UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2001
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
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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 October 31, 2001, 9,105,974 shares of the registrant's Common
Stock, no par value, were outstanding. The registrant had no other classes of
securities outstanding.
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
September 30, 2001 and 2000
(With Comparative Amounts at December 31, 2000) 3
CONSOLIDATED STATEMENTS OF INCOME -
For the Periods Ended September 30, 2001 and 2000 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
For the Periods Ended September 30, 2001 and 2000 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -
For the Periods Ended September 30, 2001 and 2000 6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Periods Ended September 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 24
Part II. Other Information
Item 5 - Other Information 27
Item 6 - Exhibits and Reports on Form 8-K 27
Signatures 31
Part I. Financial Information
Item 1 - Financial Statements
First Bancorp and Subsidiaries
Consolidated Balance Sheets
September 30, December 31, September 30,
($ in thousands-unaudited) 2001 2000 2000
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash & due from banks, noninterest-bearing $ 33,567 20,940 24,189
Due from banks, interest-bearing 16,955 1,769 10,848
Federal funds sold 11,754 7,730 33,050
------------ ------ ------
Total cash and cash equivalents 62,276 30,439 68,087
------------ ------ ------
Securities available for sale (costs of $96,755,
$69,214, and $58,826) 98,500 69,597 58,216
Securities held to maturity (fair values of $16,980,
$47,661, and $48,079) 16,347 47,924 49,083
Presold mortgages in process of settlement 5,020 1,036 1,178
Loans 878,234 746,089 730,134
Less: Allowance for loan losses (9,187) (7,893) (7,773)
------------ ------- -------
Net loans 869,047 738,196 722,361
------------ ------- -------
Premises and equipment 17,934 14,116 14,154
Accrued interest receivable 6,434 6,342 5,833
Intangible assets 21,632 4,630 4,788
Other 3,465 2,887 5,120
------------ ------- -------
Total assets $ 1,100,655 915,167 928,820
============ ======= =======
LIABILITIES
Deposits: Demand - noninterest-bearing $ 92,824 70,634 71,392
Savings, NOW, and money market 318,799 253,687 248,573
Time deposits of $100,000 or more 188,392 140,992 135,882
Other time deposits 357,302 305,066 313,161
------------ ------- -------
Total deposits 957,317 770,379 769,008
Borrowings 15,000 26,200 41,200
Accrued interest payable 3,772 4,254 3,727
Other liabilities 8,744 3,650 4,924
------------ ------- -------
Total liabilities 984,833 804,483 818,859
------------ ------- -------
SHAREHOLDERS' EQUITY
Common stock, No par value per share
Issued and outstanding: 9,099,571,
8,827,341, and 8,928,729 shares 50,147 50,148 51,881
Retained earnings 64,550 60,280 58,480
Accumulated other comprehensive income (loss) 1,125 256 (400)
------------ ------- -------
Total shareholders' equity 115,822 110,684 109,961
------------ ------- -------
Total liabilities and shareholders' equity $ 1,100,655 915,167 928,820
============ ======= =======
See notes to consolidated financial statements.
3
First Bancorp and Subsidiaries
Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
($ in thousands, except share data-unaudited) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 17,762 16,241 51,263 45,658
Interest on investment securities:
Taxable interest income 1,605 2,255 4,893 6,816
Tax-exempt interest income 204 211 611 661
Other, principally overnight investments 258 285 1,187 755
---------- ------ ------ ------
Total interest income 19,829 18,992 57,954 53,890
---------- ------ ------ ------
INTEREST EXPENSE
Savings, NOW and money market 1,332 1,679 4,311 4,729
Time deposits of $100,000 or more 2,657 2,162 7,651 5,679
Other time deposits 4,754 4,542 14,579 12,068
Borrowings 258 914 1,113 2,584
---------- ------ ------ ------
Total interest expense 9,001 9,297 27,654 25,060
---------- ------ ------ ------
Net interest income 10,828 9,695 30,300 28,830
Provision for loan losses 238 705 766 1,365
---------- ------ ------ ------
Net interest income after provision
for loan losses 10,590 8,990 29,534 27,465
---------- ------ ------ ------
NONINTEREST INCOME
Service charges on deposit accounts 1,436 796 3,636 2,302
Other service charges, commissions and fees 489 418 1,529 1,338
Fees from presold mortgages 338 116 762 314
Commissions from sales of insurance/investments 184 87 530 347
Data processing fees 55 34 151 76
Securities gains (losses) 61 (2,006) 61 (1,917)
Loan sale gains -- -- 9 --
Other gains (losses) 57 -- 87 (11)
---------- ------ ------ ------
Total noninterest income 2,620 (555) 6,765 2,449
---------- ------ ------ ------
NONINTEREST EXPENSES
Salaries 3,212 2,608 9,083 7,567
Employee benefits 783 646 2,082 1,956
---------- ------ ------ ------
Total personnel expense 3,995 3,254 11,165 9,523
Net occupancy expense 443 399 1,282 1,139
Equipment related expenses 428 348 1,189 1,013
Intangibles amortization 458 157 1,065 473
Merger expenses -- 3,188 -- 3,188
Other operating expenses 2,116 1,757 5,887 5,276
---------- ------ ------ ------
Total noninterest expenses 7,440 9,103 20,588 20,612
---------- ------ ------ ------
Income (loss) before income taxes 5,770 (668) 15,711 9,302
Income taxes 2,006 255 5,456 3,703
---------- ------ ------ ------
NET INCOME (LOSS) $ 3,764 (923) 10,255 5,599
========== ==== ====== =====
Earnings (loss) per share:
Basic $ 0.41 (0.10) 1.14 0.63
Diluted 0.40 (0.10) 1.11 0.61
Weighted average common shares outstanding:
Basic 9,223,600 8,915,635 9,006,940 8,896,268
Diluted 9,481,217 9,103,653 9,253,431 9,111,044
See notes to consolidated financial statements.
