8-K: First Bancorp Navigates Q4 with Strategic Securities Loss

First Bancorp reported a net income of $15.7 million for Q4 2025, impacted by a $43.7 million securities loss, while adjusted diluted EPS rose to $1.19.

Summary

• Net income for the fourth quarter of 2025 was $15.7 million, or $0.38 diluted EPS, compared to $20.4 million ($0.49 diluted EPS) in the linked quarter and $3.6 million ($0.08 diluted EPS) in the like quarter.
• Adjusted net income, excluding a $43.7 million pre-tax securities loss from a loss-earnback transaction, was $49.3 million, or $1.19 adjusted diluted EPS, for Q4 2025.
• Net interest income increased to $106.2 million for Q4 2025, up from $102.5 million in the linked quarter and $88.8 million in the like quarter.
• Net Interest Margin (NIM) expanded to 3.58% in Q4 2025, a 12 basis point increase from 3.46% in the linked quarter.
• Total loans grew by $303.2 million, or 14.3% annualized, reaching $8.7 billion at December 31, 2025.
• Total deposits decreased by $132.7 million, or 4.8% annualized, to $10.7 billion at December 31, 2025.
• The total cost of funds decreased by 15 basis points to 1.36% for Q4 2025, and the total cost of deposits decreased by 14 basis points to 1.32%.
• Noninterest expenses were $62.2 million, a $2.0 million increase from the linked quarter, primarily due to higher other operating expenses and personnel costs.
• A pre-tax gain of $4.6 million was recognized from the sale of an office building during the quarter.
• The allowance for credit losses was reduced by $1.6 million due to a re-evaluation of potential impacts from Hurricane Helene.
• Asset quality remained strong with annualized net loan charge-offs of 0.05% and nonperforming assets at 0.30% of total assets.
• The Company repaid $18 million of subordinated debt during the fourth quarter, contributing to a decline in certain regulatory capital ratios.
• Tangible common equity to tangible assets increased to 9.61% at December 31, 2025, up 49 basis points from the linked quarter.

Sentiment

Score: 7

Explanation: While reported net income and diluted EPS declined quarter-over-quarter due to a strategic securities loss, the underlying operational performance, as indicated by adjusted metrics, NIM expansion, strong loan growth, and excellent asset quality, is very positive. The company is actively managing its balance sheet for future profitability, and capital levels remain robust despite a slight dip from debt repayment and loan growth.

Positives

• Adjusted diluted EPS increased to $1.19 in Q4 2025 from $1.01 in Q3 2025, demonstrating strong underlying operational performance.
• Net Interest Margin (NIM) expanded for the seventh consecutive quarter, reaching 3.58% in Q4 2025, a 12 basis point increase from the linked quarter.
• Net interest income grew by 3.6% from the linked quarter to $106.2 million, driven by effective deposit cost management and increased asset yields.
• Loan growth accelerated significantly, with total loans increasing by $303.2 million (14.3% annualized) to $8.7 billion.
• Total cost of funds decreased by 15 basis points to 1.36%, and total cost of deposits decreased by 14 basis points to 1.32%, reflecting successful deposit cost management.
• Asset quality remains strong, with annualized net loan charge-offs at a low 0.05% and nonperforming assets at 0.30% of total assets.
• Tangible common equity to tangible assets ratio improved by 49 basis points to 9.61%, indicating enhanced capital strength.
• A pre-tax gain of $4.6 million was realized from the sale of an office building, contributing to noninterest income.

Negatives

• Reported net income decreased to $15.7 million in Q4 2025 from $20.4 million in the linked quarter, primarily due to a significant securities loss.
• A $43.7 million pre-tax securities loss ($33.6 million after-tax) was incurred from a strategic loss-earnback transaction.
• Total deposits contracted by $132.7 million, or 4.8% annualized, during the fourth quarter.
• Regulatory capital ratios, including Common Equity Tier I (14.06%) and Total Risk-Based Capital (16.08%), declined from the linked quarter (14.35% and 16.58% respectively), driven by loan growth and subordinated debt repayment.
• Noninterest expenses increased by $2.0 million from the linked quarter to $62.2 million, mainly due to higher other operating expenses and personnel costs.

