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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2001
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Commission File Number 0-15572
FIRST BANCORP
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(Exact Name of Registrant as Specified in its Charter)
North Carolina 56-1421916
- ------------------------------- -----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
341 North Main Street, Troy, North Carolina 27371-0508
- ------------------------------------------- -----------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (910) 576-6171
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] YES [ ] NO
As of July 31, 2001, 9,239,230 shares of the registrant's Common Stock, no
par value, were outstanding. The registrant had no other classes of securities
outstanding.
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INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
June 30, 2001 and 2000
(With Comparative Amounts at December 31, 2000) 3
CONSOLIDATED STATEMENTS OF INCOME -
For the Periods Ended June 30, 2001 and 2000 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
For the Periods Ended June 30, 2001 and 2000 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -
For the Periods Ended June 30, 2001 and 2000 6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Periods Ended June 30, 2001 and 2000 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders 24
Item 5 - Other Information 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 29
Page 2
Part I. Financial Information
Item 1 - Financial Statements
First Bancorp and Subsidiaries
Consolidated Balance Sheets
June 30, December 31, June 30,
($ in thousands-unaudited) 2001 2000 2000
- ------------------------------------------------------------- ------------- ------------- ------------
ASSETS
Cash & due from banks, noninterest-bearing $ 25,702 20,940 25,718
Due from banks, interest-bearing 8,190 1,769 31,561
Federal funds sold 14,834 7,730 11,829
------------- ------------- ------------
Total cash and cash equivalents 48,726 30,439 69,108
------------- ------------- ------------
Securities available for sale (costs of $111,932,
$69,214, and $111,302) 112,667 69,597 107,670
Securities held to maturity (fair values of $16,899,
$47,661, and $48,903) 16,356 47,924 50,022
Presold mortgages in process of settlement 4,410 1,036 496
Loans 869,713 746,089 704,714
Less: Allowance for loan losses (9,118) (7,893) (7,143)
------------- ------------- ------------
Net loans 860,595 738,196 697,571
------------- ------------- ------------
Premises and equipment 17,291 14,116 13,720
Accrued interest receivable 6,764 6,342 5,713
Intangible assets 22,069 4,630 4,946
Other 4,966 2,887 5,641
------------- ------------- ------------
Total assets $ 1,093,844 915,167 954,887
============= =========== ============
LIABILITIES
Deposits: Demand - noninterest-bearing $ 92,431 70,634 73,271
Savings, NOW, and money market 314,961 253,687 247,516
Time deposits of $100,000 or more 178,470 140,992 129,609
Other time deposits 364,312 305,066 302,391
------------- ------------- ------------
Total deposits 950,174 770,379 752,787
Borrowings 15,000 26,200 84,000
Accrued interest payable 4,032 4,254 3,458
Other liabilities 7,649 3,650 3,942
------------- ------------- ------------
Total liabilities 976,855 804,483 844,187
------------- ------------- ------------
SHAREHOLDERS' EQUITY
Common stock, No par value per share
Issued and outstanding: 9,221,639,
8,827,341, and 8,905,382 shares 53,688 50,148 51,728
Retained earnings 62,815 60,280 61,367
Accumulated other comprehensive income (loss) 486 256 (2,395)
------------- ------------- ------------
Total shareholders' equity 116,989 110,684 110,700
------------- ------------- ------------
Total liabilities and shareholders' equity $ 1,093,844 915,167 954,887
============= ============= ============
See notes to consolidated financial statements.
Page 3
First Bancorp and Subsidiaries
Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- -------------------------------
($ in thousands, except share data-unaudited) 2001 2000 2001 2000
- ----------------------------------------------------- --------------- --------------- --------------- -------------
INTEREST INCOME
Interest and fees on loans $ 17,079 15,246 33,501 29,417
Interest on investment securities:
Taxable interest income 1,689 2,259 3,288 4,561
Tax-exempt interest income 201 220 407 450
Other, principally overnight investments 732 236 929 470
--------------- --------------- --------------- -------------
Total interest income 19,701 17,961 38,125 34,898
--------------- --------------- --------------- -------------
INTEREST EXPENSE
Savings, NOW and money market 1,424 1,548 2,979 3,050
Time deposits of $100,000 or more 2,624 1,790 4,994 3,517
Other time deposits 5,169 3,922 9,825 7,526
Borrowings 331 960 855 1,670
--------------- --------------- --------------- -------------
Total interest expense 9,548 8,220 18,653 15,763
--------------- --------------- --------------- -------------
Net interest income 10,153 9,741 19,472 19,135
Provision for loan losses 308 350 528 660
--------------- --------------- --------------- -------------
Net interest income after provision
for loan losses 9,845 9,391 18,944 18,475
--------------- --------------- --------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 1,292 760 2,200 1,506
Other service charges, commissions and fees 514 428 1,040 920
Fees from presold mortgages 286 109 424 198
Commissions from sales of insurance/investments 140 100 346 260
Data processing fees 49 22 96 42
Securities gains -- 89 -- 89
Loan sale gains 9 -- 9 --
Other gains (losses) (7) (1) 30 (11)
--------------- --------------- --------------- -------------
Total noninterest income 2,283 1,507 4,145 3,004
--------------- --------------- --------------- -------------
NONINTEREST EXPENSES
Salaries 3,080 2,434 5,871 4,959
Employee benefits 685 646 1,299 1,310
--------------- --------------- --------------- -------------
Total personnel expense 3,765 3,080 7,170 6,269
Net occupancy expense 437 362 839 740
Equipment related expenses 388 365 761 665
Intangibles amortization 425 157 607 315
Other operating expenses 2,068 1,899 3,771 3,520
--------------- --------------- --------------- -------------
Total noninterest expenses 7,083 5,863 13,148 11,509
--------------- --------------- --------------- -------------
Income before income taxes 5,045 5,035 9,941 9,970
Income taxes 1,778 1,751 3,450 3,448
--------------- --------------- --------------- -------------
NET INCOME $ 3,267 3,284 6,491 6,522
=============== =============== =============== =============
Earnings per share:
Basic $ 0.36 0.37 0.73 0.73
Diluted 0.35 0.36 0.71 0.72
Weighted average common shares outstanding:
Basic 9,022,343 8,907,229 8,898,610 8,886,585
Diluted 9,281,715 9,104,892 9,136,406 9,118,325
See notes to consolidated financial statements.
Page 4
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands-unaudited) 2001 2000 2001 2000
- ------------------------------------------------------ ---------- ---------- ----------- -----------
Net income $ 3,267 3,284 6,491 6,522
---------- ---------- ----------- -----------
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available for sale:
Unrealized holding gains (losses) arising
during the period, pretax (402) 313 352 85
Tax benefit (expense) 140 (201) (122) (124)
Reclassification to realized gains - (89) - (89)
Tax expense - 30 - 30
---------- ---------- ----------- -----------
Other comprehensive income (loss) (262) 53 230 (98)
---------- ---------- ----------- -----------
Comprehensive income $ 3,005 3,337 6,721 6,424
========== ========== =========== ===========
See notes to consolidated financial statements.
Page 5
First Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
Accumulated
Common Stock Other Share-
------------------------------- Retained Comprehensive holders'
(In thousands, except per share - unaudited) Shares Amount Earnings Income (Loss) Equity
- --------------------------------------------- ------------- ----------------- --------------- ---------------- ---------------
Balances, January 1, 2000 8,849 $ 51,490 57,787 (2,297) 106,980
Net income 6,522 6,522
Cash dividends declared ($0.34 per share) (2,942) (2,942)
Common stock issued under
stock option plan 112 334 334
Tax benefit realized from exercise of
nonqualified stock options 790 790
Common stock issued into
dividend reinvestment plan 2 33 33
Purchases and retirement of common
stock (58) (919) (919)
Other comprehensive loss (98) (98)
------------- ----------------- --------------- ---------------- ---------------
Balances, June 30, 2000 8,905 $ 51,728 61,367 (2,395) 110,700
============= ================= =============== ================ ===============
Balances, January 1, 2001 8,827 $ 50,148 60,280 256 110,684
Net income 6,491 6,491
Cash dividends declared ($0.44 per share) (3,956) (3,956)
Common stock issued under
stock option plan 54 264 264
Common stock issued into
dividend reinvestment plan 1 22 22
Common stock issued in acquisitions 602 9,159 9,159
Purchases and retirement of common
stock (262) (5,905) (5,905)
Other comprehensive income 230 230
------------- ----------------- --------------- ---------------- ---------------
Balances, June 30, 2001 9,222 $ 53,688 62,815 486 116,989
============= ================= =============== ================ ===============
See notes to consolidated financial statements.