4
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
($ in thousands-unaudited) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,764 (923) 10,255 5,599
------- ---- ------ -----
Other comprehensive income:
Unrealized gains on securities
available for sale:
Unrealized holding gains arising
during the period, pretax 1,045 1,016 1,397 1,101
Tax expense (367) (345) (489) (417)
Reclassification to realized (gains) losses (61) 2,006 (61) 1,917
Tax expense (benefit) 22 (682) 22 (704)
------- ---- ------ -----
Other comprehensive income 639 1,995 869 1,897
------- ---- ------ -----
Comprehensive income $ 4,403 1,072 11,124 7,496
======= ===== ====== =====
See notes to consolidated financial statements.
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 5,599 5,599
Cash dividends declared ($0.56 per share) (4,906) (4,906)
Common stock issued under
stock option plan 128 375 375
Tax benefit realized from exercise of
nonqualified stock options 790 790
Common stock issued into
dividend reinvestment plan 10 151 151
Purchases and retirement of common
stock (58) (925) (925)
Other comprehensive income 1,897 1,897
----- ----------- ------ ----- -------
Balances, September 30, 2000 8,929 $ 51,881 58,480 (400) 109,961
===== =========== ====== ===== =======
Balances, January 1, 2001 8,827 $ 50,148 60,280 256 110,684
Net income 10,255 10,255
Cash dividends declared ($0.66 per share) (5,985) (5,985)
Common stock issued under
stock option plan 94 567 567
Common stock issued into
dividend reinvestment plan 13 291 291
Common stock issued in acquisitions 602 9,159 9,159
Purchases and retirement of common
stock (436) (10,018) (10,018)
Other comprehensive income 869 869
----- ----------- ------ ----- -------
Balances, September 30, 2001 9,100 $ 50,147 64,550 1,125 115,822
===== =========== ====== ===== =======
See notes to consolidated financial statements.
6
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
($ in thousands-unaudited) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 10,255 5,599
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses 766 1,365
Net security premium amortization (discount accretion) (30) 43
Losses (gains) on sales of securities available for sale (61) 1,917
Losses (gains) on disposal of other real estate (30) 98
Loan fees and costs deferred, net of amortization 26 49
Gain on sale of loans (9) -
Depreciation of premises and equipment 1,038 908
Amortization of intangible assets 1,065 474
Deferred income tax expense (benefit) 477 (289)
Decrease (increase) in accrued interest receivable 386 (547)
Increase in other assets (3,043) (525)
Increase (decrease) in accrued interest payable (1,240) 92
Increase in other liabilities 3,522 379
---------- ---------
Net cash provided by operating activities 13,122 9,563
---------- ---------
Cash Flows From Investing Activities
Purchases of securities available for sale (28,001) (10,977)
Purchases of securities held to maturity (1) (169)
Proceeds from sales of securities available for sale 2,348 54,490
Proceeds from maturities/issuer calls of securities available for sale 35,924 12,319
Proceeds from maturities/issuer calls of securities held to maturity 2,894 3,738
Net increase in loans (26,654) (87,231)
Purchases of premises and equipment (2,781) (2,801)
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 45,858 (30,631)
---------- ---------
Cash Flows From Financing Activities
Net increase in deposits 12,620 56,869
Net repayments of borrowings (24,700) (21,300)
Cash dividends paid (5,903) (4,356)
Proceeds from issuance of common stock 858 526
Purchases and retirement of common stock (10,018) (925)
---------- ---------
Net cash provided (used) by financing activities (27,143) 30,814
---------- ---------
Increase In Cash And Cash Equivalents 31,837 9,746
Cash And Cash Equivalents, Beginning Of Period 30,439 58,341
---------- ---------
Cash And Cash Equivalents, End Of Period $ 62,276 68,087
========== =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 28,649 24,968
Income taxes 735 4,910
Non-cash transactions:
Transfer of securities from held to maturity to available for sale 31,220 -
Unrealized gain on securities available for sale, net of taxes 869 1,897
Foreclosed loans transferred to other real estate 517 -
Premises and equipment transferred to other real estate 425 -
See notes to consolidated financial statements.
