News Release

 

 

For Immediate Release:	For More Information,
July 24, 2018	Contact:  Elaine Pozarycki
	919-834-3090

 

First Bancorp Reports Second Quarter Results

SOUTHERN PINES, N.C. – First Bancorp (NASDAQ – FBNC), the parent company of First Bank, announced today net income available to common shareholders of $22.7 million, or $0.77 per diluted common share, for the three months ended June 30, 2018, an increase of 71.1% in earnings per share from the $11.2 million, or $0.45 per diluted common share, recorded in the second quarter of 2017.

 

For the six months ended June 30, 2018, the Company recorded net income available to common shareholders of $43.4 million, or $1.46 per diluted common share, an increase of 82.5% in earnings per share from the $18.7 million, or $0.80 per diluted common share, for the six months ended June 30, 2017.

 

Comparisons for the financial periods presented were significantly impacted by the Company’s acquisitions of Carolina Bank Holdings, Inc. (“Carolina Bank”) in March 2017 with total assets of $682 million and ASB Bancorp, Inc. (“Asheville Savings Bank”) in October 2017 with $798 million in total assets. The assets, liabilities and earnings for the acquisitions were recorded beginning on their respective acquisition dates.

 

Net Interest Income and Net Interest Margin

 

Net interest income for the second quarter of 2018 was $51.2 million, a 28.3% increase from the $39.9 million recorded in the second quarter of 2017. Net interest income for the first six months of 2018 amounted to $101.7 million, a 37.1% increase from the $74.2 million recorded in the comparable period of 2017. The increase in net interest income was primarily due to the acquisitions of Carolina Bank and Asheville Savings Bank, as well as higher amounts of loans outstanding as a result of organic growth.

 

The Company’s net interest margin (tax-equivalent net interest income divided by average earning assets) for the second quarter of 2018 was 4.10% compared to 4.08% for the second quarter of 2017. For the six month period ended June 30, 2018, the Company’s net interest margin was 4.15% compared to 4.08% for the same period in 2017. Asset yields increased primarily as a result of five Federal Reserve interest rate increases since January 1, 2017. Funding costs also increased, but to a lesser degree. Also positively impacting interest income in 2018 was approximately $750,000 in interest recoveries received in the first quarter of the year, which primarily related to the same loans that experienced significant allowance for loan loss recoveries discussed below in “Provisions for Loan Losses and Asset Quality.”

 

The net interest margins for the periods were also impacted by loan discount accretion associated with acquired loan portfolios. The Company recorded loan discount accretion amounting to $2.3 million in the second quarter of 2018, compared to $2.0 million in the second quarter of 2017. For the first six months of 2018 and 2017, loan discount accretion amounted to $4.4 million and $3.3 million, respectively. The increase in loan discount accretion in 2018 was primarily due to the loan discounts recorded in the acquisitions of Carolina Bank and Asheville Savings Bank. 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 tax-equivalent net interest margin was 3.92% for the second quarter of 2018, compared to 3.88% for the second quarter of 2017. The increase was primarily due to higher yields on loans and short-term investments resulting from higher interest rates. 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 percentage.

 

Provision for Loan Losses and Asset Quality

 

The Company recorded a negative provision for loan losses (reduction of the allowance for loan losses) of $0.7 million in the second quarter of 2018, compared to no provision for loan losses in the second quarter of 2017. For the six months ended June 30, 2018, the Company recorded a total negative provision for loan losses of $4.4 million compared to a total provision for loan losses of $0.7 million in the same period of 2017.

 

During the first half of 2018, the Company experienced net loan recoveries of $4.4 million, including full payoffs received on four loans in the first quarter of 2018 that had been previously charged-down by approximately $3.3 million. The amounts received in excess of the prior charge-downs were recorded as interest income recoveries, and those four loans were primarily responsible for the $750,000 in interest recoveries previously noted.

 

The Company’s provision for loan losses have also been impacted by continued improvement in asset quality. The Company’s nonperforming assets to total assets ratio was 0.90% at June 30, 2018 compared to 1.21% at June 30, 2017. The ratio of annualized net charge-offs (recoveries) to average loans for the six months ended June 30, 2018 was (0.21%), compared to 0.03% for the same period of 2017.

 

Noninterest Income

 

Total noninterest income was $16.1 million and $11.9 million for the three months ended June 30, 2018 and June 30, 2017, respectively. For the six months ended June 30, 2018, noninterest income amounted to $32.1 million compared to $21.7 million for the same period of 2017.

