10-23-13 4:47 PM EDT | Email Article

SOUTHERN PINES, N.C., Oct. 23, 2013/PRNewswire/ -- First Bancorp (NASDAQ: FBNC), the parent company of First Bank, announced today net income available to common shareholders of $6.1 million, or $0.30 per diluted common share, for the three months ended September 30, 2013, compared to $3.7 million, or $0.22 per diluted common share, recorded in the third quarter of 2012.  For the nine months ended September 30, 2013, the Company recorded net income available to common shareholders of $14.3 million, or $0.71 per diluted common share, compared to net income of $0.3 million, or $0.01 per diluted common share, for the nine months ended September 30, 2012.  The higher earnings were primarily a result of lower provisions for loan losses and lower foreclosed property losses and write-downs recorded during 2013.

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2013 amounted to $33.7 million, a 2.2% decrease from the $34.5 million recorded in the third quarter of 2012.  Net interest income for the nine months ended September 30, 2013 amounted to $101.3 million, a 1.7% increase from the $99.5 million recorded in the comparable period of 2012.

The Company's net interest margin (tax-equivalent net interest income divided by average earning assets) in the third quarter of 2013 was 4.84% compared to 4.86% for the third quarter of 2012.  For the nine month period ended September 30, 2013, the Company's net interest margin was 4.88% compared to 4.71% for the same period in 2012.  The 4.84% margin realized in the third quarter of 2013 was a 26 basis point decrease from the 5.10% margin realized in the second quarter of 2013.  The margin variances were primarily due to discount accretion on loans purchased in failed-bank acquisitions recognized during the respective periods.  As shown in the accompanying tables, loan discount accretion amounted to $4.3 million in the third quarter of 2013, $6.6 million in the second quarter of 2013, and $4.6 million in the third quarter of 2012. 

Excluding the effects of discount accretion on purchased loans, the Company's net interest margin has been relatively stable, amounting to 4.23% for the third quarter of 2013, compared to 4.17% for the second quarter of 2013, and 4.22% in the third quarter of 2012.  See the Financial Summary for a table that presents the impact of the loan discount accretion, as well as other purchase accounting adjustments affecting net interest income.  Also see the Financial Summary for a reconciliation of the Company's net interest margin to the net interest margin excluding the loan discount accretion, and the note thereto that explains why this ratio is presented and caution regarding the use of this non-GAAP performance measure.  

The Company's cost of funds has steadily declined from 0.57% in the third quarter of 2012 to 0.37% in the third quarter of 2013.

Provision for Loan Losses and Asset Quality

The Company recorded total provisions for loan losses of $5.0 million in the third quarter of 2013 compared to $7.1 million for the third quarter of 2012.  For the nine months ended September 30, 2013, the Company recorded total provisions for loans losses of $21.7 million compared to $35.1 million for the same period of 2012. As discussed below, the decrease in 2013 was primarily the result of an elevated provision for loan losses on non-covered loans recorded in the first quarter of 2012 – see explanation of the terms "covered" and "non-covered" in the section below entitled "Note Regarding Components of Earnings."

The provision for loan losses on non-covered loans amounted to $3.5 million in the third quarter of 2013 compared to $6.0 million in the third quarter of 2012.  For the first nine months of 2013, the provision for loan losses on non-covered loans amounted to $13.3 million compared to $29.7 million for the same period of 2012.  The decrease for the nine month period was primarily due to a high provision for loan losses recorded in the first quarter of 2012 that resulted from an internal review that applied more conservative assumptions to estimate the probable losses associated with some of the Company's nonperforming loan relationships, which the Company believed could lead to a more timely resolution of the related credits.  Many of these same loans were sold to a third party investor in January 2013, as discussed below. 

The provision for loan losses on covered loans amounted to $1.5 million in the third quarter of 2013 compared to $1.1 million in the third quarter of 2012.  For the nine months ended September 30, 2013, the provision for loan losses on covered loans amounted to $8.4 million compared to $5.4 million for the same period of 2012.  The increase for the nine month period in 2013 was primarily the result of several large credits that deteriorated during the first quarter of 2013 and were placed on nonaccrual status.

