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, 1997
Commission File Number 0-15572
FIRST BANCORP
(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 September 30, 1997, 3,016,370 shares of the registrant's Common
Stock, $5 par value, were outstanding. The registrant had no other classes of
securities outstanding.
Transitional Small Business Format [ ] YES [ X ] NO
EXHIBIT INDEX BEGINS ON PAGE 18
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
----
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
September 30, 1997 and 1996
(With Comparative Amounts at December 31, 1996) 3
STATEMENTS OF CONSOLIDATED INCOME -
For the Periods Ended September 30, 1997 and 1996 4
STATEMENTS OF CONSOLIDATED CASH FLOWS -
For the Periods Ended September 30, 1997 and 1996 5
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY -
For the Periods Ended September 30, 1997 and 1996 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 17
Exhibit Cross Reference Index 18
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 2 of 19
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sep 30, Dec 31, Sep 30,
($ in thousands--unaudited) 1997 1996 1996
--------- -------- --------
ASSETS
Cash & due from banks, noninterest bearing ............ $ 14,643 15,882 14,134
Due from banks, interest bearing ...................... 27 -- --
Federal funds sold .................................... 3,090 5,025 --
--------- -------- --------
Total cash and cash equivalents .................... 17,760 20,907 14,134
--------- -------- --------
Securities available for sale (approximate costs of
$52,922, $53,721, and $56,454) ..................... 53,193 53,942 56,303
Securities held-to-maturity (approximate fair values of
$21,376, $22,717, $20,807) ......................... 20,814 22,323 20,433
Presold mortgages in process of settlement ............ 1,258 1,395 936
Loans, net of unearned income ......................... 260,699 223,032 219,732
Less: Allowance for possible loan losses ........... (4,728) (4,726) (4,734)
--------- -------- --------
Net loans ........................................... 255,971 218,306 214,998
--------- -------- --------
Premises and equipment, net ........................... 8,457 7,722 7,687
Accrued interest receivable ........................... 2,744 2,412 2,439
Intangible assets ..................................... 5,192 5,834 5,976
Other ................................................. 2,694 2,609 2,878
--------- -------- --------
Total assets .......................................... $ 368,083 335,450 325,784
========= ======= =======
LIABILITIES
Deposits: Demand ..................................... $ 46,836 45,002 43,595
Savings, NOW and money market .............. 124,349 107,605 103,924
Time deposits of $100,000 of more .......... 35,484 33,526 30,732
Other time deposits ........................ 120,781 111,728 111,144
--------- -------- --------
Total deposits ............................. 327,450 297,861 289,395
Accrued interest on deposits .......................... 2,047 1,882 1,756
Other ................................................. 2,859 2,475 2,429
--------- -------- --------
Total liabilities ..................................... 332,356 302,218 293,580
--------- -------- --------
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
Sep 30, Dec 31, Sep 30,
($ in thousands--unaudited) 1997 1996 1996
--------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, $5 par value per share
Authorized: 12,500,000 shares
Issued and outstanding: 3,016,370,
3,016,370, and 3,014,170 ....................... 15,082 15,082 15,071
Capital surplus ....................................... 3,831 3,831 3,819
Retained earnings ..................................... 16,629 14,173 13,414
Unrealized gain (loss) on securities
available for sale, net of income taxes ........... 185 146 (100)
--------- -------- --------
Total shareholders' equity ............................ 35,727 33,232 32,204
--------- -------- --------
Total liabilities and shareholders' equity ............ $ 368,083 335,450 325,784
========= ======= =======
See Notes to Consolidated Financial Statements.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 3 of 19
Statements of Consolidated Income
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended Nine Months Ended
($ in thousands except September 30, September 30,
per share data--unaudited) 1997 1996 1997 1996
----------- ----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans ............... $ 6,279 5,278 17,502 15,658
Interest on investment securities:
Taxable interest income ............. 919 865 2,774 2,216
Exempt from income taxes ............ 283 283 902 825
Other, principally federal funds sold .... 63 108 336 434
----------- ----------- ----------- -----------
Total interest income ............... 7,544 6,534 21,514 19,133
----------- ----------- ----------- -----------
INTEREST EXPENSE
Time deposits of $100,000 or more ........ 499 456 1,437 1,321
Other time and savings deposits .......... 2,336 2,016 6,601 6,065
Federal funds purchased .................. -- -- 3 --
----------- ----------- ----------- -----------
Total interest expense .............. 2,835 2,472 8,041 7,386
----------- ----------- ----------- -----------
NET INTEREST INCOME ...................... 4,709 4,062 13,473 11,747
Provision for possible loan losses ....... 125 75 325 225
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ............ 4,584 3,987 13,148 11,522
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts ...... 627 654 1,854 1,910
Commissions from insurance sales ......... 69 85 218 280
Other charges, commissions and fees ...... 178 206 596 656
Data processing fees ..................... 74 64 216 180
Securities gains (losses) ................ (12) 6 (12) 6
Other nonrecurring net gains - branch sale -- 211 -- 211
----------- ----------- ----------- -----------
Total other income .................. 936 1,226 2,872 3,243
----------- ----------- ----------- -----------
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended Nine Months Ended
($ in thousands except September 30, September 30,
per share data--unaudited) 1997 1996 1997 1996
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries ................................. 1,568 1,370 4,606 4,047
Employee benefits ........................ 317 326 1,021 974
----------- ----------- ----------- -----------
Total personnel expense ............. 1,885 1,696 5,627 5,021
