FBNC

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How FBNC rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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Risk Factors In addition to other information contained in this Report that may affect us, the risk factors summarized below, as well as any cautionary language in this Report, provide examples of the most significant risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.
Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate.
During 2024 and 2025, the FOMC lowered the target range for the federal funds rate.
As of December 31, 2025, the target range was 3.50% to 3.75%.
Although economic forecasts vary, the FOMC has indicated an expectation of one 25 basis point rate cut during 2026.
Economic forecasts include a mix of positive and negative factors concerning unemployment, inflation, real estate values and other components.
Economic weakness, increased unemployment, or persistent inflation could lead to decreased business and consumer confidence and weaker-than-anticipated spending, thereby leading to possible adverse impacts to our business including asset quality, deposit levels, loan demand and results of operations.
We also face credit risk arising from economic and geopolitical conditions, among other forms of risk, that our customers will not repay their loans.
Credit performance is susceptible to economic and market forces.
Most of our commercial business and CRE loans are made to small business or middle-market customers.
Lending generally involves various degrees of risk depending on the facts and circumstances of the loan and borrower.
If general economic conditions in the market areas in which we operate negatively impact our customers, our results of operations and financial condition may be adversely affected.
Further, the deterioration of borrowers' businesses (from a variety of factors including, but not limited to: tariff impact, government policy change, change in end customer behavior, etc.) 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.
CECL requires that estimated credit losses are reflected in the income statement in the period of origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.
It remains uncertain whether then FOMC will further decrease the federal funds rate to attain a monetary policy appropriate to keep inflation at normalized levels, leave the rate at its current level for a lengthy period of time or if it will instead increase the target range.
Additionally, other interest rates may not move in a consistent manner with the federal funds rate.
Although not necessarily expected in 2026, 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, our net interest income, and therefore earnings, would generally be adversely affected.
For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2025 MD&A Item 7 following.
A failure in or breach of our operational or security systems, or those of our vendors, could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
As a financial institution, our operations rely heavily on the secure data processing, storage and transmission of confidential and other information to conduct our business.
We are reliant upon certain external vendors to provide products and services necessary to facilitate our day-to-day operations, including core data processing and other systems such as online banking.
Our vendors could also be the source of an attack on, or breach of, our operational systems.
Any failures, interruptions, or security breaches, or any perception that our security measures are deficient, could negatively impact our operations.
Additionally, if our third party vendors encounter difficulties or if we have difficulty in communicating with such third parties, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations, damage our reputation, result in a loss of customer business, result in a violation of privacy or other laws, and expose us to civil litigation, enforcement actions by governmental agencies, regulatory fine or other damages or losses, including those not covered by insurance.
The Bank is subject to extensive regulation, examination, and supervision by various federal and state regulatory agencies, including the Commissioner and the Federal Reserve.
This regulation, examination, and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.
In the past, our business has been materially affected by these regulations and our compliance with these regulations is costly.
Should we fail to comply with our regulatory requirements, federal and state regulators could impose restrictions on our activities, which could materially and adversely affect our operations and financial condition.
Laws and regulations applicable to the banking industry change frequently and may continue to change, and we cannot predict the effects of any such changes.
We are subject to complex and ever-changing laws and regulations governing the privacy and security of personal information concerning our customers, prospective, current, and former customers, and employees.
These federal and state laws and regulations govern our obligations in the event of a security breach, breach of personal information, computer-security incident, and similar events.
States have been actively passing new privacy laws, and this trend is likely to continue such that the privacy and security laws and regulations that may apply to us will continue to grow and change.
The banking industry is highly competitive.
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, or digital assets such as stablecoins, rather than in bank deposit accounts.
To the extent that other banks offer products or services that facilitate the minting or issuance of stablecoins backed by customer deposits, customers may convert bank deposits into stablecoins, which could accelerate deposit outflows, increase deposit volatility and heighten liquidity risk, particularly during periods of market stress.
Such competitors primarily include national, regional, and online banks within the various markets in which we operate.
Many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures.
Our ability to compete successfully depends on a number of factors, including, among other things: • our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; • our ability to expand our market position; • the scope, relevance, and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service; • industry and general economic trends; and • the ability to keep pace with technological change and to invest in technological improvements to meet customer demand and create operational efficiencies.
We may be adversely affected by risks associated with potential or completed acquisitions.
Acquiring other financial institutions, financial services companies, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things: • Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses; • Acquisitions typically are subject to various regulatory approvals.