Total non-covered nonperforming assets amounted to $83.5 million at September 30, 2013 (2.86% of total non-covered assets), which compares to $106.1 million at December 31, 2012 and $146.0 million at September 30, 2012.  The decrease in 2013 compared to both periods in 2012 was due primarily to a combination of loan sales and foreclosed property write-downs that occurred in the fourth quarter of 2012 and the first quarter of 2013, as discussed in the following paragraph.

In the fourth quarter of 2012, the Company identified a pool of non-covered higher-risk loans that it targeted for sale to a third-party investor.  Based on an offer to purchase these loans that was received in December, the Company wrote the loans down by approximately $38 million in the fourth quarter of 2012 to their estimated liquidation value of approximately $30 million and reclassified them as "loans held for sale."  Of the $68 million in loans targeted for sale, approximately $38.2 million had been classified as nonaccrual loans, and $10.5 million had been classified as accruing troubled-debt-restructurings.  The sale of substantially all of these loans was completed on January 23, 2013.  Additionally, in the fourth quarter of 2012, the Company recorded write-downs totaling $10.6 million on substantially all of its non-covered foreclosed properties in connection with efforts to accelerate the sale of these assets.

Non-covered nonaccrual loans increased from $33.0 million at December 31, 2012 to $40.7 million at September 30, 2013, due primarily to several larger credits that deteriorated during the first and second quarters of 2013.  Non-covered foreclosed real estate decreased from $26.3 million at December 31, 2012 to $15.1 million at September 30, 2013 as a result of strong sales activity during the first nine months of 2013, which was consistent with the Company's strategy discussed above to accelerate the disposition of foreclosed properties.

Total covered nonperforming assets have steadily declined during the past twelve months, amounting to $83.0 million at September 30, 2013 compared to $113.9 million at September 30, 2012.  Within this category, foreclosed real estate declined from $58.4 million at September 30, 2012 to $29.2 million at September 30, 2013.  The Company is experiencing increased property sales activity, particularly along the North Carolina coast, which is where most of the Company's covered foreclosed properties are located.  Covered nonaccrual loans increased from $33.5 million at December 31, 2012 to $47.2 million at September 30, 2013, due primarily to several large loans that deteriorated during the first quarter of 2013.

Noninterest Income

Total noninterest income for the third quarter of 2013 was $5.6 million compared to $2.8 million for the same period of 2012.  For the nine months ended September 30, 2013, noninterest income amounted to $17.2 million compared to $9.9 million for the nine months ended September 30, 2012. 

Core noninterest income for the third quarter of 2013 was $7.5 million, an increase of 10.2% over the $6.8 million reported for the third quarter of 2012.  For the first nine months of 2013, core noninterest income amounted to $21.2 million, a 12.2% increase from the $18.9 million recorded in the comparable period of 2012.  Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgages, iv) commissions from financial product sales, and v) bank-owned life insurance income.  The largest component of the increases in core noninterest income was in the amount of service charges on deposit accounts recorded by the Company, which related primarily to overdraft fees.

Noncore components of noninterest income resulted in net losses of $1.9 million in the third quarter of 2013 compared to net losses of $4.0 million in the third quarter of 2012.  For the nine months ended September 30, 2013 and 2012, the Company recorded net losses of $4.0 million and $9.0 million, respectively, related to the noncore components of noninterest income.  The largest variances compared to prior periods related to foreclosed property gains/losses and indemnification asset income (expense) – see discussion below. 

Non-covered foreclosed property gains/losses amounted to gains of $0.2 million and $1.7 million for the three and nine months ended September 30, 2013, respectively, compared to losses of $1.0 million and $3.0 million for the comparable periods of 2012.  Stabilization in real estate market values and lower carrying values following the December 2012 write-down discussed above impacted these variances.

Gains/losses on covered foreclosed properties during the three and nine month periods ended September 30, 2013, amounted to gains of $1.4 million and losses of $3.7 million, respectively, compared to losses of $1.6 million and losses of $12.7 million during the comparable periods of 2012, respectively.  The favorable variances in 2013 were primarily a result of lower levels of covered foreclosed properties, as well as stabilization in real estate market values.