Net occupancy expense .................... 247 218 715 692
Equipment related expenses ............... 223 214 652 630
Other .................................... 1,246 1,251 3,598 3,478
----------- ----------- ----------- -----------
Total other expenses ................ 3,601 3,379 10,592 9,821
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............... 1,919 1,834 5,428 4,944
Income taxes ............................. 651 626 1,795 1,688
----------- ----------- ----------- -----------
NET INCOME ............................... $ 1,268 1,208 3,633 3,256
=========== ============ =========== ===========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING ................ 3,016,370 3,014,170 3,016,370 3,014,170
=========== ============ =========== ===========
PER SHARE AMOUNTS
Net income ............................... $ 0.42 0.40 1.20 1.08
Cash dividends declared .................. 0.13 0.11 0.39 0.33
See Notes to Consolidated Financial Statements.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 4 of 19
Statements Of Consolidated Cash Flows
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
($ in thousands--naudited) 1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 3,633 3,256
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loans losses ............................................ 325 225
Net security premium amortization/discount accretion .................. (8) (12)
Loan fees and costs deferred, net of amortization ..................... 25 1
Depreciation of premises and equipment ................................ 532 552
Amortization of intangible assets ..................................... 406 425
Realized and unrealized other real estate losses ...................... 16 49
Provision for deferred income taxes ................................... (13) 272
Loss (gain) on sale of securities ..................................... 12 (6)
Net gain from sale of branch facilities, loans and deposits ........... -- (211)
Changes in operating assets and liabilities:
Increase in accrued interest receivable ............................... (332) (67)
Decrease (increase) in intangible assets .............................. 236 (96)
Decrease in other assets .............................................. 119 1,067
Increase (decrease) in accrued interest payable ....................... 165 (133)
Increase in other liabilities ......................................... 324 510
--------- --------
Net cash provided by operating activities ................................. 5,440 5,832
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale ................................. (28,754) (37,011)
Purchase of securities held-to-maturity ................................... (1,222) (2,375)
Proceeds from sale of securities available for sale ....................... 8,361 1,146
Proceeds from maturities/issuer calls of securities available for sale .... 21,209 28,673
Proceeds from maturities/issuer calls of securities held-to-maturity ...... 2,710 1,740
Net increase in loans ..................................................... (38,097) (10,028)
Net purchases of premises and equipment ................................... (1,267) (426)
Net cash paid in sale of deposits ......................................... -- (1,722)
--------- --------
Net cash used in investing activities ..................................... (37,060) (20,003)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits .................................................. 29,589 5,224
Cash dividends paid ....................................................... (1,116) (935)
--------- --------
Net cash provided by financing activities ................................. 28,473 4,289
--------- --------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (3,147) (9,882)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 20,907 24,016
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 17,760 14,134
========= ========
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
($ in thousands--unaudited) 1997 1996
--------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest .................................................................. $ 7,876 7,519
Income taxes .............................................................. 1,700 1,338
Non-cash transactions:
Foreclosed loans transferred to other real estate ......................... 82 359
Loans to facilitate the sale of other real estate ......................... 17 93
Increase (decrease) in market value of securities available for sale ...... 50 (506)
See Notes to Consolidated Financial Statements.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 5 of 19
Statements Of Changes In Consolidated Shareholders' Equity
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
Unrealized
Gain/(Loss)
on Available Share
(In thousands Capital Retained for Sale holders'
--unaudited) Shares Amount Surplus Earnings Securities, net Equity
------ ------ ------- -------- --------------- ------
Balances, December 31, 1996 . 3,016 $ 15,082 3,831 14,173 146 33,232
Net income .................. 3,633 3,633
Cash dividends declared ..... (1,177) (1,177)
Net adjustment for securities
available for sale ....... 39 39
----- -------- ----- ------ --- ------
Balances, September 30, 1997 3,016 $ 15,082 3,831 16,629 185 35,727
===== ======== ===== ====== === ======
Balances, December 31, 1995 . 3,014 $ 15,071 3,819 11,152 235 30,277
Net income .................. 3,256 3,256
Cash dividends declared ..... (994) (994)
Net adjustment for securities
available for sale ....... (335) (335)
----- -------- ----- ------ ---- ------
Balances, September 30, 1996 3,014 $ 15,071 3,819 13,414 (100) 32,204
===== ======== ===== ====== === ======
See Notes to Consolidated Financial Statements.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 6 of 19
FIRST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Periods Ended September 30, 1997 and 1996
NOTE 1
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, 1997 and 1996 and the consolidated results of
operations, consolidated cash flows, and changes in consolidated stockholders'
equity for the periods ended September 30, 1997 and 1996. Reference is made to
the notes to consolidated financial statements for the year ended December 31,
1996 filed with the Annual Report on Form 10-KSB for a discussion of accounting
policies and other relevant information with respect to the financial
statements.
