Primis Financial announces auditor change and material weaknesses

Primis Financial Corp. (NASDAQ:FRST), a Virginia-based state commercial bank, has disclosed a change in its independent registered public accounting firm, according to a recent 8-K filing with the Securities and Exchange Commission. Forvis Mazars LLP, the company's current accounting firm, has informed Primis that it will not stand for re-appointment for the fiscal year ending December 31, 2024. The decision, which took place on September 17, was ratified by Primis Financial's Audit Committee two days later.

Forvis will complete the audit for the fiscal year ending December 31, 2023, and review interim financial statements for the quarter ending March 31, 2024. The audit report for the year ended December 31, 2022, did not contain any adverse opinion or modifications related to audit scope or accounting principles, and Primis anticipates a similar outcome for the 2023 audit report.

However, Primis Financial expects to disclose material weaknesses in its internal control over financial reporting for the fiscal years ended December 31, 2022, and 2023. These weaknesses pertain to the company's processes for evaluating complex agreements with third parties, accounting for transfers of financial assets, and assessing credit losses on a portfolio of consumer loans managed by a third party.

The company has stated that it is actively working to remediate these material weaknesses, including the implementation of new controls and procedures for loan transfer transactions, timely review of portfolio-specific credit loss trends, and the involvement of individuals with the necessary expertise for complex accounting matters.

In other recent news, Primis Financial Corp has announced a restatement of its financial reports due to accounting errors discovered in a portfolio of consumer loans. The company has identified this issue in collaboration with its independent auditor, Forvis Mazars, LLP, and will make necessary adjustments in accordance with U.S. GAAP.

However, the discovery of these errors has led to a material weakness in the company's internal controls over financial reporting, necessitating a reevaluation.

Simultaneously, Primis Financial Corp has been dealing with Nasdaq delinquency due to late financial filings, which have been attributed to the need for restatement of certain financial statements. An extension until September 30, 2024, has been granted to the company to file the overdue reports.

Despite these challenges, Primis Financial Corp reported strong Q2 performance, with earnings reaching $7.8 million, a significant improvement from the net loss of $311,000 in the same period last year.

The company's total loans hit $835 million and total deposits neared $1 billion across all business lines. Analyst Matthew Switzer anticipates future expenses to hover around the mid-$19 million range. The company is also planning to deconsolidate PFH, a move expected to enhance tangible book value and capital ratios.

InvestingPro Insights

Primis Financial Corp. (NASDAQ:FRST) is navigating through a period of transition, as indicated by its recent change in accounting firms and the disclosure of material weaknesses in its financial reporting. Investors considering Primis should note that the company is expected to grow its net income this year, and analysts have revised their earnings upwards for the upcoming period, suggesting potential optimism in the company's financial future.

From a valuation standpoint, Primis Financial currently trades at a P/E ratio of 30.25, which is high compared to its adjusted P/E ratio for the last twelve months as of Q4 2023, which stands at 14.15. This could indicate the stock is trading at a premium based on recent earnings. Additionally, the company has a track record of maintaining dividend payments, with a dividend yield of 3.19% as of the latest data, and has delivered a strong return over the last three months, with a price total return of 32.57%.

Despite these positive indicators, potential investors should be aware of the company's challenges, such as a quick cash burn and weak gross profit margins. These factors, combined with the recent accounting firm change, may affect investor confidence. For a more comprehensive analysis, including additional InvestingPro Tips, visit InvestingPro, where 9 more tips are available to guide your investment decisions.

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