Page 6
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
($ in thousands-unaudited) 2001 2000
- ------------------------------------------------------------------------------ --------------- ---------------
Cash Flows From Operating Activities
Net income $ 6,491 6,522
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses 528 660
Net security premium amortization (discount accretion) (33) 166
Gains on sales of securities available for sale - (89)
Gain on disposal of other real estate (30) -
Loan fees and costs deferred, net of amortization (44) 46
Gain on sale of loans (9) -
Depreciation of premises and equipment 674 592
Amortization of intangible assets 607 315
Deferred income tax benefit (133) (196)
Decrease (increase) in accrued interest receivable 56 (427)
Increase in other assets (3,262) (496)
Decrease in accrued interest payable (980) (160)
Increase in other liabilities 2,113 901
--------------- ---------------
Net cash provided by operating activities 5,978 7,834
--------------- ---------------
Cash Flows From Investing Activities
Purchases of securities available for sale (25,776) (4,886)
Purchases of securities held to maturity (1) (168)
Proceeds from sales of securities available for sale - 90
Proceeds from maturities/issuer calls of securities available for sale 20,815 10,061
Proceeds from maturities/issuer calls of securities held to maturity 2,883 2,772
Net increase in loans (17,256) (61,727)
Purchases of premises and equipment (1,770) (1,953)
Net cash received in acquisition of insurance agencies 40 -
Net cash paid in acquisition of Century Bancorp (8,112) -
Net cash received in purchase of branches 70,201 -
--------------- ---------------
Net cash provided (used) by investing activities 41,024 (55,811)
--------------- ---------------
Cash Flows From Financing Activities
Net increase in deposits 5,477 40,648
Net proceeds (repayments) of borrowings (24,700) 21,500
Cash dividends paid (3,873) (2,852)
Proceeds from issuance of common stock 286 367
Purchases and retirement of common stock (5,905) (919)
--------------- ---------------
Net cash provided (used) by financing activities (28,715) 58,744
--------------- ---------------
Increase In Cash And Cash Equivalents 18,287 10,767
Cash And Cash Equivalents, Beginning Of Period 30,439 58,341
--------------- ---------------
Cash And Cash Equivalents, End Of Period $ 48,726 69,108
=============== ===============
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 19,388 15,923
Income taxes 718 3,588
Non-cash transactions:
Transfer of securities from held to maturity to available for sale 31,220 -
Unrealized gain (loss) on securities available for sale 352 (4)
Foreclosed loans transferred to other real estate 319 -
Premises and equipment transferred to other real estate 425 -
See notes to consolidated financial statements.
Page 7
First Bancorp And Subsidiaries
Notes To Consolidated Financial Statements
(unaudited) For the Periods Ended June 30, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of June 30, 2001 and 2000 and the consolidated
results of operations and consolidated cash flows for the periods ended June 30,
2001 and 2000. Reference is made to the 2000 Annual Report on Form 10-K filed
with the SEC for a discussion of accounting policies and other relevant
information with respect to the financial statements. As discussed in Note 6
below, all prior period financial information has been restated to include
historical information for a Company acquired in a transaction accounted for as
a pooling-of-interests. The results of operations for the periods ended June 30,
2001 and 2000 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2 - Reclassifications
Certain amounts reported in the period ended June 30, 2000 have been
reclassified to conform with the presentation for June 30, 2001. These
reclassifications had no effect on net income or shareholders' equity for the
periods presented, nor did they materially impact trends in financial
information.
NOTE 3 - Earnings Per Share
Basic earnings per share were computed by dividing net income by the
weighted average common shares outstanding. Diluted earnings per share include
the potentially dilutive effects of the Company's stock option plan. The
following is a reconciliation of the numerators and denominators used in
computing basic and diluted earnings per share:
For the Three Months Ended June 30,
------------------------------------------------------------------------------
2001 2000
-------------------------------------- -------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
- ------------------------------ --------- ------- --------- ------- ------- ---------
Basic EPS
Net income $ 3,267 9,022,343 $ 0.36 $ 3,284 8,907,229 $ 0.37
======== ========
Effect of Dilutive Securities - 259,372 - 197,663
--------- --------- -------- ---------
Diluted EPS $ 3,267 9,281,715 $ 0.35 $ 3,284 9,104,892 $ 0.36
========= ========= ========- ======== ========= ========
For the Six Months Ended June 30,
------------------------------------------------------------------------------
2001 2000
-------------------------------------- -------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
- ------------------------------ --------- ------- --------- ------- ------- ---------
Basic EPS
Net income $ 6,491 8,898,610 $ 0.73 $ 6,522 8,886,585 $ 0.73
======== ========
Effect of Dilutive Securities - 237,796 - 231,740
--------- --------- -------- ---------
Diluted EPS $ 6,491 9,136,406 $ 0.71 $ 6,522 9,118,325 $ 0.72
========= ========= ========- ======== ========= ========
Page 8
NOTE 4 - Asset Quality Information
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and other real estate.
For each of the periods presented, the Company had no loans past due 90 or more
days and still accruing interest. Nonperforming assets are summarized as
follows:
June 30, December 31, June 30,
($ in thousands) 2001 2000 2000
-------------------------------------------- ---------------- ---------------- -----------------
Nonperforming loans:
Nonaccrual loans $ 5,104 626 738
Restructured loans 226 237 249
---------- --------- ---------
Total nonperforming loans 5,330 863 987
Other real estate 1,497 893 767
---------- --------- ---------
Total nonperforming assets $ 6,827 1,756 1,754
========== ========= =========
Nonperforming loans to total loans 0.61% 0.12% 0.14%
Nonperforming assets as a percentage of
loans and other real estate 0.24% 0.25% 0.78%
Nonperforming assets to total assets 0.62% 0.19% 0.18%
Allowance for loan losses to total loans 1.05% 1.06% 1.01%
================================================================================
NOTE 5 - Deferred Loan Fees
Loans are shown on the Consolidated Balance Sheets net of net deferred loan
fees of approximately $689,000, $711,000, and $750,000 at June 30, 2001,
December 31, 2000, and June 30, 2000, respectively.
NOTE 6 - Merger and Acquisition Activity
On September 14, 2000, the Company completed the merger with First Savings
Bancorp, Inc. ("First Savings"), the holding Company for First Savings Bank of
Moore County, Inc., SSB ("First Savings Bank"). At June 30, 2000, First Savings,
headquartered in Southern Pines, North Carolina, had total assets of $331
million, with loans of $232 million and deposits of $224 million with six branch
locations in Moore County, NC. In accordance with the terms of the merger
agreement, each share of First Savings stock was exchanged for 1.2468 shares of
First Bancorp stock. These terms resulted in First Bancorp issuing approximately
4,407,000 shares of stock to complete the transaction. The merger was accounted
for as a pooling-of-interests and accordingly, all financial results for prior
periods have been restated to include the combined results of First Bancorp and
First Savings.
To gain Federal Reserve approval for the merger with First Savings, the
Company was required to divest the First Savings bank branch located in
Carthage, NC. This branch was sold to another North Carolina community bank in a
transaction that was completed in November 2000. At the time of the divestiture,
the Carthage branch had approximately $15.1 million in total deposits and $2.3
million in total loans. The sale of the branch resulted in a net gain of
$808,000.
