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, 1999
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
[ X ] YES [ ] NO
As of September 30, 1999, 4,533,430 shares of the registrant's Common
Stock, no par value, were outstanding. The registrant had no other classes of
securities outstanding.
EXHIBIT INDEX BEGINS ON PAGE 30
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
September 30, 1999 and 1998
(With Comparative Amounts at December 31, 1998) 3
CONSOLIDATED STATEMENTS OF INCOME -
For the Periods Ended September 30, 1999 and 1998 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
For the Periods Ended September 30, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -
For the Periods Ended September 30, 1999 and 1998 6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Periods Ended September 30, 1999 and 1998 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 22
Part II. Other Information
Item 5 - Other Information 26
Item 6 - Exhibits and Reports on Form 8-K 26
Signatures 29
Exhibit Cross Reference Index 30
2
Part I. Financial Information
Item 1 - Financial Statements
First Bancorp and Subsidiaries
Consolidated Balance Sheets
September 30, December 31, September 30,
($ in thousands-unaudited) 1999 1998 1998
--------- ------- -------
ASSETS
Cash & due from banks, noninterest-bearing $ 21,514 22,073 17,418
Due from banks, interest-bearing 22,247 8,398 21,269
Federal funds sold 2,285 8,295 11,707
--------- ------- -------
Total cash and cash equivalents 46,046 38,766 50,394
--------- ------- -------
Securities available for sale (costs of $55,829,
$58,740, and $39,171) 54,496 58,800 39,535
Securities held to maturity (fair values of $17,007,
$19,223, and $19,375) 16,967 18,480 18,589
Presold mortgages in process of settlement 636 2,619 1,495
Loans 400,574 358,334 345,295
Less: Allowance for loan losses (5,988) (5,504) (5,391)
--------- ------- -------
Net loans 394,586 352,830 339,904
--------- ------- -------
Premises and equipment 9,884 9,091 8,832
Accrued interest receivable 3,613 2,789 2,980
Intangible assets 5,366 5,843 5,995
Other 3,555 2,620 2,813
--------- ------- -------
Total assets $ 535,149 491,838 470,537
========= ======= =======
LIABILITIES
Deposits: Demand - noninterest bearing $ 57,608 62,479 58,337
Savings, NOW, and money market 160,751 160,428 148,535
Time deposits of $100,000 or more 69,350 60,720 54,613
Other time deposits 168,376 156,639 151,015
--------- ------- -------
Total deposits 456,085 440,266 412,500
Short-term borrowings 30,000 6,000 13,000
Accrued interest payable 3,326 3,080 3,003
Other liabilities 2,858 1,998 2,401
--------- ------- -------
Total liabilities 492,269 451,344 430,904
--------- ------- -------
SHAREHOLDERS' EQUITY
Common stock, No par value per share
Issued and outstanding: 4,533,430,
4,531,905, and 4,532,205 shares 18,904 18,970 18,976
Retained earnings 24,789 21,487 20,435
Accumulated other comprehensive income (loss) (813) 37 222
--------- ------- -------
Total shareholders' equity 42,880 40,494 39,633
--------- ------- -------
Total liabilities and shareholders' equity $ 535,149 491,838 470,537
========= ======= =======
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) 1999 1998 1999 1998
----------- ----- ------ ------
INTEREST INCOME
Interest and fees on loans $ 8,745 7,882 24,947 22,252
Interest on investment securities:
Taxable interest income 827 663 2,447 2,159
Tax-exempt interest income 210 246 676 788
Other, principally overnight investments 176 391 540 892
----------- ----- ------ ------
Total interest income 9,958 9,182 28,610 26,091
----------- ----- ------ ------
INTEREST EXPENSE
Savings, NOW and money market 789 869 2,370 2,493
Time deposits of $100,000 or more 895 869 2,678 2,236
Other time deposits 2,068 1,971 6,069 5,741
Short-term borrowings 128 106 226 106
----------- ----- ------ ------
Total interest expense 3,880 3,815 11,343 10,576
----------- ----- ------ ------
Net interest income 6,078 5,367 17,267 15,515
Provision for loan losses 205 250 665 740
----------- ----- ------ ------
Net interest income after provision
for loan losses 5,873 5,117 16,602 14,775
----------- ----- ------ ------
NONINTEREST INCOME
Service charges on deposit accounts 720 655 2,103 1,912
Fees from presold mortgages 137 135 510 365
Commissions from insurance sales 62 62 207 180
Other service charges, commissions and fees 306 244 981 759
Data processing fees 14 - 34 -
Securities gains (losses) - - 20 (3)
Loan sale gains 23 66 25 213
Other gains (losses) (20) 11 (20) 20
----------- ----- ------ ------
Total noninterest income 1,242 1,173 3,860 3,446
----------- ----- ------ ------
NONINTEREST EXPENSES
Salaries 2,093 1,864 5,894 5,309
Employee benefits 478 416 1,428 1,191
----------- ----- ------ ------
Total personnel expense 2,571 2,280 7,322 6,500
Net occupancy expense 304 270 883 758
Equipment related expenses 281 231 800 666
Other operating expenses 1,450 1,222 4,183 3,889
----------- ----- ------ ------
Total noninterest expenses 4,606 4,003 13,188 11,813
----------- ----- ------ ------
Income before income taxes 2,509 2,287 7,274 6,408
Income taxes 771 805 2,432 2,230
----------- ----- ------ ------
NET INCOME $ 1,738 1,482 4,842 4,178
=========== ===== ===== =====
Earnings per share:
Basic $ 0.38 0.33 1.07 0.92
Diluted 0.37 0.32 1.05 0.90
Weighted average common shares outstanding:
Basic 4,529,607 4,531,055 4,524,797 4,530,722
Diluted 4,635,735 4,653,629 4,627,671 4,661,129
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) 1999 1998 1999 1998
------- ----- ----- -----
Net income $ 1,738 1,482 4,842 4,178
Other comprehensive income (loss):
Unrealized losses on securities
available for sale:
Unrealized holding gains (losses) arising
during the period, pretax (267) 149 (1,373) 79
Tax benefit (expense) 104 (69) 535 (45)
Reclassification to realized losses (gains) - - (20) 3
Tax expense (benefit) - - 8 (1)
------- ----- ----- -----
Other comprehensive income (loss) (163) 80 (850) 36
------- ----- ----- -----
Comprehensive income $ 1,575 1,562 3,992 4,214
======= ===== ===== =====
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, 1998 3,020 $ 18,963 17,616 186 36,765
Effect of 1999 3-for-2 stock split 1,511
----- -------- ------ --- ------
Balances, January 1, 1998 -
adjusted 4,531 18,963 17,616 186 36,765
Net income 4,178 4,178
Cash dividends declared ($0.30 per share) (1,359) (1,359)
Common stock issued under
stock option plans 1 13 13
Other comprehensive income 36 36
----- -------- ------ --- ------
Balances, September 30, 1998 4,532 $ 18,976 20,435 222 39,633
===== ======== ====== ==== ======
Balances, January 1, 1999 4,532 $ 18,970 21,487 37 40,494
Net income 4,842 4,842
Cash dividends declared ($0.3399
per share) (1,540) (1,540)
Common stock issued under
stock option plan 8 63 63
Common stock issued into
dividend reinvestment plan 12 223 223
Purchases and retirement of common
stock (19) (352) (352)
Other comprehensive loss (850) (850)
----- -------- ------ ---- ------
Balances, September 30, 1999 4,533 $ 18,904 24,789 (813) 42,880
===== ======== ====== ==== ======
See notes to consolidated financial statements.
