First Bancorp Reports Third Quarter Results
SOUTHERN PINES, N.C., Oct. 23, 2024 /PRNewswire/ -- First Bancorp (the "Company") (NASDAQ - FBNC), the parent company of First Bank, reported third quarter earnings today. At the end of September, Hurricane Helene greatly impacted portions of our footprint in Western North Carolina and the upstate of South Carolina. We quickly initiated a response for our associates, customers and communities in these areas, and our most important priority was and continues to be making sure our people are taken care of during this difficult time. Our team rallied together to support our customers and the communities we serve. While some of our facilities suffered damage during the storm, we have worked to restore service for our customers as quickly and fully as possible. Richard H. Moore, CEO and Chairman of the Company, stated "I am proud of our Company and associates who responded quickly and poured out their hearts and resources to assist those who suffered devastating impacts. We are here for our teammates, customers and communities and are committed to supporting them in this tremendous time of need. In anticipation of our customers' potential challenges to recover from the storm, we took an additional $13 million in provision for credit losses during the quarter."
The Company announced net income of $18.7 million, or $0.45 per diluted common share, for the three months ended September 30, 2024 compared to $28.7 million, or $0.70 per diluted common share, for the three months ended June 30, 2024 ("linked quarter") and $29.9 million, or $0.73 per diluted common share, for the third quarter of 2023 ("like quarter"). These results include the potential impacts of Hurricane Helene of $13.4 million ($10.3 million after-taxes). For the nine months ended September 30, 2024, the Company recorded net income of $72.7 million, or $1.76 per diluted common share, compared to $74.5 million, or $1.81 per diluted common share, for the nine months ended September 30, 2023.
For the third quarter, in accounting for the potential impacts of Hurricane Helene, we realized pre-tax impacts totaling $13.4 million, comprised of $13.0 million of provision for potential credit loss exposure in our footprint hardest hit by Helene, $300 thousand of estimated property damages and an additional $100 thousand of other impacts. After considering the tax effect of these items, our net income was reduced by $10.3 million. Before the impact from these items, our adjusted net income was $29.0 million, or $0.70 per diluted share, for the third quarter and $83.0 million, or $2.01 per diluted share, for the nine months ended September 30, 2024.
Third Quarter 2024 Highlights
Tax equivalent net interest margin ("NIM") increased 3 basis points to 2.90% for the third quarter of 2024, up from 2.87% for the linked quarter and down from 2.97% in the like quarter. For the nine months ended September 30, 2024, NIM fell to 2.86% from 3.12% in the same period in 2023. Due to the proximity to quarter end, the Federal Reserve rate reduction in mid-September had a minimal benefit to our third quarter NIM.
Earnings per share, ("EPS") was $0.45 per diluted share for the third quarter of 2024 and $1.76 per diluted share for the nine months ended September 30, 2024. Adjusted EPS for the third quarter of 2024 remained steady from the linked quarter at $0.70 per diluted share and increased to $2.01 per diluted share for the nine months ended September 30, 2024 from $1.81 per diluted share for the nine months ended September 30, 2023. See Appendix E for components of this calculation.
Net income was $18.7 million for the third quarter of 2024 and $72.7 million for the nine months ended September 30, 2024. Adjusted net income increased to $29.0 million for the third quarter of 2024 from $28.7 million in the linked quarter and to $83.0 million for the nine months ended September 30, 2024 from $74.5 million for the nine months ended September 30, 2023. See Appendix E for components of this calculation.
Capital grew during the quarter with a total common equity tier 1 ratio of 14.34% (estimated) and a total risk-based capital ratio of 16.44% (estimated) as of September 30, 2024, both increasing from the linked quarter.
Credit quality continues to be strong with a nonperforming assets ("NPA") to total assets ratio of 0.38% as of September 30, 2024, a 1 basis point increase from the linked quarter.
Loans totaled $8.0 billion at September 30, 2024, reflecting contractions of $56.3 million and $13.5 million for the quarter and year-over-year, respectively.