On March 26, 2001, the Company completed the purchase of four branches from
First Union National Bank with aggregate deposits of approximately $103 million
and aggregate loans of approximately $17 million. The four branches acquired
were in Lumberton, Pembroke, St. Pauls (all located in Robeson County, NC), and
Laurinburg (Scotland County, NC). Total intangible assets of $14.6 million were
recorded in connection with the purchase. The following table presents a summary
of the assets acquired and liabilities assumed in the purchase:
Page 9
Assets acquired (in millions)
- ------------------------------------------------------- -------------
Cash $ 70.2
Loans, gross, primarily consumer installment 16.7
Allowance for loan losses (0.3)
Property, plant and equipment 1.9
---------
88.5
---------
Liabilities assumed
- -------------------------------------------------------
Deposits 102.6
Accrued interest on deposits 0.2
Other 0.3
---------
103.1
---------
Excess of liabilities assumed over assets acquired -
recorded as an intangible asset $ 14.6
=========
On May 17, 2001, the Company completed the purchase of Century Bancorp,
Inc. ("Century"). Century was the holding Company for Home Savings, Inc., SSB, a
one branch savings institution located in Thomasville, NC. As of March 31, 2001,
Century had total assets of $107 million, total loans of $90 million, and total
deposits of $74 million. In accordance with the terms of the merger agreement,
the Company issued approximately 586,000 shares of common stock and paid cash of
approximately $13.2 million to Century shareholders in exchange for all shares
of Century outstanding. An intangible asset of $3.2 million was recorded in
connection with this acquisition.
On May 30, 2001, the Company completed the purchase of two insurance
agencies - Aberdeen Insurance & Realty Company and Hobbs Insurance and Realty
Company. Both agencies were located in Moore County and specialized in placing
property and casualty insurance coverage for individuals and businesses in the
Moore County area. In completing the acquisition, the agencies were merged into
First Bank Insurance Services, Inc. Approximately 16,000 shares of Company stock
were issued in connection with the acquisition of the two agencies. An
intangible asset of $243,000 was recorded in connection with the acquisition.
On August 13, 2001 the Company entered into a definitive agreement to
acquire the Salisbury, North Carolina branch of First Union National Bank
located at 215 West Innes Street. The branch currently has approximately $37
million in deposits and $10 million in loans. The closing of the transaction and
the data conversion are expected to occur in the fourth quarter of 2001.
According to the terms of the agreement, the Company will pay a deposit premium
of 9.1% based on the average daily balance of the branch's deposits in the
calendar month prior to the closing date.
Note 7 - New Accounting Standards
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (`SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. On January 1, 2001, the Company transferred, as permitted by the
standard upon its adoption, held-to-maturity securities with an amortized cost
of approximately $31.7 million to the available-for-sale category at fair value.
The unrealized loss at the time of the transfer was approximately $513,000, and
is included as a component of other comprehensive income, net of tax. The
Company does not engage in any hedging activities and other than the
aforementioned transfer of securities, the adoption of the statement had no
impact on the Company.
Page 10
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 141 also
specifies criteria for intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 is effective for the Company beginning on January 1, 2002 and will
require that all goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 will also require
that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In
connection with Statement 142's transitional goodwill impairment evaluation, the
Statement will require the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of earnings. Because
of the extensive effort needed to comply with adopting Statements 141 and 142,
it is not practicable to reasonably estimate the impact of adopting these
Statements on the Company's financial statements at the date of this report,
including whether it will be required to recognize any transitional impairment
losses as the cumulative effect of a change in accounting principle.
Page 11
Item 2 - Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
OVERVIEW
Net income for the three months ended June 30, 2001 was $3,267,000, a 0.5%
decrease from the $3,284,000 reported in the second quarter of 2000. The net
income recorded in the second quarter of 2001 amounted to diluted earnings per
share of $0.35, a one cent decrease from the $0.36 diluted earnings per share
recorded in the second quarter of 2000.
Net income for the six months ended June 30, 2001 was $6,491,000, a 0.5%
decrease from the $6,522,000 reported in the first half of 2000. The net income
recorded in the first six months of 2001 amounted to diluted earnings per share
of $0.71, a one cent decrease from the $0.72 diluted earnings per share recorded
in the first half of 2000.
Excluding the effects of a one time gain from a sale of equity securities
that was realized in the second quarter of 2000, the Company's diluted earnings
per share for the second quarter of 2001 and 2000 each amounted to $0.35, while
the Company's diluted earnings per share for the first half of 2001 and 2000
each amounted to $0.71.
The essentially flat earnings when comparing the three and six month
periods of 2001 to the same periods of 2000 are the result of higher net
interest income and noninterest income offset by higher noninterest expenses.
The higher net interest income was a result of a greater amount of
interest-earning assets, achieved primarily as a result of corporate
acquisitions, the effects of which were partially negated by a lower net
interest margin. The increases in noninterest income and noninterest expenses
were primarily attributable to the Company's recent acquisitions.
COMPONENTS OF EARNINGS
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 and six month periods ended June 30, 2001 amounted
to $10,153,000 and $19,472,000, respectively, increases of $412,000 and
$337,000, or 4.2% and 1.8%, over the amounts recorded in the same three and six
month periods in 2000. There are two primary factors that cause changes in the
amount of net interest income recorded by the Company - 1) growth in loans and
deposits, and 2) the Company's net interest margin.
For the three and six months ended June 30, 2001, growth in loans and
deposits, which was achieved largely from corporate acquisitions, had a positive
impact on net interest income, while a declining net interest margin had a
negative impact on net interest income, when compared to the same periods in
2000.
The following tables present average balances and average rates earned/paid
by the Company for the periods indicated.
Page 12
For the Three Months Ended June 30,
-----------------------------------------------------------------------------------
2001 2000
-------------------------------------- ----------------------------------------
Interest Interest
Average Average Earned Average Average Earned
($ in thousands) Volume Rate or Paid Volume Rate or Paid
----------- --------- --------- ----------- --------- ----------
Assets
Loans (1) $ 815,799 8.40% $ 17,079 $ 690,810 8.85% $ 15,246
Taxable securities 98,037 6.91% 1,689 146,273 6.19% 2,259
Non-taxable securities (2) 16,257 9.15% 371 17,651 8.36% 368
Short-term investments,
principally federal funds 62,496 4.70% 732 14,286 6.63% 236
----------- --------- ----------- ----------
Total interest-earning assets 992,589 8.03% 19,871 869,020 8.36% 18,109
--------- ----------
Liabilities
Savings, NOW and money
market deposits 303,394 1.88% 1,424 250,504 2.48% 1,548
Time deposits >$100,000 169,343 6.22% 2,624 123,765 5.80% 1,790
Other time deposits 354,508 5.85% 5,169 286,540 5.49% 3,922
----------- --------- ----------- ----------
Total interest-bearing deposits 827,245 4.47% 9,217 660,809 4.41% 7,260
Borrowings 20,055 6.62% 331 61,054 6.31% 960
----------- --------- ----------- ----------
Total interest-bearing liabilities 847,300 4.52% 9,548 721,863 4.57% 8,220
----------
Non-interest-bearing deposits 87,519 70,247
Net yield on interest-earning
assets and net interest income 4.17% $ 10,323 4.56% $ 9,889
========= ==========
Interest rate spread 3.51% 3.79%
Average prime rate 7.36% 9.25%
- --------------------------------------------------------------------------------
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $170,000 and $148,000 in 2001 and
2000 respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
For the Six Months Ended June 30,
-----------------------------------------------------------------------------------
2001 2000
-------------------------------------- ----------------------------------------
Interest Interest
Average Average Earned Average Average Earned
($ in thousands) Volume Rate or Paid Volume Rate or Paid
----------- --------- --------- ----------- --------- ----------
Assets
Loans (1) $ 784,178 8.62% $ 33,501 $ 674,270 8.80% $ 29,417
Taxable securities 97,440 6.80% 3,288 147,293 6.24% 4,561
Non-taxable securities (2) 16,402 8.85% 720 18,169 8.31% 749
Short-term investments,
principally federal funds 39,252 4.77% 929 14,784 6.41% 470
----------- --------- ----------- ----------
Total interest-earning assets 937,272 8.27% 38,438 854,516 8.31% 35,197
--------- ----------
Liabilities
Savings, NOW and money
market deposits 276,041 2.18% 2,979 251,723 2.44% 3,050
Time deposits >$100,000 157,788 6.38% 4,994 122,115 5.81% 3,517
Other time deposits 332,239 5.96% 9,825 282,893 5.36% 7,526
----------- --------- ----------- ----------
Total interest-bearing deposits 766,068 4.69% 17,798 656,731 4.33% 14,093
Borrowings 26,494 6.51% 855 55,843 6.03% 1,670
----------- --------- ----------- ----------
Total interest-bearing liabilities 792,562 4.75% 18,653 712,574 4.46% 15,763
----------
Non-interest-bearing deposits 78,045 67,139
Net yield on interest-earning
assets and net interest income 4.26% $ 19,785 4.56% $ 19,434
========= ==========
Interest rate spread 3.52% 3.85%
Average prime rate 7.98% 8.97%
Page 13
- --------------------------------------------------------------------------------
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $313,000 and $299,000 in 2001 and
2000 respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
As shown in the tables above, the Company's average loans were 18.1% higher
in the second quarter of 2001 and 16.3% higher in the first six months of 2001
compared to the same three and six month periods of 2000. Average deposits for
the three and six month periods ended June 30, 2001 were 25.1% and 16.6% higher,
respectively, compared to the same periods of 2000. See additional discussion
regarding the nature of the growth in loans and deposits in the section entitled
"Financial Condition" below. The effect of these higher amounts of average loans
and deposits was to increase net interest income in 2001.
