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Press Release

First Bancorp Reports First Quarter Results

Company Release - 4/28/2020 4:01 PM ET

SOUTHERN PINES, N.C., April 28, 2020 /PRNewswire/ -- First Bancorp (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $18.2 million, or $0.62 per diluted common share, for the three months ended March 31, 2020, a decrease of 17.3% in earnings per share from the $22.3 million, or $0.75 per diluted common share, recorded in the first quarter of 2019.

The decrease in earnings was primarily due an increase in the provision for loan losses, which amounted to $5.6 million for the three months ended March 31, 2020 compared to $0.5 million in the first quarter of 2019.  The 2020 amount reflects approximately $4.3 million in provision related to COVID-19.  As permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Company elected to defer the implementation of the Current Expected Credit Loss (CECL) methodology.  Accordingly, the Company's provision for loan losses for the first quarter of 2020 is based on the limited information available and the conditions that existed at March 31, 2020 related to COVID-19, according to the pre-CECL incurred loss methodology for determining loan losses. 

Additional COVID-19 Related Impact

The impact of COVID-19 is evolving rapidly and its future effects are uncertain at this time.  The actual impact will depend on many factors beyond our Company's control.  However, the Company is taking every step to protect the health and safety of its employees and customers and to work with its customers experiencing economic hardship resulting from the pandemic.  The Company has the majority of non-branch personnel working remotely.  Branch lobbies are currently closed, but the Company is servicing clients smoothly through its on-line banking capabilities, drive through facilities and ATMs, or by appointment.

The Company remains active in reaching out to customers and has taken many measures to provide relief and support where reasonably possible.  Subsequent to quarter end and through April 23, 2020, the Company approved 1,995 loans totaling $208 million to small businesses through the SBA's Paycheck Protection Program.  The Company also initiated an option for borrowers in good-standing to defer interest payments on their loans for 90 days.  As of April 23, 2020, the Company had deferred loan payments on 1,062 loans totaling $506 million.

The Company will continue to provide fast and flexible responses to the quickly changing circumstances and is confident it will navigate successfully through these trying times.

Net Interest Income and Net Interest Margin

Net interest income for the first quarter of 2020 was $54.8 million, a 2.6% increase from the $53.4 million recorded in the first quarter of 2019.  The increase in net interest income was primarily due to growth in interest-earning assets, which have increased by approximately 4% over the past year, but was partially offset by a lower net interest margin.

The Company's net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) for the first quarter of 2020 was 3.96%, which was 10 basis points lower than the 4.06% realized in the first quarter of 2019.  The lower margin was primarily due to the impact of lower interest rates.  Since August 2019, the Federal Reserve Board has decreased interest rates by 225 basis points, which resulted in asset yields declining by 20 basis points from the first quarter of 2019, while the Company's cost of funds declined by 10 basis points.

In comparing the first quarter of 2020 to the fourth quarter of 2019, asset yields declined by 3 basis points while the cost of funds declined by 7 basis points, which resulted in the Company's net interest margin increasing by three basis points, from 3.93% in the fourth quarter of 2019 to 3.96% in the first quarter of 2020. In each of these quarters, the Company recorded prepayment fees and interest recoveries that positively impacted the net interest margin by 4-5 basis points.

Provision for Loan Losses and Asset Quality

As previously noted, the Company deferred implementation of CECL and recorded a provision for loan losses of $5.6 million in the first quarter of 2020 compared to a provision for loan losses of $0.5 million in the first quarter of 2019.  The 2020 amount reflects approximately $4.3 million in provision related to COVID-19 and was based on the limited information available and the conditions that existed at March 31, 2020 related to COVID-19, according to the pre-CECL incurred loss methodology for determining loan losses.

In determining the COVID-19 related provision, the Company reviewed deferrals that had been requested from borrowers and also reviewed the industries most at risk from the immediate impact of the shutdown.  In this analysis, the Company identified approximately $553 million of loans to the following industries:  hotels, restaurants, retail stores, travel accommodations, child care facilities, arts and entertainment, barber shops and beauty salons, car and boat dealers, and mini-storage facilities, as well as all credit cards.  Existing risk grades were adjusted downwards for each of the loans in these industries and historical loss rates were applied.