Noninterest-bearing demand accounts were 32% of total deposits at September 30, 2024, which is consistent with historical trends. During the third quarter of 2024, customer deposits grew $56.6 million and brokered deposits contracted $39.5 million leading to an increase in total deposits of $17.1 million.
Total loan yield increased to 5.51%, up 1 basis points from the linked quarter and 19 basis points from the like quarter.
Total cost of funds remained low at 1.81% for the quarter ended September 30, 2024, consistent with the linked quarter.
The on-balance sheet liquidity ratio was 17.7% at September 30, 2024, up from 16.3% for the linked quarter. Available off-balance sheet sources totaled $2.4 billion at September 30, 2024, resulting in a total liquidity ratio of 35.2%.
Net Interest Income and Net Interest Margin
Net interest income for the third quarter of 2024 was $83.0 million compared to $81.1 million for the linked quarter, reflecting an increase of 2.4%. Net interest income for the third quarter of 2024 decreased 2.0% from $84.7 million for the like quarter. The increase in net interest income from the linked quarter was driven by an increase in the yields on earning assets, partially offset by an increase in the cost of interest-bearing liabilities. The decline in net interest income from the like quarter was driven by an increase in the cost of funds, partially offset by an increase in earning assets.
The Company's tax-equivalent NIM was 2.90%, an increase of 3 basis points compared to 2.87% for the linked quarter. Increases in yields on assets and the benefit of asset mix changes and reduction in wholesale funding outpaced the increases in rates on liabilities, which resulted in the increase in net interest income and NIM as compared to the linked period. While the total cost of funds remained consistent at 1.81% during the third quarter of 2024, loan yields rose from 5.50% for the linked quarter to 5.51% for the quarter ended September 30, 2024.
For the Three Months Ended
YIELD INFORMATION
September 30,2024
June 30, 2024
September 30,2023
Yield on loans
5.51 %
5.50 %
5.32 %
Yield on securities
1.70 %
1.73 %
1.75 %
Yield on other earning assets
4.90 %
4.71 %
4.58 %
Yield on total interest-earning assets
4.55 %
4.52 %
4.31 %
Rate on interest-bearing deposits
2.59 %
2.54 %
1.95 %
Rate on borrowings
7.97 %
7.09 %
5.88 %
Rate on total interest-bearing liabilities
2.66 %
2.65 %
2.20 %
Total cost of funds
1.81 %
1.81 %
1.46 %
Net interest margin (1)
2.88 %
2.84 %
2.95 %
Net interest margin - tax-equivalent (2)
2.90 %
2.87 %
2.97 %
Average prime rate
8.43 %
8.50 %
8.43 %
(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. The tax-equivalent 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.
Included in interest income for the third quarter of 2024 was loan purchase accounting discount accretion of $2.0 million compared to $2.3 million for the linked quarter and $2.8 million for the like quarter, with the decreases related to the continued reduction of the loan portfolio acquired from GrandSouth Bancorporation ("GrandSouth") in January of 2023. Loan discount accretion had positive impacts of 6 basis points, 6 basis points and 11 basis points, respectively, on the Company's NIM in the third quarter of 2024, the linked quarter and the like quarter.
The following table presents the impact to net interest income of the purchase accounting adjustments for each period.