6
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
($ in thousands-unaudited) 1999 1998
-------- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,842 4,178
Reconciliation of net income to net cash provided by operating
activities:
Provision for loan losses 665 740
Net security premium amortization 256 138
Gains on sales of loans (25) (213)
Proceeds from sales of loans 1,226 7,060
Losses (gains) on sales of securities available for sale (20) 3
Loan fees and costs deferred, net of amortization 35 35
Depreciation of premises and equipment 675 554
Amortization of intangible assets 477 492
Provision for deferred income taxes (200) 37
Increase in accrued interest receivable (824) (114)
Decrease (increase) in other assets 2,174 (185)
Increase in accrued interest payable 246 704
Increase (decrease) in other liabilities 799 (40)
-------- -----
Net cash provided by operating activities 10,326 13,389
-------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (13,760) (18,488)
Purchases of securities held to maturity (2,321) (755)
Proceeds from sales of securities available for sale 3,017 1,015
Proceeds from maturities/issuer calls of securities available for sale 13,412 28,171
Proceeds from maturities/issuer calls of securities held to maturity 3,840 3,005
Net increase in loans (43,688) (71,821)
Purchases of premises and equipment (1,821) (753)
-------- -----
Net cash used in investing activities (41,321) (59,626)
-------- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 15,819 51,276
Proceeds from short-term borrowings, net 24,000 13,000
Cash dividends paid (1,478) (1,299)
Proceeds from issuance of common stock 286 13
Purchases and retirement of common stock (352) -
-------- -----
Net cash provided by financing activities 38,275 62,990
-------- -----
INCREASE IN CASH AND CASH EQUIVALENTS 7,280 16,753
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,766 33,641
-------- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 46,046 50,394
======== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 11,097 9,872
Income taxes 1,722 2,201
Non-cash transactions:
Foreclosed loans transferred to other real estate 31 29
Unrealized gain (loss) on securities available for sale (1,393) 82
Premises and equipment transferred to other real estate 315 206
See notes to consolidated financial statements.
7
First Bancorp And Subsidiaries
Notes To Consolidated Financial Statements
(unaudited) For the Periods Ended September 30, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1
In the opinion of management, 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, 1999 and 1998 and the consolidated results of
operations and consolidated cash flows for the periods ended September 30, 1999
and 1998. Reference is made to the 1998 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.
NOTE 2
The results of operations for the periods ended September 30, 1999 and 1998 are
not necessarily indicative of the results to be expected for the full year.
Certain amounts reported in the period ended September 30, 1998 have been
reclassified to conform with the presentation for September 30, 1999. These
reclassifications had no effect on net income or shareholders' equity for the
periods presented, nor did they materially impact trends in financial
information. Share data, including earnings per share, have been adjusted to
reflect the 3-for-2 stock split that was paid on September 13, 1999 to
shareholders of record as of August 30, 1999.
NOTE 3
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 1994 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,
----------------------------------------------------------------------------
1999 1998
($ in thousands except per Income Shares Income Shares
share amounts) (Numer- (Denom- Per Share (Numer- (Denom- Per Share
ator) inator) Amount ator) inator) Amount
-------- --------- -------- -------- --------- --------
Basic EPS
Net income $ 1,738 4,529,607 $ 0.38 $ 1,482 4,531,055 $ 0.33
======== ========
Effect of Dilutive Securities - 106,128 - 122,574
-------- --------- -------- ---------
Diluted EPS $ 1,738 4,635,735 $ 0.37 $ 1,482 4,653,629 $ 0.32
======== ========= ======== ======== ========= ========
For the Nine Months Ended September 30,
----------------------------------------------------------------------------
1999 1998
($ in thousands except per Income Shares Income Shares
share amounts) (Numer- (Denom- Per Share (Numer- (Denom- Per Share
ator) inator) Amount ator) inator) Amount
-------- --------- -------- -------- --------- --------
Basic EPS
Net income $ 4,842 4,524,797 $ 1.07 $ 4,178 4,530,722 $ 0.92
======== ========
Effect of Dilutive Securities - 102,874 - 130,407
-------- --------- -------- ---------
Diluted EPS $ 4,842 4,627,671 $ 1.05 $ 4,178 4,661,129 $ 0.90
======== ========= ======== ======== ========= ========
8
NOTE 4
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) 1999 1998 1998
---------------- ---- ---- ----
Nonperforming loans:
Nonaccrual loans $ 535 601 575
Restructured loans 260 248 251
--------- ------ ------
Total nonperforming loans 795 849 826
Other real estate 855 505 515
--------- ------ ------
Total nonperforming assets $ 1,650 1,354 1,341
========= ====== ======
Nonperforming loans to total loans 0.20% 0.24% 0.24%
Nonperforming assets as a percentage of
loans and other real estate 0.41% 0.38% 0.39%
Nonperforming assets to total assets 0.31% 0.28% 0.28%
Allowance for loan losses to total loans 1.49% 1.54% 1.56%
NOTE 5
Loans are shown on the Consolidated Balance Sheets net of net deferred loan fees
of approximately $163,000, $128,000, and $161,000 at September 30, 1999,
December 31, 1998, and September 30, 1998, respectively.
NOTE 6
On April 30, 1999, in an action approved by the Company's shareholders, the par
value of the Company's common stock was changed from $5 par value per share to
no par value per share. The consolidated financial statements for periods prior
to April 30, 1999 have been restated to reflect this change.
9
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, 1999 was $1,738,000, a
17.3% increase over the $1,482,000 reported in the third quarter of 1998. Basic
and diluted earnings per share for the third quarter of 1999 increased 15.2% and
15.6% to $0.38 and $0.37, respectively, compared to $0.33 and $0.32,
respectively, for the third quarter of 1998. Excluding the effects of non-core
noninterest income, which includes gains and losses from securities sales, fixed
assets, and loan sales, third quarter net income for 1999 was 21.3% higher than
in the third quarter of 1998.
Net income for the nine months ended September 30, 1999 was $4,842,000, a
15.9% increase over the $4,178,000 reported for the first nine months of 1998.
Basic earnings per share for the nine months ended September 30, 1999 increased
16.3% to $1.07 per share compared to $0.92 per share reported for the same nine
month period in 1998. Earnings per share on a diluted basis amounted to $1.05
per share for the nine months ended September 30, 1999, a 16.7% increase over
the $0.90 per share for the same nine months of 1998. Excluding the effects of
non-core noninterest income, net income for the first nine months of 1999 was
19.8% higher than in the first nine months of 1998.