As discussed below, indemnification asset income (expense) is recorded to reflect additional (decreased) amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the period.  In the third quarter of 2013, the Company recorded net gains on covered foreclosed properties of $1.4 million compared to net losses of $1.6 million in the third quarter of 2012, which resulted in a higher indemnification asset expense – $3.8 million of expense in the third quarter of 2013 compared to expense of $1.6 million in the third quarter of 2012.  For the nine months ended September 30, 2013, indemnification asset expense amounted to $2.3 million compared to income of $6.1 million for the same period of 2012, with the variance also being caused primarily by fewer covered foreclosed property losses in 2013.

Noninterest Expenses

Noninterest expenses amounted to $23.7 million in each of the third quarters of 2013 and 2012.  Noninterest expenses for the nine months ended September 30, 2013 amounted to $72.7 million compared to $71.5 million recorded in the first nine months of 2012. 

Salaries expense has risen in 2013 as a result of new employees hired to expand the Company's infrastructure in anticipation of future growth, as well as increases in the mortgage division due to an initiative to generate higher residential mortgage volume.  Employee benefits have decreased primarily due to the freezing of two pension plans at December 31, 2012.

Tax Expense

The Company's income tax expense for the third quarter of 2013 was $4.3 million, which resulted in an effective tax rate of 40.5% compared to a more typical effective tax rate of approximately 35%.  The higher effective tax rate was due to an incremental $0.5 million of tax expense that was recorded in the third quarter of 2013 in order to reduce the value of the Company's deferred tax asset as a result of statutory decreases in North Carolina's state income tax rate.

Preferred Dividends

Preferred stock dividends amounted to $0.2 million for the third quarter of 2013 compared to $0.7 million for the third quarter of 2012.  Preferred stock dividends amounted to $0.7 million for the first nine months of 2013 compared to $2.3 million for the comparable period of 2012.  The decreases in 2013 are a result of a favorable dividend rate change related to the preferred stock that was issued in September 2011 to the US Treasury as part of the Company's participation in the Treasury's Small Business Lending Fund.  The dividend rate can vary from 1% to 5% per annum based upon changes in the Company's level of small business lending.  The Company has been able to continually increase its level of small business lending and as a result, the dividend rate has steadily decreased from 5.0% in the first half of 2012 to 1.0% throughout most of 2013.  We expect our preferred stock dividend rate to remain at an annualized rate of 1.0% until 2016, unless the preferred stock is redeemed at an earlier date.

Balance Sheet and Capital

Total assets at September 30, 2013 amounted to $3.2 billion, a 4.5% decrease from a year earlier.  Total loans at September 30, 2013 amounted to $2.4 billion, unchanged from a year earlier, and total deposits amounted to $2.7 billion at September 30, 2013, a 3.3% decrease from a year earlier. 

The unchanged level of total loans at September 30, 2013 compared to a year earlier was primarily the result of the loan sale previously discussed, the impact of which was offset by new loan growth.  Total loans have increased in 2013, as growth in non-covered loans has exceeded the steady decline in covered loans.  Excluding the acquired growth of $16 million that was added in a March 2013 branch acquisition, the Company's non-covered loans have increased by $105 million since December 31, 2012, representing annualized growth of 6.7%.  The Company is seeing improved loan demand as the economy in its market areas improves.

Deposit balances have generally decreased over the past year as a result of declines in all time deposit categories, including brokered deposits, internet deposits, and all other time deposits.  Strong growth in transaction deposit accounts has offset a majority of the time deposit declines.

As previously reported, during the first quarter of 2013, the Company completed the acquisition of two branches from Four Oaks Bank & Trust Company, which resulted in the addition of $16 million in loans and $57 million in deposits.

The Company remains well-capitalized by all regulatory standards, with a Total Risk-Based Capital Ratio at September 30, 2013 of 16.61% compared to the 10.00% minimum required to be considered well-capitalized.  The Company's tangible common equity to tangible assets ratio was 7.19% at September 30, 2013, an increase of 73 basis points from a year earlier.

Comments of the President and Other Business Matters

Richard H. Moore, President and CEO of First Bancorp, commented, "Our strong quarterly earnings for the third quarter of 2013 represent a continuation of the positive momentum we have seen during 2013.  We are thankful that our local markets are continuing to improve and that First Bank is able to help our customers meet their growing financial needs."

