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First Bancorp Annual Report 2015

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First Bancorp Annual Report 2015 EXCELLENCE BY DESIGN First Bancorp Annual Report 2015 02 INNOVATION & TECHNOLOGY 04 A FRESH, NEW APPROACH 06 CELEBRATING 80 YEARS EXCELLENCE BY DESIGN Selected Financial Data Years Ended December 31 2015 2014 CHANGE 2014 ($ in thousands except share data) TO 2015 SELECTED INCOME STATEMENT DATA Net interest income $ 119,747 131,609 -9.0% Provision (reversal) for loan losses (780) 10,195 n/m Noninterest income 18,764 14,368 30.6% Noninterest expenses 98,131 97,251 0.9% Income taxes 14,126 13,535 4.4% Net income 27,034 24,996 8.2% Preferred stock dividends 603 868 -30.5% Net income - common shareholders 26,431 24,128 9.5% PER SHARE DATA Earnings per common share - basic $ 1.34 1.22 9.8% Earnings per common share - diluted 1.30 1.19 9.2% Cash dividends declared - common 0.32 0.32 0.0% Market Price: High 19.92 19.65 1.4% Low 15.00 15.55 -3.5% Close 18.74 18.47 1.5% Book value - common 16.96 16.08 5.5% Tangible book value - common 13.56 12.63 7.4% SELECTED BALANCE SHEET DATA (at year end) Assets $ 3,362,065 3,218,383 4.5% Loans 2,518,926 2,396,174 5.1% Deposits 2,811,285 2,695,906 4.3% Shareholders’ Equity 342,190 387,699 -11.7% PERFORMANCE RATIOS Return on average assets 0.82% 0.75% 7 bps Return on average common equity 8.04% 7.73% 31 bps NONFINANCIAL DATA Common shares outstanding 19,747,509 19,709,881 Number of branches 88 87 Number of employees - full/part time 783/57 770/55 n/m = not meaningful. SHAREHOLDER LETTER Selected Financial Data Dear Shareholders, Customers and Friends, I am pleased to have the opportunity to report on another successful year for our Company. In 2015, we recorded our third consecutive year of earnings growth of more than 9%, while also achieving favorable trends in other key areas of our business. In 2015, we earned $26.4 million, or $1.30 per diluted common share, which was a 9.5% increase compared to the $24.1 million, or $1.19 per diluted common share, earned in 2014. The earnings for 2014 were 21.8% higher than in 2013, and thus the Company has experienced an increase in earnings of over 30% over the past two years. Favorable declines in losses Richard H. Moore on loans and foreclosed properties and good overhead expense control more than offset a challenging interest rate environment. We experienced CEO FIRST BANCORP nice increases in our loan and deposit balances in 2015, while our level of nonperforming assets improved significantly during the year. Our earnings represented a 0.82% return on average assets, which is a six-year high. In 2015, our Company’s share price rose for the fourth consecutive year and closed the year at a price of $18.74, a 1.5% increase from December 31, 2014. This increase follows three years in which the Company’s share price rose by an average of 18% per year. We also continued our streak of paying dividends every year since becoming a public company in 1987. The $0.32 dividend rate paid on each share of stock added an additional 1.8% to overall shareholder return in 2015, resulting in a 3.3% total return for the year. Since December 31, 2015, the overall stock market has declined significantly, with the banking industry having been hit especially hard. Fortunately, the price of our common stock has held up well and as of the date of this In 2015, we writing (March 8, 2016), our stock price has significantly outperformed experienced banking indices. In 2015, we experienced success from several initiatives to grow loan success from balances. Total loans at December 31, 2015 amounted to $2.52 billion, an increase of $123 million, or 5.1%, from the $2.40 billion outstanding a year earlier. Loan growth was especially strong in the second half of the year with several initiatives annualized growth of 8.8%. During the year, several seasoned lenders joined our bank, and we expanded into higher growth markets, which I will discuss to grow loan more below. And I also believe that internal initiatives focused on training and our “Promise to Service Excellence” commitment, also discussed below, balances. contributed to this growth. These same initiatives played a part in the deposit growth we experienced in 2015. For the year, total deposits increased by $115 million, or 4.3%, and amounted to $2.81 billion at year end. We also experienced a favorable shift – 01 – Innovation & Technology in the composition of our deposits, with transaction accounts increasing by $236 million, or 12.6%, and time deposits declining by $121 million, or 14.7%. Transaction accounts are generally our lowest cost funding source, whereas time deposits typically have higher interest rates and thus cost us more. This favorable change in mix contributed to our total funding cost declining from