7
First Bancorp And Subsidiaries
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
(unaudited) For the Periods Ended September 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 September 30, 2001 and 2000 and the consolidated
results of operations and consolidated cash flows for the periods ended
September 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
September 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 September 30, 2000 have
been reclassified to conform with the presentation for September 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 includes
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 September 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 (loss) $ 3,764 9,223,600 $ 0.41 $ (923) 8,915,635 $ (0.10)
=========== ==========
Effect of Dilutive Securities -- 257,617 -- 188,018
--------- --------- ---------- ---------
Diluted EPS $ 3,764 9,481,217 $ 0.40 $ (923) 9,103,653 $ (0.10)
========= ========= =========== ========== ========= ==========
For the Nine Months Ended September 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 $ 10,255 9,006,940 $ 1.14 $ 5,599 8,896,268 $ 0.63
=========== ==========
Effect of Dilutive Securities -- 246,491 -- 214,776
--------- --------- ---------- ---------
Diluted EPS $ 10,255 9,253,431 $ 1.11 $ 5,599 9,111,044 $ 0.61
========= ========= =========== ========== ========= ==========
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:
September 30, December 31, September 30,
($ in thousands) 2001 2000 2000
--------------------------------------------------- ---------------- --------------- ---------------
Nonperforming loans:
Nonaccrual loans $ 4,540 626 992
Restructured loans 166 237 243
---------- ---------- ----------
Total nonperforming loans 4,706 863 1,235
Other real estate 1,146 893 738
---------- ---------- ----------
Total nonperforming assets $ 5,852 1,756 1,973
========== ========== ==========
Nonperforming loans to total loans 0.54% 0.12% 0.17%
Nonperforming assets as a percentage of loans
and other real estate 0.67% 0.24% 0.27%
Nonperforming assets to total assets 0.53% 0.19% 0.21%
Allowance for loan losses to total loans 1.05% 1.06% 1.06%
- -----------------------------------------------------------------------------------------------------------------
NOTE 5 - Deferred Loan Fees
Loans are shown on the Consolidated Balance Sheets net of net deferred
loan fees of approximately $719,000, $689,000, and $753,000 at September 30,
2001, December 31, 2000, and September 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 $102
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:
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 8, 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.
10
In July 2001, the Financial Accounting Standards Board ("FASB") 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 the criteria that 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 (including such assets acquired prior to January 1, 2002) 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. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" - see below. 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.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard provides guidance of differentiating between long-lived assets to
be held and used, long-lived assets to be disposed of other than by sale and
long-lived assets to be disposed of by sale. SFAS No. 144 supersedes FASB
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 144 also supersedes Accounting Principals Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This statement is effective for fiscal years beginning
after December 15, 2001. At this time, the Company is assessing the impact of
SFAS No. 144 on its financial condition and results of operations.
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 September 30, 2001 amounted to
$3,764,000, or $0.40 per diluted share, compared to a net loss of $923,000, or
$0.10 per diluted share, recorded in the third quarter of 2000. The third
quarter of 2000 was significantly affected by merger-related charges associated
with the Company's merger-acquisition of First Savings Bancorp, Inc. (First
Savings) that occurred on September 14, 2000. Excluding the effects of
nonrecurring items of income and expense recorded in each period (including the
merger-related charges recorded in 2000), the Company's net income for the third
quarter of 2001 amounted to $3,687,000, a 17.3% increase over the $3,142,000
recorded for the third quarter of 2000. Excluding nonrecurring income/expense,
diluted earnings per share for the third quarter of 2001 amounted to $0.39 per
share, compared to $0.35 for the third quarter of 2000, an 11.4% increase.
Net income for the nine months ended September 30, 2001 was $10,255,000, or
$1.11 per diluted share, compared to net income of $5,599,000, or $0.61 per
diluted share, recorded in the first nine months of 2000. As noted above,
charges associated with the merger acquisition of First Savings significantly
impacted results for 2000. Excluding the effects of nonrecurring items of income
and expense recorded for each nine month period (including the merger-related
charges recorded in 2000), the Company's net income for the nine months ended
September 30, 2001 amounted to $10,153,000, a 5.6% increase over the $9,616,000
recorded for the same nine months of 2000. Excluding nonrecurring
income/expense, diluted earnings per share for the nine months ended September
30, 2001 amounted to $1.10 per share, compared to $1.06 for the same nine months
in 2000, a 3.8% increase.
Excluding items of nonrecurring income and expense, the Company's
annualized return on average assets (ROA) was 1.34% for the third quarter of
2001 compared to 1.35% for the third quarter of 2000, and 1.32% for the nine
months ended September 30, 2001 compared to 1.41% for the first nine months of
2000. Excluding items of nonrecurring income and expense, the Company's
annualized return on average equity (ROE) was 12.37% for the third quarter of
2001 compared to 11.28% for the third quarter of 2000, and 11.79% for the nine
months ended September 30, 2001 compared to 11.69% for the first nine months of
2000.
The increase in recurring earnings when comparing the three and nine
month periods of 2001 to the same periods of 2000 are the result of higher net
interest income and noninterest income that was largely 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. All major categories of noninterest income have experienced
increases in 2001 as a result of fees and charges earned from customers and
accounts assumed in corporate acquisitions, the low interest rate environment
which has increased mortgage loan refinancings, and the introduction of a
product that charges a fee for allowing customers to overdraw their deposit
account. Noninterest expenses increased in 2001 primarily as a result of the
Company's recent acquisitions.