Also as shown in the tables above, the Company's net interest margins were
lower in 2001 than in the comparable periods in 2000, which partially offset the
above-mentioned positive effects of having higher amounts of average loans and
deposits. In addition to the competitive banking environment which has required
the Company to price its loans and deposits more competitively than in the past,
there are two other significant reasons for the lower net interest margins, as
discussed in the following paragraphs.
One factor that has thus far negatively impacted the Company's net interest
margin has been the six successive interest rate cuts totaling 275 basis points
by the Federal Reserve Board since January 1, 2001. Although at January 1, 2001
the Company had more interest-sensitive liabilities than interest-sensitive
assets subject to repricing within twelve months, to date, the Company's
interest-sensitive assets have repriced sooner (generally the day following the
interest rate cut) and by a larger percentage (generally by the same number of
basis points that the Federal Reserve discount rate was decreased) than have the
Company's interest-sensitive liabilities that were subject to repricing. The
Company's primary interest-sensitive liabilities at January 1, 2001 in the
twelve month horizon consisted of the following 1) savings, NOW, and money
market deposits, and 2) time deposits. Interest rates paid on savings, NOW and
money market deposits are set by management of the Company, and although the
interest rates on these accounts were decreased by the Company within days of
each of the Federal Reserve rate cuts, it was not possible to reduce the
interest rates by the full amount of the Federal Reserve cuts due to the already
relatively low rates paid on these types of accounts. Interest rates paid on
time deposits are generally fixed and not subject to automatic adjustment. When
time deposits mature, the Company has the opportunity, at the customers'
discretion, to renew the time deposit at a rate set by the Company. Because time
deposits that are interest-sensitive in a twelve month horizon mature throughout
the twelve month period, any change in the renewal rate will only affect a
portion of the twelve month period. Also, although changes in interest rates on
renewing time deposits generally track rate changes in the interest rate
environment, due to competitive pressures, the Company has not been able to
decrease rates on renewing time deposits in the first half of 2001 by the
corresponding decreases in the Federal Reserve discount rate.
The second factor affecting the Company's net interest margin has been the
impact of the Company's acquisitions. As shown in Note 6 to the financial
statements above, the March 2001 acquisition of four branches of First Union
resulted in the Company receiving approximately $70 million in cash. As
anticipated, until this cash can be fully redeployed by the Company into a mix
of higher yielding investments and loans consistent with the Company's historic
mix, the Company's net interest margin has been and will continue to be
negatively impacted. In addition, because of Century's higher mix of single
family mortgage loans and time deposits (which are generally the lowest yielding
type of loan and highest rate type of deposit), the net interest margins earned
on these acquired loans and deposits has been lower than the Company's historic
margins.
The provision for loan losses for the second quarter of 2001 was $308,000,
$42,000 lower than the $350,000 recorded in the second quarter of 2000. For the
six months ended June 30, 2001, the provision for loan losses was $528,000
compared to $660,000 for the six months ended June 30, 2000. The decreases in
the provision for
Page 14
loan losses in 2001 compared to 2000 have been a result of significantly lower
loan growth experienced. Net internal loan growth (excludes loans assumed in
acquisitions) for the second quarter of 2001 amounted to $8.8 million compared
to $31.6 million in the second quarter of 2000. Net internal loan growth for
first six months of 2001 amounted to $16.8 million compared to $61.5 million in
the first half of 2001. An increase in nonperforming assets (see discussion
below) during 2001 increased what would have been an otherwise lower level of
provision for loan losses in 2001.
Noninterest income for the three and six month periods ended June 30, 2001
amounted to $2,283,000 and $4,145,000 respectively, increases of 51.5% and 38.0%
over the amounts recorded in the same three and six month periods in 2000.
Within noninterest income, services charges on deposit accounts experienced the
largest increase in 2001 compared to 2000, amounting to $1,292,000 in the second
quarter of 2001, a 70.0% increase over the $760,000 recorded in the same quarter
of 2000, and $2,200,000 for the first six months of 2001, a 46.1% increase over
the $1,506,000 recorded in the first six months of 2000. The increase in service
charges on deposit accounts is primarily related to two events - 1) an increase
in the Company's service fee rate structure implemented in November 2000, and 2)
the Company's acquisition of four branches on March 26, 2001. The branches
purchased had a high level of transaction accounts (non-time deposits), $60.2
million in total, which afforded the Company the opportunity to earn deposit
service charge income.
Also contributing to the increase in noninterest income was "other service
charges, commissions, and fees," which increased from $428,000 in the second
quarter of 2000 to $514,000 in the second quarter of 2001, a 20.1% increase. For
the six months ended June 30, 2001, this category of noninterest income amounted
to $1,040,000, a 13.0% increase compared to the $920,000 recorded in the first
six months of 2000. This category of noninterest income includes items such as
safety deposit box rentals, check cashing fees, credit card and merchant income,
and ATM charges. This category of income grew primarily because of increases in
these activity-related fee services as a result of overall growth in the
Company's total customer base, including growth achieved from corporate
acquisitions.
Fees from presold mortgages for the three and six month periods ended June
30, 2001 amounted to $286,000 and $424,000, respectively, increases of 162% and
114% over the amounts recorded in the comparable periods in 2000 of $109,000 and
$198,000, respectively. The increases in 2001 are primarily attributable to two
factors - 1) a higher level of mortgage loan refinancings caused by the lower
interest rate environment, and 2) the decision by the Company to sell a higher
percentage of single family home loan originations into the secondary market as
opposed to holding them in the Company's loan portfolio. This strategy was
implemented in an effort to shift the Company's loan portfolio to having a
higher percentage of commercial loans, which are generally shorter term in
nature and have higher interest rates.
The line item "Commissions from sales of insurance/investments" includes
commissions the Company receives from sales of credit insurance associated with
new loans, commission from the sales of investment and annuity products, and
commissions from the sale of property and casualty insurance. This income
amounted to $140,000 and $346,000 for the three and six months 2001,
respectively, a 40.0% and 33.1% increase from the $100,000 and $260,000 amounts
recorded for the three and six months ended June 30, 2000, respectively. The
Company expects that this line item will continue to increase as a result of the
hiring of additional personnel and the May 30, 2001 acquisition of two insurance
agencies that specialized in property and casualty insurance, as discussed
above.
Data processing fees for the three and six month periods ended June 30,
2001 amounted to $49,000 and $96,000, respectively, increases of 123% and 129%
over the amounts recorded in the comparable periods in 2000 of $22,000 and
$42,000, respectively. These fees have increased as a result of an increase from
two data processing clients to four clients over the past one and a half years.
Noninterest expenses for the three month and six months ended June 30, 2001
amounted to $7,083,000 and $13,148,000, respectively, increases of 20.8% and
14.2%, from amounts recorded in the
Page 15
three and six month periods ended June 30, 2000. The increase in noninterest
expenses occurred in all categories and is associated with the overall growth of
the Company in terms of branch network, employees and customer base, including
the incremental expenses associated with the Company's acquisitions. Certain
efficiencies realized as a result of the Company's acquisition of First Savings
that occurred in the third quarter of 2000 partially offset the increases in
noninterest expense in the first half of 2001.
Amortization of intangible assets increased from $157,000 in the second
quarter of 2000 to $425,000 in the second quarter of 2001, and from $315,000 for
the six months ended June 30, 2000 to $607,000 for the first six months of 2001.
