First Bank(FBNC) - 2023 Q2 - Quarterly Report

Part I. Financial Information This section covers First Bancorp's unaudited financial statements, management's analysis, market risk, and internal controls Financial Statements (Unaudited) This section presents First Bancorp's unaudited consolidated financial statements for Q2 2023, detailing financial position, performance, and cash flows, including the impact of the GrandSouth acquisition Consolidated Balance Sheets Total assets increased to $12.03 billion, driven by the GrandSouth acquisition, with corresponding growth in loans, deposits, and shareholders' equity Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $12,032,998 | $10,625,049 | | Net Loans | $7,788,399 | $6,574,178 | | Goodwill | $478,750 | $364,263 | | Total Deposits | $10,168,569 | $9,227,529 | | Borrowings | $481,658 | $287,507 | | Total Liabilities | $10,735,356 | $9,593,453 | | Total Shareholders' Equity | $1,297,642 | $1,031,596 | Consolidated Statements of Income Net income for Q2 2023 decreased to $29.4 million, primarily due to a significant increase in interest expense and higher noninterest expenses, including merger costs Income Statement Summary ($ in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $86,985 | $78,270 | $179,471 | $155,148 | | Provision for Credit Losses | $2,361 | $0 | $14,863 | $2,000 | | Noninterest Income | $14,235 | $17,264 | $27,771 | $36,515 | | Noninterest Expense | $61,593 | $49,398 | $135,768 | $100,863 | | Net Income | $29,403 | $36,585 | $44,564 | $70,554 | | Diluted EPS | $0.71 | $1.03 | $1.08 | $1.98 | Consolidated Statements of Cash Flows Net cash from operating activities decreased, while investing activities saw a lower net cash outflow due to the GrandSouth acquisition and securities sales Cash Flow Summary for Six Months Ended June 30, ($ in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $65,154 | $130,517 | | Net cash used by investing activities | ($10,213) | ($377,466) | | Net cash provided by financing activities | $35,416 | $219,890 | | Increase (decrease) in cash and cash equivalents | $90,357 | ($27,059) | Notes to Consolidated Financial Statements These notes detail the GrandSouth acquisition's impact, significant unrealized losses in the securities portfolio, and the allowance for credit losses - On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation in an all-stock transaction valued at $229.5 million. This resulted in the recognition of $114.5 million in goodwill[40][41][45] - The securities portfolio had unrealized losses of $536.1 million as of June 30, 2023, primarily due to interest rate factors, not credit quality concerns. The company does not intend to sell these securities and expects to recover the amortized cost[62][63] - The Allowance for Credit Losses (ACL) on loans increased to $109.2 million at June 30, 2023, from $91.0 million at year-end 2022. The increase was driven by a $5.6 million 'Day 1' allowance for acquired PCD loans and a $12.2 million 'Day 2' provision for acquired non-PCD loans from the GrandSouth acquisition[84][85] Management's Discussion and Analysis (MD&A) Management discusses financial results, emphasizing the GrandSouth acquisition's impact, declining net income, NIM compression, and strong asset quality and capital position - The GrandSouth acquisition on January 1, 2023, added $1.02 billion in loans and $1.05 billion in deposits, expanding the company's presence in high-growth South Carolina markets[160][161] - Net interest margin (NIM) on a tax-equivalent basis decreased to 3.08% in Q2 2023 from 3.18% in Q2 2022, driven by higher cost of funds which outpaced the increase in yields on earning assets[167] - Noninterest income for Q2 2023 decreased by 17.5% YoY, primarily due to lower bankcard revenues resulting from the Durbin Amendment limitation on debit card interchange fees, which became applicable in July 2022[167][212] - Noninterest expense increased 24.7% in Q2 2023 YoY, driven by higher personnel costs, merger expenses ($1.3 million in Q2), and intangible amortization related to the GrandSouth acquisition[167][218][219] - Credit quality remains strong, with the nonperforming assets (NPA) to total assets ratio improving to 0.30% at June 30, 2023, from 0.36% at December 31, 2022[175][230] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, monitored via earnings simulation and EVE models, with short-term net interest income projected to be flat or decline in varying rate environments - The company's most significant market risk is interest rate risk, managed through earnings simulation and economic value of equity (EVE) modeling[255][256] - The company's short-term net interest income sensitivity is projected to be flat or decline in both rising and falling rate environments due to a flat/inverted yield curve and a shift in funding mix[261] - The economic value of equity (EVE) is generally liability-sensitive in a rising interest rate environment, a position that has not changed significantly from year-end 2022[265] Controls and Procedures Based on an evaluation by the CEO and CFO, the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[271] - No material changes in internal control over financial reporting occurred during the quarter[271][272] Part II. Other Information This section includes information on legal proceedings, risk factors, and exhibits Legal Proceedings The company and its subsidiaries are not involved in any pending legal proceedings that management believes would be material to the consolidated financial position - There are no material pending legal proceedings against the Company or its subsidiaries[273] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have been made to the risk factors disclosed in the 2022 Annual Report on Form 10-K[274] Exhibits This section lists the exhibits filed with the report, including certifications by the CEO and CFO and XBRL data files - Exhibits filed include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial statements formatted in XBRL[276]