NONRECURRING ITEMS OF INCOME AND EXPENSE
As noted above, the third quarter of 2000 was significantly impacted by
the Company's merger-acquisition of First Savings. The material nonrecurring
items of income and expense related to the merger were as follows:
12
o $3,188,000 in expenses ($2,593,000 after-tax) that were incurred
in completing the merger. These expenses consisted primarily of
investment banker fees, attorney fees, employment contract
payments, accountant fees, and early termination fees associated
with vendor contracts.
o $2,006,000 in losses ($1,218,000 after-tax) from sales of
securities. The merger with First Savings increased the company's
liability sensitive position. To reduce the Company's interest
rate risk exposure, approximately $54.5 million in securities were
sold at a total loss of $2,006,000. The proceeds from the sale
were first used to repay short-term debt, with the remaining
proceeds invested in investments with a shorter average life and a
higher yield than the securities sold.
o $420,000 was recorded ($254,000 after-tax) as a one time
adjustment to the allowance for loan losses during the third
quarter of 2000. This provision for loan losses was recorded in
order to align the credit risk methodologies of the Company and
First Savings.
While less significant in amount, the three and nine months ended
September 30, 2001 and 2000 also contained other items of a nonrecurring nature.
Nonrecurring items are items that are not a part of the Company's day-to-day
operations and include items such as merger-related expenses, gains and losses
from securities sales, loan sales, fixed assets, other real estate, and other
items of a similar nature. The following table presents a summary of items that
are nonrecurring in nature that impact comparisons of the three and nine month
periods in 2001 compared to the same periods in 2000. The "Impact on Net Income"
and "Impact on Diluted Earnings Per Share (EPS)" columns reflect the after-tax
amount of the nonrecurring item at the blended federal and state tax rate.
Three Months Ended Sept. 30, 2001 Three Months Ended Sept. 30, 2000
------------------------------------- ---------------------------------------
Gross Amount Impact on Gross Amount Impact on
Income/ Impact on Diluted Income/ Impact on Diluted
(Expense) Net Income EPS (Expense) Net Income EPS
--------- ---------- --------- --------- ---------- ---------
Merger-related addition to
provision for loan losses $ -- -- -- (420) (254) (0.03)
------ ------ ------ ------ ------ ------
Items affecting noninterest
income
- ------------------------------
Securities losses - merger-
related -- -- -- (2,006) (1,218) (0.14)
Other securities gains, net 61 40 0.01 -- -- --
Other 57 37 -- -- -- --
------ ------ ------ ------ ------ ------
Total impact on
noninterest income 118 77 0.01 (2,006) (1,218) (0.14)
------ ------ ------ ------ ------ ------
Items affecting noninterest
expense
- ------------------------------
Merger-related expenses -- -- -- (3,188) (2,593) (0.28)
------ ------ ------ ------ ------ ------
Total impact $ 118 77 0.01 (5,614) (4,065) (0.45)
====== ====== ====== ====== ====== ======
13
Nine Months Ended Sept. 30, 2001 Nine Months Ended Sept. 30, 2000
------------------------------------- ---------------------------------------
Gross Amount Impact on Gross Amount Impact on
Income/ Impact on Diluted Income/ Impact on Diluted
(Expense) Net Income EPS (Expense) Net Income EPS
--------- ---------- --------- --------- ---------- ---------
Merger-related addition to
provision for loan losses $ -- -- -- (420) (254) (0.03)
------ ------ ------ ------ ------ ------
Items affecting noninterest
income
- ------------------------------
Securities losses - merger-
related -- -- -- (2,006) (1,218) (0.14)
Other securities gains, net 61 40 0.00 89 55 0.00
Other 96 62 0.01 (11) (7) 0.00
------ ------ ------ ------ ------ ------
Total impact on
noninterest income 157 102 0.01 (1,928) (1,170) (0.14)
------ ------ ------ ------ ------ ------
Items affecting noninterest
expense
- ------------------------------
Merger-related expenses -- -- -- (3,188) (2,593) (0.28)
------ ------ ------ ------ ------ ------
Total impact $ 157 102 0.01 (5,536) (4,017) (0.45)
====== ====== ====== ====== ====== ======
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 nine month periods ended September 30, 2001
amounted to $10,828,000 and $30,300,000, respectively, increases of 11.7% and
5.1%, over the amounts recorded in the same three and nine month periods in
2000, respectively. There are two primary factors that cause changes in the
amount of net interest income recorded by the Company - 1) growth in loans and
deposits, and 2) the Company's net interest margin (net yield on
interest-earning assets).
For the three and nine months ended September 30, 2001, growth in loans
and deposits, which was achieved largely from corporate acquisitions, had a
positive impact on net interest income, while a declining net interest margin
had a negative impact on net interest income, when compared to the same periods
in 2000.
14
The following tables present average balances and average rates
earned/paid by the Company for the periods indicated.
