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What changed in FIRST BANCORP /NC/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRST BANCORP /NC/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+451 added−369 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in FIRST BANCORP /NC/'s 2023 10-K

451 paragraphs added · 369 removed · 273 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

62 edited+29 added−13 removed136 unchanged
Biggest changeThe Dodd-Frank Act made banks with $10 billion or more in total assets responsible for increasing the DIF reserve ratio from 1.15% to 1.35% if necessary. Accordingly, the Bank's premiums may increase from time to time if the FDIC needs to increase assessments in order to replenish the fund and restore the DIF reserve ratio to 1.35%.
Biggest changeIn addition, if a bank experiences financial distress or operates in an unsafe or unsound manner, its deposit premiums may increase. The Dodd-Frank Act made banks with $10 billion or more in total assets responsible for increasing the DIF reserve ratio from 1.15% to 1.35% if necessary.
Broadly speaking, we compete with national banks, super-regional banks, smaller community banks, credit unions, non-traditional internet-based banks and insurance companies and agencies, and other financial intermediaries and investment alternatives, including mortgage companies, credit card issuers, leasing companies, finance companies, money market mutual funds, brokerage firms, governmental and corporate bond issuers, and other securities firms.
Broadly speaking, we compete with national banks, super-regional banks, smaller community banks, non-traditional internet-based banks, insurance companies and agencies, and other financial intermediaries and investment alternatives, including mortgage companies, credit card issuers, leasing companies, finance companies, credit unions, money market mutual funds, brokerage firms, governmental and corporate bond issuers, and other securities firms.
Other Funding Sources The FHLB allows us to obtain advances through its credit program. These advances are secured by securities owned by the Bank and held in safekeeping by the FHLB, FHLB stock owned by the Bank and certain qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.
Other Funding Sources The FHLB allows us to obtain advances through its credit program. These advances are secured by select securities owned by the Bank and held in safekeeping by the FHLB, FHLB stock owned by the Bank, and certain qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.
Loans are approved under our written loan policy, which provides that lending officers have sole authority to approve loans of various amounts commensurate with their seniority, experience and needs within the market.
Loans are approved under our loan policy, which provides that lending officers have sole authority to approve loans of various amounts commensurate with their seniority, experience and needs within the market.
Historically, our branches and facilities have been located in small- to medium-sized communities with economies based primarily on a variety of industries, including services and manufacturing. In more recent years, through both new branches and acquisitions, we have expanded in larger North Carolina cities, including Charlotte, Raleigh (Triangle region), and Greensboro/Winston-Salem (Triad region).
Historically, our branches and facilities have been located in small- to medium-sized communities with economies based primarily on a variety of industries, including services and manufacturing. In more recent years, through both new branches and acquisitions, we have expanded in larger North Carolina cities, including Charlotte, Raleigh (Triangle region), Greensboro/Winston-Salem (Triad region), Asheville and Wilmington.
Our expansion into higher growth markets was significantly enhanced by several strategic transactions discussed previously. Our most recent acquisition of GrandSouth, headquartered in Greenville, South Carolina, has moved us into the desirable Upstate market of that state as well as all its primary growth markets including Charleston and Columbia, South Carolina.
Our expansion into higher growth markets was significantly enhanced by several strategic transactions discussed previously. Our most recent acquisition of GrandSouth, headquartered in Greenville, South Carolina, has moved us into the desirable Upstate South Carolina market as well as all its primary growth markets including Charleston and Columbia, South Carolina.
In 1985, its name was changed to First Bank and in September 2013, the Company and the Bank moved their headquarters and main offices to Southern Pines, North Carolina. As of December 31 2022, the Bank had three wholly-owned subsidiaries, SBA Complete, Magnolia Financial, and First Troy SPE, LLC.
In 1985, its name was changed to First Bank and in September 2013, the Company and the Bank moved their headquarters and main offices to Southern Pines, North Carolina. As of December 31, 2023, the Bank had three wholly-owned subsidiaries, SBA Complete, Magnolia Financial, and First Troy SPE, LLC.
Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the 16 Table of Contents relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. The AML, which amends the BSA, is intended to be a comprehensive reform and modernization to United States bank secrecy and anti-money laundering laws.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. The AML, which amended the BSA, is intended to be a comprehensive reform and modernization to United States bank secrecy and anti-money laundering laws.
All requests for extensions of credit in excess of any individual lending officer's authority are reviewed by one of our regional credit officers, who can approve loans up to their respective lending authorities which are generally between $5 million and $10 million.
All requests for extensions of credit in excess of any individual lending officer's authority are reviewed by one of our regional credit officers, who can approve loans up to their respective lending authorities which are generally between $10 million and $15 million.
Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology 16 Table of Contents and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections. Office of Foreign Assets Control Regulation.
Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections. Office of Foreign Assets Control Regulation.
These loans are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions in this sector. The loans were originated using underwriting standards as set forth by management.
The loans within these categories are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions in this sector. The loans were originated using underwriting standards as set forth by management.
However, the examination authority of the Federal Reserve allows it to examine supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events. Dividends A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.
However, the examination authority of the Federal Reserve allows it to examine supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events. 13 Table of Contents Dividends A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.
These proposed rules have not yet been finalized. Federal Securities Laws. The common stock of the Company is registered with the SEC under the Exchange Act and the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.
These proposed rules have not yet been finalized. 17 Table of Contents Federal Securities Laws. The common stock of the Company is registered with the SEC under the Exchange Act and the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.
Our primary loan markets were previously presented in the Loan Concentrations section above. The following table presents the the counties with the largest share of our deposit base as of December 31, 2022.
Our primary loan markets were previously presented in the Loan Concentrations section above. The following table presents the counties with the largest share of our deposit base as of December 31, 2023 and 2022.
Anti-Money Laundering and the USA Patriot Act. The BSA requires all financial institutions to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism; sets forth various recordkeeping and reporting requirements (such as reporting suspicious activities that might signal criminal activity); and mandates certain due diligence procedures and "know your customer" documentation.
The BSA requires all financial institutions to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism; sets forth various recordkeeping and reporting requirements (such as reporting suspicious activities that might signal criminal activity); and mandates certain due diligence procedures and "know your customer" documentation.
We have sought to maintain a comprehensive lending policy that meets the credit needs of each of the communities served by the Bank, including low- and moderate-income customers, and to employ lending procedures and policies consistent with this approach. All loans are subject to our corporate loan policy and financing guide, which are reviewed annually and updated as needed.
We seek to maintain a comprehensive lending policy that meets the credit needs of each of the communities served by the Bank, including low- and moderate-income customers, and to employ lending procedures and policies consistent with this approach. All loans are subject to our loan policy and financing guide, which are reviewed annually and updated as needed.
Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities, and on the use of securities as collateral for loans to any borrower.
Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities, 11 Table of Contents and on the use of securities as collateral for loans to any borrower.
Our loan policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the allowance for loan losses.
Our loan policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the ACL.
These rules are intended to provide shareholders with information that they can use to evaluate executive compensation. Consumer Financial Protection Bureau. The Dodd-Frank Act established the CFPB and empowered it to exercise broad rule making, supervision, and enforcement authority for a wide range of consumer protection laws.
These rules are intended to provide shareholders with information that they can use to evaluate executive compensation. Consumer Financial Protection Bureau. The Dodd-Frank Act established the CFPB and empowered it to exercise broad rule making, supervision, and enforcement authority for a wide range of consumer protection laws. The Bank is subject to the direct supervision of the CFPB.
As a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice. For example, paying dividends that deplete an institution's capital base to an inadequate level is typically deemed an unsafe and unsound banking 13 Table of Contents practice.
As a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice. For example, paying dividends that deplete an institution's capital base to an inadequate level is typically deemed an unsafe and unsound banking practice.
At the end of 2022, we had a total of 46 associates who have completed one of the three leadership development tracks, of which 56% were female or minorities. We host recruiting and internship programs that attract candidates from a variety of colleges and universities within our footprint.
At the end of 2023, we had a total of 82 associates who have completed one of the three leadership development tracks, of which 56% were female or minorities. We host recruiting and internship programs that attract candidates from a variety of colleges and universities within our footprint.
Consumers also have the option to direct banks and other 15 Table of Contents financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
It also (1) expands the scope of 11 Table of Contents covered transactions required to be collateralized; (2) requires collateral to be maintained at all times for covered transactions required to be collateralized; and (3) places limits on acceptable collateral.
It also (1) expands the scope of covered transactions required to be collateralized; (2) requires collateral to be maintained at all times for covered transactions required to be collateralized; and (3) places limits on acceptable collateral.
In recent years, examination and enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased and become more intense. Failure to comply with these laws and regulations may subject the Bank to various penalties.
In recent years, examination and enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased and become more intense. 12 Table of Contents Failure to comply with these laws and regulations may subject the Bank to various penalties.
These programs build a continuous talent pipeline and prioritize these individuals for internal openings. Providing associates with meaningful, competitive and supportive benefits to care for their lives and families is a top priority for the Company.
These programs build a continuous talent pipeline and prioritize these individuals for internal openings. 10 Table of Contents Providing associates with meaningful, competitive and supportive benefits to care for their lives and families is a top priority for the Company.
Through Magnolia Financial we provide accounts receivable financing and factoring, inventory financing, and purchase order financing. Through a network of specialized Bank loan officers, our SBA Lending Division, and as supported by SBA Complete, we offer SBA loans to small business owners across the nation.
Through Magnolia Financial we provide accounts receivable financing and factoring, inventory financing, and purchase order financing. Through a network of specialized Bank loan officers in our SBA Lending Division, we offer SBA loans to small business owners across the nation.
Failure to comply with 12 Table of Contents consumer protection requirements may also result in failure to obtain any required regulatory approval for merger or acquisition transactions we may wish to pursue. Community Reinvestment.
Failure to comply with consumer protection requirements may also result in failure to obtain any required regulatory approval for merger or acquisition transactions we may wish to pursue. Community Reinvestment.
We are proud to offer a comprehensive benefits package that includes medical, dental, vision and life insurance, paid time-off, 401(k) profit-sharing plan participation and an employee stock purchase 10 Table of Contents plan. The Company’s 401(k) plan matches 100% of each employee’s elective deferral amount, up to the first 6% of the contribution.
We are proud to offer a comprehensive benefits package that includes medical, dental, vision and life insurance, paid time-off, 401(k) profit-sharing plan participation and an employee stock purchase plan. The Company’s 401(k) plan has historically matched 100% of each employee’s elective deferral amount, up to the first 6% of the contribution.
The Federal Reserve is authorized to approve conversions, mergers, and assumptions of deposit liability transactions between insured banks and uninsured banks or institutions, and to prevent capital or surplus diminution in such transactions if the resulting, continuing, or assumed bank is an insured member bank.
The Federal Reserve is authorized to approve mergers and assumptions of deposit liability transactions by member banks, and to prevent capital or surplus diminution in such transactions if the resulting, continuing, or assumed bank is an insured member bank.
Under Basel III, CET1 is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier I capital is comprised of CET1 capital plus additional elements eligible for inclusion in Tier I capital, which for the Company includes its trust preferred securities.
Under Basel III, CET1 is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier I capital is comprised of CET1 capital plus additional elements, such as trust preferred securities, which the Company includes in Tier 1 capital.
Our workforce consists of approximately 73% females and 15% minorities. Of our officer population, 61% are female and 8% are minorities, while our executive management team consists of 35% female or minority executives. In 2020, we formed a Diversity Council, which is chaired by our CEO and meets regularly.
Our workforce consists of approximately 73% females and 18% minorities. Of our officer population, 64% are female or minorities, while our executive management team consists of 39% female or minority executives. In 2020, we formed a Diversity Council, which is chaired by our CEO and meets regularly.
Market Area and Competition We are a community-oriented commercial bank offering a wide variety of financial services to meet the needs of the communities we serve. As of December 31, 2022, we conducted business from 108 branches, with 101 branch offices located across North Carolina and seven branches in South Carolina, primarily in the Pee Dee area.
Market Area and Competition We are a community-oriented commercial bank offering a wide variety of financial services to meet the needs of the communities we serve. As of December 31, 2023, we conducted business from 118 branches, with 101 branch offices located across North Carolina and 17 branches in South Carolina.
Once a quarter, our interest rate risk exposure is evaluated by the Board. Each year, our written investment policy is reviewed by the Board and appropriate changes are made. Deposits We offer a full range of deposit accounts and services to both retail and commercial customers.
Each year, our written investment policy is reviewed by the Board and appropriate changes are made. Deposits We offer a full range of deposit accounts and services to both retail and commercial customers.
Item 1. Business General Description The Company is the fourth largest bank holding company headquartered in North Carolina. At December 31, 2022, the Company had total consolidated assets of $10.6 billion, total loans of $6.7 billion, total deposits of $9.2 billion, and shareholders’ equity of $1.0 billion.
Item 1. Business General Description The Company is the fourth largest bank holding company headquartered in North Carolina. At December 31, 2023, the Company had total consolidated assets of $12.1 billion, total loans of $8.2 billion, total deposits of $10.0 billion, and shareholders’ equity of $1.4 billion.
