First Bancorp Reports Fourth Quarter and Annual Results

SOUTHERN PINES, N.C., Jan. 24, 2024 /PRNewswire/ -- First Bancorp (the "Company") (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $29.7 million, or $0.72 per diluted common share, for the three months ended December 31, 2023 compared to $29.9 million, or $0.73 per diluted common share, for the three months ended September 30, 2023 ("linked quarter") and $38.4 million, or $1.08 per diluted common share, recorded in the fourth quarter of 2022.  For the twelve months ended December 31, 2023, the Company recorded net income of $104.1 million, or $2.53 per diluted common share, compared to $146.9 million, or $4.12 per diluted common share, for the twelve months ended December 31, 2022.

On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation ("GrandSouth").  Comparisons for the financial periods presented are impacted by the GrandSouth acquisition which contributed $1.02 billion in loans and $1.05 billion in deposits.  The results for the twelve months ended December 31, 2023 include merger expenses totaling $13.7 million and an initial loan loss provision of $12.2 million for acquired loans.

Richard H. Moore, CEO and Chairman of the Company, stated, "This past year, our Company had great success maintaining and strengthening our core banking relationships with our customers at a time when many banks struggled to do so.  In 2024, we will continue to do what we do best – serve our customers and our communities – all while managing risk and taking advantage of any opportunities that come our way.  I am proud of our steady and solid performance in 2023 and look forward to continued growth in 2024."    

Fourth Quarter 2023 Highlights

• Loans totaled $8.2 billion at December 31, 2023, with growth for the quarter of $123.1 million, an annualized growth rate of 6.1%.
• Noninterest-bearing demand accounts remained strong at 34% of total deposits at quarter end, consistent with the linked quarter end.
• Total loan yield increased to 5.39%, up 77 basis points from the fourth quarter of 2022, with accretion on purchased loans contributing 15 basis points to loan yield.
• While deposit and borrowing rates increased during the quarter, total cost of funds remained low at 1.64% for the quarter ended December 31, 2023.
• The on-balance sheet liquidity ratio was 14.6% at December 31, 2023. Available off-balance sheet sources totaled $2.2 billion at quarter end, resulting in a total liquidity ratio of 30.4%.
• Credit quality continued to be strong with a nonperforming assets ("NPA") to total assets ratio of 0.37% as of December 31, 2023.
• Capital remained strong with a total common equity tier 1 ratio of 13.20% (estimated) and a total risk-based capital ratio of 15.54% (estimated) as of December 31, 2023.

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2023 was $82.5 million compared to $84.4 million recorded in the fourth quarter of 2022, a decrease of 2.2%.  Net interest income for the fourth quarter decreased 2.6% from the $84.7 million reported for the linked quarter. 

Average interest-earning assets for the fourth quarter of 2023 increased 13.0% from the comparable period of the prior year, with growth primarily in loans resulting from both organic growth and the GrandSouth acquisition. Despite the higher level of earning assets, the market-driven increases in rates on liabilities occurred at a more rapid pace than the increase in yields on assets, which resulted in the reduction in net interest income and net interest margin ("NIM") as compared to the prior periods. 

The Company's tax-equivalent NIM (calculated by dividing tax-equivalent net interest income by average earning assets) declined year-over-year with the fourth quarter of 2023 reporting a tax-equivalent NIM of 2.88% compared to 3.32% for the fourth quarter of 2022.  While loan yields rose from 4.62% for the fourth quarter of 2022 to 5.39% for the fourth quarter of 2023, the total cost of funds increased from 0.36% for the fourth quarter of 2022 to 1.64% for the quarter ended December 31, 2023. 

There has been some deceleration of the pace of increase of the Company's cost of funds, primarily in the rate on interest-bearing deposits which increased 19 basis points as compared to the linked quarter, while the third quarter of 2023 realized a 27 basis point increase as compared to the second quarter of 2023. 

Included in interest income for the fourth quarter of 2023 was total loan discount accretion of $2.9 million compared to $1.3 million for the fourth quarter of 2022, with the increase being primarily related to the GrandSouth acquisition.  Loan discount accretion had an 10 basis points positive impact on the Company's NIM in the fourth quarter of 2023 compared to accretion contributing 5 basis points to NIM for the prior year quarter. 