For the Three Months Ended September 30,
--------------------------------------------------------------------------
2001 2000
---------------------------------- -----------------------------------
Interest Interest
Average Average Earned Average Average Earned
Volume Rate or Paid Volume Rate or Paid
($ in thousands) --------- --------- --------- ----------- --------- ----------
Assets
Loans (1) $ 873,958 8.06% $ 17,762 $ 718,301 8.97% $ 16,241
Taxable securities 103,206 6.17% 1,605 132,323 6.76% 2,255
Non-taxable securities (2) 16,182 8.43% 344 17,149 8.26% 357
Short-term investments,
principally federal funds 26,100 3.92% 258 18,072 6.26% 285
--------- ---------- ---------- ----------
Total interest-earning assets 1,019,446 7.77% 19,969 885,845 8.57% 19,138
---------- ----------
Liabilities
Savings, NOW and money
market deposits 319,457 1.65% 1,332 $ 249,569 2.67% 1,679
Time deposits >$100,000 179,023 5.89% 2,657 133,896 6.41% 2,162
Other time deposits 360,358 5.23% 4,754 310,886 5.80% 4,542
--------- ---------- ---------- ----------
Total interest-bearing deposits 858,838 4.04% 8,743 694,351 4.79% 8,383
Borrowings 16,207 6.32% 258 50,605 7.17% 914
--------- ---------- ---------- ----------
Total interest-bearing liabilities 875,045 4.08% 9,001 744,956 4.95% 9,297
---------- ----------
Non-interest-bearing deposits 87,314 66,443
Net yield on interest-earning
assets and net interest income 4.27% $ 10,968 4.41% $ 9,841
========== ==========
Interest rate spread 3.69% 3.62%
Average prime rate 6.58% 9.50%
- --------------------------------------------------------------------------------------------------------------------
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $140,000 and $146,000 in 2001 and
2000 respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
- ----------------
15
For the Nine Months Ended September 30,
------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ----------------------------------------
Interest Interest
Average Average Earned Average Average Earned
Volume Rate or Paid Volume Rate or Paid
------ ---- ------- ------ ---- -------
($ in thousands)
Assets
Loans (1) $ 814,105 8.42% $ 51,263 $ 688,947 8.83% $ 45,658
Taxable securities 99,362 6.58% 4,893 142,303 6.38% 6,816
Non-taxable securities (2) 16,329 8.71% 1,064 17,829 8.26% 1,106
Short-term investments,
principally federal funds 34,868 4.55% 1,187 15,880 6.33% 755
----------- -------- ----------- --------
Total interest-earning assets 964,664 8.10% 58,407 864,959 8.37% 54,335
-------- --------
Liabilities
Savings, NOW and money
market deposits 290,513 1.98% 4,311 $ 251,005 2.51% 4,729
Time deposits >$100,000 164,866 6.20% 7,651 126,042 6.00% 5,679
Other time deposits 341,612 5.71% 14,579 292,224 5.50% 12,068
----------- -------- ----------- --------
Total interest-bearing deposits 796,991 4.45% 26,541 669,271 4.47% 22,476
Borrowings 23,065 6.45% 1,113 54,097 6.36% 2,584
----------- -------- ----------- --------
Total interest-bearing liabilities 820,056 4.51% 27,654 723,368 4.61% 25,060
-------- --------
Non-interest-bearing deposits 81,135 66,907
Net yield on interest-earning
assets and net interest income 4.26% $ 30,753 4.51% $ 29,275
======== ========
Interest rate spread 3.59% 3.76%
Average prime rate 7.50% 9.15%
- ---------------------------------------------------------------------------------------------------------------------------
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $453,000 and $445,000 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 21.7%
higher in the third quarter of 2001 and 18.2% higher in the first nine months of
2001 compared to the same three and nine month periods of 2000. Average deposits
for the three and nine month periods ended September 30, 2001 were 24.4% and
19.3% 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 eight successive interest rate cuts totaling 350
basis points by the Federal Reserve Board during the first nine months of 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
16
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 further 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, the Company has not been able to
decrease rates on renewing time deposits in the first nine months of 2001 by the
corresponding decreases in the Federal Reserve discount rate because of
competitive pressures in the Company's market.
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
asset 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 margin earned
on these acquired loans and deposits has been lower than the Company's historic
margins.
The provision for loan losses for the third quarter of 2001 was
$238,000, $47,000 lower than the recurring (i.e. not merger-related) provision
of $285,000 recorded in the third quarter of 2000 - as discussed above, a
merger-related provision for $420,000 was also recorded in the third quarter of
2000. For the nine months ended September 30, 2001, the provision for loan
losses was $766,000 compared to the recurring provision of $945,000 for the nine
months ended September 30, 2000 (excluding the $420,000 merger-related
provision). The decreases in the provision for loan losses in 2001 compared to
2000 have been a result of significantly lower loan growth experienced during
2001. Net internal loan growth (excluding loans assumed in acquisitions) for the
third quarter of 2001 amounted to $9.0 million compared to $25.4 million in the
third quarter of 2000. Net internal loan growth for first nine months of 2001
amounted to $25.3 million compared to $86.9 million in the first nine months of
2000. An increase in nonperforming assets (see discussion below) during 2001
increased what otherwise would have been an even lower level of provision for
loan losses in 2001.
