First Bancorp Reports Second Quarter Results

SOUTHERN PINES, N.C., July 27, 2022 /PRNewswire/ -- First Bancorp (the "Company") (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $36.6 million, or $1.03 per diluted common share, for the three months ended June 30, 2022, compared to $34.0 million, or $0.95 per diluted common share for the first quarter of 2022 and $29.3 million, or $1.03 per diluted common share, recorded in the second quarter of 2021.  For the six months ended June 30, 2022, the Company recorded net income of $70.6 million, or $1.98 per diluted common share, compared to $57.5 million, or $2.02 per diluted common share for the six months ended June 30, 2021. 

On June 21, 2022, the Company announced that it had reached an agreement to acquire GrandSouth Bancorporation ("GrandSouth"), headquartered in Greenville, South Carolina, in an all-stock transaction. This transaction is subject to regulatory approvals and approval of GrandSouth's shareholders, and is expected to close in the late fourth quarter of 2022 or early first quarter of 2023.  GrandSouth operates eight branches throughout South Carolina and currently has $1.2 billion in total assets, $952.8 million in loans, and $1.1 billion in deposits.

Richard H. Moore, CEO and Chairman of the Company, stated, "First Bank had a very strong quarter.  Loan growth exceeded our expectations and we have continued to maintain strong asset quality and are focused on credit discipline.  We are excited about combining with GrandSouth which provides us the opportunity to accelerate First Bank's South Carolina expansion and partner with extremely talented bankers in growth markets."

Second Quarter 2022 Highlights

• Annualized return on average assets of 1.40% and annualized return on average common equity of 13.45% for the quarter ended June 30, 2022.
• Tax equivalent net interest margin was 3.18% for the quarter with continued low cost of funds, and net interest income grew 1.8% from the first quarter of 2022 ("the linked quarter").
• Total noninterest expense was down 4.0% as compared to the first quarter driven by lower merger expenses and operating cost controls.
• Annualized loan growth for the quarter was 11.8%; credit quality continues to be strong with decreases in nonperforming assets ("NPA") for the third straight quarter. NPA to total assets ratio of 0.39% as of June 30, 2022, down from 0.46% for the linked quarter and 0.51% for the comparable period of 2021.
• Total common equity Tier 1 ratio of 12.80% and total risk-based capital ratio of 14.91%.
• Quarterly cash dividend of $0.22 per share declared, a 10.0% increase over the dividend rate in the comparable period of 2021.

The following discussions and comparisons to the prior year financial periods presented are impacted by the Company's acquisition of Select Bancorp, Inc. ("Select") completed in the fourth quarter of 2021 which contributed $1.3 billion in loans and $1.6 billion in deposits as of the acquisition date.  

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2022 was $78.3 million, a 33.2% increase from the $58.8 million recorded in the second quarter of 2021 and a 1.8% increase from the first quarter of 2022.   The increases in net interest income from the prior year period was driven by higher earning assets related to both organic growth and the Select acquisition, offset somewhat by a reduction in net interest margin ("NIM"). 

The Company's tax-equivalent NIM (calculated by dividing tax-equivalent net interest income by average earning assets) for the second quarter of 2022 was 3.18%, compared to 3.21% for the linked quarter and 3.22% for the second quarter of 2021.  Contributing to the the reduction in NIM was the payoff of loans during the first quarter of 2022 at higher rates than new originations.  Also contributing to the lower NIM were fluctuations in loan discount accretion which deceased to $2.3 million in the second quarter of 2022 as compared to $3.6 million in the second quarter of 2021.  Average interest-earning assets increased 34.7% from the second quarter of 2021, and 1.4% from the linked quarter with growth in both loans and investment securities.

Allowance for Credit Losses, Provisions for Credit Losses, and Asset Quality

For the three months ended June 30, 2022, the Company did not record any provision for credit losses or provision for unfunded commitments.  This is compared to a provision for credit losses of $3.5 million and a reversal of provision for unfunded commitments of ($1.5) million for the first quarter of 2022.  The first quarter provisions related to updated economic forecasts and recalibration of the CECL model assumptions to include historical loss rates from the Select acquired portfolio.  For the second quarter of 2022, no additional provisions were necessary based on the assumptions and loan mix inputs to the CECL model.  The reserve for unfunded commitments totaled $12.0 million at June 30, 2022 and is included in the line items "Other Liabilities".