Through a contractual relationship, we offer the placement of property and casualty insurance. We also provide non-FDIC insured investment and insurance products, including mutual funds, annuities, long-term care insurance, life insurance, and company retirement plans, as well as financial planning services through FB Wealth Management Services, our Investments Division.
We also provide non-FDIC insured investment and insurance products, including mutual funds, annuities, long-term care insurance, life insurance, and company retirement plans, as well as financial planning services through FB Wealth Management Services, our Investments Division.
When the request for approval exceeds the authority level of the regional credit officer, the request is then reviewed for approval by the Bank’s Senior Credit Officer who has a lending authority of $20 million.
When the request for approval exceeds the authority level of the regional credit officer, the request is then reviewed for approval by the Bank’s Chief Credit Officer who has $25 million in lending authority.
In addition, to enhance the convenience of our customers, we provide internet banking, mobile banking and mobile check deposit, cash management, remote deposit capture, bank-by-phone capabilities, and ATMs across our branch network. 8 Table of Contents We offer various ancillary services as part of our commitment to customer service.
In addition, to enhance the convenience of our customers, we provide internet banking, mobile banking and mobile check deposit, cash management, remote deposit capture, bank-by-phone capabilities, and ATMs across our branch network. We offer various ancillary services as part of our commitment to customer service. Through a contractual relationship, we offer the placement of property and casualty insurance.
In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
The Board, generally through its Executive Loan Committee, approves loans in excess of the in-house limit. In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates. 6 Table of Contents Our legal lending limit to any one borrower is approximately $176.2 million.
In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates. 6 Table of Contents Our legal lending limit to any one borrower is approximately $210.5 million.
Competition may further intensify as additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy. 9 Table of Contents Human Capital Resources Our associates are one of our competitive advantages and continued investment in human capital is a top priority for us.
Competition may further intensify as 9 Table of Contents additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy.
The rules also allow for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. 14 Table of Contents FDIC Insurance As an FDIC insured depository institution, the Bank's deposits are insured up to applicable limits by the DIF which is generally $250,000.
The rules also allow for 14 Table of Contents an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.
The total of loan participations purchased at December 31, 2022 was nominal. Because the majority of our customers are individuals and small- to medium-sized businesses, we do not believe that the loss of a single customer or group of customers would have a material adverse impact on the Bank.
Because the majority of our customers are individuals and small- to medium-sized businesses, we do not believe that the loss of a single customer or group of customers would have a material adverse impact on the Bank. There are no seasonal factors that tend to have any material effect on the Bank’s business.
The SEC and NASDAQ have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act that apply to the Company as a NASDAQ-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings. 17 Table of Contents Future Legislation and Regulation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
The SEC and NASDAQ have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act that apply to the Company as a NASDAQ-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.
For loans in excess of this amount, each of the Bank’s President and Chief Credit Officer have individual authority to approve loans up to $25 million, while the President and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $75 million.
For loans in excess of this amount, the Chief Executive Officer and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $75 million. The Board, generally through its Executive Loan Committee, approves loans in excess of the in-house limit.
See additional discussion below in the section entitled “Market Area and Competition.” Credit Administration and Lending Policies Conservative lending policies and procedures and appropriate underwriting standards are high priorities of the Bank.
Because we operate primarily within North Carolina and South Carolina, the economic conditions of these areas could have a material impact on the Company. See additional discussion below in the section entitled “Market Area and Competition.” Credit Administration and Lending Policies Conservative lending policies and procedures and appropriate underwriting standards are high priorities of the Bank.
As additional sources of funding, we maintain credit arrangements with various other financial institutions to purchase federal funds and participate in the Federal Reserve discount window borrowings program. Other Services We also offer credit cards, debit cards, letters of credit, safe deposit box rentals, and electronic funds transfer services, including wire transfers.
As additional sources of funding, we maintain credit arrangements with various other financial institutions to purchase federal funds and participate in the Federal Reserve's Bank Term Funding Program and discount window borrowings program.
On a periodic basis, we review the financial statements of the issuers of the corporate bonds that we own for any signs of deterioration so that we can take timely action if deemed necessary. Our Chief Investment Officer implements the investment policy, monitors the investment portfolio, recommends portfolio strategies, and reports to the Bank’s Investment Committee.
On a periodic basis, as determined based on materiality and other relevant factors, we review the financial statements of the issuers of the corporate bonds that we own for any signs of deterioration so that we can take timely action if deemed necessary.
As of December 31, 2021, the Bank exceeded $10 billion in total consolidated assets, and as such, became subject to limitations of a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.
The Bank is subject to limitations on interchange fees under the Durbin Amendment. The Durbin Amendment rules establish a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.
Pursuant to this policy, we may invest in U.S. government bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds. We may also invest in time deposits with other financial institutions up to a defined limit. Investments in our portfolio must satisfy certain quality criteria.
Pursuant to this policy, we may invest in U.S. government bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds. Investments are subject to concentration and maturity limits to avoid unnecessary risks.
If a bank falls below “well capitalized” status in any of these four ratios, it must ask for FDIC permission to originate or renew brokered deposits. Financial Privacy and Cybersecurity. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
If a bank falls below “well capitalized” status in any of these four ratios, it must ask for FDIC permission to originate or renew brokered deposits. 15 Table of Contents Financial Privacy and Cybersecurity.
For purposes of the discussion below, these statutory business trusts are not included in our consolidated financial statements as they are variable interest entities and the Company is not the primary beneficiary. See additional discussion below in Item 7 under the section entitled “Borrowings” and Note 1 to the consolidated financial statements.
The Company is the parent of a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital. For purposes of the discussion below, these statutory business trusts are not included in our consolidated financial statements as they are variable interest entities and the Company is not the primary beneficiary.
Percentage of Total Loan Portfolio Wake County, North Carolina 11.6 % New Hanover County, North Carolina 9.1 % Mecklenburg County, North Carolina 7.9 % Buncombe County, North Carolina 6.1 % Guilford County, North Carolina 5.0 % No other markets had total loans outstanding in excess of 5% of the total portfolio at year end.
The following table presents the total lending exposure for the counties with the largest percentage of our loan portfolio as of December 31, 2023 and 2022. 2023 2022 Wake County, North Carolina 10.1 % 11.6 % New Hanover County, North Carolina 8.1 % 9.1 % Mecklenburg County, North Carolina 7.6 % 7.9 % Buncombe County, North Carolina 5.3 % 6.1 % Guilford County, North Carolina 5.0 % 5.0 % No other market (as defined by county) had total loans outstanding in excess of 5% of the total portfolio at either period presented.
Most of our business activity is with customers located within the markets where we have banking operations. The following table presents the total lending exposure for the counties with the largest percentage of our loan portfolio as of December 31, 2022.
Most of our business activity is with customers located within the markets where we have banking operations.
The Investment Committee generally meets on a quarterly basis to review investment activity and to assess the overall position of the securities portfolio. In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by the Board.
In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by the Board. Once a quarter, our interest rate risk exposure is evaluated by ALCO and a summary report is presented to the Board.
For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC. The FDIC insurance premium is based on an institution’s total assets minus its Tier 1 capital, and premiums are determined based on its capital, supervisory ratings and other factors.
The FDIC insurance premium is based on an institution’s total assets minus its Tier 1 capital, and premiums are determined based on its capital, supervisory ratings, and other factors. Premium rates generally may increase if the DIF is strained due to the cost of bank failures and the number of troubled banks.
We typically sell the portion of each loan that is guaranteed by the SBA at a premium and record the non-guaranteed portion to our balance sheet. We generally do not buy loan participations or portions of national credits, but we may acquire balances subject to participation agreements through acquisition.
We generally do not buy loan participations or portions of national credits, but we may acquire balances subject to participation agreements through acquisition. The total of loan participations purchased at December 31, 2023 was nominal.
None of these associates are represented by any collective bargaining agreements, and we consider our employee relations to be good. Our human capital management strategy focuses on attracting, developing and retaining top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion, and physical ability.
Our human capital management strategy focuses on attracting, developing and retaining top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion, or physical ability. We strive to identify and select the best candidates for all open positions based on the qualifying factors for each job.
We have historically focused on building a rewarding work environment as we believe that valued and engaged associates lead to satisfied and active customers, which contributes to enriched shareholder value. We emphasize open and honest communication, collaboration, goal attainment, and personal and professional growth as the foundation to delivering high-quality service to one another and our customers.
Human Capital Resources Our associates are one of our competitive advantages and continued investment in human capital is a top priority for us. We have historically focused on building a rewarding work environment as we believe that valued and engaged associates lead to satisfied and active customers, which contributes to enriched shareholder value.
These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party.
As of December 31, 2022, we had 1,244 full-time and 50 part-time associates, the majority of whom are employed by the Bank and are located in North Carolina and South Carolina. We have associates with our subsidiaries in other states, primarily California.
We emphasize open and honest communication, collaboration, goal attainment, and personal and professional growth as the foundation to delivering high-quality service to one another and our customers. As of December 31, 2023, we had 1,396 full-time and 49 part-time associates, the majority of whom are employed by the Bank and are located in North Carolina and South Carolina.
We experience strong competition in all aspects of the businesses in which we engage, including both making loans and attracting deposits, from both bank and non-bank competitors.
No other market area (as defined by county) comprises more than 5% of our deposit base at either period presented. 2023 2022 Moore County, North Carolina 10.8 % 10.9 % Buncombe County, North Carolina 7.2 % 8.3 % Guilford County, North Carolina 5.0 % 6.0 % We experience strong competition in all aspects of the businesses in which we engage, including both making loans and attracting deposits, from both bank and non-bank competitors.
Removed
During 2021, the Bank sold substantially all of the assets of its insurance agency subsidiary, First Bank Insurance. The Company is the parent of a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital.
Added
See additional discussion below in Item 7 under the section entitled “Borrowings” and Note 1 to the consolidated financial statements. Recent Developments and Acquisitions In January, 2023, we acquired GrandSouth, a community bank headquartered in Greenville, South Carolina with $1.2 billion in total assets, $1.0 billion in loans, and $1.1 billion in deposits.
Removed
Recent Developments and Acquisitions On June 21, 2022, we announced an agreement to acquire GrandSouth Bancorporation ("GrandSouth"), headquartered in Greenville, South Carolina, in an all-stock transaction.
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GrandSouth operated from eight branches located throughout South Carolina, all of which we have continued to operate. The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the high-growth markets of the state including Greenville, Charleston and Columbia.
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The terms of the agreement provided that each share of GrandSouth common and preferred stock issued and outstanding immediately prior to the effective time of the acquisition would be converted into 0.91 shares of the Company's common stock.
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We typically sell the portion of each loan that is guaranteed by the SBA at a premium and retain the non-guaranteed portion on our balance sheet. We also provide used car floor-plan financing through our CarBucks division. These lines of credit are typically offered to small used car dealers and are subject to traditional floor-plan administration procedures.
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The transaction closed on January 1, 2023, adding eight branches throughout South Carolina and approximately $1.2 billion in total assets, $1.0 billion in loans, and $1.1 billion in deposits to the Company's balance sheet as of the acquisition date.
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In order to monitor the portfolio for possible concentrations, we categorize our CRE loans by regulatory categories, including multi-family, retail, warehouse, office, healthcare, hotel/motel, and other commercial real estate.
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There are no seasonal factors that tend to have any material effect on the Bank’s business. Because we operate primarily within North Carolina and South Carolina, the economic conditions of these areas could have a material impact on the Company.
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As of December 31, 2023, the largest category of CRE loans, which totaled approximately of 10% of total loans, was retail followed by warehouse and multifamily, both at approximately 7% of total loans. These CRE categories are within management's guidelines as a percent of total capital.
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We categorize these commercial loans by industry according to the North American Industry Classification System (“NAICS”) to monitor the portfolio for possible concentrations in one or more industries.
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We may also invest in time deposits with other financial institutions up to a defined limit. Investments in our portfolio must satisfy certain quality criteria.
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As of December 31, 2022, we had loans outstanding in one such industry group classification that exceeded 10% of total loans, with total loans of approximately $1.6 billion, or 23.4% of the portfolio, in the classification "lessors of nonresidential buildings".
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Our Chief Investment Officer implements the investment policy, monitors the investment portfolio, recommends portfolio strategies, and reports to the Bank’s Asset Liability Committee ("ALCO"), which also has oversight of the Bank's investment activities.
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There have been no significant change in the the largest lending markets from the prior year. We have no concentrations of individual borrowers.
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ALCO generally meets on a quarterly basis and reviews investment activity, portfolio composition, portfolio tenure, and other elements as necessary to assess the overall position of the securities portfolio and risk of the portfolio relative to the overall balance sheet.
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Percentage of Total Deposits Moore County, North Carolina 10.9 % Buncombe County, North Carolina 8.3 % Guilford County, North Carolina 6.0 % No other market area comprise more than 5% of our deposit base at year end and there has been no significant change in markets that hold the most significant share of our deposits from the prior year.
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On January 24, 2024, the Federal Reserve announced that no new loans will be made under the Bank Term Funding Program on or after March 11, 2024. 8 Table of Contents Other Services We also offer credit cards, debit cards, letters of credit, safe deposit box rentals, and electronic funds transfer services, including wire transfers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur customers may also be affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. 19 Table of Contents Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Biggest changeWhile the inflation rate has responded favorably to actions taken by the Federal Reserve, our customers may continue be affected by inflation pressures and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us or to finance future home purchases.
