8-K: First Bancorp Navigates Q3 with Strong Adjusted Earnings

First Bancorp reported a significant drop in Q3 net income due to a securities loss, but highlighted strong adjusted earnings and margin expansion.

Summary

• Reported net income for Q3 2025 was $20.4 million, or $0.49 diluted EPS, a decrease from $38.6 million, or $0.93 diluted EPS, in Q2 2025.
• Adjusted net income, excluding a $27.9 million pre-tax securities loss, was $41.8 million, or $1.01 adjusted diluted EPS, an increase from $0.93 adjusted diluted EPS in Q2 2025.
• Net interest income increased by 6.0% from the linked quarter to $102.5 million, and Net Interest Margin (NIM) expanded by 14 basis points to 3.46%.
• Total loans grew by $193.6 million, or 9.3% annualized, reaching $8.4 billion at September 30, 2025.
• Average core deposits increased by $108.1 million from the linked quarter, with total deposits reaching $10.9 billion.
• Noninterest expenses were $60.2 million, a slight increase of $1.2 million from the linked quarter, demonstrating continued expense control.
• The provision for credit losses was $3.4 million, driven by net charge-offs and loan growth, partially offset by a $4.0 million reduction in reserves for Hurricane Helene.
• Asset quality remained strong with annualized net loan charge-offs of 0.14% and nonperforming assets at a low 0.31% of total assets.
• The Tangible Common Equity to Tangible Assets ratio improved by 29 basis points to 9.12%, while regulatory capital ratios decreased slightly due to loan growth.

Sentiment

Score: 7

Explanation: While reported net income and EPS were significantly impacted by a one-time securities loss, the company's core operational metrics, including net interest income, net interest margin, loan and deposit growth, and credit quality, showed strong improvement. Adjusted earnings per share also increased, indicating robust underlying performance and a positive outlook from management.

Positives

• Adjusted diluted EPS increased to $1.01, up from $0.93 in the linked quarter, indicating strong underlying operational performance.
• Net interest income increased by 6.0% from the linked quarter to $102.5 million, and 23.4% from the like quarter.
• Net Interest Margin (NIM) expanded by 14 basis points from the linked quarter to 3.46%, and 58 basis points from the like quarter.
• Loan growth accelerated to $193.6 million, representing a 9.3% annualized increase.
• Total loan yield expanded to 5.69%, up 16 basis points from the linked quarter.
• Average core deposits increased by $108.1 million from the linked quarter, with noninterest-bearing deposits growing by $28.4 million.
• Total cost of deposits increased only 3 basis points to 1.46%, demonstrating effective deposit cost management.
• Noninterest expenses remained controlled, with a slight increase of $1.2 million from the linked quarter, reflecting expense discipline.
• Credit quality remained strong with annualized net loan charge-offs of 0.14% for the quarter.
• Allowance for Credit Losses (ACL) ratio was 1.44%, indicating robust reserve coverage.
• Nonperforming assets (NPAs) remained at a low level of $39.0 million, or 0.31% of total assets.
• The company released $4.0 million of loan loss provision related to Hurricane Helene, reducing the incremental reserve to $3.5 million.
• Tangible common equity to tangible assets ratio increased by 29 basis points to 9.12%, driven by improvements in unrealized losses on the available-for-sale securities portfolio.
• The company maintains capital in excess of well-capitalized regulatory requirements, with a Common Equity Tier I capital ratio of 14.35% and a Total risk-based capital ratio of 16.58%.

Negatives

• Reported net income decreased significantly to $20.4 million from $38.6 million in the linked quarter.
• Diluted EPS decreased to $0.49 from $0.93 in the linked quarter.
• Total noninterest income was negative $12.9 million, primarily due to a $27.9 million pre-tax securities loss from a loss-earnback transaction.
• Regulatory capital ratios (Common Equity Tier I and Total Risk-Based Capital) decreased by 29 and 32 basis points, respectively, from the linked quarter, primarily due to loan growth carrying higher risk weights.
• Total cash and cash equivalents decreased by 15.9% from the linked quarter to $598.0 million.

Risks

• The financial success or changing strategies of the company's customers could impact future results.
• The company's level of success in integrating acquisitions poses a risk.
• Actions of government regulators could influence operations and financial performance.
• Fluctuations in market interest rates could affect profitability.
• General economic conditions, including macro-economic projections, are a key driver in the CECL model and could deteriorate.
• Potential impacts from natural disasters like Hurricane Helene, although reserves have been adjusted, remain a factor.
• Other factors that could affect forward-looking statements are detailed in the Risk Factors section of the company's most recent Annual Report on Form 10-K.

