First Bancorp — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; comparisons are generally with 2022. First Bancorp is a North Carolina bank holding company operating First Bank, principally in North Carolina and South Carolina. It completed its all-stock acquisition of GrandSouth on January 1, 2023.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $346.7 million | $324.9 million |
| Net interest margin, tax-equivalent | 3.06% | 3.28% |
| Net income | $104.1 million | $146.9 million |
| Diluted earnings per share | $2.53 | $4.12 |
| Return on average assets | 0.87% | 1.39% |
| Return on average common equity | 8.05% | 13.40% |
| Net interest income after credit-loss provision | $328.8 million | $312.5 million |
| Operating cash flow | $131.4 million | $230.7 million |
Total interest income increased $147.8 million, while interest expense rose $126.0 million, reflecting higher market rates, deposit repricing, and increased borrowings. Reported noninterest income fell to $57.5 million from $68.0 million; noninterest expense rose to $254.4 million from $195.2 million. The latter included $13.7 million of merger costs, and adjusted expense also increased substantially.
At year-end, total assets were $12.1 billion, loans $8.15 billion, deposits $10.03 billion, borrowings $630.2 million, and shareholders’ equity $1.37 billion. Loans grew 22.3%, including $1.02 billion acquired with GrandSouth; organic loan growth was 7.0%. Deposits rose 8.7% including acquired balances, but contracted 2.7% organically. Cash and cash equivalents were $237.9 million, down from $270.3 million. Investing cash outflow was $191.4 million and financing cash inflow was $27.5 million.
Capital ratios remained above regulatory minimums: CET1 was 13.20%, total risk-based capital 15.54%, and Tier 1 leverage 10.91%. The tangible common equity ratio was 7.42%, compared with 6.39% in 2022. The allowance for credit losses was $109.9 million, or 1.35% of loans, versus $91.0 million, or 1.36%, a year earlier.
Material changes versus 2022
- Net income declined 29.1%, and diluted EPS fell from $4.12 to $2.53, despite higher net interest income. Lower margin, increased operating expenses, and lower noninterest income contributed.
- Tax-equivalent net interest margin contracted 22 basis points to 3.06%. Funding costs increased faster than asset yields.
- GrandSouth added eight South Carolina branches, $1.02 billion of acquired loans, $1.05 billion of deposits, and $114.5 million of goodwill. The company issued 5.03 million shares as part of the transaction.
- Borrowings increased to $630.2 million from $287.5 million, including $249.0 million drawn under the Federal Reserve Bank Term Funding Program (BTFP).
- Nonperforming assets were $44.8 million, or 0.37% of assets, versus $38.3 million, or 0.36%, in 2022. Net charge-offs rose to 0.08% of average loans from 0.01%.
- Unrealized losses on available-for-sale securities improved to $400.7 million from $444.1 million before tax. Held-to-maturity securities had fair value $84.1 million below carrying value at year-end.
Outlook, commentary, risks, and unusual items
- The filing gives no quantified earnings, revenue, or margin guidance. Management described economic conditions and the interest-rate outlook as uncertain, noting inflation, recession risks, deposit competition, and potential impacts on borrowers, asset quality, liquidity, and loan demand.
- Management said its year-end liquidity was adequate: the on-balance-sheet liquidity ratio was 14.6%, and the total ratio including available lines was 28.8%. Approximately $1.9 billion of borrowing capacity was available. However, estimated uninsured deposits were $3.7 billion, and the company relied on wholesale funding during the year.
- The BTFP provided $249.0 million of year-end borrowing; the Federal Reserve announced that no new BTFP loans would be made on or after March 11, 2024. The company reported $45.1 million of remaining BTFP capacity at year-end.
- Interest-rate sensitivity modeling projected 12-month net interest income declines of 6.1% under a +400-basis-point shock and 3.6% under a -100-basis-point shock. These are model scenarios, not forecasts; the filing cautions that assumptions are uncertain.
- The company terminated its frozen defined-benefit pension plan in 2023, transferring about $19.5 million of obligations to an insurer and paying about $9.2 million in lump sums. It recorded a one-time, noncash settlement charge of approximately $1.0 million.
- The auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. A material weakness involved user-access controls and segregation of duties in an application supporting accounting and reporting; related manual controls were also ineffective. Management began remediation, but the weakness was not considered fully remediated at year-end.
- Other key risks include commercial real estate exposure, interest-rate and deposit-liquidity sensitivity, credit-loss estimation, acquisition integration and goodwill impairment, cybersecurity and third-party risks, and regulatory change. Management reported no pending legal proceedings it considered material.
Important facts for investors to verify
- Progress and independent testing of remediation for the material weakness, and whether disclosure controls become effective.
- Deposit trends, deposit pricing, uninsured-deposit stability, and replacement funding as BTFP availability ends.
- Net interest margin and earnings sensitivity as rates and the yield curve change, compared with management’s disclosed modeling assumptions.
- Credit quality by loan type, especially commercial real estate and SBA loans; nonperforming loans, criticized/classified exposures, charge-offs, and ACL assumptions.
- GrandSouth integration costs, realization of anticipated benefits, acquired-loan performance, and the carrying value of $478.8 million of goodwill.
- Whether securities-related unrealized losses, capital, and liquidity remain manageable; confirm the distinction between AFS and HTM marks and their implications.
- Dividend sustainability and regulatory capacity to upstream funds from the Bank; the company declared $0.22 per share each quarter in 2023 and stated an intention to continue regular quarterly dividends, subject to restrictions.