 

Core noninterest income for the second quarter of 2018 was $15.3 million, an increase of 31.6% from the $11.6 million reported for the second quarter of 2017. For the first six months of 2018, core noninterest income amounted to $31.5 million, a 47.2% increase from the $21.4 million recorded in the comparable period of 2017. 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 2018 was an increase in SBA loan sales volume. During the three and six months ended June 30, 2018, the Company realized $2.6 million and $6.4 million in gains on SBA loan sales, respectively. In comparison, during the three and six months ended June 30, 2017, the Company realized $0.9 million and $1.5 million in gains on SBA loan sales, respectively. Also contributing to the increase in core noninterest income in 2018 were the acquisitions of Carolina Bank and Asheville Savings Bank.

 

Fees from presold mortgages amounted to $0.8 million and $1.7 million for the three and six month periods ended June 30, 2018, respectively, compared to $1.5 million and $2.3 million for the three and six month periods ended June 30, 2017, respectively.  The declines in 2018 are primarily due to the Company’s mortgage loan department originating a higher percentage of loans with construction components that are recorded to the Company’s loan portfolio.

 

 

Commissions from sales of insurance and financial products amounted to $2.1 million in the second quarter of 2018, compared to $1.0 million in the second quarter of 2017. For the six months ended June 30, 2018 and 2017, the Company recorded $4.1 million and $1.9 million, respectively, in commissions from sales of insurance and financial products. The increase was primarily due to the acquisition of an insurance agency during the third quarter of 2017.

 

The Company recorded other gains of $0.9 million in the second quarter of 2018, which primarily related to a gain on a sale of a previously closed branch building. In the second quarter of 2017, the Company reported other gains of $0.5 million, which primarily related to the sale of a pool of default judgements to a third-party firm.

 

Noninterest Expenses

 

Noninterest expenses amounted to $38.9 million in the second quarter of 2018 compared to $35.1 million recorded in the second quarter of 2017. Noninterest expenses for the six months ended June 30, 2018 amounted to $82.5 million compared to $67.2 million in 2017. The increase in noninterest expenses in 2018 related primarily to the Company’s acquisitions of Carolina Bank and Asheville Savings Bank.

 

Also impacting expenses were other growth initiatives, including continued growth of the Company’s SBA consulting firm and SBA lending division, as well as the acquisition of an insurance agency during the third quarter of 2017.

 

Merger expenses for the three and six months ended June 30, 2018 include $0.6 million and $1.4 million of expense related to increases in an earn-out liability associated with a prior year acquisition.

 

Income Taxes

 

The Company’s effective tax rate for the second quarter of 2018 was 22.1% compared to 33.2% in the second quarter of 2017. For the six months ended June 30, 2018 and 2017, the Company’s effective tax rate was 22.1% and 33.2%, respectively. The lower effective tax rate in 2018 was due to the Tax Cuts and Jobs Act, which was signed into law in December 2017 and reduced the federal tax rate from 35% to 21%.

 

Balance Sheet and Capital

 

Total assets at June 30, 2018 amounted to $5.7 billion, a 26.3% increase from a year earlier. Total loans at June 30, 2018 amounted to $4.1 billion, a 22.9% increase from a year earlier, and total deposits amounted to $4.6 billion at June 30, 2018, a 25.0% increase from a year earlier. The significant increases are largely due to the acquisition of Asheville Savings Bank on October 1, 2017.

 

The Company experienced steady organic loan and deposit growth during the first six months of 2018. Organic loan growth for the six months ended June 30, 2018 amounted to $107 million, or 5.2% annualized, and organic deposit growth amounted to $146.7 million, or 6.7% annualized during that same period. This growth was a result of ongoing internal initiatives to enhance loan and deposit growth, including the Company’s recent expansion into higher growth markets. A $41 million deposit received in the first quarter of 2018 that was expected to be transferred outside the Company in the second quarter of 2018 is now expected to be transferred out in the third quarter of 2018.

 

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at June 30, 2018 of 13.10%, an increase from the 12.61% reported at June 30, 2017. The Company’s tangible common equity to tangible assets ratio was 8.59% at June 30, 2018, an increase of 61 basis points from a year earlier.

 

Comments of the CEO and Other Business Matters

 

Richard H. Moore, CEO of First Bancorp, commented, “We are pleased to report another quarter of strong earnings, as we continue to see good results from our strategic initiatives.”

