First Bancorp
Annual Report 2007

Plain-text annual report

FIR ST B AN CO RP 341 North Main Street Post Office Box 508 Troy, NC 27371-0508 www.FirstBancorp.com First Bancorp 2007 Annual Report FIRST B ANCORP 2007 ANNUAL REPORT First Bancorp Financial Highlights ($ in thousands except share data) Change 2006 2005 to 2007 2007 Years Ended December 31, 2006 S E L E C T E D I N C O M E S T A T E M E N T D A T A Net interest income $ 79,284 74,536 68,591 6.4% Provision for loan losses 5,217 4,923 3,040 6.0% Noninterest income 18,473 14,310 15,004 29.1% Noninterest expenses 57,580 53,198 47,636 8.2% Income taxes 13,150 11,423 16,829 15.1% Net income 21,810 19,302 16,090 13.0% P E R S H A R E D A T A Earnings – basic $ 1.52 1.35 1.14 12.6% Earnings – diluted 1.51 1.34 1.12 12.7% Cash dividends declared 0.76 0.74 0.70 2.7% Market Price: High 26.72 23.90 27.88 11.8% Low 16.40 19.47 19.32 -15.8% Close 18.89 21.84 20.16 -13.5% Book value 12.11 11.34 10.94 6.8% SELECTED BALANCE SHEET DATA (at year end) Assets $2,317,249 2,136,624 1,801,050 8.5% Loans 1,894,295 1,740,396 1,482,611 8.8% Deposits 1,838,277 1,695,679 1,494,577 8.4% Shareholders’ equity 174,070 162,705 155,728 7.0% R A T I O S Return on average assets 1.02% 1.00% 0.94% 2 bps Return on average equity 12.77% 11.83% 10.39% 94 bps Net charge-offs to average loans 0.16% 0.11% 0.14% 5 bps N O N F I N A N C I A L D A T A Shares outstanding 14,377,981 14,352,884 14,229,148 Number of branches 70 68 61 Number of employees – full/part time 574/81 579/82 540/76 Change 2005 to 2006 8.7% 61.9% -4.6% 11.7% -32.1% 20.0% 18.4% 19.6% 5.7% -14.3% 0.8% 8.3% 3.7% 18.6% 17.4% 13.5% 4.5% 6 bps 144 bps -3 bps First Bancorp Table of Contents President’s Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Corporate Profile/Service Area Map . . . . . . . . . . . . . . . . . .8 Local Advisory Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 First Bancorp and Subsidiaries . . . . . . . . . . . . . . . . . . . . . 14 Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . 20 Shareholder Information . . . . . . . . . . . . . . . . . Inside Back Cover Dear Friends and Shareholders: I write to you having just completed my first year as First Bancorp’s Chief Executive Officer. If you follow banks, you know that 2007 was an interesting year for our industry and that 2008 has, thus far, been even more interesting. We began 2007 with the prime rate of interest at its highest level in six years as the Federal Reserve guarded against inflation. However, as the year progressed, an economic slowdown and the revelation of questionable mortgage underwriting standards at some banks and mortgage companies combined to create an uncertain environment, particularly in the financial institution industry. In response to this uncertainty, the Federal Reserve began to aggressively reduce interest rates. At First Bancorp, we have consistently followed what we believe are sound credit underwriting practices, and we also maintain a conservative investment portfolio strategy. Thus, we have not been directly impacted by what is referred to as “sub-prime” loan losses. Although we are not immune to general economic conditions, we believe that our conservative philosophy will help protect us from the types and sizes of losses experienced by others in the industry. Because we have been relatively unaffected by the types of issues generating so much press recently, it has allowed us to continue to focus on providing the best in community banking to our customers, and our financial performance in 2007 reflects those efforts. In 2007 we earned $21.8 million, or $1.51 per diluted share. This was a 13% increase from the $19.3 million, or $1.34 per diluted share we earned in 2006. In 2006, we had an unusual loss of $1.1 million, or $0.08 per diluted share, which impacts the year to year comparison somewhat. We were very successful in gaining additional business in 2007. For the year, total loans increased by $154 million, or 9%, while deposits increased by $143 million, or 8%. Our net interest margin (tax-equivalent net interest income divided by average earning assets) was under constant pressure in 2007, with a flat yield curve creating margin pressure through most of the year, and the immediate impact of cuts in interest rates creating margin pressure late in the year. In light of those challenges, I am pleased with the 4.00% net interest margin we achieved in 2007, which was just 18 basis points lower than it was in 2006. Because most of our revenue is represented by net interest income, we carefully monitor and manage our interest spreads. As I discussed previously, probably the most important area of focus by analysts is asset quality. Asset quality concerns are what have caused so many problems for the banking industry over the past year. In addition to the “sub-prime” losses that we have seen mostly at much larger banks, we have also recently observed asset quality problems at several community banks in the region. We devote substantial time and resources to Jerry L. Ocheltree, President and CEO, First Bancorp and First Bank  Jerry L. Ocheltree, President and CEO, First Bancorp and First Bank, at left, and David L. Burns, Chairman, First Bancorp ensure that we minimize the risks associated with making loans. We have bilingual, and the branches reflect the Hispanic culture. We conduct their business and that our employees have enough an experienced team of senior lenders who review and approve each want to