The increase in net income for the three and nine month periods ended
September 30, 1999 is primarily due to an increase in net interest income earned
by the Company. Net interest income increased 13.2% and 11.3% for the three and
nine month periods ended September 30, 1999, respectively, when compared to the
same three and nine month periods of 1998. The increases in net interest income
are primarily attributable to growth in the Company's loans and deposits
outstanding. The provisions for loan losses amounted to $205,000 and $665,000
for the three and nine month periods ended September 30, 1999, respectively,
compared to $250,000 and $740,000 for the three and nine month periods ended
September 30, 1998, respectively. The decrease in the amounts provided for loan
losses is primarily attributable to the lower loan growth experienced by the
Company in 1999 compared to 1998.
Total noninterest income increased 5.9% and 12.0% for the three and nine
month periods ended September 30, 1999, respectively, when compared to the same
periods of 1998. The increases in noninterest income were a result of increases
experienced in most categories of fees and charges as a result of a larger
customer base compared to the prior year and a slightly higher fee structure
that was implemented in March 1999. Excluding items referred to as "non-core
noninterest income," which includes gains and losses from securities sales, loan
sales, fixed assets, other real estate and other nonrecurring items, core
noninterest income increased 13.0% for the third quarter of 1999 compared to the
same quarter in 1998, and increased 19.2% when comparing the first nine months
of 1999 to the first nine months of 1998. Noninterest expenses increased by
15.1% and 11.6% for the three and nine month periods ended September 30, 1999,
respectively, when compared to the same periods of 1998, due primarily to the
increase in the size of the Company's branch network, as well as additional
expenses necessary to process, manage, and service the Company's significant
increases in its loan and deposit bases.
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, 1999
amounted to $6,078,000 and $17,267,000, respectively, increases of $711,000 and
$1,752,000, or 13.2% and 11.3%, over the amounts of $5,367,000 and $15,515,000
recorded in the same three and nine month periods in 1998, respectively. There
are two primary factors that cause changes in the amount of net interest income
recorded by the Company
10
- - 1) growth in loans and deposits, and 2) the Company's net interest margin.
For the third quarter of 1999, the increase in net interest income was
almost entirely attributable to growth in the Company's loans and deposits, as
the recorded net interest margin during the third quarter of 1999 was within 2
basis points of that recorded in the third quarter of 1998 (5.16% in 1999
compared to 5.14% in 1998). At September 30, 1999, loans outstanding amounted to
$400.6 million, a 16.0% increase over the $345.3 million outstanding at
September 30, 1998, while deposits amounted to $456.1 million at September 30,
1999, a 10.6% increase over the $412.5 million at September 30, 1998.
For the nine months ended September 30, 1999, the 11.3% increase in net
interest income was attributable to the loan and deposit growth previously
noted, which was partially offset by a 26 basis point lower net interest margin
(5.06% in 1999 compared to 5.32% in 1998).
The three months ended September 30, 1999 marked the second consecutive
quarter that the Company experienced an increase in net interest margin. The
5.16% net interest margin realized in the third quarter of 1999 was 12 basis
points higher than the 5.04% net interest margin recorded in the second quarter
of 1999. The second quarter of 1999 net interest margin was 7 basis points
higher than the first quarter of 1999 net interest margin of 4.97%. The increase
in the Company's net interest margin during the second quarter of 1999 was
primarily attributable to a lower average rate paid on interest bearing
liabilities as a result of the lower repricing of matured time deposits that had
been originated in the generally higher interest rate environment of 1998. In
the third quarter of 1999, the prime rate of interest increased a total of 50
basis points. Due to the increase in the prime rate, the Company achieved a 12
basis point higher average yield on earning assets, but was able to maintain a
static average rate paid on interest bearing liabilities. The higher average
yield earned on earning assets and the static average rate paid on deposits were
the primary factors in achieving the higher net interest margin realized in the
third quarter of 1999.
Although the net interest margin has been on an increasing trend for the
past two quarters, on a year to date basis the 5.06% net interest margin
realized over the first three quarters of 1999 is 26 basis points lower than the
5.32% realized in the first nine months of 1998. The lower net interest margin
in 1999 is due to several factors, including a highly competitive market for
attracting loans and deposits, the effects of a shift in recent years in the
Company's loan mix that is more heavily weighted towards larger commercial real
estate loans that generally have lower interest rates, and the Company's more
competitive pricing of deposits in order to fund the strong loan growth that has
been experienced.
11
The following table presents average rates earned/paid by the Company for
the three and nine months ended September 30, 1999 compared to the same periods
in 1998:
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Yield on loans 8.83% 9.25% 8.79% 9.38%
Yield on taxable securities 5.84% 6.21% 5.70% 6.52%
Yield on tax-exempt securities (tax equivalent) 8.11% 8.60% 8.32% 8.75%
Yield on other interest earning assets,
primarily overnight funds 5.71% 5.62% 5.30% 5.63%
Yield on all interest earning assets 8.37% 8.69% 8.29% 8.84%
Weighted average rate on savings, NOW,
and money market deposits 1.91% 2.37% 1.95% 2.37%
Rate on time deposits>$100,000 5.42% 5.88% 5.51% 5.87%
Rate on other time deposits 4.94% 5.38% 5.02% 5.38%
Rate on short-term borrowings 5.44% 5.67% 5.25% 5.73%
Rate on all interest bearing liabilities 3.80% 4.24% 3.84% 4.20%
Interest rate spread 4.57% 4.45% 4.47% 4.65%
Net interest margin 5.16% 5.14% 5.06% 5.32%
Average prime rate 8.10% 8.50% 7.87% 8.50%
See additional discussion regarding interest rate risk below in Item 3 -
Quantitative and Qualitative Disclosures About Market Risk.
The provision for loan losses for the third quarter of 1999 was $205,000,
$45,000 lower than the $250,000 recorded in the same quarter of 1998. The
$665,000 provision for loan losses recorded for the nine months ended September
30, 1999 was $75,000 lower than the $740,000 recorded for the same nine months
of 1998. The decreases for the periods presented are primarily due to lower loan
growth experienced in 1999 compared to 1998. For the three months ended
September 30, 1999, net loans outstanding increased by $12.8 million, compared
to growth of $16.6 million experienced in the third quarter of 1998. For the
nine months ended September 30, 1999, loan growth amounted to $42.2 million,
compared to $64.8 million realized in the nine months ended September 30, 1998.
There were no material changes in asset quality during the periods presented -
see additional discussion below under the captions Nonperforming Assets and
Summary of Loan Loss Experience.
Total noninterest income increased $69,000, or 5.9%, to $1,242,000 in the
third quarter of 1999 from the $1,173,000 recorded in the third quarter of 1998.