Although we employ comprehensive measures to prevent, detect, address, and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
Although we employ comprehensive measures to prevent, detect, address, and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of our business operations.
Our daily operations depend on the operational effectiveness of our technology to accurately track and record our assets and liabilities. Any failure, interruption, or breach in security of our computer systems or outside technology could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records.
Our daily operations depend on the operational effectiveness of our technology to accurately track and record our assets and liabilities. Any failure, interruption, or breach in security of our computer systems or outside vendor technology could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records.
We may consider acquiring other businesses or expanding into new product lines or markets that we believe will help us fulfill our strategic objectives. We expect that other banking and financial companies, some of which have significantly greater resources, will compete with us to acquire financial services businesses.
We may consider acquiring other businesses or expanding into new product lines or markets that we believe will help us fulfill our strategic objectives. We expect that other banking and financial companies, some of which have significantly greater resources, will compete with us to acquire such services businesses.
Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this report and include: the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve; using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets; incurring the time and expense required to integrate the operations and personnel of the combined businesses; the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired bank in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target institution or the proposed combined entity; and losing key employees and customers as a result of an acquisition that is poorly received.
Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this Report and include: the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve; using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or assets; incurring the time and expense required to integrate the operations and personnel of the combined businesses; the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex 30 Table of Contents systems, technology, banking centers, and other assets of the acquired company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target company, the assets acquired or the proposed combined entity; and losing key employees and customers as a result of an acquisition that is poorly received.
If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations. We rely on certain external vendors.
If our third party vendor encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations. We rely on certain external vendors.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative. Certain accounting policies are critical to presenting our financial condition and results.
In some cases, management must select the accounting policy 26 Table of Contents or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative. Certain accounting policies are critical to presenting our financial condition and results.
We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and banks. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation.
We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and 25 Table of Contents banks. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation.
This is expected to increase the complexity and associated risk, particularly in times of economic uncertainty or other unforeseen circumstances, which could impact the Company's results of operations and capital levels.
This is expected to increase the complexity and associated model assumption risk, particularly in times of economic uncertainty or other unforeseen circumstances, which could impact the Company's results of operations and capital levels.
Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial condition and results of operations. 24 Table of Contents Our reported financial results are impacted by management’s selection of accounting methods and certain assumptions and estimates.
Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Our reported financial results are impacted by management’s selection of accounting methods and certain assumptions and estimates.
Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline. Although our common stock is listed for trading on NASDAQ under the symbol “FBNC,” the trading volume in our common stock is lower than that of other larger financial services companies.
Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline. Although our common stock is listed for trading on the NASDAQ Global Select Market under the symbol “FBNC,” the trading volume in our common stock is lower than that of other larger financial services companies.
Any issuance of additional shares of stock or equity derivative securities 26 Table of Contents will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock. We may make future acquisitions, which could dilute current shareholders’ stock ownership and expose us to additional risks.
Any issuance of additional shares of stock or equity derivative securities will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock. We may make future acquisitions, which could dilute current shareholders’ stock ownership and expose us to additional risks.
CECL provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.
CECL provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate 20 Table of Contents of expected lifetime losses.
While we use qualified third party vendors to test and audit our network, our network could become vulnerable to unauthorized access, computer viruses, phishing schemes, and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.
While we use qualified third party vendors to test and audit our network, our network could become vulnerable to 27 Table of Contents unauthorized access, computer viruses, phishing schemes, and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.
They require management to make difficult, subjective, or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include: the allowance for credit losses; business combinations, and goodwill and other intangible assets.
They require management to make difficult, subjective, or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting estimates include: the allowance for credit losses; business combinations, and goodwill and other intangible assets. Our internal controls may be ineffective.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Recently, there has been a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat this trend.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In 2023 and 2022, there was a pronounced rise in inflation and the Federal Reserve raised certain benchmark interest rates in an effort to combat this trend.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures known as advanced persistent threats, directed at us and/or our third party service providers.
Goodwill represents the amount of consideration exchanged over the fair value of net assets we acquired in the purchase of another financial institution. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. At December 31, 2022, our goodwill totaled $364.3 million.
Goodwill represents the amount of consideration exchanged over the fair value of net assets we acquired in the purchase of another business. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. At December 31, 2023, our goodwill totaled $478.8 million.
Net interest income is the most significant component of our earnings. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in AOCI each quarter which impacts our total equity.
We hold certain financial instruments measured at fair value, primarily our AFS investments securities. For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in AOCI each quarter which impacts our total equity.
While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations. 25 Table of Contents If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could have a significant negative impact on our profitability.
While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.
Future payment of cash dividends, if any, will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.
Although we have historically paid cash dividends, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.
The BSA, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.
We face a risk of noncompliance with the BSA and other AML statutes and regulations and related enforcement actions. The BSA, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.
When interest rates change, and in particular during periods of rapid rate movements as experienced in 2022, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics.
When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
We are subject to extensive regulation, which could have an adverse effect on our operations. The Bank is subject to extensive regulation and supervision from the Commissioner and the Federal Reserve.
A default on this credit by a counterparty could result in a financial loss to us. We are subject to extensive regulation, which could have an adverse effect on our operations. The Bank is subject to extensive regulation and supervision from the Commissioner and the Federal Reserve.
Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We are subject to interest rate risk, which could negatively impact earnings.
Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We could experience losses due to competition with other financial institutions and non-banks.
In accordance with our strategic plan, we evaluate opportunities to acquire other banks, branch locations, and companies that provide products and services related to our banking activities.
In accordance with our strategic plan, we evaluate opportunities to acquire other financial institutions, financial services companies and branch locations.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of ACL.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of ACL. Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.
Further, the deterioration of a borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations. 23 Table of Contents We could experience losses due to competition with other financial institutions and non-banks.
Further, the deterioration of borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations. Our ACL may not be adequate to cover actual losses.
Our access to funding sources in amounts adequate to finance our activities, or on terms which are acceptable to us, could be impaired by factors that affect us specifically or the financial services industry or economy in general.
An inability to raise funds through from these or other sources could have a substantial negative effect on our liquidity. 21 Table of Contents Our access to funding sources in amounts adequate to finance our activities, or on terms which are acceptable to us, could be impaired by factors that affect us specifically or the financial services industry or economy in general.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired. Uncertainty relating to the LIBOR determination process and LIBOR discontinuance may adversely affect our results of operations.
Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired. Consumers may decide not to use banks to complete their financial transactions.
For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards.
The Department of Justice, the CFPB, and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties. Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions.
Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The Department of Justice, the CFPB, and other federal and state agencies are responsible for enforcing these laws and regulations.
Further, expected revenue and/or operational synergies and cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame. Attractive acquisition or expansion opportunities may not be available to us in the future.
Further, expected revenue and/or operational synergies and cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame. If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could have a significant negative impact on our profitability.
The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. Our ACL may not be adequate to cover actual losses.
Our inability to prevent, detect, and respond to cyberattacks may lead to reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. From time to time, we engage in acquisitions, including acquisitions of depository institutions.
Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through from these or other sources could have a substantial negative effect on our liquidity.
Borrowings also provide us with a source of funds to meet liquidity demands.
Our financial instruments expose us to certain market risks, including changing interest rates, and may increase the volatility of AOCI and total equity. We hold certain financial instruments measured at fair value, primarily our AFS investments securities.
Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet. Our financial instruments expose us to certain market risks, including changing interest rates, and may increase the volatility of AOCI and total equity.
Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy. Inflation can have an adverse impact on our customers and their ability to repay.
Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations. Inflation can have an adverse impact on our customers and their ability to repay.
The value or market price of our common stock could decline due to any of these identified or other unidentified risks. Risks Related to Our Business We may fail to realize all of the anticipated benefits, including estimated cost savings, of our acquisition of GrandSouth or other potential future acquisitions.
The value or market price of our common stock could decline due to any of these identified or other unidentified risks. Risks Related to Our Business Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us. Consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us. We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.
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The success of our acquisition of GrandSouth, which was consummated on January 1, 2023, will depend on, among other things, the ability to continue to successfully complete the integration of the two companies.
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Our success depends, to a certain extent, upon global, domestic and local economic and political conditions, as well as governmental monetary policies. Conditions such as changes in interest rates, money supply, levels of employment and other factors beyond our control may have a negative impact on economic activity.
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Developing successful synergy has demanded and will continue to demand, significant commitments of time, energy and resources from our management and directors, which can be detrimental to the performance of their other responsibilities.
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Any contraction of economic activity, including an economic recession, may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal Reserve.
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If we are unable to achieve the desired levels of integration and synergy, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer than expected to be realized. There is no guarantee that we will be able to successfully integrate the businesses of the Company and GrandSouth.
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Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions, citing factors including the hardships caused by the ongoing Russia-Ukraine conflict, continued global supply chain disruptions and imbalances, and increased inflationary pressure.
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Combining the two companies may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the GrandSouth acquisition may not be realized.
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The tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in the target range for the federal funds rate as well as the conclusion of the Federal Reserve’s tapering of asset purchases, together with ongoing economic and geopolitical instability, have increased the risk of an economic recession.
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The success of the GrandSouth acquisition, including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of the Company and GrandSouth in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers.
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Although forecasts have varied, many economists are projecting that, while indicators of U.S. economic performance, such as income growth, may be strong and levels of inflation may continue to decrease, the U.S. economy may be flat or experience a modest decrease in gross domestic output in 2024 while inflation is expected to remain elevated relative to historic levels in the coming quarters.
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Integration of an acquired business can be complex and costly, including combining relevant accounting and data processing systems and management controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners. Integration efforts could divert management attention and resources, which could adversely affect our financial condition and results of operations.
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Any such downturn in economic output, especially domestically and in the markets in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations. 19 Table of Contents Recessionary conditions and economic factors could result in heightened credit risk and increases in our level of nonperforming loans which could adversely impact our results of operations and financial condition.
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It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the acquisition.
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As a result of the economic and geopolitical factors discussed above, we also face heightened credit risk, among other forms of risk.
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The loss of key employees could 18 Table of Contents adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of our common stock.
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As we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios. While CRE values continue to fluctuate, some markets are showing signs of stabilizing prices.
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As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or cause customers to remove their accounts and move their business to competing financial institutions. The lingering economic impact of the COVID-19 pandemic combined with the current inflationary pressures could adversely affect our financial condition and results of operations.
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However, the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to a rising interest rate environment and higher prices for commodities, goods and services. Credit performance over the medium- and long-term is susceptible to economic and market forces and therefore forecasts remain uncertain.
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The COVID-19 pandemic caused significant economic disruption throughout the United States.
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An increase in the ACL could materially and adversely affect our earnings and profitability. We are subject to interest rate risk, which could negatively impact earnings. Net interest income is the most significant component of our earnings.
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Although the economic activity has improved and there is growth in demand for goods and services, the lingering impact the COVID-19 pandemic has created certain adverse and persistent macroeconomic consequences, including labor shortages and disruptions of global supply chain, which may continue for some time and which have contributed to rising inflationary pressures and the risk of recession.
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Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
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As a result of the lingering impact of the COVID-19 pandemic and the related adverse economic consequences, we could be subject to the following risks, among others, any of which individually or in combination with others could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: • Demand for our products and services may decline, making it difficult to grow assets and income; • If we have high levels of unemployment for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; • Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; • Limitations may be placed on our ability to foreclose on properties we hold as collateral; • Our ACL may have to be increased if borrowers experience financial difficulties which will adversely affect our net income; • The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; • Our cybersecurity risks are increased if employees work remotely; • We rely on third-party vendors for certain services and the unavailability of a critical service could have an adverse effect on us; and • DIC premiums may increase if the FDIC experiences additional resolution costs.
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Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities; and (iii) the average duration of our mortgage portfolio and other interest-earning assets.
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Unfavorable economic conditions could adversely affect our business. Our business is subject to periodic fluctuations based on national, regional, and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition. Our banking operations are primarily locally oriented and community-based.
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In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
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Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Worsening economic conditions within our markets could have a material adverse effect on our financial condition, results of operations, and cash flows.
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Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023. As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% - 5.50%.
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Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates, and other factors could weaken the economies of the communities we serve.
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It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
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While economic growth and business activity has been generally favorable in our market area in recent years, there can be no assurance that economic conditions will persist, and these conditions could worsen.
Added
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, as experienced in 2023, our net interest income, and therefore earnings, will generally be adversely affected.
Removed
Unfavorable global economic conditions may have a negative impact on financial markets and could adversely impact our customers, which in turn could lead to lower business activity and higher loan delinquencies. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including continuing hostilities between Russia and Ukraine, terrorism or other geopolitical events.
Added
Earnings could also be adversely affected if the interest rates received on our loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
Removed
An increase in the ACL could materially and adversely affect our earnings and profitability. Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.
Added
Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations, and any related economic downturn, especially domestically and in the markets in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.
Removed
Recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
Added
The proportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk in times of financial distress.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Bank’s operational departments, including accounting functions, information technology operations, loan operations, and deposit operations, are primarily housed in buildings in Greensboro, North Carolina, Dunn, North Carolina, and Troy, North Carolina, which are owned by the Bank. At December 31, 2022, the Company operated 108 bank branches.
