First Bancorp (FBNC) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. First Bancorp is a North Carolina-based bank holding company operating First Bank, primarily in North Carolina and South Carolina.
Business context and reporting period
The Company had 121 branches at year-end. On October 15, 2021, it acquired Select Bancorp, adding 22 branches and approximately $1.8 billion of assets at acquisition. Select’s systems conversion was scheduled for March 2022. The Company also sold substantially all operating assets of First Bank Insurance in June 2021.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $246.4 million | $218.1 million |
| Noninterest income | $73.6 million | $81.3 million |
| Net income | $95.6 million | $81.5 million |
| Diluted EPS | $3.19 | $2.81 |
| Net interest margin, tax-equivalent | 3.16% | 3.56% |
| Net cash provided by operating activities | $138.9 million | $57.1 million |
Net interest income rose 13.0%, supported by higher earning-asset volumes and lower funding costs; the margin declined 40 basis points as excess liquidity was invested at lower yields. Net income increased 17.4%. Noninterest income fell, notably because 2020 included $8.0 million of securities gains while 2021 recorded a $1.2 million securities loss. Noninterest expense rose to $184.7 million from $161.3 million, including $16.8 million in Select-related merger costs.
At year-end, assets were $10.51 billion, loans $6.08 billion, deposits $9.12 billion, and shareholders’ equity $1.23 billion. Loans grew 28.5% and deposits 45.4%, including Select; legacy core loan growth was $382.8 million and legacy deposit growth $1.35 billion. Securities totaled $3.14 billion, up 94.0% year over year. Borrowings were $67.4 million. Cash and cash equivalents were $461.2 million; liquid assets as a share of deposits and borrowings were 33.6%. Available borrowing capacity included an approximately $866 million FHLB line, a $100 million correspondent-bank line, and a $138 million Federal Reserve line.
Credit quality metrics included a $78.8 million allowance for credit losses (1.30% of loans), $2.7 million in net charge-offs (0.05% of average loans), and nonperforming assets of $52.6 million (0.50% of assets). Regulatory capital ratios remained above stated minimums: CET1 12.53%, total risk-based capital 14.67%, and leverage 9.39%. Tangible common equity to tangible assets was 8.38%, down from 9.08%.
Cash flows included $1.27 billion used in investing activities, principally securities purchases, and $1.23 billion provided by financing activities, principally deposit growth. Cash and cash equivalents increased $93.9 million during the year.
Material changes versus the prior comparable period
- Select drove substantial balance-sheet and share-count growth; the Company issued 7.07 million shares valued at $324.4 million as part of the $325.8 million consideration. Select added $132.4 million of goodwill.
- Provision for loan losses declined to $9.6 million from $35.0 million, reflecting improved asset quality and economic forecasts, partly offset by the initial Select allowance for non-PCD loans. A further $5.4 million provision was recorded for unfunded commitments.
- CECL was adopted January 1, 2021, reducing opening retained earnings by $17.1 million after tax and increasing the allowance for unfunded commitments.
- Other comprehensive loss was $39.3 million, primarily from unrealized AFS securities losses; this compared with $9.2 million of other comprehensive income in 2020.
- Fourth-quarter net income was $10.5 million, down from $27.6 million in the third quarter. Fourth-quarter results included $16.8 million of merger costs and an $11.0 million loan-loss provision.
Outlook, management commentary, risks, and unusual items
- Management expected an approximately 21% effective tax rate in 2022. It expected Select integration costs in 2022 and anticipated further operating savings and synergies; the filing does not quantify expected savings.
- Beginning July 1, 2022, crossing the $10 billion asset threshold was expected to subject the Company to the debit-card interchange fee cap, with an estimated $8.5–$9.0 million annual pretax earnings impact. The threshold also brings heightened oversight, including direct CFPB supervision and additional examination requirements.
- The Federal Reserve’s rate outlook indicated increases during 2022. Management noted potential margin pressure from competition and excess liquidity, while its rate-shock model estimated net interest income changes of +5.1% for a 200-basis-point increase and −5.4% for a 200-basis-point decrease, assuming a static balance sheet.
- COVID-19 effects remained uncertain, although management reported improved local economies, no loans in payment-deferral status at year-end, and no significant pandemic-related portfolio impact to date. Key risks include credit deterioration, interest-rate and liquidity risk, commercial real-estate exposure, cybersecurity, competition, regulatory costs, and the LIBOR transition.
- The $1.7 million gain on the insurance-business sale and securities losses/gains affected noninterest income. The Company reported no material pending legal proceedings. The auditor issued an unqualified opinion on the financial statements and internal control; however, Select’s internal controls were excluded from management’s and the auditor’s year-end ICFR assessment because of the acquisition timing.
- Subsequent to year-end, the Company raised its quarterly dividend to $0.22 per share and authorized a share repurchase program of up to $40 million. Select loan pools classified as held for sale were subsequently sold at approximately their year-end carrying value.
Most important facts for investors to verify
- Whether Select integration, March 2022 systems conversion, and projected synergies proceed on schedule and within expected costs.
- The actual impact of the $10 billion regulatory threshold, particularly the estimated interchange-fee reduction and related compliance costs.
- Whether credit quality and the $78.8 million CECL allowance remain adequate as acquired commercial real-estate loans season and economic conditions change.
- How deposit growth, loan deployment, market rates, and securities valuations affect net interest margin, earnings, and tangible capital.
- Uninsured deposits were approximately $3.4 billion; verify funding stability and liquidity under stressed conditions, despite reported available credit lines.
- That year-end internal-control assurance excluded Select, which represented 17.5% of assets; monitor post-acquisition control integration and future audit coverage.