First Bancorp is a bank holding company that is headquartered in Troy, North Carolina.  First Bancorp owns and operates First Bank, a state-chartered community bank that was founded in 1934.  First Bank operates 74 branch offices with 63 branches operating in a 21 county market area in the central piedmont and coastal regions of North Carolina, 6 branches in South Carolina and 5 branches in Virginia where First Bank does business as First Bank of Virginia.  First Bank also has a loan production office in Blacksburg, Virginia.  First Bancorp’s common stock is traded on the NASDAQ Global Select Market under the symbol FBNC.  First Bancorp has total assets exceeding $2.5 billion.  As of December 31, 2007, the company had 574 full time and 81 part time employees.  The holding company also owns and operates a nonbank subsidiary, Montgomery Data Services, Inc. a data processing company.  Ranked by assets, the bank was the 7th largest bank headquartered in North Carolina as of December 31, 2007

First Bancorp should not be confused with First Bancorp in Virginia or First BanCorp in Puerto Rico.

First Bank engages in a full range of banking activities, with the acceptance of deposits and the making of loans being its most basic activities.   The bank offers a range of banking services to individuals and small to medium sized businesses in North Carolina.  The bank’s deposit products include checking, savings, NOW, money market accounts, time deposits, certificates of deposits and individual retirement accounts.  The bank’s loan portfolio entails loans for businesses, agriculture, real estate, personal uses, home improvement, and automobiles.  The company also offers credit cards, debit cards, letters of credit, safe deposit box rentals, and bank money orders, as well as electronic funds transfer services, including wire transfers; Internet banking, cash management, and telephone banking capabilities; and access to automated teller machines.  In addition, it provides electronic data processing services, as well as engages in the real estate investment business. 

Further, the company engages in placement of property and casualty insurance products.  The bank is affiliated with ATM networks that give bank customer’s access to 50,000 ATMs, with no surcharge fee.   In 2007, the bank introduced remote capture, which allows business customers with a method to electronically transmit checks received from customers into their bank account without having to visit a branch.  Also in 2007, the bank began an initiative to grow its Hispanic customer base by opening two uniquely Hispanic branches under the trade name “Primer Banco,” which means First Bank in Spanish. 

Montgomery Data’s primary business is to provide electronic data processing services for the bank.  Ownership and operation of Montgomery Data allows the company to do all of its electronic data processing without paying fees for such services to an independent provider.  Maintaining its own data processing system also allows the company to adapt the system to its individual needs and to the services and products it offers.  Although not a significant source of income, Montgomery Data has historically made its excess data processing capabilities available to area financial institutions for a fee.  For the years ended December 31, 2007, 2006 and 2005, external customers provided gross revenues of $204,000, $162,000 and $279,000, respectively.  During 2005, two of the five customers terminated their services with Montgomery Data and switched to another provider.  During 2006, one other customer terminated its service, which left Montgomery Data with two outside customers as of December 31, 2006 and 2007.  Montgomery Data intends to continue to market its services to area banks, but does not currently have any near-term prospects for additional business.

First Bank Insurance is a division of First Bank.  The primary activity of First Bank Insurance is now the placement of property and casualty insurance products.

First Bank Insurance Services offers a variety of personal insurance plans including: homeowners insurance, renters insurance, automobile insurance, insurance for valuable items, flood insurance, water craft insurance, recreation vehicle insurance, and personal umbrella policies.  First Bank Insurance Services also offers a variety of life and health insurance plans including: life insurance, health insurance, Medicare supplements, dental insurance, disability insurance, mortgage protection policies, long term care insurance as well as annuities.

As of September 30, 2008 First Bank had total assets that amounted to $2.7 billion, 18.2% higher than a year earlier.  Total loans at September 30, 2008 amounted to $2.2 billion, a 20.3% increase from a year earlier, and total deposits amounted to $2.0 billion at September 30, 2008, an 11.2% increase from a year earlier.

Net income for the third quarter of 2008 amounted to $6,197,000.  This represents an increase in net income of 7.9% from the $5,743,000 reported in the third quarter of 2007.  For the nine months ended September 30, 2008, net income amounted to $17,004,000.  This represents an increase in net income of 6.0% from the net income of $16,048,000 for the first nine months of 2007.  The 2008 earnings reflect the impact of the acquisition of Great Pee Dee Bancorp, which had $213 million in total assets as of the acquisition date of April 1, 2008, and resulted in the issuance of 2,059,091 shares of First Bancorp common stock.

For the twelve months preceding September 30, 2008, loans increased by $373 million, or 20.3%, of which $185 million was internal growth and $189 million was from the acquisition of Great Pee Dee Bancorp that occurred early in the second quarter of 2008.  Over that same period, deposits increased $204 million, or 11.2%, of which $56 million was internal growth and $148 million was from the acquisition of Great Pee Dee.  For the first nine months of 2008, loans increased by $317 million, or 16.8%, and deposits increased by $185 million, or 10.0%.