Biggest changeThe Bank’s operational departments, including accounting functions, information technology operations, loan operations, and deposit operations, are primarily housed in buildings in Greensboro North Carolina, Dunn North Carolina, Fletcher North Carolina, and Troy North Carolina, which are owned by the Bank. At December 31, 2023, the Company operated 118 bank branches.
There are no options to purchase or lease additional properties. The Company considers its facilities adequate to meet current needs and believes that lease renewals or replacement properties can be acquired as necessary to meet future needs. 27 Table of Contents
There are no options to purchase or lease additional properties. The Company considers its facilities adequate to meet current needs and believes that lease renewals or replacement properties can be acquired as necessary to meet future needs. 32 Table of Contents
The Company owned all of its bank branch premises except 16 branch offices for which the land and buildings are leased and nine branch offices for which the land is leased but the building is owned. The Bank also leases several other office locations for administrative functions and for our SBA-related activities.
The Company owned all of its bank branch premises except 17 branch offices for which the land and buildings are leased and 10 branch offices for which the land is leased but the building is owned. The Bank also leases several other office locations for administrative functions and for our SBA-related activities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal return index numerical values used in this example are for illustrative purposes only. Issuer Purchases of Equity Securities Pursuant to authorizations by the Board, the Company from time to time has repurchased shares of common stock in private transactions and in open-market purchases. During 2022, the Company did not repurchase any shares of the Company's common stock.
Biggest changeSecurities authorized for issuance under equity compensation plans Refer to “Additional Information Regarding the Registrant’s Equity Compensation Plans” in Item 12. Issuer Purchases of Equity Securities Pursuant to authorizations by the Board, the Company from time to time has repurchased shares of common stock in private transactions and in open-market purchases.
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities Our common stock trades on NASDAQ under the trading symbol “FBNC.” Tables have been included in Item 7 under the heading, "Selected Consolidated Financial Data," which provide historic information on the market price for the Company’s common stock.
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities Our common stock trades on NASDAQ under the trading symbol “FBNC.” Tables have been included in Item 7 under the heading, "Selected Financial Information," which provide historic information on the market price for the Company’s common stock.
BMI Banks Industry Group Index, as constructed by S & P Global (reflecting performance in broad market banking industry stocks). The graph and table assume that $100 was invested on December 31, 2017 in each of the Company’s common stock, the Russell 2000 Index, and the S&P U.S.
BMI Banks Industry Group Index, as constructed by S & P Global (reflecting performance in broad market banking industry stocks). The graph and table assume that $100 was invested on December 31, 2018 in each of the Company’s common stock, the Russell 2000 Index, and the S&P U.S. BMI Banks Industry Group Index, and that all dividends were reinvested.
Performance Graph The performance graph shown below compares the Company’s cumulative total return to shareholders for the five-year period commencing December 31, 2017 and ending December 31, 2022, with the cumulative total return of the Russell 2000 Index (reflecting overall stock market performance of small-capitalization companies), and the S&P U.S.
As of December 31, 2023, there was no share repurchase program in place. 33 Table of Contents Performance Graph The performance graph shown below compares the Company’s cumulative total return to shareholders for the five-year period commencing December 31, 2018 and ending December 31, 2023, with the cumulative total return of the Russell 2000 Index (reflecting overall stock market performance of small-capitalization companies), and the S&P U.S.
For the foreseeable future, it is our current intention to continue to pay regular cash dividends on a quarterly basis. However, our ability to pay future cash dividends can be restricted or eliminated by regulatory authorities.
For each quarter in 2023, we declared a cash dividend of $0.22 per common share. For the foreseeable future, it is our current intention to continue to pay regular cash dividends on a quarterly basis. However, our ability to pay future cash dividends can be restricted or eliminated by regulatory authorities.
As of February 27, 2023, there were approximately 3,563 shareholders of record and another approximately 17,497 shareholders whose stock is held in “street name.” The tables in Item 7 also include information regarding cash dividends declared per share of common stock for the periods presented. For each quarter in 2022, we declared a cash dividend of $0.22 per common share.
As of February 27, 2024, there were approximately 3,635 shareholders of record and another approximately 17,059 shareholders whose stock is held in “street name.” The tables in Item 7 under "Selected Financial Information" section also include information regarding cash dividends declared per share of common stock for the periods presented.
BMI Banks Industry Group Index, and that all dividends were reinvested. 28 Table of Contents First Bancorp Comparison of Five-Year Total Return Performances (1) Five Years Ended December 31, 2022 Total Return Index Values (1) December 31, 2017 2018 2019 2020 2021 2022 First Bancorp $ 100.00 (106.50) 115.93 101.19 139.29 133.49 Russell 2000 Index 100.00 (111.01) 111.70 134.00 153.85 122.41 S&P US BMI Banks Industry Group Index 100.00 (116.46) 114.74 100.10 136.10 112.89 _____________ (1) Total return indices were provided from an independent source, S&P Global Market Intelligence, New York, New York, and assume initial investment of $100 on December 31, 2017, reinvestment of dividends, and changes in market values.
First Bancorp Comparison of Five-Year Total Return Performances (1) Five Years Ended December 31, 2023 Total Return Index Values (1) December 31, 2018 2019 2020 2021 2022 2023 First Bancorp $ 100.00 123.99 108.22 148.98 142.78 126.72 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 S&P US BMI Banks Industry Group Index 100.00 137.36 119.83 162.92 135.13 147.41 _____________ (1) Total return indices were provided from an independent source, S&P Global Market Intelligence, New York, New York, and assume initial investment of $100 on December 31, 2018, reinvestment of dividends, and changes in market values.
Removed
The $40.0 million repurchase authorization in effect during 2022 expired December 31, 2022 and the Board has not adopted additional repurchase authorizations. Also see “Additional Information Regarding the Registrant’s Equity Compensation Plans” in Item 12.
Added
The Company did not repurchase any shares of the Company's common stock during either 2023 or 2022.
Added
Total return index numerical values used in this example are for illustrative purposes only.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

142 edited+73 added−48 removed34 unchanged
Biggest changeLoan Ratios, Loss and Recovery Experience As of December 31, ($ in thousands) 2022 2021 2020 2019 2018 Loans outstanding at end of year $ 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064 Average amount of loans outstanding 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838 Allowance for credit losses, at end of year 90,967 78,789 52,388 21,398 21,039 Net loan (charge-offs) recoveries Commercial, financial, and agricultural $ (1,763) (1,978) (4,863) (1,493) (933) Real estate – construction, land development & other land loans 480 703 1,501 722 3,939 Real estate mortgage – residential (1-4 family) first mortgages 17 488 276 48 (901) Real estate mortgage – home equity loans/lines of credit 557 178 (37) 322 (347) Real estate mortgage – commercial and other 920 (1,762) (347) (981) 44 Consumer loans (633) (309) (579) (522) (472) Total net (charge-offs) recoveries $ (422) (2,680) (4,049) (1,904) 1,330 Average loans: Commercial, financial, and agricultural $ 619,480 700,557 707,976 482,654 430,449 Real estate – construction, land development & other land loans 857,880 619,928 615,717 503,183 555,354 Real estate mortgage – residential (1-4 family) first mortgages 1,091,788 951,573 1,028,334 1,074,938 1,015,360 Real estate mortgage – home equity loans/lines of credit 326,592 300,291 316,593 346,331 366,416 Real estate mortgage – commercial and other 3,338,710 2,391,845 1,981,763 1,872,666 1,723,117 Consumer loans 58,830 54,197 52,360 66,559 71,142 Total average loans $ 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838 Ratios: Allowance for credit losses as a percent of loans at end of year 1.36 % 1.30 % 1.11 % 0.48 % 0.50 % Allowance for credit losses as a multiple of net charge-offs 215.56 29.40 12.94 11.24 n/m Provision for loan losses as a percent of net charge-offs 2985.78 % 358.62% 865.37% 118.86% n/m Recoveries of loans previously charged-off as a percent of loans charged-off 90.55 % 64.75 % 52.38 % 69.79 % 119.08 % Total net (charge-offs) recoveries as a percent of average loans (0.01 %) (0.05 %) (0.09 %) (0.04 %) 0.03 % Net (charge-offs) recoveries by loan category as a percent of average loans: Commercial, financial, and agricultural (0.28 %) (0.28 %) (0.69 %) (0.31 %) (0.22 %) Real estate – construction, land development & other land loans 0.06 % 0.11 % 0.24 % 0.14 % 0.71 % Real estate mortgage – residential (1-4 family) first mortgages — % 0.05 % 0.03 % — % (0.09 %) Real estate mortgage – home equity loans/lines of credit 0.17 % 0.06 % (0.01 %) 0.09 % (0.09 %) Real estate mortgage – commercial and other 0.03 % (0.07 %) (0.02 %) (0.05 %) — % Consumer loans (1.08 %) (0.57 %) (1.11 %) (0.78 %) (0.66 %) n/m – not meaningful 46 Table of Contents Securities Our securities portfolio totaled $2.9 billion at December 31, 2022, compared to $3.1 billion at December 31, 2021.
Biggest changeLoan Ratios, Loss and Recovery Experience As of December 31, ($ in thousands) 2023 2022 2021 2020 2019 Loans outstanding at end of year $ 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 Average amount of loans outstanding 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Allowance for credit losses, at end of year 109,853 90,967 78,789 52,388 21,398 Net loan (charge-offs) recoveries Commercial and industrial $ (6,965) (1,763) (1,978) (4,863) (1,493) Construction, development & other land loans 250 480 703 1,501 722 Commercial real estate - owner occupied 321 477 (212) (335) (220) Commercial real estate - non owner occupied 502 432 (1,562) (24) (947) Multi-family real estate 13 11 12 12 186 Residential 1-4 family real estate 373 17 488 276 48 Home equity loans/lines of credit (211) 557 178 (37) 322 Consumer loans (757) (633) (309) (579) (522) Total net charge-offs $ (6,474) (422) (2,680) (4,049) (1,904) Average loans: Commercial and industrial $ 865,043 619,480 700,557 707,976 482,654 Construction, development & other land loans 1,053,422 857,880 619,928 615,717 503,183 Commercial real estate - owner occupied 1,224,284 1,012,275 812,764 776,166 814,783 Commercial real estate - non owner occupied 2,464,389 1,968,944 1,322,685 1,012,182 860,783 Multi-family real estate 402,814 357,491 256,396 193,415 197,100 Residential 1-4 family real estate 1,482,941 1,091,788 951,573 1,028,334 1,074,938 Home equity loans/lines of credit 341,778 326,592 300,291 316,593 346,331 Consumer loans 67,957 58,830 54,197 52,360 66,559 Total average loans $ 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Ratios: Allowance for credit losses as a percent of loans at end of year 1.35 % 1.36 % 1.30 % 1.11 % 0.48 % Allowance for credit losses as a multiple of net charge-offs 16.97 215.56 29.40 12.94 11.24 Provision for loan losses as a percent of net charge-offs 305.07 % 2,985.78 % 358.62% 865.37% 118.86% Recoveries of loans previously charged-off as a percent of loans charged-off 36.37 % 90.55 % 64.75 % 52.38 % 69.79 % Total net charge-offs as a percent of average loans (0.08 %) (0.01 %) (0.05 %) (0.09 %) (0.04 %) Net (charge-offs) recoveries by loan category as a percent of average loans: Commercial and industrial (0.81 %) (0.28 %) (0.28 %) (0.69 %) (0.31 %) Construction, development & other land loans 0.02 % 0.06 % 0.11 % 0.24 % 0.14 % Commercial real estate - owner occupied 0.03 % 0.05 % (0.03 %) (0.04 %) (0.03 %) Commercial real estate - non owner occupied 0.02 % 0.02 % (0.12 %) — % (0.11 %) Multi-family real estate — % — % — % 0.01 % 0.09 % Residential 1-4 family real estate 0.03 % — % 0.05 % 0.03 % — % Home equity loans/lines of credit (0.06 %) 0.17 % 0.06 % (0.01 %) 0.09 % Consumer loans (1.11 %) (1.08 %) (0.57 %) (1.11 %) (0.78 %) 52 Table of Contents Securities Our securities portfolio and the breakout of AFS and HTM securities is presented in the following table.
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition This MD&A is intended to assist readers in understanding our results of operations and changes in financial position for the past three years. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Report.
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition This MD&A is intended to assist readers in understanding our results of operations and changes in financial position for the past three years. It should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Report.
We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.
We continue to manage liquidity sources and believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.
Finally, fluctuations in the amount of AOCI, generally driven by market rate changes resulting in increases or decreases in unrealized gains/losses on AFS securities, can have a significant impact on total equity.
Finally, fluctuations in the amount of AOCI, generally driven by market interest rate changes resulting in increases or decreases in unrealized gains/losses on AFS securities, can have a significant impact on total equity.
In recent years, the mix of variable rate loans to fixed rate loans has been shifting to more fixed rate loans given the low interest rate environment prior to 2022 and borrowers' preference to lock in low rates.
In recent years, the mix of variable rate loans to fixed rate loans has been shifting to more fixed rate loans given the low interest rate environment prior to mid-2022 and borrowers' preference to lock in low rates.