Asset quality continues to improve with annualized net loan recoveries of (0.01%) for the second quarter of 2022 compared to a net charge-off ratio of 0.07% for the same period of 2021.  Total nonperforming assets amounted to $41.1 million at June 30, 2022, or 0.39% of total assets, down from $48.9 million, or 0.46% of total assets for the linked quarter, and $41.8 million, or 0.51% of total assets, at June 30, 2021. 

Noninterest Income

Total noninterest income for the second quarter of 2022 was $17.3 million, a 19.2% decrease from the $21.4 million recorded for the second quarter of 2021 and a 10.3% decrease from the linked quarter.  The primary factors driving fluctuations between the comparable periods were as follows:

• SBA loan sale gains amounted to $0.8 million for the second quarter of 2022 compared to $3.3 million for the linked quarter and $3.0 million in the second quarter of 2021. The decrease was related to the timing of sales and the volume of originated loans available to be sold in each period.
• Fees from presold mortgages amounted to $0.5 million for the second quarter of 2022, a decrease of 59.5% from the linked quarter, and a decrease of 80.0% from the $2.3 million recorded in the second quarter of 2021. Mortgage loan refinancing and origination volumes have declined significantly due to increases in mortgage interest rates.
• SBA consulting fees declined $1.5 million for the second quarter of 2022 as compared to the prior year, and are down 9.7% from the linked quarter as a direct result of lower PPP-related revenue.
• Commissions from sales of insurance and financial products amounted to $1.2 million for the second quarter of 2022, an increase of 21.8% as compared to the linked quarter driven by higher volume of transactions. The decline in the second quarter of 2022 as compared to the $2.5 million recorded in the second quarter of 2021 was due to the sale of substantially all of the assets of the Company's property and casualty insurance agency subsidiary on June 30, 2021.
• Increases in the second quarter compared to the linked quarter and the prior year period in "Service charges on deposit accounts" and "Other service charges, commissions and fees" were driven by the Select acquisition and related increases in the number of new customers and transaction accounts, combined with continued organic growth in transaction accounts.
• Other gains amounted to $1.6 million for the second quarter of 2022 and $3.2 million for the first six months of 2022, primarily related to death benefits realized on bank-owned life insurance policies. Gains for the comparable periods of 2021 were driven by the sale of the operations and substantially all of the assets of First Bank Insurance Services in June 2021.

Noninterest Expenses

Noninterest expenses amounted to $49.4 million for  the second quarter of 2022, compared to $51.5 million for the linked quarter and $41.0 million for the second quarter of 2021. The reduction in noninterest expense from the linked quarter is driven by a $2.7 million reduction in merger and acquisition expenses.  The increase in noninterest expenses from the prior year period was driven by higher operating expenses resulting from the Select acquisition. 

Income Taxes

The Company's effective tax rates were 20.7% and 21.3% for the second quarter of 2022 and 2021, respectively. The 2022 reduction in effective tax rate was related to higher tax-exempt income relative to taxable income.

Balance Sheet and Capital

Total assets at June 30, 2022 amounted to $10.6 billion, a 28.8% increase from a year earlier. The growth was driven by a combination of organic loan and deposit growth and the acquisition of Select. 

Total investment securities increased $672.2 million from June 30, 2021 to total $3.1 billion at June 30, 2022, as the Company invested cash from higher levels of deposits realized in 2021.

Total loans amounted to $6.2 billion at June 30, 2022, an increase of $1.5 billion, or 30.6%, from June 30, 2021, due primarily to the Select acquisition. Loan growth for the second quarter of 2022 amounted to $178.5 million, an annualized growth rate of 11.8%. 

Total deposits amounted to $9.4 billion at June 30, 2022, an increase of $2.2 billion, or 30.5%, from June 30, 2021.  Exclusive of deposits acquired from Select, the high core deposit growth is believed to be due to a combination of stimulus funds and changes in customer behaviors during the pandemic, as well as ongoing growth initiatives by the Company.

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at June 30, 2022 of 14.91% compared to 15.27% reported at June 30, 2021.  The decline resulted from the high balance sheet growth experienced between the periods.  The Company's tangible common equity to tangible assets ratio was 6.70% at June 30, 2022, a decrease of 161 basis points from a year earlier, with the decline driven by the higher unrealized loss on available for sale securities included in equity.

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of $10.6 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 108 branches in North Carolina and South Carolina.  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.

Caution about Forward-Looking Statements: 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.

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