The Company is prepared for CECL implementation but elected to defer its effective date, as permitted by the CARES Act, because of the challenges associated with developing a reliable forecast of losses that may result from the unprecedented COVID-19 pandemic.  The Company continues to update its CECL model, which is significantly impacted by forecasted economic conditions.  The Company subscribes to Moody's for economic forecasts for use in its CECL model.  Using the Moody's "Baseline" scenario as of April 1, 2020, which reflected early estimates of the impact of COVID-19 on economic statistics, the Company would have likely recorded approximately a $20 million provision for loan losses for the first quarter of 2020 compared to the $5.6 million reported.  Using the Moody's "Baseline" scenario that was released on April 17, 2020 and which reflected updated estimates of the impact of COVID-19 on economic statistics, the Company would have likely recorded approximately a $43 million provision for loan losses in the first quarter of 2020.  These estimated amounts exclude the initial January 1, 2020 adjustment to the allowance for loan losses and shareholders' equity upon the initial adoption of CECL of approximately $22 million.

Total net charge-offs for the first quarter of 2020 amounted to $2.5 million, or 0.22% of average loans, compared to net charge-offs of $0.4 million, or 0.04% of average loans, in the first quarter of 2019.  Approximately $1.7 million of the first quarter charge-offs had been previously specifically reserved for at December 31, 2019.  Total nonperforming assets amounted to $38.3 million at March 31, 2020 compared to $39.5 million a year earlier.

Noninterest Income

Total noninterest income was $13.7 million and $14.1 million for the three months ended March 31, 2020 and 2019, respectively.

The line item "Other service charges, commissions, and fees" includes $0.5 million of impairment of the Company's SBA servicing asset due to the lower fair value of that asset resulting from market conditions at March 31, 2020.  Fees from presold mortgages amounted to $1.8 million for the first quarter of 2020 compared to $0.5 million in the first quarter of 2019, with the increase being primarily due to lower interest rates that resulted in increases in mortgage loan volume.

SBA loan sale gains amounted to $0.6 million for the first quarter of 2020 compared to $2.1 million in the first quarter of 2019.  The Company had intended to sell an additional $18.4 million of SBA loans in the first quarter of 2020, however sales scheduled to occur in late March did not occur due to market conditions.  Accordingly, the Company has reflected those loans as "held for sale" in the accompanying Balance Sheet.

Noninterest Expenses

Noninterest expenses amounted to $40.1 million in the first quarter of 2020 compared to $38.8 million recorded in the first quarter of 2019, an increase of 3.4%.

Income Taxes

The Company's effective tax rate was 20.3% for the first quarter of 2020, compared to 20.9% in the first quarter of 2019.

Balance Sheet and Capital

Total assets at March 31, 2020 amounted to $6.4 billion, a 5.4% increase from a year earlier.  Loan growth for the three months ended March 31, 2020 amounted to $99.2 million, or 9.0% annualized, and deposit growth amounted to $113.6 million, or 9.3% annualized.

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at March 31, 2020 of 14.30%, an increase from the 14.21% reported at March 31, 2019.  The Company's tangible common equity to tangible assets ratio was 10.00% at March 31, 2020, an increase of 79 basis points from a year earlier.

Comments of the CEO and Other Business Matters

Richard H. Moore, CEO of First Bancorp, commented, "Our immediate focus is providing excellent service for our customers during the current pandemic and our team has done an outstanding job.  I am proud of our hard working associates who have gone above and beyond.  I am also pleased that the Company has a strong balance sheet and solid profitability that positions us well during this unprecedented pandemic and beyond.  We wish our customers and communities well during these extraordinary times."