The following is a list of business development and other miscellaneous matters affecting the Company:

  • On September 13, 2013, the Company announced a quarterly cash dividend of $0.08 cents per share payable on October 25, 2013 to shareholders of record on September 30, 2013.  This is the same dividend rate as the Company declared in the third quarter of 2012.
  • In the fourth quarter of 2013, the Company expects to open loan production offices in Charlotte, North Carolina and Columbia, North Carolina.

Note Regarding Components of Earnings

The Company's results of operation are significantly affected by the on-going accounting for two FDIC-assisted failed bank acquisitions.  In the discussion above, the term "covered" is used to describe assets included as part of FDIC loss share agreements, which generally result in the FDIC reimbursing the Company for 80% of losses incurred on those assets.  The term "non-covered" refers to the Company's legacy assets, which are not included in any type of loss share arrangement.

For covered loans that deteriorate in terms of repayment expectations, the Company records immediate allowances through the provision for loan losses.  For covered loans that experience favorable changes in credit quality compared to what was expected at the acquisition date, including loans that payoff, the Company records positive adjustments to interest income over the life of the respective loan – also referred to as loan discount accretion.  For covered foreclosed properties that are sold at gains or losses or that are written down to lower values, the Company records the gains/losses within noninterest income. 

The adjustments discussed above are recorded within the income statement line items noted without consideration of the FDIC loss share agreements.  Because favorable changes in covered assets result in lower expected FDIC claims, and unfavorable changes in covered assets result in higher expected FDIC claims, the FDIC indemnification asset is adjusted to reflect those expectations.  The net increase or decrease in the indemnification asset is reflected within noninterest income.

The adjustments noted above can result in volatility within individual income statement line items.  Because of the FDIC loss share agreements and the associated indemnification asset, pretax income resulting from amounts recorded as provisions for loan losses on covered loans, discount accretion, and losses from covered foreclosed properties is generally only impacted by 20% of these amounts due to the corresponding adjustments made to the indemnification asset.

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina with total assets of approximately $3.2 billion.  Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 96 branches, with 81 branches operating in North Carolina, 7 branches in South Carolina (Cheraw, Dillon, Florence, and Latta), and 8 branches in Virginia (Abingdon, Blacksburg, Christiansburg, Dublin, Fort Chiswell, Radford, Salem and Wytheville), where First Bank does business as First Bank of Virginia. First Bank also has a loan production office in Greenville, North Carolina. First Bancorp's common stock is traded on the NASDAQ Global Select Market under the symbol "FBNC."

Please visit our website at www.FirstBancorp.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 statements 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 the press release by wire services, internet services or other media.



First Bancorp and Subsidiaries

Financial Summary – Page 1



Three Months Ended

September 30,

 

Percent

($ in thousands except per share data – unaudited)

2013


2012

Change






INCOME STATEMENT










Interest income





   Interest and fees on loans

$            34,870


37,037


   Interest on investment securities

1,315


1,488


   Other interest income

143


164


      Total interest income

36,328


38,689

(6.1%)

Interest expense





   Interest on deposits

2,343


3,769


   Other, primarily borrowings

258


447


      Total interest expense

2,601


4,216

(38.3%)

        Net interest income

33,727


34,473

(2.2%)

Provision for loan losses – non-covered loans

3,487


5,970

(41.6%)

Provision for loan losses – covered loans

1,493


1,103

35.4%

Total provision for loan losses

4,980


7,073

(29.6%)

Net interest income after provision for loan losses

28,747


27,400

4.9%

Noninterest income





   Service charges on deposit accounts

3,390


3,053


   Other service charges, commissions, and fees

2,402


2,275


   Fees from presold mortgages

776


785


   Commissions from financial product sales

591


510


   Bank-owned life insurance income

366


207


   Foreclosed property gains (losses) – non-covered

153


(1,020)


   Foreclosed property gains (losses) – covered

1,397


(1,641)


   Indemnification asset income (expense), net

(3,786)


(1,569)


   Securities gains

553


189


   Other gains (losses)

(234)


14


      Total noninterest income

5,608


2,803

100.1%

Noninterest expenses





   Salaries expense

11,401


10,370


   Employee benefit expense

2,248


2,539


   Occupancy and equipment expense

2,950


2,988


   Intangibles amortization

220


224


   Other operating expenses

6,885


7,536


      Total noninterest expenses

23,704


23,657

0.2%

Income before income taxes

10,651


6,546

62.7%

Income taxes

4,318


2,123

103.4%

Net income

6,333


4,423

43.2%






Preferred stock dividends

(216)


