First Bancorp Reports Second Quarter Results

SOUTHERN PINES, N.C., July 27, 2021 /PRNewswire/ -- First Bancorp (NASDAQ - FBNC), the parent company of First Bank, announced today net income of $29.3 million, or $1.03 per diluted common share, for the three months ended June 30, 2021, an increase of 83.9% on a per share basis, compared to $16.4 million, or $0.56 per diluted common share, recorded in the second quarter of 2020.  For the six months ended June 30, 2021, the Company recorded net income of $57.5 million, or $2.02 per diluted common share, compared to $34.5 million, or $1.18 per diluted common share, for the six months ended June 30, 2020, an increase of 71.2%.  The higher earnings for both periods in 2021 were primarily driven by lower credit costs compared to 2020.

In the second quarter of 2021, the Company experienced significant loan and deposit growth.  Loan growth for the quarter, exclusive of $86 million of net PPP loan declines related to loan forgiveness, amounted to $244 million, an annualized growth rate of 22.3%.  Deposit growth for the quarter was $438 million, an annualized growth rate of 26.0%.

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2021 was $58.8 million, an 11.7% increase from the $52.6 million recorded in the second quarter of 2020.  Net interest income for the first six months of 2021 was $114.0 million, a 6.2% increase from the $107.4 million recorded in the comparable period of 2020.  The increases in net interest income were primarily due to higher levels of interest-earning assets, the recognition of PPP loan fees, and higher discount accretion, the effects of which were partially offset by lower net interest margins.

The Company's net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) for the second quarter of 2021 was 3.22%, which was 27 basis points lower than the 3.49% realized in the second quarter of 2020.  For the six months ended June 30, 2021, the Company's net interest margin was 3.24% compared to 3.71% for the same period of 2020.  The declines in 2021 were primarily due to the impact of lower interest rates and the lower incremental reinvestment rates realized from funds provided by high deposit growth. 

Driven by high deposit growth, average interest-earning assets increased by 22.1% in the first six months of 2021 compared to the first six months of 2020.  The funds provided by the in-flow of deposits were used primarily to either purchase investment securities or were held in the Company's account at the Federal Reserve Bank, each of which increased net interest income but negatively impacted the Company's net interest margin.  Additionally, in March 2020, the Federal Reserve decreased interest rates by 150 basis points, which negatively impacted the Company's net interest margin beginning in the second quarter of 2020.

In the first six months of 2021, the Company processed $198 million in PPP loan forgiveness payments related to 2020 originations and also originated approximately $112 million in new PPP loans, which resulted in a remaining balance of total PPP loans of $156 million at June 30, 2021.  Including accelerated amortization of deferred PPP loan fees, the Company recorded a total of $2.7 million and $5.7 million in PPP fee-related interest income during the three and six months ended June 30, 2021, respectively, compared to $1.3 million in fees recorded in the second quarter of 2020, with no such fees recorded in the first quarter of 2020.  When these fees are combined with the note rate of 1.00%, the total yield on PPP loans was 6.35% for the second quarter of 2021 and 6.25% for the first half of 2021.   At June 30, 2021, the Company has $6.2 million in remaining deferred PPP loan fees, of which $0.9 million relates to 2020 originations and $5.3 million relates to 2021 originations.

The Company recorded loan discount accretion of $3.6 million in the second quarter of 2021, compared to $1.4 million in the second quarter of 2020.  For the six months ended June 30, 2021 and 2020, loan discount accretion amounted to $5.0 million and $3.2 million, respectively.  In the second quarter of 2021, the Company accreted approximately $2.3 million of remaining discount accretion on five, former failed-bank loans, that paid off during the quarter.  Loan discount accretion had a 20 basis point impact on the net interest margin in the second quarter of 2021 compared to a 9 basis point impact in the second quarter of 2020.  For the first six months of 2021 and 2020, loan discount accretion had a 14 basis point impact and a 11 basis point impact, respectively, on the net interest margin.

Allowance for Loan Losses, Provisions for Loan Losses and Unfunded Commitments, and Asset Quality

On January 1, 2021, the Company adopted the Current Expected Credit Loss (CECL) methodology for estimating credit losses, which resulted in an adoption-date increase of $14.6 million in the Company's allowance for loan losses and an increase of $7.5 million in the Company's allowance for unfunded commitments. The tax-effected impact of those two items amounted to $17.1 million and was recorded as an adjustment to the Company's retained earnings as of January 1, 2021.

The Company recorded no provision for loan losses for the three or six months ended June 30, 2021 compared to $19.3 million and $24.9 million in the comparable periods of 2020.  The high provisions in 2020 were primarily related to estimated incurred losses associated with the pandemic that was emerging at the time.  Under the CECL methodology for providing for loan losses, the Company determined that no provisions for loan losses were required during the first six months of 2021.

