[FIRST BANCORP LOGO]
News Release
For Immediate Release: For More Information,
October 25, 2006 Contact: James H. Garner
910-576-6171
First Bancorp Reports Third Quarter Results;
Surpasses $2 Billion in Assets
TROY, N.C. - First Bancorp (NASDAQ - FBNC), the parent company of First
Bank, announced net income today of $4,372,000, or $0.30 per diluted share, for
the three months ended September 30, 2006, compared to a net loss of $691,000,
or ($0.05) per diluted share, for the three months ended September 30, 2005. For
the nine months ended September 30, 2006, the Company reported net income of
$14,158,000, or $0.98 per diluted share, compared to $8,677,000, or $0.60 per
diluted share, reported for the comparable period in 2005.
Results for 2006 include the write-off loss of a merchant credit card
receivable amounting to $1,900,000, of which $230,000 was recorded in the second
quarter of 2006 and the remaining $1,670,000 was recorded in the third quarter
of 2006. The after-tax impact on net income for the second quarter of 2006 was
$139,000, or $0.01 per diluted share, and the after-tax impact on net income for
the third quarter of 2006 was $1,010,000, or $0.07 per diluted share. Results
for 2005 include a loss accrual related to income tax exposure amounting to
$6,320,000 (after-tax), or $0.44 per diluted share, which was recorded in the
third quarter of 2005. Both of these items are discussed in more detail below.
During the third quarter of 2006, as a result of continued strong balance
sheet growth, the Company's total assets surpassed $2 billion for the first time
in the Company's history. At September 30, 2006, the Company's total assets were
$2.08 billion, an 18.2% increase from one year earlier. Total loans at September
30, 2006 amounted to $1.70 billion, a 17.3% increase from a year earlier, and
total deposits amounted to $1.66 billion at September 30, 2006, a 12.8% increase
from a year earlier.
During the third quarter of 2006, the Company completed two branch
purchases - one in Dublin, Virginia and the other in Carthage, North Carolina -
which contributed to its 2006 growth. The Dublin branch purchase was completed
on July 7, 2006 and resulted in the assumption of $20.5 million in deposits. No
loans were acquired in the transaction. The Carthage branch purchase was
completed on September 1, 2006 and resulted in the Company acquiring $5.7
million in loans and $23.5 million in deposits.
The growth in loans and deposits was the primary reason for the increases
in the Company's net interest income when comparing the three and nine month
periods in 2006 to the comparable periods of 2005. Net interest income for the
third quarter of 2006 amounted to $19.0 million, a 9.7% increase over the $17.4
million recorded in the third quarter of 2005. Net interest income for the nine
months ended September 30, 2006
amounted to $55.3 million, a 9.3% increase over the $50.6 million recorded in
the same nine month period in 2005.
The impact of the growth in loans and deposits on the Company's net
interest income was partially offset by declines in the Company's net interest
margin (tax-equivalent net interest income divided by average earning assets).
The Company's net interest margin for the third quarter of 2006 was 4.12%
compared to 4.32% for the third quarter of 2005. The Company's net interest
margin for the first nine months of 2006 was 4.22% compared to 4.32% for the
same nine months of 2005. The 4.12% net interest margin realized in the third
quarter of 2006 was a 10 basis point decrease from the second quarter of 2006
net interest margin of 4.22%, and a 21 basis point decrease from the first
quarter of 2006 net interest margin of 4.33%. The compressing margin is
primarily due to deposit rates paid by the Company rising by more than loan and
investment yields, which is associated with the flat interest rate yield curve
currently prevailing in the marketplace. The Company has also been negatively
impacted by customers shifting their funds from low cost deposits to higher cost
deposits as rates have risen.
