the banking industry is integral to executing our business plan. The loss of the services of members of our senior management team or other key employees or the inability to attract additional qualified personnel as needed could have a material adverse effect on our business.
Our compensation practices are subject to review and oversight by the Federal Reserve, the FDIC and other regulators. The federal banking agencies have issued and oversee compliance with joint guidance on executive compensation designed to help ensure that a banking organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act required these federal banking agencies, along with the SEC, to adopt rules to require reporting of incentive compensation and to prohibit certain compensation arrangements. In June 2023, the SEC approved the NASDAQ’s proposed clawback listing standards, which now require us and other NASDAQ-listed companies to (i) adopt and implement a compliant clawback policy; (ii) file the clawback policy as an exhibit to our annual reports; and (iii) provide certain disclosures relating to any compensation recovery triggered by the clawback policy. If, as a result of complying with these rules, we are unable to attract and retain qualified employees or do so at rates necessary to maintain our competitive position, or if the compensation costs required
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to attract and retain employees become more significant, our performance, including our competitive position, could be materially adversely affected.
Deposit insurance premiums levied against us could increase.
The DIF is funded by fees assessed on insured depository institutions including the Bank. Future deposit premiums paid by us depend on FDIC rules, which are subject to change, the level of the DIF and the magnitude and cost of future bank failures. The FDIC may further increase the assessment rates or impose additional special assessments in the future, which may require the Bank to pay significantly higher FDIC premiums.
Liquidity Risks
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, results of operations and cash flows.
Liquidity is essential to our business. Our ability to implement our business strategy will depend on our ability to obtain funding for loan originations, working capital, possible acquisitions and other general corporate purposes. An inability to raise funds through deposits, borrowings, securities sold under agreements to repurchase, the sale of loans and other sources could have a substantial negative effect on our liquidity. We anticipate that our retail and commercial deposits will be sufficient to meet our funding needs in the foreseeable future. We may rely on deposits obtained through intermediaries, FHLB advances, and other wholesale funding sources to obtain the funds necessary to implement our growth strategy.
Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general, including a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry. Access to liquidity may also be negatively impacted by the value of our securities portfolio, if liquidity and/or business strategy necessitate the sales of securities in a loss position. To the extent we are not successful in obtaining such funding, we will be unable to implement our strategy as planned which could have a material adverse effect on our financial condition, results of operations and cash flows.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. If any parties with whom we conduct business are unable to access deposits with another financial institution, funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ credit quality, ability to pay their obligations to us, or to enter into new commercial arrangements requiring additional payments could be adversely affected. Uncertainty remains over liquidity concerns in the broader financial services industry. Additionally, confidence in the safety and soundness of regional banks specifically or the banking system could impact where customers choose to maintain deposits, which could materially adversely impact our liquidity, loan funding capacity, ability to raise funds, and results of operations. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
Although we assess our funding relationships as we believe necessary or appropriate, our access to funding sources and other arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, our customers, the financial institutions with which we have arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform our obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets,
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or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we or our customers have financial or business relationships but could also include factors involving financial markets or the financial services industry generally.
Additionally, we could be impacted by current or future negative perceptions and expectations about the prospects for the financial services industry which could worsen over time and result in downward pressure on, and continued or accelerated volatility of, bank securities.
We may also face increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a commercial bank, the Bank has an elevated degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits and also maintains a robust CRE portfolio. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community. In addition, bank failures have and could in the future prompt the FDIC to increase deposit insurance costs. Increases in funding, deposit insurance, or other costs as a result of these types of events have and could in the future materially adversely affect our financial condition and results of operations. Further, the disruption following these types of events has and could in the future generate significant market trading volatility among publicly traded bank holdings companies and, in particular, regional banks like us.
Capital Adequacy Risks
Future growth or operating results may require us to raise additional capital, but that capital may not be available, be available on unfavorable terms or may be dilutive.
Primis Bank is required by the FRB to maintain adequate levels of capital to support our operations. In the event that our future operating results erode capital, if the Bank is required to maintain capital in excess of well-capitalized standards, or if we elect to expand through loan growth or acquisitions, we may be required to raise additional capital. Our ability to raise capital will depend on conditions in the capital markets, which are outside our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise capital on favorable terms when needed, or at all. If we cannot raise additional capital when needed, we will be subject to increased regulatory supervision and the imposition of restrictions on our growth and business. These outcomes could negatively impact on our ability to operate or further expand our operations through acquisitions or the establishment of additional branches and may result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition and results of operations. In addition, in order to raise additional capital, we may need to issue shares of our common stock that would dilute the book value of our common stock and reduce our current shareholders’ percentage of ownership interest to the extent they do not participate in future offerings.
We may issue a new series of preferred stock or debt securities, which would be senior to our common stock and may cause the market price of our common stock to decline.
We have issued $27 million in aggregate principal amount of 5.875% Fixed-to-Floating Rate Subordinated Notes due January 31, 2027 and $60 million of fixed-to-floating rate Subordinated Notes due 2030. In the future, we may increase our capital resources by making additional offerings of debt or equity securities, which may include senior or additional subordinated notes, classes of preferred shares and/or common shares. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Preferred shares and debt, if issued, have a preference on liquidating distributions or a preference on dividend or interest payments that could limit our ability to make a distribution to the holders of our common stock. Future issuances and sales of parity preferred stock, or the perception that such issuances and sales could occur, may also cause prevailing market price for our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us. Further issuances of our common stock could be dilutive to holders of our common stock.
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We currently intend to pay dividends on our common stock; however, our future ability to pay dividends is subject to restrictions.
We declared the first cash dividend on our common stock in February 2012, and each quarter thereafter through 2025. There are a number of restrictions on our ability to pay dividends. It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries.
Our principal source of funds to pay dividends on our common stock is cash dividends that we receive from the Bank. The payment of dividends by the Bank to us is subject to certain restrictions imposed by federal banking laws, regulations and authorities. The federal banking statutes prohibit federally insured banks from making any capital distributions (including a dividend payment) if, after making the distribution, the institution would be "under capitalized" as defined by statute. In addition, the relevant federal regulatory agencies have authority to prohibit an insured bank from engaging in an unsafe or unsound practice, as determined by the agency, in conducting an activity. The payment of dividends could be deemed to constitute such an unsafe or unsound practice, depending on the financial condition of the Bank. Regulatory authorities could impose administratively stricter limitations on the ability of the Bank to pay dividends to us if such limits were deemed appropriate to preserve certain capital adequacy requirements.
Regulatory Risks
We are heavily regulated by federal and state agencies; changes in laws and regulations or failures to comply with such laws and regulations may adversely affect our operations and our financial results.
We and the Bank are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal or state legislation could have a substantial impact on us and the Bank, and our respective operations. Additional legislation and regulations may be enacted or adopted in the future that could significantly affect our powers, authority and operations or the powers, authority and operations of the Bank, which could have a material adverse effect on our financial condition and results of operations.
Further, bank regulatory authorities have the authority to bring enforcement actions against banks and their holding companies for unsafe or unsound practices in the conduct of their businesses or for violations of any law, rule or regulation, any condition imposed in writing by the appropriate bank regulatory agency or any written agreement with the agency. Possible enforcement actions against us could include the issuance of a cease-and-desist order that could be judicially enforced, the imposition of civil monetary penalties, the issuance of directives to increase capital or enter into a strategic transaction, whether by merger or otherwise, with a third party, the appointment of a conservator or receiver, the termination of insurance on deposits, the issuance of removal and prohibition orders against institution-affiliated parties, and the enforcement of such actions through injunctions or restraining orders. The exercise of this regulatory discretion and power may have a negative impact on us. See the discussion above at Supervision and Regulation for an additional discussion of the extensive regulation and supervision we are subject to.
As a regulated entity, Primis and the Bank must maintain certain required levels of regulatory capital that may limit our operations and potential growth.
As further described above under Supervision and Regulation—Capital Requirements, Primis and the Bank each are subject to various regulatory capital requirements administered by the FRB.
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 the Bank’s and our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet commitments as calculated under these regulations.
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As of December 31, 2025, Primis and the Bank exceeded the amounts required to be well capitalized with respect to all four required capital ratios. As of December 31, 2025, Primis’ leverage, CET1 risk-based capital, Tier 1 risk-based capital and Total risk-based capital ratios were 8.80%, 9.36%, 9.64%, and 12.40%, respectively. As of December 31, 2025, the Bank’s leverage, CET1 risk-based capital, Tier 1 risk-based capital and Total risk-based capital ratios were 9.74%, 10.74%, 10.74% and 11.99%, respectively.
Many factors affect the calculation of Primis and the Bank’s risk-based assets and its ability to maintain the level of capital required to achieve acceptable capital ratios. For example, changes in risk weightings of assets relative to capital and other factors may combine to increase the amount of risk-weighted assets in the Tier 1 risk-based capital ratio and the Total risk-based capital ratio. Any increases in its risk-weighted assets will require a corresponding increase in its capital to maintain the applicable ratios. In addition, recognized loan losses in excess of amounts reserved for such losses, loan impairments, impairment losses on investment securities and other factors will decrease the Bank’s capital, thereby reducing the level of the applicable ratios.
Primis and the Bank’s failure to remain well capitalized for bank regulatory purposes could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on our capital stock, our ability to make acquisitions, and on our business, results of operations and financial condition. Under FRB rules, if the Bank ceases to be a well-capitalized institution for bank regulatory purposes, the interest rates that it pays on deposits and its ability to accept, renew or rollover brokered deposits may be restricted. As of December 31, 2025, we did not have any brokered certificates of deposits.