These increases are associated with the Company's aforementioned March 26, 2001
purchase of four branch offices and the May 17, 2001 acquisition of Century. The
Company recorded gross intangible assets related to the branch purchase of
approximately $14,624,000 and gross intangible assets related to the Century
acquisition of $3,161,000. These intangible assets are being amortized on a
straight-line basis over fifteen years. As discussed in Note 7 to the financial
statements above, recently issued accounting pronouncements will significantly
affect the way the Company accounts for its intangible assets beginning in 2002.
The provision for income taxes was $1,778,000 in the second quarter of 2001
compared to $1,751,000 in the second quarter of 2000. The provision for income
taxes for the six months ended June 30, 2001 amounted to $3,450,00 compared to
$3,448,000 for the first half of 2000. The effective tax rates did not vary
significantly among the periods presented, amounting to approximately 35%.
FINANCIAL CONDITION
The Company's financial condition was materially impacted by the purchase
of the four First Union branches that occurred during the first quarter of 2001
and the acquisition of Century that occurred in the second quarter of 2001. As a
percentage of January 1, 2001 amounts, these acquisitions increased the
Company's loans by 14.3%, intangible assets by 384%, and deposits by 22.6%. The
following table presents the impact of the purchase on selected balance sheet
levels and growth rates during the time periods indicated.
(in thousands) Balance at Balance at Total Percentage growth,
beginning Internal Growth from end of percentage excluding
of period growth acquisitions period growth acquisitions
--------- ------ ------------ ------ ------ ------------
July 1, 2000 to
June 30, 2001
- ------------------------------
Loans $ 704,714 58,127 106,872 869,713 23.4% 8.2%
========= ====== ======= ======= ===== ====
Deposits - Noninterest bearing $ 73,271 1,493 17,667 92,431 26.1% 2.0%
Deposits - Savings, NOW, and
Money Market 247,516 4,760 62,685 314,961 27.2% 1.9%
Deposits - Time 432,000 16,816 93,966 542,782 25.6% 3.9%
--------- ------ ------- ------- ----- ----
Total deposits $ 752,787 23,069 174,318 950,174 26.2% 3.1%
========= ====== ======= ======= ===== ====
January 1, 2001 to
June 30, 2001
- ------------------------------
Loans $ 746,089 16,752 106,872 869,713 16.6% 2.2%
========= ====== ======= ======= ===== ====
Deposits - Noninterest bearing $ 70,634 4,130 17,667 92,431 30.9% 5.8%
Deposits - Savings, NOW, and
Money Market 253,687 (1,411) 62,685 314,961 24.2% (0.6%)
Deposits - Time 446,058 2,758 93,966 542,782 21.7% 0.6%
--------- ------ ------- ------- ----- ----
Total deposits $ 770,379 5,477 174,318 950,174 23.3% 0.7%
========= ====== ======= ======= ===== ====
Page 16
As can be seen from the above table, most of the Company's loan and deposit
growth over the periods presented was achieved through acquisitions. Intense
competition and the slowdown in the economy have resulted in lower rates of
internal loan and deposit growth than were experienced by the Company in recent
years.
The acquisitions have improved the Company's liquidity position, while
reducing the Company's tangible capital level. At December 31, 2000, balance
sheet assets that are generally regarded as being liquid (consisting of cash,
due from banks, federal funds sold, presold mortgages in process of settlement
and securities) amounted to 18.7% of total deposits and borrowings, while at
June 30, 2001 the percentage was 25.4%. The Company's tangible equity to total
assets ratio decreased from 11.6% at December 31, 2000 to 8.7% at June 30, 2001.
The Company's total assets were $1.094 billion at June 30, 2001, an
increase of $139.0 million, or 14.6%, from the $954.9 million at June 30, 2000.
The primary reason for the increase in total assets was the acquisitions, which
added approximately $196.0 million in total assets. Paydowns of outstanding debt
totaling $69 million have reduced the Company's assets since June 30, 2000.
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and other real estate.
For each of the periods presented, the Company had no loans past due 90 or more
days and still accruing interest. Nonperforming assets are summarized as
follows:
June 30, December 31, June 30,
($ in thousands) 2001 2000 2000
------------------------------------------ -------------- -------------- ---------------
Nonperforming loans:
Nonaccrual loans $ 5,104 626 738
Restructured loans 226 237 249
-------- -------- --------
Total nonperforming loans 5,330 863 987
Other real estate 1,497 893 767
-------- -------- --------
Total nonperforming assets $ 6,827 1,756 1,754
======== ======== ========
Nonperforming loans to total loans 0.61% 0.12% 0.14%
Nonperforming assets as a percentage of
loans and other real estate 0.78% 0.24% 0.25%
Nonperforming assets to total assets 0.62% 0.19% 0.18%
Allowance for loan losses to total loans 1.05% 1.06% 1.01%
Management has reviewed the collateral for the nonperforming assets,
including nonaccrual loans, and has included this review among the factors
considered in the evaluation of the allowance for loan losses discussed below.
Nonaccrual loans increased from $626,000 at December 31, 2000 to $5,104,000
at June 30, 2001. The increase is primarily attributable to five loans to the
same borrower totaling $2.9 million that were placed on nonaccrual status during
the first half of 2001. The Company has a total of approximately $3.3 million in
loans ($0.4 million of which do not meet the Company's criteria for nonaccrual
status) to this borrower with liquidity problems. The loans related to this
borrower are collateralized by real estate, the value of which the Company
believes exceeds the outstanding loan balance. The borrower has been actively
selling the real estate to pay down the loan balance. However, several real
estate sales scheduled for 2001 did not occur due to the filing of a lawsuit
against the borrower during the first quarter of 2001. As a result of this
development, management determined that $2.4 million in loans related to this
borrower should be placed on nonaccrual status, and they were classified as such
in February 2001. In the second quarter of 2001, an additional $500,000 of loans
to this
Page 17
same borrower were placed on nonaccrual status. Another reason for the increase
in nonaccrual loans in 2001 was due to approximately $449,000 in nonaccrual
loans assumed in the Century acquisition. The level of restructured loans did
not vary materially among the periods presented.
At June 30, 2001, December 31, 2000, and June 30, 2000, the recorded
investment in loans considered to be impaired was $3,427,000, $293,000, and
$257,000, respectively, all of which were on nonaccrual status. The increase in
impaired loans is due to the same loans noted above that were placed on
nonaccrual status. The related allowance for loan losses for these impaired
loans was $514,000, $44,000, and $39,000, respectively. There were no impaired
loans for which there was no related allowance. The average recorded investments
in impaired loans during the six month period ended June 30, 2001, the year
ended December 31, 2000, and the six months ended June 30, 2000 were
approximately $2,209,000, $218,000, and $246,000, respectively. For the same
periods, the Company recognized no interest income on those impaired loans
during the period that they were considered to be impaired.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been disclosed in the problem loan amounts above
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
As of June 30, 2001, December 31, 2000 and June 30, 2000, the Company's
other real estate owned amounted to $1,497,000, $893,000, and $767,000,
respectively, which consisted principally of several parcels of real estate. The
increase in the level of other real estate owned at June 30, 2001 is primarily
attributable to the transfer from property, plant and equipment to other real
estate of the Company's former Laurinburg branch as a result of the Company
consolidating it with a newly purchased branch located in the same city. The
Company's management has reviewed recent appraisals of its other real estate and
believes that their fair values, less estimated costs to sell, equal or exceed
their respective carrying values at the dates presented.
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is created by direct charges to operations.
Losses on loans are charged against the allowance in the period in which such
loans, in management's opinion, become uncollectible. The recoveries realized
during the period are credited to this allowance.
The factors that influence management's judgment in determining the amount
charged to operating expense include past loan loss experience, composition of
the loan portfolio, probable losses inherent in the portfolio and current
economic conditions.
The Company uses a loan analysis and grading program to facilitate its
evaluation of probable loan losses and the adequacy of its allowance for loan
losses. In this program, risk grades are assigned by management and tested by
the Company's internal audit department and an independent third party
consulting firm. The testing program includes an evaluation of a sample of new
loans, loans that management identifies as having credit weaknesses, loans past
due 90 days or more, nonaccrual loans and any other loans identified during
previous regulatory and other examinations.
The Company has no foreign loans, few agricultural loans and does not
engage in significant lease financing or highly leveraged transactions.