The Company's provision for loan losses amounted to $1,215,000 in the third
quarter of 2006, an increase of 76.1% over the $690,000 recorded in the third
quarter of 2005. The provision for loan losses for the first nine months of 2006
was $3,630,000, an increase of 71.6% over the $2,115,000 recorded in first nine
months of 2005. The higher provisions are a result of the strong loan growth
realized in 2006, as asset quality ratios have remained stable and compare
favorably to peers. Net internal loan growth was $55 million in the third
quarter of 2006 compared to $20 million in the third quarter of 2005, while net
internal loan growth was $209 million for the first nine months of 2006 compared
to $79 million for the first nine months of 2005. The Company's ratios of
annualized net charge-offs to average loans were 11 basis points and 8 basis
points for the three and nine month periods in 2006, respectively, compared to
12 basis points and 9 basis points for the three and nine month periods in 2005,
respectively. The Company's ratio of nonperforming assets to total assets was
0.34% at September 30, 2006 compared to 0.31% a year earlier.
Noninterest income amounted to $2,454,000 for the third quarter of 2006, a
35.1% decrease from the $3,779,000 recorded in the third quarter of 2005.
Noninterest income for the nine months ended September 30, 2006 amounted to
$10,252,000, a decrease of 8.5% from the $11,201,000 recorded in the first nine
months of 2005. The decreases in 2006 were caused by the write-off loss of a
merchant credit card receivable. During the second quarter of 2006, the Company
discovered that it had liability associated with a customer that sold furniture
over the internet. The furniture store did not deliver furniture that its
customers had ordered and paid for, and was unable to immediately refund their
credit card purchases. As the furniture store's credit card processor, the
Company became liable for the amounts that were required to be refunded. During
the second quarter of 2006, the furniture store changed management, stated its
intention to repay the Company for all funds advanced, and began making
repayments to the Company. At June 30, 2006, the Company recorded a $230,000
loss to reserve for this situation. During the third quarter of 2006, the
furniture store's financial condition deteriorated significantly. Accordingly,
the Company determined that it should fully reserve for the entire $1.9 million
exposure associated with this situation, which resulted in recording an
additional loss of $1,670,000. The owners of the furniture store continue to
state their intent to repay the Company, but at this time their ability to do so
is uncertain. During the third quarter of 2006, the Company completed a review
of all merchant credit card customers and concluded that this situation appears
to be an isolated event that is not likely to recur.
Noninterest expenses amounted to $13.5 million in the third quarter of
2006, a 17.8% increase over the $11.5 million recorded in the third quarter of
2005. Noninterest expenses for the nine months ended September 30, 2006 amounted
to $39.3 million, a 10.9% increase from the $35.5 million recorded in the first
nine months of 2005. The increase in noninterest expenses is primarily
attributable to costs associated with the Company's overall growth in loans,
deposits and branch network. Since January 1, 2005, the Company's loans and
deposits have increased by 24% and 20%, respectively. Additionally, in
accordance with the new accounting requirements regarding stock-based
compensation (FASB Statement 123(R)) that were effective on January 1,
2006, the Company recorded stock option expense of $22,000 ($22,000 after-tax
effect) and $314,000 ($235,000 after-tax effect) for the three and nine month
periods ended September 30, 2006, respectively. As permitted by previous
accounting standards, no stock option expense was recorded by the Company in
2005, or any prior periods.