We are subject to commercial real estate lending guidance issued by the federal banking regulators that impacts our operations and capital requirements.
The federal banking regulators have issued final guidance regarding concentrations in commercial real estate lending directed at institutions that have particularly high concentrations of commercial real estate loans within their lending portfolios. This guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending. Based on our commercial real estate concentration as of December 31, 2025, we believe that we are operating within the guidelines. However, increases in our commercial real estate lending could subject us to additional supervisory analysis. We cannot guarantee that any risk management practices we implement will be effective in preventing losses relating to our commercial real estate portfolio. Management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which this guidance will continue to impact our operations or capital requirements.
Changes in accounting standards or assumptions in applying accounting policies could adversely affect us .
Our accounting policies and methods are fundamental to how we record and report on our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we may be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the accounting standards, the SEC, banking regulators and our independent registered public accounting firm may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact on how we prepare and report our financial statements. In some cases, we may be required to apply a new or revised standard retrospectively, resulting in us revising prior-period financial statements.
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Financial Reporting Risks
Failure to maintain an effective system of disclosure controls and procedures could have a material adverse effect on our business, results of operations and financial condition and could impact the price of our common stock.
Failure to maintain an effective internal control environment could result in us not being able to accurately report our financial results, prevent or detect fraud, or provide timely and reliable financial information pursuant to our reporting obligations, which could have a material adverse effect on our business, financial condition, and results of operations. Further, it could cause our investors to lose confidence in the financial information we report, which could affect the trading price of our common stock.
Management regularly reviews and updates our disclosure controls and procedures, including our internal control over financial reporting. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
Item 1B. Unresolved Staff Comments
Primis Financial Corp. does not have any unresolved staff comments from the SEC to report for the year ended December 31, 2025.
Item 1C. Cybersecurity
The Company has developed and maintains a Cyber and Information Security program that aligns with applicable regulatory guidance and industry best practices, and is intended to ensure the confidentiality, integrity, and availability of the Company’s critical systems and information , including employee and customer non-public personal information, financial data, and non-public information about the Company. Cybersecurity risk is a key factor in assessing the Company’s overall operational and regulatory risk and is a component of the Company’s overall Enterprise Risk Management framework. The Cyber and Information Security program is designed, in part, to identify risks to sensitive information, protect that information, detect threats and events, and maintain an appropriate response and recovery capability to help ensure resilience against information security incidents.
The Company has designed the Cyber and Information Security program based in part on the NIST Cybersecurity Framework. Use of the NIST Cybersecurity Framework does not imply that the Company meets any particular technical standards, specifications, or requirements, but rather the NIST Cybersecurity Framework is used as a guide to help identify, assess, and manage cybersecurity risks relevant to the Company’s business.
The Cyber and Information Security program is led by the CIO and the designated Information Security Officer , who manages the day-to-day cybersecurity operations. Governance of the program is provided by the Information Technology Steering Committee and the Board of Directors’ Risk Committee. The CIO periodically attends Board Risk Committee meetings and provides quarterly cybersecurity updates to this Board committee. Our CIO helps facilitate the involvement of the Board Risk Committee in oversight of potentially material cybersecurity incidents and risks and supports the information security risk oversight responsibilities of the Board and the Board Risk Committee.
The Company’s IT team monitors its networks and systems to detect potential suspicious or malicious events, monitors threat intelligence sources to research evolving threats, investigates the potential impact to the Company, reviews controls to detect and defend against those threats, and proactively adjusts controls against those threats. A third-party managed security service provider supplements the IT team’s efforts to provide 24 hours a day, seven days a week network monitoring coverage. The Company also performs periodic vulnerability scans and penetration testing.
Other important components of the Company’s Cyber and Information Security program include maintaining a Cyber and Information Security Risk Assessment, and policies and procedures that define the program and establish standards for safe storage, handling, and secure disposal of customer and employee information. All employees receive cyber and information security training during employment orientation and at least annually thereafter.
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The Company has adopted a Cyber Incident Response Plan which describes the Company’s procedures for responding to cybersecurity incidents and identifies response team members. The Cyber Incident Response team is responsible for evaluating potential incidents, containing, responding to, and remediating cybersecurity incidents, and communicating significant cybersecurity incidents to Executive Management and the Board of Directors . The Company maintains sufficient business continuity planning processes to ensure recovery and resumption of its operations after a cyberattack.
The Company has deployed a formal vendor management program to create standards when evaluating third-party service providers that may have access to the Company’s networks, systems, and/or customer or employee data. Third-party service providers are required to comply with the Company’s policies regarding the safeguarding of non-public personal information. After contract execution, the Company’s third-party service providers are monitored utilizing a risk-based evaluation process .
Our acting CIO has worked in the financial services industry for over 20 years and held similar roles at other financial institutions including five years as a Chief Technology Officer & Chief Innovation Officer at another bank.
While the Company has encountered, and will continue to encounter, cyber incidents in the normal course of business, to date, the Company has not experienced a cybersecurity incident that has, or is reasonably likely to have, materially impacted its business strategy, financial condition, or results of operation. Despite ongoing efforts to continually strengthen the Cyber and Information Security program, there is no absolute assurance that the program will be fully implemented, complied with, or effective in safeguarding the Company’s networks, systems, and information. See “Item 1A. Risk Factors – Operational Risks” in this 10-K for additional information.
Item 2. Properties
Primis Financial Corp.’s principal office is located at 1676 International Drive, McLean, Virginia. We have an administrative office in Glen Allen, Virginia and an operations center in Atlee, Virginia. Including these main locations, we own 4 properties and lease 47 properties. The majority of our properties owned and leased are for operational units in Virginia, Maryland, Texas, Tennessee and North Carolina. As of December 31, 2025, Primis Bank had twenty-four full-service branches in Virginia and Maryland, and also provided services to customers through certain online and mobile applications. Twenty-two full-service retail branches are in Virginia and two full-service retail branches are in Maryland.
During 2025, the Company executed a sale-leaseback transaction selling 18 of its retail branch properties that included land, land improvements and buildings and subsequently entering into a lease for the same properties. For additional details, see Note 1 - Organization and Significant Accounting Policies, in Part II, Item 8. of this 10-K.
We believe our facilities are in good operating condition, are suitable and adequate for our operational needs and are adequately insured.
Item 3. Legal Proceedings
Primis and Primis Bank are from time to time a party, as both plaintiff and defendant, to various claims and proceedings arising in the ordinary course of our business, including administrative and/or legal proceedings that may include employment-related claims, as well as claims of lender liability, breach of contract, and other similar lending-related claims. While the ultimate resolution of these matters cannot be determined at this time, the Company’s management presently believes that such matters, individually and in the aggregate, will not have a material adverse effect on our financial condition or results of operations. There are no proceedings pending, or to management’s knowledge, threatened, that represent a significant risk against the Company as of December 31, 2025.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Market Prices
Primis’ common stock is traded on the NASDAQ under the symbol “FRST”. There were 24,699,185 shares of our common stock outstanding at the close of business on February 27, 2026, which were held by 1,056 shareholders of record. As of that date, the closing price of our common stock on the NASDAQ Global Market was $13.21.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance under Equity Compensation Plans
As of December 31, 2025, Primis had outstanding stock options granted under the 2010 Stock Awards and Incentive Plan (the “2010 Plan”) and the 2017 Equity Compensation Plan (the “2017 Plan”), which were approved by its shareholders. The following table provides information as of December 31, 2025 regarding Primis’ equity compensation plans under which our equity securities are authorized for issuance:
Number of securities
remaining available for
future issuance under
Number of securities
Weighted average
equity compensation plans
to be issued upon exercise
exercise price of
(excluding securities reflected
of outstanding options
outstanding options
in column A)
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Issuer Purchases of Equity Securities
On December 18, 2025, the Board of Directors of the Company authorized a stock repurchase program (the “Stock Repurchase Program”) under which the Company may repurchase up to 750,000 shares of its common stock. The Stock Repurchase Program began on December 18, 2025, near the end of the previously authorized repurchase plan, and will end on December 18, 2026.
Repurchases under the Stock Repurchase Program could be made from time to time through open market purchases, privately negotiated transactions or such other manners as will comply with applicable laws and regulations. The timing and actual number of shares repurchased depended on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities.
The Stock Repurchase Program did not obligate the Company to purchase any particular number of shares and there was no guarantee as to the exact number of shares that could be repurchased by the Company. The Stock Repurchase Program could be suspended, modified or terminated by the Company at any time and for any reason, without prior notice.
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The following table sets forth information regarding purchases of our common stock related to our share repurchase program made by us or on our behalf during the three months ended December 31, 2025:
Issuer Purchases of Equity Securities
Approximate
Total Number of
Dollar Value of
Shares
Shares that May
Total
Purchased as
Yet be
Number of
Average
Part of Publicly
Purchased
Shares
Price Paid
Announced Plan
Under the Plan
Period
Purchased
Per Share
or Program
or Program (1)
Oct 1-31, 2025
Nov 1-30, 2025
Dec 1-31, 2025
Total
In December 2025, our Board of Directors approved a new share repurchase program authorizing the purchase of up to 750,000 shares of our outstanding common stock beginning on December 18, 2025 and ending on December 18, 2026. This share repurchase authorization replaced our prior share repurchase program authorization that authorized up to 740,600 shares to be repurchased. The actual amount and timing of future share repurchase, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.