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

Provision for Credit Losses and Credit Quality

For the three months ended December 31, 2023 and December 31, 2022, the Company recorded $3.4 million and $4.0 million in provision for loan losses, respectively.  The provision for the current quarter was driven by continued slow-down in prepayment speed estimates which are a key assumption in the CECL model, combined with loan growth and net charge-offs experienced during the quarter.  In addition, lower loss driver assumptions resulted in some offsetting reductions to the Allowance for Credit Losses reserve estimate. 

During the fourth quarter of 2023, the Company recorded a $0.5 million reversal of the provision for unfunded commitments, compared to a provision for unfunded commitments of $1.0 million for the fourth quarter of 2022. The current quarter's reversal related primarily to a reduction in the amount of available borrowings under lines of credit.  Also contributing was the lower loss driver assumptions noted above.  The reserve for unfunded commitments totaled $11.4 million at December 31, 2023 and is included in the line item "Other Liabilities".

The combination of the above provisions for credit losses and unfunded commitments resulted in an income statement impact of $3.0 million for the fourth quarter of 2023 as compared to $5.0 million for the fourth quarter of 2022.

Asset quality remained strong with annualized net loan charge-offs of 0.09% for the fourth quarter of 2023.  Total NPAs remained at a low level at $44.8 million at December 31, 2023, or 0.37% of total assets.  This is compared to $38.3 million, or 0.36% of total assets, at December 31, 2022 with the increase year-over-year being attributable primarily to activity from acquired loan portfolios and the SBA loan portfolio.  Nonaccrual loans increased $5.3 million from the linked quarter related in large part to one SBA loan which is guaranteed.

The following table presents the summary of NPAs and asset quality ratios for each period.

Noninterest Income

Total noninterest income for the fourth quarter of 2023 was $14.5 million, a 0.1% decrease from the $14.6 million recorded for the fourth quarter of 2022 and a 4.2% decrease from the linked quarter.  The GrandSouth acquisition was a primary factor driving increases from the prior year in Service Charges on Deposit Accounts related to the higher number of customer accounts and activity generating revenue.  The reduction in Other Service Charges, Commissions and Fees from the linked quarter and the prior year quarter was driven by lower net bankcard revenues on reduced incentives received from Mastercard and higher processing fees.

Noninterest Expenses

Noninterest expenses amounted to $56.4 million for the fourth quarter of 2023 compared to $62.2 million for the linked quarter and $45.7 million for the fourth quarter of 2022.  The $5.8 million or 9.4% reduction in noninterest expense from the linked quarter was driven by (1) annual adjustments to the Company's pension and SERP benefit plans which resulted in reducing expense approximately $2.2 million during the period, and (2) reduction in bonus and incentive accruals of $2.6 million related to performance results against goals. 

The 23.5% increase in total noninterest expenses from the prior year period was related in large part to the acquisition of eight GrandSouth branch locations and related branch and support personnel.  This transaction was the primary driver of (1) higher compensation expense which increased from the fourth quarter of 2022 by $3.4 million, or 11.2%; (2) higher occupancy and equipment expense which increased $1.5 million, or 34.2%; and (3) increased intangible amortization of $1.0 million, or 125.0%, related to the core deposit intangibles added with the GrandSouth acquisition.

In addition, other operating expenses increased $4.9 million, or 49.0%, from the fourth quarter of 2022, driven by: (1) approximately $1.6 million in higher data processing and software expense for the additional transactions and account volumes resulting from the GrandSouth transaction, combined with investments in new software systems; and (2) FDIC insurance increases totaling approximately $1.0 million related to the deposits acquired from GrandSouth and the general FDIC rate increase effective January 1, 2023.  The remaining increase between the fourth quarter of 2022 and the fourth quarter of 2023 was primarily related to 2022 year end accrual reductions which resulted in lower expense in the fourth quarter of 2022 totaling approximately $3.6 million.  The fourth quarter of 2023 also include year end adjustments to the Company's pension and SERP benefit plans which resulted in lower expense of approximately $1.6 million as compared the prior year period. 

Balance Sheet

Total assets at December 31, 2023 amounted to $12.1 billion, an increase of $137.0 million from the linked quarter and growing 14.0% from a year earlier.  The increase from the linked quarter was primarily related to higher loan and borrowing balances, somewhat offset by lower deposit balances.  The growth from a year earlier was driven by the acquisition of GrandSouth, combined with organic loan and deposit growth during the period. 

