Primis Financial Corp.

09/12/2024 | Press release | Distributed by Public on 09/12/2024 15:01

Non Reliance of Financial Report Form 8 K

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On September 9, 2024, the management team of Primis Financial Corp. (the "Company") concluded and, following discussions and in consultation with its independent registered public accounting firm, Forvis Mazars, LLP (the "Auditor"), that due to errors previously described in the Company's filings with the Securities and Exchange Commission ("SEC") on Form 12b-25 filed by the Company on March 18, 2024, April 1, 2024, May 13, 2024 and August 12, 2024 (the "12b-25 Filings") and repeated in this Item 4.02,(i) the Company's audited annual consolidated financial statements for the year ended December 31, 2022, and (ii) as informed by the Auditor, the accompanying audit report, each as previously filed with the SEC (the "Impacted Financial Statements") should no longer be relied upon.

The accounting matters underlying the Company's conclusion relate to errors in the methodology used to account for a portfolio of consumer loans originated and serviced through a third party pursuant to a contractual arrangement between such third party and Primis Bank, whichwill result in the Company making certain changes to how it accounts for the third-party serviced consumer loan portfolio to correct an error in its previous application of U.S. GAAP, including (collectively, the "Determinations"):

· Interest income earned on the consumer loans originated by the third-party and funded and held by the Company that are originated with promotional features (e.g. no interest due if paid off within a certain timeframe) will be deferred until the end of that promotional period. If the borrower pre-pays the loan principal before the end of the promotional period, the Company has an agreement with the third-party servicer whereby the third-party servicer will pay the Company all of the interest that had been accruing and is forgiven to the borrower.
· The credit enhancement income currently recorded in noninterest income as a gain or loss on indemnification asset will be reversed, and the associated asset will be derecognized. This credit enhancement income represented the credit enhancement provided to the Company from the third-party servicer to offset credit losses primarily in the form of excess cash flows from the portfolio that otherwise would have been due to the third-party servicer as performance fees absent credit losses, but also included the benefit of a reserve account funded by the third-party servicer to absorb potential credit losses.
· The Company will discontinue recording certain items within net interest income and noninterest expense that were recorded originally to reflect the excess spread on the portfolio otherwise due to the third-party servicer and largely attributed to costs related to the credit enhancement provided by the third-party.
· The Company will account for the agreement between the Company and the third-party servicer that governs the interest reimbursement feature provided to the Company by the third-party servicer and potential performance fees otherwise due from the Company to the third-party servicer as a derivative under FASB ASC 815, Derivatives and Hedging. A derivative asset or liability will be recorded in the Company's consolidated balance sheet each reporting period representing the fair value of the expected cash flows between the Company and the third-party servicer under the aforementioned agreement with changes in the value of the derivative between each reporting period recorded in noninterest income (or noninterest expense) in the Company's consolidated income statement.