Dividends
We declared the first cash dividend on our common stock in February 2012, and each quarter thereafter through 2025. There are a number of restrictions on our ability to pay dividends. It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to Primis or by Primis to shareholders. The Company’s ability to pay dividends to stockholders is largely dependent upon the dividends it receives from the Bank, and the Bank is subject to regulatory limitations on the amount of cash dividends it may pay.
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Performance Graph
The following chart compares the cumulative total shareholder return on Primis common stock during the five years ended December 31, 2025, with the cumulative total return of the Russell 2000 Index and the NASDAQ Bank Index for the same period. Dividend reinvestment has been assumed. This comparison assumes $100 invested on December 31, 2020 in Primis common stock, the Russell 2000 Index and the NASDAQ Bank Index. The historical stock price performance for Primis common stock shown on the graph below is not necessarily indicative of future stock performance.
Primis Financial Corp.
Russell 2000 Index
NASDAQ Bank Index
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7 of our Annual Report on Form 10-K generally discusses year-to-year comparisons between the years ended December 31, 2025 and 2024. Discussions of comparisons between 2024 and 2023 are not included in this Form 10-K, but can be found in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on April 29, 2025.
MD&A is presented to aid the reader in understanding and evaluating the financial condition and results of operations of the Company. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the U.S. and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
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. 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. The allowance is reported as a component of other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of noninterest expenses.
The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. We use internal factors including loan balances, credit quality, contractual life of loans, and historical loss experience. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. Management’s primary qualitative factors utilized in informing qualitative adjustments to the modeled allowance calculations are loan-to-value exceptions, borrower debt service coverage exceptions, and large concentrations. As of December 31, 2025, the qualitative adjustments applied by management increased our modeled allowance that was based on historical loss information, but did not represent a material amount of our total allowance.
We consider a number of external economic variables in developing the allowance including the Virginia Unemployment Rate, Virginia House Price Index, Virginia Gross Domestic Product and National Unemployment and National Gross Domestic Product for pools of loans with borrowers outside of our local operating footprint. One of the most significant and judgmental assumptions is the selection and application of expected economic forecasts. In determining forecasted expected losses, we use Moody’s economic variable forecasts and apply probability weights to the related economic scenarios. Due to the inherent uncertainty in the macroeconomic forecasts, we evaluate a baseline
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scenario, as well as a downside macroeconomic scenario to assess the most reasonable scenario based on review of the variable forecasts for each scenario, comparison to expectations, and sensitivity of variations in each scenario. The Moody’s forecast scenarios are reviewed by management quarterly and probability weightings are assigned based on management’s judgment. As of December 31, 2025, management concluded on a more neutral weighting of baseline versus downside scenario. While management uses its judgment, there is no certainty that future economic conditions will resemble the neutral weighting applied to our modeling and others could examine the same data and arrive at a different judgment around weighting of the economic scenario that when applied to the model could result in a smaller or larger allowance than the one we determined.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. 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. Further, subsequent evaluations of the then-existing loan portfolio, in light of factors existing at the time of subsequent evaluation may result in significant changes to the allowance.
Goodwill
As required under U.S. GAAP, we test goodwill for impairment at least annually and more frequently if there are indications that goodwill could be impaired. Our annual goodwill impairment testing date is September 30 and accordingly, we performed testing as of September 30, 2025 of our two reporting units that include goodwill. For our assessment of goodwill as of September 30, 2025, we performed a step one quantitative assessment to determine if the fair value of the Primis Bank and the Primis Mortgage reporting units were less than their carrying amount. As part of the testing, we engaged an independent valuation firm to quantitatively estimate the fair value of each reporting unit so that it could be compared to the carrying value in assisting us in determining if impairment existed.
Our assessment of the reporting units includes the use of three or four approaches, each receiving various weightings to determine an ultimate fair value estimate: (1) the comparable transactions method that is based on comparison to pricing ratios recently paid in the sale or merger of comparable institutions; (2) the control premium approach that is based on the Company’s trading price, adjusted for holding company assets and an industry based control premium; (3) the public market peers control premium approach that is based on market pricing ratios of similar public companies adjusted for an industry based control premium, and (4) a discounted cash flow method (an income method), taking into consideration expectations of our growth and profitability going forward. The assessment included use of various assumptions and inputs into the modeling approaches, including creating a baseline and conservative scenarios that stressed certain assumptions such as projected cash flows and the discount rate.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment testing as of September 30, 2025 will prove to be an accurate prediction of the future. Changes in assumptions, market data (for market-based assessments), or the discount rate (for income based assessments) could produce different results that lead to higher or lower fair value determinations compared to the results of our annual impairment testing performed as of September 30, 2025. Further, because the use of inputs and assumptions are highly judgmental an analysis performed to assess the fair value of our reporting units by others may result in higher, lower, or the same fair value determination and goodwill impairment decision through the use of their judgment in application of similar inputs and assumptions as we used. As a result of our testing, we determined that the estimated fair value of both reporting units was higher than their respective carrying values. As of September 30, 2025, the estimated fair value of the Primis Bank and Primis Mortgage reporting units was 118% and 117%, respectively, of the carrying value of the reporting units, and no goodwill impairment was required. The Company performed a qualitative assessment to identify any triggering events as of December 31, 2025 and determined there were not any triggering events that would indicate that it was not more likely than not that the fair value of either reporting unit was less than its carrying value.
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Third-party originated and serviced consumer loan portfolio
In the second half of 2021, we partnered with a TPOS to originate and service unsecured consumer loans through their proprietary point-of-sale technology (the “Consumer Program”). Loan options under the Consumer Program include traditional fully-amortizing loans and promotional loans with no interest, or “same-as-cash”, features if the loan is fully repaid in the promotional window. The loans are originated at par in the Bank’s name and have a term of 5 to 12 years with a much shorter effective life due to amortization and pay downs.
The Consumer Program is governed by multiple interrelated agreements including the loan agreement between the Bank and the customer and agreements with the TPOS. The structure of the Consumer Program is intended to generate loans that yield a targeted return to the Bank on a portfolio basis while also providing limited credit enhancement from the TPOS. Key characteristics of the combined arrangement include:
The TPOS contributes funds to a reserve account at the time of origination to be used for future charge-offs if necessary.
When a promotional loan pays off prior to the end of the promotional period, the customer owes no interest on the loan and any interest accrued during the period is waived. In that event, the TPOS reimburses the Bank for the interest the customer otherwise would have paid if the promotional period didn’t exist.
Excess yield on the portfolio after realized charge-offs and above an agreed upon target rate due to the Bank is paid to the TPOS as a “Performance Fee.”
In the event charge-offs exceed the amount available as a Performance Fee, the TPOS remits a portion of current period origination fees to reimburse for losses and, if necessary, releases funds from the reserve account.
If charge-offs exceed the amounts above, they roll over to future periods to offset potential Performance Fees and subsequent reserve account fundings related to the portfolio.
Under U.S. GAAP, agreements with multiple counterparties, such as the customer and TPOS, are generally required to be accounted for separately even if the agreements are highly interrelated. As a result, we account for the Consumer Program as multiple units of account with the following impacts:
The loans are accounted for as one unit of account under U.S. GAAP including revenue recognition and inclusion in our CECL allowance methodology.
No interest income is recognized on promotional loans until the expiration of the promotional period. If the customer doesn’t pay off the loan prior to that expiration, deferred interest from the beginning of the loan becomes the obligation of the customer and is billed straight-line over the remaining life of the loan. We recognize the accumulated deferred interest at the time of expiration discounted for the time value of money with the discount amortized over the remaining life of the loan.
The agreement that governs the Performance Fee and interest reimbursement from the TPOS is a separate unit of account and meets the definition of a derivative under U.S. GAAP and is accounted for at fair value in our financial statements. The primary drivers of the derivative value include estimated prepayment activity on promotional loans that would trigger reimbursement from the TPOS to us and estimated excess yield above projected credit losses that would lead to performance fee payments from us to the TPOS. The credit risk of the third-party and discount rates used in the calculation also impact the value of the derivative. Changes in the fair value of the derivative are recorded as gains or losses in noninterest income. Additional details on the inputs to the derivative value can be found in Item 8. Financial Statements and Supplementary Data, Note 4 – Derivatives, in this Form 10-K.
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Noninterest income each period includes amounts due during the period for interest reimbursement and amounts paid by the TPOS under the limited credit enhancement described above.
Noninterest expense each period includes actual amounts due during the period for Performance Fees and servicing fees as defined in our agreement with the TPOS.
In the fourth quarter of 2024, the Company made the decision to cease originating new loans under the Consumer Program, effective January 31, 2025 and moved a large portion of the portfolio, with an amortized cost of $133 million, to loans held for sale and marked them to the lower of cost or fair market value. The adjustment to fair market value resulted in additional provision expense and charge-offs of $20 million during the year ended December 31, 2024. The remaining portion of the portfolio of approximately $39 million remained classified as held for investment as of December 31, 2024. During the first quarter of 2025 the Company made the decision to retain until their maturity or payoff the loans previously transferred to held for sale. The loans were transferred back to held for investment at their then current amortized cost basis at the time of transfer, which included the previous fair market value adjustment as required by applicable accounting guidance.
