8-K: Primis Financial Corp. Announces Forvis Mazars, LLP Will Not Seek Re-Appointment as Auditor

Primis Financial Corp. reports that its independent auditor, Forvis Mazars, LLP, will not seek re-appointment for the year ending December 31, 2024, following the identification of material weaknesses in internal controls.

Summary

• Primis Financial Corp. has announced that Forvis Mazars, LLP will not stand for re-appointment as their independent auditor for the year ending December 31, 2024.
• This decision was ratified by the Audit Committee on September 19, 2024.
• Forvis will complete the audit for the year ending December 31, 2023, and the restatement of prior interim financial statements.
• The company expects the 2023 audit report to not contain an adverse opinion or disclaimer, similar to the 2022 report.
• There were no disagreements with Forvis on accounting principles or auditing scope, but material weaknesses in internal controls were identified.
• These weaknesses relate to accounting for a complex third-party loan agreement and the evaluation of credit losses on the consumer loan portfolio.
• Management is currently remediating these weaknesses by designing and testing new controls.

Sentiment

Score: 3

Explanation: The document reveals significant issues with internal controls and a change in auditors, which are negative signals for investors. While management is taking steps to remediate the issues, the overall tone is concerning.

Positives

• The 2022 audit report did not contain an adverse opinion or disclaimer, and the 2023 report is expected to be similar.
• There were no disagreements with Forvis on accounting principles or auditing scope.
• Management is actively remediating the identified material weaknesses with new controls.

Negatives

• Forvis Mazars, LLP will not seek re-appointment as the company's auditor.
• Material weaknesses in internal controls were identified for both 2022 and 2023.
• These weaknesses relate to complex accounting matters and credit loss evaluations.

Risks

• The company faces risks related to the material weaknesses in internal controls over financial reporting.
• There is a risk of further issues arising from the complex third-party loan agreement.
• The company needs to ensure the new controls are effective in remediating the identified weaknesses.
• The change in auditors could create uncertainty.

Future Outlook

The company will continue to engage Forvis for the 2023 audit and restatement of prior interim financial statements. Management is focused on remediating the identified material weaknesses in internal controls.

Management Comments

• Management is currently remediating the material weaknesses including design of and testing new controls related to the accounting related to the weakness.
• Management did not have a detailed process for review of recent actual portfolio loss trends and incorporation of those trends into the allowance determination.

Industry Context

The change in auditors and the identification of material weaknesses are significant events that could impact investor confidence. Companies in the financial sector are under increased scrutiny regarding internal controls and financial reporting.

Comparison to Industry Standards

• The identification of material weaknesses in internal controls is not uncommon, but it does raise concerns about the effectiveness of the company's financial reporting processes.
• Other financial institutions have faced similar challenges, and the key is how quickly and effectively the company remediates these issues.
• Comparable companies that have disclosed material weaknesses have often seen a negative impact on their stock price until the issues are resolved.

Stakeholder Impact

• Shareholders may be concerned about the material weaknesses and the change in auditors.
• Employees involved in financial reporting may face increased scrutiny and workload.
• Creditors may reassess their risk exposure to the company.

Next Steps

• The company will complete the 2023 audit with Forvis.
• The company will restate prior interim financial statements.
• Management will continue to remediate the identified material weaknesses.
• The company will appoint a new independent auditor.

Key Dates

Keywords

auditor, Forvis Mazars, internal controls, material weakness, financial reporting, accounting, loan portfolio, audit, Primis Financial Corp