NOTE 2
The results of operations for the periods ended September 30, 1997 and 1996 are
not necessarily indicative of the results to be expected for the full year.
Earnings per share were computed by dividing net income by the weighted average
common shares outstanding. Common stock equivalents resulting from the Company's
stock option plan were not considered in the earnings per share computation due
to immateriality.
NOTE 3
Certain amounts reported in the periods ended December 31, 1996 and September
30, 1996 have been reclassified to conform with the presentation for September
30, 1997. 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 4
Based on management's evaluation of the loan portfolio, current economic
conditions and other risk factors, the Company's allowance for possible loan
losses was $4,728,000 as of September 30, 1997 compared to $4,726,000 and
$4,734,000 as of December 31, 1996 and September 30, 1996, respectively. These
reserve levels represented 1.81%, 2.12% and 2.15% of total loans as of September
30, 1997, December 31, 1996 and September 30, 1996, respectively. Nonperforming
assets are defined as nonaccrual loans, loans past due 90 or more days and still
accruing interest, restructured loans and foreclosed, repossessed and idled
properties. For each of the periods presented, the Company had no loans past due
90 or more days and still accruing interest. Nonperforming assets are summarized
as follows:
September 30, December 31, September 30,
($ in thousands) 1997 1996 1996
------ ------- -------
Nonperforming loans:
Nonaccrual loans .............................. $1,148 1,836 1,322
Restructured loans ............................ 291 350 354
------ ------- -------
Total nonperforming loans ....................... 1,439 2,186 1,676
Foreclosed, repossessed and idled
properties (included in other assets) ......... 404 572 611
------ ------- -------
Total nonperforming assets ...................... $1,843 2,758 2,287
====== ===== =====
Nonperforming loans as a percentage
of total loans ................................ 0.55% 0.98% 0.76%
Allowance for possible loans losses as a
percentage of nonperforming loans ............. 328.56% 216.19% 282.46%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties . 0.71% 1.23% 1.04%
Nonperforming assets as a percentage of total
assets ........................................ 0.50% 0.82% 0.70%
NOTE 5
Loans are shown on the Consolidated Balance Sheets net of approximately $10,000
of unearned income for each of the periods presented.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 7 of 19
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1997 increased 5.0% to
$1,268,000, or $0.42 per share, compared to $1,208,000, or $0.40 per share, for
the third quarter of 1996. The earnings increase was achieved as a result of
higher net interest income resulting from a higher loan volume and a wider net
interest margin. The higher net interest income was largely offset by a higher
provision for loan losses, less noninterest income, and higher noninterest
expense. Net income and noninterest income for the quarter ended September 30,
1996 was significantly affected by nonrecurring gains on the sale of the loans
and deposits of one branch office reduced by a loss from the sale of a vacated
building of $128,000 ($211,000 pretax), or $0.04 per share.
For substantially the same reasons, net income for the nine months ended
September 30, 1997 increased 11.6% to $3,633,000 or $1.20 per share, from
$3,256,000, or $1.08 cents per share, for the same period in 1996.
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 increased by $647,000, or 15.9%, when comparing the third
quarter of 1997 with the third quarter of 1996, primarily because of growth in
loan volume, as well as an increase in the tax-equivalent net interest margin.