We had $90 million and $152 million of loans outstanding in the Consumer Program, or 3% and 5% of our total gross loan portfolio, as of December 31, 2025 and 2024, respectively. As of December 31, 2025, all of the Consumer Program loans were in loans held for investment. As of December 31, 2024, $113 million was included in loans held for sale at lower of cost or market and $39 million in the consumer loans category in loans held for investment. Loans in the Consumer Program that are held for investment are included within the Consumer Loan category disclosures in in this 10-K. As of December 31, 2025, 3% of the loans, or $3 million, were in a promotional period, with 80% of these promotional loan periods ending through the second quarter of 2026.
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OPERATIONAL HIGHLIGHTS
Executive Overview
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 back to previous levels after the sale of our Life Premium Finance division in January 2025, growing non-interest deposits, and achieving higher production and profitability in our retail mortgage business. We continued to execute successfully during 2025 on our strategies, which included the following key highlights:
Core Community Bank
The core Bank’s loan portfolio was essentially flat at $2.1 billion at December 31, 2025, compared to $2.2 billion at December 31, 2024. The core Bank has low concentrations of investor commercial real estate loans as a percentage of the overall loan portfolio.
The core Bank’s cost of deposits was 1.74% for the year ended December 31, 2025, compared to 2.15% for the year ended December 31, 2024. Approximately 23% of the core Bank’s deposit base at December 31, 2025, are noninterest bearing deposits.
The core Bank had zero brokered deposits and low utilization of FHLB borrowings at December 31, 2025.
Panacea Financial Division of the Bank
Outstanding loan balances grew 25% to $544 million during the year ended December 31, 2025 from $434 million as of December 31, 2024. The year-over-year growth was despite a $54 million loan sale in December 2025.
Outstanding deposits were $128 million as of December 31, 2025, up 38% from December 31, 2024.
Mortgage Warehouse
Outstanding loan balances as of December 31, 2025 were $318 million, up 398% from $64 million as of December 31, 2024.
Mortgage warehouse funded approximately 14% of the outstanding loans with associated customer noninterest bearing deposit balances, which totaled $29 million as of December 31, 2025.
Committed facilities were up 252% to $1.2 billion as of December 31, 2025, compared to $349 million as of December 31, 2024.
Primis Mortgage
Funded loan volume was $1.2 billion during the year ended December 31, 2025, up 50% from the year ended December 31, 2024.
Pre-tax income for PMC was $7 million and $6 million for the year ended December 31, 2025 and 2024, respectively. The year ended December 31, 2025 was impacted by approximately $1 million of personnel costs related to new production teams hired at the end of the first quarter of 2025.
Changes in the relationship with PFH during the first quarter of 2025 resulted in a determination to de-consolidate PFH as of March 31, 2025. The deconsolidation resulted in recognition of a $25 million gain during the year ended December 31, 2025, as a result of recording the fair value of our retained interest in common stock of PFH. As a result of the de-consolidation. we no longer include PFH’s financial results in our financial results after March 31, 2025. In June 2025, we sold a portion of our retained ownership in PFH common shares generating proceeds of $22 million and an additional gain during the year ended December 31, 2025 of $7 million. As of December 31, 2025, we continued to hold approximately 467 thousand shares in PFH recorded in our balance sheet at a fair value of $7 million. PFH continues to work with the Panacea Financial Division of the Bank to originate loans, some of which the Bank will retain, and others which will be sold to investors and other financial institutions.
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SUMMARY OF FINANCIAL RESULTS
Results of Operations Highlights
We experienced significant improvement in financial performance during the year ended December 31, 2025 compared to the year ended December 31, 2024. Net income available to common shareholders for the year ended December 31, 2025 totaled $61 million, or $2.49 basic and diluted earnings per share, compared to a net loss of $16 million, or $0.66 loss per basic and per diluted share, for the year ended December 31, 2024, resulting in an increase year-over-year of $78 million, or 481%. The key financial drivers of the improvement are noted in the following table with additional discussions following the table ($ in thousands).
Year Ended
December 31, 2025
compared to
December 31, 2024
Net interest income
Provision for credit losses
Noninterest income
Noninterest expenses
Provision for income taxes
Noncontrolling interest
Net income attributable to Primis' common stockholders
Net interest income increases were driven by declines in interest expenses in 2025 compared to 2024. The interest expense declines were driven by lower average deposit and borrowing balances combined with lower interest rates. During the year ended December 31, 2025 we also had lower average loan balances primarily as a result of the sale of the Life Premium Finance portfolio and significant interest income reversals on the Consumer Program loans due to higher credit losses on these loans, both of which drove interest income down compared to the prior year.
Net interest margin increased to 3.12% for the year ended December 31, 2025, compared to 2.86% for the year ended December 31, 2024. The significant driver of this increase were the changes in net interest income as noted above along with a 47 basis points decrease in our cost of funds, driven by the increase in average noninterest bearing deposits.
The provision for loan losses decrease during the year ended December 31, 2025 was driven by less reserves in the Consumer Program loan portfolio in 2025 due to higher reserves and charge-offs in 2024 along with enhanced loss mitigation efforts in 2025 that resulted in improved portfolio performance. The provision on the remaining loan portfolio was flat year over year due to a decline in provision related to $54 million of sold loan in December 2025, offset by higher provision on specific commercial and commercial real estate loans during the year.
Noninterest income increased during the year ended December 31, 2025 compared to 2024, primarily due to a $51 million gain on the sale-leaseback transaction in the fourth quarter of 2025 and from the $32 million gain on our PFH investment . There was also higher income from mortgage banking activity during the year ended December 31, 2025 compared to the same period in 2024. These gains were partially offset by a $14 million loss on sale of investment securities due to the portfolio restructuring during the fourth quarter of 2025 and a $3 million decline in Consumer Program income primarily due to ending loan originations under the program in January 2025 along with less promo loans ending their promo period in 2025 compared to 2024.
The sale-leaseback transaction was undertaken to monetize branch real estate, increase on-balance-sheet liquidity, and provide additional financial flexibility to support our strategic growth initiatives while maintaining continued operational control of our branch locations. The transaction specifically allows us to reallocate capital held on real estate assets to higher-earning assets like loans and securities. The sale-leaseback will add to our operating expenses in future years, but we believe the deployment of the funds received in the transaction into interest earning assets will compensate for the future increase in lease expense.
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Noninterest expense increased during the year ended December 31, 2025 compared to 2024 primarily driven by higher personnel costs due to growth in PMC, Mortgage Warehouse, and the Panacea Division of the Bank. We also had higher FDIC insurance assessments and higher occupancy expenses due to increased lease costs in 2025. These were partially offset by fraud losses in 2024 that did not reoccur in 2025, lower miscellaneous lending expenses, and lower core deposit intangible amortization.
Balance Sheet Highlights
Total assets increased 10% as of December 31, 2025 when compared to December 31, 2024, primarily due to growth in loans driven by lending at PMC, Mortgage Warehouse, and the Panacea Division.
Total LHFI as of December 31, 2025 were $3.3 billion, an increase of $396 million, or 14%, from December 31, 2024. The increase was led by growth in the Mortgage Warehouse loans of $254 million and Panacea Division loans of $110 million since December 31, 2024.
Total deposits were $3.4 billion at December 31, 2025, compared to $3.2 billion at December 31, 2024, with growth centered in noninterest bearing demand deposits that grew $116 million, or 26%. Growth was partially driven by increases in deposit account balances in Mortgage Warehouse and the Panacea Division. We had no wholesale deposit funding at December 31, 2025.
The ratio of gross loans (excluding loans held for sale) to deposits increased to 96.7% at December 31, 2025, from 91.1% at December 31, 2024.
Allowance for credit losses to total loans was down 46 basis points to 1.40% as of December 31, 2025, compared to 1.86% as of December 31, 2024. The decline was driven by improved expected performance in the Consumer Program portfolio due to the significant decline in promotional loans that drove prior credit losses along with enhanced loss mitigation efforts during 2025. The improvement was also impacted by a changing mix of the Bank’s loan portfolio to loan categories with lower reserve requirements and the sales of Panacea Division loans.
Asset quality declined from year end with nonperforming assets as a percentage of total assets (excluding SBA guarantees) at 2.03% as of December 31, 2025, compared to 0.29% as of December 31, 2024, a 174 basis point change. This decline was primarily driven by one commercial real estate loan and one commercial relationship comprised of two loans that were placed on nonaccrual in 2025. We have individual reserves on these loans of approximately 18% and are actively working with the borrowers to facilitate a return to performing status.
Our capital ratios continued to exceed requirements to be considered well capitalized as of December 31, 2025, with increases in Common Equity Tier 1 and Tier 1 capital ratios of 62 and 59 basis points, respectively, compared to December 31, 2024 and decrease in total risk-based capital of 13 basis points, compared to December 31, 2024.
R ESULTS OF OPERATIONS
Net Income (Loss)
Net income available to common shareholders for the year ended December 31, 2025 totaled $61 million, or $2.49 basic and diluted earnings per share, compared to net loss of $16 million, or $0.66 loss per basic and per diluted share, for the year ended December 31, 2024. The results reflect an increase in noninterest income of $69 million, primarily due to a $51 million gain on a sale-leaseback transaction, $32 million in gains on our investment in PFH, and an increase of $8 million in mortgage banking income, partially offset by a $15 million loss on investment portfolio restructuring in the fourth quarter of 2025. We also had $38 million less provisions for credit losses primarily driven by improvement in the Consumer Program loan portfolio and a $7 million increase in our net interest income driven by lower interest expenses in the current year on deposits and borrowings. These increases were partially offset by an increase in noninterest expenses of $13 million driven primarily by higher personnel costs due to growth in PMC, Mortgage Warehouse, and the Panacea Division of the Bank and an increase in income tax provisions of $19 million from higher pre-tax earnings. Additional details of the changes in net income will be discussed in the remaining sections of this Results of Operations section.