make it as easy and comfortable as possible for space to best serve their customers. We continually evaluate other’s large loans, and we have an ongoing training program for all of our everyone to experience First Bank’s Banking One-on-One our facilities and make upgrades on a proactive basis. In loan officers. We believe these efforts have helped insulate us from the philosophy. We are fortunate to have Ricardo Romero leading that regard, in 2007 we constructed new branches in both types and extent of losses being experienced by other banks. For the12th our effort. Ricardo has worked hard to make the vision of Kannapolis, North Carolina and Radford, Virginia. I know that consecutive year, First Bancorp’s charge-off ratio (net charge-offs divided Primer Banco a reality and in raising the awareness of the our employees and customers in those locations are proud by average loans) was less than 0.20%. And we compare very favorably Hispanic community of First Bank’s initiative. Ricardo has also of their new branches. We also completed major additions to to peer averages for almost all asset quality ratios. Sound asset quality is established a local advisory board dedicated to this initiative. our Lumberton and Troy-Montgomery Square branches and something we are proud of and will continue to emphasize. Although I view 2007 as a successful year from a financial perspective, the performance of our company’s stock was mixed. Our stock price began 2007 at $21.84 per share and finished the year at $18.89, a 14% decrease for the year. With the increase in our company’s earnings and otherwise stable performance, it appears that our stock’s decline was more associated with the banking sector falling out of favor with investors. While the stock price decline is disappointing, First Bancorp stock performed far better than that of the average bank stock in 2007. When you factor in the return our shareholders received in the form of cash dividends, the total return for First Bancorp stock in 2007 was a 10% decrease. This compares to a 27% decrease experienced by a peer group of all banks in the nation. Now I would like to discuss some of the accomplishments for 2007, as well as some things we have planned for the upcoming year. We entered 2007 having made significant investments in our expansion along the southeastern North Carolina coast. In the fourth quarter of 2006, we opened four full service branches in this area, with two branches in Wilmington, one in Shallotte and one in Leland. We continued this expansion in February 2007 with the opening of a full service branch in Ocean Isle Beach. This coastal region continues to be one of the highest Bienvenidos amigos! Our expansion initiatives in 2007 were not limited to new branches. In July 2007, I was pleased to inform you that we had reached an agreement to acquire Great Pee Dee Bancorp, Inc. and its banking subsidiary, Sentry Bank & Trust, which has approximately $220 million in total assets. Sentry Bank & Trust has faithfully served the good folks of Cheraw, South Carolina since 1935 and has more recently expanded to Florence, South Carolina. Both have plans to construct a new branch office in Mt. Pleasant in the spring. We also expect to begin expanding our Harmony branch later in 2008. We know that the need to replace or expand our buildings means we are growing our business, and we are pleased to make these investments. Another investment we started late in 2006 that we continue to implement was a major internal project to identify processes that could be improved, either from an efficiency standpoint or John Long, President, Great Pee Dee Bancorp and Sentry Bank & Trust, at left, and James Crawford III, Chairman, Great Pee Dee Bancorp Cheraw and Florence are in counties that are contiguous to a better customer-experience standpoint. Indeed, we found ones we already serve. Not only is this merger a natural fit for several processes where we thought we could work smarter us geographically, but it is also a great fit culturally. John Long, and more efficiently, with either no change in customer growth markets in the three-state area in which we operate. With many the President of Sentry Bank, and the rest of his team treat service or an improvement in customer service. As a result of of the start-up expenses associated with new branches behind us, these their customers with the same high degree of personalized this project, we reassigned certain personnel to new functions coastal branches are now a positive contributor to earnings. care that we emphasize at First Bank. I have enjoyed getting and slowed new hiring in certain areas of our bank. Due to And speaking of high growth, the fastest growing segment of our to know the staff at Great Pee Dee, including their Chairman, these initiatives, despite adding two new full service branches market’s population is the Hispanic population, many of whom are not Jim Crawford, who is scheduled to join our board of directors and growing our company by over $180 million in assets, our currently using a bank. In 2007, we opened two uniquely Hispanic branches when the transaction is complete. Welcome friends! number of full time equivalent employees actually declined under the trade name “Primer Banco,” which means First Bank in Spanish. We now have 71 bank branches. We believe it is important by six in 2007 (via natural attrition) with what we believe is The staff in these two branches, located in Asheboro and Candor, are that