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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2017

Acquisitions Tables

Condensed Balance Sheet of Carolina Bank and Related Fair Value Adjustments

This acquisition has been accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company may change its valuations of acquired Carolina Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Carolina Bank on March 3, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The $65.3 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

($ in thousands)		As Recorded by Carolina Bank				Initial Fair Value Adjustments					Measurement Period Adjustments					As Recorded by First Bancorp
Assets
Cash and cash equivalents		$	81,466				(2	)	(a)			—					81,464
Securities			49,629				(261	)	(b)			—					49,368
Loans, gross			505,560				(5,469	)	(c)			146		(l)			497,522
							(2,715	)	(d)			—
Allowance for loan losses			(5,746	)			5,746		(e)			—					—
Premises and equipment			17,967				4,251		(f)			—					22,218
Core deposit intangible			—				8,790		(g)			—					8,790
Other			34,976				(4,804	)	(h)			2,382		(m)			32,554
Total			683,852				5,536					2,528					691,916

Liabilities
Deposits		$	584,950				431		(i)			—					585,381
Borrowings			21,855				(2,855	)	(j)			—					19,000
Other			12,855				225		(k)			—					13,080
Total			619,660				(2,199	)				—					617,461

Net identifiable assets acquired																	74,455

Total cost of acquisition
Value of stock issued						$	114,478
Cash paid in the acquisition							25,279
Total cost of acquisition																	139,757

Goodwill recorded related to acquisition of Carolina Bank																$	65,302

Explanation of Fair Value Adjustments

(a)

This adjustment was recorded to a short-term investment to its estimated fair value.

(b)

This fair value adjustment was recorded to adjust the securities portfolio to its estimated fair value.

(c)

This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.

(d)

This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.

(e)

This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.

(f)

This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.

(g)

This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as expense on an accelerated basis over seven years.

(h)

This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.

(i)

This fair value adjustment was recorded because the weighted average interest rate of Carolina Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount will be amortized to reduce interest expense on an accelerated basis over their remaining five year life.

(j)

This fair value adjustment was primarily recorded because the interest rate of Carolina Bank’s trust preferred security was less than the current interest rate on similar instruments. This amount will be amortized on approximately a straight-line basis to increase interest expense over the remaining life of the related borrowing, which is 18 years.

(k)

This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.

(l)

This fair value adjustment was a miscellaneous adjustment to increase the initial fair value of gross loans.

(m)

This fair value adjustment relates to changes in the estimate of deferred tax assets/liabilities associated with the acquisition.

Pro Forma Combined Financial Results of the Company and Carolina Bank

The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and Carolina Bank constituted a single entity during such period.

($ in thousands, except share data)		Carolina Bank earnings - March 3, 2017 to June 30, 2017 - included in Company’s earnings for the six months ended June 30, 2017				Pro Forma Combined Six Months Ended June 30, 2017				Pro Forma Combined Six Months Ended June 30, 2016
Net interest income		$	8,778				78,260				73,533
Noninterest income			1,871				22,874				16,479
Total revenue			10,649				101,134				90,012

Net income available to common shareholders			2,275				21,229				11,264

Earnings per common share
Basic						$	0.86				0.48
Diluted							0.86				0.46