Excluding nonrecurring items of noninterest income (security sales, loan
sales, etc. - see discussion above), noninterest income for the three and nine
month periods ended September 30, 2001 amounted to $2,502,000 and $6,608,000
respectively, increases of 72.4% and 51.0% over the like amounts recorded in the
same three and nine month periods in 2000. Within noninterest income, service
charges on deposit accounts experienced the largest increase in 2001 compared to
2000, amounting to $1,436,000 in the third quarter of 2001, an 80.4% increase
over the $796,000 recorded in the same quarter of 2000, and $3,636,000 for the
first nine months of 2001, a 57.9% increase over the $2,302,000 recorded in the
first nine months of 2000. The increase in service charges on deposit accounts
is primarily related to three events - 1) an increase in the Company's service
fee rate structure implemented in November 2000, 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, and 3) the
introduction of a product in August 2001 that charges a fee for allowing
customers to overdraw their deposit account.
Also contributing to the increase in noninterest income was "Other
service charges, commissions, and fees," which increased from $418,000 in the
third quarter of 2000 to $489,000 in the third quarter of 2001, a 17.0%
increase. For the nine months ended September 30, 2001, this category of
noninterest income amounted to $1,529,000, a 14.3% increase compared to the
$1,338,000 recorded in the first nine 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
17
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 nine month periods ended
September 30, 2001 amounted to $338,000 and $762,000, respectively, increases of
191% and 143% over the amounts recorded in the comparable periods in 2000 of
$116,000 and $314,000, 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 $184,000 and $530,000 for the three and nine months in 2001,
respectively, a 111% and 53% increase from the $87,000 and $347,000 amounts
recorded for the three and nine months ended September 30, 2000, respectively.
The Company expects that this line item will continue to increase as a result of
hiring additional personnel and the May 30, 2001 acquisition of two insurance
agencies that specialize in property and casualty insurance, as discussed above.
Data processing fees for the three and nine month periods ended
September 30, 2001 amounted to $55,000 and $151,000, respectively, increases of
62% and 99% over the amounts recorded in the comparable periods in 2000 of
$34,000 and $76,000, 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 nine months ended September
30, 2001 amounted to $7,440,000 and $20,588,000, respectively, increases of
25.8% and 18.2%, from the amounts of $5,915,000 and $17,424,000 (excluding
$3,188,000 in merger expenses discussed above) recorded in the three and nine
month periods ended September 30, 2000, respectively. The increases in
noninterest expenses occurred in all categories and are 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 nine months
of 2001.
Amortization of intangible assets increased from $157,000 in the third
quarter of 2000 to $458,000 in the third quarter of 2001, and from $473,000 for
the nine months ended September 30, 2000 to $1,065,000 for the first nine months
of 2001. These increases are primarily 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 intangible assets related to
the branch purchase of approximately $14.6 million and intangible assets related
to the Century acquisition of $3.2 million. 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 $2,006,000 in the third quarter of
2001, amounting to an effective tax rate of 34.8%, compared to $255,000 in the
third quarter of 2000, which exceeded the amount of net income for that quarter.
The provision for income taxes for the nine months ended September 30, 2001
amounted to $5,456,000, amounting to an effective tax rate of 34.7%, compared to
$3,703,000 for the first nine months of 2000, which amounted to an effective tax
rate of 39.8%. The higher recorded income tax expense for both periods in 2001
is attributable to the higher level of pretax earnings, while the higher
effective tax rates for 2000 are due to certain nondeductible merger expenses
recorded in 2000.
18
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 these purchases on selected balance
sheet levels and growth rates during the time periods indicated.
Balance at Balance at Total Percentage growth,
(in millions) beginning Internal Growth from end of percentage excluding
of period growth acquisitions period growth acquisitions
--------- ------ ------------ ------ ------ ------------
October 1, 2000 to
September 30, 2001
------------------
Loans $730,134 41,208 106,892 878,234 20.3% 5.6%
======== ======== ======== ======== ======== ========
Deposits - Noninterest bearing $ 71,392 3,765 17,667 92,824 30.0% 5.3%
Deposits - Savings, NOW, and
Money Market 248,573 7,541 62,685 318,799 28.3% 3.0%
Deposits - Time 449,043 2,685 93,966 545,694 21.5% 0.6%
-------- -------- -------- -------- -------- --------
Total deposits $769,008 13,991 174,318 957,317 24.5% 1.8%
======== ======== ======== ======== ======== ========
January 1, 2001 to
September 30, 2001
------------------
Loans $746,089 25,253 106,892 878,234 17.7% 3.4%
======== ======== ======== ======== ======== ========
Deposits - Noninterest bearing $ 70,634 4,523 17,667 92,824 31.4% 6.4%
Deposits - Savings, NOW, and
Money Market 253,687 2,427 62,685 318,799 25.7% 1.0%
Deposits - Time 446,058 5,670 93,966 545,694 22.3% 1.3%
-------- -------- -------- -------- -------- --------
Total deposits $770,379 12,620 174,318 957,317 24.3% 1.6%
======== ======== ======== ======== ======== ========
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 served to leverage the Company's capital. The
Company's tangible equity to total assets ratio decreased from 11.6% at December
31, 2000 to 8.6% at September 30, 2001.
The Company's total assets were $1.1 billion at September 30, 2001, an
increase of $171 million, or 18.4%, from the $929 million at September 30, 2000.
The primary reason for the increase in total assets was the acquisitions
discussed above, which added approximately $196.0 million in total assets.