At September 30, 1997, loans had increased 18.6% to $260,699,000 from
$219,732,000 at September 30, 1996. Additionally, the Company's tax-equivalent
net interest margin increased to 5.84% from 5.66% when comparing the same
quarters. For substantially the same reasons, net interest income for the nine
months ended September 30, 1997 increased by $1,726,000, or 14.7%, compared to
the same period in 1996. The tax-equivalent net interest margin for the nine
months ended September 30, 1997 was 5.78% versus 5.54% for the same nine month
period in 1996.
The Company currently has approximately $71 million more in interest
bearing liabilities that are subject to possible interest rate adjustment within
one year than interest earning assets that are subject to interest rate
adjustments within one year. Therefore, a future increase in market interest
rates could have a negative impact on net interest income if the rate-sensitive
liabilities reprice at the same or greater rate than the repricing of
rate-sensitive earning assets. Generally, the Company's goal is to manage
portfolio mixes to minimize changes in net interest income due to changing
rates. The portfolio mix of assets and liabilities is substantially similar to
that at December 31, 1996.
The provision for possible loan losses for the third quarter increased
$50,000, or 67%, to $125,000 from $75,000 for the third quarter of 1996. For the
nine months ended September 30, 1997, provisions for possible loan losses
increased by $100,000, or 44.4%, when compared to the same period of 1996 to
$325,000. The increases in the provisions for both periods were considered
prudent in light of the significant loan growth experienced by the Company.
Provisions for possible loan losses are based on management's evaluation of the
loan portfolio, as discussed under "Summary of Loan Loss Experience" below.
Noninterest income decreased $290,000, or 23.7%, for the third quarter of
1997. The decrease is primarily attributable to nonrecurring net gains of
$211,000 realized in the third quarter of 1996 from the sale of the loans and
deposits of one branch office and from the sale of a vacated building. Excluding
the nonrecurring gains realized in 1996, noninterest income decreased $79,000,
or 7.8%, from the same quarter in 1996. This decrease reflects slightly lower
volumes of activity in several fee generating services. For the nine months
ended September 30, 1997, noninterest income decreased $371,000, or 11.4%, for
substantially the same reasons previously discussed. Data processing fees
totaled $74,000 and $216,000 for the three and nine month periods ended
September 30, 1997, respectively. The Company has been notified that because of
a bank acquisition, the external bank customer representing these data
processing fees will be terminating its contract with the Company in the fourth
quarter of 1997. The Company expects to receive an early termination fee of
approximately $168,000 during the same quarter because of the termination of the
contract, but in future periods this source of income will not be available to
the Company. Management expects the impact of this contract termination on
future earnings to be largely offset by the absence of related expenses incurred
in servicing the customer.
Noninterest overhead expenses increased by $222,000, or 6.6%, for the
third quarter of 1997 primarily because of expenses associated with opening
branch offices in Seagrove, Lillington, and Sanford since the third quarter of
last year. Personnel expenses increased $189,000, or 11.1%. For
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 8 of 19
substantially the same reason, noninterest expense for the nine months ended
September 30, 1997 increased $771,000, or 7.9%, compared to the same period of
1996.
Income taxes increased $25,000, or 4.0%, for the third quarter of 1997,
while the effective tax rate was approximately 34% for both quarters ended
September 30, 1997 and 1996. Income taxes for the nine months ended September
30, 1997 increased $107,000, or 6.3%, resulting in an effective tax rate of
33.1% compared to 34.1% for the same nine month period of 1996. The slightly
lower effective tax rate is attributable to a higher level of holdings of
tax-exempt securities over the comparable periods.
FINANCIAL CONDITION
The Company's total assets were $368.1 million at September 30, 1997, an
increase of $42.3 million, or 13.0%, from September 30, 1996. Interest-earning
assets increased by 13.9% compared to September 30, 1996. Loans, the primary
interest-earning asset, increased by 18.6% during this same period. Deposits
increased $38.1 million, or 13.1% to support the asset growth. The increases in
deposits were primarily as a result of growth in the categories of savings, NOW
and money market deposits. The Company's cost of funds has remained relatively
low compared to that of its competitors. The Company does not rely heavily on
large deposits of $100,000 or more to fund asset growth and has not
traditionally engaged in obtaining deposits through brokers. Since December 31,
1996, the Company has experienced increases of 11.0%, 9.7%, and 9.9% in earning
assets, total assets and deposits, respectively.
