Business Context and Reporting Period
Company: Primis Financial Corp. (Ticker: FRST)
Filing Type: Form 8-K (Current Report)
Date of Report: September 9, 2024
Subject: Non-reliance on previously issued financial statements and identification of a material weakness in internal controls.
Key Financial Metrics
This filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures. Instead, it announces that the audited annual consolidated financial statements for the year ended December 31, 2022, and the accompanying audit report should no longer be relied upon due to accounting errors.
Material Changes and Accounting Errors
Management, in consultation with its auditor (Forvis Mazars, LLP), identified errors in the methodology used to account for a portfolio of consumer loans originated and serviced by a third party. The following accounting changes ("Determinations") are required to correct the application of U.S. GAAP:
- Interest Income Deferral: Interest income on consumer loans with promotional features (e.g., no interest if paid early) must be deferred until the end of the promotional period. Pre-payment forgiveness amounts paid by the servicer will be recognized differently.
- Reversal of Credit Enhancement Income: Income previously recorded in noninterest income related to credit enhancement (excess cash flows and reserve accounts) must be reversed, and the associated asset derecognized.
- Net Interest Income Adjustments: The company will discontinue recording certain items in net interest income and noninterest expense related to excess spreads and costs attributed to the third-party servicer.
- Derivative Accounting: The agreement governing interest reimbursement and performance fees with the third-party servicer must be accounted for as a derivative under FASB ASC 815. A derivative asset or liability will be recorded at fair value, with changes recorded in noninterest income or expense.
Outlook, Risks, and Contingencies
Restatement Plan: The company intends to file amended financial statements for the year ended December 31, 2022, as soon as practicable. The forthcoming 2023 Annual Report (Form 10-K) will also reflect these determinations. Management does not believe the timeline for completing filings is materially impacted.
Internal Control Weakness: Due to these errors, management identified a material weakness in internal control over financial reporting as of December 31, 2022. Consequently, the Management's Report on Internal Control included in the 2022 Annual Report is no longer reliable. Specifics on the weakness and remediation will be provided in the amended 2022 Annual Report.
Auditor Confirmation: Forvis Mazars, LLP has issued a letter agreeing with the disclosures made in this 8-K regarding the accounting matters.
Investor Verification Checklist
- Verify the magnitude of the financial restatement once the amended 2022 Form 10-K is filed.
- Review the specific details of the material weakness in internal controls and the proposed remediation plan.
- Monitor the impact of the new derivative accounting treatment on future volatility in noninterest income/expense.
- Confirm the timeline for the filing of the 2023 Form 10-K to ensure it incorporates these corrections.