First Bancorp — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. First Bancorp is a North Carolina bank holding company. Amounts below are in millions unless otherwise noted.
Financial performance
- Third quarter: Net interest income was $33.5, up 7.8% from $31.1 a year earlier. Net income was $2.6 versus $3.8; after preferred dividends and discount accretion, the loss available to common shareholders was $0.7, or $0.04 per diluted share, versus income of $2.8, or $0.17 per diluted share.
- First nine months: Net interest income was $100.3, up 6.9%. Net income was $12.7 versus $12.2; common-shareholder income was $7.3, or $0.43 per diluted share, versus $9.1, or $0.54 per diluted share.
- Margins: Tax-equivalent net interest margin was 4.79% for the quarter and 4.77% for the nine months, compared with 4.30% and 4.27%, respectively, in 2010. Management cited lower funding costs and acquisition-related loan discount accretion.
- Credit costs: Loan-loss provision was $9.1 for the quarter ($6.4 non-covered; $2.7 covered) and $31.4 for the nine months, versus $8.4 and $24.0, respectively, in 2010. Nine-month net charge-offs were $43.2, compared with $16.4.
- Other income and expenses: Third-quarter noninterest income was $3.5 versus $4.0; nine-month noninterest income was $22.8 versus $14.2, including a $10.2 Bank of Asheville acquisition gain. Noninterest expense increased 15.7% to $24.0 for the quarter and 10.7% to $71.9 for the nine months, reflecting personnel, compliance, collections, and branch-network costs.
- Cash flow: For the nine months, operating activities provided $27.5, investing activities provided $186.1, and financing activities used $182.1. Cash and cash equivalents increased $31.5 to $243.5.
Financial position, liquidity, and capital
- At September 30, assets were $3,302.7, loans $2,432.5, deposits $2,729.4, liabilities $2,950.9, and shareholders’ equity $351.8. Versus September 30, 2010, assets declined 1.7%, loans 3.1%, and deposits 0.8%.
- Borrowings were $135.8, down from $158.9 a year earlier; repurchase agreements were $60.5. The filing reports $252 of unused available credit lines, including Federal Home Loan Bank and other facilities.
- Regulatory capital ratios were 15.66% Tier 1 risk-based, 16.91% total risk-based, and 10.26% Tier 1 leverage. Tangible common equity to tangible assets was 6.75%. Management said the company remained well-capitalized.
- The company reported total nonperforming assets of $277.2, down from $298.9 a year earlier. Non-covered nonperforming assets were $118.9 versus $118.2; covered nonperforming assets were $158.2 versus $180.7. Other real estate totaled $137.5, including $32.7 non-covered.
Material changes and unusual items
- On September 1, First Bancorp redeemed $65.0 of TARP Series A preferred stock and issued $63.5 of Series B preferred stock under the Small Business Lending Fund. Accelerated accretion of the remaining TARP preferred-stock discount reduced third-quarter income available to common shareholders by approximately $2.5 before tax accounting effects; management identified approximately $2.3 as the quarter’s negative impact to that measure. The Treasury warrant remains outstanding.
- The January 2011 Bank of Asheville FDIC-assisted acquisition generated a preliminary $10.2 bargain-purchase gain. The acquired covered assets are generally subject to FDIC loss sharing, with the FDIC covering 80% of eligible losses. Purchase-accounting estimates may be revised during the measurement period.
- Management reported the first sequential quarterly increase in the non-covered loan portfolio since the decline began, up $18 from June 30, 2011. Overall loans and internally generated deposits had nevertheless contracted.
- After quarter-end, First Bank agreed to acquire 11 Waccamaw Bank branches, approximately $180 of deposits and $98 of performing loans. The transaction was expected to close in first-quarter 2012, subject to regulatory approval and other conditions; approximately $31 of loans may be put back to the seller at par under specified terms.
Outlook, commentary, and risks
- No formal earnings or revenue guidance was provided. Management projected net interest margin for the remainder of 2011 to remain relatively consistent with recent levels, assuming no interest-rate changes.
- Management expected the SBLF preferred dividend rate to be approximately 4.8% for fourth-quarter 2011, subject to Treasury confirmation. The rate depends on qualified small-business lending and could be lower in future periods.
- Management said non-covered nonperforming assets were not expected to improve materially or deteriorate materially in the near term. It also warned of heightened risk of additional fourth-quarter losses on covered foreclosed properties, following lower appraisal indications on some properties.
- Key risks include persistent unemployment and weak property values, real-estate-related credit losses, uncertain acquired-loan collections and discount accretion, FDIC indemnification estimates, and potential revisions to the Bank of Asheville purchase accounting. Management noted that regulators may require additional reserves or property-value adjustments.
- Management stated liquidity was adequate for foreseeable operating needs. The filing also warns that economic conditions, interest-rate movements, customer strategies, acquisition integration, and regulatory actions could affect forward-looking statements.
Investor facts to verify
- Whether the preliminary $10.2 Bank of Asheville gain and related acquired-asset and FDIC indemnification valuations were ultimately revised.
- Subsequent trends in non-covered credit quality, charge-offs, foreclosed-property losses, and the allowance for loan losses.
- Actual FDIC reimbursements and changes in the $120.9 FDIC indemnification asset, including timing and estimated covered losses.
- Whether small-business lending changes the SBLF preferred dividend rate from the expected 4.8% for fourth-quarter 2011.
- Whether the Waccamaw branch transaction closed on the expected terms and timing, including the loan put-back provision.
- Cash generation and liquidity alongside continued loan and deposit trends, and the impact of acquisition-related accretion on reported margins.