First Bancorp Reports Second Quarter Results

SOUTHERN PINES, N.C., July 25, 2017 /PRNewswire/ -- First Bancorp (NASDAQ – FBNC), the parent company of First Bank, announced today net income available to common shareholders of $11.2 million, or $0.45 per diluted common share, for the three months ended June 30, 2017, an increase of 21.6% in earnings per share from the $7.6 million, or $0.37 per diluted common share, recorded in the second quarter of 2016. 

For the six months ended June 30, 2017, the Company recorded net income available to common shareholders of $18.7 million, or $0.80 per diluted common share, an increase of 14.3% in earnings per share from the $14.4 million, or $0.70 per diluted common share, for the six months ended June 30, 2016.  The 2017 results were impacted by strong balance sheet growth and favorable earnings trends. 

Comparisons for the financial periods presented are significantly impacted by the Company's March 3, 2017 acquisition of Carolina Bank Holdings, Inc. ("Carolina Bank"), which operated eight branches and three mortgage loan offices, primarily in the Triad region of North Carolina.  As of the acquisition date, Carolina Bank had total assets of $682 million, including $497 million in loans and $585 million in deposits.

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2017 was $39.9 million, a 26.6% increase from the $31.5 million recorded in the second quarter of 2016.  Net interest income for the first six months of 2017 amounted to $74.2 million, a 20.2% increase from the $61.7 million recorded in the comparable period of 2016.  The increase in net interest income was primarily due to higher amounts of loans outstanding as a result of internal growth, as well as the acquisition of Carolina Bank.

The Company's net interest margin (tax-equivalent net interest income divided by average earning assets) for the second quarter of 2017 was 4.08% compared to 4.21% for the second quarter of 2016.  For the six month period ended June 30, 2017, the Company's net interest margin was 4.08% compared to 4.14% for the same period in 2016.  The net interest margins for both periods were impacted by higher amounts of loan discount accretion associated with acquired loan portfolios.  Several loans with significant discounts paid off during each of the three month periods ended June 30, 2016 and 2017.  Additionally, in the second quarter of 2016, the Company realized $332,000 in previously foregone interest related to the pay-off of two loans that had been on nonaccrual status.  Also impacting the Company's lower net interest margin was a five basis point increase in funding costs that was primarily caused by higher levels of borrowings.

The Company recorded loan discount accretion amounting to $2.0 million in the second quarter of 2017, compared to $1.7 million in the second quarter of 2016.  For the first six months of 2017 and 2016, loan discount accretion amounted to $3.3 million and $2.7 million, respectively.  See the Financial Summary for a table that presents the impact of loan discount accretion on net interest income.

Excluding the effects of loan discount accretion, the Company's net interest margin was 3.88% for the second quarter of 2017, compared to 3.91% for the first quarter of 2017 and 3.99% for the second quarter of 2016, which benefited from the foregone interest recapture previously discussed.  Also see the Financial Summary for a reconciliation of the Company's net interest margin to the net interest margin excluding loan discount accretion, and other information regarding this ratio.  

Provision for Loan Losses and Asset Quality

The Company recorded no provision for loan losses in the second quarter of 2017 compared to a total negative provision for loan losses of $0.3 million in the second quarter of 2016.  For the six months ended June 30, 2017, the Company recorded total provision for loan losses of $0.7 million compared to a total negative provision for loan losses of $23,000 in the same period of 2016. 

For periods prior to the third quarter of 2016, the Company's provision for loan losses was disclosed in separate line items between covered loans and non-covered loans, as shown in the attached tables.  Generally, the Company recorded provisions for loan losses on non-covered loans as a result of net charge-offs and loan growth, while significant recoveries in the Company's covered loan portfolios resulted in negative provisions for loan losses.  Upon the termination of the FDIC loss share agreements, effective September 22, 2016, all loans are classified as non-covered.

The Company's provision for loan loss levels have been impacted by continued improvement in asset quality. Nonperforming assets amounted to $55.0 million at June 30, 2017, a decrease of 29.3% from the $77.9 million one year earlier.  The Company's nonperforming assets to total assets ratio was 1.21% at June 30, 2017 compared to 2.25% at June 30, 2016.  Also, the Company's provision for loan loss levels were impacted by lower net charge-offs in 2017.  Annualized net charge-offs as a percentage of average loans for the six months ended June 30, 2017 was 0.03%, compared to 0.20% for the same period of 2016.

Noninterest Income

Total noninterest income was $11.9 million and $5.9 million for the three months ended June 30, 2017 and June 30, 2016, respectively.  For the six months ended June 30, 2017, noninterest income amounted to $21.7 million compared to $10.9 million for the same period of 2016.

