EX-99.1 2 ex99-1.htm EX-99.1

News Release

For Immediate Release:	For More Information,
January 29, 2018	Contact: Elaine Pozarycki
	919-834-3090

First Bancorp Reports Fourth Quarter and Annual Results

SOUTHERN PINES, N.C. – First Bancorp (NASDAQ – FBNC), the parent company of First Bank, announced today net income available to common shareholders of $14.2 million, or $0.48 per diluted common share, for the three months ended December 31, 2017, an increase of 20.0% in earnings per share from the $8.4 million, or $0.40 per diluted common share, recorded in the fourth quarter of 2016. For the year ended December 31, 2017, the Company recorded net income available to common shareholders of $46.0 million, or $1.82 per diluted common share, an increase of 36.8% in earnings per share from the $27.3 million, or $1.33 per diluted common share, in 2016.

On October 1, 2017, the Company acquired ASB Bancorp, Inc., the parent company of Asheville Savings Bank, SSB, headquartered in Asheville, North Carolina, which operated through 13 branches in the Asheville area. As of the acquisition date, Asheville Savings Bank reported total assets of approximately $798 million, including $606 million in loans and $679 million in deposits.

Also affecting comparability with periods in 2016 was the Company’s March 3, 2017 acquisition of Carolina Bank Holdings, Inc., the parent company of Carolina Bank, which operated eight branches and three mortgage loan offices, primarily in the Triad region of North Carolina. As of the acquisition date, Carolina Bank had total assets of $682 million, including $497 million in loans and $585 million in deposits.

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2017 was $48.9 million, a 56.1% increase from the $31.3 million recorded in the fourth quarter of 2016. Net interest income for the year ended December 31, 2017 amounted to $164.7 million, a 33.5% increase from the $123.4 million recorded in 2016. 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.

Also contributing to the increase in net interest income was a higher net interest margin. The Company’s net interest margin (tax-equivalent net interest income divided by average earning assets) amounted to 4.01% for the fourth quarter of 2017 compared to 3.94% for the fourth quarter of 2016. For the year ended December 31, 2017, the Company’s net interest margin was 4.08% compared to 4.03% for 2016. Asset yields have increased primarily as a result of three Federal Reserve interest rate increases during the past year. Funding costs have also increased, but to a lesser degree. On a linked quarter basis, the Company’s net interest margin of 4.01% was a decline from the third quarter margin of 4.16%, which was caused by lower discount accretion associated with the Company’s legacy acquisitions as well as higher levels of low yielding interest-bearing cash during the period, resulting from the Company’s decision to restructure the Asheville Savings Bank securities portfolio.

The net interest margins for both periods were impacted by loan discount accretion associated with acquired loan portfolios. The Company recorded loan discount accretion amounting to $2.0 million in the fourth quarter of 2017, compared to $0.9 million in the fourth quarter of 2016. For the full year of 2017 and 2016, loan discount accretion amounted to $7.1 million and $4.5 million, respectively. The increase in loan discount accretion from 2016 is 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 net interest margin was 3.84% for the fourth quarter of 2017, compared to 3.83% for the fourth quarter of 2016. On a linked quarter basis, the 3.84% margin was a decline from the 3.99% margin realized for the third quarter of 2017. The decline was caused by higher levels of low yielding interest-bearing cash as well as a lower weighted average note rate associated with the loans acquired from Asheville Savings Bank. 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 ratio.

Provision for Loan Losses and Asset Quality

The Company recorded no provisions for loan losses in the fourth quarters of 2017 or 2016. For the year ended December 31, 2017, the Company recorded a provision for loan losses of $0.7 million compared to a negative provision for loan losses of $23,000 in 2016.

The low level of provision for loan losses in both years was primarily due to stable and improving loan quality. The Company’s nonperforming assets to total assets ratio was 0.96% at December 31, 2017 compared to 1.64% at December 31, 2016. The Company experienced net loan charge-offs of $1.2 million in 2017, compared to $3.7 million in 2016. The ratio of annualized net charge-offs to average loans for the year ended December 31, 2017 was 0.04%, compared to 0.14% for 2016.