our customers have an attractive branch in which to the same or improved level of customer service. We monitor 3 various overhead ratios, which confirm that we have become our customers to extend their banking day by providing make life easier for our business customers, while also And we will also continue to provide the best in a more efficient company. same day credit for deposits until 5 pm. generating fee income for the bank. community banking in 2008. With the possibility that some In 2007, we also introduced several new products Also in 2007, we partnered with an outside merchant And just recently, we announced that we had joined of our competitors are currently distracted with other to improve our customers’ banking experience. First, credit card company who provides us with the ability several new ATM networks with a total of almost 50,000 matters, we believe there is an opportunity right now in the we began by offering remote capture to our business to offer business customers state-of-the-art credit-card ATMs, all of which can be used by First Bank customers for marketplace to gain new market share by continuing to do customers. Remote capture is a relatively new technology products and services, including wireless credit card free. We know our customers are happy that they can access what we have always done best – Banking One-on-One. that provides business customers with a method to terminals, web-based reporting, and the ability to offer their money almost anywhere in the country without having Before I conclude, I would like to thank Jimmie Garner, electronically transmit checks received from customers into gift cards. The company we partnered with also has a to pay a surcharge fee. our retired CEO, for his continued service to our company. their bank account without having to visit a branch. This is dedicated sales team covering our market territory that In 2008, we will continue with our strategic expansion Jimmie served as a consultant to the bank in 2007 following an especially valuable service to our customers who are not actively assists us in increasing the number of customers initiatives. We currently have a full service branch planned for his retirement from full time employment in 2006 after in close proximity to one of our branches, and it also allows that we provide this service. These credit card services Fort Chiswell, Virginia, which will likely be open by the time 37 years with First Bank. During the year, Jimmie served First Bancorp Performance 2,317 2,137 1,801 0.70 0.66 0.63 0.76 0.74 1,639 1,476 1.40 1.35 1.34 1.12 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 T O T A L A S S E T S Dollars in millions D I V I D E N D S P E R S H A R E Dollars E A R N I N G S P E R S H A R E Dollars you read this letter. Fort Chiswell is located at the intersection as a spokesman for our company to the public and to our of Interstates 77 & 81 and our branch there will be just a employees at various events and functions, and I leaned on few miles away from our branch in Wytheville, where we him for advice as I worked hard to keep us on the path he have had great success. We are also evaluating several new set. Jimmie has graciously agreed to continue to serve on our markets for the possibility of opening branches. Community Service Advisory Board. The leadership Jimmie Also planned for 2008 is the implementation of branch provided to this company will endure for many years to capture. Branch capture uses similar technology as remote come, and we can’t thank him enough for it. capture and will allow our branches to electronically Accompanying the mailing of this annual report is our proxy transmit their daily teller work to the home office. This will statement and the notice of our Annual Shareholders Meeting, 1.51 make us more efficient by reducing the expense we incur which is being held at the James H. Garner Conference Center in having to physically pick up each branch’s work. This is at 3:00 PM on May 15, 2008. There is important information especially important as we continue to expand the market regarding your company contained within the proxy statement, areas we serve. and I encourage you to read it closely. On the back of the proxy Already in 2008, we have added the ability to offer our statement is a location map for your convenience. I invite you customers government-sponsored FHA and VA loans. These to attend this meeting, which will give you an opportunity types of loans require a great deal of expertise, and we have to meet the management and board of directors of your recently made additions to our mortgage loan staff with the company, as well as the opportunity to personally welcome required skills. We felt the addition of these products was our newest director, Jim Crawford, to First Bancorp. especially important given the growth in military personnel Your support is appreciated, and I welcome your comments that we expect in our market areas surrounding Fort Bragg as and suggestions. a result of the Base Realignment and Closure (BRAC) actions Sincerely, approved by Congress in November 2005. While some military bases in other states are closing, the number of military personnel at Fort Bragg is expected to increase as a Jerry L. Ocheltree result of BRAC. We are eager to serve their banking needs. February 26, 2008 5 L to R, Dennis A. Wicker, Virginia C. Thomasson, Frederick L. Taylor II, James G. Hudson Jr., Jack D. Briggs, Mary Clara Capel, A. Jordan Washburn, John