Risks

• The financial success or changing strategies of customers could impact future performance.
• The Company's level of success in integrating acquisitions poses a risk.
• Actions of government regulators could affect operations and financial results.
• Fluctuations in market interest rates could influence profitability.
• General economic conditions may impact loan demand, credit quality, and overall financial health.

Future Outlook

The Company anticipates continued strong momentum into 2026, expecting to benefit from rising asset yields as higher-yielding assets replace lower-yielding COVID-era assets. Management is pleased with the Bank's performance and its accelerating momentum.

Management Comments

• Richard H. Moore, Chairman and CEO, stated: "First Bancorp closed 2025 with strong momentum, highlighted by a 51 basis-point expansion in net interest margin for the year, solid loan growth and continued expense discipline."
• Moore added: "During the quarter we grew loans at an annualized rate of more than 14% and our earnings continued to benefit from rising asset yields as higher-yielding assets replaced lower-yielding COVID-era assets."
• Moore concluded: "Our liquidity, capital and credit quality remain strong and we are very pleased with the Bank's performance and its accelerating momentum as we move into 2026."

Industry Context

First Bancorp operates in the high-growth markets of North and South Carolina, which are recognized as top states for business with strong population influx and tax-friendly environments. The company positions itself as a leading community bank, offering comprehensive services comparable to larger regional banks while maintaining a local focus. Its performance, particularly in NIM expansion and asset quality, aligns with a favorable interest rate environment for banks that can effectively manage deposit costs and grow higher-yielding assets. The strategic securities loss-earnback transaction reflects an industry trend of portfolio optimization in response to changing rate landscapes.

Comparison to Industry Standards

• First Bancorp is ranked as the 4th largest bank headquartered in North Carolina and the largest community bank in the state.
• The company was included in the KBW Bank Honor Roll in 2022, placing it among the top 4% of banks over $500 million in assets for increasing EPS for 10 consecutive years.
• First Bank has been recognized as the 'Best Employer in North Carolina' for 2023, 2024, and 2025 by Business NC, ranking #1 in 2023 and 2024.
• S&P Global ranked First Bancorp 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 in 2019, 2020, 2021, and 2024, based on customer satisfaction.
• Valuation metrics as of January 16, 2026, show FBNC's Price to Tangible Common Book Value at 1.80x (based on 12/31/25 TBV), which is slightly below the median of 1.82x for a peer group including SFST, UCB, TOWN, UBSI, FCBC, ABCB, SBCF, FBK, and AUB.
• FBNC's Price to 2026 Consensus EPS (Normalized) is 13.3x, slightly above the peer group median of 12.3x, based on an SNL Mean Normalized 2026 EPS Estimate of $4.35.

Stakeholder Impact

• Shareholders: Reported diluted EPS decreased, but adjusted diluted EPS increased, and book value per share and tangible book value per share both increased, indicating mixed but overall positive value creation.
• Employees: The company continues to be recognized as a 'Best Employer in North Carolina,' suggesting a positive work environment.
• Customers: The company emphasizes providing excellent services and maintaining a diversified and granular deposit base, aiming for stable funding and strong relationships.
• Creditors: Repayment of $18 million in subordinated debt demonstrates financial prudence, though it contributed to a slight decline in regulatory capital ratios.

Next Steps

• Continue to benefit from rising asset yields as higher-yielding assets replace lower-yielding COVID-era assets.
• Maintain focus on expense discipline and strong liquidity, capital, and credit quality.
• Leverage accelerating momentum as the company moves into 2026.

Key Dates

Recommendation

The filing presents a mixed picture. While reported net income and diluted EPS declined quarter-over-quarter due to a significant, strategic securities loss, the adjusted figures show strong underlying operational performance, with NIM expansion and robust loan growth. Asset quality remains excellent, and capital ratios, though slightly down, are still well above regulatory requirements. The strategic securities loss-earnback transaction is intended to enhance future earnings, but its immediate impact on reported GAAP earnings creates short-term volatility. Given the strong operational fundamentals offset by the one-time strategic loss and slight dip in regulatory capital, a 'hold' recommendation is appropriate. Investors should monitor the realization of benefits from the securities earn-back and continued deposit growth in future quarters.

Keywords

First Bancorp, FBNC, Earnings, Financial Results, Net Interest Margin, Loan Growth, Deposits, Securities Loss, Capital Ratios, Asset Quality, Banking, Community Bank, North Carolina, South Carolina