Commercial loans are diversified among a variety of industries. The majority of
the Company's real estate loans are primarily various personal and commercial
loans where real estate provides additional security for the loan. Collateral
for virtually all of these loans is located within the Company's principal
market area.
Page 18
The provision for loan losses for the second quarter of 2001 was $308,000,
$42,000 lower than the $350,000 recorded in the second quarter of 2000. For the
six months ended June 30, 2001, the provision for loan losses was $528,000
compared to $660,000 for the six months ended June 30, 2000. The decreases in
the provision for loan losses in 2001 compared to 2000 have been a result of
significantly lower loan growth experienced. Net internal loan growth (excludes
loans assumed in acquisitions) for the second quarter of 2001 amounted to $8.8
million compared to $31.6 million in the second quarter of 2000. Net internal
loan growth for first six months of 2001 amounted to $16.8 million compared to
$61.5 million in the first half of 2001. An increase in nonperforming assets
(see discussion above) during 2001 increased what would have been an otherwise
lower level of provision for loan losses for the three and six month periods in
2001.
At June 30, 2001, the allowance for loan losses amounted to $9,118,000,
compared to $7,893,000 at December 31, 2000 and $7,143,000 at June 30, 2000. The
allowance for loan losses was 1.05%, 1.06% and 1.01% of total loans as of June
30, 2001, December 31, 2000, and June 30, 2000, respectively. The increase in
the dollar amount of the allowance for loan losses since December 31, 2001 is
primarily due to a $335,000 addition recorded in connection with the Company's
branch purchase and a $601,000 addition recorded related to the Century
acquisition. The $601,000 addition related to Century represented the book value
of Century's allowance for loan losses on the date of the acquisition.
Management believes the Company's reserve levels are adequate to cover
probable loan losses on the loans outstanding as of each reporting date. It must
be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about economic conditions and other factors affecting loans. No assurance can be
given that the Company will not in any particular period sustain loan losses
that are sizable in relation to the amounts reserved or that subsequent
evaluations of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges to earnings.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses
and value of other real estate. Such agencies may require the Company to
recognize adjustments to the allowance or the carrying value of other real
estate based on their judgments about information available at the time of their
examinations.
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance for loan losses arising from charge-offs and recoveries, additions to
the allowance for loan losses that have been charged to expense, and additions
that were recorded related to acquisitions.
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
($ in thousands) 2001 2000 2000
------------- ------------ ----------
Loans outstanding at end of period $ 869,713 746,089 704,714
============= ============ ==========
Average amount of loans outstanding $ 784,178 701,317 674,270
============= ============ ==========
Allowance for loan losses, at
beginning of year $ 7,893 6,674 6,674
Total charge-offs (313) (475) (230)
Total recoveries 74 89 39
------------- ------------ ----------
Net charge-offs (239) (386) (191)
------------- ------------ ----------
Additions to the allowance charged to expense 528 1,605 660
Addition related to loans of purchased branches 335 - -
Addition related to acquisition of Century 601 - -
------------- ------------ ----------
Allowance for loan losses, at end of period $ 9,118 7,893 7,143
============= ============ ==========
Ratios:
Net charge-offs (annualized) as a percent
of average loans 0.06% 0.06% 0.06%
Allowance for loan losses as a
percent of loans at end of period 1.05% 1.06% 1.01%
Page 19
Based on the results of the aforementioned loan analysis and grading
program and management's evaluation of the allowance for loan losses at June 30,
2001, there have been no material changes to the allocation of the allowance for
loan losses among the various categories of loans since December 31, 2000.
LIQUIDITY
The Company's liquidity is determined by its ability to convert assets to
cash or acquire alternative sources of funds to meet the needs of its customers
who are withdrawing or borrowing funds, and to maintain required reserve levels,
pay expenses and operate the Company on an ongoing basis. The Company's primary
liquidity sources are net income from operations, cash and due from banks,
federal funds sold and other short-term investments. The Company's securities
portfolio is comprised almost entirely of readily marketable securities which
could also be sold to provide cash.
In addition to internally generated liquidity sources, the Company has the
ability to obtain borrowings from the following three sources - 1) an
approximately $125,000,000 line of credit with the Federal Home Loan Bank
(FHLB), 2) a $35,000,000 overnight federal funds line of credit with a
correspondent bank, and 3) an approximately $45,000,000 line of credit through
the Federal Reserve Bank of Richmond's discount window.
Although the Company has not historically had to rely on these sources of
credit as a source of liquidity (but has chosen to do so at various times
instead of selling securities), in recent years the Company has experienced an
increase in its loan to deposit ratio which has reduced the Company's liquidity.
From December 31, 1997 to December 31, 2000, the Company's loan to deposit ratio
increased from 84.3% to 96.8% and the Company's liquid assets (consisting of
cash, due from banks, federal funds sold, presold mortgages in process of
settlement and securities) as a percentage of deposits and borrowings decreased
during that same period from 34.2% to 18.7%. As noted above, the acquisitions
completed in the first half of 2001 have increased the Company's liquidity. The
Company's loans to deposits ratio at June 30, 2001 decreased to 91.5%, and the
Company's liquid assets to deposits ratio increased to 25.4%
Although liquidity has generally lessened in recent years, the Company's
management believes its liquidity sources, including unused lines of credit, are
at an acceptable level and remain adequate to meet its operating needs in the
foreseeable future.
CAPITAL RESOURCES
The Company is regulated by the Board of Governors of the Federal Reserve
Board (FED) and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Company's banking
subsidiaries are regulated by the Federal Deposit Insurance Corporation (FDIC)
and the respective state of North Carolina bank and savings regulators. The
Company is not aware of any recommendations of regulatory authorities or
otherwise which, if they were to be implemented, would have a material effect on
its liquidity, capital resources, or operations.
The Company must comply with regulatory capital requirements established by
the FED and FDIC. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary,
Page 20
actions by regulators that, if undertaken, could have a direct material effect
on the Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. These capital standards require
the Company to maintain minimum ratios of "Tier 1" capital to total
risk-weighted assets and total capital to risk-weighted assets of 4.00% and
8.00%, respectively. Tier 1 capital is comprised of total shareholders' equity
calculated in accordance with generally accepted accounting principles,
excluding accumulated other comprehensive income (loss), less intangible assets,
and total capital is comprised of Tier 1 capital plus certain adjustments, the
largest of which for the Company is the allowance for loan losses. Risk-weighted
assets refer to the on- and off-balance sheet exposures of the Company, adjusted
for their related risk levels using formulas set forth in FED and FDIC
regulations.
In addition to the risk-based capital requirements described above, the
Company is subject to a leverage capital requirement, which calls for a minimum
ratio of Tier 1 capital (as defined above) to quarterly average total assets of
3.00% to 5.00%, depending upon the institution's composite ratings as determined
by its regulators. The FED has not advised the Company of any requirement
specifically applicable to it.
At June 30, 2001, the Company's capital ratios exceeded the regulatory
minimum ratios discussed above with a Tier 1 capital ratio to Tier 1 risk
adjusted ratio of 11.75%, a total capital to total risk adjusted asset ratio of
12.74%, and a leverage ratio of 9.07%. The Company's two risk based ratios each
reflect decreases of approximately 360 basis points from December 31, 2000, and
the leverage ratio is approximately 250 basis points lower than at December 31,
2000. Each of the decreases is primarily related to the Company's acquisitions
during 2001, which reduced tangible capital by $8.6 million, while adding
approximately $196 million in assets.