F. Burns, R. Walton Brown, John C. Willis, Jerry L. Ocheltree, Goldie H. Wallace, David L. Burns, Thomas F. Phillips, and George R. Perkins Jr. First Bancorp Board of Directors Jack D. Briggs James G. Hudson Jr. Virginia C. Thomasson, CPA President of J. Briggs, Inc., Davidson Funeral Home, Executive Vice President Chairman, Montgomery Data Inc., Carter Funeral Home, Inc. and Mountain View of First Bank Services, Inc. Denton, Inc., and Secretary, Piedmont Funeral Home Funeral director and retail furniture merchant Jerry L. Ocheltree President and CEO Partner, Holden, Thomasson & Longfellow, P.C. R. Walton Brown Executive Vice President of First Bank David L. Burns Chairman, First Bancorp President, Z. V. Pate, Inc. Holding company for agricultural, timber, restaurant and retail sales operations John F. Burns Executive Vice President First Bancorp and First Bank Mary Clara Capel Director of Administration, Capel, Inc. Rug manufacturer, importer, exporter First Bancorp and First Bank Goldie H. Wallace George R. Perkins Jr. Chairman and CEO Investor A. Jordan Washburn Frontier Spinning Mills, LLC Chairman, First Bank Insurance Thomas F. Phillips Chairman, First Bank Owner, Phillips Ford Frederick L. Taylor II President Troy Lumber Company Services, Inc. Retired Dennis A. Wicker Attorney, Helms Mulliss & Wicker, PLLC John C. Willis Investor First Bancorp First Bank Executive Officers Regional Executive Officers Area Executive Officers H. Dean Martin Senior Vice President Robert T. Patterson Senior Vice President Frances H. Cagle Senior Vice President Joseph F. Youngblood Senior Vice President Susie C. Jones Vice President Glenn Batten Senior Vice President Michael W. Vinson Senior Vice President Janet D. Abernethy Senior Vice President Richard E. Clayton Senior Vice President David C. Foushee Senior Vice President Roger S. Gentry Jr. Senior Vice President Jimmy G. Grubbs Senior Vice President Michael L. Hardin Senior Vice President J. Bradford Mickle Senior Vice President Jimmy R. Preslar Senior Vice President Stamey R. Taylor Senior Vice President Charles R. Vance III Senior Vice President Jerry L. Ocheltree President and CEO First Bancorp and First Bank Anna G. Hollers Chief Operating Officer Executive Vice President Secretary Teresa C. Nixon Chief Lending Officer Executive Vice President David G. Grigg President Montgomery Data Services, Inc. R. Walton Brown Executive Vice President John F. Burns Executive Vice President Eric P. Credle Chief Financial Officer Executive Vice President Timothy S. Maples Senior Vice President Assistant Secretary Lee C. McLaurin Senior Vice President Controller 6 7 Corporate Profile Service Area First Bancorp is a bank holding company based in Troy, North Carolina. Its principal activity is the ownership and operation of First Bank, a state- chartered community bank that operates 71 branch offices, with 63 branches operating in a 21-county market area in central and southeastern North Carolina; three branches in South Carolina; and five branches and a loan production office in Virginia, where First Bank does business as First Bank of Virginia. First Bank Insurance Services, Inc., a provider of property and casualty insurance coverage, is a subsidiary of First Bank. Montgomery Data Services, Inc. is a non-bank subsidiary which provides electronic data processing services. Map Legend First Bank Main Office First Bank Branches First Bank Branches operating as First Bank of Virginia Loan Production Office Sentry Bank & Trust Branches 8 VIRGINIA NORTH CAROLINA Cheraw CHESTERFIELD SOUTH CAROLINA COLUMBUS Florence FLORENCE Ocean Isle Beach 9 First Bank Local Advisory Boards Albemarle & Richfield Broadway Bradford Barringer Richard Clayton Sr. Tony Dennis Ruby Fraley William Harvey Angela Krol Tony Lowder Dean Martin David Mullis G. T. Rabe Jr. Angier Bill Adams James Burgin Donald Gregory Dan Honeycutt Thomas Stancil Apex William Gordon Jack Hunter Karl Lack Milton Rogers Jr. Asheboro Brooks Hedrick Kennan Hill Gilbert Ingold Nancy Stover Charles Swiers Billie Wilson Bobby Wright Biscoe & Candor Ralph Bostic Kristy Garner Larry Preslar Tim Privett Vance Richardson Harold VanDerveer Jr. Donald Andrews Jr. Cecil Cameron Stewart Forbes Henry Green Donny Hunter Frank McDonald Katherine Taylor Gary Thomas Brunswick County Dave Kesterson Brad Mickle William Smith Denton Stan Bingham Jack Briggs Delbert Cranford Leroy Hinesley Peggy (Dixie) Kearns Wanona Smith Dillon County, SC Carroll Allen Gerald Arnette Jr. Walton Brown McKethan Gaddy Lafon Legette Jr. Douglas Lynn Mendel Smith Lewis Stepp Charles Vance III 10 Duplin County (serves Kenansville, Rose Hill and Wallace) Glenn Batten Dennis Beasley Alice Brown Ronald Collier Robert Frederick II Jonathan Fussell Jimmy Jackson Ross Powell Lawrence Rouse Joseph Wallace Kevin Wilson Fairmont James Capps William Greene Jr. Hal Herring Jr. Frank McCree Ronald Nye Isiah Taylor Vayda Taylor Harmony L. A. Anderson Jr. Norman Dudley Jo Ellen Fox Robert Moore Teresa Sherrow High Point & Archdale Dwight Bumgarner Caroline Burnett Michael Byrd Steve Foley Jack Hendrix Ryan Hoskins Warren Lackey Clayton Miller Jr. Jerry Ocheltree Walter Stanley Jordan Washburn Joseph Youngblood Kannapolis Dallas Campbell Michael Hurlbert Rosena Johnson Michael Lowder Billie Overcash Wayne Petrea Melvin Rape Lillington & Anderson Creek David Avrette Edgar Bain James Blaylock Charles Griffin Reginald Kelly Harold Lassiter Edgar Smith Jr. Stamey Taylor Donald Ray