TROY, N.C., Oct. 28 /PRNewswire-FirstCall/ -- First Bancorp (Nasdaq: FBNC), the parent company of First Bank, reports that net income for the third quarter of 2008 amounted to $6,197,000, or $0.37 per diluted share. This represents an increase in net income of 7.9% and a decrease in diluted earnings per share of 7.5% from the $5,743,000, or $0.40 per diluted share, reported in the third quarter of 2007. For the nine months ended September 30, 2008, the Company reports net income of $17,004,000, or $1.07 per diluted share. This represents an increase in net income of 6.0% and a decrease in diluted earnings per share of 3.6% from the net income of $16,048,000, or $1.11 per diluted share, reported 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.

Net Interest Income and Net Interest Margin

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Net interest income for the third quarter of 2008 amounted to $22.8 million, a 12.9% increase over the $20.2 million recorded in the third quarter of 2007. Net interest income for the nine months ended September 30, 2008 amounted to $64.1 million, a 9.1% increase over the $58.7 million recorded in the same nine month period in 2007.

The increases in net interest income during 2008 were primarily due to growth in loans and deposits. Also, during the second and third quarters of 2008, the Company recorded non-cash net interest income purchase accounting adjustments related to the Great Pee Dee acquisition totaling $366,000 in each quarter, which increased net interest income. The largest of the adjustments relates to recording the Great Pee Dee time deposit portfolio at fair market value. This adjustment was $1.1 million and is being amortized to reduce interest expense over a total of eleven months, or $100,000 per month, until March 2009.

The impact of the growth in loans and deposits on net interest income was partially offset by a decline in the Company's net interest margin (tax- equivalent net interest income divided by average earning assets). The Company's net interest margin for the third quarter of 2008 was 3.79%, a 21 basis point decline from the 4.00% margin realized in the third quarter of 2007. The Company's net interest margin for the first nine months of 2008 was 3.76% compared to 4.00% for the same nine months of 2007. The Company's net interest margin has been negatively impacted by the Federal Reserve lowering interest rates by a total of 325 basis points from September 2007 to September 2008. When interest rates are lowered, the Company's net interest margin declines, at least temporarily, as most of the Company's adjustable rate loans reprice downward immediately, while rates on the Company's customer time deposits are fixed, and thus do not adjust downward until they mature.

The Company's net interest margin of 3.79% realized for the third quarter of 2008 was an eight basis point increase from the margin realized in the second quarter of 2008. With no changes in the prime rate of interest during the third quarter of 2008, this margin increase was primarily due to the Company's ability to reprice time deposits that matured during the quarter at lower interest rates.

As a result of the 50 basis point cut in interest rates announced by the Federal Reserve on October 8, 2008, the Company expects that its net interest margin will decline in the fourth quarter.

Provision for Loan Losses and Asset Quality

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The Company's 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.

Although the Company has no subprime exposure, the current economic environment has resulted in an increase in the Company's delinquencies and classified assets. At September 30, 2008, the Company's nonperforming assets were $24.1 million compared to $9.0 million at September 30, 2007. At September 30, 2008, approximately $4.3 million of the Company's 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 Company's nonperforming assets to total assets ratio was 0.89% at September 30, 2008 compared to 0.39% at September 30, 2007. The Company's ratio of annualized net charge-offs to average loans was 0.18% for the third quarter of 2008 compared to 0.17% in the third quarter of 2007. For the nine months ended September 30, 2008, the Company's ratio of annualized net charge- offs to average loans was 0.17% compared to 0.15% in the comparable period of 2007.

Although the Company's asset quality ratios discussed above reflect unfavorable trends, they remain superior to those of the Company's peers based on public information available. The table below shows how the Company's ratios compare to Federal Reserve data for all bank holding companies with between $1 billion and $3 billion in assets at June 30, 2008 (the most recent information available):

                                                  First Bancorp   Peer Average
                                                 --------------- -------------
    Nonperforming assets to total assets               0.78%          1.53%
    Annualized net charge-offs to average loans        0.16%          0.39%

    Noninterest Income
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Noninterest income amounted to $5.4 million for the third quarter of 2008, a 27.1% increase from the $4.3 million recorded in the third quarter of 2007. Noninterest income for the nine months ended September 30, 2008 amounted to $16.1 million, an increase of 20.8% from the $13.4 million recorded in the first nine months of 2007. The increases in noninterest income in 2008 primarily relate to increases in service charges on deposit accounts. These higher service charges were primarily associated with the Company expanding the availability of its customer overdraft protection program in the fourth quarter of 2007 to include debit card purchases and ATM withdrawals. Previously the overdraft protection program, in which the Company charges a fee for honoring payments on overdrawn accounts, only applied to written checks.

Noninterest Expenses

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Noninterest expenses amounted to $15.5 million in the third quarter of 2008, an 11.0% increase over 2007. Noninterest expenses for the nine months ended September 30, 2008 amounted to $46.6 million, a 9.4% increase from the $42.6 million recorded in the first nine months of 2007. These increases are primarily attributable to the Company's growth, including the April 1, 2008 acquisition of Great Pee Dee. Additionally, the Company recorded FDIC insurance expense of $337,000 and $839,000 for the three and nine month periods ended September 30, 2008, respectively, compared to none for the same periods in 2007, as a result of the FDIC recently beginning to charge for FDIC insurance again in order to replenish its reserves.

The Company's effective tax rate was 37%-38% for each of the three and nine month periods ended September 30, 2008 and 2007.

Balance Sheet Growth

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During the third quarter of 2008, loans outstanding increased by $45 million, or 8.3% annualized, while deposits increased by $6 million, or 1.3% annualized. The Company's growth in deposits during the quarter was concentrated in brokered CD's, which had interest rates meaningfully lower than the interest rates being offered by several local competitors in the Company's marketplace. The Company's brokered CD's amounted to $47 million at September 30, 2008 compared to $22 million at June 30, 2008. The $47 million in brokered CD's at September 30, 2008 represented just 2.3% of the Company's total deposits.

Total assets at September 30, 2008 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. The Company completed the acquisition of Great Pee Dee Bancorp on April 1, 2008, which had $188 million in loans, $148 million in deposits, and $213 million in assets.

Comments of the President and Other Business Matters

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Jerry L. Ocheltree, President and CEO of First Bancorp, commented on the quarter's results, 'In light of the current economic environment, I am pleased with the solid results we are reporting today.