The Company's effective tax rate was approximately 35% and 37% for the
three and nine month periods ended September 30, 2006, respectively. The Company
recorded a tax benefit of $182,000 in the third quarter of 2006 related to
several nonrecurring adjustments that reduced otherwise reported income tax
expense. The Company's income tax expense for the three and nine months ended
September 30, 2005 includes a loss accrual related to income tax exposure
amounting to $6,320,000 (after-tax), or $0.44 per diluted share, which was
recorded in the third quarter of 2005. As discussed more fully in the Company's
2005 Form 10-K filed with the Securities and Exchange Commission, during the
third quarter of 2005, the Company recorded a $6,320,000 loss accrual to reserve
for an audit issue raised by the North Carolina Department of Revenue related to
the Company's operating structure that the Department of Revenue deemed to
result in improper "income shifting." This reserve was subsequently reduced in
the fourth quarter of 2005 by $1,982,000, or $0.14 per diluted share, as a
result of a "Settlement Initiative" offered by the North Carolina Department of
Revenue that offered companies with certain transactions, including those that
applied to the Company, the opportunity to resolve such matters with reduced
penalties by agreeing to participate in the initiative. The Company continues to
participate in the initiative and expects the matter to be resolved and all
amounts paid by March 15, 2007. The aspects of the Company's operating structure
that gave rise to this issue were discontinued effective January 1, 2005, and
thus the Company does not believe it has any additional exposure related to this
item beyond the amount of the accrual, other than ongoing interest on the unpaid
taxes amounting to $65,000 per quarter (after-tax).
James H. Garner, President and CEO of First Bancorp, commented on the
quarter's results, "Although the interest rate environment and the merchant card
loss have negatively impacted recent results, we continue to put into place
long-term drivers of profitability. During the third quarter, our acquisitions
of two branches went smoothly, and we had another quarter of good loan and
deposit growth. In the fourth quarter, we will open a total of four branches in
the southeastern coastal region of North Carolina, with two branches in
Wilmington, one branch in Shallotte, and one in Leland. We hired most of the
employees for these branches earlier in 2006. Since that time, these folks have
been training and visiting customer prospects to allow themselves to hit the
ground running when their branches open."
Mr. Garner also noted the following corporate developments:
o As previously noted, on September 1, 2006, the Company completed the
purchase of a bank branch in Carthage, North Carolina with
approximately $24 million in deposits and $6 million in loans. Also,
on July 7, 2006, the Company completed the purchase of a bank branch
in Dublin, Virginia, with approximately $21 million in deposits.
o On October 3, 2006, the Company converted its loan production office
in Wilmington to a full-service bank branch at the Landfall Shopping
Center. This branch was formerly a branch of Wachovia and is located
at the corner of Eastwood Road and Old Military Cutoff Road.
o A second branch in Wilmington is opening in November 2006 and will be
located at the Fulton Station Shopping Center on South College Road.
o On Monday, October 23, 2006, the Company opened a full-service bank
branch in Shallotte located at 4501 Main Street at the Shallotte Shops
shopping center across from Wal-Mart.
o In November 2006, the Company plans to convert a loan production
office in Leland, North Carolina to a full-service bank branch. This
branch will be located in the Logan Building at Waterford of the
Carolinas.
o On August 22, 2006, the Company announced a quarterly dividend of 19
cents per share payable on October 25, 2006 to shareholders of record
on September 30, 2006. The current dividend rate is an increase of
5.6% over the dividend rate paid in the same period of 2005.
o The Company made no stock repurchases during the third quarter of
2006. Year-to-date the Company has repurchased 53,000 shares at an
average price of $20.97 per share.
First Bancorp is a bank holding company based in Troy, North Carolina with
total assets of approximately $2.1 billion. Its principal activity is the
ownership and operation of First Bank, a state-chartered community bank that
operates 66 branch offices, with 59 branches operating in a twenty-one county
market area in the central piedmont and coastal regions of North Carolina, 3
branches in Dillon County, South Carolina, and 4 branches in Virginia (Abingdon,
Dublin, Radford, and Wytheville), where First Bank does business as First Bank
of Virginia. The Company also has a loan production office in Blacksburg,
Virginia. First Bancorp's common stock is traded on the NASDAQ Global Select
Market under the symbol FBNC.
Please visit our website at www.firstbancorp.com. For additional financial
data, please see the attached Financial Summary.
This press release contains statements that could be deemed 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," 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.