Turlington Charles Wellons II Ray Womble Jr. Robert Womble Thomas Womble Thomas Wood Locust & Polkton Betty Eskridge Gerald Friedman Dakeita Vanderburg-Horton Timothy Huie Leon Huneycutt Richard Jones Jerry Jordan Adrian Marbry Robert McCoy Peggy Morgan Ronald Turner North Moore (serves Bennett, Carthage, Robbins, Seagrove and Seven Lakes) Tammy Barnett Stan Beck Christopher Brady Frances Cagle Wyanne Caviness John Frye Sr. James Garner John Garner Robin Garner Rebecca Gilmore Kenneth Hill Phyllis Lawrence Bernard Routh Arnold Swindell Pembroke Timothy Brooks Ronald Brown Michael Hardin Diane Jones Cynthia Locklear Eddie Mac Locklear William Oxendine Pittsboro William Arthurs Debbie Brown Joe Burke Faye Dark David Foushee Linda Harris James Nordan Hazel Puckett Ralph Riddle Rouse Wilson Lumberton Herman Chavis Michael Hardin Edward Hickman Staley Jackson Nancy Jessup Susie Jones Lacy Koonce Jr. Evelyn Price Bhagirath Shah Mayodan LeGrand Bennett Jr. Claude Hopper Lonnie Sechrist Dennis Sparks Steve Wall Mooresville Janet Abernethy Clyde Howard Dean Stein Paul Taylor Kevin Vanhoy Betsy Yarborough Mt. Pleasant Zeba Barringer Richard Clayton Sr. Max Cruse Doris Furr Lee Kluttz Rick Lambert David Lockhart David Preddy Kay Scott New Hanover County Marcie Bibb Dawn Carter Donna Gurganus Gerald Kinlaw Brad Mickle Donnie Norris Matt Scharf William Stanfield III Shelly Wagner 11 First Bank Local Advisory Boards First Bank of Virginia Rockingham Georgia Cagle Jim Cox Juanita Cox Bryan Leggett Jimmy Maske Jesse Spencer Salisbury Janet Abernethy Bradley Bost Donald Bost Sr. Millie Cress William Furr Darrell Hancock William Mason John Porter Rachel Ross Harry Welch Jr. Jane Welch Sanford Rex Brown David Foushee Teresa Nixon Donald Oldham Robert Patterson George Perkins Jr. Ronald Perkinson Hal Perry Angela Poole Lloyd Tice Jr. James Wicker Clement Williams Jeffrey Yow St. Pauls Tim Ferguson Claude Fulghum Jr. Fred Gibson Jr. Teresa Kashner John Odum Lloyd Williams Thomasville Thomas Ballard Josephine Citrin Henry Darr James Hudson Jr. John Hunnicutt Stuart Kennedy Esmail Nikouyeh Milton Riley Jr. Michael Sanders William Slate John Todd Troy David Britt Hilton Cochran Sr. Winston Dozier Jr. Rick Harris Jerry Holder Rosemary Huntley William Maness Bobby Morris Jimmy Preslar Scotland County (serves Laurel Hill, Laurinburg and Maxton) Clifton Buie David Burns Paul Davis Ronald Gibson T. G. Gibson III Betty Hasty R. M. Henderson Hyder Massey Jr. Charles Nichols Jimmy Preslar Frank Roofe III Michael Vinson Mark Ward Andrew Williamson Jr. South Moore (serves Aberdeen, Pinebluff, Pinehurst, Southern Pines and Vass) Allan Beck Hugh Bingham Charles Boyer E. E. Brafford John Burns Felton Capel Henry Clayton Lori Foster Bob Friesen Philip Fulghum James Garner Roger Gentry Stewart McFadyen Michael McMillan Charles McWilliams Tim Myrick Malcolm Owings Robert Page III George Parker William Samuels Robert Springer Edward Taws Jr. Lynette Williams 12 Community Service Advisory Board Primer Banco Advisory Board David Bruton Heriberto Corral-Lopez Victor Dau Andres Hernandez Jorge Antonio Mendez-Contreras Jimmy Preslar Daniel Reza Irma Robledo Isai Robledo Luis Rodriguez Ricardo Romero Matthew Rothbeind Judith Singleton Joe Youngblood Felton Capel, Chairman Janet Abernethy Joe Arundell Ralph Bostic David Bruton Jesse Capel Richard Clayton Sr. David Foushee James Garner Roger Gentry Jim Grubbs Michael Hardin Andres Hernandez Wynne’e Roxanne Horton Travis Jackson Diane Jones Louise Mack Brad Mickle Ann Moffitt Teresa Nixon Jerry Ocheltree Jimmy Preslar William Roberts Kate Rumley Stamey Taylor Charles Vance III Chanaka Yatawara Local Advisory Boards Abingdon Janet Berry John Carrico Susan Forkner Jim Grubbs Andrew Hargroves J. W. Kiser Radford Darryl Gillespie Jeffrey Irby Jeffrey Price Wytheville David Carpenter Robert Fowlkes Jr. Jim Grubbs George Johnstone Sr. Stanly King Jr. Lanny Lindamood Thomas Lovelace Jerry Ocheltree Barbara Shannon Amanda Brewer-Smith Phyl Snapp Charles Stanley III 13 First Bancorp & Subsidiaries Financial Report Subsidiaries of First Bancorp Subsidiary of First Bank First Bancorp 341 N. Main Street Troy, NC 27371-0508 First Bank 341 North Main Street Troy, NC 27371-0508 David L. Burns Chairman Thomas F. Phillips Chairman Jerry L. Ocheltree President and Chief Executive Officer Jerry L. Ocheltree President and Chief Executive Officer Montgomery Data Services, Inc. 355 Bilhen Street Troy, NC 27371-0627 Virginia C. Thomasson Chairman David G. Grigg President Fred M. Thompson Senior Vice President Phyllis A. Stevenson Assistant Vice President Bradley Ferree IT Network Officer First Bank Insurance Services, Inc. A. Jordan Washburn Chairman Jerry L. Ocheltree President 580 South West Broad Street Southern Pines, NC 28388 Stuart F. Fields Vice President 1030 Albemarle Road Troy, NC 27371 Jeffrey A. Morris Vice President Bobby R. Morris Assistant Vice President The following is a brief summary of First Bancorp’s The impact of the growth in loans and deposits financial results for 2007. The final paragraph on on the Company’s net interest income was partially page 16 contains information on where to find a offset by a decline in the Company’s net interest more detailed analysis. margin (tax-equivalent net interest income divided First Bancorp’s net income for 2007 was $21.8 by average earning assets). The Company’s net million, or $1.51 per diluted share, a 13% increase interest margin in 2007 was 4.00% compared to over