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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 Year Ended
December 31, 2025
December 31, 2024
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
Balance
Expense
Rate
Balance
Expense
Rate
(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans held for sale
Loans, net of deferred fees (1) (2)
Investment securities
Other earning assets
Total earning assets
Allowance for credit losses
Total non-earning assets
Total assets
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts
Money market accounts
Savings accounts
Time deposits
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Primis common stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
Net interest income
Interest rate spread
Net interest margin
Includes loan fees in both interest income and the calculation of the yield on loans.
Calculations include non-accruing loans in average loan amounts outstanding.
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Net interest income was $111 million for the year ended December 31, 2025, compared to $104 million for the year ended December 31, 2024. Net interest income increased as a result of interest-bearing liability costs declining more than the decline in interest-earning asset income which was significantly impacted by the sale of the Life Premium Finance loan portfolio and income reversals on charged-off Consumer Program loans. Our net interest margin for the year ended December 31, 2025 was 3.12%, compared to 2.86% for the year ended December 31, 2024. Margin increased by 26 basis points primarily from higher net interest income on lower average interest-earning assets over those periods.
Average earning assets decreased $71 million, or 2%, primarily due to a decline in average total loans of $84 million, or 3%. Decline in average loan balances was driven primarily by the sale of approximately $400 million of our Life Premium Finance loan portfolio in the fourth quarter of 2024 and the decision to run-off the remaining retained life premium finance loans and the decline in average balances of Consumer Program loans of $102 million due to a combination of charge-offs and paydowns. These average loan balance declines were partially offset by continued growth of average Panacea Division loans of $138 million and Mortgage Warehouse loan of $153 million during the year ended December 31, 2025 compared to the same period in 2024. We also had growth in average loans held for sale at PMC of $57 million, or 67%
Average interest-bearing liabilities declined by $92 million largely due to maturing time deposits driving average time deposit balances down by $95 million. We also experienced declines in average money market accounts of $68 million, partially offset by growth in demand deposits of $53 million and savings balances of $49 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 51 basis points, in large part due to a decline in the Fed Funds borrowing rate during the year of 75 basis points, which influences our deposit pricing. Interest paid on average borrowings decreased by $2 million due to a decline of $30 million in average borrowings from the prior year.
Yields on average interest earning assets decreased 18 basis points driven by lower yields on LHFS and LHFI during the year ended December 31, 2025 compared to the same period in 2024. The sale of our life premium finance loans, which earned higher yields than our average loan portfolio yield, and the significant reversals of Consumer Program loan income due to charge-offs of promotional loans during the year ended December 31, 2025 drove the overall earning asset yield decline. The drop in benchmark lending rates since the year ended December 31, 2024 also impacted the decline as newer production was generally at lower rates in 2025 compared to 2024. Partially offsetting lower loan yields was an increase in yield on investments of 21 basis points during the year ended December 31, 2025 compared to same period in 2024 due to the normal paydowns of investments and reinvesting proceeds in higher yielding securities during the year. Yields on all of our interest bearing deposits declined meaningfully during the year ended December 31, 2025 compared to the year ended December 31, 2024, with declines of 26 to 64 basis points across the portfolio, primarily driven by the decline in benchmark borrowing rates by 75 basis points over that time.
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The following table summarizes changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities compared to changes in interest rates. The change in interest, due to both rate and volume, has been proportionately allocated between rate and volume.
Year Ended
December 31, 2025 vs. 2024
Increase (Decrease)
Due to Change in:
Net
Volume
Rate
Change
(in thousands)
Interest-earning assets:
Loans held for sale
Loans, net of deferred fees
Investment securities
Other earning assets
Total interest-earning assets
Interest-bearing liabilities:
NOW and other demand accounts
Money market accounts
Savings accounts
Time deposits
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Change in net interest income
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 the year ended December 31, 2025 and 2024, we had provision for credit losses of $12 million and $51 million, respectively. Decline in provision for credit losses for the year ended December 31, 2025 compared to December 31, 2024 was driven by higher provisions in 2024 primarily related to the Consumer Program loans. We had elevated credit losses during 2024 concentrated in the promotional portion of the Consumer Program portfolio that were largely originated between the third quarter of 2022 and first quarter of 2023 that were exiting their promotional period and defaulting. Due to the majority of these promotional loans ending their promotions in 2024 or the first quarter of 2025, significant reserving in 2024 for these loans, and coupled with our enhanced loss mitigation efforts in 2025, our provisioning for this portfolio was only $1 million during the year ended December 31, 2025, compared to $40 million during the year ended December 31, 2024.
Excluding the provisioning on the Consumer Program portfolio, our provision for credit losses on the remaining loan portfolio was flat year over year. The Financial Condition section of this MD&A provides information on our loan portfolio, past due loans, nonperforming assets and the allowance for credit losses .
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Noninterest Income
The following table presents the categories of noninterest income for the years ended December 31, 2025 and 2024 ($ in thousands):
For the Year Ended
December 31,
(dollars in thousands)
Change
Account maintenance and deposit service fees
Income from bank-owned life insurance
Gains on Panacea Financial Holdings investment
Mortgage banking income
Gains on sale of loans
Gain on sale-leaseback
Loss on sales of investment securities
Gains on other investments
Gain on sale of Life Premium Finance portfolio, net of broker fees
Consumer Program derivative income
Other noninterest income
Total noninterest income
Noninterest income increased 160% to $112 million for the year ended December 31, 2025, compared to $43 million for the year ended December 31, 2024. The increase in noninterest income was primarily driven by a $51 million gain on the sale-leaseback transaction in the fourth quarter of 2025 and the $32 million gain on our PFH investment, which comprised the gain on deconsolidation of PFH in the first quarter of 2025 and gain on the sale of a portion of our retained ownership in PFH and fair value adjustments in 2025 to the remaining common share investment retained. The increase was also driven partially by $8 million of higher income from mortgage banking activity during 2025 compared to 2024. The increase in mortgage banking income was due to higher gain on sale income driven by $922 million in loan sales during the year ended December 31, 2025 compared to $706 million of sales in 2024, a 31% increase. We also had $2 million of additional income in 2025 compared to 2024 due to gains on sales of loans. The largest portion of the gain in 2025 was due to the sale of $54 million of Panacea Division loans to another financial institution resulting in over $1 million of gains.
The increases were partially offset by a $15 million loss on sale on investment securities in the fourth quarter of 2025 that resulted from our decision to restructure the portfolio by selling securities at lower yields and purchasing securities earning higher yields, declines in Consumer Program derivative income, a $5 million gain on sale of our LPF portfolio in 2024, and income from bank-owned life insurance as a result of several one-time death benefit gains in 2024 that did not re-occur in 2025.
The decline in Consumer Program related income was a combination of less income earned from the third-party on origination of loans, which ended in January of 2025, and less reimbursement due to us when borrowers paid off their promotional loans before the end of the promotional period. These two items resulted in a combined decline of $5 million in income when comparing the year ended December 31, 2025 to the same period in 2024. Partially offsetting this decline was $2 million in lower derivative fair value losses during the year ended December 31, 2025 compared to 2024. The decline was a result of the promotional loan population declining at a faster pace during the year ended December 31, 2024 compared to the year ended December 31, 2025 and also because the promotional loan balances were at a lower starting point at the beginning of 2025 compared to January 1, 2024. Noninterest income from the Consumer Program is expected
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to be increasingly immaterial going forward as promotional loans have declined to only $3 million at the end of 2025 and we are no longer originating these loans.
Noninterest Expense
The following table present the major categories of noninterest expense for the years ended December 31, 2025 and 2024 ($ in thousands):
For the Year Ended
December 31,
(dollars in thousands)
Change
Salaries and benefits
Occupancy expenses
Furniture and equipment expenses
Amortization of core deposit intangible
Virginia franchise tax expense
FDIC insurance assessment
Data processing expense
Marketing expense
Telephone and communication expense
Professional fees
Fraud losses
Miscellaneous lending expenses
Other operating expenses
Total noninterest expenses
The higher salaries and benefits expense of $12 million for the year ended December 31, 2025 compared to the same period in 2024 was driven primarily due to additions of several lending teams at PMC, one of which is the top mortgage originator in the Nashville, TN market and the other is the fourth ranked VA lender in the country. These teams drove the salaries and benefits expense increase in 2025 due to their salary draws while they rebuilt their portfolios. These teams are ultimately expected to generate production that will exceed these initial salary draws, which should help to generate income that offsets the salary expenses in later periods. Increase in salaries and benefits was also from the growth in salaries and benefit expenses in the Panacea Division and Mortgage Warehouse businesses, each increasing $1 million when comparing the year-to-date periods in 2025 to 2024. Increase in salaries and benefits for the year ended December 31, 2025 also included $3 million related to restricted stock compensation expenses in 2025 compared to $1 million in 2024. The $2 million increase is a result of strong financial performance in 2025 along with improved expectations of future performance resulting in a higher expectation of issued restricted stock eventually vesting.