Noninterest income for the first nine months of 1999 increased $414,000, or
12.0%, to $3,860,000 compared to $3,446,000 for the first nine months of 1998.
For evaluation purposes, the Company classifies noninterest income into two
categories - core nointerest income and non-core noninterest income. Core
noninterest income includes fees and charges earned from the day to day
operations of the Company such as service charges on deposits, fees from presold
mortgages, and various other types of recurring income. Non-core noninterest
income consists of items that are less recurring in nature such as gains and
losses from securities sales, loans sales, fixed assets, other real estate, and
miscellaneous nonrecurring items.
Core noninterest income for the third quarter of 1999 amounted to
$1,239,000, a 13.0% increase over the $1,096,000 recorded in the third quarter
of 1998. Core noninterest income for the nine months ended September 30, 1999
amounted to $3,835,000, a 19.2% increase over the $3,216,000 earned in the same
nine months of 1998.
12
The increase in core noninterest income for the three and nine month periods in
1999 compared to the same periods in 1998 is primarily due to the following
factors: 1) increases in service charges earned on deposit accounts caused by
the increase in the Company's deposit base, as well as a slightly higher fee
schedule that was implemented in March 1999, and 2) higher levels of other
service charges, commissions, and fees caused primarily by the Company's larger
customer base. This category of noninterest income includes items such as safety
deposit box rentals, check cashing fees, merchant card income, and ATM
surcharges. Higher fees from presold mortgages have also increased 1999 core
noninterest income when comparing the first nine months of 1999 to the same
period of 1998. These fees have been driven by high levels of refinancings as a
result of generally lower mortgage loan rates in 1999. With the rise in interest
rates in the third quarter of 1999, mortgage originations, and the related fees
earned by the Company, slowed from their pace of the first six months of the
year and were approximately the same in the third quarter of 1999 as they were
in the third quarter of 1998.
Also enhancing 1999 core noninterest income were fees earned from the
Company's data processing subsidiary, Montgomery Data Services, Inc. (Montgomery
Data). The Company recorded $14,000 in the third quarter of 1999 and $34,000 in
the first nine months of 1999 related to data processing services provided to
two de novo banks in the area. Montgomery Data makes its excess data processing
capabilities available to area financial institutions for a fee. Montgomery Data
did not have any nonaffiliated customers from December 1997 to December 1998. In
December 1998, a contract was signed to provide data processing for a nearby de
novo bank. This customer is expected to contribute approximately $40,000 in fees
during 1999. In May 1999, another contract was signed with a de novo bank, which
is expected to contribute approximately $12,000 in annual fees.
Net non-core noninterest income amounted to $3,000 in the third quarter of
1999 compared to $77,000 in the third quarter of 1998. For the nine months ended
September 30, 1999, net non-core noninterest income amounted to $25,000 compared
to $230,000 for the same nine months of 1998. The decrease when comparing both
periods in 1999 to 1998 is primarily due to fewer gains from loan sales in 1999
compared to 1998. In the first nine months of 1998, the Company sold $7.1
million in newly originated commercial loans at gains of $213,000. In 1999, only
$1.2 million in loan sales have been executed, resulting in a net gain of
$25,000. The higher level of loan sales in 1998 was primarily a result of a
balance sheet management initiative that the Company felt was necessary to
manage the very heavy loan growth that was being experienced during 1998. Loan
growth in 1999, while still strong, has slowed and allowed the Company to retain
more of the loans it originated.
Noninterest expenses for the third quarter of 1999 amounted to $4,606,000,
a 15.1% increase over the $4,003,000 recorded in the third quarter of 1998.
Noninterest expenses for the first nine months of 1999 totaled $13,188,000, an
11.6% increase over the $11,813,000 recorded in the first nine months of 1998.
The 1999 increases are primarily associated with the higher expenses that are
necessary to properly process, manage, and service the increases in loans and
deposits experienced by the Company. Also contributing to the increase in
noninterest expenses was the continued expansion of the Company's branch network
and the annual wage increases that are granted to substantially all employees in
January of each year. In addition, during the three month and nine month periods
ended September 30, 1999, the Company incurred approximately $200,000 and
$275,000, respectively, in consulting and other expenses related to
implementation costs associated with the establishment and operation of a
corporate subsidiary that holds tax preferred investments - see additional
discussion below.
Income taxes recorded for the three months ended September 30, 1999
amounted to $771,000, a 4.2% decrease from the $805,000 recorded for the same
three months of 1999. Income taxes recorded for the first nine months of 1999
amounted to $2,432,000, a 9.1% increase over the $2,230,000 recorded in the
first nine months of 1998. The effective tax rate for the three and nine months
ended September 30, 1999 was 30.7% and 33.4%, respectively, compared to 35.2%
and 34.8% for the three and nine months ended September 30, 1998, respectively.
As noted above, during the second and third quarters of 1999, the Company made
certain expenditures that have lowered the amount of state taxes paid in 1999
and are expected ultimately to eliminate a large majority of the state income
taxes paid by the Company. Thus far in 1999, the effect on net income from this
reduction in state income taxes has been offset by the implementation costs
associated with the investments.
13
Management expects that the positive effects on net income related to the
reduction of state income taxes will be realized beginning in the fourth quarter
of 1999. The Company paid $413,000 in state income taxes in 1998.
FINANCIAL CONDITION
The Company's total assets were $535.1 million at September 30, 1999, an
increase of $64.6 million, or 13.7%, from the $470.5 million at September 30,
1998. Interest-earning assets increased by 13.5%, from $437.9 million at
September 30, 1998 to $497.2 million at September 30, 1999. Loans, the primary
interest-earning asset, grew from $345.3 million at September 30, 1998 to $400.6
million at September 30, 1999, an increase of $55.3 million, or 16.0%.
Deposits have increased $43.6 million, or 10.6%, supporting the asset
growth since September 30, 1998, while the increase since December 31, 1998 has
been only 3.6%. The increases in deposits since September 30, 1998 and December
31, 1998 have occurred primarily in the categories of time deposits of $100,000
or more and other time deposits. Noninterest bearing demand deposits have
decreased 1.2% and 7.8% from September 30, 1998 and December 31, 1998,
respectively. Savings, NOW and money market accounts, which increased 8.0%
between September 30, 1998 and December 31, 1998, have been flat since December
31, 1998. Time deposits greater than $100,000 at September 30, 1999 amounted to
$69.4 million, a 27.0% increase over the $54.6 million outstanding at September
30, 1998, and are $8.6 million, or 14.2% higher than they were at December 31,
1998. Other time deposits at September 30, 1999 amounted to $168.4 million, a
$17.4 million, or 11.5%, increase over September 30, 1998. Since year end, other
time deposits are $11.7 million or 7.5% higher than the amount outstanding at
December 31, 1998.
Since December 31, 1998, the Company has experienced annualized increases
of 15.7%, 11.7%, and 4.8% in loans, total assets and deposits, respectively.