(688)







Net income available to common shareholders

$              6,117


3,735

63.8%











Earnings per common share – basic

$               0.31


0.22

40.9%

Earnings per common share – diluted

0.30


0.22

36.4%






ADDITIONAL INCOME STATEMENT INFORMATION





   Net interest income, as reported

$            33,727


34,473


   Tax-equivalent adjustment (1)

380


376


   Net interest income, tax-equivalent

$            34,107


34,849

(2.1%)


(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 39% tax rate and is reduced by the related nondeductible portion of interest expense.

 

First Bancorp and Subsidiaries

Financial Summary – Page 2



Nine Months Ended

September 30,

 

Percent

($ in thousands except per share data – unaudited)

2013


2012

Change






INCOME STATEMENT










Interest income





   Interest and fees on loans

$          105,451


107,715


   Interest on investment securities

4,000


4,879


   Other interest income

470


481


      Total interest income

109,921


113,075

(2.8%)

Interest expense





   Interest on deposits

7,901


12,075


   Other, primarily borrowings

770


1,485


      Total interest expense

8,671


13,560

(36.1%)

        Net interest income

101,250


99,515

1.7%

Provision for loan losses – non-covered loans

13,301


29,721

(55.2%)

Provision for loan losses – covered loans

8,419


5,374

56.7%

Total provision for loan losses

21,720


35,095

(38.1%)

Net interest income after provision for loan losses

79,530


64,420

23.5%

Noninterest income





   Service charges on deposit accounts

9,579


8,867


   Other service charges, commissions, and fees

6,917


6,634


   Fees from presold mortgages

2,343


1,685


   Commissions from financial product sales

1,569


1,325


   Bank-owned life insurance income

786


380


   Foreclosed property gains (losses) – non-covered

1,687


(3,026)


   Foreclosed property gains (losses) – covered

(3,738)


(12,742)


   Indemnification asset income (expense), net

(2,296)


6,094


   Securities gains

560


638


   Other gains (losses)

(204)


67


      Total noninterest income

17,203


9,922

73.4%

Noninterest expenses





   Salaries expense

33,081


30,717


   Employee benefit expense

7,421


9,230


   Occupancy and equipment expense

8,577


8,618


   Intangibles amortization

639


670


   Other operating expenses

22,966


22,245


      Total noninterest expenses

72,684


71,480

1.7%

Income before income taxes

24,049


2,862

n/m

Income taxes

9,028


331

n/m

Net income

15,021


2,531

n/m






Preferred stock dividends

(678)


(2,277)







Net income available to common shareholders

$             14,343


254

n/m











Earnings per common share – basic

$               0.73


0.01

n/m

Earnings per common share – diluted

0.71


0.01

n/m






ADDITIONAL INCOME STATEMENT INFORMATION





   Net interest income, as reported

$          101,250


99,515


   Tax-equivalent adjustment (1)

1,125


1,150


   Net interest income, tax-equivalent

$          102,375


100,665

1.7%


(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 39% tax rate and is reduced by the related nondeductible portion of interest expense.


n/m = not meaningful

 

First Bancorp and Subsidiaries

Financial Summary – Page 3



Three Months Ended

September 30,


Nine Months Ended

September 30,

PERFORMANCE RATIOS (annualized)

2013

2012


2013

2012

Return on average assets (1)

0.76%

0.45%


0.60%

0.01%

Return on average common equity (2)

8.29%

5.30%


6.60%

0.12%

Net interest margin – tax-equivalent (3)