the $19.3 million, or $1.34 per diluted share, 4.18% in 2006. For most of 2007, the Company’s earned in 2006. Results for 2006 include the net interest margin experienced pressure as a write-off loss of a merchant credit card receivable result of the flat interest rate yield curve that amounting to $1.9 million which had an after-tax was prevailing in the marketplace. The Company impact of $1.1 million, or $0.08 per diluted share, was also negatively impacted during that period on the Company’s earnings for 2006. The increase by customers shifting their funds from low cost in earnings in 2007 was also a result of higher net deposits to higher cost deposits as rates rose. interest income and noninterest income, caused by In late 2007, the Company’s net interest margin growth in the Company’s customer base, which was was negatively impacted by the Federal Reserve partially offset by higher operating expenses that lowering interest rates by a total of 100 basis are also associated with the Company’s growth. points during the last four months of the year. The Company experienced strong balance sheet When interest rates are lowered, the Company’s growth in 2007. Total assets at December 31, net interest margin declines, at least temporarily, 2007 amounted to $2.32 billion, 8.5% higher than as most of the Company’s adjustable rate loans a year earlier. Total loans at December 31, 2007 reprice downward immediately, while rates on the amounted to $1.89 billion, an increase of $154 Company’s customer time deposits are fixed, and million, or 8.8%, from a year earlier. Total deposits thus do not adjust downward until they mature. For amounted to $1.84 billion at December 31, 2007, these same reasons, the Company expects its net an increase of $143 million, or 8.4%. All of the interest margin to experience further compression loan and deposit growth in 2007 was internally- as a result of the Federal Reserve continuing to generated, as there were no acquisitions that were lower interest rates in the early part of 2008. completed during the year. Total shareholders’ The Company’s provision for loan losses did equity amounted to $174.1 million at December 31, not vary significantly in 2007 when compared 2007, a 7.0% increase from a year earlier. to 2006, amounting to $5,217,000 in 2007 and The growth in loans and deposits was the primary $4,923,000 in 2006. Asset quality changes and reason for increases in the Company’s net interest loan growth are the most significant factors that income when comparing 2007 to 2006. Net interest impact the Company’s provision for loan losses. income amounted to $79.3 million in 2007, a 6.4% Generally in 2007, the impact of unfavorable asset increase over the $74.5 million recorded in 2006. quality trends on the Company’s provision for loan L to R, A. Jordan Washburn, Chairman, First Bank Insurance Services, Inc.; Jerry L. Ocheltree, President and CEO, First Bancorp and First Bank; Virginia C. Thomasson, CPA, Chairman, Montgomery Data Services, Inc.; David L. Burns, Chairman, First Bancorp; and Thomas F. Phillips, Chairman, First Bank 14 15 Financial Report (cont.) Selected Consolidated Financial Data losses was largely offset by lower loan growth Noninterest expenses for the year ended experienced during the year compared to 2006. December 31, 2007 amounted to $57.6 million, The Company’s net charge-offs to average loans an 8.2% increase from the $53.2 million recorded ratio was 0.16% for the year ended December 31, in 2006. These increases in noninterest expenses 2007 compared to 0.11% in 2006, while the ratio are primarily attributable to costs associated with of nonperforming assets to total assets was 0.47% the Company’s overall growth in loans, deposits at December 31, 2007 compared to 0.39% a year and branch network. Since October 1, 2006, the earlier. Net internal loan growth for 2007 was Company has opened six full service bank branches. $154 million compared to $252 million for 2006. Additionally, for the first time in many years, the Although the Company’s level of nonperforming Company began to again record FDIC insurance assets increased in 2007, based on public expense in the fourth quarter of 2007. This was as information available, it remains more favorable a result of the FDIC recently beginning to charge than the average for the Company’s peers. for FDIC insurance again in order to replenish its Noninterest income for the year ended December reserves. The Company recorded $100,000 in FDIC 31, 2007 amounted to $18.5 million, an increase of insurance expense in the fourth quarter of 2007 29.1% from the $14.3 million recorded in 2006. The and expects that its FDIC insurance expense will be Company achieved increases in all major categories approximately $1 million in 2008. of noninterest income in 2007, largely as a result During both 2006 and 2007, the Company’s of overall growth in the Company’s customer effective tax rate was approximately 37%. base. The categories of noninterest income with The foregoing discussion and financial the largest increases, “service charges on deposit information in this report is only intended to accounts” and “other gains (losses)”, also had provide a general overview of the Company’s other factors that played a role in their increase. financial position and results of operations. Service charges on deposit accounts increased 11%, In order to fully analyze and understand our which was primarily associated with the Company financial