First Bancorp — FY 2013 Form 10-K
Reporting period: Year ended December 31, 2013; filed March 17, 2014. First Bancorp is a North Carolina bank holding company operating First Bank, with 96 branches in North Carolina, South Carolina, and Virginia. The filing is an annual report, not a standalone fourth-quarter report; fourth-quarter figures are unaudited.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Net interest income | $136.5 million | $135.2 million |
| Provision for loan losses | $30.6 million | $79.7 million |
| Noninterest income | $23.5 million | $1.4 million |
| Noninterest expense | $96.6 million | $97.3 million |
| Net income (loss) | $20.7 million | ($23.4 million) |
| Net income (loss) available to common shareholders | $19.8 million | ($26.2 million) |
| Diluted earnings (loss) per common share | $0.98 | ($1.54) |
| Tax-equivalent net interest margin | 4.92% | 4.78% |
FY 2013 cash flow from operations was $71.9 million; investing activities provided $45.0 million, while financing activities used $135.2 million. Cash and cash equivalents declined $18.2 million to $223.3 million.
At year-end, assets were $3.185 billion, loans $2.463 billion, deposits $2.751 billion, shareholders’ equity $371.9 million, and borrowings $46.4 million. Borrowings consisted of trust-preferred securities. Liquid assets were 16.1% of deposits and borrowings. Available facilities included an approximately $119 million unused FHLB line after collateral pledges, a $50 million federal funds line, and an approximately $85 million Federal Reserve discount-window line.
Capital remained above regulatory well-capitalized thresholds: total risk-based capital ratio 16.79%, Tier 1 ratio 15.53%, and leverage ratio 11.18%. Tangible common equity to tangible assets was 7.46%. The allowance for loan losses was $48.5 million, or 1.97% of loans; the non-covered allowance was $44.3 million, or 1.96% of non-covered loans.
Changes versus comparable periods
- The company returned to profitability from a substantial 2012 loss. Lower 2013 loan-loss provisions and improved foreclosed-property results were major factors; 2012 included a roughly $33 million incremental provision tied to a planned loan sale and $10.6 million of foreclosed-property write-downs.
- Net interest income rose 1.0%; margin improved to 4.92%, supported by lower funding costs, a shift toward transaction deposits, and higher acquired-loan discount accretion. Discount accretion was $20.2 million versus $16.5 million in 2012 and is variable.
- Total loans increased 3.6%. Non-covered loans grew 6.8% internally, while covered loans declined 25.5%. Deposits fell 2.5%: transaction accounts grew, but time deposits fell 15.6%. The deposit mix helped reduce cost of funds to 0.39% from 0.59%.
- Total net charge-offs declined to $28.5 million from $74.7 million; 2012 included substantial charge-offs associated with the loan-sale initiative. Total nonperforming assets decreased to $152.6 million from $202.4 million, but non-covered nonaccrual loans rose to $41.9 million from $33.0 million.
- Noninterest income increased sharply from a low 2012 base, reflecting the move from foreclosed-property losses to gains and other FDIC-indemnification adjustments. Core noninterest income rose 10.7% to $28.2 million.
Outlook, risks, and unusual items
- Management expected solid loan growth in 2014, citing improving demand, new loan-production offices, and enhanced credit processes. It did not expect the 2014 provision for non-covered loans to be materially greater than the $18.3 million recorded in 2013, based on then-current conditions.
- Management expected some net interest margin compression: loan yields were expected to continue declining while deposit rates were already near their practical floor. It also anticipated higher regulatory-compliance costs and a decline in mortgage fees as refinancing slowed.
- A new deposit product lineup introduced in December 2013 was expected to increase service charges in 2014. Management stated its then-current intention to continue quarterly common dividends of $0.08 per share; future dividends remain subject to board discretion, capital needs, and regulatory limits.
- A loss-share agreement covering Cooperative Bank non-single-family assets expires June 19, 2014. At year-end, the covered portfolio included about $79 million in loans, including $24 million on nonaccrual, and $12 million in foreclosed properties. After expiry, First Bank bears all subsequent losses on those assets. Management did not expect a material 2014 impact, but collateral values and loss timing remain uncertain.
- Credit risk remains significant: approximately 90% of loans were secured by real estate, and the company identified continued elevated past-due and adversely classified assets. Management attributed increases in some classifications partly to more conservative credit review, while asserting the allowance was adequate. Local economic conditions lagged the national recovery; Moore County represented about 16% of deposits.
- FDIC-assisted acquisitions create earnings volatility through loan discount accretion and indemnification-asset adjustments. Goodwill was $65.8 million; the 2013 impairment review found no impairment. The filing also describes potential margin and capital impacts from interest-rate changes, Basel III, and other regulatory requirements.
- The company reported no material pending legal proceedings. The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether non-covered nonaccrual, classified, and special-mention loans improve or continue to rise, and whether the allowance remains adequate.
- Actual losses after the June 2014 expiry of the Cooperative Bank non-single-family loss-share agreement, including the realization of collateral values and FDIC claims.
- How much 2014 earnings depend on acquired-loan discount accretion and FDIC-indemnification adjustments, which can be volatile and are not equivalent to recurring core income.
- Whether loan growth, deposit retention, service-charge changes, and margin performance match management’s 2014 expectations.
- Capital and liquidity after regulatory-rule implementation, and whether dividends remain supportable given earnings, capital requirements, and restrictions on bank-to-parent distributions.