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Gone since FY2024

Risk Factors In addition to other information contained in this Report that may affect us, the risk factors described below, as well as any cautionary language in this Report, provide examples of risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.
Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions.
Beginning in September 2024, the FOMC began to lower the target range for the federal funds rate.
As of December 31, 2024, the target range was 4.25% to 4.50%.
In January 2025, the FOMC maintained the target range for the federal funds rate.
Although economic forecasts vary, the FOMC has indicated an expectation of two 25 basis point rate cuts during 2025.
Some economists are projecting that, due to changes in fiscal and economic policies, including tariffs, US economic activity may slow or decrease in 2025.
Economic weakness or persistent inflation could lead to decreased business and consumer confidence and weaker-than-anticipated spending, thereby leading to possible adverse impacts to our business including asset quality, deposit levels, loan demand and results of operations.
We also face credit risk arising from economic and geopolitical conditions, among other forms of risk.
Credit performance over is susceptible to economic and market forces.
Most of our commercial business and commercial real estate loans are made to small business or middle-market customers.
Lending generally involves various degrees of risk pending on the facts and circumstances of the loan and borrower.
If general economic conditions in the market areas in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected.
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.
CECL requires that credit deterioration is reflected in the income statement in the period of origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.
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.
Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023.
In the latter months of 2024, due to lower, more consistent inflation levels, the Federal Reserve lowered its federal funds target rate by 100 basis points.
As of December 31, 2024, the target range for the federal funds rate was 4.25% - 4.50%.
It remains uncertain whether then FOMC will further decrease the federal funds rate to attain a monetary policy appropriate to keep inflation at normalized levels, leave the rate at its current level for a lengthy period of time or if it will resume increasing the target range.
Although not necessarily expected in 2025, 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, our net interest income, and therefore earnings, would generally be adversely affected.
For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2024 MD&A Item 7 following.
Cybersecurity incidents or other disruptions of communications or information systems could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
We rely heavily on communications and information systems to conduct our business.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.
We outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors.
Additionally, if our third party vendors encounter 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.
Information security risks for financial institutions continue to increase in part because of new technologies, the increased use of the internet and telecommunications technologies (including mobile devices and cloud computing) to conduct financial and other business transactions, political activism, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others.
We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business.
Operational risk related to cyberattacks is increasing as cyberattacks evolve and have a greater and more pervasive economic impact.
In addition to cyberattacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions designed to disrupt key business services, such as customer-facing web sites.
Critical infrastructure sectors, including financial services, increasingly have been the targets of cyberattacks, including attacks emanating from foreign countries.
Cyberattacks involving financial institutions, including distributed denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and ransomware attacks designed to deny organizations access to key internal resources or systems or other critical data, as well as targeted social engineering and phishing email and text message attacks designed to allow unauthorized persons to obtain access to an institution’s information systems and data or that of its customers, are becoming more common and increasingly sophisticated.
Further, threat actors are increasingly seeking to target vulnerabilities in software systems (including bugs, vulnerabilities in third-party systems or software and technical misconfigurations in hardware and software) and weak authentication controls used by large numbers of banking organizations in order to conduct malicious cyber activities.
These types of attacks have resulted in increased supply chain and third-party risk.
Because the methods of cyberattacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted.
Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.
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.
The Bank is subject to extensive regulation and supervision by the Commissioner and the Federal Reserve.
This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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