First Bank(FBNC) - 2019 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The company presents its unaudited consolidated financial statements and accompanying notes for the period ended September 30, 2019 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $6,068,911 | $5,864,116 | +3.5% | | Net Loans | $4,377,284 | $4,228,025 | +3.5% | | Securities Available for Sale | $705,224 | $501,351 | +40.7% | | Total Deposits | $4,875,382 | $4,659,339 | +4.6% | | Total Liabilities | $5,233,929 | $5,099,886 | +2.6% | | Total Shareholders' Equity | $834,982 | $764,230 | +9.3% | Consolidated Statements of Income Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $53,778 | $51,845 | $161,548 | $153,584 | | Provision (reversal) for loan losses | $(1,105) | $87 | $(913) | $(4,282) | | Noninterest Income | $15,630 | $15,172 | $46,194 | $46,873 | | Noninterest Expenses | $38,920 | $39,034 | $118,630 | $121,154 | | Net Income | $25,019 | $21,991 | $71,163 | $65,394 | | Diluted EPS | $0.84 | $0.74 | $2.39 | $2.21 | | Dividends declared per share | $0.12 | $0.10 | $0.36 | $0.30 | Consolidated Statements of Comprehensive Income Comprehensive Income (in thousands) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $25,019 | $21,991 | $71,163 | $65,394 | | Other Comprehensive Income (Loss) | $1,746 | $(778) | $15,595 | $(7,827) | | Comprehensive Income | $26,765 | $21,213 | $86,758 | $57,567 | Consolidated Statements of Shareholders' Equity - Shareholders' equity growth was driven by +$71.2 million in net income and +$15.6 million in other comprehensive income, offset by -$10.7 million in dividends and -$10.0 million in stock repurchases[26] Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $33,422 | $23,687 | | Net Cash from Investing Activities | $(268,428) | $(114,833) | | Net Cash from Financing Activities | $89,569 | $112,385 | | Net Change in Cash | $(145,437) | $21,239 | Notes to Consolidated Financial Statements - The Company adopted new lease accounting guidance, recognizing $19.4 million in lease liabilities and right-of-use assets[34] - The Company is preparing for CECL adoption, which is expected to significantly increase the allowance for loan losses[37][38] - The Company issued 78,353 shares valued at $3.1 million to settle a contingent earn-out payment from a 2016 acquisition[176] Management's Discussion and Analysis (MD&A) Management discusses strong earnings growth, improved asset quality, and balance sheet changes for the first nine months of 2019 Critical Accounting Policies - The allowance for loan losses is determined using a model that combines individual impairment analysis and historical loss rates[179][180][181] - Goodwill of $234.4 million is tested annually for impairment and was found not to be impaired as of October 31, 2018[187][189][190] - Acquired loans are recorded at fair value, with complex estimates for purchased credit-impaired (PCI) loans impacting income[192][195][196] FINANCIAL OVERVIEW Performance Highlights | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (millions) | $25.0 | $22.0 | $71.2 | $65.4 | | Diluted EPS | $0.84 | $0.74 | $2.39 | $2.21 | | Net Interest Margin | 3.95% | 4.03% | 4.02% | 4.09% | - Total assets grew 3.5% to $6.1 billion, loans grew 3.5% to $4.4 billion, and deposits grew 4.6% to $4.9 billion since year-end 2018[212] - The company repurchased $10 million of common stock in the first nine months of 2019, with $15 million remaining in its authorization[216] Components of Earnings - Net interest income increased by 3.7% in Q3 2019 and 5.2% year-to-date, driven by growth in interest-earning assets[218][219] - A negative provision for loan losses of $1.1 million was recorded in Q3 2019, reflecting strong asset quality[239] - Adjusted noninterest income grew 2.9% in Q3 2019, driven by higher mortgage and service charge fees[242][245][247] - Noninterest expenses decreased 2.1% year-to-date, primarily due to a $3.4 million reduction in merger-related expenses[250][253][255] FINANCIAL CONDITION Change in Loans and Deposits (Jan 1, 2019 to Sep 30, 2019, in thousands) | Category | Beginning Balance | Net Growth | Ending Balance | % Growth | | :--- | :--- | :--- | :--- | :--- | | Total Loans | $4,249,064 | $147,480 | $4,396,544 | 3.5% | | Total Deposits | $4,659,339 | $216,043 | $4,875,382 | 4.6% | | - Noninterest bearing checking | $1,320,131 | $171,363 | $1,491,494 | 13.0% | | - Brokered Deposits | $239,875 | $(112,356) | $127,519 | (46.8)% | Asset Quality Ratios | Ratio | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Nonperforming loans to total loans | 0.67% | 0.85% | | Nonperforming assets to total assets | 0.56% | 0.74% | | Allowance for loan losses to total loans | 0.44% | 0.50% | - Total nonperforming assets decreased from $43.4 million to $33.9 million at September 30, 2019[270][271] Summary of Loan Loss Experience Loan Loss Experience (in thousands) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Provision (reversal) for loan losses | $(913) | $(4,282) | | Net (charge-offs) recoveries | $(866) | $1,530 | | Allowance for loan losses, at end of period | $19,260 | $20,546 | - The allowance for loan losses to total loans ratio was 0.44%, impacted by a $13.8 million unaccreted discount on acquired loans[287][290] Liquidity, Commitments, and Contingencies - The company has access to significant external liquidity, including an approximately $1.045 billion FHLB line and a $130 million Federal Reserve line[295] - Unused and available lines of credit amounted to $773 million at September 30, 2019[295] Capital Resources Regulatory Capital Ratios | Ratio | Sep 30, 2019 | Minimum Required (with buffer) | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 13.27% | 7.00% | | Tier 1 Capital | 14.44% | 8.50% | | Total Risk-Based Capital | 14.88% | 10.50% | | Tier 1 Leverage | 11.17% | 4.00% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, with recent rate cuts and a flat yield curve pressuring net interest margin - The company is slightly asset-sensitive, meaning net interest income is negatively impacted by falling rates in the short-term[315] - A flat or inverted yield curve is unfavorable, as it narrows the spread between loan yields and deposit rates[316] - Q3 2019 Federal Reserve rate cuts led to an 11 basis point decrease in net interest margin from the preceding quarter[319] - The remaining loan discount on acquired loans was $13.8 million at September 30, 2019, with volatile accretion timing[321] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in ensuring timely and accurate SEC reporting[323] Part II. Other Information Legal Proceedings The company is not involved in any pending legal proceedings expected to be material to its financial position - There are no material legal proceedings pending against the Company or its subsidiaries[324] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2018 Annual Report - The report refers to the risk factors in the 2018 Form 10-K, indicating no material changes[325] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately $3.5 million of its common stock in Q3 2019, with $15.0 million remaining under its authorization Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | — | $— | | August 2019 | 99,625 | $34.89 | | September 2019 | — | $— | | Total | 99,625 | $34.89 | - As of September 30, 2019, the company had approximately $15.0 million remaining under its share repurchase authorization[328][329] Exhibits This section lists filed exhibits, including CEO/CFO certifications and financial data in XBRL format