First Bancorp Reports First Quarter Results

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PR Newswire

SOUTHERN PINES, N.C., April 26, 2023

SOUTHERN PINES, N.C., April 26, 2023 /PRNewswire/ -- First Bancorp (the "Company") (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $15.2 million, or $0.37 per diluted common share, for the three months ended March 31, 2023 compared to $38.4 million, or $1.08 per diluted common share for the three months ended December 31, 2022 ("linked quarter") and $34.0 million, or $0.95 per diluted common share, recorded in the first quarter of 2022.

The primary driver of the reduced earnings for the first quarter of 2023 as compared to the linked quarter and the same period last year was the charges associated with the Company's acquisition of GrandSouth Bancorporation ("GrandSouth") on January 1, 2023, including merger expenses totaling $12.2 million and a one-time loan loss provision of $12.2 million to establish an initial allowance for credit losses for acquired loans in accordance with our CECL model. Generally, comparisons for the financial periods presented are significantly impacted by the GrandSouth acquisition which contributed $1.02 billion in loans and $1.05 billion in deposits. Eight new branch offices were added throughout South Carolina with the acquisition and core processing systems were converted during the quarter.

Richard H. Moore, CEO and Chairman of the Company, stated, "During a quarter with heightened market volatility and the acquisition and conversion of GrandSouth, we nevertheless grew loans and deposits organically, improved our credit quality, and increased our liquidity position. Our focus on balance sheet management has ensured that we are optimally positioned to weather the uncertain economic environment. We continue to value the strong deposit base we have cultivated throughout our footprint over the course of our 88-year history as we welcome our newest First Bank customers in South Carolina."

First Quarter 2023 Highlights

Loans totaled $7.8 billion at March 31, 2023, with acquired balances contributing $1.02 billion to first quarter growth; organic growth was $113.7 million for an annualized growth rate (exclusive of acquired loans) of 5.9%.
Total deposits, exclusive of acquired balances of $1.05 billion, grew $95.2 million for the quarter, an annualized organic growth rate (exclusive of acquired deposits) of 3.7%.
Tax equivalent net interest margin remained essentially flat with the linked quarter at 3.31% with higher loan yields and increased loan discount accretion offsetting higher cost of funds.
Total loan yield increased to 5.22%, up 60 basis points from the linked quarter, with accretion on purchased loans contributing 21 basis points to loan yield; market rate increases and improved pricing on new loans also contributed to the higher yields.
Total cost of funds increased to 0.94%, up 58 basis points from the linked quarter, with increases in both deposit costs and borrowing costs related to higher market rates.
Liquidity ratio increased to 26.2% at March 31, 2023 and was in excess of 30% when including available off-balance sheet sources.
Credit quality continues to be strong with decreases in nonperforming assets ("NPA") for the fifth straight quarter. The NPA to total assets ratio declined to 0.25% as of March 31, 2023 from 0.46% for the comparable period of 2022.
Capital remains strong with a total common equity tier 1 ratio of 12.03% and a total risk-based capital ratio of 14.33% as of March 31, 2023.

Net Interest Income and Net Interest Margin

Net interest income for the first quarter of 2023 was $92.5 million, a 20.3% increase from the $76.9 million recorded in the first quarter of 2022 and a 9.6% increase from the linked quarter. The increase in net interest income from the prior year period was due in large part to higher earning assets related to both organic growth and the GrandSouth acquisition. Average interest-earning assets for the first quarter of 2023 increased 16.5% from the comparable period of the prior year, with growth primarily in loans.

Also contributing to the increase in net interest income year-over-year was the higher net interest margin ("NIM"). The Company's tax-equivalent NIM (calculated by dividing tax-equivalent net interest income by average earning assets) for the first quarter of 2023 was 3.31% compared to 3.21% for the first quarter of 2022. The higher NIM was driven by the increase in market interest rates between periods with loan yields increasing from 4.30% for the first quarter of 2022 to 5.22% for the current period. Partially offsetting the rise in asset yields was the increase in total cost of funds which was 0.94% for the quarter ended March 31, 2023, up from 0.36% in the linked quarter and 0.10% in the same period in the prior year.

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First Bancorp

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	For the Three Months Ended
YIELD INFORMATION	March 31, 2023	December 31, 2022	March 31, 2022

Yield on loans	5.22 %	4.62 %	4.30 %
Yield on securities	1.78 %	1.74 %	1.76 %
Yield on other earning assets	3.47 %	3.05 %	0.55 %
Yield on all interest-earning assets	4.16 %	3.64 %	3.27 %

Rate on interest bearing deposits	1.19 %	0.44 %	0.12 %
Rate on other interest-bearing liabilities	5.34 %	4.58 %	2.77 %
Rate on all interest-bearing liabilities	1.46 %	0.60 %	0.15 %
Total cost of funds	0.94 %	0.36 %	0.10 %

Net interest margin (1)	3.28 %	3.29 %	3.18 %
Net interest margin - tax-equivalent (2)	3.31 %	3.32 %	3.21 %
Average prime rate	7.69 %	6.82 %	3.29 %

(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. The tax-equivalent 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.

Included in interest income for the first quarter of 2023 was total loan discount accretion of $3.6 million, compared to $1.3 million for the linked quarter and $2.3 million for the first quarter of 2022. The increase in loan discount accretion was related to the GrandSouth acquisition and had a 13 basis point positive impact on the Company's NIM in the first quarter of 2023 compared to accretion contributing 5 basis points and 10 basis points, respectively, to NIM for the linked quarter and the prior year quarter.

The following table presents the impact to net interest income of the purchase accounting adjustments for each period.

	For the Three Months Ended
NET INTEREST INCOME PURCHASE ACCOUNTING ADJUSTMENTS ($ in thousands)	March 31, 2023	December 31, 2022	March 31, 2022

Interest income - increased by accretion of loan discount on acquired loans	$ 3,118	886	1,671
Interest income - increased by accretion of loan discount on retained portions of SBA loans	448	427	667
Total interest income impact	3,566	1,313	2,338
Interest expense - (increased) reduced by (discount accretion) premium amortization of deposits	(1,019)	70	234
Interest expense - increased by discount accretion of borrowings	(82)	(64)	(73)
Total net interest expense impact	(1,101)	6	161
Total impact on net interest income	$ 2,465	1,319	2,499

Provision for Credit Losses and Credit Quality

For the three months ended March 31, 2023, the Company recorded $11.5 million in provision for loan losses which is compared to a provision of $3.5 million for the first quarter of 2022. The provision for the current quarter was directly related to a one-time provision of $12.2 million for non-credit deteriorated loans acquired from GrandSouth, partially offset by fluctuations in our CECL model calculation for loan balance changes and updated economic forecasts during the first quarter of 2023.

Also related to the GrandSouth acquisition, the Company recorded $1.1 million in provision for unfunded commitments during the first quarter of 2023. The reserve for unfunded commitments totaled $14.4 million at March 31, 2023 and is included in the line item "Other Liabilities".

Asset quality remained strong with annualized net loan charge-offs of 0.09% for the first quarter of 2023. Total NPAs amounted to $31.1 million at March 31, 2023, or 0.25% of total assets, down from $38.3 million at the end of the linked quarter, and $48.9 million, or 0.46% of total assets, at March 31, 2022. The decline was due in part to the Company's adoption of ASU 2022-02 which eliminated the accounting for troubled debt restructurings and replaced it with disclosures for loan modification to borrowers experiencing financial difficulty as presented in the following table.

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