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. 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,
1997 1996 1996
------- ------ ------
Nonperforming loans:
Nonaccrual loans .............................. $1,148 1,836 1,322
Restructured loans ............................ 291 350 354
------- ------ ------
Total nonperforming loans ....................... 1,439 2,186 1,676
Foreclosed, repossessed and idled
properties (included in other assets) ......... 404 572 611
------- ------ ------
Total nonperforming assets ...................... $1,843 2,758 2,287
======= ====== ======
Impaired loans under SFAS 114 ................... $ 512 1,228 840
======= ====== ======
Nonperforming loans as a percentage
of total loans ................................ 0.55% 0.98% 0.76%
Allowance for possible loans losses as a
percentage of nonperforming loans ............. 328.56% 216.19% 282.46%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties . 0.71% 1.23% 1.04%
Nonperforming assets as a percentage of total
assets ........................................ 0.50% 0.82% 0.70%
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 possible loan losses discussed
below.
A loan is placed on nonaccrual status when, in management's judgment, the
collection of interest appears doubtful. While a loan is on nonaccrual status,
the Company's policy is that all cash receipts are applied to principal. Once
the recorded principal balance has been reduced to zero, future cash receipts
are applied to recoveries of any amounts previously charged off. Further cash
receipts are recorded as interest income to the extent that any interest has
been foregone. The accrual of interest is discontinued on all loans that become
90 days past due with respect to principal or interest. In some cases, where
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 9 of 19
borrowers are experiencing financial difficulties, loans may be restructured to
provide terms significantly different from the originally contracted terms. If
the nonaccrual loans and restructured loans as of September 30, 1997 and 1996
had been current in accordance with their original terms and had been
outstanding throughout the nine month periods (or since origination or
acquisition if held for part of the nine month periods), gross interest income
in the amounts of approximately $79,000 and $97,000 for nonaccrual loans and
$21,000 and $48,000 for restructured loans would have been recorded for the nine
months ended September 30, 1997 and 1996, respectively. Interest income on such
loans that was actually collected and included in net income in the nine months
ended September 30, 1997 and 1996 amounted to approximately $31,000 and $18,000,
respectively, for nonaccrual loans and $16,000 each period for restructured
loans.
Nonperforming loans are defined as nonaccrual loans, loans past due 90 or
more days and restructured loans. As of September 30, 1997, December 31, 1996
and September 30, 1996, nonperforming loans were approximately 0.55%, 0.98%, and
0.76%, respectively, of the total loans outstanding at such dates. Nonaccrual
loans as of September 30, 1997 decreased $174,000, or 13.2%, to approximately
$1,148,000 compared to September 30, 1996 and are lower by approximately
$688,000, or 37.5%, since year-end. The decrease in nonaccrual loans at
September 30, 1997 as compared to December 31, 1996 is primarily attributable to
the resolution of several larger relationships that resulted in partial
charge-offs during the period, as well as generally improving loan quality. As
of September 30, 1997, the borrower with the largest nonaccrual loan owed a
balance of $194,000 while the average nonaccrual loan balance was approximately
$30,000.
The FASB has issued SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," which requires that all creditors value all specifically reviewed loans
for which it is probable that the creditor will be unable to collect all amounts
due according to the terms of the loan agreement at the present value of
expected cash flows, market price of the loan, if available, or value of the
underlying collateral. Expected cash flows are required to be discounted at the
loan's effective interest rate.
The FASB also has issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," that amends Standard
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan and by requiring additional disclosures about how a
creditor recognizes interest income related to impaired loans.
SFAS No.'s 114 and 118 do not apply to large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment. For the
Company, these loans include residential mortgage and consumer installment
loans.
Consistent with SFAS No. 114, management considers loans to be impaired
when, based on current information and events, it is probable the Company will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. Impaired loans are measured using either the discounted expected
cash flows or the value of collateral method. While a loan is considered to be
impaired, the Company's policy is that all cash receipts are applied to
principal. Once the recorded principal balance has been reduced to zero, future
cash receipts are applied to recoveries of any amounts previously charged off.
Further cash receipts are recorded as interest income to the extent that any
interest has been foregone.
At September 30, 1997, December 31, 1996, and September 30, 1996 the
recorded investment in loans that are considered to be impaired under SFAS No.