Core noninterest income for the second quarter of 2017 was $11.6 million, an increase of 42.1% from the $8.2 million reported for the second quarter of 2016.  For the first six months of 2017, core noninterest income amounted to $21.4 million, a 38.0% increase from the $15.5 million recorded in the comparable period of 2016.  Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income. 

The primary reason for the increase in core noninterest income in 2017 was the acquisition of Carolina Bank, as well as income derived from the Company's SBA consulting fees and SBA loan sale gains, which began in the second and third quarters of 2016.  On May 5, 2016, the Company completed the acquisition of a firm that specializes in consulting with financial institutions across the country related to SBA loan origination and servicing.  The line item "SBA Consulting Fees" in the accompanying tables reflects the income from this firm.  Additionally, in the third quarter of 2016, the Company launched a national SBA lending division, which offers SBA loans to small business owners throughout the United States.  The Company generally sells the guaranteed portions of these loans at gains.

Fees from presold mortgage loans increased to $1.5 million for the second quarter of 2017 from $0.4 million in the second quarter of 2016.  For the first half of 2017, fees from presold mortgage loans increased to $2.3 million from the $0.8 million recorded in the comparable period of 2016.  The increases were primarily due to the acquisition of Carolina Bank in March 2017, which had a significant mortgage loan operation.

In the three and six months ended June 30, 2017, the Company recorded no indemnification asset expense compared to $2.2 million and $4.5 million in indemnification asset expense in the three and six months ended June 30, 2016, respectively.  In 2016, indemnification asset expense arose from loss-share agreements with the FDIC associated with two failed banked acquisitions.  The loss-share agreements were terminated in September 2016, and thus all indemnification asset income/expense ceased at that time.

Other gains and losses for the periods presented represent the net effects of miscellaneous gains and losses that are non-routine in nature.

Noninterest Expenses

Noninterest expenses amounted to $35.1 million in the second quarter of 2017 compared to $26.1 million recorded in the second quarter of 2016.  Noninterest expenses for the six months ended June 30, 2017 amounted to $67.2 million compared to $50.9 million in 2016.  The majority of the increase in noninterest expenses in 2017 relates to the Company's acquisition of Carolina Bank.

Salaries expense increased to $16.3 million in the second quarter of 2017 from the $12.6 million recorded in the second quarter of 2016.  Salaries expense for the first half of 2017 amounted to $30.2 million compared to $24.0 million in 2016.  The primary reason for the increase in salaries expense in 2017 was the addition of personnel acquired in the Carolina Bank acquisition.  Also impacting salaries expense was the addition of the SBA consulting firm and the hiring of personnel related to the Company's SBA lending division. 

Employee benefits expense was $3.8 million in the second quarter of 2017 compared to $2.6 million in the second quarter of 2016.  For the first six months of 2017, employee benefits expense amounted to $7.5 million compared to $5.3 million in 2016.  This increase in 2017 was primarily due to the acquisition and growth initiatives discussed above. 

Merger and acquisition expenses amounted to $1.1 million and $0.5 million for the three months ended June 30, 2017 and 2016, respectively.  For the six months ended June 30, 2017 and 2016, merger and acquisition expenses amounted to $3.5 million and $0.7 million, respectively.

Balance Sheet and Capital

Total assets at June 30, 2017 amounted to $4.5 billion, a 30.6% increase from a year earlier.  Total loans at June 30, 2017 amounted to $3.4 billion, a 29.9% increase from a year earlier, and total deposits amounted to $3.6 billion at June 30, 2017, a 26.9% increase from a year earlier.

In addition to the growth realized from the acquisition of Carolina Bank in March 2017, the Company has experienced strong organic loan and deposit growth during 2017.  For the first half of 2017, organic loan growth (excludes loan balances assumed from Carolina Bank) amounted to $167.9 million, or 12.5% annualized.  For the first half of 2017, organic deposit growth amounted to $111.6 million, or 7.6% annualized.  The strong growth was a result of ongoing internal initiatives to drive loan and deposit growth, including the Company's recent expansion into higher growth markets.  Just over half of the loan growth noted above came from the recently-entered North Carolina markets of Charlotte, Raleigh, and the Triad.

The Company remains well-capitalized by all regulatory standards, with a Total Risk-Based Capital Ratio at June 30, 2017 of 12.61%, a decline from 14.10% at June 30, 2016, but still in excess of the 10.00% minimum to be considered well-capitalized.  The Company's tangible common equity to tangible assets ratio was 7.98% at June 30, 2017, a decrease of 20 basis points from a year earlier.  The decreases in the capital ratios are due to the acquisition of Carolina Bank.

