First Bancorp Reports Third Quarter Results

SOUTHERN PINES, N.C., Oct. 26, 2020 /PRNewswire/ -- First Bancorp (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $23.3 million, or $0.81 per diluted common share, for the three months ended September 30, 2020 compared to $25.0 million, or $0.84 per diluted common share, recorded in the third quarter of 2019.  The earnings per share of $0.81 for the third quarter of 2020 represent a 44.6% increase from the $0.56 reported for the second quarter of 2020.

For the nine months ended September 30, 2020, the Company recorded net income of $57.8 million, or $1.99 per diluted common share compared to $71.2 million, or $2.39 per diluted common share, for the nine months ended September 30, 2019.

Earnings for the periods in 2020 were impacted by provisions for loan losses related to estimated losses arising from the economic impact of COVID-19.  For the three months ended September 30, 2020, the Company recorded a provision for loan losses of $6.1 million compared to a negative provision for loan losses  of $1.1 million in the third quarter of 2019.  For the nine months ended September 30, 2020, the Company recorded a provision for loan losses of $31.0 million compared to a negative provision of $0.9 million for the first nine months of 2019.  The impact of the higher provisions for loan losses were partially offset by higher noninterest income realized in 2020, as described further below.

The Company continued to experience high balance sheet growth during the third quarter of 2020, with total assets increasing by $176 million, or 10.2% on an annualized basis.  The high balance sheet growth was driven by a $229 million increase in deposits during the quarter, or 15.7% on an annualized basis.

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2020 was $54.7 million, a 1.8% increase from the $53.8 million recorded in the third quarter of 2019.  Net interest income for the first nine months of 2020 was $162.1 million, a 0.4% increase from the $161.5 million recorded in the comparable period of 2019.  The increases in net interest income were due primarily to growth in interest-earning assets.

The Company's net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) for the third quarter of 2020 was 3.48%, which was 47 basis points lower than the 3.95% realized in the third quarter of 2019.  For the nine months ended September 30, 2020, the Company's net interest margin was 3.63% compared to 4.02% for the same period in 2019.  The lower margins were primarily due to the impact of lower interest rates. 

From August 2019 to March 2020, the Federal Reserve decreased interest rates by 225 basis points, which resulted in the Company's interest-earning asset yields declining by more than its cost of funds.  For the nine months ended September 30, 2020, the Company's interest-earning asset yield declined by 65 basis points compared to a 29 basis point decline in its cost of funds.  The negative impact of the lower net interest margins in 2020 compared to 2019 was offset by earnings generated from strong growth in interest-earning assets, which were driven by high deposit growth.  Average interest earning assets for the nine months ended September 30, 2020 were 10.8% higher than for the same period in 2019.

In the third quarter of 2020, the Company's interest-earning asset yields and cost of funds each declined by approximately 9 basis points from the second quarter of 2020.  This resulted in a stable linked-quarter net interest margin, which was 3.48% for the third quarter of 2020 compared to 3.49% for the second quarter of 2020.

The Company continues to have $245 million of PPP loans outstanding.  In the third quarter of 2020, the yield earned on those loans was 2.90%, which included $1.2 million of amortization of origination fees, and lowered the reported net interest margin by approximately 2 basis points.  The Company has $7.6 million in remaining deferred PPP origination fees that will be recognized over the lives of the loans, with accelerated amortization expected to result from the loan forgiveness process.

Provision for Loan Losses and Asset Quality

As permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March 2020, the Company elected to defer the implementation of the Current Expected Credit Loss (CECL) methodology.  Accordingly, the Company's allowance for loan losses at each period end is based on the Company's estimate of probable losses that have been incurred at the end of such period, including losses arising from the impact of COVID-19, in accordance with the pre-CECL methodology for determining loan losses.

The Company recorded a provision for loan losses of $6.1 million in the third quarter of 2020 compared to a negative provision for loan losses (reduction of the allowance for loan losses) of $1.1 million in the third quarter of 2019.  For the nine months ended September 30, 2020, the Company recorded a provision for loan losses of $31.0 million compared to a negative provision for loan losses of $0.9 million for the same period of 2019.  The increases in 2020 are primarily related to estimated probable losses arising from the economic impact of COVID-19.  With the onset of the pandemic in March 2020, the Company worked with many of its borrowers and provided the option of loan payment deferrals, with loans on deferral status amounting to $185 million, or 3.9% of total loans, at September 30, 2020, a decrease from $774 million, or 16.2% of total loans, at June 30, 2020.  See further detail regarding loan deferrals in the accompanying financial schedules.

Total net loan charge-offs (recoveries) for the third quarters of 2020 and 2019 amounted to ($0.8 million) and $0.4 million, respectively, or (0.06%) and 0.04% of average loans on an annualized basis, respectively.  For the nine months ended September 30, 2020 and 2019, total net charge-offs were $3.2 million and $0.9 million, respectively, which on an annualized basis amounted to 0.09% and 0.03%, respectively.

Total nonperforming assets amounted to $44.3 million at September 30, 2020, or 0.63% of total assets, compared to $33.9 million a year earlier, or 0.56% of total assets.

Noninterest Income

Total noninterest income was $21.5 million and $15.2 million for the three months ended September 30, 2020 and 2019, respectively.  For the nine months ended September 30, 2020 and 2019, total noninterest income was $61.4 million and $44.9 million, respectively.

