Primis Financial Corp. Announces Key Change in Accounting Firm
Primis Financial Corp. (NASDAQ:FRST), a commercial bank based in Virginia, has made a significant change regarding its independent registered public accounting firm. This decision comes after recent filings submitted to the Securities and Exchange Commission. The company’s current auditor, Forvis Mazars LLP, has opted not to seek reappointment for the fiscal year ending December 31, 2024. Just two days later, this decision was ratified by Primis Financial's Audit Committee.
Ongoing Audits and Financial Reporting Update
Forvis will continue its work by completing the audit for the fiscal year ending December 31, 2023, along with reviewing interim financial statements for the quarter ending March 31, 2024. Notably, the audit report for the year ending December 31, 2022, did not include any unfavorable opinions or modifications concerning audit scope or accounting principles. Primis is optimistic that its 2023 audit report will reflect a similar clean record.
Identifying Internal Control Challenges
Despite this positive audit outlook, Primis Financial expects to disclose material weaknesses in its internal controls over financial reporting for the fiscal years ending December 31, 2022, and 2023. These weaknesses are linked to the company's processes for assessing complex agreements with third parties, managing financial asset transfers, and evaluating credit losses related to an externally managed consumer loan portfolio.
Taking Action on Control Weaknesses
The company is actively working to address these weaknesses by introducing new controls and procedures targeting loan transfer transactions and ensuring timely reviews of credit loss trends within the portfolio. Additionally, Primis is strengthening its team by bringing in experts experienced in complex accounting issues.
Updates on Financial Statements
Alongside the changes in auditors, Primis Financial Corp has also announced a restatement of its financial reports to fix accounting errors discovered in a consumer loan portfolio. These issues were identified in collaboration with its independent auditor and require adjustments to comply with U.S. GAAP. The recognition of these errors has highlighted some material weaknesses in the company's internal controls, prompting a comprehensive reassessment of its financial reporting approaches.
Dealing with Nasdaq Compliance and Financial Health
To complicate matters, Primis Financial Corp is tackling Nasdaq delinquency issues as a result of late financial filings. These delays have arisen due to the necessity of restating certain financial statements, for which the company has received an extension until September 30, 2024, to submit the overdue reports.
Second Quarter Performance Highlights
In the midst of these difficulties, Primis Financial Corp has reported strong results for the second quarter. Earnings surged to $7.8 million, a considerable improvement compared to the net loss of $311,000 from the same period last year. Currently, the company has total loans amounting to $835 million and total deposits nearing $1 billion across its diverse business lines.
Future Prospects and Strategic Direction
Looking towards the future, analyst Matthew Switzer anticipates that the company’s expenses will likely stabilize around the $19 million mark. Moreover, Primis is making moves to deconsolidate PFH, a strategy expected to enhance its tangible book value and bolster capital ratios.
Assessing Investment Opportunities
Primis Financial Corp. is going through a transitional phase, characterized by changes in its accounting practices and the identification of challenges within its financial reporting. Investors should keep an eye on the company’s expected growth in net income for the year, as analysts have increased their earnings forecasts for the upcoming period, indicating a positive outlook for Primis’s financial future.
Valuation and Market Position Analysis
From a valuation standpoint, Primis Financial currently holds a P/E ratio of 30.25, which appears high when compared to its adjusted P/E ratio of 14.15 over the past year, suggesting that the stock may be trading at a premium relative to its recent earnings. Additionally, the company remains committed to dividend payments, offering a yield of 3.19%, while achieving a total return of 32.57% over the last three months. Given these encouraging indicators, potential investors should consider them against the obstacles of rapid cash burn and relatively low gross profit margins that the company faces.
Frequently Asked Questions
What prompted Primis Financial to change its auditor?
Forvis Mazars LLP chose not to seek re-appointment, leading Primis Financial to look for a new independent auditor.
What specific material weaknesses has Primis Financial identified?
The identified weaknesses relate to the evaluation of complex agreements, the accounting of financial asset transfers, and the assessment of credit losses concerning consumer loans.
How did Primis Financial perform during the second quarter?
In Q2, Primis Financial reported earnings of $7.8 million, a significant increase compared to a loss recorded the previous year.
What current challenges is Primis Financial facing?
Primis is contending with Nasdaq delinquency issues stemming from late financial filings and the need to restate certain financial statements.
What measures is the company taking to enhance its financial reporting?
To improve their financial reporting, Primis is implementing new controls, enhancing its team's expertise, and ensuring timely reviews of credit loss trends to address the identified weaknesses.