position and results of operations, you’ll expanding the availability of its customer overdraft want to review the Form 10-K, which includes protection program in the fourth quarter of 2007 to Management’s Discussion and Analysis. For include debit card purchases and ATM withdrawals. shareholders, the Form 10-K is being mailed with Previously the overdraft protection program, in this report. For other interested parties, you can which the Company charges a fee for honoring access our Form 10-K through the SEC EDGAR payments on overdrawn accounts, only applied database at www.sec.gov or if you’d prefer, to written checks. The increase in “other gains contact investor relations at First Bancorp — (losses)” was due primarily to an unusual loss that you’ll find contact information on the inside occurred in 2006 that did not recur in 2007 — a of the back cover. $1.9 million merchant credit card loss. ($ in thousands, except per share data) Year Ended December 31, 2007 2006 2005 2004 2003 I N C O M E S T A T E M E N T D A T A Interest income $ 148,942 129,207 101,429 81,593 74,667 Interest expense 69,658 54,671 32,838 20,303 18,907 Net interest income 79,284 74,536 68,591 61,290 55,760 Provision for loan losses 5,217 4,923 3,040 2,905 2,680 Net interest income after provision 74,067 69,613 65,551 58,385 53,080 Noninterest income 18,473 14,310 15,004 15,864 14,918 Noninterest expense 57,580 53,198 47,636 43,717 37,964 Income before income taxes 34,960 30,725 32,919 30,532 30,034 Income taxes 13,150 11,423 16,829 10,418 10,617 Net income $ 21,810 19,302 16,090 20,114 19,417 Earnings per share – basic $ 1.52 1.35 1.14 1.42 1.38 Earnings per share – diluted 1.51 1.34 1.12 1.40 1.35 Shares outstanding – basic 14,378,279 14,294,753 14,165,992 14,138,513 14,076,471 Shares outstanding – diluted 14,468,974 14,435,252 14,360,032 14,395,152 14,351,106 P E R S H A R E D A T A Cash dividends declared $ 0.76 0.74 0.70 0.66 0.63 Dividend payout ratio 50.00% 54.81% 61.40% 46.48% 45.65% Market price High $ 26.72 23.90 27.88 29.73 21.49 Low 16.40 19.47 19.32 18.47 15.30 Close 18.89 21.84 20.16 27.17 20.80 Stated book value 12.11 11.34 10.94 10.54 10.02 Tangible book value 8.56 7.76 7.48 7.04 6.44 SELECTED BALANCE SHEET DATA (AT YEAR END) Total assets $2,317,249 2,136,624 1,801,050 1,638,913 1,475,769 Loans 1,894,295 1,740,396 1,482,611 1,367,053 1,218,895 Allowance for loan losses 21,324 18,947 15,716 14,717 13,569 Intangible assets 51,020 51,394 49,227 49,330 50,701 Deposits 1,838,277 1,695,679 1,494,577 1,388,768 1,249,364 Shareholders’ equity 174,070 162,705 155,728 148,478 141,856 S E L E C T E D A V E R A G E B A L A N C E S Assets $2,139,576 1,922,510 1,709,380 1,545,332 1,339,823 Loans 1,808,219 1,623,188 1,422,419 1,295,682 1,113,426 Earning assets 1,998,428 1,793,811 1,593,554 1,434,425 1,245,679 Deposits 1,780,265 1,599,575 1,460,620 1,306,404 1,153,385 Interest-bearing liabilities 1,726,002 1,537,385 1,359,744 1,232,130 1,065,949 Shareholders’ equity 170,857 163,193 154,871 146,683 137,293 A S S E T Q U A L I T Y R A T I O S Net charge-offs to average loans 0.16% 0.11% 0.14% 0.14% 0.10% Nonperforming loans to total loans at year end 0.41% 0.39% 0.11% 0.27% 0.35% Nonperforming assets to total assets at year end 0.47% 0.39% 0.17% 0.32% 0.39% Allowance for loan losses to total loans at year end 1.13% 1.09% 1.06% 1.08% 1.11% Allowance for loan losses to nonperforming loans at year end 272.93% 276.11% 950.76% 395.19% 315.93% P E R F O R M A N C E A N D O T H E R R A T I O S Return on average assets 1.02% 1.00% 0.94% 1.30% 1.45% Return on average equity 12.77% 11.83% 10.39% 13.71% 14.14% Net interest margin (taxable equivalent basis) 4.00% 4.18% 4.33% 4.31% 4.52% Efficiency ratio (taxable equivalent basis) 58.57% 59.54% 56.68% 56.32% 53.32% Shareholders’ equity to total assets at year end 7.51% 7.62% 8.65% 9.06% 9.61% Loans to deposits at year end 103.05% 102.64% 99.20% 98.44% 97.56% 16 17 Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Income ($ in thousands) A S S E T S Cash and due from banks, noninterest bearing Due from banks, interest bearing Federal funds sold Total cash and cash equivalents Securities Presold mortgages in process of settlement Loans Less: Allowance for loan losses Net loans Premises and equipment Accrued interest receivable Intangible assets Other Total assets L I A B I L I T I E S Deposits: Demand – noninterest bearing Savings, NOW, and money market Time deposits of $100,000 or more Other time deposits Total deposits Repurchase agreements Borrowings Other liabilities Total liabilities S H A R E H O L D E R S ’ E Q U I T Y Common stock, no par value per share Authorized: 20,000,000 shares Issued and outstanding: 14,377,981 shares in 2007 and 14,352,884 shares in 2006 Retained earnings Accumulated other comprehensive income (loss) Total shareholders’ equity Total liabilities and shareholders’ equity 18 December 31, Year Ended December 31, 2007 2006 ($ in thousands, except per share data) 2 0 0 7 2 0 0 6 2 0 0 5 $ 31,455 111,591 23,554 166,600 151,754 1,668 1,894,295 (21,324) 1,872,971 46,050 12,961 51,020 14,225 $2,317,249 $ 232,141 558,393 479,176 568,567 1,838,277 39,695 242,394 22,813 2,143,179 43,248 83,877 19,543 146,668 143,086 4,766 1,740,396 (18,947) 1,721,449 43,540 12,158 51,394 13,563 2,136,624 217,291 502,775 422,772 552,841 1,695,679 43,276 210,013 24,951 1,973,919 56,302 122,102 (4,334) 174,070 $2,317,249 56,035 111,220 (4,550) 162,705 2,136,624 I N T E R E S T I N C O M E Interest