First Bancorp (FBNC) Q4 2015 earnings summary

Executive summary

• 2015 diluted EPS rose 9.2% YoY to $1.30; lower loan-loss provisions and improving credit quality offset weaker net interest income. Total assets grew 4.5% YoY.

• Loans and deposits both grew, with gains in lower-cost transaction deposits helping reduce funding costs; outlook points to continued growth but further net interest margin compression.

Financial highlights

• Net income was $27.0M, up 8.2% YoY; net income available to common shareholders was $26.4M, up 9.5%, and diluted EPS was $1.30 versus $1.19.

• Reported net interest income fell 9.0% to $119.7M; loan discount accretion declined to $4.8M from $16.0M, mainly as acquired covered loans ran off.

• Total provision for loan losses was a net reversal of $0.8M versus a $10.2M provision in 2014; noninterest income rose to $18.8M from $14.4M, while expenses were $98.1M versus $97.3M.

• Year-end assets were $3.36B, loans $2.52B and deposits $2.81B, up 4.5%, 5.1% and 4.3% YoY, respectively.

Outlook and guidance

• 2016 net interest margin is expected to compress further as loan yields and acquired-loan discount accretion decline, while deposit costs have limited room to fall.

• Provision for loan losses is expected to exceed 2015’s low level, reflecting ongoing charge-offs and expected loan growth.

• Continued loan and deposit growth is expected in 2016, supported by experienced banker hires and expansion into larger, higher-growth North Carolina markets; revenue and earnings benefits may lag expense.

• The effective tax rate is expected to decline to ~34% in 2016, following North Carolina’s scheduled corporate tax-rate reduction to 4%.