SHARE REPURCHASES
As noted earlier, on May 17, 2001, the Company acquired Century Bancorp,
Inc. in a part cash-part stock transaction. In connection with this transaction,
the Company announced its intent to repurchase up to the number of shares that
were issued to complete the acquisition (approximately 585,000 shares). Since
the announcement of the program on October 20, 2000, the Company has repurchased
approximately 387,000 shares at an average price of $20.32 per share. For the
six months ended June 30, 2001, the Company repurchased 262,000 shares at an
average price of $22.54. During the second quarter of 2001, the Company
repurchased 167,000 shares at an average price of $24.89.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK)
Net interest income is the Company's most significant component of
earnings. Notwithstanding changes in volumes of loans and deposits, the
Company's level of net interest income is continually at risk due to the effect
that changes in general market interest rate trends have on interest yields
earned and paid with respect to the various categories of earning assets and
interest-bearing liabilities. It is the Company's policy to maintain portfolios
of earning assets and interest-bearing liabilities with maturities and repricing
opportunities that will afford protection, to the extent practical, against wide
interest rate fluctuations. The Company's exposure to interest rate risk is
analyzed on a regular basis by management using standard GAP reports, maturity
reports, and an asset/liability software model that simulates future levels of
interest income and expense based on current interest rates, expected future
interest rates, and various intervals of "shock" interest rates. Over the years,
the
Page 21
Company has been able to maintain a fairly consistent yield on average earning
assets (net interest margin). Over the past five calendar years the Company's
net interest margin has ranged from a low of 4.53% (realized in 2000) to a high
of 4.88% (realized in 1997). During that five year period the prime rate of
interest has ranged from a low of 7.75% to a high of 9.50%. As discussed above,
the Company has recently experienced downward pressure on its net interest
margin, particularly during the three months ended June 30, 2001 when the
Company's net interest margin was 4.17%.
Using stated maturities for all instruments except mortgage-backed
securities (which are allocated in the periods of their expected payback) and
securities and borrowings with call features that are expected to be called
(which are shown in the period of their expected call), at June 30, 2001 the
Company had $361.1 million more in interest-bearing liabilities that are subject
to interest rate changes within one year than earning assets. This generally
would indicate that net interest income would experience downward pressure in a
rising interest rate environment and would benefit from a declining interest
rate environment. However, this method of analyzing interest sensitivity only
measures the magnitude of the timing differences and does not address earnings,
market value, or management actions. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. In addition to the effects of "when" various rate-sensitive products
reprice, market rate changes may not result in uniform changes in rates among
all products. For example, included in interest-bearing liabilities at June 30,
2001 subject to interest rate changes within one year are deposits totaling
$315.0 million comprised of NOW, savings, and certain types of money market
deposits with interest rates set by management. These types of deposits
historically have not repriced, and did not reprice during the first half of
2001, coincidentally with or in the same proportion as general market
indicators.
Thus, the Company believes that in the near term (twelve months), net
interest income would not likely experience significant downward pressure from
rising interest rates. Similarly, management would not expect a significant
increase in near term net interest income from falling interest rates (In fact,
as discussed above under the heading "Components of Earnings," a declining
interest rate environment during the first six months of 2001 negatively
impacted (at least temporarily) the Company's next interest margin and net
interest income). Generally, when rates change, the Company's interest-sensitive
assets that are subject to adjustment reprice immediately at the full amount of
the change, while the Company's interest-sensitive liabilities that are subject
to adjustment reprice at a lag to the rate change and typically not to the full
amount of the rate change. The net effect is that in the twelve month horizon,
as rates change, the impact of having a higher level of interest-sensitive
liabilities is substantially negated by the later and typically lower
proportionate change these liabilities experience compared to interest sensitive
assets.
The Company has no market risk sensitive instruments held for trading
purposes, nor does it maintain any foreign currency positions. The following
table presents the expected maturities of the Company's other than trading
market risk sensitive financial instruments. The following table also presents
the fair values of market risk sensitive instruments as estimated in accordance
with Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments."
Expected Maturities of Market Sensitive
Instruments Held at June 30, 2001
-----------------------------------------------------------------------------
Average Estimated
($ in thousands) Interest Fair
1 Year 2 Years 3 Years 4 Years 5 Years Beyond Total Rate (1) Value
--------- ---------- --------- ---------- --------- -------- ---------- -------- ----------
Due from banks,
interest bearing $8,190 - - - - - 8,190 3.75% $ 8,190
Federal funds sold 14,834 - - - - - 14,834 3.75% 14,834
Debt securities- at
amortized cost (2) 38,060 29,469 15,589 20,150 6,179 11,836 121,283 6.63% 122,599
Loans - fixed (3) 70,359 56,205 87,349 78,760 78,368 135,486 506,527 8.38% 509,716
Loans - adjustable (3) 114,778 29,136 36,387 25,775 29,243 122,763 358,082 7.61% 358,082
--------- ---------- --------- ---------- --------- -------- ---------- -------- ----------
Total $246,221 114,810 139,325 124,685 113,790 270,085 1,008,916 7.79% $1,013,421
========= ========== ========= ========== ========= ======== ========== ======== ==========
Savings, NOW,
and money
market deposits $314,961 - - - - - 314,961 1.66% $ 314,961
Time deposits 429,713 88,904 12,929 7,520 2,265 1,451 542,782 5.68% 546,395
Borrowings (2) - 5,000 5,000 5,000 - - 15,000 6.73% 15,360
--------- ---------- --------- ---------- --------- -------- ---------- -------- ----------
Total $744,674 93,904 17,929 12,520 2,265 1,451 872,743 4.17% $ 876,716
========= ========== ========= ========== ========= ======== ========== ======== ==========
Page 22
(1) Tax-exempt securities are reflected at a tax-equivalent basis using a 35%
tax rate.
(2) Callable securities and borrowings with above market interest rates at June
30, 2001 are assumed to mature at their call date for purposes of this
table.
(3) Excludes nonaccrual loans and allowance for loan losses.
The Company's fixed rate assets and liabilities each have estimated fair
values that are slightly higher than their carrying value. This is due to the
yields on these portfolios being higher than market yields at June 30, 2001 for
instruments with maturities similar to the remaining term of the portfolios, due
to the declining interest rate environment.
See additional discussion of the Company's net interest margin in the
"Components of Earnings" section above.
MERGER AND ACQUISITION ACTIVITY
See Note 6 to the consolidated financial statements above.
CURRENT ACCOUNTING MATTERS
See Note 7 to the consolidated financial statements above.
FORWARD-LOOKING STATEMENTS
Part I of this report contains 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, 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
historical 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
judgment 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 success in integrating acquisitions, actions
of government regulators, the level of market interest rates, and general
economic conditions.
Page 23
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders
The following proposals were considered and acted upon at the annual
meeting of shareholders of the Company held on May 1, 2001:
Proposal 1
A proposal to elect 18 directors to serve until the next annual meeting of
shareholders and until their successors are elected and qualified.
Voted Withheld
Nominee For Authority
------- --- ---------
Jack D. Briggs 7,320,095 39,179
H. David Bruton, M.D. 7,299,896 59,378
David L. Burns 7,3145,39 44,735
John F. Burns 7,283,031 76,243
Felton J. Capel 7,309,066 50,208
Jesse S. Capel 7,314,307 44,966
James H. Garner 7,316,299 42,975
Frank G. Hardister 7,276,407 82,866
George R. Perkins, Jr. 7,301,966 57,308
Thomas F. Philips 7,314,031 45,243
William E. Samuels 7,286,320 72,954
Edward T. Taws 7,316,177 43,096
Frederick H. Taylor 7,318,006 41,268
Virginia C. Thomasson 7,300,910 58,364
Goldie H. Wallace 7,302,016 57,258
A. Jordan Washburn 7,318,006 41,268
Dennis A. Wicker 7,314,794 44,479
John C. Willis 7,318,006 41,268
Proposal 2
A proposal to amend the Company's bylaws to increase the maximum
number of directors on the board to nineteen. This proposal was
conditioned on the consummation of the Company's acquisition of
Century Bancorp, Inc.
For 5,120,781 Against 268,484 Abstain 76,547 Non-Vote 1,893,461
--------- ------- ------ ---------
Proposal 3
A proposal to approve an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of common
stock to 20,000,000 shares.
For 6,992,126 Against 256,449 Abstain 110,698
--------- ------- -------
Proposal 4
A proposal to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
For 7,212,385 Against 96,935 Abstain 49,954
--------- ------ ------
Page 24
Item 5 - Other Information
The bylaws of the Company establish an advance notice procedure for
shareholder proposals to be brought before a meeting of shareholders of the
Company. Subject to any other applicable requirements, only such business may be
conducted at a meeting of the shareholders as has been brought before the
meeting by, or at the direction of, the Board of Directors or by a shareholder
who has given to the Secretary of the Company timely written notice, in proper
form, of the shareholder's intention to bring that business before the meeting.
The presiding officer at such meeting has the authority to make such
determinations.