4.84%

4.86%


4.88%

4.71%

Net charge-offs to average loans – non-covered

0.87%

1.57%


0.71%

1.28%







COMMON SHARE DATA






Cash dividends declared – common

$         0.08

0.08


$         0.24

0.24

Stated book value – common

14.84

16.42


14.84

16.42

Tangible book value – common

11.33

12.35


11.33

12.35

Common shares outstanding at end of period

19,679,659

17,013,008


19,679,659

17,013,008

Weighted average shares outstanding – basic

19,679,751

16,988,150


19,674,229

16,955,130

Weighted average shares outstanding – diluted

20,424,984

16,988,150


20,416,517

16,955,130







CAPITAL RATIOS






Tangible equity to tangible assets

9.47%

8.41%


9.47%

8.41%

Tangible common equity to tangible assets

7.19%

6.46%


7.19%

6.46%

Tier I leverage ratio

10.96%

10.06%


10.96%

10.06%

Tier I risk-based capital ratio

15.35%

14.99%


15.35%

14.99%

Total risk-based capital ratio

16.61%

16.26%


16.61%

16.26%







AVERAGE BALANCES ($ in thousands)






Total assets

$  3,192,954

3,314,887


$  3,222,064

3,310,241

Loans

2,433,632

2,432,528


2,408,510

2,433,964

Earning assets

2,795,071

2,855,083


2,804,329

2,855,307

Deposits

2,761,915

2,822,388


2,794,469

2,804,524

Interest-bearing liabilities

2,351,409

2,550,689


2,404,867

2,564,113

Shareholders' equity

363,413

344,007


361,333

344,851


(1)Calculated by dividing annualized net income (loss) available to common shareholders by average assets.

(2)Calculated by dividing annualized net income (loss) available to common shareholders by average common equity.

(3)See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.

 

TREND INFORMATION


($ in thousands except per share data)

For the Three Months Ended

 

INCOME STATEMENT

September 30, 

2013

June 30,  2013

March 31, 

2013

December 31, 

2012

September 30, 

2012







Net interest income – tax-equivalent (1)

$    34,107

35,975

32,293

36,062

34,849

Taxable equivalent adjustment (1)

380

373

372

377

376

Net interest income

33,727

35,602

31,921

35,685

34,473

Provision for loan losses – non-covered

3,487

4,043

5,771

40,272

5,970

Provision for loan losses – covered

1,493

1,548

5,378

4,305

1,103

Noninterest income

5,608

4,487

7,108

(8,533)

2,803

Noninterest expense

23,704

25,756

23,224

25,795

23,657

Income (loss) before income taxes

10,651

8,742

4,656

(43,220)

6,546

Income tax expense (benefit)

4,318

3,154

1,556

(17,283)

2,123

Net income (loss)

6,333

5,588

3,100

(25,937)

4,423

Preferred stock dividends

(216)

(217)

(245)

(532)

(688)

Net income (loss) available to common shareholders

6,117

5,371

2,855

(26,469)

3,735







Earnings (loss) per common share – basic

0.31

0.27

0.15

(1.53)

0.22

Earnings (loss) per common share – diluted

0.30

0.27

0.14

(1.53)

0.22







See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.

 

First Bancorp and Subsidiaries

Financial Summary – Page 4


CONSOLIDATED BALANCE SHEETS

($ in thousands)

At Sept. 30,

2013


At June 30,

2013


At Dec. 31,

2012


At Sept. 30,

2012


One Year

Change

Assets










Cash and due from banks

$        89,383


82,798


96,588


79,991


11.7%

Interest bearing deposits with banks

95,736


154,802


144,919


203,212


(52.9%)

     Total cash and cash equivalents

185,119


237,600


241,507


283,203


(34.6%)











Investment securities

226,589


240,995


223,416


217,530


4.2%

Presold mortgages

2,884


4,552


8,490


4,380


(34.2%)











Loans – non-covered

2,215,173


2,190,583


2,094,143


2,137,074


3.7%

Loans – covered by FDIC loss share agreements

226,909


240,279


282,314


303,997


(25.4%)

     Total loans

2,442,082


2,430,862


2,376,457


2,441,071


0.0%

Allowance for loan losses – non-covered

(43,475)


(44,816)


(41,643)


(45,154)


(3.7%)

Allowance for loan losses – covered

(4,216)


(6,035)


(4,759)


(4,394)


(4.1%)

     Total allowance for loan losses

(47,691)


(50,851)


(46,402)


(49,548)


(3.7%)

     Net loans

2,394,391


2,380,011


2,330,055


2,391,523


0.1%











Loans held for sale



30,393



Premises and equipment

77,621


77,597


74,371


74,044


4.8%

FDIC indemnification asset

64,946


92,950


102,559


107,615


(39.6%)