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First Bancorp and Subsidiaries
Financial Summary
===============================================================================================
Three Months Ended
September 30,
-------------------- Percent
($ in thousands except per share data - unaudited) 2006 2005 Change
- -----------------------------------------------------------------------------------------------
INCOME STATEMENT
Interest income
- ---------------
Interest and fees on loans $ 31,727 24,240
Interest on investment securities 1,596 1,429
Other interest income 584 398
-------- --------
Total interest income 33,907 26,067 30.1%
-------- --------
Interest expense
- ----------------
Interest on deposits 12,290 7,589
Other, primarily borrowings 2,576 1,126
-------- --------
Total interest expense 14,866 8,715 70.6%
-------- --------
Net interest income 19,041 17,352 9.7%
Provision for loan losses 1,215 690 76.1%
-------- --------
Net interest income after provision
for loan losses 17,826 16,662 7.0%
-------- --------
Noninterest income
- ------------------
Service charges on deposit accounts 2,323 2,180
Other service charges, commissions, and fees 1,102 961
Fees from presold mortgages 278 328
Commissions from financial product sales 357 388
Data processing fees 40 38
Securities gains -- --
Other gains (losses) (1,646) (116)
-------- --------
Total noninterest income 2,454 3,779 (35.1%)
-------- --------
Noninterest expenses
- --------------------
Personnel expense 7,954 6,809
Occupancy and equipment expense 1,772 1,541
Intangibles amortization 100 71
Other operating expenses 3,709 3,065
-------- --------
Total noninterest expenses 13,535 11,486 17.8%
-------- --------
Income before income taxes 6,745 8,955 (24.7%)
Income taxes 2,373 9,646 (75.4%)
-------- --------
Net income (loss) $ 4,372 (691) n/m
======== ========
Earnings (loss) per share - basic $ 0.31 (0.05) n/m
Earnings (loss) per share - diluted 0.30 (0.05) n/m
ADDITIONAL INCOME STATEMENT INFORMATION
- ---------------------------------------
Net interest income, as reported $ 19,041 17,352
Tax-equivalent adjustment (1) 133 111
-------- --------
Net interest income, tax-equivalent $ 19,174 17,463 9.8%
======== ========
- -----------------------------------------------------------------------------------------------
(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 39% tax rate and
is reduced by the related nondeductible portion of interest expense.
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First Bancorp and Subsidiaries
Financial Summary - Page 2
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Nine Months Ended
September 30,
-------------------- Percent
($ in thousands except per share data - unaudited) 2006 2005 Change
- -----------------------------------------------------------------------------------------------
INCOME STATEMENT
Interest income
- ---------------
Interest and fees on loans $ 87,704 68,331
Interest on investment securities 4,581 4,241
Other interest income 1,652 1,117
-------- --------
Total interest income 93,937 73,689 27.5%
-------- --------
Interest expense
- ----------------
Interest on deposits 32,545 19,979
Other, primarily borrowings 6,054 3,066
-------- --------
Total interest expense 38,599 23,045 67.5%
-------- --------
Net interest income 55,338 50,644 9.3%
Provision for loan losses 3,630 2,115 71.6%
-------- --------
Net interest income after provision
for loan losses 51,708 48,529 6.6%
-------- --------
Noninterest income
- ------------------
Service charges on deposit accounts 6,622 6,333
Other service charges, commissions, and fees 3,426 2,950
Fees from presold mortgages 789 851
Commissions from financial product sales 1,121 997
Data processing fees 113 243
Securities gains 205 2
Other gains (losses) (2,024) (175)
-------- --------
Total noninterest income 10,252 11,201 (8.5%)
-------- --------
Noninterest expenses
- --------------------
Personnel expense 23,040 20,879
Occupancy and equipment expense 5,075 4,466
Intangibles amortization 221 217
Other operating expenses 10,992 9,899
-------- --------
Total noninterest expenses 39,328 35,461 10.9%
-------- --------
Income before income taxes 22,632 24,269 (6.7%)
Income taxes 8,474 15,592 (45.7%)
-------- --------
Net income $ 14,158 8,677 63.2%
======== ========
Earnings per share - basic $ 0.99 0.61 62.3%
Earnings per share - diluted 0.98 0.60 63.3%
ADDITIONAL INCOME STATEMENT INFORMATION
- ---------------------------------------
Net interest income, as reported $ 55,338 50,644
Tax-equivalent adjustment (1) 384 335
-------- --------
Net interest income, tax-equivalent $ 55,722 50,979 9.3%
======== ========
- -----------------------------------------------------------------------------------------------
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(1) See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent
adjustments.