To be timely, notice of other business to be brought before any meeting must
generally be received by the Secretary of the Company within 60 to 90 days in
advance of the shareholders' meeting. The notice of any shareholder proposal
must set forth the various information required under the bylaws. The person
submitting the notice must provide, among other things, the name and address
under which such shareholder appears on the Company's books and the class and
number of shares of the Company's capital stock that are beneficially owned by
such shareholder. Any shareholder desiring a copy of the Company's bylaws will
be furnished one without charge upon written request to the Secretary of the
Company at the Company's headquarters.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed with this report or, as noted, are
incorporated by reference. Management contracts, compensatory plans
and arrangements are marked with an asterisk (*).
3.a.i Copy of Articles of Incorporation of the Registrant and
amendments thereto, was filed as Exhibit 3(a) to the Registrant's
Registration Statement Number 33-12692, and is incorporated herein by
reference.
3.a.ii Copy of the amendment to Articles of Incorporation - adding a
new Article Nine, was filed as Exhibit 3(e) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988, and is
incorporated herein by reference.
3.a.iii Copy of the amendment to Articles of Incorporation -
adding a new Article Ten, was filed as Exhibit 3.a.iii to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, and is incorporated herein by reference.
3.a.iv Copy of the amendment to Article IV of the Articles of
Incorporation was filed as Exhibit 3.a.iv to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999, and is
incorporated herein by reference.
3.b.i Copy of the Bylaws of the Registrant and amendments thereto,
was filed as Exhibit 3(b) to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994, and is incorporated
herein by reference.
3.b.ii Copy of the amendment to the Bylaws replacing Section 3.04 of
Article Three was filed as Exhibit 3.b.ii to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and is
incorporated herein by reference.
3.b.iii Copy of the amendment to the Bylaws amending Section 3.19
of Article Three was filed as Exhibit 3.b.iii to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and is
incorporated herein by reference.
Page 25
3.b.iv Copy of the amendment to the Bylaws replacing Section 3.02 was
filed as Exhibit 3.b.iv to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, and is incorporated herein
by reference.
4 Form of Common Stock Certificate was filed as Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, and is incorporated herein by reference.
10 Material Contracts
10.a Data processing Agreement dated October 1, 1984 by and
between Bank of Montgomery (First Bank) and Montgomery Data Services,
Inc. was filed as Exhibit 10(k) to the Registrant's Registration
Statement Number 33-12692, and is incorporated herein by reference.
10.b First Bank Salary and Incentive Plan, as amended, was filed
as Exhibit 10(m) to the Registrant's Registration Statement Number
33-12692, and is incorporated herein by reference. (*)
10.c First Bancorp Savings Plus and Profit Sharing Plan (401(k)
savings incentive plan and trust), as amended January 25, 1994 and
July 19, 1994, was filed as Exhibit 10(c) to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994, and is
incorporated herein by reference. (*)
10.d Directors and Officers Liability Insurance Policy of First
Bancorp, dated July 16, 1991, was filed as Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991, and is incorporated herein by reference.
10.e Indemnification Agreement between the Company and its
Directors and Officers was filed as Exhibit 10(t) to the Registrant's
Registration Statement Number 33-12692, and is incorporated herein by
reference.
10.f First Bancorp Employees' Pension Plan, as amended on August
16, 1994, was filed as Exhibit 10(g) to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994, and is
incorporated herein by reference. (*)
10.g First Bancorp Senior Management Supplemental Executive
Retirement Plan dated May 31, 1993, was filed as Exhibit 10(k) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993, and is incorporated herein by reference. (*)
10.h First Bancorp Senior Management Split-Dollar Life Insurance
Agreements between the Company and the Executive Officers, as amended
on December 22, 1994, was filed as Exhibit 10(i) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994,
and is incorporated herein by reference. (*)
10.i First Bancorp 1994 Stock Option Plan was filed as Exhibit
10(n) to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1994, and is incorporated herein by
reference. (*)
10.j Amendment to the First Bancorp Savings Plus and Profit
Sharing Plan (401(k) savings incentive plan and trust), dated
December 17, 1996, was filed as Exhibit 10(m) to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, and is
incorporated herein by reference. (*)
Page 26
10.k Employment Agreement between the Company and James H. Garner
dated August 17, 1998 was filed as Exhibit 10(l) to the Company's
Annual Report on Form 10-Q for the quarter ended September 30, 1998,
and is incorporated by reference. (*)
10.l Employment Agreement between the Company and Anna G. Hollers
dated August 17, 1998 was filed as Exhibit 10(m) to the Company's
Annual Report on Form 10-Q for the quarter ended September 30, 1998,
and is incorporated by reference. (*)
10.m Employment Agreement between the Company and Teresa C. Nixon
dated August 17, 1998 was filed as Exhibit 10(n) to the Company's
Annual Report on Form 10-Q for the quarter ended September 30, 1998,
and is incorporated by reference. (*)
10.n First Amendment to the First Bancorp Senior Management
Executive Retirement Plan dated April 21, 1998 was filed as Exhibit
10(o) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, and is incorporated herein by reference. (*)
10.o Employment Agreement between the Company and Eric P. Credle
dated August 17, 1998 was filed as Exhibit 10(p) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and
is incorporated herein by reference. (*)
10.p Amendments 1 and 2 to the Company's 1994 Stock Option Plan
was filed as Exhibit 10.q to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, and is incorporated herein
by reference. (*)
10.q Employment Agreement between the Company and David G. Grigg
dated August 17, 1998 was filed as Exhibit 10.r to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and
is incorporated herein by reference. (*)
10.r Definitive Merger Agreement with First Savings Bancorp, Inc.
dated December 16, 1999 was filed on Form 8-K on December 21, 1999
and is incorporated herein by reference.
10.s Amendment and Waiver to Merger Agreement with First Savings
Bancorp, Inc. dated March 24, 2000 was filed as Exhibit 10.s to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000 and is incorporated herein by reference. (*).
10.t Second Amendment and Waiver to Merger Agreement dated as of
May 15, 2000 was filed as Exhibit 2.3 to the Company's Amendment
No. 1 to Registration Statement on Form S-4 (Registration
No. 333-34216) dated May 16, 2000 and is incorporated herein by
reference.
10.u Purchase and Assumption Agreement with Bank of Davie, dated
August 22, 2000 was filed as Exhibit 10.u to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000 and is
incorporated herein by reference.
10.v Purchase and Assumption Agreement with First Union National
Bank, dated September 13, 2000 was filed as Exhibit 10.v to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 and is incorporated herein by reference.
10.w Employment Agreement between the Company and John F. Burns
dated September 14, 2000 was filed as Exhibit 10.w to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000 and is incorporated herein by reference. (*)
Page 27
10.x Definitive Merger Agreement with Century Bancorp, Inc. dated
October 19, 2000 was filed on Form 8-K on October 20, 2000 and is
incorporated herein by reference.
10.y Employee Stock Option Plan of First Savings Bank of Moore
County, Inc., SSB, was filed by First Savings Bancorp, Inc. as
Exhibit (10)(ii)(a) to its Registration Statement on Form 8-A,
Registration No. 0-27-098, dated October 26, 1995, and is
incorporated herein by reference. (*)
10.z Director Stock Option Plan of First Savings Bank of Moore
County, Inc., SSB, was filed by First Savings Bancorp, Inc. as
Exhibit (10)(ii)(b) to its Registration Statement on Form 8-A,
Registration No. 0-27-098, dated October 26, 1995, and is
incorporated herein by reference. (*)
10.aa First Savings Bancorp, Inc. Second Nonqualified Stock Option
Plan for Directors, dated June 30, 1999 was filed as Exhibit
(10)(ii)(g) to its Form 10-K for the twelve months ended June 30,
1999, and is incorporated herein by reference. (*)
21 List of Subsidiaries of Registrant.
(b) There were no reports filed on Form 8-K during the three months ended June
30, 2001.
Copies Of Exhibits Are Available Upon Written Request To: First Bancorp, Anna G.
Hollers, Executive Vice President, P.O. Box 508, Troy, NC 27371
Page 28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCORP
August 13, 2001 BY: James H. Garner
---------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
August 13, 2001 BY: Anna G. Hollers
---------------------------
Anna G. Hollers
Executive Vice President
and Secretary
August 13, 2001 BY: Eric P. Credle
---------------------------
Eric P. Credle
Senior Vice President
and Chief Financial Officer
Page 29