The following is additional discussion of business development and other miscellaneous matters affecting the Company during the first quarter of 2020:

  • On March 13, 2020, the Company announced a quarterly cash dividend of $0.18 per share payable on April 24, 2020 to shareholders of record on March 31, 2020. This dividend rate represents a 50% increase over the dividend rate declared in the first quarter of 2019.
  • During the first quarter of 2020, the Company repurchased 576,406 shares of its common stock valued at $20 million, at an average stock price of $34.70 per share. The Company suspended share repurchases in March 2020 for the foreseeable future.

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $6.4 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 101 branches in North Carolina and South Carolina.  First Bank Insurance Services is a subsidiary of First Bank and provides insurance products and services to individuals and businesses throughout First Bank's market area.  First Bank also provides SBA loans to customers through its nationwide network of lenders - for more information on First Bank's SBA lending capabilities, please visit www.firstbanksba.com.  First Bancorp's common stock is traded on The NASDAQ Global Select Market under the symbol "FBNC."

Please visit our website at www.LocalFirstBank.com.

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties.  Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact.  Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," or other words or phrases concerning opinions or judgments of the Company and its management about future events.  Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of the Company's customers, the Company's level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions.  For additional information about the factors that could affect the matters discussed in this paragraph, see the "Risk Factors" section of the Company's most recent annual report on Form 10-K available at www.sec.gov.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements.  The Company is also not responsible for changes made to this press release by wire services, internet services or other media.

 

First Bancorp and Subsidiaries

Financial Summary - Page 1



Three Months Ended

March 31,

Percent

($ in thousands except per share data - unaudited)

2020


2019

Change

INCOME STATEMENT





Interest income





   Interest and fees on loans

$

55,297



53,960



   Interest on investment securities

5,638



5,074



   Other interest income

1,098



2,701



      Total interest income

62,033



61,735


0.5%

Interest expense





   Interest on deposits

5,773



5,577



   Interest on borrowings

1,501



2,797



      Total interest expense

7,274



8,374


(13.1)%

        Net interest income

54,759



53,361


2.6%

Total provision for loan losses

5,590



500


1,018.0%

Net interest income after provision for loan losses

49,169



52,861


(7.0)%

Noninterest income





   Service charges on deposit accounts

3,337



2,945



   Other service charges, commissions, and fees

4,069



4,506



   Fees from presold mortgage loans

1,841



545



   Commissions from sales of insurance and financial products

2,068



2,029



   SBA consulting fees

1,027



1,263



   SBA loan sale gains

647



2,062



   Bank-owned life insurance income

642



646



   Other gains (losses), net

74



82



      Total noninterest income

13,705



14,078


(2.6)%

Noninterest expenses





   Salaries expense

20,110



18,965



   Employee benefit expense

4,547



4,588



   Occupancy and equipment related expense

4,103



4,123



   Merger and acquisition expenses



110



   Intangibles amortization expense

1,055



1,332



   Foreclosed property gains (losses), net

159



245



   Other operating expenses

10,102



9,411



      Total noninterest expenses

40,076



38,774


3.4%

Income before income taxes

22,798



28,165


(19.1)%

Income tax expense

4,618



5,880


(21.5)%

Net income

$

18,180



22,285


(18.4)%






Earnings per common share - diluted

$

0.62



0.75


(17.3)%






ADDITIONAL INCOME STATEMENT INFORMATION





   Net interest income, as reported

$

54,759



53,361



   Tax-equivalent adjustment (1)

334



424



   Net interest income, tax-equivalent

$

55,093



53,785


2.4%



(1)

This amount reflects the tax benefit that the Company receives related to its tax-exempt loans and securities, which carry interest rates lower than similar taxable investments due to their tax-exempt status.  This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

 

First Bancorp and Subsidiaries

Financial Summary - Page 2



Three Months Ended

March 31,

PERFORMANCE RATIOS (annualized)

2020

2019

Return on average assets (1)

1.18

%

1.52

%

Return on average common equity (2)

8.52

%

11.66

%

Net interest margin - tax-equivalent (3)