114 was $512,000, $1,228,000, and $840,000, respectively, all of which were on a
nonaccrual basis. The decrease in the level of impaired loans at September 30,
1997 as compared to December 31, 1996 is due to the same reasons as the decrease
in nonaccrual loans over the same period discussed above. The related allowance
for loan losses for these impaired loans as determined in accordance with SFAS
No. 114 was $107,000, $184,000, and $126,000, respectively. There were no
impaired loans for which there was no related allowance determined in accordance
with the statement. The average recorded investments in impaired loans during
the nine month period ended September 30, 1997, the year ended December 31,
1996, and the nine months ended September 30, 1996 were approximately $718,000,
$859,000, and $846,000, respectively. For the same periods, the Company
recognized interest income on those loans prior to the determination that they
were impaired of approximately $11,000, $83,000, and $62,000, respectively,
using the accrual basis of accounting. The amount of interest income recognized
on a cash basis for these loans subsequent to being classified as impaired was
immaterial.
In addition to the nonperforming loan amounts discussed above, management
believes that an estimated $1,000,000-$1,500,000 of loans that are currently
performing in accordance with their contractual terms may potentially develop
problems depending upon the particular financial situations of
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 10 of 19
the borrowers and economic conditions in general. These loans were considered in
determining the appropriate level of the allowance for possible loan losses. See
"Summary of Loan Loss Experience" below. 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 September 30, 1997, the Company owned foreclosed and repossessed
assets totaling approximately $404,000, which consisted principally of several
parcels of foreclosed real estate. The Company's management has reviewed recent
appraisals of these properties and has concluded that their fair values, less
estimated costs to sell, exceed their respective carrying values at September
30, 1997.
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for possible 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.
Recoveries 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, evaluation of possible future losses and current economic
conditions.
The Company's bank subsidiary uses a loan analysis and grading program to
facilitate its evaluation of possible future loan losses and the adequacy of its
allowance for possible loan losses, otherwise referred to as its loan loss
reserve. In this program, a "watch list" is prepared and monitored monthly by
management and is tested quarterly by the bank's Internal Audit Department. The
list includes loans that management identifies as having potential credit
weaknesses in addition to loans past due 90 days or more, nonaccrual loans and
remaining unpaid loans identified during previous examinations.
Based on management's evaluation of the loan portfolio and economic
conditions, a provision for possible loan losses of $125,000 was added to the
allowance for possible loan losses during the third quarter of 1997, which
brought the year-to-date provision to $325,000. The quarterly provision for loan
losses made during 1997 was greater than the $75,000 provision made during the
corresponding period of 1996 principally because of the significant loan growth
experienced by the Company. The year-to-date provision for possible loan losses
increased $100,000, or 44.4%, for substantially the same reason. At September
30, 1997, the allowance stood at $4,728,000, compared to $4,726,000 at December
31, 1996 and $4,734,000 at September 30, 1996. At September 30, 1997, the
allowance for possible loan losses was approximately 329% of total nonperforming
loans, compared to corresponding percentages of 216% at December 31, 1996 and
282% at September 30, 1996.
The allowance for possible loan losses was 1.81%, 2.12% and 2.15% of total
loans as of September 30, 1997, December 31, 1996 and September 30, 1996,
respectively. Management believes the reserve levels are adequate to cover
possible loan losses on the loans outstanding as of each reporting date. It must
be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about future economic conditions and other factors affecting loans. No assurance
can be given that the Company will not in any particular period sustain loan
losses that are sizable in relation to the amounts reserved or that subsequent
evaluations of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for possible
loan losses or future charges to earnings. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowances for possible loan losses and losses on other real
estate. Such agencies may require the Company to recognize additions to the
allowances based on their judgments about information available at the time of
such examinations.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 11 of 19
For the periods indicated, the following table summarizes the Company's balances
of loans outstanding, average loans outstanding, changes in the allowance
arising from charge-offs and recoveries by category, and additions to the
allowance that have been charged to expense.