Comments of the CEO and Other Business Matters

Richard H. Moore, CEO of First Bancorp, commented on today's report, "I am pleased to report another quarter of strong earnings and growth.  We continue to see good results from our strategic initiatives."  Mr. Moore continued, "Another significant initiative we recently announced was an agreement to acquire Asheville Savings Bank.  On a pro forma basis, this acquisition will increase our market share from 14^th to 3^rd in the attractive Asheville market.  We expect to complete this acquisition in the fourth quarter of this year."

In addition to the business developments previously discussed, the following were noted during the second quarter of 2017:

• On August 4, 2017, the Company will convert the data processing systems of Carolina Bank to First Bank, and the former Carolina Bank branches will then fully operate under the name "First Bank."  As part of this conversion, the Company will consolidate four branches into two branches in Winston-Salem and will consolidate two branches into one branch in Asheboro.
• On June 15, 2017, the Company announced a quarterly cash dividend of $0.08 cents per share payable on July 25, 2017 to shareholders of record on June 30, 2017.  This is the same dividend rate as the Company declared in the second quarter of 2016.
• On May 1, 2017, the Company announced that it had reached an agreement to acquire ASB Bancorp, Inc., the parent company of Asheville Savings Bank, SSB, headquartered in Asheville, North Carolina.  The merger consideration is a combination of cash and stock, with each share of ASB Bancorp, Inc. common stock being exchanged for either $41.90 in cash or 1.44 shares of First Bancorp stock, subject to the total consideration being 90% stock / 10% cash.  This transaction is subject to regulatory approval and is expected to be completed during the fourth quarter of 2017.

Note Regarding Components of Earnings

For the periods in 2016 presented, the Company's results of operations were significantly affected by the accounting for two FDIC-assisted failed bank acquisitions.  In the discussion above and in the accompanying tables, the term "covered" is used to describe assets that were included in FDIC loss share agreements, while the term "non-covered" refers to the Company's legacy assets, which are not included in any type of loss share arrangement.  As previously discussed, all loss share agreements were terminated in the third quarter of 2016 and thus the entire loan portfolio is now classified as non-covered.  Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.  See the Company's 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission for additional discussion regarding the accounting and presentation related to the Company's two FDIC-assisted failed bank acquisitions.

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First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $4.5 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 95 branches in North Carolina and South Carolina.  First Bank also operates three mortgage loan production offices in the central region of North Carolina.  First Bank 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 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.

ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND WHERE TO FIND IT

This communication includes statements made in respect of the proposed transaction involving First Bancorp and ASB Bancorp.  This material is not a solicitation of any vote or approval of ASB Bancorp's shareholders and is not a substitute for the proxy statement/prospectus or any other documents which First Bancorp and ASB Bancorp may send in connection with the proposed transaction.  This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities.

In connection with the proposed transaction, First Bancorp has filed with the SEC a Registration Statement on Form S-4 that includes a preliminary proxy statement of ASB Bancorp and a preliminary prospectus of First Bancorp, as well as other relevant documents concerning the proposed transaction. Investors and security holders are also urged to carefully review and consider each of First Bancorp's and ASB Bancorp's public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q.  The final proxy statement/prospectus will be mailed to ASB Bancorp's shareholders. BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, INVESTORS AND SHAREHOLDERS OF ASB BANCORP ARE URGED TO CAREFULLY READ THE ENTIRE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the proxy statement/prospectus (when available) and other filings containing information about First Bancorp and ASB Bancorp at the SEC's website at www.sec.gov. Investors and security holders may also obtain free copies of the documents filed with the SEC by First Bancorp on its website at http://www.localfirstbank.com and by ASB Bancorp on its website at www.ashevillesavingsbank.com.

First Bancorp, ASB Bancorp and certain of their respective directors and executive officers, under the SEC's rules, may be deemed to be participants in the solicitation of proxies of ASB Bancorp's shareholders in connection with the proposed transaction. Information about the directors and executive officers of First Bancorp and their ownership of First Bancorp common stock is set forth in the proxy statement for First Bancorp's 2017 Annual Meeting of Shareholders, as filed with the SEC on Schedule 14A on March 27, 2017. Information about the directors and executive officers of ASB Bancorp and their ownership of ASB Bancorp common stock is set forth in the proxy statement for ASB Bancorp's 2017 Annual Meeting of Shareholders, as filed with the SEC on a Schedule 14A on April 5, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

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SOURCE First Bancorp