Paydowns of outstanding debt totaling $26 million and repurchases of the
Company's stock of approximately $12 million have reduced the Company's assets
since September 30, 2000.
19
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90
or more days and still accruing interest, restructured loans and other real
estate. For each of the periods presented, the Company had no loans past due 90
or more days and still accruing interest. Nonperforming assets are summarized as
follows:
September 30, December 31, September 30,
($ in thousands) 2001 2000 2000
- --------------------------------------------- ------------- ------------ -------------
Nonperforming loans:
Nonaccrual loans $4,540 626 992
Restructured loans 166 237 243
------ ----- -----
Total nonperforming loans 4,706 863 1,235
Other real estate 1,146 893 738
------ ----- -----
Total nonperforming assets $5,852 1,756 1,973
====== ===== =====
Nonperforming loans to total loans 0.54% 0.12% 0.17%
Nonperforming assets as a percentage of loans
and other real estate 0.67% 0.24% 0.27%
Nonperforming assets to total assets 0.53% 0.19% 0.21%
Allowance for loan losses to total loans 1.05% 1.06% 1.06%
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
$4,540,000 at September 30, 2001. The increase is primarily attributable to four
loans to the same borrower totaling $2.7 million that were placed on nonaccrual
status during the first half of 2001. The Company has a total of approximately
$3.2 million in loans ($0.5 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 same borrower were placed on nonaccrual status. The level of
restructured loans did not vary materially among the periods presented.
At September 30, 2001, December 31, 2000, and September 30, 2000, the
recorded investment in loans considered to be impaired was $3,140,000, $293,000,
and $60,000, respectively, all of which were on nonaccrual status. The increase
in impaired loans is primarily due to the same loans noted above that were
placed on nonaccrual status. The related allowance for loan losses for these
impaired loans was $75,000, $44,000, and $9,000, respectively. The average
recorded investments in impaired loans during the nine month period ended
September 30, 2001, the year ended December 31, 2000, and the nine months ended
September 30, 2000 were approximately $2,442,000, $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
20
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 September 30, 2001, December 31, 2000 and September 30, 2000, the
amount of the Company's other real estate owned did not vary materially,
amounting to $1,146,000, $893,000, and $738,000, respectively, which consisted
principally of several parcels of real estate. 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.
The provision for loan losses for the third quarter of 2001 was
$238,000, $47,000 lower than the recurring (i.e not merger-related) provision of
$285,000 recorded in the third quarter of 2000 - as discussed above, a
merger-related provision for $420,000 was also recorded in the third quarter of
2000. For the nine months ended September 30, 2001, the provision for loan
losses was $766,000 compared to the recurring provision of $945,000 for the nine
months ended September 30, 2000 (excluding the $420,000 merger-related
provision). The decreases in the provision for loan losses in 2001 compared to
2000 have been a result of significantly lower loan growth experienced during
2001. Net internal loan growth (excluding loans assumed in acquisitions) for the
third quarter of 2001 amounted to $9.0 million compared to $25.4 million in the
third quarter of 2000. Net internal loan growth for first nine months of 2001
amounted to $25.3 million compared to $86.9 million in the first nine months of
2000. An increase in nonperforming assets (see discussion above) during 2001
increased what otherwise would have been an even lower level of provisions for
loan losses in 2001.
At September 30, 2001, the allowance for loan losses amounted to
$9,187,000, compared to $7,893,000 at December 31, 2000 and $7,773,000 at
September 30, 2000. The allowance for loan losses was 1.05%, 1.06% and 1.06% of
total loans as of September 30, 2001, December 31, 2000, and September 30, 2000,
respectively. In addition to the increases to the allowance for loan losses
related to normal quarterly provisions, the increase in the dollar amount of the
allowance for loan losses since December 31, 2001 was also affected by 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 $601,000
addition related to Century represented the book value of Century's
21
allowance for loan losses on the date of the acquisition.
Management believes the Company's reserve levels are adequate to cover
probable loan losses on the loans outstanding as of each reporting date. It must
be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about economic conditions and other factors affecting loans. No assurance can be
given that the Company will not in any particular period sustain loan losses
that are sizable in relation to the amounts reserved or that subsequent
evaluations of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges to earnings.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses
and value of other real estate. Such agencies may require the Company to
recognize adjustments to the allowance or the carrying value of other real
estate based on their judgments about information available at the time of their
examinations.
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance for loan losses arising from charge-offs and recoveries, additions to
the allowance for loan losses that have been charged to expense and additions
that were recorded related to the acquisitions.