Occupancy expenses increased $1 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to increase in lease expenses driven by several additional leases in 2025, increased annual rent on existing leases, and one month of lease expense related to the new master lease for the 18 branches sold and leased back in December in the sale lease-back transaction.
FDIC insurance expense increased $1 million during the year ended December 31, 2025 compared to the same period in 2024 primarily due to an increase in our assessment base as a result of our financial restatements in 2024 and the changes in asset quality during 2025.
These expense increases were partially offset by TPOS vendor fraud in 2024 that did not reoccur, less core deposit intangible amortization that fully amortized by June 30, 2025, and lower miscellaneous lending expenses due to less loan collection costs and lower mortgage loan repurchase provisions in 2025 compared to 2024.
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FINANCIAL CONDITION
The following illustrates key balance sheet categories as of December 31, 2025 and 2024 ($ in thousands):
December 31,
December 31,
Change
Total cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Loans held for sale, at fair value
Loans held for sale, at lower of cost or market
Net loans
Other assets
Total assets
Total deposits
Borrowings
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
LOAN PORTFOLIO
Loans Held for Sale
LHFS at fair value increased $81 million from December 31, 2024 to December 31, 2025 due to growth at PMC during the year and timing of origination and sale of loans at year end. LHFS at the lower of cost or market declined by $164 million primarily due to the sale of $51 million of LPF loans, paydowns of Consumer Program LHFS, and the transfer back to net loans of $102 million of Consumer Program loans in 2025 after the decision to retain these for the foreseeable future or until maturity.
Loans Held for Investment
Gross LHFI were $3.3 billion and $2.9 billion as of December 31, 2025 and 2024, respectively. The increase in loans held for investment was driven by growth of mortgage warehouse loans and Panacea Division commercial loans, both of which were the primary driver of the $362 million increase in commercial loans seen below. LHFI also increased in 2025 due to the transfer back from LHFS of Consumer Program loans into the consumer loans category of LHFI, resulting in $51 million more Consumer Program loans in LHFI at December 31, 2025 compared to December 31, 2024. The growth was partially offset by the sale of $54 million of commercial loans in the Panacea Division and loan paydowns during the year ended December 31, 2025 of loans secured by real estate. As of December 31, 2025 and 2024, over 50% of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on our operations.
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The composition of our loans HFI portfolio consisted of the following as of December 31, 2025 and 2024 ($ in thousands):
December 31, 2025
December 31, 2024
Amount
Percent
Amount
Percent
Loans secured by real estate:
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Secured by farmland
Construction and land development
Residential 1-4 family
Multi- family residential
Home equity lines of credit
Total real estate loans
Commercial loans
Paycheck protection program loans
Consumer loans
Total Non-PCD loans
PCD loans
Total loans
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 December 31, 2025 ($ 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
Commercial real estate - non-owner occupied
Secured by farmland
Construction and land development
Residential 1-4 family
Multi- family residential
Home equity lines of credit
Total real estate loans
Commercial loans
Paycheck protection program loans
Consumer loans
Total Non-PCD loans
PCD loans
Total loans
Our highest concentration of credit by loan type is in commercial real estate. As of December 31, 2025, 37% 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
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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 December 31, 2025 and 2024 ($ in thousands):
December 31, 2025
December 31, 2024
Amount
Percent
Amount
Percent
Commercial real estate - non-owner occupied
Hotel/ Motel
Office
Retail
Assisted living
Mixed use
Warehouse/ Industrial
Daycare/Schools/Churches
Self-storage
Leisure/Recreational
Other
Total Commercial real estate - non-owner occupied
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 percentage as of December 31, 2025 and 2024 ($ in thousands):
December 31, 2025
December 31, 2024
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
Commercial office building
Commercial office/ warehouse
Total
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 good occupancy levels that have improved from last year.
Consumer Program Loans
The following table sets forth the contractual maturity ranges of our Consumer Program loan portfolio as of December 31, 2025, 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 (1)
Does not include $7 million of remaining fair market value adjustments related to the original $20 million write-down of the portfolio when transferred to LHFS as of December 31, 2024.
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The following table describes the period over which our Consumer Program loans that are currently in a no interest promotional period will exit that promotional period and begin to amortize. All these promotional loans generally amortize over four years from the date they exit the promotional period if not prepaid before the end of the promotional period ($ in thousands):
Amount ending
Amount ending
No Interest
No Interest
Total outstanding
Promotional Period in
Promotional Period in
Promotional
next 6 months
7-12 months
Consumer Program Loans
During the year ended December 31, 2025, $36 million of Consumer Program loans either paid off during the no interest promotional period or converted to amortizing at the end of the promotional period. As of December 31, 2025, 94% of Consumer Program loans outstanding are current, 4% are past due 1-30 days, and the remaining 2% are past due greater than 30 days.
ASSET QUALITY
Nonperforming Assets
The following table presents a comparison of nonperforming assets as of December 31, 2025 and 2024 ($ in thousands):
December 31,
December 31,
Nonaccrual loans
Loans past due 90 days and accruing interest
Total nonperforming assets
SBA guaranteed amounts included in nonperforming loans
Allowance for credit losses to total loans
Allowance for credit losses to nonaccrual loans
Allowance for credit losses to nonperforming loans
Nonaccrual to total loans
Nonperforming assets excluding SBA guaranteed loans to total assets
Nonperforming assets increased $70 million, or 417%, as of December 31, 2025 compared to December 31, 2024, which was driven by an increase in nonaccrual loans. The increase in nonaccrual was primarily due to the addition of one commercial real estate loan with a $40 million amortized cost balance that was past due 60- 90 days as of December 31, 2025 and one commercial relationship comprised of two loans totaling $24 million in amortized cost that was nonaccruing, but not past due as of December 31, 2025.
The commercial real estate loan is delinquent due to turnover in tenant occupancy on the underlying office asset leading to reduced lease income. Leasing activity has become more stabilized in the DC market, and the asset is seeing strong interest in new lease negotiations. We have a lien on the underlying collateral which is Class A office space in a desirable location in northern Virginia. The borrower is actively seeking new tenants for vacant office space in the building. We assess expected credit losses on this loan individually and have a $7 million individual reserve against the loan, or 18% of its amortized cost balance, as of December 31, 2025.
The commercial loans were placed on nonaccrual early in the third quarter of 2025. The loans were utilized originally by the customer to support a business acquisition into an existing business. Stabilization of operations had a longer trajectory than originally forecast. The company became profitable at the end of 2024 and has shown steady improvement during 2025. We have subsequently entered into a forbearance agreement with the borrower who is satisfactorily performing under the terms of agreement as of December 31, 2025. We assess expected credit losses on this loan
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individually and obtained a third-party valuation of the business in 2025 to assist in determining the $5 million individual reserve against the loan, or 20% of its amortized cost balance, as of December 31, 2025.
We identify potential problem loans based on loan portfolio credit quality. We define our potential problem loans as internally rated as substandard or worse, less total nonperforming assets noted above. As of December 31, 2025, our potential problem loans totaled $60 million.
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.
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 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.
Loan Review
We rely on a combination of first and second line of defense processes to measure the overall quality of our loan portfolio. From a first line perspective, each loan is assigned a risk rating ranging from one to nine, with loans closer to a rating of one having less risk. This risk rating scale is our primary credit quality indicator that is reviewed periodically by management, while delinquency status is a secondary risk indicator we also monitor. From a second line of defense perspective, we have a loan review function independent of credit administration that reports to the Company’s CRO and performs a risk-based review of a sample of commercial loans and loan relationships to evaluate credit quality and adherence to underwriting standards.
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.
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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 December 31,
As of December 31,
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
Commercial real estate - non-owner occupied
Secured by farmland
Construction and land development
Residential 1-4 family
Multi- family residential
Home equity lines of credit
Commercial loans
Paycheck Protection Program loans
Consumer loans
PCD loans
Total
The following table presents an analysis of the allowance for credit losses for the periods indicated ($ in thousands):
For the Year Ended December 31,
Balance, beginning of period
Provision charged to operations:
Total provisions
Recoveries credited to allowance:
Commercial real estate - owner occupied
Residential 1-4 family
Home equity lines of credit
Commercial loans
Consumer loans
Total recoveries
Total
Loans charged off:
Residential 1-4 family
Home equity lines of credit
Commercial loans
Consumer loans
Total loans charged-off
Net charge-offs
Balance, end of period
Net charge-offs to average loans, net of unearned income
We believe that the allowance for credit losses as of December 31, 2025 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.
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Our allowance for credit losses was $46 million as of December 31, 2025, compared to $54 million as of December 31, 2024. The $8 million decrease was driven by $29 million in net charge-offs during the year ended December 31, 2025, primarily a result of Consumer Program loans, and less provision for credit losses. Our provision for credit losses decreased $38 million during the year ended December 31, 2025 compared to the same periods in 2024, primarily related to improved performance in the Consumer Program portfolio as a result of the significant decline in promotional loans that drove prior credit losses and a changing mix of the Bank’s loan portfolio to loan categories with lower reserve requirements. Partially offsetting these declines were specific provisions for expected credit losses of $7 million on the individually evaluated commercial real estate loan that was 60 - 90 days past due and proactively placed on nonaccrual during the year ended December 31, 2025. Additional discussion of the change in the provision for credit losses is included in this MD&A in the “Provision for Credit Losses” section.