Noninterest Income

Total noninterest income was $14.9 million and $9.5 million for the three months ended December 31, 2017 and December 31, 2016, respectively. For the year ended December 31, 2017, noninterest income amounted to $48.9 million compared to $25.6 million for 2016.

Core noninterest income for the fourth quarter of 2017 was $15.1 million, an increase of 55.2% from the $9.7 million reported for the fourth quarter of 2016. For 2017, core noninterest income amounted to $49.3 million, a 40.9% increase from the $35.0 million recorded in 2016. 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 2017 was the acquisition of Carolina Bank and Asheville Savings Bank, as well as income derived from the Company’s SBA consulting fees and SBA loan sale gains, which began during the middle of 2016.

Fees from presold mortgage loans increased to $1.6 million for the fourth quarter of 2017 from $0.5 million in the fourth quarter of 2016. For the year ended December 31, 2017, fees from presold mortgage loans increased to $5.7 million from the $2.0 million recorded in 2016. The increases were primarily due to the acquisition of Carolina Bank in March 2017, which had a significant mortgage loan operation.

Commissions from sales of insurance and financial products amounted to $2.0 million in the fourth quarter of 2017, compared to $1.0 million in the fourth quarter of 2016. For the years ended December 31, 2017 and 2016, commissions from sales of insurance and financial products amounted to $5.3 million and $3.8 million, respectively. The increase was primarily due to the acquisition of an insurance agency during the third quarter of 2017.

The financial results for the year ended December 31, 2016 reflect indemnification asset expense of $10.3 million, whereas none was recorded in 2017. The FDIC loss-share agreements associated with this item of expense were terminated in September 2016, and thus all indemnification asset income/expense ceased at that time.

Other gains and losses for the 2017 periods presented represent the net effects of miscellaneous gains and losses that are non-routine in nature. In the third quarter of 2016, the Company recorded a net gain of $1.4 million as a result of a branch exchange transaction.

Noninterest Expenses

Noninterest expenses amounted to $43.6 million in the fourth quarter of 2017 compared to $28.2 million recorded in the fourth quarter of 2016. Noninterest expenses for the year ended December 31, 2017 amounted to $145.2 million compared to $106.8 million in 2016.

The increase in noninterest expenses in 2017 related primarily to the Company’s acquisition of Carolina Bank and Asheville Savings Bank. The Company expects to complete the data conversion of the Asheville Savings Bank customer accounts in March 2018 and to also consolidate three overlapping branches in the Asheville market at that time.

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. Salary expense for the fourth quarter of 2017 was also impacted by approximately $1.1 million related to one-time bonuses granted to a majority of the Company’s employees.

Merger and acquisition expenses amounted to $3.2 million and $0.1 million for the three months ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2017 and 2016, merger and acquisition expenses amounted to $8.1 million and $1.4 million, respectively. Merger and acquisition expenses represent transaction related costs associated primarily with the acquisitions of Carolina Bank and Asheville Savings Bank.

Income Taxes

The Company’s effective tax rate for the fourth quarter of 2017 was 29.5% compared to 33.3% in the third quarter of 2017. The lower effective tax rate was due to the 2017 Tax Cuts and Jobs Act, which was signed into law in December 2017. The impact to the Company of revaluing its net deferred tax liability was to reduce income tax expense by approximately $1.3 million in the fourth quarter of 2017. The Company expects to be favorably impacted in 2018 by the reduction in the federal tax rate, with a projected effective tax rate of approximately 21%.

Balance Sheet and Capital

Total assets at December 31, 2017 amounted to $5.5 billion, a 53.5% increase from a year earlier. Total loans at December 31, 2017 amounted to $4.0 billion, a 49.1% increase from a year earlier, and total deposits amounted to $4.4 billion at December 31, 2017, a 49.5% increase from a year earlier.

In addition to the growth realized from the acquisitions of Carolina Bank in March 2017 and Asheville Savings Bank in October 2017, the Company experienced strong organic loan and deposit growth during 2017. For 2017, organic loan growth (i.e. excluding loan balances assumed from Carolina Bank and Asheville Savings Bank) amounted to $228.0 million, or 8.4%. For 2017, organic deposit growth amounted to $195.1 million, or

6.6%. The strong growth was a result of ongoing internal initiatives to enhance loan and deposit growth, including the Company’s recent expansion into higher growth markets. The loan growth noted above has been driven by the recently-entered North Carolina markets of Charlotte, Raleigh, and the Triad.