3.96

%

4.06

%

Net charge-offs to average loans

0.22

%

0.04

%




COMMON SHARE DATA



Cash dividends declared - common

$

0.18


0.12


Stated book value - common

29.69


26.50


Tangible book value - common

21.09


17.94


Common shares outstanding at end of period

29,040,827


29,746,455


Weighted average shares outstanding - diluted

29,399,114


29,743,395





CAPITAL RATIOS



Tangible common equity to tangible assets

10.00

%

9.21

%

Common equity tier I capital ratio - estimated

12.68

%

12.51

%

Tier I leverage ratio - estimated

11.05

%

10.68

%

Tier I risk-based capital ratio - estimated

13.77

%

13.72

%

Total risk-based capital ratio - estimated

14.30

%

14.21

%




AVERAGE BALANCES ($ in thousands)



Total assets

$

6,183,098


5,945,049


Loans

4,512,893


4,280,272


Earning assets

5,595,734


5,372,766


Deposits

4,950,199


4,704,231


Interest-bearing liabilities

3,739,467


3,773,714


Shareholders' equity

858,592


775,059





(1)

Calculated by dividing annualized net income by average assets.

(2)

Calculated by dividing annualized net income by average common equity.

(3)

See note 1 on the first page of the Financial Summary for discussion of tax-equivalent adjustments.

 

TREND INFORMATION


($ in thousands except per share data)

For the Three Months Ended

INCOME STATEMENT

Mar. 31, 2020

December 31, 2019

Sept. 30, 2019

June 30, 2019

Mar. 31,  2019







Net interest income - tax-equivalent (1)

$

55,093


55,038


54,191


54,832


53,785


Taxable equivalent adjustment (1)

334


382


413


423


424


Net interest income

54,759


54,656


53,778


54,409


53,361


Provision (reversal) for loan losses

5,590


3,176


(1,105)


(308)


500


Noninterest income

13,705


14,662


15,156


15,634


14,078


Noninterest expense

40,076


39,891


38,446


40,084


38,774


Income before income taxes

22,798


26,251


31,593


30,267


28,165


Income tax expense

4,618


5,368


6,574


6,408


5,880


Net income

18,180


20,883


25,019


23,859


22,285








Earnings per common share - diluted

0.62


0.71


0.84


0.80


0.75








Cash dividends declared per share

0.18


0.18


0.12


0.12


0.12


(1)

See note 1 on the first page of this Financial Summary for discussion of tax-equivalent adjustments.

 

First Bancorp and Subsidiaries

Financial Summary - Page 3


CONSOLIDATED BALANCE SHEETS

($ in thousands - unaudited)









At Mar. 31,
2020


At Dec. 31,
2019


At Mar. 31,
2019


One Year
Change

Assets








Cash and due from banks

$

93,666



64,519



80,620



16.2

%

Interest-bearing deposits with banks

282,683



166,783



366,187



(22.8)

%

     Total cash and cash equivalents

376,349



231,302



446,807



(15.8)

%









Investment securities

867,773



889,877



730,512



18.8

%

Presold mortgages

14,861



19,712



3,318



347.9

%

SBA loans held for sale

18,449







n/m









Total loans

4,552,708



4,453,466



4,303,787



5.8

%

Allowance for loan losses

(24,498)



(21,398)



(21,095)



16.1

%

Net loans

4,528,210



4,432,068



4,282,692



5.7

%









Premises and equipment

113,669



114,859



118,740



(4.3)

%

Operating right-of-use lease assets

19,347



19,669



18,985



1.9

%

Intangible assets

249,829



251,585



254,449



(1.8)

%

Foreclosed real estate

3,487



3,873



6,390



(45.4)

%

Bank-owned life insurance

105,083



104,441



102,524



2.5

%

Other assets

79,001



76,253



85,831



(8.0)

%

     Total assets

$

6,376,058



6,143,639



6,050,248



5.4

%









Liabilities








Deposits:








     Noninterest-bearing checking accounts

$

1,580,849



1,515,977



1,390,516



13.7

%

     Interest-bearing checking accounts

922,985



912,784



922,254



0.1

%

     Money market accounts

1,224,414



1,173,107



1,079,002



13.5

%

     Savings accounts

431,377



424,415



417,812



3.2

%

     Brokered deposits

85,642



86,141



216,616



(60.5)