 

The following includes additional discussion of business development and other miscellaneous matters affecting the Company during the second quarter of 2018:

 

·

On June 15, 2018, the Company announced a quarterly cash dividend of $0.10 per share payable on July 25, 2018 to shareholders of record on June 30, 2018. This dividend rate represents a 25% increase over the dividend rate declared in the second quarter of 2017.

 

* * *

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $5.7 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 102 branches in North Carolina and South Carolina. First Bank also operates two 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 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.

 

 

First Bancorp and Subsidiaries Financial Summary – Page 1

 

		Three Months Ended June 30,								Percent
($ in thousands except per share data – unaudited)		2018				2017				Change
INCOME STATEMENT
Interest income
Interest and fees on loans		$	51,451				39,656
Interest on investment securities			2,833				2,429
Other interest income			2,451				742
Total interest income			56,735				42,827				32.5%
Interest expense
Interest on deposits			3,233				1,732
Interest on borrowings			2,270				1,179
Total interest expense			5,503				2,911				89.0%
Net interest income			51,232				39,916				28.3%
Provision (reversal) for loan losses			(710	)			—				n/m
Net interest income after provision for loan losses			51,942				39,916				30.1%
Noninterest income
Service charges on deposit accounts			3,122				2,966
Other service charges, commissions, and fees			4,913				3,554
Fees from presold mortgage loans			796				1,511
Commissions from sales of insurance and financial products			2,119				1,038
SBA consulting fees			1,126				1,050
SBA loan sale gains			2,598				927
Bank-owned life insurance income			628				580
Foreclosed property gains (losses), net			(99	)			(248	)
Securities gains (losses), net			—				—
Other gains (losses), net			908				497
Total noninterest income			16,111				11,875				35.7%
Noninterest expenses
Salaries expense			18,446				16,299
Employee benefit expense			4,084				4,042
Occupancy and equipment related expense			3,784				3,721
Merger and acquisition expenses			640				1,122
Intangibles amortization expense			1,745				1,031
Other operating expenses			10,174				8,869
Total noninterest expenses			38,873				35,084				10.8%
Income before income taxes			29,180				16,707				74.7%
Income tax expense			6,450				5,553				16.2%
Net income available to common shareholders		$	22,730				11,154				103.8%
Earnings per common share – basic		$	0.77				0.45				71.1%
Earnings per common share – diluted			0.77				0.45				71.1%
ADDITIONAL INCOME STATEMENT INFORMATION
Net interest income, as reported		$	51,232				39,916
Tax-equivalent adjustment (1)			367				693
Net interest income, tax-equivalent		$	51,599				40,609				27.1%

(1)

This amount reflects the tax benefit that the Company receives related to its tax-exempt loans and securities, which carry interest rates lower than similar taxable investments due to their tax-exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

n/m – not meaningful

 

First Bancorp and Subsidiaries Financial Summary – Page 2

 

		Six Months Ended June 30,								Percent
($ in thousands except per share data – unaudited)		2018				2017				Change
INCOME STATEMENT
Interest income
Interest and fees on loans		$	101,621				73,359
Interest on investment securities			5,799				4,696
Other interest income			4,376				1,240
Total interest income			111,796				79,295				41.0%
Interest expense
Interest on deposits			5,906				3,134
Interest on borrowings			4,151				1,949
Total interest expense			10,057				5,083				97.9%
Net interest income			101,739				74,212				37.1%
Total provision (reversal) for loan losses			(4,369	)			723				n/m
Net interest income after provision for loan losses			106,108				73,489				44.4%
Noninterest income
Service charges on deposit accounts			6,385				5,580
Other service charges, commissions, and fees			9,510				6,727
Fees from presold mortgage loans			1,655				2,279
Commissions from sales of insurance and financial products			4,059				1,878
SBA consulting fees			2,267				2,310
SBA loan sale gains			6,400				1,549
Bank-owned life insurance income			1,251				1,088
Foreclosed property gains (losses), net			(387	)			(223	)
Securities gains (losses), net			—				(235	)
Other gains (losses), net			912				731
Total noninterest income			32,052				21,684				47.8%
Noninterest expenses
Salaries expense			37,844				30,249
Employee benefit expense			8,691				7,490
Occupancy and equipment related expense			7,838				6,963
Merger and acquisition expenses			3,401				3,495
Intangibles amortization expense			3,417				1,607
Other operating expenses			21,280				17,352
Total noninterest expenses			82,471				67,156				22.8%
Income before income taxes			55,689				28,017				98.8%
Income tax expense			12,286				9,308				32.0%
Net income available to common shareholders		$	43,403				18,709				132.0%
Earnings per common share – basic		$	1.47				0.80				83.8%
Earnings per common share – diluted			1.46				0.80				82.5%
ADDITIONAL INCOME STATEMENT INFORMATION
Net interest income, as reported		$	101,739				74,212
Tax-equivalent adjustment (1)			723				1,278
Net interest income, tax-equivalent		$	102,462				75,490				35.7%