We have evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations. 48 Table of Contents Deposits Deposits represent the primary funding source for our loans and investments.
We have evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations. 54 Table of Contents Deposits Deposits represent the primary funding source for our loans and investments.
However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could making it difficult to grow assets and income.
However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could make it difficult to grow assets and income.
In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions. 44 Table of Contents The following table sets forth the allocation of the ACL by loan category at the dates indicated.
In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions. 50 Table of Contents The following table sets forth the allocation of the ACL by loan category at the dates indicated.
Off-Balance Sheet Arrangements and Derivative Financial Instruments Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities.
Off-Balance Sheet Arrangements and Derivative Financial Instruments Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities and subordinated debentures.
Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and allows us to reprice these deposit categories at any time. Approximately 88% of our time deposits mature within one year.
Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and allows us to reprice these deposit categories at any time. Approximately 92% of our time deposits mature within one year.
(2) Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 23% tax rate. The majority of our GSE securities carry one maturity date, often with an issuer call feature.
Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 23.15% tax rate. The majority of our GSE securities carry one maturity date, often with an issuer call feature.
For a description of our results of operations for 2021 as compared to 2020, refer to the "Overview and 2021 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2021 Form 10-K.
For a description of our results of operations for 2022 as compared to 2021, refer to the "Overview and 2022 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2022 Form 10-K.
We have identified the determination of our ACL as well as business combinations, related fair value measurements, and goodwill to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
We have identified the determination of our ACL and related Allowance for Unfunded Commitments, as well as business combinations, related fair value measurements and goodwill determination to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
The extent to which the current economic conditions and lingering impacts of COVID-19 have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.
The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.
This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense. 36 Table of Contents The following table presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 2022 and 2021.
This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense. 41 Table of Contents The following table presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 2023 and 2022.
Business Combinations and Goodwill Pursuant to applicable accounting guidance, we recognize assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred.
Pursuant to applicable accounting guidance, we recognize assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred.
All loan categories secured by real estate, including construction and land loans, have historically ranged from approximately 85% to 90% of the loan portfolio.
All loan categories secured by real estate, including construction and land loans, have historically ranged from approximately 82% to 90% of the loan portfolio.
In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. The following table summarizes our NPAs at the dates indicated.
In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. 48 Table of Contents The following table summarizes our NPAs at the dates indicated.
Our financial position and results of operations are susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans.
Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans.
Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2021 with the Select acquisition.
Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.
The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions, and any stock repurchases reduce shareholders’ equity.
The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions such as in 2023, and any stock repurchases reduce shareholders’ equity.
Over 99% of our mortgage-backed securities, which include both AFS and HTM securities, are issued by GSEs or GNMA, and are traded in liquid secondary markets. These securities are recorded on the balance sheet at fair value for the AFS portfolio and at cost for the HTM portfolio.
Essentially all of our mortgage-backed securities, which include both AFS and HTM securities, are issued by GSEs or GNMA, and are traded in liquid secondary markets. These securities are recorded on the balance sheet at fair value for the AFS portfolio and at cost for the HTM portfolio.
(3) Includes tax-equivalent adjustments of $2.8 million, $2.2 million and $1.5 million in 2022, 2021, and 2020, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.
(3) Includes tax-equivalent adjustments of $2.9 million, $2.8 million and $2.2 million in 2023, 2022, and 2021, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.
The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheets. The provision for loan losses was $12.6 million in 2022 and $9.6 million in 2021. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model.
The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets. The provision for loan losses was $19.8 million in 2023 and $12.6 million in 2022. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model.
Recent Accounting Standards and Pronouncements For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.” 33 Table of Contents RESULTS OF OPERATIONS The following discussion reviews the results of operations and key drivers to change in the results of 2022 as compared to 2021.
Recent Accounting Standards and Pronouncements For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.” RESULTS OF OPERATIONS The following discussion reviews the results of operations and key drivers to change in the results of 2023 as compared to 2022.
We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
We routinely engage in activities designed to grow and retain deposits, including emphasizing relationship banking to new and existing customers where borrowers are encouraged and normally expected to maintain deposit accounts with us; pricing 55 Table of Contents deposits at rate levels that will attract and/or retain deposits; and continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
Management evaluates noninterest income on a non-GAAP basis that excludes items such as securities gains and losses and other miscellaneous gains and losses because we believe excluding those items results in a more meaningful reflection of noninterest income from recurring sources.
Management evaluates noninterest income on a non-GAAP basis that excludes items such as securities gains and losses and other gains and losses because we believe excluding those items results in a more meaningful reflection of noninterest income from regular operations.
Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $3.1 million , $9.7 million, and $4.8 million for 2022, 2021, and 2020, respectively. (2) Includes accretion of discount on acquired and SBA loans of $8.5 million, $8.8 million, and $6.3 million in 2022, 2021, and 2020, respectively.
Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $0.5 million , $3.1 million, and $9.7 million for 2023, 2022, and 2021, respectively. (2) Includes accretion of discount on acquired and SBA loans of $13.3 million, $8.5 million, and $8.8 million in 2023, 2022, and 2021, respectively.
We have no significant concentration of bond holdings from one state or local government entity, with the single largest exposure to any one entity being $9.5 million.
We have no significant concentration of bond holdings from one state or local government entity, with the single largest exposure to any one entity being $7.1 million.
"Other service charges, commissions and fees - other" includes items such as SBA guarantee servicing fees, ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees.
Other service charges and fees - other includes items such as ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees.
Approximately $15.2 million of the HTM securities were mortgage-backed securities that have been issued by either the FHLMC or FNMA. The remaining $526.6 million in HTM securities were comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation.
Approximately $12.1 million of the HTM securities were mortgage-backed securities that have been issued by either the FHLMC or FNMA. The remaining $521.6 million in HTM securities were comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation.
At December 31, 2022, our leverage ratio was 10.51% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 15.09% compared to the 10.50% regulatory well capitalized threshold. The increase in capital levels in 2022 was related to the growth in net income.
At December 31, 2023, our leverage ratio was 10.91% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 15.54% compared to the 10.50% regulatory well capitalized threshold. The increase in capital levels in 2023 was related to the growth in net income.
However, the ACL is available to absorb losses in all categories.
However, the ACL is available to absorb losses in any and all categories.
For 2022, we utilized the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection. The economic forecasts throughout the year have projected general weakening of the economy demonstrated in higher projected unemployment rates, lower GDP, and declining price indices for both commercial real estate and residential mortgages.
For 2023, we utilized the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection. The economic forecasts throughout the year have projected general improvement of the economy demonstrated in lower projected unemployment rates, improved GDP, and increasing price indices for both commercial real estate and residential mortgages.
We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the pandemic impact.
We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the current economic conditions.
Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. ASC 350-10 establishes standards for an impairment assessment of goodwill.
Mortgage-backed securities vary in their repayment in correlation with the underlying pools of mortgage loans. At December 31, 2022, we held $541.7 million in securities classified as HTM, which are carried at amortized cost. These securities had fair values that were lower than their carrying values by $109.2 million at December 31, 2022.
Mortgage-backed securities vary in their repayment in correlation with the underlying pools of mortgage loans. At December 31, 2023, we held $533.7 million in securities classified as HTM, which are carried at amortized cost. These securities had fair values that were lower than their carrying values by $84.1 million at December 31, 2023.
Additional discussion on the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following. Noninterest Income Our noninterest income amounted to $68.0 million in 2022, $73.6 million in 2021, and $81.3 million in 2020.
Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following. Noninterest Income Our noninterest income amounted to $57.5 million in 2023, $68.0 million in 2022, and $73.6 million in 2021.
Early repayment of loans or renewals at maturity are not considered in this table. Approximately 12% of our accruing loans outstanding at December 31, 2022 mature within one year and 45% of total loans mature within five years.
Early repayment of loans or renewals at maturity are not considered in this table. Approximately 11% of our accruing loans outstanding at December 31, 2023 mature within one year and 53% of total loans mature within five years.
Performing special mention loans, which are still accruing interest, totaled $39.0 million and $43.1 million as of December 31, 2022 and 2021, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $20.0 million at December 31, 2022 and $21.3 million at December 31, 2021.
Performing special mention loans, which are still accruing interest, totaled $44.1 million and $39.0 million as of December 31, 2023 and 2022, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $22.0 million at December 31, 2023 and $20.0 million at December 31, 2022.
As of December 31, 2022, approximately $830.8 million of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval. Our regulatory capital ratios as of December 31, 2022, 2021, and 2020 are presented in the table below.
As of December 31, 2023, approximately $1.1 billion of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval. Our regulatory capital ratios as of December 31, 2023, 2022 and 2021 are presented in the table below.
Actual losses incurred may differ materially from our estimates. For example, inflationary pressures and recessionary concerns leading to macroeconomic economic deterioration, higher unemployment and declines in real estate and other asset valuations could affect our loss experience and assumptions utilized in our model.
For example, inflationary pressures and recessionary concerns leading to macroeconomic economic deterioration, higher unemployment and declines in real estate and other asset valuations could affect our loss experience and assumptions utilized in our model.
Nearly all of our $2.0 billion in AFS mortgage-backed securities at December 31, 2022 were issued by the FHLMC, FNMA, GNMA, or the SBA, each of which is a government agency or government-sponsored corporation and guarantees the repayment of the securities. Included in this total are commerical mortgage-backed securities of $810.9 million.
Nearly all of our $1.9 billion in AFS mortgage-backed securities at December 31, 2023 were issued by the FHLMC, FNMA, GNMA, or the SBA, each of which is a government agency or a GSE and guarantees the repayment of the securities. Included in this total are private-label commerical mortgage-backed securities of $0.7 million.
Generally, absent potential impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.
At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. Generally, absent potential 38 Table of Contents impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.
See Note 1 to our consolidated financial statements for a discussion of recent rule proposals and changes. 53 Table of Contents Selected Consolidated Financial Data Year Ended December 31, ($ in thousands, except per share data) 2022 2021 2020 2019 2018 Income Statement Data Interest income $ 340,957 255,918 237,684 250,107 231,207 Interest expense 16,103 9,523 19,562 33,903 23,777 Net interest income 324,854 246,395 218,122 216,204 207,430 Provision for (reversal of) loan losses 12,600 9,611 35,039 2,263 (3,589) (Reversal of) provision for unfunded commitments (200) 5,420 — — — Net interest income after provision 312,454 231,364 183,083 213,941 211,019 Noninterest income 67,985 73,611 81,346 59,529 58,942 Noninterest expense 195,220 184,656 161,298 157,194 156,483 Income before income taxes 185,219 120,319 103,131 116,276 113,478 Income tax expense 38,283 24,675 21,654 24,230 24,189 Net income 146,936 95,644 81,477 92,046 89,289 Per Common Share Data Earnings per common share – basic $ 4.12 3.19 2.81 3.10 3.02 Earnings per common share – diluted 4.12 3.19 2.81 3.10 3.01 Cash dividends declared 0.88 0.80 0.72 0.54 0.40 Market Price High 49.00 50.92 40.00 41.34 43.14 Low 32.90 32.47 17.32 31.22 30.50 Close 42.84 45.72 33.83 39.91 32.66 Stated book value – common 28.89 34.54 31.26 28.80 25.71 Selected Balance Sheet Data (at year end) Total assets $ 10,625,049 10,508,901 7,289,751 6,143,639 5,864,116 Loans 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064 Allowance for credit losses 90,967 78,789 52,388 21,398 21,039 Intangible assets 376,938 382,090 254,638 251,585 255,480 Deposits 9,227,529 9,124,629 6,273,596 4,931,355 4,659,339 Borrowings 287,507 67,386 61,829 300,671 406,609 Total shareholders’ equity 1,031,596 1,230,575 893,421 852,401 764,230 Selected Average Balances Total assets $ 10,556,230 8,495,645 6,765,998 6,027,047 5,693,760 Loans 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838 Earning assets 9,989,185 7,871,319 6,160,100 5,448,400 5,112,436 Deposits 9,283,505 7,401,910 5,644,290 4,824,216 4,516,811 Interest-bearing liabilities 5,758,001 4,736,343 3,897,912 3,720,536 3,663,077 Total shareholders’ equity 1,096,913 969,775 874,532 812,823 727,920 Ratios Return on average assets 1.39 % 1.13 % 1.20 % 1.53 % 1.57 % Return on average common equity 13.40 % 9.86 % 9.32 % 11.32 % 12.27 % Total risk-based capital ratio 15.09 % 14.67 % 15.37 % 14.89 % 13.97 % Net interest margin (taxable-equivalent basis) 3.28 % 3.16 % 3.56 % 4.00 % 4.09 % Loans to deposits at year end 72.23 % 66.65 % 75.42 % 90.31 % 91.19 % Allowance for loan losses to total loans 1.36 % 1.30 % 1.11 % 0.48 % 0.50 % Nonperforming assets to total assets at year end 0.36 % 0.50 % 0.64 % 0.62 % 0.74 % Net (charge-offs) recoveries to average total loans (0.01 %) (0.05 %) (0.09 %) (0.04 %) 0.03 % Note - During 2021, the Company completed a significant whole-bank acquisition impacting the comparisons for that year.