%

     Internet time deposits

698



698



3,428



(79.6)

%

     Other time deposits > $100,000

553,422



563,108



506,148



9.3

%

     Other time deposits

245,601



255,125



261,462



(6.1)

%

          Total deposits

5,044,988



4,931,355



4,797,238



5.2

%









Borrowings

402,185



300,671



406,125



(1.0)

%

Operating lease liabilities

19,578



19,855



18,976



3.2

%

Other liabilities

47,109



39,357



39,770



18.5

%

     Total liabilities

5,513,860



5,291,238



5,262,109



4.8

%









Shareholders' equity








Common stock

410,236



429,514



434,948



(5.7)

%

Retained earnings

430,709



417,764



360,455



19.5

%

Stock in rabbi trust assumed in acquisition

(2,602)



(2,587)



(3,245)



(19.8)

%

Rabbi trust obligation

2,602



2,587



3,245



(19.8)

%

Accumulated other comprehensive income (loss)

21,253



5,123



(7,264)



(392.6)

%

     Total shareholders' equity

862,198



852,401



788,139



9.4

%

Total liabilities and shareholders' equity

$

6,376,058



6,143,639



6,050,248



5.4

%

 

First Bancorp and Subsidiaries

Financial Summary - Page 4



For the Three Months Ended

YIELD INFORMATION

March 31,
2020

December 31,
2019

Sept. 30,
2019

June 30,
2019

Mar. 31,
2019







Yield on loans

4.93

%

5.03

%

5.02

%

5.16

%

5.11

%

Yield on securities

2.65

%

2.64

%

2.74

%

2.81

%

2.95

%

Yield on other earning assets

1.95

%

1.91

%

2.42

%

2.51

%

2.77

%

   Yield on all interest-earning assets

4.46

%

4.49

%

4.55

%

4.67

%

4.66

%







Rate on interest bearing deposits

0.68

%

0.76

%

0.77

%

0.75

%

0.67

%

Rate on other interest-bearing liabilities

1.91

%

2.31

%

2.65

%

2.83

%

2.79

%

   Rate on all interest-bearing liabilities

0.78

%

0.89

%

0.93

%

0.93

%

0.90

%

     Total cost of funds

0.56

%

0.63

%

0.66

%

0.67

%

0.66

%







        Net interest margin (1)

3.94

%

3.90

%

3.92

%

4.03

%

4.03

%







        Net interest margin - tax-equivalent (2)

3.96

%

3.93

%

3.95

%

4.06

%

4.06

%







        Average prime rate

4.42

%

4.83

%

5.27

%

5.50

%

5.50

%







(1)

Calculated by dividing annualized net interest income by average earning assets for the period.

(2)

Calculated by dividing annualized tax-equivalent net interest income by average earning assets for the period.  See note 1 on the first page of this Financial Summary for discussion of tax-equivalent adjustments.

 


For the Three Months Ended

NET INTEREST INCOME PURCHASE
ACCOUNTING ADJUSTMENTS

($ in thousands)

March 31,
2020


December 31,
2019


Sept. 30,
2019


June 30,
2019


Mar. 31,
2019











Interest income - increased by accretion of loan
discount on acquired loans

$

1,241



1,161



959



1,336



1,132


Interest income - increased by accretion of loan
discount on retained portions of SBA loans

600



340



365



394



287


Interest expense - reduced by premium
amortization of deposits

31



38



44



50



58


Interest expense - increased by discount accretion
of borrowings

(45)



(45)



(46)



(45)



(45)


     Impact on net interest income

$

1,827



1,494



1,322



1,735



1,432


 

First Bancorp and Subsidiaries

Financial Summary - Page 5


ASSET QUALITY DATA ($ in thousands)