The Company remains well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at December 31, 2017 of 12.50%, a decline from 13.36% at December 31, 2016, but still in excess of the 10.00% minimum to be considered well-capitalized. The Company’s tangible common equity to tangible assets ratio was 8.23% at December 31, 2017, an increase of seven basis points from a year earlier.

Comments of the CEO and Other Business Matters

Richard H. Moore, CEO of First Bancorp, commented on today’s report, “We are pleased to report a year of significant growth, outstanding earnings and the accomplishment of several significant strategic initiatives. In 2018, we will remain focused on providing the best possible community banking experience to our customers.” Mr. Moore added, “In that regard, we continue to carefully plan for the upcoming data conversion of the Asheville Savings Bank customer accounts to the First Bank system and the smooth transition of those offices to the First Bank name, both of which are scheduled for the weekend of March 16, 2018.”

The following is a list of business development and other miscellaneous matters affecting the Company during the fourth quarter of 2017 not previously discussed:

On December 15, 2017, the Company announced a quarterly cash dividend of $0.08 cents per share payable on January 25, 2018 to shareholders of record on December 31, 2017. This is the same dividend rate as the Company declared in the fourth quarter of 2016.

* * *

First Bancorp is a bank holding company headquartered in Southern Pines, North Carolina, with total assets of approximately $5.5 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 104 branches in North Carolina and South Carolina. First Bank also operates six 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 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. 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 the press release by wire services, internet services or other media.

First Bancorp and Subsidiaries

Financial Summary – Page 1

	Three Months Ended December 31,						Percent
($ in thousands except per share data – unaudited)	2017			2016			Change

INCOME STATEMENT

Interest income
Interest and fees on loans	$	48,830			31,021
Interest on investment securities		2,888			1,998
Other interest income		1,358			271
Total interest income		53,076			33,290			59.4	%
Interest expense
Interest on deposits		2,500			1,310
Interest on borrowings		1,716			687
Total interest expense		4,216			1,997			111.1	%
Net interest income		48,860			31,293			56.1	%
Provision for loan losses		—			—			n/m
Net interest income after provision for loan losses		48,860			31,293			56.1	%
Noninterest income
Service charges on deposit accounts		3,337			2,611
Other service charges, commissions, and fees		4,415			3,044
Fees from presold mortgage loans		1,574			542
Commissions from sales of insurance and financial products		1,996			946
SBA consulting fees		850			1,301
SBA loan sale gains		2,238			739
Bank-owned life insurance income		654			526
Foreclosed property gains (losses), net		(92	)		(436	)
Securities gains (losses), net		—			—
Other gains (losses), net		(110	)		200
Total noninterest income		14,862			9,473			56.9	%
Noninterest expenses
Salaries expense		19,987			13,787
Employee benefit expense		3,680			2,920
Occupancy and equipment related expense		3,883			2,962
Merger and acquisition expenses		3,249			145
Intangibles amortization expense		1,731			377
Other operating expenses		11,087			7,992
Total noninterest expenses		43,617			28,183			54.8	%
Income before income taxes		20,105			12,583			59.8	%
Income tax expense		5,928			4,228			40.2	%
Net income		14,177			8,355			69.7	%
Preferred stock dividends		—			—

Net income available to common shareholders	$	14,177			8,355			69.7	%


Earnings per common share – basic	$	0.48			0.41			17.1	%
Earnings per common share – diluted		0.48			0.40			20.0	%

ADDITIONAL INCOME STATEMENT INFORMATION
Net interest income, as reported	$	48,860			31,293
Tax-equivalent adjustment (1)		610			544
Net interest income, tax-equivalent	$	49,470			31,837			55.4	%

(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 37% 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

	Twelve Months Ended December 31,						Percent
($ in thousands except per share data – unaudited)	2017			2016			Change