For the Three Months Ended
NET INTEREST INCOME PURCHASE ACCOUNTING ADJUSTMENTS
($ in thousands)
September 30,2024
June 30, 2024
September 30,2023
Interest income - increased by accretion of loan discount on acquired loans
$ 2,003
$ 2,303
$ 2,766
Total interest income impact
2,003
2,303
2,766
Interest expense - increased by discount accretion on deposits
(174)
(224)
(709)
Interest expense - increased by discount accretion on borrowings
(193)
(190)
(215)
Total net interest expense impact
(367)
(414)
(924)
Total impact on net interest income
$ 1,636
$ 1,889
$ 1,842
Provision for Credit Losses and Credit Quality
For the three months ended September 30, 2024 and September 30, 2023, the Company recorded $14.2 million and zero in provision for credit losses, respectively. The provision for the third quarter of 2024 was driven by an incremental provision of $13.0 million related to potential loan exposure from Hurricane Helene and net charge-offs of $2.1 million partially offset by generally improving updated economic forecasts, which are a key driver in the Company's CECL model, as well as a reduction in the level of unfunded commitments. Within the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene, the Company identified borrowers with approximately $750 million of loans outstanding. Given that the storm impacted the area just prior to September 30, 2024 and recovery continues in many communities, the Company performed analyses to identify possible impacts from the storm and has reserved accordingly based upon the information available at this time. The Company applied increased reserve rates based upon severe economic factors to the approximately $750 million of loans in the path of Helene. Additionally, the Company performed an initial evaluation of the largest commercial loans in that population and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm. The incremental provision related to the potential exposure from Hurricane Helene added 16 basis points to the ACL as of September 30, 2024.
Asset quality remained strong with annualized net loan charge-offs of 0.11% for the third quarter of 2024. Total NPAs remained at a low level at $45.9 million at September 30, 2024, or 0.38% of total assets, up slightly from 0.37% at June 30, 2024. This is compared to $38.8 million, or 0.32% of total assets, at September 30, 2023 with the increase year-over-year being attributable primarily to activity in the SBA loan portfolio.
The following table presents the summary of NPAs and asset quality ratios for each period.
ASSET QUALITY DATA
($ in thousands)
September 30,2024
June 30, 2024
September 30,2023
Nonperforming assets
Nonaccrual loans
$ 34,125
$ 33,102
$ 26,884
Modifications to borrowers in financial distress
10,262
10,495
10,723
Total nonperforming loans
44,387
43,597
37,607
Foreclosed real estate
1,519
1,150
1,235
Total nonperforming assets
$ 45,906
$ 44,747
$ 38,842
Asset Quality Ratios
Quarterly net charge-offs to average loans - annualized
0.11 %
0.07 %
0.11 %
Nonperforming loans to total loans
0.55 %
0.54 %
0.47 %
Nonperforming assets to total assets
0.38 %
0.37 %
0.32 %
Allowance for credit losses to total loans
1.53 %
1.36 %
1.35 %
Noninterest Income
Total noninterest income for the third quarter of 2024 was $13.6 million, a 7.3% decrease from the $14.6 million recorded in the linked quarter and a 10.5% decrease from the $15.2 million recorded for the like quarter. As compared to the linked and like quarters, noninterest income was lower primarily due to lower Other income, net of $1.5 million and $2.0 million, respectively.
While the variance from the linked quarter was impacted by the sale of branch property, the variance from both the linked and like quarters was also impacted by the timing of the recognition of gain and loss from other investment activity, which does not include available for sale or held to maturity securities.
Noninterest Expenses
Noninterest expenses amounted to $59.9 million for the third quarter of 2024 compared to $58.3 million for the linked quarter and $62.2 million for the like quarter. The $1.6 million, or 2.7%, increase in noninterest expense from the linked quarter was driven by a $2.1 million increase in Salaries incentives and commissions expense, partially driven by variable compensation. This increase in Salaries expense was partially offset by a $0.2 million reduction in Employee benefits expense and a $0.3 million reduction in Other operating expenses. Occupancy and equipment related expenses for the third quarter of 2024 included $0.3 million of expenses related to the recovery from Hurricane Helene.
The primary contributor to the higher noninterest expense in the third quarter of 2023 was higher Other operating expenses of $2.4 million.
Balance Sheet
Total assets at September 30, 2024 amounted to $12.2 billion, an increase of $92.6 million, or 3.06% annualized, from the linked quarter and an increase of $175.5 million, or 1.46%, from a year earlier. The increase from the linked quarter was primarily related to higher interest-bearing cash balances, partially offset by lower loan balances. The increase from the like quarter was primarily related to higher interest-bearing cash balances, partially offset by intentional reductions in investment securities.
Quarterly average balances for key balance sheet accounts are presented below.