Net charge-offs were primarily related to the Consumer Program portfolio during the year ended December 31, 2025 and 2024. During the year ended December 31, 2025, we charged off $18 million, net of recoveries, in the Consumer Program portfolio. Comparatively, during the year ended December 31, 2024, we charged off $46 million, net of recoveries. The majority of these charge-offs related to loans originated from the third quarter of 2022 through the first quarter of 2023 where we experienced significant credit weaknesses. Included in Consumer Program net charge-offs during 2025 were $13 million of recoveries related to charge-offs taken as of December 31, 2024 to record the loans at the lower of cost or market when we made the decision to move a substantial portion of the loans to HFS. As previously discussed, we subsequently decided to retain the loans and they were moved back into LHFI at their then amortized cost balance inclusive of the prior charge-offs. When excluding the Consumer Program net charge-offs, we had net charge-offs of $2 million and $3 million during the year ended December 31, 2025 and 2024, respectively, on the remainder of our LHFI portfolio.
We have experienced a majority of our losses in the Consumer Program on promotional loans originated in the third quarter of 2022 through the first quarter of 2023. Our allowance methodology for the Consumer Program was updated during the year ended December 31, 2024 to consider promotional loan maturity, especially around these earlier vintages, and amount of first payment defaults with eventual charge-off, which was a key driver to the heightened overall charge-offs in 2024. Almost all of these earlier vintages have since ended their promotional period and began to amortize prior to December 31, 2025. As a result, we believe that any remaining loans in these older vintages, along with newer vintage promotional loans that end their promotional period over the next four quarters have been considered in our reserving methodology based on our loss experience from 2024 to the first quarter of 2025 with the earlier vintage promotional loans. Additionally, we have also implemented enhanced loss mitigation efforts that include working with promotional loan borrowers both prior to the end of the promotional period and once a borrower defaults in order to maximize collectability. A combination of these factors, along with the remaining balance of promotional loans of only $3 million, resulted in our lower provisioning for the year ended December 31, 2025 and lower ending allowance balance at December 31, 2025.
As of December 31, 2025, the principal balance outstanding of Consumer Program loans was $97 million, excluding a $7 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 $8 million as of December 31, 2025. As of December 31, 2025, 94% of the outstanding principal balance was current, resulting in 148% coverage by the aggregate allowance and discount of the non-current principal balances.
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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.
Our investment securities portfolio is managed by our CFO, who has significant experience in this area, with the concurrence of our ALCO. In addition to our CFO (who is the chairman of the ALCO) this committee is comprised of outside directors and other senior officers of the Bank, including but not limited to our CEO and Treasurer. Investment management is performed in accordance with our investment policy, which is approved annually by the Board of Directors. Our investment policy authorizes us to invest in:
GNMA, FNMA and the FHLMC residential MBS and CMBS
Collateralized mortgage obligations
U.S. Treasury securities
SBA guaranteed loan pools
Agency securities
Obligations of states and political subdivisions
Corporate debt securities, with rated securities at investment grade
CLOs
MBS are securities that have been developed by pooling a number of real estate mortgages and which are principally issued by agency/ GSEs such as the GNMA, FNMA and FHLMC. These securities are deemed to have high credit ratings, and minimum regular monthly cash flows of principal and interest are guaranteed by the issuing agencies.
CMOs are bonds that are backed by pools of mortgages. The pools can be GNMA, FNMA or FHLMC pools or they can be private-label pools. The CMOs are designed so that the mortgage collateral will generate a cash flow sufficient to provide for the timely repayment of the bonds. The mortgage collateral pool can be structured to accommodate various desired bond repayment schedules, provided that the collateral cash flow is adequate to meet scheduled bond payments. This is accomplished by dividing the bonds into classes to which payments on the underlying mortgage pools are allocated. The bond’s cash flow, for example, can be dedicated to one class of bondholders at a time, thereby increasing call protection to bondholders. In private-label CMOs, losses on underlying mortgages are directed to the most junior of all classes and then to the classes above in order of increasing seniority, which means that the senior classes have enough credit protection to be given the highest credit rating by the rating agencies.
Obligations of states and political subdivisions (municipal securities) are purchased with consideration of the current tax position of the Bank. Both taxable and tax-exempt municipal bonds may be purchased, but only after careful assessment of the market risk of the security. Appropriate credit evaluation must be performed prior to purchasing municipal bonds.
Corporate bonds consist of senior and/or subordinated notes issued by banks. Bank subordinated debt, if rated, must be of investment grade and non-rated bonds are permissible if the credit-worthiness of the issuer has been properly analyzed.
CLOs are actively managed securitization vehicles formed for the purpose of acquiring and managing a diversified portfolio of senior secured corporate bank loans, otherwise known as “broadly syndicated loans”. The loan portfolio is transferred to bankruptcy-remote special-purpose vehicle, which finances the acquisition through the issuance of various classes of debt and equity securities with varying levels of senior claim on the underlying loan portfolio. CLOs must be rated AA or better at the time of purchase.
AFS and HTM investment securities totaled $178 million as of December 31, 2025, a decrease of 27% from $245 million as of December 31, 2024, primarily due to sale of $144 million in book value of investment securities during 2025, improvement in unrealized losses on AFS securities and paydowns, maturities, and calls of the AFS and HTM investments over the past year, partially offset by purchases of AFS securities during that time. We recognized no credit impairment
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charges related to credit losses on our HTM investment securities during the year ended December 31, 2025. We decided to sell the $144 million of investment securities in 2025 as an opportunity to restructure the portfolio into better yielding investments over the long-term, taking advantage also of gains during the year in the sale-leaseback and PFH transactions to offset the $15 million of realized losses upon sale of the securities. The average coupon of the aggregate investments sold was 2.98% and we partially replaced the $144 million of sold investments with $75 million of par value AFS securities with an average coupon of 4.22%.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. AFS investment securities are reported at fair value, and HTM investment securities are reported at amortized cost ($ in thousands).
December 31,
December 31,
Available-for-sale investment securities:
Residential government-sponsored mortgage-backed securities
Obligations of states and political subdivisions
Corporate securities
Residential government-sponsored collateralized mortgage obligations
Government-sponsored agency securities
Agency commercial mortgage-backed securities
SBA pool securities
Total
Held-to-maturity investment securities:
Residential government-sponsored mortgage-backed securities
Obligations of states and political subdivisions
Residential government-sponsored collateralized mortgage obligations
Total
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.
For additional information regarding investment securities refer to “Item 8. Financial Statements and Supplementary Data, Note 2 - Investment Securities” in this Form 10-K.
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The following table sets forth the amortized cost, fair value, and weighted average yield of our investment securities by contractual maturity as of December 31, 2025. Weighted average yield is calculated as the tax-equivalent yield on a pro rata basis for each security based on its relative amortized cost. Yields on tax-exempt securities have been computed on a tax-equivalent basis. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties ($ in thousands).
Investment Securities Available-for-Sale
Weighted
Amortized
Average
Cost
Fair Value
Yield
Obligations of states and political subdivisions
Due less than one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Corporate securities
Due after one year through five years
Due after five years through ten years
Residential government-sponsored mortgage-backed securities
Due after one year through five years
Due after five years through ten years
Due after ten years
Residential government-sponsored collateralized mortgage obligations
Due after five years through ten years
Due after ten years
Agency commercial mortgage-backed securities
Due less than one year
Due after one year through five years
Due after five years through ten years
Due after ten years
SBA pool securities
Due after one year through five years
Due after five years through ten years
Due after ten years
Investment Securities Held-to-Maturity
Weighted
Amortized
Average
Cost
Fair Value
Yield
Obligations of states and political subdivisions
Due after one year through five years
Due after five years through ten years
Residential government-sponsored mortgage-backed securities
Due after five years through ten years
Due after ten years
For additional information regarding investment securities refer to “Item 8. Financial Statements and Supplementary Data, Note 2 - Investment Securities.”
DEPOSITS AND OTHER BORROWINGS
Deposits
The market for deposits is competitive. We offer a line of traditional deposit products that currently include noninterest-bearing and interest-bearing checking (or NOW accounts), commercial checking, money market accounts, savings accounts and certificates of deposit. We use deposits as a principal source of funding for our lending, purchasing of investment securities and for other business purposes. We seek to fund increased loan volumes by growing core deposits,
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but, subject to internal policy limits on the amount of funding we may maintain, we may use funding sources to fund shortfalls, if any, or to provide additional liquidity. We use purchased brokered deposits as part of our overall liquidity management strategy on an as needed basis, and we purchase such brokered deposits through nationally recognized networks.
We compete for deposits through our banking branches with competitive pricing coupled with personalized service, as well as nationally through advertising and our online digital banking platform. We leverage technology as a differentiator in the marketplace, including with our V1BE fulfillment offering. V1BE is an app-based delivery service that allows customers to order a variety of banking services that would normally require an in-person visit to a branch. The service is particularly popular with small business customers that generally have fewer employees and are more sensitive to the amount of time consumed by dispatching an employee to a branch on a regular basis. As of December 31, 2025, more than $200 million of deposits were supported by V1BE with approximately $30 million of checking accounts associated with customers that use the service every week.