See Note 1 to our consolidated financial statements for a discussion of recent rule proposals and changes. 60 Table of Contents Selected Financial Information Year Ended December 31, ($ in thousands, except per share data) 2023 2022 2021 2020 2019 Income Statement Data Interest income $ 488,759 340,957 255,918 237,684 250,107 Interest expense 142,101 16,103 9,523 19,562 33,903 Net interest income 346,658 324,854 246,395 218,122 216,204 Provision for (reversal of) loan losses 19,750 12,600 9,611 35,039 2,263 (Reversal of) provision for unfunded commitments (1,937) (200) 5,420 — — Net interest income after provision 328,845 312,454 231,364 183,083 213,941 Noninterest income 57,490 67,985 73,611 81,346 59,529 Noninterest expense 254,379 195,220 184,656 161,298 157,194 Income before income taxes 131,956 185,219 120,319 103,131 116,276 Income tax expense 27,825 38,283 24,675 21,654 24,230 Net income 104,131 146,936 95,644 81,477 92,046 Per Common Share Data Earnings per common share – basic $ 2.54 4.12 3.19 2.81 3.10 Earnings per common share – diluted 2.53 4.12 3.19 2.81 3.10 Cash dividends declared 0.88 0.88 0.80 0.72 0.54 Market Price High 43.24 49.00 50.92 40.00 41.34 Low 26.48 32.90 32.47 17.32 31.22 Close 37.01 42.84 45.72 33.83 39.91 Stated book value – common 33.38 28.89 34.54 31.26 28.80 Common shares outstanding at year end 41,109,987 35,704,154 35,629,177 28,579,335 29,601,264 Selected Balance Sheet Data (at year end) Total assets $ 12,114,942 10,625,049 10,508,901 7,289,751 6,143,639 Loans 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 Allowance for credit losses 109,853 90,967 78,789 52,388 21,398 Intangible assets 511,608 376,938 382,090 254,638 251,585 Deposits 10,031,599 9,227,529 9,124,629 6,273,596 4,931,355 Borrowings 630,158 287,507 67,386 61,829 300,671 Total shareholders’ equity 1,372,380 1,031,596 1,230,575 893,421 852,401 Selected Average Balances Total assets 12,033,033 10,556,230 8,495,645 6,765,998 6,027,047 Loans 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Earning assets 11,433,492 9,989,185 7,871,319 6,160,100 5,448,400 Deposits 10,176,966 9,283,505 7,401,910 5,644,290 4,824,216 Interest-bearing liabilities 7,037,105 5,758,001 4,736,343 3,897,912 3,720,536 Total shareholders’ equity 1,293,085 1,096,913 969,775 874,532 812,823 Ratios Return on average assets 0.87 % 1.39 % 1.13 % 1.20 % 1.53 % Return on average common equity 8.05 % 13.40 % 9.86 % 9.32 % 11.32 % Total risk-based capital ratio 15.54 % 15.09 % 14.67 % 15.37 % 14.89 % Net interest margin (taxable-equivalent basis) 3.06 % 3.28 % 3.16 % 3.56 % 4.00 % Loans to deposits at year end 81.24 % 72.23 % 66.65 % 75.42 % 90.31 % Allowance for loan losses to total loans 1.35 % 1.36 % 1.30 % 1.11 % 0.48 % Nonperforming assets to total assets at year end 0.36 % 0.36 % 0.50 % 0.64 % 0.62 % Net (charge-offs) recoveries to average total loans (0.08 %) (0.01 %) (0.05 %) (0.09 %) (0.04 %) Note - During both 2023 and 2021, the Company completed significant whole-bank acquisitions impacting the comparisons for each of those years.
Our estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for loan losses and provision for unfunded commitments which represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.
Our estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments, as well as the resulting provision for loan losses and provision for unfunded commitments.
The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.
Refer to additional discussion in the section “Interest Rate Risk” below. 47 Table of Contents The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.
In 2022, the most significant factors that impacted our shareholders' equity were (1) $317.0 million reduction in equity related to changes in AOCI driven by higher unrealized losses on AFS securities; (2) $146.9 million net income reported for 2022, which increased equity, and (3) common stock dividends declared of $31.4 million, which reduced equity.
In 2023, the most significant factors that impacted our shareholders' equity were (1) $229.5 million of common stock issued for the acquisition of GrandSouth which increased equity; (2) $104.1 million net income reported for 2023, which increased equity, (3) common stock dividends declared of $36.1 million, which reduced equity; and (4) $33.9 million reduction in equity related to changes in AOCI driven by higher unrealized losses on AFS securities.
In the normal course of business we have various outstanding contractual obligations that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows. Presented below is a summary of our contractual obligations and other commercial commitments outstanding as of December 31, 2022.
In the normal course of business we have various outstanding contractual obligations that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows.
In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries, and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios. 42 Table of Contents Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life.
In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries, and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios.
As of December 31, 2022, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 20% and 80%, respectively.
As of December 31, 2023, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 19% and 81%, respectively.
We have grown organically as well as through strategic acquisitions as discussed above in "Recent Developments and Acquisitions". 2022 Financial Highlights: • Return on average assets was 1.39% for the year ended December 31, 2022, up from 1.13% for the prior year.
We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions". 2023 Financial Highlights: • Return on average assets was 0.87% for the year ended December 31, 2023, as compared to 1.39% for the prior year.
The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized”).
The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized”).
Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold, and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities which could also be sold to provide cash.
Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold, and other short-term investments. Our securities portfolio has a high percentage of amortizing mortgage-backed securities generating monthly cash flows. In addition, the portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash.
During 2022 there were no triggers warranting interim impairment assessments and for the 2022 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value.
During 2023 there were no triggers warranting interim impairment assessments and for the 2023 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value. At December 31, 2023, we had $478.8 million of goodwill.
These worsening economic projections translated to higher forecasted losses in our loan portfolio and a higher estimated ACL. Also under the CECL method, in 2022 we recorded a reduction in the provision for unfunded commitments of $0.2 million compared to $5.4 million in provision for unfunded commitments for 2021.
These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth. Also under the CECL method, in 2023 we recorded a reduction in the provision for unfunded commitments of $1.9 million compared to $0.2 million for 2022.
See additional discussion under "Mergers and Acquisitions" in Item 1. 54 Table of Contents
See additional discussion under "Recent Developments and Acquisitions" in Item 1. 61 Table of Contents
Year ended December 31, ($ in thousands) 2022 2021 2020 Interest income – increased by accretion of loan discount on acquired loans $ 5,621 6,107 3,817 Interest income - increased by accretion of loan discount on retained SBA loans 2,856 2,707 2,511 Interest expense – reduced by premium amortization of deposits 593 295 100 Interest expense – increased by discount accretion of borrowings (254) (249) (181) Impact on net interest income $ 8,816 8,860 6,247 The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans.
Year ended December 31, ($ in thousands) 2023 2022 2021 Interest income – increased by accretion of loan discount on acquired loans $ 11,507 5,621 6,107 Interest income - increased by accretion of loan discount on retained SBA loans 1,770 2,856 2,707 Total interest income impact 13,277 8,477 8,814 Interest expense – (increased) reduced by (discount accretion) premium amortization of deposits (3,101) 593 295 Interest expense – increased by discount accretion of borrowings (842) (254) (249) Total net interest expense impact (3,943) 339 46 Impact on net interest income $ 9,334 8,816 8,860 The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans.
Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise. The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination.
The ACL for PCD assets is recognized within business combination accounting with no initial impact to net income. Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise.
In addition to regulatory capital ratios, we also closely monitor our ratio of TCE to tangible assets.
In addition to regulatory capital ratios, we also closely monitor our ratio of TCE to tangible assets, which is a non-GAAP financial measure.
Adjusted noninterest income amounted to $60.6 million in 2022, $73.2 million in 2021, and $73.4 million in 2020. 38 Table of Contents Noninterest Income Year Ended December 31, ($ in thousands) 2022 2021 2020 Service charges on deposit accounts $ 15,523 12,317 11,098 Other service charges, commissions and fees - interchange income, net 14,996 18,480 14,142 Other service charges, commissions, and fees - other 11,298 7,036 5,955 Fees from presold mortgage loans 2,102 10,975 14,183 Commissions from sales of insurance and financial products 5,195 6,947 8,848 SBA consulting fees 2,608 7,231 8,644 SBA loan sale gains 5,076 7,329 7,973 Bank-owned life insurance income 3,847 2,885 2,533 Securities (losses) gains, net — (1,237) 8,024 Other gains (losses), net 7,340 1,648 (54) Noninterest income 67,985 73,611 81,346 Non-GAAP adjustments - Exclude: Securities losses (gains), net — 1,237 (8,024) Other (gains) losses, net (7,340) (1,648) 54 Adjusted noninterest income $ 60,645 73,200 73,376 Service charges on deposit accounts increased $3.2 million, or 26.0%, in 2022 as compared to 2021.
Drivers of the more significant fluctuations follow the table. 43 Table of Contents Noninterest Income Year Ended December 31, ($ in thousands) 2023 2022 2021 Service charges on deposit accounts $ 16,800 15,523 12,317 Other service charges and fees -bankcard and interchange income, net 9,319 14,996 18,480 Other service charges - other 12,951 11,298 7,036 Fees from presold mortgage loans 1,613 2,102 10,975 Commissions from sales of financial products 5,503 5,195 6,947 SBA consulting fees 1,803 2,608 7,231 SBA loan sale gains 2,489 5,076 7,329 Bank-owned life insurance ("BOLI") income 4,350 3,847 2,885 Securities losses, net — — (1,237) Other gains, net 2,662 7,340 1,648 Total noninterest income 57,490 67,985 73,611 Non-GAAP adjustments - exclude: Securities losses, net — — 1,237 Other gains, net (2,662) (7,340) (1,648) Adjusted noninterest income $ 54,828 60,645 73,200 Service charges on deposit accounts increased $1.3 million, or 8.2%, in 2023 as compared to 2022.
Risk-Based and Leverage Capital Ratios As of December 31, ($ in thousands) 2022 2021 2020 Risk-Based and Leverage Capital Common Equity Tier I capital: Shareholders’ equity $ 1,031,596 1,230,575 893,421 Intangible assets, net of deferred tax liability (363,202) (366,609) (239,702) Accumulated other comprehensive income adjustments 341,975 24,970 (14,350) Total Common Equity Tier I capital 1,010,369 888,936 639,369 Add: Trust preferred securities eligible for Tier I capital treatment 63,589 63,336 52,496 Total Tier I leverage capital 1,073,958 952,272 691,865 Tier II capital: Add: Allowable allowance for credit losses and unfunded commitments 97,126 88,692 52,388 Add: Other Tier II Capital — — 582 Tier II capital additions 97,126 88,692 52,970 Total capital $ 1,171,084 1,040,964 744,835 Total risk weighted assets $ 7,762,894 7,094,787 4,846,322 Adjusted fourth quarter average assets $ 10,215,571 10,144,760 7,001,834 Risk-based and Leverage capital ratios: Common equity Tier I capital to Tier I risk adjusted assets 13.02 % 12.53 % 13.19 % Tier I capital to Tier I risk adjusted assets 13.83 % 13.42 % 14.28 % Total risk-based capital to Tier II risk-adjusted assets 15.09 % 14.67 % 15.37 % Tier I leverage capital to adjusted fourth quarter average assets 10.51 % 9.39 % 9.88 % 52 Table of Contents Our goal is to maintain our capital ratios at levels at least 200 basis points higher than the regulatory “well capitalized” thresholds set for banks.
Risk-Based and Leverage Capital Ratios As of December 31, ($ in thousands) 2023 2022 2021 Risk-Based and Leverage Capital Common Equity Tier I capital: Shareholders’ equity $ 1,372,380 1,031,596 1,230,575 Intangible assets, net of deferred tax liability (493,383) (363,202) (366,609) Accumulated other comprehensive income adjustments 308,030 341,975 24,970 Total Common Equity Tier I capital 1,187,027 1,010,369 888,936 Add: Trust preferred securities eligible for Tier I capital treatment 70,807 63,589 63,336 Total Tier I leverage capital 1,257,834 1,073,958 952,272 Tier II capital: Add: Allowable allowance for credit losses and unfunded commitments 112,491 97,126 88,692 Add: Subordinated debentures eligible for Tier II capital treatment 27,177 — — Tier II capital additions 139,668 97,126 88,692 Total capital $ 1,397,502 1,171,084 1,040,964 Total risk weighted assets $ 8,991,087 7,762,894 7,094,787 Adjusted fourth quarter average tangible assets $ 11,532,812 10,215,571 10,144,760 Risk-based and Leverage capital ratios: Common equity Tier I capital to Tier I risk adjusted assets 13.20 % 13.02 % 12.53 % Tier I capital to Tier I risk adjusted assets 13.99 % 13.83 % 13.42 % Total risk-based capital to Tier II risk-adjusted assets 15.54 % 15.09 % 14.67 % Tier I leverage capital to adjusted fourth quarter average assets 10.91 % 10.51 % 9.39 % Our goal is to maintain our capital ratios at levels at least 200 basis points higher than the regulatory “well capitalized” thresholds set for banks.
Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the 32 Table of Contents expected undiscounted future cash flows is less than the carrying amount of the asset.
Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.
At December 31, 2022, 2021, and 2020, unaccreted loan discount on purchased loans amounted to $11.6 million, $17.2 million, and $8.9 million, respectively. The Select acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2022.
At December 31, 2023 and 2022, unaccreted loan discount on purchased loans amounted to $24.0 million and $11.6 million, respectively. The GrandSouth acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2023.
($ in thousands) Year ended December 31, 2022 2021 2020 Net interest income, as reported $ 324,854 246,395 218,122 Tax-equivalent adjustment 2,780 2,243 1,468 Net interest income, tax-equivalent $ 327,634 248,638 219,590 Net interest margin, as reported 3.25 % 3.13 % 3.54 % Net interest margin, tax-equivalent 3.28 % 3.16 % 3.56 % The increase in our NIM was driven by the rising market interest rates as the Federal Reserve's monetary policies resulted in a 425 basis point rise in short-term rates between March and December 2022.
($ in thousands) Year ended December 31, 2023 2022 2021 Net interest income, as reported $ 346,658 324,854 246,395 Tax-equivalent adjustment 2,879 2,780 2,243 Net interest income, tax-equivalent $ 349,537 327,634 248,638 Net interest margin, as reported 3.03 % 3.25 % 3.13 % Net interest margin, tax-equivalent 3.06 % 3.28 % 3.16 % The decrease in our NIM was driven by the rising market interest rates as the Federal Reserve's monetary policies resulted in a 100 basis point rise in short-term rates between January and July 2023, after rates had risen 425 basis points in 2022.
There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change.
Although management believes its process for determining the ACL adequately considers all the factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change.
Rate Interest Earned or Paid Assets Loans (1) (2) $ 6,293,280 4.42 % $ 278,027 5,018,391 4.36 % 219,013 4,702,743 4.53 % 213,099 Taxable securities 3,059,683 1.75 % 53,536 2,204,713 1.45 % 32,076 967,900 2.11 % 20,429 Non-taxable securities 296,803 1.48 % 4,387 162,878 1.49 % 2,402 34,108 2.13 % 725 Other interest-earning assets, primarily overnight funds 339,419 1.48 % 5,007 485,337 0.50 % 2,427 455,349 0.75 % 3,431 Total interest-earning assets 9,989,185 3.41 % 340,957 7,871,319 3.25 % 255,918 6,160,100 3.86 % 237,684 Cash and due from banks 104,374 90,275 81,154 Premises and equipment 135,160 125,738 116,425 Other assets 327,511 408,313 408,319 Total assets $ 10,556,230 8,495,645 6,765,998 Liabilities and Equity Interest-bearing checking accounts $ 1,545,573 0.08 % $ 1,219 1,353,172 0.07 % 919 1,019,773 0.12 % 1,208 Money market accounts 2,515,897 0.22 % 5,610 1,923,614 0.16 % 3,158 1,367,851 0.34 % 4,632 Savings accounts 739,681 0.06 % 459 607,452 0.07 % 443 467,682 0.15 % 711 Other time deposits 551,852 0.46 % 2,541 432,506 0.39 % 1,722 500,424 1.49 % 7,473 Time deposits >$250,000 287,194 0.53 % 1,520 356,398 0.46 % 1,639 355,737 0.64 % 2,277 Total interest-bearing deposits 5,640,197 0.20 % 11,349 4,673,142 0.17 % 7,881 3,711,467 0.44 % 16,301 Short-term borrowings 52,446 3.45 % 1,808 — — % — 71,955 1.42 % 1,022 Long-term borrowings 65,358 4.51 % 2,946 63,201 2.60 % 1,642 114,490 1.96 % 2,239 Total interest-bearing liabilities 5,758,001 0.28 % 16,103 4,736,343 0.13 % 9,523 3,897,912 0.50 % 19,562 Noninterest-bearing checking accounts 3,643,308 2,728,768 1,932,823 Total sources of funds 9,401,309 0.17 % 7,465,111 0.13 % 5,830,735 0.34 % Other liabilities 58,008 60,759 60,731 Shareholders’ equity 1,096,913 969,775 874,532 Total liabilities and shareholders’ equity $ 10,556,230 8,495,645 6,765,998 Net yield on interest-earning assets and net interest income 3.25 % $ 324,854 3.13 % 246,395 3.54 % 218,122 Net yield on interest-earning assets and net interest income – tax-equivalent (3) 3.28 % $ 327,634 3.16 % 248,638 3.56 % 219,590 Interest rate spread 3.29 % 3.14 % 3.36 % Average Prime Rate 4.86 % 3.25 % 3.54 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
Rate Interest Earned or Paid Assets Loans (1) (2) $ 7,902,628 5.30 % $ 418,668 6,293,280 4.42 % 278,027 5,018,391 4.36 % 219,013 Taxable securities 2,920,040 1.79 % 52,276 3,059,683 1.75 % 53,536 2,204,713 1.45 % 32,076 Non-taxable securities 296,287 1.51 % 4,485 296,803 1.48 % 4,387 162,878 1.49 % 2,402 Short-term investments, primarily interest-bearing cash 314,537 4.24 % 13,330 339,419 1.48 % 5,007 485,337 0.50 % 2,427 Total interest-earning assets 11,433,492 4.27 % 488,759 9,989,185 3.41 % 340,957 7,871,319 3.25 % 255,918 Cash and due from banks 93,182 104,374 90,275 Premises and equipment 151,980 135,160 125,738 Other assets 354,379 327,511 408,313 Total assets $ 12,033,033 10,556,230 8,495,645 Liabilities and Equity Interest-bearing checking $ 1,457,272 0.42 % $ 6,192 1,545,573 0.08 % 1,219 1,353,172 0.07 % 919 Money market deposits 3,355,992 2.34 % 78,643 2,515,897 0.22 % 5,610 1,923,614 0.16 % 3,158 Savings deposits 668,730 0.15 % 1,024 739,681 0.06 % 459 607,452 0.07 % 443 Other time deposits 737,330 2.58 % 19,023 551,852 0.46 % 2,541 432,506 0.39 % 1,722 Time deposits >$250,000 343,669 2.90 % 9,984 287,194 0.53 % 1,520 356,398 0.46 % 1,639 Total interest-bearing deposits 6,562,993 1.75 % 114,866 5,640,197 0.20 % 11,349 4,673,142 0.17 % 7,881 Short-term borrowings 374,254 5.15 % 19,289 52,446 3.45 % 1,808 — — % — Long-term borrowings 99,858 7.96 % 7,946 65,358 4.51 % 2,946 63,201 2.60 % 1,642 Total interest-bearing liabilities 7,037,105 2.02 % 142,101 5,758,001 0.28 % 16,103 4,736,343 0.13 % 9,523 Noninterest-bearing checking 3,613,973 3,643,308 2,728,768 Total sources of funds 10,651,078 1.33 % 9,401,309 0.17 % 7,465,111 0.13 % Other liabilities 88,870 58,008 60,759 Shareholders’ equity 1,293,085 1,096,913 969,775 Total liabilities and shareholders’ equity $ 12,033,033 10,556,230 8,495,645 Net yield on interest-earning assets and net interest income 3.03 % $ 346,658 3.25 % 324,854 3.13 % 246,395 Net yield on interest-earning assets and net interest income – tax-equivalent (3) 3.06 % $ 349,537 3.28 % 327,634 3.16 % 248,638 Interest rate spread 3.15 % 3.29 % 3.14 % Average prime rate 8.20 % 4.86 % 3.25 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
Most of our business activity is with customers located within the markets where we have banking operations. Therefore, our exposure to credit risk is significantly affected by changes in the economy within our markets. Approximately 90% of our loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.
Therefore, our exposure to credit risk is significantly affected by changes in the economy within our markets. Approximately 88% of our loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.
Based on that assumption, management believes that he Bank can meet its contractual cash obligations and existing commitments from normal operations. 51 Table of Contents Capital Resources and Shareholders’ Equity Shareholders’ equity at December 31, 2022 amounted to $1.0 billion compared to $1.2 billion at December 31, 2021.
We believe that he Bank can meet its contractual cash obligations and existing commitments from normal operations. Capital Resources and Shareholders’ Equity Shareholders’ equity at December 31, 2023 amounted to $1.4 billion compared to $1.0 billion at December 31, 2022.
Deposit Composition As of December 31, 2022 2021 2020 2019 2018 ($ in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing checking accounts $ 3,566,003 39 % 3,348,622 37 % 2,210,012 35 % 1,515,977 31 % 1,320,697 28 % Interest-bearing checking accounts 1,514,166 16 % 1,593,231 17 % 1,172,022 19 % 912,784 18 % 916,374 20 % Money market accounts 2,416,146 26 % 2,562,283 28 % 1,581,364 25 % 1,173,107 24 % 1,035,523 22 % Savings accounts 728,641 8 % 708,054 8 % 519,266 8 % 424,415 9 % 432,390 9 % Other time deposits 464,343 5 % 547,669 6 % 415,269 7 % 462,898 9 % 445,594 10 % Time deposits >$250,000 276,319 3 % 357,355 4 % 355,441 6 % 356,033 7 % 269,453 6 % Total customer deposits 8,965,618 97 % 9,117,214 100 % 6,253,374 100 % 4,845,214 98 % 4,420,031 95 % Brokered Deposits 261,911 3 % 7,415 — % 20,222 — % 86,141 2 % 239,875 5 % Total deposits $ 9,227,529 100 % 9,124,629 100 % 6,273,596 100 % 4,931,355 100 % 4,659,906 100 % Our deposit mix continues to be predominately transaction and non-time deposit accounts, with total time deposits declining from 21% of total deposits at December 31, 2018 to 11% at December 31, 2022.
Deposit Composition As of December 31, 2023 2022 2021 2020 2019 ($ in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing checking accounts $ 3,379,876 34 % 3,566,003 39 % 3,348,622 37 % 2,210,012 35 % 1,515,977 31 % Interest-bearing checking accounts 1,411,142 14 % 1,514,166 16 % 1,593,231 17 % 1,172,022 19 % 912,784 18 % Money market accounts 3,653,506 36 % 2,416,146 26 % 2,562,283 28 % 1,581,364 25 % 1,173,107 24 % Savings accounts 608,380 6 % 728,641 8 % 708,054 8 % 519,266 8 % 424,415 9 % Other time deposits 610,887 6 % 464,343 5 % 547,669 6 % 415,269 7 % 462,898 9 % Time deposits >$250,000 355,209 4 % 276,319 3 % 357,355 4 % 355,441 6 % 356,033 7 % Total customer deposits 10,019,000 100 % 8,965,618 97 % 9,117,214 100 % 6,253,374 100 % 4,845,214 98 % Brokered Deposits 12,599 — % 261,911 3 % 7,415 — % 20,222 — % 86,141 2 % Total deposits $ 10,031,599 100 % 9,227,529 100 % 9,124,629 100 % 6,273,596 100 % 4,931,355 100 % While our customer deposits have remained fairly stable, there continues to be competition for deposits and the market rate increases experienced starting in 2022 have resulted in changes in customer behavior driving the shift to money market accounts during 2023.
When a loan no longer shares similar risk characteristics with its segment, the loan is evaluated on an individual basis applying a DCF or asset approach for collateral-dependent loans. Refer to Note 1 of the consolidated financial statements for a discussion of our CECL methodology used to determine the ACL.
When a loan no longer shares similar risk characteristics with its segment, the loan is evaluated on an individual basis applying a DCF or asset approach for collateral-dependent loans.
Allocation of the Allowance for Credit Losses As of December 31, ($ in thousands) 2022 % of Loan Category 2021 % of Loan Category 2020 % of Loan Category 2019 % of Loan Category 2018 % of Loan Category Commercial, financial, and agricultural $ 17,718 2.76 % 16,249 2.50 % 11,316 1.45 % 4,553 0.90 % 2,889 0.63 % Real estate – construction, land development 15,128 1.62 % 16,519 1.99 % 5,355 0.94 % 1,976 0.37 % 2,243 0.43 % Real estate mortgage – residential (1-4 family) first mortgages 11,354 0.95 % 8,686 0.85 % 8,048 0.83 % 3,832 0.35 % 5,197 0.49 % Real estate mortgage - home equity loans/lines of credit 3,158 0.98 % 4,337 1.31 % 2,375 0.78 % 1,127 0.33 % 1,665 0.46 % Real estate mortgage - commercial and other 40,709 1.16 % 30,342 0.95 % 23,603 1.15 % 8,938 0.47 % 7,983 0.45 % Consumer loans 2,900 4.78 % 2,656 4.64 % 1,478 2.74 % 972 1.73 % 952 1.33 % Total allocated 90,967 78,789 52,175 21,398 20,929 Unallocated — n/a — n/a 213 n/a — n/a 110 n/a Total $ 90,967 1.36 % 78,789 1.30 % 52,388 1.11 % 21,398 0.48 % 21,039 0.50 % Note: "% of Loan Category" represents the ACL as a percent of the respective total loan categories presented previously in the Loan Portfolio Composition table. n/a - not applicable 45 Table of Contents For the years indicated, the following table summarized our net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.
