10-K/A: Primis Financial Corp. Amends 10-K Filing After Accounting Review

Primis Financial Corp. has amended its annual report on Form 10-K to restate financial disclosures related to a third-party consumer loan program and correct for fraud losses.

Summary

• Primis Financial Corp. has filed an amendment to its 2022 annual report on Form 10-K to restate certain financial disclosures.
• The restatement primarily concerns the accounting treatment of a third-party agreement for a consumer loan program, impacting revenue and expense recognition.
• The company also corrected its financial statements to reflect fraud losses discovered in June 2023, which affected prior periods.
• The amendment includes updated audited consolidated financial statements for the fiscal year ended December 31, 2022, and corresponding disclosures.
• The company's corporate address has been updated to reflect its current location.
• As of March 6, 2023, Primis had 24,685,458 shares of common stock outstanding, held by 1,212 holders of record.
• The aggregate market value of voting stock held by non-affiliates as of June 30, 2022 was approximately $297.6 million.
• As of December 31, 2022, Primis had $3.6 billion in total assets, $2.9 billion in total loans, $2.7 billion in total deposits and $389.0 million in total stockholders equity.

Sentiment

Score: 4

Explanation: The document contains a mix of positive and negative information, with a significant restatement of financials and a decrease in net income, which is concerning. The increase in nonperforming assets and provision for credit losses also contribute to a negative sentiment. However, the company's loan growth and digital banking initiatives are positive.

Positives

• The company's net interest margin increased to 3.30% for the year ended December 31, 2022, compared to 3.01% for the year ended December 31, 2021.
• The company's loan portfolio, excluding PPP loans, increased by 30.1% since December 31, 2021.
• The company successfully launched its new digital bank platform in 2022.

Negatives

• The company's net income decreased by 54.2% for the year ended December 31, 2022, compared to the year ended December 31, 2021.
• The company's nonperforming assets increased to $38.8 million, or 1.32% of total loans and OREO, as of December 31, 2022.
• The company recorded a provision for credit losses of $11.3 million for the year ended December 31, 2022, compared to a recovery of credit losses of $5.8 million for the year ended December 31, 2021.
• The company's total deposits decreased by 1.5% compared to December 31, 2021.

Risks

• The company is subject to risks related to its concentration of construction and land development and commercial real estate loans.
• A significant amount of the company's loans are secured by real estate, and any declines in real estate values could be detrimental.
• The company has a meaningful amount of consumer loans that are unsecured, and if the borrower defaults, there is no recourse to collateral.
• A portion of the company's consumer loan portfolio is originated and serviced by a third-party, and includes a credit enhancement from that third-party which may not be realizable.
• The company is subject to interest rate risk, and variations in interest rates may negatively affect its financial performance.
• Unstable global economic conditions may have serious adverse consequences on the company's business, financial condition, and operations.
• The company faces significant cyber and data security risk that could result in the disclosure of confidential information.
• The ongoing COVID-19 pandemic has adversely impacted, and could continue to adversely impact, the company's business, financial condition, liquidity, capital, and results of operations.

Future Outlook

The company expects a sustainable growth rate in the Life Premium Finance Division with each new loan originated. The company believes that Primis and the Bank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2023.

Management Comments

• The experience and market knowledge of the Banks management team is one of its greatest strengths and competitive advantages.
• Primis is committed to controlling additional growth in a manner designed to minimize risk and to maintain strong capital ratios.
• Primis looks to be the primary bank for smalland medium-sized businesses by offering a suite of competitive electronic banking services, robust treasury services and comprehensive lending options.
• Strong asset quality is of primary importance. Therefore, despite the growth in the Banks loan portfolio, Primis has taken measures to ensure it maintains a strong asset quality by upholding its well-defined underwriting standards.

Industry Context

The banking business is highly competitive, and the company's profitability depends on its ability to compete in the market areas in which its banking operations are located. The company experiences substantial competition in attracting and retaining deposits and in lending funds.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards.
• The document does mention that the company's incentive plans are designed to be competitive with industry norms.
• The document also mentions that the company's loan review program is within regulatory standards and industry best practices.

Legal Proceedings

• Primis and Primis Bank are from time to time a party, as both plaintiff and defendant, to various claims and proceedings arising in the ordinary course of the Banks business.
• There are no proceedings pending, or to managements knowledge, threatened, that represent a significant risk against Primis or Primis Bank as of December 31, 2022.

Related Party Transactions

• During the year, officers, directors, principal shareholders, and their affiliates (related parties) were customers of and had transactions with the Company.
• The aggregate amount of these deposit accounts were $15.9 million and $22.4 million as of December 31, 2022 and 2021, respectively.

Stakeholder Impact

• Shareholders may be concerned about the restatement of financials and the decrease in net income.
• Employees may be affected by changes in compensation and benefits.
• Customers may be impacted by changes in the company's products and services.
• Suppliers and creditors may be affected by changes in the company's financial condition.

Next Steps

• The company will continue to monitor the impact of current economic conditions and other events on the Companys business, operating results, cash flows and financial condition.
• Management is currently remediating the material weakness including design of and testing new controls related to the accounting related to the weakness.

Key Dates

Keywords

financial restatement, consumer loans, third-party agreement, credit losses, loan portfolio, mortgage banking, digital banking, asset quality, interest rates, cybersecurity