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. For each of the periods presented, the Company
had no loans past due 90 or more days and still accruing interest. Nonperforming
assets are summarized as follows:
September 30, December 31, September 30,
($ in thousands) 1999 1998 1998
---------------- ---- ---- ----
Nonperforming loans:
Nonaccrual loans $ 535 601 575
Restructured loans 260 248 251
------- ----- -----
Total nonperforming loans 795 849 826
Other real estate 855 505 515
------- ----- -----
Total nonperforming assets $ 1,650 1,354 1,341
======= ===== =====
Nonperforming loans to total loans 0.20% 0.24% 0.24%
Nonperforming assets as a percentage of
loans and other real estate 0.41% 0.38% 0.39%
Nonperforming assets to total assets 0.31% 0.28% 0.28%
Allowance for loan losses to total loans 1.49% 1.54% 1.56%
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.
14
A loan is placed on nonaccrual status when, in management's judgment, the
collection of interest appears doubtful. The accrual of interest is discontinued
on all loans that become 90 days past due with respect to principal or interest.
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. Loans are removed from
nonaccrual status when they become current as to both principal and interest and
when concern no longer exists as to the collectability of principal or interest.
In some cases, where borrowers are experiencing financial difficulties, loans
may be restructured to provide terms significantly different from the originally
contracted terms.
Nonperforming loans are defined as nonaccrual loans and restructured loans.
As of September 30, 1999, December 31, 1998 and September 30, 1998,
nonperforming loans were approximately 0.20%, 0.24%, and 0.24%, respectively, of
the total loans outstanding at such dates. Nonaccrual and restructured loans,
the components of the Company's nonperforming loans, have not varied by material
amounts at the period ends presented and are considered low when compared to
historical levels.
As of September 30, 1999, the borrower with the largest nonaccrual loan owed
a balance of $124,000, while the average nonaccrual loan balance was
approximately $33,000. If the nonaccrual loans and restructured loans as of
September 30, 1999 and 1998 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 $38,000 and $42,000 for
nonaccrual loans and $21,000 and $20,000 for restructured loans would have been
recorded for the nine months ended September 30, 1999 and 1998, respectively.
Interest income on such loans that was actually collected and included in net
income in the nine months ended September 30, 1999 and 1998 amounted to
approximately $6,000 and $7,000, respectively, for nonaccrual loans (prior to
their being placed on nonaccrual status) and $18,000 and $19,000, respectively,
for restructured loans.
A loan is considered 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. The value of impaired
loans is measured using either 1) an estimate of the cash flows that the Company
expects to receive from the borrower discounted at the loan's original effective
rate, or 2) in the case of a collateral-dependent loan, the estimated fair value
of the collateral. While a loan is considered to be impaired, the Company's
policy is that interest accrual is discontinued and 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, 1999, December 31, 1998, and September 30, 1998 the
recorded investment in loans considered to be impaired was $124,000, zero, and
$29,000, respectively, all of which were on nonaccrual status. The related
allowance for loan losses for these impaired loans was $19,000, zero, and
$4,000, respectively. There were no impaired loans for which there was no
related allowance. The average recorded investments in impaired loans during the
nine month period ended September 30, 1999, the year ended December 31, 1998,
and the nine months ended September 30, 1998 were approximately $83,000,
$110,000, and $138,000, 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.
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. These loans were considered in determining the appropriate level of
the allowance for 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
15
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, 1999, December 31, 1998 and September 30, 1998, the
Company owned other real estate totaling approximately $855,000, $505,000, and
$515,000, respectively, which consisted principally of several parcels of real
estate. The increase in the level of other real estate owned at September 30,
1999 is primarily attributable to the reclassification of two bank branches that
were closed during the year from premises and equipment to other 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, 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 strives to maintain its loan portfolio in accordance with what
management believes are conservative loan underwriting policies that result in
loans specifically tailored to the needs of the Company's market areas. Every
effort is made to identify and minimize the credit risks associated with such
lending strategies. 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 1999 was $205,000,
$45,000 lower than the $250,000 recorded in the same quarter of 1998. The
$665,000 provision for loan losses recorded for the nine months ended September
30, 1999 was $75,000 lower than the $740,000 recorded for the same nine months
of 1998. The decreases for the periods presented are primarily due to lower loan
growth experienced in 1999 compared to 1998. For the three months ended
September 30, 1999, net loans outstanding increased by $12.8 million, compared
to growth of $16.6 million experienced in the third quarter of 1998. For the
nine months ended September 30, 1999, loan growth amounted to $42.2 million,
compared to $64.8 million realized in the nine months ended September 30, 1998.
There were no material changes in asset quality during the periods presented.
At September 30, 1999, the allowance for loan losses amounted to $5,988,000,
compared to $5,504,000 at December 31, 1998 and $5,391,000 at September 30,
1998. The allowance for loan losses was 1.49%, 1.54% and 1.56% of total loans as
of September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
16
Management believes the Company's reserve levels are adequate to cover
probable loan losses on the loans outstanding as of each reporting date. It must
be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about economic conditions and other factors affecting loans. No assurance can be
given that the Company will not in any particular period sustain loan losses
that are sizable in relation to the amounts reserved or that subsequent
evaluations of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges to earnings.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses
and value of other real estate. Such agencies may require the Company to
recognize adjustments to the allowance or the carrying value of other real
estate based on their judgments about information available at the time of their
examinations.
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance for loan losses arising from charge-offs and recoveries by category,
and additions to the allowance for loan losses that have been charged to
expense.
Nine Months Year Nine Months
Ended Ended Ended
September 30, December 31, September 30,
($ in thousands) 1999 1998 1998
--------- ------- -------
Loans outstanding at end of period $ 400,574 358,334 345,295
========= ======= =======
Average amount of loans outstanding $ 379,305 325,477 317,155
========= ======= =======
Allowance for loan losses, at
beginning of year $ 5,504 4,779 4,779
Loans charged off:
Commercial, financial and agricultural (53) (92) (35)
Real estate - mortgage (102) (97) (44)
Installment loans to individuals (117) (245) (166)
--------- ------- -------
Total charge-offs (272) (434) (245)
--------- ------- -------
Recoveries of loans previously charged-off
Commercial, financial and agricultural 15 51 21
Real estate - mortgage 17 18 16
Installment loans to individuals 59 100 80
--------- ------- -------
Total recoveries 91 169 117
--------- ------- -------
Net charge-offs (181) (265) (128)
Additions to the allowance charged to expense 665 990 740
--------- ------- -------
Allowance for loan losses, at end of period $ 5,988 5,504 5,391
========= ===== =====
Ratios:
Net charge-offs (annualized) as a percent of average loans 0.06% 0.08% 0.05%
Allowance for loan losses as a
percent of loans at end of period 1.49% 1.54% 1.56%
17
LIQUIDITY
The Company's liquidity is determined by its ability to convert assets to
cash or acquire alternative sources of funds to meet the needs of its customers
who are withdrawing or borrowing funds, and to maintain required reserve levels,
pay expenses and operate the Company on an ongoing basis. The Company's primary
liquidity sources are net income from operations, cash and due from banks,
federal funds sold and other short-term investments. The Company's securities
portfolio is comprised almost entirely of readily marketable securities which
could also be sold to provide cash. In addition, the Bank has the ability, on a
short-term basis, to purchase $15 million in federal funds from other financial
institutions and has a $60 million line of credit with the Federal Home Loan
Bank (the "FHLB") that can provide short or long term financing. In addition,
during November 1999, the Company was granted a line of credit with the Federal
Reserve Bank of Richmond in the amount of approximately $25 million. The Company
has not historically had to rely on these sources of credit as a source of
liquidity. Over the past 2-3 years, the Company's loan growth has outpaced its
deposit growth, As a result, the Company has experienced an increase in its loan
to deposit ratio, from 74.9% at December 31, 1996, to 77.7% at December 31,
1997, to 81.4% at December 31, 1998, to 87.8% at September 30, 1999. The
imbalance between loan and deposit growth has reduced the Company's liquidity
sources. Since the third quarter of 1998, although the Company has not had any
liquidity or funding difficulties, the Company has periodically made draws and
repayments on a line of credit on an overnight basis to maintain liquidity
ratios at internally targeted levels. At September 30, 1999, the Company had
outstanding short-term borrowings totaling $30.0 million, while the average
amount outstanding year to date was $5.8 million. The Company's management
believes its liquidity sources are at an acceptable level and remain adequate to
meet its operating needs.