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First Bancorp and Subsidiaries
Financial Summary - Page 3
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Three Months Ended Nine Months Ended
September 30, September 30,
PERFORMANCE RATIOS (annualized) 2006 2005 2006 2005
---------------------------------------------------------------------
Return on average assets 0.88% (0.16%) 1.00% 0.69%
Return on average equity 10.54% (1.73%) 11.70% 7.49%
Net interest margin - tax equivalent (1) 4.12% 4.32% 4.22% 4.32%
Efficiency ratio - tax equivalent (1) (2) 62.58% 54.07% 59.61% 57.03%
Net charge-offs to average loans 0.11% 0.12% 0.08% 0.09%
Nonperforming assets to total assets (period 0.34% 0.31% 0.34% 0.31%
end)
SHARE DATA
Cash dividends declared $ 0.19 $ 0.18 $ 0.55 $ 0.52
Stated book value 11.40 10.63 11.40 10.63
Tangible book value 7.78 7.16 7.78 7.16
Common shares outstanding at end of period 14,310,335 14,196,987 14,310,335 14,196,987
Weighted average shares outstanding - basic 14,294,948 14,186,887 14,281,964 14,150,527
Weighted average shares outstanding - diluted 14,421,380 14,186,887 14,425,347 14,353,169
Shareholders' equity to assets 7.85% 8.59% 7.85% 8.59%
AVERAGE BALANCES (in thousands)
Total assets $ 1,970,128 $ 1,720,505 $ 1,886,558 $ 1,692,747
Loans 1,669,423 1,433,874 1,592,983 1,408,736
Earning assets 1,844,560 1,604,383 1,763,774 1,578,131
Deposits 1,623,605 1,467,183 1,572,851 1,449,599
Interest-bearing liabilities 1,583,827 1,365,959 1,505,811 1,348,685
Shareholders' equity 164,590 158,220 161,832 154,974
- ------------------------------------------------------------------------------------------------------------------------
(1) See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.
(2) Calculated by dividing noninterest expense by the sum of tax-equivalent net interest income plus noninterest
income.
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TREND INFORMATION
($ in thousands except per share data)
For the Three Months Ended
--------------------------
September 30, June 30, March 31, December 31, September 30,
INCOME STATEMENT 2006 (4) 2006 2006 2005 (3) 2005 (2)
------------ ------------ ------------ ------------ ------------
Net interest income - tax equivalent (1) $ 19,174 18,569 17,979 18,060 17,463
Taxable equivalent adjustment (1) 133 125 126 113 111
Net interest income 19,041 18,444 17,853 17,947 17,352
Provision for loan losses 1,215 1,400 1,015 925 690
Noninterest income 2,454 3,844 3,954 3,803 3,779
Noninterest expense 13,535 13,064 12,729 12,175 11,486
Income before income taxes 6,745 7,824 8,063 8,650 8,955
Income taxes 2,373 3,029 3,072 1,237 9,646
Net income (loss) 4,372 4,795 4,991 7,413 (691)
Earnings (loss) per share - basic 0.31 0.34 0.35 0.52 (0.05)
Earnings (loss) per share - diluted 0.30 0.33 0.35 0.52 (0.05)
- ------------------------------------------------------------------------------------------------------------------------
(1) See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.