Nine Months Year Nine Months
Ended Ended Ended
Sept 30, Dec 31, Sept 30,
($ in thousands) 1997 1996 1996
--------- ------- -------
Loans outstanding at period end ............. $ 260,699 223,032 219,732
========= ======= =======
Average loans outstanding during period ..... 237,485 217,900 216,512
========= ======= =======
Allowance for possible loan losses at
beginning of period ...................... $ 4,726 4,587 4,587
Loans charged off:
Commercial, financial and agricultural ... (25) (209) (71)
Real estate - mortgage ................... (336) (196) (156)
Installment loans to individuals ......... (230) (311) (204)
--------- ------- -------
Total charge-offs ...................... (591) (716) (431)
--------- ------- -------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural ... 81 114 75
Real estate - mortgage ................... 21 127 125
Installment loans to individuals ......... 117 113 90
Other .................................... 49 176 63
--------- ------- -------
Total recoveries ....................... 268 530 353
--------- ------- -------
Net charge-offs ............................. (323) (186) (78)
Additions to the allowance charged to expense 325 325 225
--------- ------- -------
Allowance for possible loan losses at
end of period ............................ $ 4,728 4,726 4,734
========= ======= =======
Ratios:
Annualized net charge-offs to average
loans during period .................... 0.18% 0.09% 0.05%
Annualized net charge-offs to loans
at end of period ....................... 0.17% 0.08% 0.05%
Allowance for possible loan losses to
average loans during the period ........ 1.99% 2.17% 2.19%
Allowance for possible loan losses to
loans at end of period ................. 1.81% 2.12% 2.15%
Annualized net charge-offs to allowance
for possible loan losses ............... 9.11% 3.94% 2.20%
Net charge-offs to provision for loan
losses ................................. 99.38% 57.23% 46.22%
Based on the results of the aforementioned loan analysis and grading
program and management's evaluation of the allowance for possible loan losses at
September 30, 1997, there have been no material changes to the allocation of the
allowance for possible loan losses among the various categories of loans since
December 31, 1996.
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
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 12 of 19
funds sold and other short-term investments. In addition, the Company (through
its bank subsidiary) has the ability, on a short-term basis, to purchase federal
funds from other financial institutions. The Company has not traditionally had
to rely on the purchase of federal funds as a source of liquidity. The Company
has increased its loan to deposit ratio to a level more typical of the Bank's
North Carolina peer group. The Company's management believes its liquidity
sources are at an acceptable level and remain adequate to meet its operating
needs.
CAPITAL RESOURCES
The Company is required by its own policies and by applicable federal
regulations to maintain certain capital levels. The Company's ratio of stated
capital to total assets exceeded 9.5% as of September 30, 1997 and 1996 and
December 31, 1996. In an effort to achieve a measurement of capital adequacy
that is sensitive to the individual risk profiles of financial institutions, the
various financial institution regulators have minimum capital guidelines that
categorize various components of capital and types of assets and measure capital
adequacy in relation to the financial institution's relative level of those
capital components and the level of risk associated with various types of assets
of that financial institution. The guidelines call for minimum adjusted capital
of 8% of risk-adjusted assets. As of September 30, 1997, the Company's total
risk-based capital ratio was 12.88%.
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 leverage capital, as defined in the regulations, to quarterly average
total assets of 3-5%. As of September 30, 1997, the Company's leverage capital
ratio was 8.50%.
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.
As of September 30, 1997, December 31, 1996 and September 30, 1996, the
Company was in compliance with all existing regulatory capital requirements, as
summarized in the following table:
Sept 30, Dec 31, Sept 30,
($ in thousands) 1997 1996 1996
------------ ------------ ------------
Tier I capital:
Total stated shareholders' equity $ 35,727 33,232 32,204
Less: Intangible assets 5,192 5,834 5,976
Unrealized gain (loss)
on securities available for
sale, net of income taxes 185 146 (100)
------------ ------------ ------------
Total Tier I leverage capital 30,350 27,252 26,328
Tier II capital:
Allowable allowance for loan losses 3,217 2,789 2,842
------------ ------------ ------------
Total capital $ 33,567 30,041 29,170
============ ============ ============
Risk-adjusted assets $ 262,735 229,084 227,330
Tier I risk-adjusted assets (includes Tier I
capital adjustments) 257,358 223,104 221,454
Tier II risk adjusted assets (includes Tiers I
and II capital adjustments) 260,575 225,893 224,296
Quarterly average total assets 362,601 333,337 327,005
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 357,224 327,357 321,129
Risk-based capital ratios:
Tier I capital 11.79% 12.21% 11.89%
Minimum required Tier I capital 4.00% 4.00% 4.00%
Total risk-based capital 12.88% 13.30% 13.01%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Leverage capital ratios:
Tier I leverage capital ratio 8.50% 8.32% 8.20%
Minimum required Tier I leverage capital 3-5.00% 3-5.00% 3-5.00%
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 13 of 19
PENDING BRANCH ACQUISITION
The Company expects to consummate the acquisition of the premises and
equipment and assume the deposits of a First Union National Bank of North
Carolina branch in Lillington, N.C. during November 1997. Approximately $15
million in deposits are expected to be assumed as part of the acquisition.
Management does not expect this transaction to have any immediate material
effect on the Company's operations or liquidity position.