The Company has developed liquidity plans to address possible Year 2000
related cash needs. See Item 3 below for additional information.
CAPITAL RESOURCES
The Company is regulated by the Board of Governors of the Federal Reserve
Board ("FRB") 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 State Banking Commission. 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 FRB 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 less intangible assets, and total
capital is comprised of Tier 1 capital plus certain adjustments, the largest of
which for the Company is the allowance for loan losses. Risk-weighted assets
refer to the on- and off-balance sheet exposures of the Company, adjusted for
their related risk levels using formulas set forth in FRB and FDIC regulations.
In addition to the risk-based capital requirements described above, the
Company is subject to a leverage capital requirement, which calls for a minimum
ratio of Tier 1 capital (as defined above) to quarterly average total assets of
3.00% to 5.00%, depending upon the institution's composite ratings as determined
by its regulators. The FRB has not advised the Company of any requirement
specifically applicable to it.
18
In addition to the minimum capital requirements described above, the
regulatory framework for prompt corrective action also contains specific capital
guidelines for classification as "well capitalized," which are presented with
the minimum ratios and the Company's ratios at September 30, 1999, December 31,
1998, and September 30, 1998 in the table below.
Although the Company has continually exceeded even the regulatory
thresholds for "well capitalized" status, the Company's capital ratios steadily
declined throughout 1997 and 1998 as a result of the strong growth the Company
experienced. Since December 31, 1998, as a result of the slightly lower growth
experienced, the Company's capital ratios have increased. Although the capital
ratios at September 30, 1999 continue to be low compared to historical levels,
the Company's Total Risk-Based Capital to Tier II Risk Adjusted Assets ratio of
10.81%, compared to the "well capitalized" threshold of 10.00%, is the only one
of the three regulatory ratios that is within 200 basis points of falling below
the "well capitalized" threshold. The Company has action plans in place to
improve any ratio that falls below the "well capitalized" threshold.
As of September 30, 1999, December 31, 1998 and September 30, 1998, the
Company was in compliance with all existing regulatory capital requirements, as
summarized in the following table:
September 30, December 31, September 30,
($ in thousands) 1999 1998 1998
--------- ------- -------
Risk-Based and Leverage Capital
Tier I capital:
Common shareholders' equity $ 42,880 40,494 39,633
Intangible assets (5,366) (5,843) (5,995)
Unrealized loss (gain) on securities
available for sale, net of taxes 813 (37) (222)
--------- ------- -------
Total Tier I leverage capital 38,327 34,614 33,416
--------- ------- -------
Tier II capital:
Allowable allowance for loan losses 4,942 4,493 4,178
--------- ------- -------
Tier II capital additions 4,942 4,493 4,178
--------- ------- -------
Total risk-based capital $ 43,269 39,107 37,594
========= ====== ======
Risk adjusted assets $ 399,875 365,288 340,425
Tier I risk-adjusted assets
(includes Tier I capital adjustments) 395,322 359,408 334,208
Tier II risk-adjusted assets
(includes Tiers I and II capital adjustments) 400,264 363,901 338,386
Quarterly average total assets 510,346 475,698 456,878
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 505,793 469,818 450,661
Risk-based capital ratios:
Tier I capital to Tier I risk adjusted assets 9.70% 9.63% 10.00%
Minimum required Tier I capital 4.00% 4.00% 4.00%
Threshold for well-capitalized status 6.00% 6.00% 6.00%
Total risk-based capital to
Tier II risk-adjusted assets 10.81% 10.75% 11.11%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Threshold for well-capitalized status 10.00% 10.00% 10.00%
Leverage capital ratios:
Tier I leverage capital to
adjusted fourth quarter average assets 7.58% 7.37% 7.41%
Minimum required Tier I leverage capital 4.00% 4.00% 4.00%
Threshold for well-capitalized status 5.00% 5.00% 5.00%
19
UPDATE ON YEAR 2000
The Company recognizes the potentially severe implications of the "Year
2000 Issue." The "Year 2000 Issue" (also known as "Y2K") is a general term used
to describe the various problems that may result from the improper processing of
dates and date-sensitive calculations as the year 2000 approaches. This issue is
caused by the fact that many of the world's existing computer programs use only
two digits to identify the year in the date field of a program. These programs
were designed and developed without considering the impact of the upcoming
change in the century and could experience serious malfunctions when the last
two digits of the year change to "00" as a result of identifying a year
designated "00" as the year 1900 rather than the year 2000. This
misidentification could prevent the Company from being able to engage in normal
business operations, including, among other things, miscalculating interest
accruals and the inability to process customer transactions. Because of the
potentially serious ramifications of the Year 2000 Issue, the Company has
devoted significant time and resources to ensure the Company's Year 2000
readiness.
The Company believes that it is currently Year 2000 ready. The Company's
systems and processes have been evaluated and tested, and have been determined
to be Year 2000 compliant. The following discussion contains additional detail
regarding the Company's Year 2000 preparations, as well as disclosures regarding
costs incurred to date and projected additional costs related to the Year 2000
Issue.
The Company's Technology Committee, which is comprised of a cross-section
of the Company's employees, has led the Company's Year 2000 efforts and involved
all employees of the Company in ensuring that the Company is properly prepared
for the year 2000. The Company's Board of Directors approved a plan submitted by
the Technology Committee that was developed in accordance with guidelines set
forth by the Federal Financial Institutions Examination Council. This plan had
three primary phases related to internal Year 2000 compliance.