The bank experienced solid growth in deposits.  The high growth in money market accounts and savings accounts was due to growth of balances in specific products within these categories that pay premium interest rates.  A portion of the growth of certificates of deposits greater than $100,000 relates to growth in brokered CD’s.   Brokered CD’s amounted to $47 million at September 30, 2008 compared $22 million at June 30, 2008 and zero at December 31, 2007 and September 30, 2007.  The bank utilized brokered CD’s more heavily in the third quarter of 2008 because they had interest rates meaningfully lower than the interest rates being offered by several local competitors in our marketplace.  The $47 million in brokered CD’s at September 30, 2008 represented just 2.3% of our total deposits.  The general declines in certificates of deposits less than $100,000 were a result of the banks decision not to match high promotional time deposit rates being offered by several of our local competitors and, as a result, losing the deposits.

The mix in the loan portfolio remained substantially the same at September 30, 2008 compared to December 31, 2007, with approximately 88% of our loans being real estate loans, 9% being commercial, financial, and agricultural loans, and the remaining 3% being consumer installment loans.  The majority of the real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Although the bank has no subprime exposure, the bank experienced increases in delinquencies and classified assets consistent with current economic conditions.  At September 30, 2008, nonperforming assets were $24.1 million compared to $20.5 million at June 30, 2008, $10.8 million at December 31, 2007 and $9.0 million at September 30, 2007.  At September 30, 2008, approximately $4.3 million of the banks nonaccrual loans outstanding related to loans assumed in the acquisition of Great Pee Dee.  The total amount receivable related to those loans was $9.0 million at September 30, 2008, the balances of which were written down as of the date of the acquisition by $4.7 million in accordance with applicable accounting requirements.

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets.  Net interest income for the three month period ended September 30, 2008 amounted to $22,785,000, an increase of $2,608,000, or 12.9%, from the $20,177,000 recorded in the third quarter of 2007.  Net interest income on a taxable equivalent basis for the three months ended September 30, 2008 amounted to $22,950,000, an increase of $2,637,000, or 13.0%, from the $20,313,000 recorded in the third quarter of 2007. 
 
Net interest income for the nine months ended September 30, 2008 amounted to $64,050,000, an increase of $5,329,000, or 9.1%, from the $58,721,000 recorded in the first nine months of 2007.  Net interest income on a taxable equivalent basis for the nine months ended September 30, 2008 amounted to $64,543,000, an increase of $5,423,000, or 9.2%, from the $59,120,000 recorded in the first nine months of 2007.

Although the bank has no subprime exposure, they did experience increases in delinquencies and classified assets consistent with current economic conditions.  At September 30, 2008, nonperforming assets were $24.1 million compared to $20.5 million at June 30, 2008, $10.8 million at December 31, 2007 and $9.0 million at September 30, 2007.  At September 30, 2008, approximately $4.3 million of the nonaccrual loans outstanding related to loans assumed in the acquisition of Great Pee Dee.  The total amount receivable related to those loans was $9.0 million at September 30, 2008, the balances of which were written down as of the date of the acquisition by $4.7 million in accordance with applicable accounting requirements.

The bank has no foreign loans, few agricultural loans and do not engage in significant lease financing or highly leveraged transactions.  Commercial loans are diversified among a variety of industries.  The majority of the real estate loans are primarily personal and commercial loans where real estate provides additional security for the loan.  Collateral for virtually all of these loans is located within our principal market area.

The banks provision for loan losses amounted to $2,851,000 in the third quarter of 2008 compared to $1,299,000 in the third quarter of 2007.  The provision for loan losses for the nine month period ended September 30, 2008 was $6,443,000 compared to $3,742,000 recorded in the first nine months of 2007.  The higher provisions in 2008 are primarily related to negative trends in asset quality, as previously discussed.

In the third quarter of 2008, we recorded $984,000 in net charge-offs, which resulted in an annualized ratio of net charge-offs to average loans of 0.18%, compared to $773,000 (0.17%) in the third quarter of 2007.  For the nine month periods ended September 30, 2008 and 2007, annualized net charge-offs to average loans ratios were 17 basis points and 15 basis points, respectively.  The bank’s ratio of nonperforming assets to total assets was 0.89% at September 30, 2008 compared to 0.39% at September 30, 2007.

At September 30, 2008, the allowance for loan losses amounted to $27,928,000, compared to $21,324,000 at December 31, 2007 and $20,631,000 at September 30, 2007.  The allowance for loan losses as a percentage of total loans was 1.26% at September 30, 2008, 1.13% at December 31, 2007, and 1.12% at September 30, 2007.

September 30, 2008, the bank’s capital ratios exceeded the regulatory minimum ratios.  The tier I capital ratio was 9.29%.

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