ACCOUNTING AND REGULATORY MATTERS
In February 1997, the Financial Accounting Standards (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share. SFAS No. 128 simplifies the computation of earnings per share (EPS) by
replacing the presentation of "primary" earnings per share with a presentation
of "basic" EPS. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by weighted average common shares outstanding.
Diluted EPS is computed similarly to "fully diluted" EPS under existing
accounting rules. Dual presentation of basic and diluted EPS is required for
complex capital structures. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted but restatement of prior years' EPS is required. The adoption of SFAS
No. 128 is not expected to have a material effect on previously reported
earnings per share.
In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure." This Statement establishes standards for
disclosing information about an entity's capital structure. SFAS No. 129 is
effective for the Corporation's financial statements as of December 31, 1997.
The Corporation does not anticipate that the implementation of this Statement
will have a material impact on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of financial statements. Comprehensive income
is defined as the change in equity during a period for non-owner transactions
and is divided into net income and other comprehensive income. Other
comprehensive income includes revenues, expenses, gains, and losses that are
excluded from earnings under current accounting standards. This statement does
not change or modify the reporting or display in the income statement. SFAS No.
130 is effective for interim and annual periods beginning after December 31,
1997 although early adoption is permitted. Comparative financial statements
provided for earlier periods are required to be reclassified to reflect the
application of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The statement requires management to
report selected financial and descriptive information about reportable operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Generally, disclosures are
required for segments internally identified to evaluate performance and resource
allocation. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for prior periods is to be restated, if it is practical
to do so. SFAS No. 131 does not have to be applied to interim financial
statements in the initial year of application, but, comparative information must
be provided for interim periods in the second year of application.
FORWARD LOOKING STATEMENTS
The foregoing discussion may contain forward looking statements within the
meaning of the Private Securities Litigation Reform Act. Such statements are
characterized by the use of qualifying words (and their derivatives) such as
"expect," "believe," "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, actions of government regulators, the level of market interest rates,
and general economic conditions.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 14 of 19
Part II. Other Information
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, 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.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.
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 Severance Agreement between the Company and James A. Gunter dated
October 12, 1995 was filed as Exhibit 10(m) to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995, and is
incorporated by reference. (*)
10.k Severance Agreement between the Company and Patrick A. Meisky dated
December 29, 1995
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 15 of 19
was filed as Exhibit 10(o) to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995, and is incorporated by
reference. (*)
10.l 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. (*)
10.m Purchase and Assumption Agreement dated June 18, 1997 between First
Union National Bank and First Bank was filed as Exhibit 10(m) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, and is incorporated herein by reference.
27 Financial Data Schedules pursuant to Article 9 of Regulation S-X.
(b) There were no reports filed on Form 8-K during the quarter ended September
30, 1997.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 16 of 19
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 3, 1997 BY: /s/ James H. Garner
-------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
November 3, 1997 BY: /s/ Anna G. Hollers
----------------------
Anna G. Hollers
Executive Vice President
and Secretary
November 3, 1997 BY: /s/ Eric P. Credle
-------------------
Eric P. Credle
Vice President
and Chief Financial Officer
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 17 of 19
EXHIBIT CROSS REFERENCE INDEX
Exhibit Page(s)
------- -------
3.a.i Copy of Articles of Incorporation of the Registrant *
3.a.ii Copy of the amendment to Articles of Incorporation
3.b.i Copy of the Bylaws of the Registrant *
10.a Data processing Agreement by and between Bank of Montgomery (First Bank) and
Montgomery Data Services, Inc. *
10.b First Bank Salary and Incentive Plan, as amended *
10.c First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings incentive plan
and trust), as amended *
10.d Directors and Officers Liability Insurance Policy of First Bancorp *
10.e Indemnification Agreement between the Company and its Directors and Officers *
10.f First Bancorp Employees' Pension Plan *
10.g First Bancorp Senior Management Supplemental Executive Retirement Plan *
10.h First Bancorp Senior Management Split-Dollar Life Insurance Agreements between
the Company and the Executive Officers *
10.i First Bancorp 1994 Stock Option Plan *
10.j Severance Agreement between the Company and James A. Gunter *
10.k Severance Agreement between the Company and Patrick A. Meisky *
10.l Amendment to the First Bancorp Savings Plus and Profit Sharing Plan (401(k)
savings incentive plan and trust) *
10.m Purchase and Assumption Agreement between First Union National Bank and
First Bank *
27 Financial Data Schedules pursuant to Article 9 of Regulation S-X 19
* Incorporated herein by reference.
FIRST BANCORP (No. 0-15572), FORM 10-Q, September 30, 1997 Page 18 of 19