Total deposits increased by $224 million, or 7%, to $3.4 billion as of December 31, 2025 from $3.2 billion at December 31, 2024. The mix of deposits changed during the year ending December 31, 2025, including an increase in lower-cost demand, NOW deposit balances and savings balances of $306 million, offset by a decline in money market and time deposit account balances of $82 million. The driver of the increase in 2025 was due to the growth of noninterest bearing and lower cost interest bearing deposit accounts generated by our local banking footprint as well as our Panacea and Mortgage Warehouse divisions that have focused on this deposit growth to cost-effectively fund their loan growth. We had no wholesale deposit funding at December 31, 2025 or 2024.
Approximately $1.0 billion of our total deposits at both December 31, 2025 and December 31, 2024 are from our digital banking platform with a substantial portion of these deposits from customers outside of our local branch footprint. Deposits were flat year-over-year on this platform as we managed rates paid on these deposits during the Federal Reserve’s rate cutting cycle in the latter half of 2025. As of December 31, 2025, approximately 83% of the customers on the digital platform have been with us for at least two years.
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. Deposits are net of excess amounts we sweep off balance sheet to manage liquidity. Deposits swept off our balance sheet were $137 million as of December 31, 2024, compared to none as of December 31, 2025.
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 $943 million, or 28% of total deposits at the Bank, as of December 31, 2025.
The following table sets forth the average balance and average rate paid on each of the deposit categories for the years ended December 31, 2025 and 2024 ($ in thousands):
Average
Average
Average
Average
Balance
Rate
Balance
Rate
Noninterest-bearing demand deposits
Interest-bearing deposits:
Savings accounts
Money market accounts
NOW and other demand accounts
Time deposits
Total interest-bearing deposits
Total deposits
The variety of deposit accounts we offer allows us to be competitive in obtaining funds and in responding to the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct
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investment vehicles such as government and corporate securities). Our ability to attract and maintain deposits, and the effect of such retention on our cost of funds, has been, and will continue to be significantly affected by the general economy and market rates of interest.
The following table sets forth the maturities of certificates of deposit of $100 thousand and over as of December 31, 2025 ($ in thousands):
Within
Over 12
3 Months
Months
Months
Months
Total
Other Borrowings
Other borrowings can consist of FHLB borrowings, federal funds purchased, secured borrowings due to failed loan sales, and repo transactions that mature within one year, which are secured transactions with customers. Other borrowings consist of the following as of December 31, 2025 and 2024 ($ in thousands):
December 31,
Total FHLB advances
Secured borrowings
Securities sold under agreements to repurchase
Total
Weighted average interest rate on FHLB advances at year end
For the years ended December 31,
Average outstanding balance
Average interest rate during the year
Maximum month-end outstanding balance
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 December 31, 2025 and 2024, we had $25 million and no FHLB borrowings, respectively. The FHLB borrowings at December 31, 2025 are short-term borrowings that were obtained in October 2025 primarily to fund increased loan growth and were repaid in the first quarter of 2026. As of December 31, 2025, we had $319 million unused and available FHLB lines of credit as well as $484 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 $15 million and $17 million as of December 31, 2025 and 2024, respectively. The Company transferred zero and $1 million in principal balance of loans to another financial institution in 2025 and 2024, respectively, that were treated as secured borrowings. These borrowings reflect the cash received for transferring the loans to the other financial institution and any unamortized sale premium and are secured by approximately the same amount of loans held for investment that are recorded in our balance sheet. We retained the servicing of the loans that were transferred and accordingly receive principal and interest from the borrower as contractually required and transfer the interest to the other financial institution net of our contractually agreed upon servicing fee. The loans transferred have an average maturity of approximately ten years, which will be the time over which the principal balance of the loans in our balance sheet and secured borrowings will pay down, absent borrower prepayments. For additional information on secured borrowings refer to “Item 8. Financial Statements and Supplementary Data, Note 10 –Securities Sold Under Agreements To Repurchase And Other Borrowings” in this Form 10-K.
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JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTES
For information about junior subordinated debt and senior subordinated notes and their anticipated principal repayments refer to “Item 8. Financial Statements and Supplementary Data, Note 11 – Junior Subordinated Debt and Senior Subordinated Notes.”
INTEREST RATE SENSITIVITY AND MARKET RISK
We are engaged primarily in the business of investing funds obtained from deposits and borrowings into interest-earning loans and investments. Consequently, our earnings significantly depend on our net interest income, which is the difference between the interest income on loans and other investments and the interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-earning assets, we are subject to interest rate risk and corresponding fluctuations in net interest income. Our ALCO meets regularly and is responsible for reviewing our interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by our Board of Directors. We have employed asset/liability management policies that seek to manage our net interest income, without having to incur unacceptable levels of credit or investment risk.
We use simulation modeling to manage our interest rate risk and review quarterly interest sensitivity. This approach uses a model which generates estimates of the change in our EVE over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts using assumptions including estimated loan prepayment rates, reinvestment rates and deposit decay rates.
The following tables are based on an analysis of our interest rate risk as measured by the estimated change in EVE resulting from instantaneous and sustained parallel shifts in the yield curve (plus 400 basis points or minus 400 basis points, measured in 100 basis point increments) as of December 31, 2025 and 2024. All changes are within our Asset/Liability Risk Management Policy guidelines ($ in thousands).
Sensitivity of EVE
As of December 31, 2025
EVE
EVE as a % of
Change in Interest Rates
$ Change
% Change
Total
Equity
in Basis Points (Rate Shock)
Amount
From Base
From Base
Assets
Book Value
Base
Down 100
Down 200
Down 300
Down 400
Sensitivity of EVE
As of December 31, 2024
EVE
EVE as a % of
Change in Interest Rates
$ Change
% Change
Total
Equity
in Basis Points (Rate Shock)
Amount
From Base
From Base
Assets
Book Value
Base
Down 100
Down 200
Down 300
Down 400
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Our interest rate sensitivity is also monitored by management through the use of a model that generates estimates of the change in the NII over a range of interest rate scenarios. NII depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. In this regard, our model historically assumes that the composition of our interest sensitive assets and liabilities remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities.
During the year ended December 31, 2025, we implemented enhancements to our interest rate risk modeling framework, which impacted the NII sensitivity modeling results as of December 31, 2025 seen below. The enhancements include the adoption of non-linear beta and decay assumptions, which reflect industry best practices for modeling deposit behaviors and rate sensitivities. As a result of these changes, the Bank’s overall interest rate risk profile shifted toward a more neutral position. Additionally, the Bank has also steadily increased its portfolio of floating-rate mortgage warehouse loans during the year ended December 31, 2025, which when combined with the modeling enhancements increased our asset sensitivity compared to year end as seen in each of the shock scenarios as of December 31, 2025. The results below are within our ALM Policy guidelines as of December 31, 2025 and 2024 ($ in thousands).
Sensitivity of NII
As of December 31, 2025
Adjusted NII
Change in Interest Rates
$ Change
in Basis Points (Rate Shock)
Amount
From Base
Base
Down 100
Down 200
Down 300
Down 400
Sensitivity of NII
As of December 31, 2024
Adjusted NII
Change in Interest Rates
$ Change
in Basis Points (Rate Shock)
Amount
From Base
Base
Down 100
Down 200
Down 300
Down 400
Sensitivity of EVE and NII are modeled using different assumptions and approaches. Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII sensitivity requires the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Accordingly, although the EVE tables and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net worth and NII.
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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” and “Item 8. Financial Statements and Supplementary Data, Note 10 – Securities Sold Under Agreements To Repurchase And Other Borrowings, Note 11 – Junior Subordinated Debt and Senior Subordinated Notes, and Note 15 – Financial Instruments With Off-Balance-Sheet Risk.”
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 December 31, 2025, 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 December 31, 2025, we had no material commitments or long-term debt for capital expenditures.
CAPITAL RESOURCES
Capital management consists of providing equity to support both current and future operations. Primis Financial Corp. and its subsidiary, Primis Bank, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. As of December 31, 2025 and 2024, the most recent regulatory notifications categorized the Bank as well capitalized under regulatory framework for PCA. Federal banking agencies do not provide a similar well capitalized threshold for bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require 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 December 31, 2025, that we meet all capital adequacy requirements to which it is subject.
See “Item 1. Business, Supervision and Regulation—Capital Requirements” for more information.
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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
Actual Ratio at
Adequacy
Categorized as
December 31,
December 31,
Purposes
Well Capitalized (1)
Primis Financial Corp.
Leverage ratio
Common equity tier 1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Primis Bank
Leverage ratio
Common equity tier 1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
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 3.99% as of December 31, 2025, which exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented in this Annual Report on Form 10-K have been prepared in accordance with U.S. 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.
Our interest rate risk management is the responsibility of the Bank’s ALCO. The ALCO has established policies and limits for management to monitor, measure and coordinate our sources, uses and pricing of funds. The ALCO makes reports to the Board of Directors on a quarterly basis.
Seasonality and Cycles
We do not consider our commercial banking business to be seasonal.
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Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and guarantees of credit card accounts. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance sheets. Letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling $20 million and $10 million as of December 31, 2025 and 2024, respectively.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is based on the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments are made predominately for adjustable rate loans, and generally have fixed expiration dates of up to three months or other termination clauses and usually require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis.
For additional information about off-balance sheet arrangements, refer to the discussion in “Item 8. Financial Statements and Supplementary Data, Note 15 – Financial Instruments With Off-Balance-Sheet Risk.”
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in “Item 8. Financial Statements and Supplementary Data, Note 3 - Loans and Allowance for Credit Losses”, as if such commitments were funded.