INCOME STATEMENT

Interest income
Interest and fees on loans	$	163,738			121,322
Interest on investment securities		9,987			8,782
Other interest income		3,657			883
Total interest income		177,382			130,987			35.4	%
Interest expense
Interest on deposits		7,544			5,170
Interest on borrowings		5,127			2,437
Total interest expense		12,671			7,607			66.6	%
Net interest income		164,711			123,380			33.5	%
Provision (reversal) for loan losses		723			(23	)		n/m
Net interest income after provision for loan losses		163,988			123,403			32.9	%
Noninterest income
Service charges on deposit accounts		11,862			10,571
Other service charges, commissions, and fees		14,610			11,913
Fees from presold mortgage loans		5,695			2,033
Commissions from sales of insurance and financial products		5,300			3,790
SBA consulting fees		4,024			3,199
SBA loan sale gains		5,479			1,433
Bank-owned life insurance income		2,321			2,052
Foreclosed property gains (losses), net		(531	)		(625	)
FDIC indemnification asset expense, net		—			(10,255	)
Securities gains (losses), net		(235	)		3
Other gains (losses), net		383			1,437
Total noninterest income		48,908			25,551			91.4	%
Noninterest expenses
Salaries expense		66,786			51,252
Employee benefit expense		14,389			10,812
Occupancy and equipment related expense		14,141			11,446
Merger and acquisition expenses		8,073			1,431
Intangibles amortization expense		4,240			1,211
Other operating expenses		37,528			30,669
Total noninterest expenses		145,157			106,821			35.9	%
Income before income taxes		67,739			42,133			60.8	%
Income tax expense		21,767			14,624			48.8	%
Net income		45,972			27,509			67.1	%
Preferred stock dividends		—			(175	)

Net income available to common shareholders	$	45,972			27,334			68.2	%


Earnings per common share – basic	$	1.82			1.37			32.8	%
Earnings per common share – diluted		1.82			1.33			36.8	%

ADDITIONAL INCOME STATEMENT INFORMATION
Net interest income, as reported	$	164,711			123,380
Tax-equivalent adjustment (1)		2,590			2,054
Net interest income, tax-equivalent	$	167,301			125,434			33.4	%

(1)

n/m - not meaningful

First Bancorp and Subsidiaries

Financial Summary – Page 3

	Three Months Ended December 31,						Twelve Months Ended December 31,
PERFORMANCE RATIOS (annualized)	2017			2016			2017			2016
Return on average assets (1)		1.01	%		0.94	%		1.00	%		0.80	%
Return on average common equity (2)		8.04	%		9.17	%		8.62	%		7.73	%
Net interest margin – tax-equivalent (3)		4.01	%		3.94	%		4.08	%		4.03	%
Net charge-offs to average loans		0.13	%		0.12	%		0.04	%		0.14	%

COMMON SHARE DATA
Cash dividends declared – common	$	0.08			0.08		$	0.32			0.32
Stated book value – common		23.38			17.66			23.38			17.66
Tangible book value – common		14.69			13.85			14.69			13.85
Common shares outstanding at end of period		29,639,374			20,844,505			29,639,374			20,844,505
Weighted average shares outstanding – basic		29,657,638			20,146,230			25,210,606			19,964,727
Weighted average shares outstanding – diluted		29,749,378			20,852,861			25,291,382			20,732,917

CAPITAL RATIOS
Tangible common equity to tangible assets		8.23	%		8.16	%		8.23	%		8.16	%
Common equity tier I capital ratio - estimated		10.72	%		10.92	%		10.72	%		10.92	%
Tier I leverage ratio		9.58	%		10.17	%		9.58	%		10.17	%
Tier I risk-based capital ratio - estimated		11.94	%		12.49	%		11.94	%		12.49	%
Total risk-based capital ratio - estimated		12.50	%		13.36	%		12.50	%		13.36	%

AVERAGE BALANCES ($ in thousands)
Total assets	$	5,554,545			3,539,363		$	4,590,786			3,422,267
Loans		4,048,224			2,683,493			3,420,939			2,603,327
Earning assets		4,899,421			3,214,719			4,101,949			3,108,918
Deposits		4,390,879			2,905,501			3,696,730			2,827,513
Interest-bearing liabilities		3,618,312			2,380,614			3,025,401			2,324,823
Shareholders’ equity		699,558			369,037			533,205			360,715

(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 footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.

