{"id":518387,"date":"2021-07-27T16:04:26","date_gmt":"2021-07-27T20:04:26","guid":{"rendered":"https:\/\/www.marketnewsdesk.com\/index.php\/first-bancorp-reports-second-quarter-results\/"},"modified":"2021-07-27T16:04:26","modified_gmt":"2021-07-27T20:04:26","slug":"first-bancorp-reports-second-quarter-results","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/first-bancorp-reports-second-quarter-results\/","title":{"rendered":"First Bancorp Reports Second Quarter Results"},"content":{"rendered":"
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PR Newswire<\/p>\n<\/p><\/div>\n

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\n SOUTHERN PINES, N.C.<\/span>, July 27, 2021<\/span> \/PRNewswire\/ — First Bancorp (NASDAQ – FBNC), the parent company of First Bank, announced today net income of $29.3 million<\/span>, or $1.03<\/span> per diluted common share, for the three months ended June 30, 2021<\/span>, an increase of 83.9% on a per share basis, compared to $16.4 million<\/span>, or $0.56<\/span> per diluted common share, recorded in the second quarter of 2020.\u00a0 For the six months ended June 30, 2021<\/span>, the Company recorded net income of $57.5 million<\/span>, or $2.02<\/span> per diluted common share, compared to $34.5 million<\/span>, or $1.18<\/span> per diluted common share, for the six months ended June 30, 2020<\/span>, an increase of 71.2%.\u00a0 The higher earnings for both periods in 2021 were primarily driven by lower credit costs compared to 2020.<\/p>\n

In the second quarter of 2021, the Company experienced significant loan and deposit growth.\u00a0 Loan growth for the quarter, exclusive of $86 million<\/span> of net PPP loan declines related to loan forgiveness, amounted to $244 million<\/span>, an annualized growth rate of 22.3%.\u00a0 Deposit growth for the quarter was $438 million<\/span>, an annualized growth rate of 26.0%.<\/p>\n

\n Net Interest Income and Net Interest Margin<\/u>\n <\/p>\n

Net interest income for the second quarter of 2021 was $58.8 million<\/span>, an 11.7% increase from the $52.6 million<\/span> recorded in the second quarter of 2020.\u00a0 Net interest income for the first six months of 2021 was $114.0 million<\/span>, a 6.2% increase from the $107.4 million<\/span> recorded in the comparable period of 2020.\u00a0 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.<\/p>\n

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.\u00a0 For the six months ended June 30, 2021<\/span>, the Company’s net interest margin was 3.24% compared to 3.71% for the same period of 2020.\u00a0 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.\u00a0<\/p>\n

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.\u00a0 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.\u00a0 Additionally, in March 2020<\/span>, 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.<\/p>\n

In the first six months of 2021, the Company processed $198 million<\/span> in PPP loan forgiveness payments related to 2020 originations and also originated approximately $112 million<\/span> in new PPP loans, which resulted in a remaining balance of total PPP loans of $156 million<\/span> at June 30<\/span>, 2021.\u00a0 Including accelerated amortization of deferred PPP loan fees, the Company recorded a total of $2.7 million<\/span> and $5.7 million<\/span> in PPP fee-related interest income during the three and six months ended June 30, 2021<\/span>, respectively, compared to $1.3 million<\/span> in fees recorded in the second quarter of 2020, with no such fees recorded in the first quarter of 2020.\u00a0 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.\u00a0\u00a0 At June 30, 2021<\/span>, the Company has $6.2 million<\/span> in remaining deferred PPP loan fees, of which $0.9 million<\/span> relates to 2020 originations and $5.3 million<\/span> relates to 2021 originations.<\/p>\n

The Company recorded loan discount accretion of $3.6 million<\/span> in the second quarter of 2021, compared to $1.4 million<\/span> in the second quarter of 2020.\u00a0 For the six months ended June 30, 2021<\/span> and 2020, loan discount accretion amounted to $5.0 million<\/span> and $3.2 million<\/span>, respectively.\u00a0 In the second quarter of 2021, the Company accreted approximately $2.3 million<\/span> of remaining discount accretion on five, former failed-bank loans, that paid off during the quarter.\u00a0 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.\u00a0 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.<\/p>\n

\n Allowance for Loan Losses, Provisions for Loan Losses and Unfunded Commitments, and Asset Quality<\/u>\n <\/p>\n