an already low 0.29% in 2014 to 0.24% in 2015. We believe that our core deposit base is one of the most valuable parts of our franchise that will really benefit our Company when interest rates eventually rise. The improvement in our funding cost helped minimize the impact of net interest margin pressure, which is a challenge being experienced by the entire banking industry. With interest rates continuing to hold at historic New Digital Banking Experience lows, it is difficult for banks to reinvest customer deposits at acceptable spreads. While we are not immune to this, our low cost of funds and close New tools and technologies management attention to this area have helped minimize the impact on let customers handle many our Company. Our net interest margin (tax equivalent net interest income of their banking tasks simply and easily from a smartphone, divided by average earning assets) amounted to 4.13% in 2015 compared tablet or personal computer. to 4.58% in 2014. While it declined in 2015, our strong net interest margin remains well above peer averages and is a significant driver of our overall Our free, downloadable mobile app lets iPhone profitability. and Android users manage their business and personal In 2015, we also concluded a successful partnership with the government banking on the go. called the Small Business Lending Fund (SBLF). In 2011, in response to a Customers can manage sluggish economy, the U.S. Treasury introduced the SBLF program to help account activity, check provide economic stimulus. The SBLF was made available to healthy banks statements, set alerts, pay bills with total assets of less than $10 billion. Participating banks were permitted online from anywhere, locate branches, deposit checks by to issue preferred stock to the Treasury with dividend rates that were sending in a photo and much, temporarily tied to the bank’s increase in lending to small businesses in the much more. country. In August 2011, we issued $63.5 million of preferred stock to the Treasury and then followed through by increasing our loans to small business by over 15%, which allowed us to pay the lowest possible dividend rate of 1%. Consistent with the temporary nature of this program, our dividend rate was set to increase to 9% in March 2016. Our intent had always been to redeem the SBLF preferred stock prior to that increase, and we did so in 2015. Now I would like to discuss several strategic initiatives. New Intranet Website Our bank was born in the rural market of Troy, North Carolina in 1935, and We’ve launched a new, secure we are proud to serve many similar markets throughout our footprint. We internal intranet that provides also believe First Bank is the ideal bank to serve larger and higher growth insights and perspective in markets because we know there are significant segments of those markets real time, greatly simplifying that desire to do their business with a high-quality, high-touch community and accelerating how First Bank business gets done. bank. In that regard, our recent branch expansion has been focused on larger, higher growth markets, which I will now discuss. – 02 – First Bank is the ideal bank to serve larger and higher growth markets because we know there are significant segments of those markets that desire to do their business with a high-quality, high-touch community bank. – 03 – A New, Fresh Approach New Markets In 2015, we opened a full service branch in Fayetteville, North Carolina. Fayetteville is the sixth largest city in North Carolina and is close to our Southern Pines headquarters. Fayetteville’s economy is strong and we opened our branch there in October 2015 with seasoned bankers in place. This branch is already increasing market share, and it should provide the foundation for future growth in that area. In the second half of 2015, we recommitted to the Charlotte market. Charlotte is by far the largest city in North Carolina. Several years ago we Branch Design had established a small presence there. But in the second half of 2015, we At First Bank we’re taking a made the decision to more fully commit to this important market and began fresh approach to branch design with innovations both technical that initiative with the hiring of an experienced Charlotte banker. We are and tactile. We’re experimenting currently putting the final pieces in place to open a full service branch in with the elimination of Charlotte and expect to announce an opening date soon. traditional teller lines and establishing work stations, or “pods,” where associates can In January 2016, we announced that five experienced bankers had joined engage and collaborate more First Bank from a local community bank competitor that had recently efficiently with customers, allowing a more private, announced it was being acquired.
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