Nine Months Year Nine Months
Ended Ended Ended
September 30, December 31, September 30,
($ in thousands) 2001 2000 2000
------------- ------------ -------------
Loans outstanding at end of period $ 878,234 746,089 730,134
============= ============ =============
Average amount of loans outstanding $ 814,105 701,317 688,947
============= ============ =============
Allowance for loan losses, at
beginning of year $ 7,893 6,674 $ 6,674
Total charge-offs (527) (475) (333)
Total recoveries 119 89 67
------------- ------------ -------------
Net charge-offs (408) (386) (266)
------------- ------------ -------------
Additions to the allowance charged to expense 766 1,605 1,365
Addition related to loans of purchased branches 335 -- --
Addition related to acquisition of Century 601 -- --
------------- ------------ -------------
Allowance for loan losses, at end of period $ 9,187 7,893 7,773
============= ============ =============
Ratios:
Net charge-offs (annualized) as a percent of average loans 0.07% 0.06% 0.05%
Allowance for loan losses as a
percent of loans at end of period 1.05% 1.06% 1.06%
Based on the results of the aforementioned loan analysis and grading
program and management's evaluation of the allowance for loan losses at
September 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
22
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%. Although the acquisitions that have
occurred in 2001 have served to reduce the Company's loan to deposit ratio to
91.7%, the positive effects on liquidity indicated by this lower ratio have been
offset by the cash used to pay former Century shareholders the 40% cash portion
of their merger consideration and to repurchase shares of the Company's common
stock. As a result, the Company's liquid assets to deposits and borrowings ratio
remains unchanged at 18.7%.
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 subsidiary is regulated by the Federal Deposit Insurance Corporation
(FDIC) and the North Carolina Office of the Commissioner of Banks. 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, 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. 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.
23
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 September 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 11.29%, a total capital to total risk adjusted asset
ratio of 12.27%, and a leverage ratio of 8.71%. The Company's two risk based
ratios each reflect decreases of approximately 410 basis points from December
31, 2000, and the leverage ratio is approximately 290 basis points lower than at
December 31, 2000. Each of the decreases is primarily related to two factors -
1) the Company's acquisitions during 2001, which reduced tangible capital by a
net of $8.6 million, while adding approximately $196 million in assets, and 2)
the Company's share repurchase program in place in 2001 that resulted in
approximately $10 million in share repurchases during the first nine months of
the year.
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 562,000 shares at an average price of $21.32 per share. For the
nine months ended September 30, 2001, the Company repurchased 437,000 shares at
an average price of $22.93. During the third quarter of 2001, the Company
repurchased 174,900 shares at an average price of $23.52.
On October 23, 2001, the Company reported that it's board of directors
had approved the repurchase of an additional 150,000 shares of the company's
stock upon completion of the existing share repurchase program noted above.
These repurchases may take place in the open market or privately negotiated
transactions on a time-to-time and ongoing basis, depending upon market
conditions and subject to compliance with all applicable securities laws and
regulations.
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 Company has been able to maintain a fairly consistent yield on average
earning assets (net interest margin). Over the past five complete 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 (under "Components of Earnings"), the Company has recently
experienced downward pressure in 2001 on its net interest margin as a result of
the significant decreases in the interest rate environment.
24
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 September 30, 2001
the Company had $367.5 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 September 30, 2001 subject to interest rate changes within one
year are deposits totaling $318.8 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 nine months 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 nine months of 2001 negatively
impacted (at least temporarily) the Company's net interest margin.). 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 September 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 $ 16,955 -- -- -- -- -- 16,955 2.95% $ 16,955
Federal funds sold 11,754 -- -- -- -- -- 11,754 2.95% 11,754
Debt securities- at
amortized cost (2) 40,416 29,461 17,040 6,294 4,099 8,843 106,153 6.51% 107,912
Loans-fixed (3)(4) 114,964 106,411 98,568 62,502 78,158 52,613 513,216 8.25% 523,711
Loans-adjustable (3)(4) 137,441 48,586 52,024 47,814 49,997 24,616 360,478 7.11% 360,478
--------- --------- --------- --------- --------- --------- --------- ---- ---------
Total $ 321,530 184,458 167,632 116,610 132,254 86,072 1,008,556 7.51% $1,020,810
========= ========= ========= ========= ========= ========= ========= ==== =========
Savings, NOW, and
money market
deposits $ 318,799 -- -- -- -- -- 318,799 1.59% $ 318,799
Time deposits 465,267 61,223 8,717 6,886 2,050 1,551 545,694 5.19% 550,169
Borrowings (2) 5,000 5,000 -- -- -- 5,000 15,000 6.73% 15,508
--------- --------- --------- --------- --------- --------- --------- ---- ---------
Total $ 789,066 66,223 8,717 6,886 2,050 6,551 879,493 3.91% $ 884,476
========= ========= ========= ========= ========= ========= ========= ==== =========
25
(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
September 30, 2001 are assumed to mature at their call date for purposes of
this table. Mortgage securities are assumed to mature in the period of
their expected repayment based on estimated prepayment speeds.
(3) Excludes nonaccrual loans and allowance for loan losses.
(4) Single-family mortgage loans are assumed to mature in the period of their
expected repayment based on estimated prepayment speeds. All other loans
are shown in the period of their contractual maturity.
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 September 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.
26
Part II. Other Information
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.
27
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.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.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. (*)
28
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. (*)
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. (*)
29
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 September 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
30
SIGNATURES
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
November 13, 2001 BY: /s/ James H. Garner
---------------------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
November 13, 2001 BY: /s/ Anna G. Hollers
---------------------------------------
Anna G. Hollers
Executive Vice President
and Secretary
November 13, 2001 BY: /s/ Eric P. Credle
---------------------------------------
Eric P. Credle
Senior Vice President
and Chief Financial Officer
31