On January 1, 2021<\/span>, 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<\/span> in the Company’s allowance for loan losses and an increase of $7.5 million<\/span> in the Company’s allowance for unfunded commitments. The tax-effected impact of those two items amounted to $17.1 million<\/span> and was recorded as an adjustment to the Company’s retained earnings as of January 1, 2021<\/span>.<\/p>\n

The Company recorded no provision for loan losses for the three or six months ended June 30, 2021<\/span> compared to $19.3 million<\/span> and $24.9 million<\/span> in the comparable periods of 2020.\u00a0 The high provisions in 2020 were primarily related to estimated incurred losses associated with the pandemic that was emerging at the time.\u00a0 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.<\/p>\n

During the second quarter of 2021, using the CECL methodology, the Company recorded a $1.9 million<\/span> in provision for unfunded commitments.\u00a0 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.\u00a0 The Company’s allowance for unfunded commitments at June 30, 2021<\/span> amounted to $10.0 million<\/span> and is recorded within the line item “Other liabilities”.<\/p>\n

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<\/span> compared to 0.12% and 0.17% for the same periods of 2020, respectively.<\/p>\n

Total nonperforming assets amounted to $42 million<\/span> at June 30, 2021<\/span>, or 0.51% of total assets, compared to $48 million<\/span>, or 0.69% of total assets, at June 30<\/span>, 2020.\u00a0 During the second quarter of 2021, the Company sold a nonaccrual relationship totaling $5.6 million<\/span> that was primarily responsible for the decline in nonaccrual loans during the quarter.\u00a0<\/p>\n

\n Noninterest Income<\/u>\n <\/p>\n

Total noninterest income for the second quarter of 2021 was $21.4 million<\/span>, an 18.4% decrease from the $26.2 million<\/span> recorded for the second quarter of 2020.\u00a0 For the six months ended June 30, 2021<\/span> and 2020, total noninterest income was $42.0 million<\/span> and $39.9 million<\/span>, respectively.\u00a0<\/p>\n

Service charges on deposit accounts amounted to $2.8 million<\/span> for the second quarter of 2021, a 23.4% increase over the $2.3 million<\/span> for the second quarter of 2020, with the second quarter of 2020 having declined significantly from historical levels\u00a0at the onset of the pandemic.\u00a0 For each of the six months ended June 30, 2021<\/span> and 2020, service charges on deposit accounts amounted to $5.6 million<\/span>.\u00a0<\/p>\n

Other service charges, commissions and fees amounted to $6.5 million<\/span> for the second quarter of 2021, an increase of 40.5% from the $4.6 million<\/span> for the second quarter of 2020.\u00a0 For the six months ended June 30, 2021<\/span> and 2020, other service charges, commissions and fees amounted to $12.0 million<\/span> and $8.7 million<\/span>, respectively.\u00a0 The increase was primarily due to increases of $1.5 million<\/span> and $2.3 million<\/span> in bankcard revenue for the three and six months ended June 30, 2021<\/span> compared to the same periods in 2020, respectively.\u00a0 Additionally, the first quarter of 2020 included a $0.5 million<\/span> charge related to impairment of the Company’s SBA servicing asset.<\/p>\n

Fees from presold mortgages amounted to $2.3 million<\/span> for the second quarter of 2021, a decrease of 24.7%, compared to $3.0 million<\/span> in the second quarter of 2020.\u00a0 For the first six months of 2021 and 2020, fees from presold mortgages amounted to $6.8 million<\/span> and $4.9 million<\/span>, respectively.\u00a0 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.<\/p>\n

SBA consulting fees amounted to $2.2 million<\/span> for the second quarter of 2021, a decrease of 41.5%, compared to $3.7 million<\/span> for the second quarter of 2020.\u00a0 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.\u00a0 For the six months ended June 30, 2021<\/span> and 2020, SBA consulting fees amounted to $5.0 million<\/span> and $4.8 million<\/span>, respectively.\u00a0 Including origination fees, on-going servicing fees and fees associated with forgiveness services, SBA Complete’s PPP fees amounted to $0.8 million<\/span> in the second quarter of 2021 compared to $3.0 million<\/span> for the second quarter of 2020, and $2.4 million<\/span> for the first half of 2021 compared to $3.0 million<\/span> for the first half of 2020.\u00a0 At June 30, 2021<\/span>, SBA Complete had $0.4 million<\/span> in remaining deferred PPP revenue that will be recorded as income upon completing the forgiveness process for its client banks.<\/p>\n