March 31,
2020


December 31,
2019


Sept. 30,
2019


June 30,
2019


Mar. 31,
2019











Nonperforming assets










Nonaccrual loans

$

25,066



24,866



19,720



17,375



20,684


Troubled debt restructurings - accruing

9,747



9,053



9,566



11,890



12,457


Accruing loans > 90 days past due










Total nonperforming loans

34,813



33,919



29,286



29,265



33,141


Foreclosed real estate

3,487



3,873



4,589



5,107



6,390


Total nonperforming assets

$

38,300



37,792



33,875



34,372



39,531


Purchased credit impaired loans not included
above (1)

$

9,839



12,664



13,798



14,175



15,867


Asset Quality Ratios










Net quarterly charge-offs to average loans -
annualized

0.22

%


0.09

%


0.04

%


%


0.04

%

Nonperforming loans to total loans

0.76

%


0.76

%


0.67

%


0.67

%


0.77

%

Nonperforming assets to total assets

0.60

%


0.62

%


0.56

%


0.57

%


0.65

%

Allowance for loan losses to total loans

0.54

%


0.48

%


0.44

%


0.48

%


0.49

%

(1)

In the March 3, 2017 acquisition of Carolina Bank and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $19.3 million and $9.9 million, respectively, in purchased credit impaired loans in accordance with ASC 310-30 accounting guidance.  These loans are excluded from the nonperforming loan amounts.


 

First Bancorp and Subsidiaries

Financial Summary - Page 6



For the Three Months Ended

NET INTEREST MARGIN, EXCLUDING
LOAN DISCOUNT ACCRETION -
RECONCILIATION

($ in thousands)

March 31,
2020


December 31,
2019


Sept. 30,
2019


June 30,
2019


Mar. 31,
2019











Net interest income, as reported

$

54,759



54,656



53,778



54,409



53,361


Tax-equivalent adjustment

334



382



413



423



424


Net interest income, tax-equivalent (A)

$

55,093



55,038



54,191



54,832



53,785


Average earning assets (B)

$

5,595,734



5,560,099



5,440,014



5,417,284



5,372,766


Tax-equivalent net interest 
margin, annualized - as reported -  (A)/(B)

3.96

%


3.93

%


3.95

%


4.06

%


4.06

%











Net interest income, tax-equivalent

$

55,093



55,038



54,191



54,832



53,785


Loan discount accretion

1,841



1,501



1,324



1,730



1,419


Net interest income, tax-equivalent, excluding
loan discount accretion  (A)

$

53,252



53,537



52,867



53,102



52,366


Average earnings assets  (B)

$

5,595,734



5,560,099



5,440,014



5,417,284



5,372,766


Tax-equivalent net interest margin, excluding
impact of loan discount accretion, annualized -
(A) / (B)

3.83

%


3.82

%


3.86

%


3.93

%


3.95

%


Note:  The measure "tax-equivalent net interest margin, excluding impact of loan discount accretion" is a non-GAAP performance measure.  Management of the Company believes that it is useful to calculate and present the Company's net interest margin without the impact of loan discount accretion for the reasons explained in the remainder of this Note.  Loan discount accretion is a non-cash interest income adjustment that is related to 1) the Company's acquisition of loans and represents the portion of the fair value discount that was initially recorded on the acquired loans, and 2) the Company's origination of SBA loans and the subsequent sale of the guaranteed portions of the loans that results in a discount being recorded on the retained portion of the loans.  These discounts are recognized into income over the lives of the loans.  At March 31, 2020, the Company had a remaining loan discount balance on acquired loans of $11.5 million compared to $16.1 million at March 31, 2019.  At March 31, 2020, the Company had a remaining loan discount balance on SBA loans of $6.8 million compared to $6.2 million at March 31, 2019.  For the related loans that perform and pay down over time, the loan discount will also be reduced, with a corresponding increase to interest income.  Therefore, management of the Company believes it is useful to also present this ratio to reflect the Company's net interest margin excluding this non-cash, temporary loan discount accretion adjustment to aid investors in comparing financial results between periods.  The Company cautions that non-GAAP financial measures should be considered in addition to, but not as a substitute for, the Company's reported GAAP results.

 

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SOURCE First Bancorp