Business Context and Reporting Period
Primis Financial Corp. (NASDAQ: FRST) filed a Form 8-K on February 26, 2024, announcing a non-reliance on previously issued financial statements. The filing addresses accounting errors discovered during the 2024 year-end reporting process affecting interim periods in 2023 and preliminary Q4 2023 results. The company is headquartered in McLean, Virginia.
Key Financial Metrics and Restatements
The filing details significant restatements for 2023 interim periods and preliminary adjustments for Q4 2023. The primary driver was the reclassification of approximately $33.7 million in loan transfers from "sales" to "secured borrowings."
| Period | Metric | As Reported | As Restated |
|---|---|---|---|
| Q1 2023 | Net Income | $5,953k | $5,692k |
| Q1 2023 | EPS (Diluted) | $0.24 | $0.23 |
| Q2 2023 | Net Loss | $(188k) | $(311k) |
| Q2 2023 | EPS (Diluted) | $(0.01) | $(0.01) |
| Q3 2023 | Net Loss | $(3,567k) | $(3,761k) |
| Q3 2023 | EPS (Diluted) | $(0.14) | $(0.15) |
| Q4 2023 (Preliminary) | Net Income Attributable to Common | $8,121k | $8,358k |
| Q4 2023 (Preliminary) | EPS (Diluted) | $0.33 | $0.34 |
| Full Year 2023 (Preliminary) | Net Income Attributable to Common | $9,940k | $9,978k |
Balance Sheet Impact (Q1 2023 Example): Total loans increased by $15.1 million, and other borrowings increased by $14.9 million to reflect the secured borrowing classification. Stockholders' equity decreased slightly due to the reclassification.
Material Changes and Accounting Errors
- Loan Transfer Reclassification: Transfers of loans totaling approximately $33.7 million in Q1, Q2, and Q3 2023 were incorrectly treated as sales. They must be accounted for as secured borrowings, increasing reported liabilities and assets.
- Q4 2023 Adjustments: Preliminary restatements for Q4 2023 include a subsequent event confirming losses on a receivable and a determination that a Q3 loan transfer failed to qualify as a sale until Q4. Additionally, the allowance for credit losses for a third-party managed portfolio was deemed insufficient.
- Net Income Impact: While Q1-Q3 2023 net income decreased due to the reclassification, the Q4 2023 adjustments (increased provision expense offset by increased noninterest income from credit enhancements) resulted in a slight increase in net income.
Outlook, Risks, and Management Commentary
Management and the Audit Committee concluded that the previously issued financial statements and related earnings releases for the impacted periods should no longer be relied upon. The company intends to file amended Form 10-Q reports for the first three quarters of 2023 and an amended Form 8-K for Q4 2023 as soon as practicable.
Internal Controls: The company expects to report a material weakness in its internal control over financial reporting in its 2023 Form 10-K. Management is reassessing controls and plans to implement remediation measures.
Risks: The filing includes standard forward-looking statement disclaimers, noting that actual results may differ due to risks and uncertainties, including the ongoing assessment of allowance for credit losses adjustments.
Investor Verification Checklist
- Verify the filing of amended Form 10-Q reports for Q1, Q2, and Q3 2023 to confirm final restated figures.
- Monitor the upcoming 2023 Form 10-K for the final determination of the allowance for credit losses and the detailed description of the material weakness in internal controls.
- Review the amended Q4 2023 earnings release for finalized numbers, as current figures are marked as preliminary and subject to finalization.
- Assess the impact of the reclassified $33.7 million in secured borrowings on the company's liquidity ratios and leverage metrics.