SBA loan sale gains amounted to $3.0 million<\/span> for the second quarter of 2021 compared to $2.0 million<\/span> in the second quarter of 2020.\u00a0 For the first six months of 2021 and 2020, SBA loan sale gains amounted to $5.3 million<\/span> and $2.6 million<\/span>, respectively.\u00a0 The first quarter of 2020 was significantly impacted by temporary pandemic-related market conditions.\u00a0 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.<\/p>\n

During the second quarter of 2020, the Company sold approximately $220 million<\/span> in securities at a gain of $8.0 million<\/span>, whereas there were no securities sales in 2021.<\/p>\n

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

\n Noninterest Expenses<\/u>\n <\/p>\n

Noninterest expenses amounted to $41.0 million<\/span> and $38.9 million<\/span> in the second quarters of 2021 and 2020, respectively, and $81.1 million<\/span> and $79.0 million<\/span> for the first six months of 2021 and 2020, respectively.\u00a0 The 2021 periods include noninterest expenses related to the Company’s business financing subsidiary, which was acquired on September 1, 2020<\/span> and has a current annual expense base of approximately $1.4 million<\/span>.<\/p>\n

Merger expenses amounted to $0.4 million<\/span> for the three and six months ended June 30, 2021<\/span>, compared to none in 2020.\u00a0 As discussed below, on June 1, 2021<\/span>, the Company announced an acquisition agreement with Select Bancorp, Inc.<\/p>\n

\n Income Taxes<\/u>\n <\/p>\n

The Company’s effective tax rate was 21.3% and 20.7% for the three months ended June 30, 2021<\/span> and 2020, respectively, and 21.3% and 20.5% for the six months ended June 30, 2021<\/span> and 2020, respectively.\u00a0 The 2021 increases are due to higher proportions of fully-taxable income.<\/p>\n

\n Balance Sheet and Capital<\/u>\n <\/p>\n

Total assets at June 30, 2021<\/span> amounted to $8.2 billion<\/span>, a 19.0% increase from a year earlier.\u00a0 The growth was driven by an increase in deposits.\u00a0<\/p>\n

Loan growth for the second quarter of 2021, exclusive of $86 million<\/span> of net PPP loan declines related to forgiveness, amounted to $244 million<\/span>, an annualized growth rate of 22.3%.\u00a0 Total loans amounted to $4.8 billion<\/span> at June 30, 2021<\/span>, an increase of $12 million<\/span>, or 0.3% from June 30<\/span>, 2020.\u00a0 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.<\/p>\n

Deposit growth during the second quarter of 2021 totaled $438 million<\/span>, an annualized growth rate of 26.0%.\u00a0 Total deposits amounted to $7.2 billion<\/span> at June 30, 2021<\/span>, an increase of $1.3 billion<\/span>, or 23.0%, from June 30<\/span>, 2020.\u00a0 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.<\/p>\n

The Company has deployed excess liquidity into investment securities, which amounted to\u00a0 $2.4 billion<\/span> at June 30, 2021<\/span>, an increase of $1.5 billion<\/span>, or 173.6%, compared to a year earlier.\u00a0 Additionally, the Company’s borrowing levels have been reduced by $51 million<\/span>, or 45.4%, since June 30<\/span>, 2020.\u00a0<\/p>\n

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at June 30, 2021<\/span> of 15.27%, an increase from the 15.13% reported at June 30<\/span>, 2020.\u00a0 The Company’s tangible common equity to tangible assets ratio was 8.31% at June 30, 2021<\/span>, a decrease of 101 basis points from a year earlier, with the decline being impacted by the high balance sheet growth experienced.<\/p>\n

\n Comments of the CEO and Other Business Matters<\/u>\n <\/p>\n

\n Richard H. Moore<\/span>, CEO of First Bancorp, commented, “Today’s earnings report reflects another strong quarter for our company.\u00a0 We achieved a high level of profitability with good balance sheet growth and capital levels remain strong.”\u00a0 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.”<\/p>\n

The following is additional discussion of business development and other matters affecting the Company during the second quarter of 2021:<\/p>\n