The first phase of the Company's efforts to address the Year 2000 Issue was
to inventory all known Company processes that could reasonably be expected to be
impacted by the Year 2000 Issue and their related vendors, if applicable. This
inventory of processes and vendors included not only typical computer processes
such as the Company's transaction applications systems, but all known processes
that could be impacted by micro-chip malfunctions. These include but are not
limited to the Company's alarm system, phone system, check ordering process, and
ATM network. This phase is complete, although it is periodically updated as
necessary.
The Company's second phase in addressing the Year 2000 Issue was to contact
all third party vendors, request documentation regarding their Year 2000
compliance efforts, and analyze the responses. This was a significant phase
because the Company does not perform in-house programming, and thus is dependent
on external vendors to ensure and modify, if necessary, the hardware, software,
or service they provide to the Company to be Year 2000 compliant. This phase is
complete, although it is updated as necessary. The Company is satisfied that its
third party vendors have properly addressed the Year 2000 Issue.
The next phase for the Company under the plan was to complete a
comprehensive testing of all known processes. Under the plan, processes were
initially tested on a stand-alone basis and then they were tested on an
integrated basis with other processes. Testing of the Company's processes on a
stand-alone basis, as well as on an integrated basis, has been successfully
completed. The most significant phase of testing was the testing of the
Company's core software applications. Upgrades of the core software applications
currently used by the Company were received from the software vendor in
September 1998 and were represented to be Year 2000 compliant by the vendor.
These applications were successfully loaded onto the Company's hardware system
in July 1998 and Year 2000 testing began in September 1998. The testing of the
core applications revealed no Year 2000 problems.
20
Another part of the Company's Year 2000 plan was to assess the Year 2000
readiness of its significant borrowers and depositors. Through the use of
questionnaires and personal contacts, the Company has gathered information
regarding the Year 2000 readiness of significant borrowers and depositors of the
Company. The assessment of the Company's significant depositors and borrowers is
complete. Customers who the Company has Year 2000 concerns about are being
counseled on the Year 2000 Issue, urged to take action, and placed on an
internal watch list that is updated on a quarterly basis and reviewed and
monitored by the Company for any potential effects on the Company. Based on the
Company's evaluation, management does not believe that the number or magnitude
of customers with potential Year 2000 problems will be significant. Prospective
new loan customers are also assessed for Year 2000 compliance as a part of the
underwriting process of significant loans.
Management is also working closely with outside consultants and the FDIC on
the Company's Year 2000 readiness.
In the Company's 1998 Form 10-K, the Company's projected total costs to
address the Year 2000 Issue to be approximately $100,000. Based on ongoing
evaluations of the Company's current Year 2000 status, it is management's
current belief that total Year 2000 costs will be approximately $125,000, which
are being expensed as they occur. The increase in the estimated total expense is
attributable to additional projected expenses associated with customer education
and certain precautionary measures the Company is planning to take.
A total of $91,000 has been recorded in 1998 and thus far in 1999 related
to the Year 2000 Issue. In 1998, the Company expensed approximately $32,000 in
Year 2000 Issue related costs, $20,000 of which was expensed in the third
quarter of 1998 and $12,000 which was expensed in the fourth quarter of 1998. In
1999, the Company has expensed a total of $59,000 in Year 2000 Issue related
costs, of which $21,000 was recorded in the third quarter, $12,000 in the second
quarter, and $26,000 in the first quarter. The estimated and actual Year 2000
costs include only direct external costs associated with Year 2000 readiness,
and do not include any amounts attributable to the significant time that
management and the staff of the Company has spent planning, preparing and
testing for Year 2000 readiness. Although funding of the Year 2000 project costs
will continue to come from normal operating cash flow, the external expenses
associated with the Year 2000 Issue are directly reducing otherwise reported net
income for the Company.
Management of the Company believes that the potential effects on the
Company's internal operations of the Year 2000 Issue have been addressed and
that the Company will not experience any significant Year 2000 related problems.
However, it is possible that unforeseen circumstances related to the Year 2000
Issue could arise and disrupt normal business operations. The most reasonably
likely worst case Year 2000 scenarios foreseeable at this time would include the
Company temporarily not being able to process, in some combination, various
types of customer transactions. This could affect the ability of the Company to,
among other things, originate new loans, post loan payments, accept deposits or
allow immediate withdrawals, and, depending on the amount of time such a
scenario lasted, could have a material adverse effect on the Company. In the
event that unforeseen circumstances do occur, the Company has developed a
contingency plan that would allow for limited transactions, including the
ability to make certain deposit withdrawals, until the Year 2000 problems are
remediated. The contingency plan has been successfully tested. See also the
discussion of plans to increase liquidity in anticipation of potential withdraws
late in 1999 due to customers' Year 2000 concerns in Item 3 below.
The costs of the Year 2000 project are based on management's best
estimates, which were derived using numerous assumptions of future events such
as the availability of certain resources (including internal and external
resources), third party vendor plans and other factors. However, there can be no
guarantee that these estimates will be achieved at the cost disclosed, and
actual results could differ materially from these plans. The discussion in this
section contains Year 2000 readiness disclosures within the meaning of the Year
2000 Information and Readiness Disclosure Act of 1998.
21
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 ten years the net interest
margin has not varied in any single calendar year by more than the 41 basis
point change experienced by the Company in 1998, and the lowest net interest
margin realized over that same period is within 60 basis points of the highest.
Prior to 1998, the most that the Company's net interest margin varied from one
calendar year to the next was 20 basis points.
As of September 30, 1999, the Company had approximately $157 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, 1999 subject to
interest rate changes within one year are deposits totaling $160.8 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 coincidentally with or in the same proportion as general market
indicators. Thus, the Company believes that near term 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 in the
following paragraphs, management believes the opposite to be true, that the
recent short-term effects of a rising interest rate environment have had a
positive impact on the Company's net interest income and that the near term
effects of a decrease in rates would generally have a negative effect on net
interest income. The Company has relatively little long-term interest rate
exposure, with approximately 84% of interest-earning assets subject to repricing
within five years and all interest-bearing liabilities subject to repricing
within five years.
The third quarter of 1999 marked the second consecutive quarter that the
Company experienced an increase in net interest margin. The net interest margin
for the third quarter of 1999 was 5.16%, which was 12 basis points higher than
the 5.04% net interest margin realized in the second quarter of 1999. The
Company reported a net interest margin of 4.97% in the first quarter of 1999,
5.03% in the fourth quarter of 1998, 5.14% in the third quarter of 1998, 5.30%
in the second quarter of 1998 and 5.55% in the first quarter of 1998. In the
third quarter of 1999, the prime rate of interest increased a total of 50 basis
points. The effect of the 50 basis point increase on the Company was that the
Company's variable rate assets, primarily its $172 million in adjustable rate
loans, adjusted upward in accordance with the loans' contractual terms, while
the Company was able to maintain a static average rate paid on deposits.