(2) Net income for the three months ended September 30, 2005 was significantly impacted by a contingency tax loss
accrual amounting to $6,320,000, or $0.44 per share (which increased income tax expense).
(3) Net income for the three months ended December 31, 2005 was significantly impacted by the reversal of a portion of
the accrual noted in (2) above, amounting to $1,982,000, or $0.14 per share (which decreased income tax expense).
(4) Net income for the three months ended September 30, 2006 was significantly impacted by the write-off loss of a
merchant credit card account, which reduced noninterest income by $1,670,000. The after-tax impact was $1.0
million, or $0.07 per diluted share.
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First Bancorp and Subsidiaries
Financial Summary - Page 4
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September 30, June 30, December 31, September 30, One Year
PERIOD END BALANCES ($ in thousands) 2006 2006 2005 2005 Change
------------ ------------ ------------ ------------ ------------
Assets $ 2,078,458 1,992,709 1,801,050 1,758,034 18.2%
Securities 140,220 129,912 127,785 128,421 9.2%
Loans 1,696,835 1,635,899 1,482,611 1,446,185 17.3%
Allowance for loan losses 18,465 17,642 15,716 15,879 16.3%
Intangible assets 51,718 49,070 49,227 49,300 4.9%
Deposits 1,664,902 1,590,668 1,494,577 1,475,528 12.8%
Borrowings 200,013 195,013 100,239 101,239 97.6%
Shareholders' equity 163,089 159,915 155,728 150,929 8.1%
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For the Three Months Ended
--------------------------
September 30, June 30, March 31, December 31, September 30,
YIELD INFORMATION 2006 2006 2006 2005 2005
------------ ------------ ------------ ------------ ------------
Yield on loans 7.54% 7.36% 7.16% 6.99% 6.71%
Yield on securities - tax equivalent (1) 5.13% 5.09% 5.06% 4.82% 4.72%
Yield on other earning assets 5.61% 5.60% 5.12% 4.39% 3.84%
Yield on all interest earning assets 7.32% 7.15% 6.95% 6.74% 6.47%
Rate on interest bearing deposits 3.44% 3.18% 2.88% 2.61% 2.35%
Rate on other interest bearing liabilities 6.17% 5.96% 5.54% 5.30% 5.22%
Rate on all interest bearing liabilities 3.72% 3.44% 3.08% 2.79% 2.53%
Interest rate spread - tax equivalent (1) 3.60% 3.71% 3.87% 3.95% 3.94%
Net interest margin - tax equivalent (2) 4.12% 4.22% 4.33% 4.37% 4.32%
Average prime rate 8.25% 7.90% 7.42% 6.96% 6.42%
- -----------------------------------------------------------------------------------------------------------------------------
(1) See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.
(2) Calculated by dividing annualized tax equivalent net interest income by average earning assets for the period. See
footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.
=============================================================================================================================
September 30, June 30, March 31, December 31, September 30,
ASSET QUALITY DATA ($ in thousands) 2006 2006 2006 2005 2005
------------ ------------ ------------ ------------ ------------
Nonaccrual loans $ 5,170 3,973 3,283 1,640 3,330
Restructured loans 11 12 12 13 14
Accruing loans > 90 days past due -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total nonperforming loans 5,181 3,985 3,295 1,653 3,344
Other assets - primarily other real estate 1,799 2,024 1,451 1,421 2,023
------------ ------------ ------------ ------------ ------------
Total nonperforming assets $ 6,980 6,009 4,746 3,074 5,367
============ ============ ============ ============ ============
Net charge-offs to average loans - annualized 0.11% 0.09% 0.03% 0.29% 0.12%
Nonperforming loans to total loans 0.31% 0.24% 0.21% 0.11% 0.23%
Nonperforming assets to total assets 0.34% 0.30% 0.25% 0.17% 0.31%
Allowance for loan losses to total loans 1.09% 1.08% 1.07% 1.06% 1.10%
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