Intangible assets

68,889


69,109


68,943


69,170


(0.4%)

Foreclosed real estate – non-covered

15,098


15,425


26,285


38,065


(60.3%)

Foreclosed real estate – covered

29,193


32,005


47,290


58,367


(50.0%)

Bank-owned life insurance

43,642


43,276


27,857


27,587


58.2%

Other assets

64,068


53,890


63,744


51,193


25.1%

     Total assets

$   3,172,440


3,247,410


3,244,910


3,322,677


(4.5%)





















Liabilities










Deposits:










     Non-interest bearing checking accounts

$      463,972


454,785


413,195


398,527


16.4%

     Interest bearing checking accounts

543,905


546,203


519,573


482,583


12.7%

     Money market accounts

552,463


560,612


551,209


533,462


3.6%

     Savings accounts

166,706


166,497


158,578


159,189


4.7%

     Brokered deposits

87,861


109,510


130,836


146,180


(39.9%)

     Internet time deposits

5,651


6,847


10,060


18,518


(69.5%)

     Other time deposits > $100,000

474,285


501,811


530,015


562,245


(15.6%)

     Other time deposits

446,017


472,088


507,894


533,760


(16.4%)

          Total deposits

2,740,860


2,818,353


2,821,360


2,834,464


(3.3%)











Borrowings

46,394


46,394


46,394


111,394


(58.4%)

Other liabilities

22,444


22,558


21,039


34,029


(34.0%)

     Total liabilities

2,809,698


2,887,305


2,888,793


2,979,887


(5.7%)











Shareholders' equity










Preferred stock

70,787


70,787


70,787


63,500


11.5%

Common stock

132,098


132,097


131,877


105,454


25.3%

Retained earnings

163,250


158,708


153,629


181,672


(10.1%)

Accumulated other comprehensive income (loss)

(3,393)


(1,487)


(176)


(7,836)


56.7%

     Total shareholders' equity

362,742


360,105


356,117


342,790


5.8%

Total liabilities and shareholders' equity

$   3,172,440


3,247,410


3,244,910


3,322,677


(4.5%)


 

First Bancorp and Subsidiaries

Financial Summary - Page 5



For the Three Months Ended

 

YIELD INFORMATION

September 30,    2013

June 30,    2013

March 31, 

2013

December 31,    2012

September 30,    2012







Yield on loans

5.68%

6.17%

5.71%

6.15%

6.06%

Yield on securities – tax-equivalent (1)

2.81%

2.88%

3.23%

3.41%

3.45%

Yield on other earning assets

0.46%

0.38%

0.33%

0.34%

0.31%

   Yield on all interest earning assets

5.21%

5.52%

5.15%

5.53%

5.44%







Rate on interest bearing deposits

0.40%

0.45%

0.49%

0.56%

0.61%

Rate on other interest bearing liabilities

2.21%

2.21%

2.24%

1.40%

1.60%

   Rate on all interest bearing liabilities

0.44%

0.48%

0.53%

0.59%

0.66%

     Total cost of funds

0.37%

0.41%

0.45%

0.51%

0.57%







        Net interest margin – tax-equivalent (2)

4.84%

5.10%

4.69%

5.01%

4.86%

        Average prime rate

3.25%

3.25%

3.25%

3.25%

3.25%


(1)See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.

(2)Calculated by dividing annualized tax-equivalent net interest income by average earning assets for the period.See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.


 


For the Three Months Ended

NET INTEREST INCOME PURCHASE

ACCOUNTING ADJUSTMENTS

($ in thousands)

 

Sept. 30, 2013


 

June 30,

2013


 

March 31,

2013


 

Dec. 31,

2012


 

Sept. 30,

2012











Interest income – reduced by premium amortization on loans

$        (105)


(116)


(116)


(116)


(116)

Interest income – increased by accretion of loan discount (1)

 

4,325


 

6,612


 

3,658


 

6,011


 

4,587

Interest expense – reduced by premium amortization of deposits

 

7


 

8


 

9


 

13


 

17

     Impact on net interest income

$       4,227


6,504


3,551


5,908


4,488


(1)Indemnification asset income is reduced by 80% of the amount of the accretion of loan discount, and therefore the net effect is that pretax income is positively impacted by 20% of the amounts in this line item.