Future Outlook

The company expects to continue improving financial results in 2025, benefiting from increases in asset yields as assets originated in the COVID-era historic low interest rate environment mature or reprice. Management anticipates maintaining expense discipline, strong liquidity, capital levels, and credit quality.

Management Comments

• Richard H. Moore, Chairman and CEO: "First Bancorp continues to improve financial results in 2025 with substantial margin expansion of 14 basis points and continued expense discipline. We grew loans over 9% annualized in the quarter and benefited from the increases in asset yields as assets originated in the COVID-era historic low interest rate environment continue to mature or reprice. Our liquidity position, capital levels and credit quality remain strong. We are very pleased with the Bank's performance through three quarters."
• Richard H. Moore, Chairman and CEO: "We are very pleased with the Company's continued performance improvement. We have meaningful loan and deposit growth through three quarters and we have expanded our Net Interest Margin for six consecutive quarters."

Industry Context

First Bancorp operates in the high-growth markets of North Carolina and South Carolina, states recognized for their strong business environments, high population influx, and tax-friendly policies. The company positions itself as a community bank offering comprehensive financial solutions, navigating the current interest rate environment with a focus on managing deposit costs and increasing loan yields. Its performance is benchmarked against regional peers, with a slightly higher valuation based on Price to Tangible Common Book Value and Price to Earnings.

Comparison to Industry Standards

• The company was included in the KBW Bank Honor Roll in 2022, recognizing it among the top 4% of banks over $500 million in assets for increasing earnings per share for 10 consecutive years.
• First Bank has been named a 'Best Employer in North Carolina' for 2023, 2024, and 2025, ranking #1 in 2023 and 2024 in the extra-large employer category.
• S&P Global ranked the company 10th in performance among all public banks over $10 billion in assets for 2022.
• Forbes recognized First Bank as a 'Best In-State Bank' in North Carolina, ranking 1st or 2nd in 2019, 2020, 2021, and 2024 based on customer satisfaction.
• The company's Price to Tangible Common Book Value was 1.96x as of September 30, 2025, compared to a median of 1.70x for a peer group including SFST, UCB, UBSI, TOWN, SBCF, FCBC, ABCB, FBK, and AUB.
• The company's Price to 2025 Consensus EPS (Normalized) was 13.2x as of October 17, 2025, compared to a median of 12.3x for a peer group including AUB, UBSI, UCB, TOWN, ABCB, SFST, FCBC, FBK, and SBCF.

Stakeholder Impact

• Shareholders: Experienced lower reported EPS due to a one-time securities loss, but may benefit from improved future earnings and tangible book value growth resulting from the strategic loss-earnback transaction and strong core performance.
• Customers: Benefit from continued loan growth, diversified deposit services, and other financial products, supported by the company's focus on service excellence and local expertise.
• Employees: The company's recognition as a 'Best Employer' suggests a positive impact on employee morale and retention, fostering a strong culture.
• Communities: The company's commitment to corporate citizenship, including investments in education, community support, and economic growth, positively impacts the regions it serves.

Next Steps

• Continue focused efforts to manage deposit costs.
• Continue increasing loan yields through new originations and repricing of existing assets.
• Maintain expense discipline and control noninterest expenses.
• Monitor macro-economic projections as a key driver for the CECL model.
• Continue to manage liquidity sources to meet operating needs.

Key Dates

Recommendation

The reported earnings are significantly lower due to a one-time securities loss, which could lead to short-term market volatility. However, the underlying operational performance, as evidenced by strong adjusted earnings, net interest margin expansion, robust loan and deposit growth, effective expense control, and solid credit quality, indicates a healthy core business. The company's capital levels are strong, and its valuation metrics are slightly above the peer median. A seasoned investor would likely 'hold' to observe how the market processes the reported versus adjusted figures and to assess the long-term benefits of the strategic securities loss-earnback transaction.

Keywords

First Bancorp, FBNC, Q3 2025 earnings, financial results, net interest income, net interest margin, loan growth, deposit growth, credit quality, capital ratios, securities loss, banking, community bank, North Carolina, South Carolina