(1)

This amount reflects the tax benefit that the Company receives related to its tax-exempt loans and securities, which carry interest rates lower than similar taxable investments due to their tax-exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

n/m - not meaningful

 

First Bancorp and Subsidiaries Financial Summary – Page 3

 

		Three Months Ended June 30,								Six Months Ended June 30,
PERFORMANCE RATIOS (annualized)		2018				2017				2018				2017
Return on average assets (1)			1.61%				1.01%				1.56%				0.91%
Return on average common equity (2)			12.70%				9.01%				12.33%				8.27%
Net interest margin – tax-equivalent (3)			4.10%				4.08%				4.15%				4.08%
Net charge-offs (recoveries) to average loans			(0.07%	)			(0.06%	)			(0.21%	)			0.03%
COMMON SHARE DATA
Cash dividends declared – common		$	0.10				0.08				0.20				0.16
Stated book value – common			24.20				20.29				24.20				20.29
Tangible book value – common			15.79				14.16				15.79				14.16
Common shares outstanding at end of period			29,702,912				24,678,295				29,702,912				24,678,295
Weighted average shares outstanding – basic			29,544,747				24,593,307				29,539,308				23,288,635
Weighted average shares outstanding – diluted			29,632,738				24,671,550				29,630,822				23,368,503
CAPITAL RATIOS
Tangible common equity to tangible assets			8.59%				7.98%				8.59%				7.98%
Common equity tier I capital ratio - estimated			11.35%				10.44%				11.35%				10.44%
Tier I leverage ratio - estimated			10.05%				9.77%				10.05%				9.77%
Tier I risk-based capital ratio - estimated			12.55%				11.91%				12.55%				11.91%
Total risk-based capital ratio - estimated			13.10%				12.61%				13.10%				12.61%
AVERAGE BALANCES ($ in thousands)
Total assets		$	5,671,620				4,448,404				5,610,568				4,147,095
Loans			4,133,689				3,327,391				4,116,592				3,115,335
Earning assets			5,042,904				3,989,593				4,980,266				3,734,059
Deposits			4,512,559				3,610,944				4,458,182				3,381,861
Interest-bearing liabilities			3,671,692				2,944,208				3,650,528				2,762,579
Shareholders’ equity			717,975				496,791				709,693				456,415

(1) Calculated by dividing annualized net income available to common shareholders by average assets.

(2) Calculated by dividing annualized net income available to common shareholders by average common equity.

(3) See note 1 on the first page of the Financial Summary for discussion of tax-equivalent adjustments.

 

TREND INFORMATION

($ in thousands except per share data)		For the Three Months Ended
INCOME STATEMENT		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Net interest income – tax-equivalent (1)		$	51,599				50,863				49,470				42,341				40,609
Taxable equivalent adjustment (1)			367				356				610				702				693
Net interest income			51,232				50,507				48,860				41,639				39,916
Provision (reversal) for loan losses			(710	)			(3,659	)			—				—				—
Noninterest income			16,111				15,941				14,862				12,362				11,875
Noninterest expense			38,873				43,598				43,617				34,384				35,084
Income before income taxes			29,180				26,509				20,105				19,617				16,707
Income tax expense			6,450				5,836				5,928				6,531				5,553
Net income			22,730				20,673				14,177				13,086				11,154
Earnings per common share – basic			0.77				0.70				0.48				0.53				0.45
Earnings per common share – diluted			0.77				0.70				0.48				0.53				0.45

 

(1) See note 1 on the first page of the Financial Summary for discussion of tax-equivalent adjustments.