and fees on loans Interest on investment securities Other, principally overnight investments Total interest income I N T E R E S T E X P E N S E Savings, NOW and money market Time deposits of $100,000 or more Other time deposits Borrowings and repurchase agreements Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses N O N I N T E R E S T I N C O M E Service charges on deposit accounts Other service charges, commissions and fees Fees from presold mortgage loans Commissions from sales of insurance and investment products Data processing fees Securities gains Other gains (losses) Total noninterest income N O N I N T E R E S T E X P E N S E S Personnel expense Occupancy and equipment related expense Intangibles amortization Other operating expenses Total noninterest expenses Income before income taxes Income taxes Net income E A R N I N G S P E R S H A R E : Basic Diluted Weighted average common shares outstanding: Basic Diluted $139,323 7,014 2,605 148,942 120,694 6,231 2,282 129,207 94,097 5,660 1,672 101,429 7,094 17,662 21,276 8,639 54,671 74,536 4,923 69,613 8,968 4,578 1,062 1,434 162 205 (2,099) 14,310 30,678 6,866 322 15,332 53,198 30,725 11,423 19,302 1.35 1.34 4,048 11,425 13,043 4,322 32,838 68,591 3,040 65,551 8,537 3,963 1,176 1,307 279 5 (263) 15,004 27,975 6,002 290 13,369 47,636 32,919 16,829 16,090 1.14 1.12 14,294,753 14,435,252 14,165,992 14,360,032 10,368 22,687 26,498 10,105 69,658 79,284 5,217 74,067 9,988 5,158 1,135 1,511 204 487 (10) 18,473 33,670 7,604 374 15,932 57,580 34,960 13,150 $ 21,810 $ 1.52 1.51 14,378,279 14,468,974 19 Independent Auditors’ Report Shareholder Information REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors First Bancorp and Subsidiaries: We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of First Bancorp and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007 (not presented herein), and in our report dated March 5, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheets and condensed consolidated statements of income (included on pages 18 and 19 herein) is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Greenville, South Carolina March 5, 2008 FORWARD LOOKING STATEMENTS The discussions in this annual report contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of histori- cal fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning opinions or judgments of the Company and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of the Company’s customers, the Company’s level of suc- cess in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions. For additional information about the factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of the Company’s most recent report on Form 10-K. 20 CORPOR ATE O FF IC E 341 North Main Street P. O. Box 508 Troy, NC 27371 910-576-6171 800-548-9377 Fax 910-576-0662 www.FirstBancorp.com IND E PE NDE NT AUD ITOR S Elliott Davis, PLLC Greenville, SC CORPOR ATE COU NSE L Robinson, Bradshaw & Hinson, PA Charlotte, NC TR ANS FE R AG E NT Registrar & Transfer Co., Inc. 10 Commerce Drive Cranford, NJ 07016-3572 800-368-5948 www.rtco.com SH A RE H OLD ER S’ ME ET ING The Annual Meeting of Shareholders will be held on May 15, 2008 at 3:00 PM at the James H. Garner Conference Center, 211 Burnette Street, Troy, North Carolina. COMMON STOC K I NFO RMATION The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol FBNC. There were 14,377,981 shares outstanding as of December 31, 2007 with 2,605 shareholders of record and approximately 3,600 additional shareholders that held their shares in “street name.” DI REC T D E POSIT With Direct Deposit, shareholders may enjoy the convenience of having dividends directly deposited into their checking or savings account. There is no cost for this service. Shareholders may obtain further information about Direct Deposit by calling us toll-free at 800-548-9377 and asking for Shareholder Services. SH A RE H OLD ER SE RV IC E S First Bancorp now offers online access to your First Bancorp Stock Account, including your account balance, certificate history, dividend reinvestment plan information and more. Choose Investor Relations at www.FirstBancorp.com and select Shareholder Login. First Bancorp now offers online access to all financial re p o r t s a n d i n c l u d i n g a n n u a l p u b l i c a t i o n s , quarterly reports filed with the Securities and Exchange Commission, at www.FirstBancorp.com. Choose Investor Relations and select SEC Filings. For more information or shareholder assistance, call us toll-free at 800-548-9377 and ask for Shareholder Services. COPIE S OF FORM 10 - K Copies of the First Bancorp Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained at no cost by contacting: Investor Relations Anna Hollers P. O. Box 508 Troy, NC 27371-0508 800-548-9377 or by visiting our corporate website at www.FirstBancorp.com DI V IDE ND RE I NV E STME NT Registered holders of First Bancorp stock are eligible to participate in the Company’s Dividend Reinvestment Plan, a convenient and economical way to purchase additional shares of First Bancorp common stock without payment of brokerage commissions. For an information folder and authorization form, or to receive additional information on this plan, contact: INV E STOR R E LATI ONS Anna Hollers Investor Relations 800-548-9377 or Registrar & Transfer Co., Inc. Dividend Reinvestment Section 10 Commerce Drive Cranford, NJ 07016-3572 800-368-5948 or info@rtco.com 

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