Quarterly average balances for key balance sheet accounts are presented below.

Total investment securities were $2.7 billion at December 31, 2023, an increase of $87.2 million from the linked quarter and a decrease of $133.1 million from December 31, 2022.  The Company made no notable purchases of investment securities during 2023 and continues to utilize cash flows from amortizing investments to fund loan growth and fluctuations in deposits.  The increase in balances experienced from the linked quarter was related to an improvement in the level of unrealized loss on available for sale securities which decreased $120.9 million from the linked quarter and decreased $43.3 million from the prior year end.  Total unrealized loss on available for sale investment securities was $400.7 million at December 31, 2023.  The Company has the intent to hold, and does not expect it will be required to sell, investments with unrealized losses until maturity or recovery of the amortized cost as market conditions change.

Total loans amounted to $8.2 billion at December 31, 2023, an increase of $123.1 million from the linked quarter and $1.5 billion, or 22.3%, from December 31, 2022.  Excluding the GrandSouth acquisition, organic loan growth was $464.9 million for 2023, representing an annualized growth rate of 6.0%. 

As presented below, our total loan portfolio mix has remained consistent.  There were no notable concentrations in geographies or industries, including in office or hospitality categories at year end.  The Company's exposure to non-owner occupied office loans represented approximately 5.6% of the total portfolio at December 31, 2023, with the largest loan being $27.2 million and an average loan outstanding amount of $1.3 million.  Non-owner occupied office loans are generally in non-metro markets and the top 10 loans in this category represent less than 2% of the total loan portfolio.

The following table presents the balance and portfolio percentage by loan category for each period.

Total deposits were $10.0 billion at December 31, 2023, an increase of $804.1 million, or 8.7%, from December 31, 2022. The year-over-year change represents an increase in market deposits of $1.1 billion, resulting primarily from the GrandSouth acquisition, partially offset by intentional declines in brokered deposits of $249.3 million.  Organic market deposits (excluding the acquired deposits and brokered deposits) contracted $203.9 million for the fourth quarter of 2023 and grew $16.8 million since the prior year end, which represents a growth rate of 0.2%. 

The Company has a diversified and granular deposit base which has remained a stable source of funding.  At quarter end, noninterest-bearing deposits accounted for 34% of total deposits, consistent with the linked quarter.  As of December 31, 2023, the estimated insured deposits totaled $6.3 billion or 63.3% of total deposits.  In addition, there were collateralized deposits at that date of $820.9 million such that approximately 71.5% of our total deposits were insured or collateralized at the current quarter end.

Our deposit mix has remained consistent historically and has not changed significantly with the addition of GrandSouth, with the exception of some shift to money market accounts, as presented in the table below.

Capital

The Company remains well-capitalized by all regulatory standards, with an estimated total risk-based capital ratio at December 31, 2023 of 15.54%, up from the linked quarter ratio of 15.26% and 15.09% reported at December 31, 2022. 

The Company has elected to exclude accumulated other comprehensive income ("AOCI") related primarily to available for sale securities from common equity tier 1 capital.  AOCI is included in the Company's tangible common equity ("TCE") to tangible assets ratio which was 7.42% at December 31, 2023, an increase of 93 basis points from the linked quarter and an increase of 103 basis points from the prior year period.  The increases in TCE for the current quarter and year-over-year were driven by the improvement in the AOCI level related to the decrease in the unrealized loss on available for sale securities, as well as earnings for the year.  Refer to Appendix B for a reconciliation of common equity to TCE.

Liquidity

Liquidity is evaluated as both on-balance sheet (primarily cash and cash-equivalents, unpledged securities, and other marketable assets) and off-balance sheet (readily available lines of credit or other funding sources).  The Company continues to manage liquidity sources, including unused lines of credit, at levels believed to be adequate to meet its operating needs for the foreseeable future. 

The Company's on-balance sheet liquidity ratio (net liquid assets as a percent of net liabilities) at December 31, 2023 was 14.6%.  In addition, the Company had approximately $2.2 billion in available lines of credit at that date resulting in a total liquidity ratio of 30.4%.

About First Bancorp

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of $12.1 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 118 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.

SOURCE First Bancorp

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