During the second quarter of 2021, using the CECL methodology, the Company recorded a $1.9 million in provision for unfunded commitments.  The provision was recorded primarily due to an increase in construction and land development loan commitments during the second quarter of 2021 that had not been funded as of quarter end.  The Company's allowance for unfunded commitments at June 30, 2021 amounted to $10.0 million and is recorded within the line item "Other liabilities".

Annualized net loan charge-offs to average loans amounted to 0.07% and 0.08% for the three and six months ended June 30, 2021 compared to 0.12% and 0.17% for the same periods of 2020, respectively.

Total nonperforming assets amounted to $42 million at June 30, 2021, or 0.51% of total assets, compared to $48 million, or 0.69% of total assets, at June 30, 2020.  During the second quarter of 2021, the Company sold a nonaccrual relationship totaling $5.6 million that was primarily responsible for the decline in nonaccrual loans during the quarter. 

Noninterest Income

Total noninterest income for the second quarter of 2021 was $21.4 million, an 18.4% decrease from the $26.2 million recorded for the second quarter of 2020.  For the six months ended June 30, 2021 and 2020, total noninterest income was $42.0 million and $39.9 million, respectively. 

Service charges on deposit accounts amounted to $2.8 million for the second quarter of 2021, a 23.4% increase over the $2.3 million for the second quarter of 2020, with the second quarter of 2020 having declined significantly from historical levels at the onset of the pandemic.  For each of the six months ended June 30, 2021 and 2020, service charges on deposit accounts amounted to $5.6 million. 

Other service charges, commissions and fees amounted to $6.5 million for the second quarter of 2021, an increase of 40.5% from the $4.6 million for the second quarter of 2020.  For the six months ended June 30, 2021 and 2020, other service charges, commissions and fees amounted to $12.0 million and $8.7 million, respectively.  The increase was primarily due to increases of $1.5 million and $2.3 million in bankcard revenue for the three and six months ended June 30, 2021 compared to the same periods in 2020, respectively.  Additionally, the first quarter of 2020 included a $0.5 million charge related to impairment of the Company's SBA servicing asset.

Fees from presold mortgages amounted to $2.3 million for the second quarter of 2021, a decrease of 24.7%, compared to $3.0 million in the second quarter of 2020.  For the first six months of 2021 and 2020, fees from presold mortgages amounted to $6.8 million and $4.9 million, respectively.  Mortgage loan volumes increased significantly beginning in the second quarter of 2020 at the onset of the pandemic primarily due to declines in interest rates. In the second quarter of 2021, mortgage loan volumes declined due to increases in mortgage interest rates.

SBA consulting fees amounted to $2.2 million for the second quarter of 2021, a decrease of 41.5%, compared to $3.7 million for the second quarter of 2020.  In the second quarter of 2020, the Company's SBA subsidiary, SBA Complete, earned significant fees related to assisting client banks with PPP loan originations, with a lower level of such assistance provided in the second quarter of 2021.  For the six months ended June 30, 2021 and 2020, SBA consulting fees amounted to $5.0 million and $4.8 million, respectively.  Including origination fees, on-going servicing fees and fees associated with forgiveness services, SBA Complete's PPP fees amounted to $0.8 million in the second quarter of 2021 compared to $3.0 million for the second quarter of 2020, and $2.4 million for the first half of 2021 compared to $3.0 million for the first half of 2020.  At June 30, 2021, SBA Complete had $0.4 million in remaining deferred PPP revenue that will be recorded as income upon completing the forgiveness process for its client banks.

SBA loan sale gains amounted to $3.0 million for the second quarter of 2021 compared to $2.0 million in the second quarter of 2020.  For the first six months of 2021 and 2020, SBA loan sale gains amounted to $5.3 million and $2.6 million, respectively.  The first quarter of 2020 was significantly impacted by temporary pandemic-related market conditions.  The periods in 2021 were favorably impacted by the SBA increasing the marketable, guaranteed percentage on most loans from 75% to 90% as part of the economic relief package.

During the second quarter of 2020, the Company sold approximately $220 million in securities at a gain of $8.0 million, whereas there were no securities sales in 2021.

Other gains (losses) amounted to a gain of $1.5 million in the second quarter of 2021, primarily due to a $1.7 million gain related to the sale of the operations and substantially all of the assets of First Bank Insurance Services, as discussed below.

Noninterest Expenses

Noninterest expenses amounted to $41.0 million and $38.9 million in the second quarters of 2021 and 2020, respectively, and $81.1 million and $79.0 million for the first six months of 2021 and 2020, respectively.  The 2021 periods include noninterest expenses related to the Company's business financing subsidiary, which was acquired on September 1, 2020 and has a current annual expense base of approximately $1.4 million.

Merger expenses amounted to $0.4 million for the three and six months ended June 30, 2021, compared to none in 2020.  As discussed below, on June 1, 2021, the Company announced an acquisition agreement with Select Bancorp, Inc.