22
The increase in the net interest margin in the second quarter of 1999
compared to the first quarter of 1999 was primarily due to a lower average rate
paid on interest bearing deposits during the quarter; the Company's yield on
average earning assets remained virtually unchanged when comparing the second
quarter of 1999 to the first quarter of 1999, while the average rate paid on
interest bearing deposits decreased ten basis points. This decrease in rate was
caused primarily by the repricing of the Company's time deposits. At the end of
the third quarter of 1998, when changes in the prime rate began to occur, the
Company was more liability sensitive in the "over 3 to 12 month" horizon than in
the "3 months or less" horizon due to the Company having a significant portion
of its time deposits with a maturity between four and twelve months. The effect
of the 1998 decrease in the prime rate was that the Company's variable rate
assets, primarily the adjustable rate loan portfolio, initially adjusted
downward faster and by a higher percentage than the Company's variable rate
liabilities. In 1999, as the effects of the 1998 fourth quarter drop in the
prime rate continued to manifest, the Company had more liabilities, primarily
time deposits, that it was able to reprice at the lower prime-adjusted rate than
assets.
Over the past five quarters, the Company's net interest margin has not
varied from one quarter to the next by more than 16 basis points and the highest
net interest margin over those five quarters is within 20 basis points of the
lowest net interest margin over the same time frame. Under normal circumstances,
management of the Company believes that the Company's net interest margin would
continue to remain relatively stable. However, management expects that the net
interest margin in the fourth quarter of 1999 will decrease by at least 20 basis
points, primarily as a result of the effects of Year 2000 liquidity planning.
Although the Company continues an aggressive campaign to inform its customers of
its Year 2000 readiness, the Company recognizes that there will be a portion of
its customers that will withdraw money prior to January 1, 2000. In anticipation
of this event, during the fourth quarter of 1999, the Company will execute a
plan to ensure that it can meet the cash demands of its customers. The Company
plans to have substantially more cash and cash equivalents available than normal
to meet the cash requests of its customers in any reasonably foreseeable
scenario. This plan includes the Company maintaining more of its cash in very
liquid, but lower earning, overnight investments, as well as systematically
drawing, and thus paying interest, on its available lines of credit. The Company
is not entering into any long-term borrowing arrangements to meet Year 2000
demands and expects customers to redeposit most amounts withdrawn shortly after
January 1, 2000. Thus management believes that the direct effects of the cash
planning for the Year 2000 Issue on the net interest margin should be isolated
to the fourth quarter of 1999.
See additional discussion of the Company's net interest margin in the
"Components of Earnings" section above.
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.
23
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, 1999
Average Estimated
Interest Fair
($ in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years Beyond Total Rate (1) Value
- ---------------- ------ ------- ------- ------- ------- ------ ----- -------- -----
Debt securities- at
amortized cost (2) $ 13,396 11,088 7,954 5,248 14,675 18,690 71,051 6.29% $ 70,233
Loans - fixed (3) 40,228 25,587 30,440 42,952 50,300 38,385 227,892 8.67% 227,747
Loans - adjustable (3) 86,535 17,779 15,799 16,412 19,758 15,864 172,147 8.80% 172,147
-------- ------ ----- ----- ----- ------ ------- ---------
Total $140,159 54,454 54,193 64,612 84,733 72,939 471,090 8.36% $ 470,127
======== ====== ===== ===== ===== ====== ======= ==== =========
Savings, NOW, and
money market
deposits $160,751 - - - - - 160,751 2.02% $160,751
Time deposits 207,707 20,672 4,390 2,783 2,174 - 237,726 5.04% 237,914
Short-term borrowings 30,000 - - - - - 30,000 5.45% 30,000
-------- ------ ----- ----- ----- ------- ------- ---------
Total $398,458 20,672 4,390 2,783 2,174 - 428,477 3.94% $ 428,665
======== ====== ===== ===== ===== ======= ======= ==== =========
(1) Tax-exempt securities are reflected at a tax-equivalent basis using a 34%
tax rate.
(2) Callable securities with above market interest rates at September 30, 1999
are assumed to mature at their call date for purposes of this table.
(3) Excludes nonaccrual loans and allowance for loan losses.
The Company's interest earning assets have an estimated fair value that is
slightly less than their carrying value. This is primarily attributable to the
Company's securities portfolio which has decreased in value due to the higher
interest rate environment. Due to the short term nature of the Company's
liabilities, the estimated fair value of the Company's interest bearing
liabilities is materially the same as its carrying value.
ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. This Statement, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Because the
Company has not historically and does not currently employ the use of
derivatives, this Statement is not expected to impact the Company.
FORWARD LOOKING STATEMENTS
The discussion in Part 1 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, actions of government regulators, the level of market interest rates,
and general
24
economic conditions, as well as the factors identified in the last paragraph of
the section above entitled "Update on Year 2000."
25
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 IX, 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 X 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 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 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.
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 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.
26
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 Patrick A. Meisky dated
December 29, 1995 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.k 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.l 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.m Employment Agreement between the Company and James H. Garner dated
August 17, 1998 was filed as Exhibit 10(l) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
10.n Employment Agreement between the Company and Anna G. Hollers dated
August 17, 1998 was filed as Exhibit 10(m) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
27
10.o Employment Agreement between the Company and Teresa C. Nixon dated
August 17, 1998 was filed as Exhibit 10(n) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
10.p 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.q 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 by reference.
(*)
21 List of Subsidiaries of Registrant was filed as Exhibit 21 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, and is incorporated by reference.
27 Financial Data Schedule pursuant to Article 9 of Regulation S-X.
(b) There were no reports filed on Form 8-K during the three months
ended September 30, 1999.
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCORP
November 12, 1999 BY: /s/James H. Garner
------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
November 12, 1999 BY: /s/Anna G. Hollers
------------------
Anna G. Hollers
Executive Vice President
and Secretary
November 12, 1999 BY: /s/Eric P. Credle
-----------------
Eric P. Credle
Senior Vice President
and Chief Financial Officer
29
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.a.iii Copy of the amendment to Articles of Incorporation -
adding a new Article Ten *
3.a.iv. Copy of the amendment to Article IV of the Articles
of Incorporation *
3.b.i Copy of the Bylaws of the Registrant *
4 Form of Common Stock Certificate *
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 planand 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 Patrick A. Meisky *
10.k Amendment to the First Bancorp Savings Plus and Profit
Sharing Plan *
10.l First Amendment to the First Bancorp Supplemental
Executive Retirement Plan *
10.m Employment Agreement between the Company and James H. Garner *
10.n Employment Agreement between the Company and Anna G. Hollers *
10.o Employment Agreement between the Company and Teresa C. Nixon *
10.p Employment Agreement between the Company and Eric P. Credle *
10. q Amendments 1 and 2 to the Company's 1994 Stock Option Plan *
21 List of Subsidiaries of Registrant *
27 Financial Data Schedule pursuant to Article 9 of Regulation
S-X for the three months ended September 30, 1999
(SEC copy only) 31
* Incorporated herein by reference.
30