For the Three Months Ended
AVERAGE BALANCES
($ in thousands)
September30, 2024
June 30,2024
December31, 2023
September30, 2023
Change 3Q24 vs2Q24
Change 3Q24 vs3Q23
Total assets
$ 12,126,613
$ 12,055,281
$ 12,026,195
$ 12,005,778
0.6 %
1.0 %
Investment securities, at amortized cost
2,784,863
2,883,662
3,143,756
3,180,846
(3.4) %
(12.4) %
Loans
8,019,730
8,070,814
8,087,450
7,939,783
(0.6) %
1.0 %
Earning assets
11,489,227
11,462,112
11,477,007
11,405,307
0.2 %
0.7 %
Deposits
10,509,237
10,432,309
10,131,094
10,180,046
0.7 %
3.2 %
Interest-bearing liabilities
7,230,326
7,249,562
7,204,165
7,071,407
(0.3) %
2.2 %
Shareholders' equity
1,445,029
1,378,283
1,280,812
1,303,249
4.8 %
10.9 %
Driven by improvement in the unrealized loss on available for sale securities during the third quarter, total investment securities at carrying value increased to $2.4 billion at September 30, 2024. This reflects an increase of $38.4 million from the linked quarter. Due to the intentional reductions in investment securities during the second quarter of 2024, total investment securities at carrying value fell $206.6 million from September 30, 2023. During the third quarter of 2024, the Company made no purchases or sales of investment securities. Total unrealized loss on available for sale investment securities was $331.5 million at September 30, 2024, as compared to $410.1 million at June 30, 2024 and $521.7 million at September 30, 2023.
Total loans amounted to $8.0 billion at September 30, 2024, a decrease of $56.3 million, or 2.8%, from June 30, 2024 and a decrease of $13.5 million, or 0.2%, from September 30, 2023. As presented below, our total loan portfolio mix has remained relatively consistent with the exception of Construction, development & other land loans, which, as a percentage of the loan portfolio, has fallen from 13% at September 30, 2023 to 9% at September 30, 2024 and Residential 1-4 family real estate,which, as a percentage of the loan portfolio, has increased from 19% at September 30, 2023 to 22% at September 30, 2024. As of September 30, 2024, there were no notable concentrations in geographies or industries, including in office or hospitality categories, which are included in the "commercial real estate - non-owner occupied" category in the table below. The Company's exposure to non-owner occupied office loans represented approximately 5.7% of the total portfolio at September 30, 2024, with the largest loan being $26.6 million and an average loan outstanding balance of $1.3 million. Non-owner occupied office loans are generally in non-metro markets and the 10 largest loans in this category represent less than 2% of the total loan portfolio.
The following table presents the balance and portfolio percentage by loan category for each period.
LOAN PORTFOLIO
September 30, 2024
June 30, 2024
September 30, 2023
($ in thousands)
Amount
Percentage
Amount
Percentage
Amount
Percentage
Commercial and industrial
$ 847,284
11 %
$ 863,366
11 %
$ 893,910
11 %
Construction, development & other land loans
760,949
9 %
764,418
9 %
1,008,289
13 %
Commercial real estate - owner occupied
1,226,050
15 %
1,250,267
16 %
1,252,259
16 %
Commercial real estate - non-owner occupied
2,572,901
32 %
2,561,803
32 %
2,509,317
31 %
Multi-family real estate
460,565
6 %
497,187
6 %
405,161
5 %
Residential 1-4 family real estate
1,737,133
22 %
1,729,050
21 %
1,560,140
19 %
Home equity loans/lines of credit
331,072
4 %
326,411
4 %
331,108
4 %
Consumer loans
76,787
1 %
76,638
1 %
67,169
1 %
Loans, gross
8,012,741
100 %
8,069,140
100 %
8,027,353
100 %
Unamortized net deferred loan fees
797
708
(316)
Total loans
$ 8,013,538
$ 8,069,848
$ 8,027,037
Total deposits were $10.5 billion at September 30, 2024, an increase of $17.1 million, or 0.6%, from June 30, 2024 and an increase of $269.5 million, or 2.6%, from September 30, 2023. The quarter-to-date deposit growth is comprised of organic growth of customer deposits of $56.6 million, partially offset by a contraction of $39.5 million in brokered deposits.
