Primis Financial's Strategic Shift: Auditor Change and Growth Insights
Primis Financial Corp. Makes Important Shift in Accounting
Primis Financial Corp. (NASDAQ:FRST), a Virginia-based state commercial bank, has announced a change in its independent registered public accounting firm. This development follows recent filings made to the Securities and Exchange Commission. The company’s current auditor, Forvis Mazars LLP, has chosen not to seek re-appointment for the fiscal year ending December 31, 2024. Primis Financial's Audit Committee ratified this decision just two days later.
Completion of Ongoing Audits and Financial Reporting
Forvis will continue with its responsibilities, completing the audit for the fiscal year concluding December 31, 2023, as well as reviewing interim financial statements for the quarter ending March 31, 2024. Importantly, the audit report for the year ending December 31, 2022, did not contain adverse opinions or modifications regarding audit scope or accounting principles. Primis anticipates maintaining a similar clean slate in its 2023 audit report.
Addressing Internal Control Challenges
Despite the positive outlook for the audit, Primis Financial anticipates revealing material weaknesses in its internal controls regarding financial reporting for the fiscal years ending December 31, 2022, and 2023. These identified weaknesses relate to the company’s processes for evaluating complex agreements with third parties, handling transfers of financial assets, and assessing credit losses on a consumer loan portfolio managed externally.
Remediating Control Weaknesses
The company is actively addressing these weaknesses by implementing new controls and procedures focused on loan transfer transactions and ensuring timely reviews of credit loss trends specific to the portfolio. Furthermore, Primis is enhancing its team by integrating experts in complex accounting matters.
Recent Developments in Financial Statements
In addition to the auditor changes, Primis Financial Corp has announced a restatement of its financial reports to correct accounting errors found within a consumer loan portfolio. This issue was identified in concert with its independent auditor, which necessitates adjustments in accordance with U.S. GAAP. The identification of these errors has also illuminated a material weakness in the company's internal controls, prompting a thorough reevaluation of its financial reporting practices.
Navigating Nasdaq Compliance and Financial Health
Compounding these challenges, Primis Financial Corp is addressing Nasdaq delinquency issues due to late financial filings. These delays have stemmed from the requirement to restate certain financial statements, leading to a granted extension until September 30, 2024, to submit the overdue reports.
Q2 Performance Highlights
Amid these hurdles, Primis Financial Corp has reported a robust performance for the second quarter. Earnings soared to $7.8 million, marking a substantial improvement when compared to the net loss of $311,000 recorded during the same period the prior year. The company now boasts total loans amounting to $835 million, with total deposits approaching $1 billion across its various business lines.
Future Outlook and Strategic Moves
Looking ahead, analyst Matthew Switzer suggests that the company’s future expenses will likely remain around the $19 million range. Furthermore, Primis is moving towards deconsolidating PFH, a strategy expected to bolster its tangible book value and overall capital ratios.
Evaluating Investment Potential
Primis Financial Corp. is in a period of transition, marked by changes in its accounting practices and the identification of challenges within its financial reporting. Investors should be mindful of the company's anticipated growth in net income for the year, as analysts have raised their earnings expectations for the upcoming period, hinting at optimism about Primis’s financial trajectory.
Valuation and Market Position
From a valuation perspective, Primis Financial currently holds a P/E ratio of 30.25, which appears elevated when juxtaposed against its adjusted P/E ratio of 14.15 over the past twelve months, suggesting the stock may be trading at a premium relative to its recent earnings. Moreover, the company has maintained a strong commitment to dividend payments, showcasing a yield of 3.19%, while also achieving a total return of 32.57% over the last three months. In light of these promising signs, potential investors should weigh these alongside the challenges of quick cash burn and relatively weak gross profit margins that the company faces.
Frequently Asked Questions
What led to Primis Financial changing its auditor?
Forvis Mazars LLP decided not to stand for re-appointment, leading Primis Financial to seek a new independent auditor.
What are the material weaknesses mentioned by Primis Financial?
The weaknesses pertain to evaluating complex agreements, accounting for financial asset transfers, and assessing credit losses on consumer loans.
How did Primis Financial perform in Q2?
Primis Financial reported earnings of $7.8 million in Q2, a significant improvement from a loss the previous year.
What challenges does Primis Financial currently face?
Primis is dealing with a Nasdaq delinquency due to late financial filings and is required to restate certain financial statements.
What is the company's strategy to improve its financial reporting?
Primis is implementing new controls, enhancing its team’s expertise, and conducting timely reviews of credit loss trends to remediate identified weaknesses.
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