Income Taxes

The Company's effective tax rate was 21.3% and 20.7% for the three months ended June 30, 2021 and 2020, respectively, and 21.3% and 20.5% for the six months ended June 30, 2021 and 2020, respectively.  The 2021 increases are due to higher proportions of fully-taxable income.

Balance Sheet and Capital

Total assets at June 30, 2021 amounted to $8.2 billion, a 19.0% increase from a year earlier.  The growth was driven by an increase in deposits. 

Loan growth for the second quarter of 2021, exclusive of $86 million of net PPP loan declines related to forgiveness, amounted to $244 million, an annualized growth rate of 22.3%.  Total loans amounted to $4.8 billion at June 30, 2021, an increase of $12 million, or 0.3% from June 30, 2020.  Excluding PPP loans, the Company's level of outstanding loans has been impacted by high mortgage loan refinancing activity, commercial loan payoffs, and until recently, lower demand resulting from the pandemic.

Deposit growth during the second quarter of 2021 totaled $438 million, an annualized growth rate of 26.0%.  Total deposits amounted to $7.2 billion at June 30, 2021, an increase of $1.3 billion, or 23.0%, from June 30, 2020.  The high 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 has deployed excess liquidity into investment securities, which amounted to  $2.4 billion at June 30, 2021, an increase of $1.5 billion, or 173.6%, compared to a year earlier.  Additionally, the Company's borrowing levels have been reduced by $51 million, or 45.4%, since June 30, 2020. 

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at June 30, 2021 of 15.27%, an increase from the 15.13% reported at June 30, 2020.  The Company's tangible common equity to tangible assets ratio was 8.31% at June 30, 2021, a decrease of 101 basis points from a year earlier, with the decline being impacted by the high balance sheet growth experienced.

Comments of the CEO and Other Business Matters

Richard H. Moore, CEO of First Bancorp, commented, "Today's earnings report reflects another strong quarter for our company.  We achieved a high level of profitability with good balance sheet growth and capital levels remain strong."  Mr. Moore continued, "We are excited about our pending acquisition of Select Bancorp and look forward to welcoming new employees and customers to First Bank."

The following is additional discussion of business development and other matters affecting the Company during the second quarter of 2021:

• On June 1, 2021, the Company announced that it had reached an agreement to acquire Select Bancorp, Inc., headquartered in Dunn, North Carolina, which operates 22 branches and has $1.8 billion in assets.  This transaction is subject to regulatory and shareholder approval, and is expected to be completed during the fourth quarter of 2021.
• On June 30, 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services, to Bankers Insurance, LLC for an initial purchase price valued at $13.0 million and a future earn-out payment of up to $1.0 million.  The Company recorded a gain of $1.7 million related to the sale.  Approximately $10.2 million of intangible assets were derecognized from the Company's balance sheet as a result of this transaction.
• On June 15, 2021, the Company announced a quarterly cash dividend of $0.20 per share payable on July 25, 2021 to shareholders of record on June 30, 2021.  This dividend rate represents an 11.1% increase over the dividend rate declared in the second quarter of 2020.

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $8.2 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 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.

Additional Information About the Proposed Transaction with Select Bancorp, Inc. and Where to Find It

This communication includes statements made in respect of the proposed merger involving First Bancorp and Select Bancorp, Inc. ("Select").  This material is not a solicitation of any vote or approval of First Bancorp's or Select's shareholders and is not a substitute for the joint proxy statement/prospectus or any other documents which First Bancorp and Select will send to their respective shareholders in connection with the proposed merger.  This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities.

In connection with the proposed merger, First Bancorp has filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that includes a joint proxy statement of First Bancorp and Select and a prospectus of First Bancorp, as well as other relevant documents concerning the proposed merger.  Investors and security holders are urged to carefully review and consider each of First Bancorp's and Select'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. Both Select and First Bancorp will mail the joint proxy statement/prospectus to their respective shareholders. BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, INVESTORS AND SHAREHOLDERS OF FIRST BANCORP AND SELECT ARE URGED TO CAREFULLY READ THE ENTIRE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER 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 MERGER. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when available) and other filings containing information about First Bancorp and Select 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 https://www.localfirstbank.com and by Select on its website at https://www.selectbank.com.

First Bancorp, Select 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 First Bancorp's and Select's shareholders in connection with the proposed merger.  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 2021 Annual Meeting of Shareholders, as filed with the SEC on Schedule 14A on March 23, 2021. Information about the directors and executive officers of Select and their ownership of Select's common stock is set forth in the proxy statement for Select's 2021 Annual Meeting of Shareholders, as filed with the SEC on a Schedule 14A on April 6, 2021. Additional information regarding the interests of those participants and other persons who may be deemed participants in the merger may be obtained by reading the joint proxy statement/prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

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