 

First Bancorp and Subsidiaries Financial Summary – Page 4

 

 

CONSOLIDATED BALANCE SHEETS ($ in thousands - unaudited)
		At June 30, 2018				At Mar. 31, 2018				At Dec. 31, 2017				At June 30, 2017				One Year Change
Assets
Cash and due from banks		$	97,163				78,217				114,301				80,234				21.1%
Interest bearing deposits with banks			462,972				448,515				375,189				337,326				37.2%
Total cash and cash equivalents			560,135				526,732				489,490				417,560				34.1%
Investment securities			442,333				453,059				461,773				335,362				31.9%
Presold mortgages			9,311				6,029				12,459				13,071				-28.8%
Total loans			4,149,390				4,113,785				4,042,369				3,375,976				22.9%
Allowance for loan losses			(23,298	)			(23,298	)			(23,298	)			(24,025	)			-3.0%
Net loans			4,126,092				4,090,487				4,019,071				3,351,951				23.1%
Premises and equipment			113,774				115,542				116,233				96,605				17.8%
Intangible assets			255,610				255,760				257,507				151,256				69.0%
Foreclosed real estate			8,296				11,307				12,571				11,196				-25.9%
Bank-owned life insurance			100,413				99,786				99,162				87,501				14.8%
Other assets			101,636				82,825				78,771				64,118				58.5%
Total assets		$	5,717,600				5,641,527				5,547,037				4,528,620				26.3%
Liabilities
Deposits:
Non-interest bearing checking accounts		$	1,252,214				1,227,608				1,196,161				990,004				26.5%
Interest bearing checking accounts			915,666				896,189				884,254				728,973				25.6%
Money market accounts			1,021,659				1,026,043				982,822				781,086				30.8%
Savings accounts			440,475				445,405				454,860				411,814				7.0%
Brokered deposits			238,098				251,043				239,659				167,669				42.0%
Internet time deposits			6,999				7,248				7,995				9,779				-28.4%
Other time deposits > $100,000			402,109				357,595				347,862				304,716				32.0%
Other time deposits			276,401				284,577				293,342				250,289				10.4%
Total deposits			4,553,621				4,495,708				4,406,955				3,644,330				25.0%
Borrowings			407,076				407,059				407,543				355,405				14.5%
Other liabilities			32,181				33,110				39,560				28,234				14.0%
Total liabilities			4,992,878				4,935,877				4,854,058				4,027,969				24.0%
Shareholders’ equity
Common stock			434,117				433,305				432,794				262,901				65.1%
Retained earnings			301,800				282,038				264,331				240,682				25.4%
Stock in rabbi trust assumed in acquisition			(3,214	)			(3,588	)			(3,581	)			(4,257	)			24.5%
Rabbi trust obligation			3,214				3,588				3,581				4,257				-24.5%
Accumulated other comprehensive loss			(11,195	)			(9,693	)			(4,146	)			(2,932	)			-281.8%
Total shareholders’ equity			724,722				705,650				692,979				500,651				44.8%
Total liabilities and shareholders’ equity		$	5,717,600				5,641,527				5,547,037				4,528,620				26.3%

 

 

 

 

First Bancorp and Subsidiaries Financial Summary - Page 5

 

 

		For the Three Months Ended
YIELD INFORMATION		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Yield on loans			4.99%				4.96%				4.79%				4.84%				4.78%
Yield on securities			2.47%				2.60%				2.77%				2.89%				2.76%
Yield on other earning assets			2.19%				2.20%				1.23%				1.38%				0.96%
Yield on all interest earning assets			4.51%				4.54%				4.30%				4.42%				4.31%
Rate on interest bearing deposits			0.40%				0.34%				0.31%				0.29%				0.26%
Rate on other interest bearing liabilities			2.24%				1.87%				1.62%				1.75%				1.54%
Rate on all interest bearing liabilities			0.60%				0.51%				0.46%				0.45%				0.40%
Total cost of funds			0.45%				0.38%				0.35%				0.34%				0.30%
Net interest margin (1)			4.07%				4.17%				3.96%				4.09%				4.01%
Net interest margin – tax-equivalent (2)			4.10%				4.19%				4.01%				4.16%				4.08%
Average prime rate			4.80%				4.53%				4.30%				4.25%				4.04%

 

   

(1)	Calculated by dividing annualized net interest income by average earning assets for the period.

(2)	Calculated by dividing annualized tax-equivalent net interest income by average earning assets for the period. See note 1 on the first page of the Financial Summary for discussion of tax-equivalent adjustments.