TREND INFORMATION

($ in thousands except per share data)	For the Three Months Ended
INCOME STATEMENT	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Net interest income – tax-equivalent (1)	$	49,470		42,341		40,609		34,881		31,837
Taxable equivalent adjustment (1)		610		702		693		585		544
Net interest income		48,860		41,639		39,916		34,296		31,293
Provision for loan losses		—		—		—		723		—
Noninterest income		14,862		12,362		11,875		9,809		9,473
Noninterest expense		43,617		34,384		35,084		32,072		28,183
Income before income taxes		20,105		19,617		16,707		11,310		12,583
Income tax expense		5,928		6,531		5,553		3,755		4,228
Net income		14,177		13,086		11,154		7,555		8,355

Earnings per common share – basic		0.48		0.53		0.45		0.34		0.41
Earnings per common share – diluted		0.48		0.53		0.45		0.34		0.40

(1)

See footnote 1 on page 1 of Financial Summary for discussion of tax-equivalent adjustments.

First Bancorp and Subsidiaries

Financial Summary – Page 4

CONSOLIDATED BALANCE SHEETS ($ in thousands - unaudited)	At Dec. 31, 2017			At Sept. 30, 2017			At Dec. 31, 2016			One Year Change
Assets
Cash and due from banks	$	114,301			82,758			71,645			59.5	%
Interest bearing deposits with banks		375,189			326,089			234,348			60.1	%
Total cash and cash equivalents		489,490			408,847			305,993			60.0	%

Investment securities		461,773			322,080			329,042			40.3	%
Presold mortgages		12,459			17,426			2,116			488.8	%

Total loans		4,042,369			3,429,755			2,710,712			49.1	%
Allowance for loan losses		(23,298	)		(24,593	)		(23,781	)		(2.0	%)
Net loans		4,019,071			3,405,162			2,686,931			49.6	%

Premises and equipment		116,233			95,762			75,351			54.3	%
Intangible assets		257,507			160,301			79,475			224.0	%
Foreclosed real estate		12,571			9,356			9,532			31.9	%
Bank-owned life insurance		99,162			88,081			74,138			33.8	%
Other assets		78,771			83,822			52,284			50.7	%
Total assets	$	5,547,037			4,590,837			3,614,862			53.5	%


Liabilities
Deposits:
Non-interest bearing checking accounts	$	1,196,161			1,016,947			756,003			58.2	%
Interest bearing checking accounts		884,254			683,113			635,431			39.2	%
Money market accounts		982,822			793,919			683,680			43.8	%
Savings accounts		454,860			396,192			209,074			117.6	%
Brokered deposits		239,659			215,615			136,466			75.6	%
Internet time deposits		7,995			7,995			—			n/m
Other time deposits > $100,000		347,862			296,006			287,939			20.8	%
Other time deposits		293,342			241,454			238,760			22.9	%
Total deposits		4,406,955			3,651,241			2,947,353			49.5	%

Borrowings		407,543			397,215			271,394			50.2	%
Other liabilities		39,560			29,880			28,014			41.2	%
Total liabilities		4,854,058			4,078,336			3,246,761			49.5	%

Shareholders’ equity
Common stock		432,794			263,493			147,287			193.8	%
Retained earnings		264,331			251,790			225,921			17.0	%
Stock in rabbi trust assumed in acquisition		(3,581	)		(3,571	)		—			n/m
Rabbi trust obligation		3,581			3,571			—			n/m
Accumulated other comprehensive loss		(4,146	)		(2,782	)		(5,107	)		18.8	%
Total shareholders’ equity		692,979			512,501			368,101			88.3	%
Total liabilities and shareholders’ equity	$	5,547,037			4,590,837			3,614,862			53.5	%

n/m = not meaningful

First Bancorp and Subsidiaries

Financial Summary - Page 5

	For the Three Months Ended
YIELD INFORMATION	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Yield on loans		4.79	%		4.84	%		4.78	%		4.71	%		4.60	%
Yield on securities – tax-equivalent (1)		3.35	%		3.73	%		3.55	%		3.41	%		3.09	%
Yield on other earning assets		1.23	%		1.38	%		0.96	%		0.86	%		0.53	%
Yield on all interest earning assets		4.35	%		4.49	%		4.38	%		4.32	%		4.19	%

