Primis Financial says it's closer to resolving an accounting headache that's prompted months of delays in filing its financial reports with the Securities and Exchange Commission.
The accounting errors involved loans the Virginia-based bank made through a third-party partner, comprising 6% of Primis' portfolio. The relatively small business line led to accounting issues that are taking months to fix, seemingly causing a falling-out with Primis' longtime auditor and raising the possibility that the bank would be delisted from the Nasdaq stock exchange.
While Primis missed an earlier self-imposed goal of wrapping up the necessary remediation work by mid-November, the company told American Banker this week that it's close to doing so. The bank still needs to file its SEC reports for the second and third quarters of 2024.
"We are optimistic about putting this behind us and continuing to focus on what we do best — innovating and delivering exceptional financial solutions for our customers," the company said in a statement.
Primis has reached some milestones in its efforts, including filing its 2023 annual report after a delay and making necessary corrections to some past reports.
The accounting issue has been an unfortunate distraction for an otherwise-solid bank, said Chris Marinac, an analyst at Janney Montgomery Scott who covers the $4 billion-asset Primis. The company's branches are largely in Richmond and the eastern half of Virginia, and its technology focus has brought in a new source of deposits.
"The future is very bright for the company, and getting this distraction behind them is a net positive," Marinac said.
The company's stock price has been stuck in the mud — a stark contrast with other banks' large gains this year. The KBW Nasdaq Bank Index is up 40% in 2024, while shares in Primis are down 2%.
The accounting error stemmed from misclassifying income from loans Primis made to consumers through an unnamed third-party provider. While the amount of money Primis made didn't change, how it classified the income conflicted with U.S. accounting principles.
Primis has said that some of its prior financial reports dating back to 2022 "should no longer be relied upon" and that the company needed to restate them.
In its statement to American Banker, the company said it's "diligently pursued completion of our financial reports while providing as much information as possible to the market." The bank also stated that the matter is "highly technical and complex."
The accounting firm Forbis Mazars, which had audited the firm for years and signed off on its 2022 report, declined to stand for reappointment after the issue bubbled up this year. A spokesperson for the accounting firm did not respond to a request for comment.
Primis hired the accounting firm Crowe in October, and it said last month that "additional time is necessary" to complete the delayed quarterly reports for the second and third quarters.
The Nasdaq stock exchange has cautioned Primis that it is delinquent on its requirements to be listed on the exchange, since it hasn't filed the two quarterly reports. But the company has received a temporary reprieve as it continues working through the accounting issues.
In addition to its auditors, Primis has worked with the SEC's Office of the Chief Accountant, which in August provided a "non-objection" to the conclusion that Primis would need to correct its financial reports.
Primis CEO Dennis Zember told analysts in October that the company was "high gear working to catch up on all of our 10-Qs" and was targeting mid-November to be fully current.
"The noise from this consumer portfolio is unfortunate," Zember said, noting that the loans make up a small chunk of Primis' portfolio and saying that the bank has "made a lot of progress on our strategy" elsewhere.
While many banks have struggled to find new sources of loan growth, Zember said that Primis is building "new relationships at a very impressive pace," and that pipelines are about triple where they were last year.
