First Bank(US:FBNC)2021-08-08 16:00Part I. Financial Information Item 1 - Financial Statements This section presents First Bancorp's unaudited consolidated financial statements and accompanying notes for the three and six months ended June 30, 2021 Consolidated Balance Sheets Total assets increased to $8.20 billion, driven by significant deposit growth, while net loans and securities available for sale also rose Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $8,200,582 | $7,289,751 | +12.5% | | Net Loans | $4,717,042 | $4,678,927 | +0.8% | | Securities Available for Sale | $2,115,153 | $1,453,132 | +45.6% | | Total Deposits | $7,171,358 | $6,273,596 | +14.3% | | Total Liabilities | $7,296,072 | $6,396,330 | +14.1% | | Total Shareholders' Equity | $904,510 | $893,421 | +1.2% | Consolidated Statements of Income Net income significantly increased in Q2 and H1 2021, primarily due to a lower provision for credit losses, despite a decrease in noninterest income Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | YoY Change | H1 2021 | H1 2020 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $58,759 | $52,624 | +11.7% | $113,997 | $107,383 | +6.2% | | Provision for Credit Losses | $1,939 | $19,298 | -89.9% | $1,939 | $24,888 | -92.2% | | Net Income | $29,285 | $16,352 | +79.1% | $57,479 | $34,532 | +66.5% | | Diluted EPS | $1.03 | $0.56 | +83.9% | $2.02 | $1.18 | +71.2% | Notes to Consolidated Financial Statements These notes detail accounting policies, including CECL adoption, portfolio breakdowns, asset quality, and recent corporate actions like a subsidiary sale and pending acquisition - The Company adopted the Current Expected Credit Loss (CECL) standard on January 1, 2021, resulting in a transition adjustment that increased the allowance for credit losses on loans by $14.6 million and on unfunded commitments by $7.5 million, leading to a net decrease in retained earnings of $17.1 million3840 - On June 1, 2021, the Company announced a definitive merger agreement to acquire Select Bancorp, Inc. in an all-stock transaction valued at approximately $314.3 million, with the transaction expected to close in Q4 2021205 - On June 30, 2021, the Company completed the sale of its property and casualty insurance agency subsidiary, First Bank Insurance Services, for an initial price of $13.0 million, resulting in a pre-tax gain of $1.7 million and the derecognition of $10.2 million in intangible assets155204 Item 2 – Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Management discusses the company's financial performance, highlighting earnings growth driven by lower credit costs, balance sheet expansion, and strategic corporate actions Financial Overview Net income per share significantly increased in Q2 and H1 2021, primarily due to lower credit costs, alongside strong deposit and non-PPP loan growth - Higher earnings in 2021 were primarily driven by lower credit costs compared to 2020222 - Non-PPP loans grew by $244 million in Q2 2021, an annualized rate of 22.3%, indicating a recovery in loan demand220 - Total deposits increased by $898 million in H1 2021, an annualized growth rate of 28.9%, attributed to stimulus funds, changes in customer behavior, and company initiatives220236 Components of Earnings Net interest income grew due to higher earning assets, though net interest margin declined, while noninterest income decreased due to the absence of prior year's securities gains - Net interest margin declined by 27 basis points YoY in Q2 2021 to 3.22%, primarily due to lower interest rates and a higher proportion of lower-yielding securities and cash on the balance sheet257259 - The company recorded no provision for loan losses in H1 2021, compared to a $24.9 million provision in H1 2020, which was the primary driver of increased net income264 - Q2 2021 noninterest income decreased by 18.4% YoY, mainly because there were no securities sales, compared to an $8.0 million gain from securities sales in Q2 2020265274 - A gain of $1.7 million was recognized in Q2 2021 from the sale of the First Bank Insurance Services subsidiary274 Financial Condition Total assets grew to $8.2 billion, driven by strong deposit growth, while asset quality improved with a decrease in nonperforming assets and an increased allowance for loan losses Asset Quality Data (in thousands) | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Nonperforming Assets | $41,845 | $46,997 | | Nonperforming Assets to Total Assets | 0.51% | 0.64% | | Allowance for Loan Losses to Total Loans | 1.36% | 1.11% | - Strong non-PPP loan growth of $244 million (22.3% annualized) was recorded in Q2 2021, signaling a recovery from pandemic-related soft demand287 - The allowance for unfunded commitments increased to $10.0 million at June 30, 2021, from $0.6 million at year-end 2020, mainly due to a $7.5 million adjustment upon CECL adoption and a $1.9 million provision in Q2 2021315 Capital Resources The company remained well-capitalized by all regulatory standards, with capital ratios comfortably above minimum requirements despite a slight decline due to balance sheet growth Key Capital Ratios | Ratio | June 30, 2021 | Dec 31, 2020 | Minimum Required | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 12.81% | 13.19% | 7.00% | | Tier 1 Capital | 13.80% | 14.28% | 8.50% | | Total Risk-Based Capital | 15.05% | 15.37% | 10.50% | | Tier 1 Leverage | 9.43% | 9.88% | 4.00% | Item 3 – Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which management actively monitors, with the current low-rate environment pressuring net interest margin - The company is currently in a very low and flat interest rate curve environment, which pressures the net interest margin by narrowing the spread between loan yields and deposit costs338 - As of June 30, 2021, the company has $6.2 million in remaining deferred PPP loan fees to be recognized as interest income, with the majority expected to be realized by Q1 2022342 - The remaining loan discount on acquired loans was $5.3 million at June 30, 2021, with the timing of its accretion into income being volatile and dependent on loan payoffs and credit performance343 Item 4 – Controls and Procedures The company's disclosure controls and procedures were deemed effective by management, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021345 Part II. Other Information Item 1 – Legal Proceedings The company and its subsidiaries are not involved in any material pending legal proceedings - There are no material legal proceedings pending against the Company or its subsidiaries346 Item 1A – Risk Factors No material changes to the company's previously disclosed risk factors were reported from the 2020 Annual Report on Form 10-K - No material changes to risk factors were reported from the company's 2020 Form 10-K348 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q2 2021, but repurchased $4.0 million in H1 2021, with $16.0 million remaining under authorization - No shares were repurchased in the second quarter of 2021332349 - As of June 30, 2021, the company had remaining authorization to repurchase up to $16.0 million of its common stock under a program announced in January 2021350 Item 6 – Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL-formatted financial data