 

 

		For the Three Months Ended
NET INTEREST INCOME PURCHASE ACCOUNTING ADJUSTMENTS ($ in thousands)		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Interest income – increased by accretion of loan discount		$	2,296				2,111				2,003				1,745				1,968
Interest expense – reduced by premium amortization of deposits			101				116				140				85				103
Interest expense – increased by discount accretion of borrowings			(45	)			(45	)			(46	)			(43	)			(29	)
Impact on net interest income		$	2,352				2,182				2,097				1,787				2,042

 

 

 

First Bancorp and Subsidiaries Financial Summary – Page 6

 

 

ASSET QUALITY DATA ($ in thousands)		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Nonperforming assets
Nonaccrual loans		$	25,494				21,849				20,968				23,350				22,795
Troubled debt restructurings - accruing			17,386				18,495				19,834				20,330				21,019
Accruing loans > 90 days past due			—				—				—				—				—
Total nonperforming loans			42,880				40,344				40,802				43,680				43,814
Foreclosed real estate			8,296				11,307				12,571				9,356				11,196
Total nonperforming assets		$	51,176				51,651				53,373				53,036				55,010
Purchased credit impaired loans not included above (1)		$	20,832				22,147				23,165				15,034				16,846
Asset Quality Ratios
Net quarterly charge-offs (recoveries) to average loans - annualized			(0.07%	)			(0.36%	)			0.13%				(0.07%	)			(0.06%	)
Nonperforming loans to total loans			1.03%				0.98%				1.01%				1.27%				1.30%
Nonperforming assets to total assets			0.90%				0.92%				0.96%				1.16%				1.21%
Allowance for loan losses to total loans			0.56%				0.57%				0.58%				0.72%				0.71%
Allowance for loan losses + unaccreted discount to total loans			1.16%				1.20%				1.24%				1.21%				1.24%

 

(1)

In the March 3, 2017 acquisition of Carolina Bank and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $19.3 million and $9.9 million, respectively, in purchased credit impaired loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from the nonperforming loan amounts.

 

 

 

First Bancorp and Subsidiaries Financial Summary - Page 7

 

		For the Three Months Ended
NET INTEREST MARGIN, EXCLUDING LOAN DISCOUNT ACCRETION – RECONCILIATION ($ in thousands)		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Net interest income, as reported		$	51,232				50,507				48,860				41,639				39,916
Tax-equivalent adjustment			367				356				610				702				693
Net interest income, tax-equivalent (A)		$	51,599				50,863				49,470				42,341				40,609
Average earning assets (B)		$	5,042,904				4,917,628				4,899,421				4,040,257				3,989,593
Tax-equivalent net interest margin, annualized – as reported –  (A)/(B)			4.10%				4.19%				4.01%				4.16%				4.08%
Net interest income, tax-equivalent		$	51,599				50,863				49,470				42,341				40,609
Loan discount accretion			2,296				2,111				2,003				1,745				1,968
Net interest income, tax-equivalent, excluding loan discount accretion  (A)		$	49,303				48,752				47,467				40,596				38,641
Average earnings assets (B)		$	5,042,904				4,917,628				4,899,421				4,040,257				3,989,593
Tax-equivalent net interest margin, excluding impact of loan discount accretion, annualized – (A) / (B)			3.92%				4.02%				3.84%				3.99%				3.88%

 

 

Note: The measure “tax-equivalent net interest margin, excluding impact of loan discount accretion” is a non-GAAP performance measure. Management of the Company believes that it is useful to calculate and present the Company’s net interest margin without the impact of loan discount accretion for the reasons explained in the remainder of this note. Loan discount accretion is a non-cash interest income adjustment that is primarily related to the Company’s acquisition of loans and represents the portion of the fair value discount that was initially recorded on the acquired loans that is being recognized into income over the lives of the loans. At June 30, 2018, the Company had a remaining loan discount balance of $25.0 million compared to $18.0 million at June 30, 2017. For the related loans that perform and pay-down over time, the loan discount will also be reduced, with a corresponding increase to interest income. Therefore, management of the Company believes it is useful to also present this ratio to reflect the Company’s net interest margin excluding this non-cash, temporary loan discount accretion adjustment to aid investors in comparing financial results between periods. The Company cautions that non-GAAP financial measures should be considered in addition to, but not as a substitute for, the Company’s reported GAAP results.