Allocation of the Allowance for Credit Losses As of December 31, ($ in thousands) 2023 % of Loan Category 2022 % of Loan Category 2021 % of Loan Category 2020 % of Loan Category 2019 % of Loan Category Commercial and industrial $ 21,227 2.34 % 17,718 2.76 % 16,249 2.50 % 11,316 1.45 % 4,553 0.90 % Construction, development & other land loans 13,940 1.40 % 15,128 1.62 % 16,519 1.99 % 5,355 0.94 % 1,976 0.37 % Commercial real estate - owner occupied 18,218 1.45 % 14,972 1.44 % 12,317 1.24 % 10,608 1.41 % 5,186 0.64 % Commercial real estate - non owner occupied 24,916 0.99 % 22,780 1.07 % 16,789 0.93 % 11,465 1.05 % 2,990 0.33 % Multi-family real estate 3,825 0.91 % 2,957 0.84 % 1,236 0.32 % 1,530 0.77 % 762 0.37 % Residential 1-4 family real estate 21,396 1.31 % 11,354 0.95 % 8,686 0.85 % 8,048 0.83 % 3,832 0.35 % Home equity loans/lines of credit 3,339 1.00 % 3,158 0.98 % 4,337 1.31 % 2,375 0.78 % 1,127 0.33 % Consumer loans 2,992 4.37 % 2,900 4.78 % 2,656 4.64 % 1,478 2.74 % 972 1.73 % Total allocated 109,853 90,967 78,789 52,175 21,398 Unallocated — n/a — n/a — n/a 213 n/a — n/a Total $ 109,853 1.35 % 90,967 1.36 % 78,789 1.30 % 52,388 1.11 % 21,398 0.48 % Note: "% of Loan Category" represents the ACL as a percent of the respective total loan categories presented previously in the Loan Portfolio Composition table. n/a - not applicable 51 Table of Contents For the years indicated, the following table summarized our net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.
This is compared to $16.8 million, or 9.8%, of the non-PPP SBA portfolio at December 31, 2021. We continue to closely monitor the SBA loan portfolio and give it appropriate consideration when evaluating the adequacy of the ACL as those loans are generally considered inherently more risky than other loans in our portfolio.
We continue to closely monitor the SBA loan portfolio and give it appropriate consideration when evaluating the adequacy of the ACL as those loans are generally considered inherently more risky than other loans in our portfolio. Refer to additional discussion of the ACL below.
While fixed rate loans present risk to our Company, in particular in rising interest rate environment as we have experienced in 2022, we measure our interest rate risk closely. Refer to additional discussion in the section “Interest Rate Risk” below.
While fixed rate loans present risk to our Company, in particular in rising interest rate environment as we have experienced starting in 2022 and into 2023, we measure our interest rate risk closely.
At December 31, 2022, of the $57.4 million in AFS GSE securities, $32.3 million were issued by the FFCB, $23.6 million were issued by the FHLMC, and the remaining $1.5 million were issued by the FHLB.
At December 31, 2023, of the $60.3 million in AFS GSE securities, $33.8 million were issued by the FFCB, $24.9 million were issued by the FHLMC, and the remaining $1.6 million were issued by the FHLB.
Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.
All of this line was available at year end. Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.
As a result of the current uncertain economic conditions, we could be subject to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.
While positive indicators are present, there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.
Our borrowings outstanding as of the dates presented were as follows: ($ in thousands) December 31, 2022 December 31, 2021 FHLB advances - long-term $ 221,842 1,974 Trust preferred capital issuances 69,076 69,076 290,918 71,050 Unamortized discounts on acquired borrowings (3,411) (3,664) $ 287,507 67,386 As noted in the table above, at December 31, 2022, we had $69.1 million of borrowings structured as trust preferred capital securities which qualify as capital for regulatory capital adequacy requirements.
Our borrowings outstanding as of the dates presented were as follows: ($ in thousands) December 31, 2023 December 31, 2022 FHLB advances $ 280,851 221,842 FRB borrowings 249,000 — Trust preferred capital issuances 77,324 69,076 Subordinated debentures 28,000 — 635,175 290,918 Unamortized discounts on acquired borrowings (5,017) (3,411) $ 630,158 287,507 As noted in the table above, at December 31, 2023, we had $77.3 million of borrowings structured as trust preferred capital securities which qualify as Tier I capital for regulatory capital adequacy requirements.
This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. The following discussion is intended to assist in understanding the financial condition and results of operations of the Company.
This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. Overview and 2023 Highlights The Company is a bank holding company headquartered in Southern Pines, North Carolina.
Under CECL, the provision for credit losses represents our current estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments.
The provision for loan losses represents our current estimate of life of loan credit losses in the loan portfolio and the provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

17 edited+13 added−3 removed20 unchanged
Biggest changeIn addition, the model includes an assumption of a quick repricing up of the funding base in a rising rate environment, and our recent shift to higher-cost brokered deposits and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection.
Biggest changeIn addition, the model includes an assumption of an immediate repricing up of the funding base in a rising rate environment due to the current competitive deposit market, combined with a continued utilization of wholesale funding in the form of short-term borrowings at our current level in order to maintain a similar balance sheet composition which has led to a narrowing of the interest rate spread in the projection.
We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible. 57 Table of Contents
We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible. 65 Table of Contents
Because these assumptions are inherently uncertain, actual results may differ from simulated results. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous move and a "ramped" move of rates.
Because these assumptions are inherently uncertain, actual results may differ from simulated results. 62 Table of Contents Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous move and a "ramped" move of rates.
A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
A sudden and substantial change in interest rates will generally impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
Impact of Inflation and Changing Prices Our financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Report have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation.
Refer also to the discussion above under Earnings Simulation Analysis. 64 Table of Contents Impact of Inflation and Changing Prices Our financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Report have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation.
Percentage change in Net Interest Income (1) Change in Interest Rates (in basis points) December 31, 2022 December 31, 2021 + 400 (1.4)% 8.9% + 300 (1.2)% 6.6% + 200 (1.0)% 4.3% + 100 (0.3)% 2.0% - 100 (1.5)% (2.5)% - 200 (5.1)% (5.6)% - 300 (10.1)% (8.2)% - 400 (15.1)% (9.6)% (1) - The percentage change represents the projected net interest income for 12 months on a flat balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios.
Percentage change in Net Interest Income (1) Change in Interest Rates (in basis points) December 31, 2023 December 31, 2022 + 400 (6.1)% (1.4)% + 300 (4.8)% (1.2)% + 200 (3.5)% (1.0)% + 100 (1.6)% (0.3)% - 100 (3.6)% (1.5)% - 200 (4.0)% (5.1)% - 300 (3.8)% (10.1)% - 400 (4.3)% (15.1)% (1) - The percentage change represents the projected net interest income for 12 months on a flat balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
This is due in part to the composition of our loan portfolio which is comprised of 20% variable rate loans which could immediately reprice, thus limiting the magnitude of the impact of rate increases.
This is due in large part to the composition of our loan portfolio which consists of approximately 19% variable rate loans that could immediately reprice, thus limiting the magnitude of the impact of rate increases.
As of December 31, 2022, the Company’s economic value of equity is generally liability sensitive in a rising interest rate environment compared to its position as of December 31, 2021, while the extent of exposure to falling rates has improved from the prior year end.
As of December 31, 2023, the Company’s economic value of equity continued to be generally liability sensitive in both a rising and falling interest rate environment, similar to its position as of December 31, 2022, while the extent of exposure to rising rates has improved somewhat from the prior year end.
Percentage change in Economic Value of Equity (1) Change in Interest Rates (in basis points) December 31, 2022 December 31, 2021 + 400 (11.9)% 3.3% + 300 (8.9)% 3.5% + 200 (6.0)% 3.7% + 100 (2.3)% 3.0% - 100 0.7% (15.4)% - 200 (2.4)% (32.7)% - 300 (8.4)% (34.4)% - 400 (18.2)% (35.5)% (1) - The percentage change represents our economic value of equity in a stable rate environment as compared to the economic value of equity in the various rate scenarios.
Percentage change in Economic Value of Equity (1) Change in Interest Rates (in basis points) December 31, 2023 December 31, 2022 + 400 (7.8)% (11.9)% + 300 (6.0)% (8.9)% + 200 (4.3)% (6.0)% + 100 (1.4)% (2.3)% - 100 0.2% 0.7% - 200 (2.7)% (2.4)% - 300 (8.5)% (8.4)% - 400 (18.6)% (18.2)% (1) - The percentage change represents our economic value of equity in a stable rate environment as compared to the economic value of equity in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
However, the Company's sensitivity position has shifted such that, in the short-term it is projected that net interest income will likely be essentially flat or fall in both a rising and falling rate environment.
Starting in 2022 and continuing in 2023, the Company's sensitivity position shifted such that in the short-term it is projected that net interest income will likely fall in both a rising and falling rate environment.
From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a 12-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes. The Company was more asset sensitive at December 31, 2021 as compared to its position at December 31, 2022.
From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a 12-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes.
With regard to rising rates with an immediate increase or shock in market rates over the short-term (12-month horizon), we would also expect to realize a decline in net interest income, although not to the extent projected in a declining rate environment.
With regard to 63 Table of Contents declining rates, assuming an immediate decrease or shock in market rates over the short-term (12-month horizon), we also expect to realize a decline in net interest income, although not to the extent projected in the prior year.
The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy is to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. 55 Table of Contents The following table presents the estimated net interest income sensitivity over a 12-month horizon for the specified rate change levels presented.
The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy is to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
The economic value simulation uses instantaneous rate shocks to the balance sheet. 56 Table of Contents The following table presents the estimated change in net economic value for the specified change levels presented. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
The following table presents the estimated net interest income sensitivity over a 12-month horizon for the specified rate change levels presented. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
The rate increases in 2022 resulted in a steepening of the yield curve on the short end (within 1 year), while the longer end of the curve continues to be flat and has actually inverted between 1 and 10 years, meaning that the yield on short-term instruments (1 year) are higher than longer-term instruments (10 years).
However, the rapid rate increases experienced beginning in 2022 through mid-2023 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve inverted between one and ten years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (ten years).
As demonstrated in the above table, we would expect net interest income to decline in a decreasing interest rate environment, as interest-earning assets reprice to lower rates and interest-bearing deposits remain at or near their floors.
As demonstrated in the above table, we expect net interest income to decline in a rising interest rate environment, as has been experienced over the last year.
This shift is due in part to the changing market characteristics of certain loan and deposit products as well as to the shift in the yield curve. Prior to the recent Federal Reserve actions to raise short-term interest rates, the yield curve was very low and rather flat.
This position is due in part to the changing market characteristics of certain loan and deposit products as well as to the current shape of the yield curve. The Company's current position is now more liability-sensitive which generally implies that net interest income would be expected to rise in a falling rate environment and fall in a rising rate environment.
Removed
Asset sensitivity generally indicates that in a rising interest rate environment the Company’s net interest income would increase and in a decreasing interest rate environment the Company’s net interest income would decrease.
Added
Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
Removed
The increase in exposure to rising rates in the current year in primarily due to the composition of the consolidated balance sheets combined with the pricing characteristics and assumptions of certain deposits. Specifically, during 2022, non-maturity deposits, generally with lower betas, have runoff and have been replaced with short-term FHLB advances and short-term brokered deposits.
Added
When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
Removed
Refer also to the discussion above under Earnings Simulation Analysis.
Added
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
Added
Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect the average duration of our mortgage portfolio, investment securities and other interest-earning assets.
Added
In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced, after several periods of historically low federal funds rates and yields on Treasury notes, that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
Added
Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023. As of December 31, 2023, the target range for the federal funds rate had been increased 525 basis points to 5.25% - 5.50%.
Added
It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to its target level, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
Added
The declining net interest income in a falling rate scenario is related to the repricing of interest-earning assets to lower rates while non-maturity interest-bearing deposits are projected to be at or near their floor within a -200 basis point shock, thus limiting our ability to keep pace with asset rate declines.
Added
The improvement in our position in the falling rate scenario as compared to the prior year is related to the actual rate increases experienced in 2023 providing additional repricing opportunity on the liability side of the balance sheet in a declining rate scenario.
Added
The model results demonstrated in the above table are based on the immediate shock of each of the various rate scenarios and assume a continued inversion of the yield curve (i.e. a parallel shift of the yield curve) in both a rising and falling rate scenario.
Added
The economic value simulation uses instantaneous rate shocks to the balance sheet and assumes a static average life of deposits in all interest rate scenarios. The following table presents the estimated change in net economic value for the specified change levels presented.
Added
The decline in EVE under a rising rate environment is driven by the composition of the loans and investment portfolios, primarily related to CRE fixed rate loans and fixed rate mortgage-back securities. In a rising rate environment, these portfolios tend to extend due to slower prepayments, thus lowering their relative valuation in the EVE calculation.
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With regard to the falling rate scenario, the non-maturity deposits, generally with lower betas, continue to be at or near floor rates assumed in the model, thus within the -200 shocked interest rate scenario, essentially all on the non-maturity deposits are at or near their floor thus negatively impacting their value in the EVE calculation while variable rate assets continue to price downward in all falling rate scenarios.

Other FBNC 10-K year-over-year comparisons