 

First Bancorp and Subsidiaries

Financial Summary - Page 6


ASSET QUALITY DATA ($ in thousands)

Sept. 30, 2013


June 30, 2013


March 31, 2013


Dec. 31, 2012


Sept. 30, 2012











Non-covered nonperforming assets










Nonaccrual loans

$      40,711


42,338


38,917


33,034


69,413

Troubled debt restructurings – accruing

27,656


21,333


24,378


24,848


38,522

Accruing loans > 90 days past due

-


-


-


-


-

     Total non-covered nonperforming loans

68,367


63,671


63,295


57,882


107,935

Nonperforming loans held for sale




21,938


-

Foreclosed real estate

15,098


15,425


20,115


26,285


38,065

Total non-covered nonperforming assets

$      83,465


79,096


83,410


106,105


146,000











Covered nonperforming assets (1)










Nonaccrual loans

$      47,233


50,346


51,221


33,491


37,619

Troubled debt restructurings – accruing

6,537


6,790


10,582


15,465


17,945

Accruing loans > 90 days past due

-


-


-


-


-

     Total covered nonperforming loans

53,770


57,136


61,803


48,956


55,564

Foreclosed real estate

29,193


32,005


30,156


47,290


58,367

Total covered nonperforming assets

$     82,963


89,141


91,959


96,246


113,931











     Total nonperforming assets

$   166,428


168,237


175,369


202,351


259,931

 

Asset Quality Ratios – All Assets










Net charge-offs to average loans – annualized

1.33%


0.75%


1.32%


7.76%


1.80%

Nonperforming loans to total loans

5.00%


4.97%


5.22%


4.50%


6.70%

Nonperforming assets to total assets

5.25%


5.18%


5.35%


6.24%


7.82%

Allowance for loan losses to total loans

1.95%


2.09%


2.08%


1.95%


2.03%











Asset Quality Ratios – Based on Non-covered Assets only








Net charge-offs to average non-covered loans – annualized

0.87%


0.74%


0.51%


8.09%


1.57%

Non-covered nonperforming loans to non-covered loans

3.09%


2.91%


2.97%


2.76%


5.05%

Non-covered nonperforming assets to total non-covered assets

2.86%


2.66%


2.79%


3.64%


4.93%

Allowance for loan losses (non-covered) to non-covered loans

1.96%


2.05%


2.10%


1.99%


2.11%


(1)  Covered nonperforming assets consist of assets that are included in loss-share agreements with the FDIC.

 

 

First Bancorp and Subsidiaries

Financial Summary - Page 7



For the Three Months Ended

NET INTEREST MARGIN, EXCLUDING

LOAN DISCOUNT ACCRETION –

RECONCILIATION    

($ in thousands)

 

 

Sept. 30,  2013


 

 

June 30,  2013


 

 

March 31,  2013


 

 

Dec. 31,  2012


 

 

Sept. 30, 2012











Net interest income, as reported

$       33,727


35,602


31,921


35,685


34,473

Tax-equivalent adjustment

380


373


372


377


376

Net interest income, tax-equivalent (A)

$       34,107


35,975


32,293


36,062


34,849

 

Average earning assets (B)

 

$  2,795,071


 

2,827,171


 

2,790,745


 

2,864,243


 

2,855,083

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

 

4.84%


 

5.10%


 

4.69%


 

5.01%


 

4.86%











Net interest income, tax-equivalent

$       34,107


35,975


32,293


36,062


34,849

Loan discount accretion

4,325


6,612


3,658


6,011


4,587

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

 

$       29,782


 

29,363


 

28,635


 

30,051


 

30,262

 

Average earnings assets  (B)

 

$  2,795,071


 

2,827,171


 

2,790,745


 

2,864,243


 

2,855,083

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

 

4.23%


 

4.17%


 

4.16%


 

4.17%


 

4.22%


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 paragraph.Loan discount accretion is a non-cash interest income adjustment related to the Company's acquisition of two failed banks and represents the portion of the fair value discount that was initially recorded on the acquired loans that is being recognized into income over the lives of the loans.At September 30, 2013, the Company had a remaining loan discount balance of $46.7 million compared to $85.9 million at September 30, 2012.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.

SOURCE First Bancorp

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