The Company has a diversified and granular deposit base which has remained a stable funding source with noninterest-bearing deposits comprising 32% of total deposits at September 30, 2024. Our deposit mix has remained relatively consistent, with the exception of increased growth in money market accounts, as presented in the table below.
DEPOSIT PORTFOLIO
September 30, 2024
June 30, 2024
September 30, 2023
($ in thousands)
Amount
Percentage
Amount
Percentage
Amount
Percentage
Noninterest-bearing checking accounts
$ 3,350,237
32 %
$ 3,339,678
32 %
$ 3,503,050
34 %
Interest-bearing checking accounts
1,426,356
13 %
1,400,071
13 %
1,458,855
14 %
Money market accounts
4,189,174
40 %
4,150,429
40 %
3,635,523
36 %
Savings accounts
541,501
5 %
558,126
5 %
638,912
6 %
Other time deposits
602,148
6 %
601,212
6 %
626,870
6 %
Time deposits >$250,000
385,995
4 %
389,281
4 %
359,704
4 %
Total customer deposits
10,495,411
100 %
10,438,797
100 %
10,222,914
100 %
Brokered deposits
9,518
— %
49,032
— %
12,489
— %
Total deposits
$ 10,504,929
100 %
$ 10,487,829
100 %
$ 10,235,403
100 %
As of September 30, 2024 and June 30, 2024, estimated insured deposits totaled $6.5 billion, or 61.8%, and $6.4 billion, or 61.3%, respectively, of total deposits. In addition, at September 30, 2024 and June 30, 2024, there were collateralized deposits of $730.8 million and $762.2 million, respectively, such that approximately 68.7% and 68.6%, respectively, of our total deposits were insured or collateralized at the current quarter end.
Capital
The Company remains well-capitalized by all regulatory standards, with an estimated total risk-based capital ratio at September 30, 2024 of 16.44%, up from both the linked quarter ratio of 16.24% and like quarter ratio of 15.26%. The increase in risk-based capital ratio was driven by increased shareholders' equity with additional impact from shifts in the balance sheet with the reduction in loans being more than offset by higher cash balances which carry a lower risk-weighting.
The Company has elected to exclude accumulated other comprehensive income ("AOCI") related primarily to available for sale securities from common equity tier 1 capital. AOCI is included in the Company's tangible common equity ("TCE") to tangible assets ratio (a non-GAAP financial measure) which was 8.47% at September 30, 2024, an increase of 57 basis points from the linked quarter and an increase of 183 basis points from September 30, 2023. The increases in TCE for the current quarter and year-over-year were driven by earnings and improvements in the level of unrealized losses on the available for sale investment portfolio for the period. Refer to Appendix B for a reconciliation of common equity to TCE and Appendix D for a calculation of the TCE ratio.
CAPITAL RATIOS
September 30,2024(estimated)
June 30, 2024
September 30,2023
Tangible common equity to tangible assets (non-GAAP)
8.47 %
7.90 %
6.64 %
Common equity tier I capital ratio
14.34 %
13.99 %
12.93 %
Tier I leverage ratio
11.29 %
11.24 %
10.72 %
Tier I risk-based capital ratio
15.16 %
14.79 %
13.71 %
Total risk-based capital ratio
16.44 %
16.24 %
15.26 %
Liquidity
Liquidity is evaluated as both on-balance sheet (primarily cash and cash-equivalents, unpledged securities and other marketable assets) and off-balance sheet (readily available lines of credit and other funding sources). The Company continues to manage liquidity sources, including unused lines of credit, at levels believed to be adequate to meet its operating needs for the foreseeable future.
The Company's on-balance sheet liquidity ratio (net liquid assets as a percent of net liabilities) at September 30, 2024 was 17.7%. In addition, the Company had approximately