Rate on interest bearing deposits		0.31	%		0.29	%		0.26	%		0.24	%		0.24	%
Rate on other interest bearing liabilities		1.62	%		1.75	%		1.54	%		1.28	%		1.15	%
Rate on all interest bearing liabilities		0.46	%		0.45	%		0.40	%		0.34	%		0.33	%
Total cost of funds		0.35	%		0.34	%		0.30	%		0.26	%		0.25	%

Net interest margin – tax-equivalent (2)		4.01	%		4.16	%		4.08	%		4.07	%		3.94	%
Average prime rate		4.30	%		4.25	%		4.04	%		3.79	%		3.55	%

(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.

	For the Three Months Ended
NET INTEREST INCOME PURCHASE ACCOUNTING ADJUSTMENTS ($ in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Interest income – increased by accretion of loan discount	$	2,003			1,745			1,968			1,360			898
Interest expense – reduced by premium amortization of deposits		140			85			103			57			38
Interest expense – increased by discount accretion of borrowings		(46	)		(43	)		(29	)		(9	)		—
Impact on net interest income	$	2,097			1,787			2,042			1,408			936

First Bancorp and Subsidiaries

Financial Summary – Page 6

ASSET QUALITY DATA ($ in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Nonperforming assets
Nonaccrual loans	$	20,968			23,350			22,795			25,684			27,468
Troubled debt restructurings - accruing		19,834			20,330			21,019			21,559			22,138
Accruing loans > 90 days past due		—			—			—			—			—
Total nonperforming loans		40,802			43,680			43,814			47,243			49,606
Foreclosed real estate		12,571			9,356			11,196			12,789			9,532
Total nonperforming assets	$	53,373			53,036			55,010			60,032			59,138
Purchased credit impaired loans not included above (1)	$	23,165			15,034			16,846			19,167			—
Asset Quality Ratios
Net quarterly charge-offs to average loans - annualized		0.13	%		-0.07	%		-0.06	%		0.13	%		0.12	%
Nonperforming loans to total loans		1.01	%		1.27	%		1.30	%		1.44	%		1.83	%
Nonperforming assets to total assets		0.96	%		1.16	%		1.21	%		1.35	%		1.64	%
Allowance for loan losses to total loans		0.58	%		0.72	%		0.71	%		0.72	%		0.88	%

(1)

In the March 3, 2017 acquisition of Carolina Bank Holdings, Inc. and the October 1, 2017 acquisition of ASB Bancorp, Inc., 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)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Net interest income, as reported	$	48,860		41,639		39,916		34,296		31,293
Tax-equivalent adjustment		610		702		693		585		544
Net interest income, tax-equivalent (A)	$	49,470		42,341		40,609		34,881		31,837

Average earning assets (B)	$	4,899,421		4,040,257		3,989,593		3,478,525		3,214,719
Tax-equivalent net interest margin, annualized – as reported – (A)/(B)		4.01%		4.16%		4.08%		4.07%		3.94%

Net interest income, tax-equivalent	$	49,470		42,341		40,609		34,881		31,837
Loan discount accretion		2,003		1,745		1,968		1,360		898
Net interest income, tax-equivalent, excluding loan discount accretion (A)	$	47,467		40,596		38,641		33,521		30,939

Average earnings assets (B)	$	4,899,421		4,040,257		3,989,593		3,478,525		3,214,719
Tax-equivalent net interest margin, excluding impact of loan discount accretion, annualized – (A) / (B)		3.84%		3.99%		3.88%		3.91%		3.83%

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 paragraph. Loan discount accretion is a non-cash interest income adjustment 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 December 31, 2017, the Company had a remaining loan discount balance of $26.9 million compared to $12.7 million at December 31, 2016. 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.