Service charges on deposit accounts amounted to $2.6 million for the third quarter of 2020 compared to $3.4 million in the third quarter of 2019.  For the first nine months of 2020 and 2019, service charges on deposit accounts amounted to $8.2 million and $9.5 million, respectively.  The decreases were primarily due to fewer instances of overdraft fees.

Other service charges, commissions, and fees amounted to $6.2 million in the third quarter of 2020 compared to $5.1 million in the third quarter of 2019.  This same line item amounted to $14.9 million for the nine months ended September 30, 2020 compared to $14.6 million for the first nine months of 2019.  Included in this line item for the third quarter of 2020 was income of $0.6 million due to the reversal of previously recorded impairment of the Company's SBA servicing asset resulting from improved market conditions.  The Company had recorded impairment expense of its SBA servicing asset of $0.5 million in the first quarter of 2020 and $0.1 million in the fourth quarter of 2019.

Fees from presold mortgages amounted to $4.9 million for the third quarter of 2020 compared to $1.3 million in the third quarter of 2019.  For the first nine months of 2020 and 2019, fees from presold mortgages amounted to $9.7 million and $2.7 million, respectively.  The increases in 2020 were primarily due to higher mortgage loan origination volume arising from historically low mortgage loan interest rates.

For the third quarters of 2020 and 2019, SBA consulting fees amounted to $2.0 million and $0.7 million, respectively.  For the first nine months of 2020 and 2019, SBA consulting fees amounted to $6.7 million and $2.8 million, respectively.  The increases in 2020 were due to fees earned in the second and third quarters by the Company's SBA subsidiary, SBA Complete, related to assisting its third-party client banks with the PPP.  SBA Complete recorded approximately $0.8 million and $3.8 million in PPP fees for the three and nine months ended September 30, 2020.  SBA Complete also recorded $1.6 million in the second quarter of 2020 in deferred revenue that will be recorded as income upon the forgiveness portion of the PPP.

SBA loan sale gains amounted to $2.9 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively, compared to $5.5 million and $7.0 million for the nine months ended September 30, 2020 and 2019, respectively.  Origination of SBA loans generally declined in the first and second quarters of 2020 due to the economic impact of COVID-19, while during the third quarter, SBA loan originations increased due to increased market activity.

During the second quarter of 2020, the Company sold approximately $220 million in mortgage-backed and commercial mortgage-backed securities at a gain of $8.0 million.  The securities sold were believed to be favorably impacted by historically low interest rates and Federal Reserve stimulus measures.

Noninterest Expenses

Noninterest expenses amounted to $40.4 million in the third quarter of 2020 compared to $38.4 million recorded in the third quarter of 2019, an increase of 5.2%.  For the nine months ended September 30, 2020 and 2019, noninterest expenses amounted to $119.4 million and $117.3 million, respectively, an increase of 1.8%.  The increases were primarily due to increased incentive compensation expense related to improvement in financial performance and higher commission expense resulting from increases in mortgage loan volume in 2020.

Income Taxes

The Company's effective tax rate was 21.4% and 20.8% for the three and nine months ended September 30, 2020, respectively, compared to 20.8% and 21.0% for the three and nine months ended September 30, 2019, respectively. 

Balance Sheet and Capital

Total assets at September 30, 2020 amounted to $7.1 billion, a 16.4% increase from a year earlier. 

Loan growth for the third quarter was $44 million, or 3.7% on an annualized basis.  Loan growth for the nine months ended September 30, 2020 was $361 million, or 10.8% on an annualized basis, which includes $245 million in PPP loans.

Deposit growth for the third quarter was $229 million, or 15.7% on an annualized basis.  Deposit growth for the nine months ended September 30, 2020 was $1.1 billion, or 30.5% on an annualized basis.  In addition to deposits arising from PPP loans, this high deposit growth is believed to be due to a combination of stimulus funds and changes in customer behaviors during the pandemic.

With the excess liquidity resulting from the high deposit growth, the Company reduced its level of borrowings by $239 million, or 79.4%, and its level of brokered deposits by $91 million, or 71.2%, at September 30, 2020 compared to a year earlier.

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at September 30, 2020 of 14.90%, an increase from the 14.88% reported at September 30, 2019.  The Company's tangible common equity to tangible assets ratio was 9.18% at September 30, 2020, a decrease of 83 basis points from a year earlier. 

Comments of the CEO and Other Business Matters

Richard H. Moore, CEO of First Bancorp, commented, "Our ongoing focus is to provide excellent service to our customers during these challenging times, and our team continues to do an outstanding job.  During the quarter, we experienced good balance sheet growth and high levels of fee income.  Our balance sheet and capital levels remain strong and position us well for the future."

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

• On September 1, 2020, the Company completed the acquisition of Magnolia Financial, Inc., a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States. In the transaction, the Company acquired $14.6 million in loans and recorded intangible assets of $6.6 million.
• On September 15, 2020, the Company announced a quarterly cash dividend of $0.18 per share payable on October 23, 2020 to shareholders of record on September 30, 2020. This dividend rate represents a 50% increase over the dividend rate declared in the third quarter of 2019.
• During the third quarter of 2020, the Company repurchased 305,100 shares of its common stock at an average stock price of $20.55, which totaled $6.3 million.

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $7.1 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.

 

 

 

 

 

 

 

 

 

 

 

 

View original content to download multimedia:http://www.prnewswire.com/news-releases/first-bancorp-reports-third-quarter-results-301159747.html

SOURCE First Bancorp