UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________.
Commission file number 333-72049
NEWCO ALASKA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELEWARE 93-0166346
------------------------ ---------------------
(State of Incorporation) (IRS Employer
Identification Number)
331 Dock Street
Ketchikan, Alaska 99901
----------------------------------------
(Address of principal executive offices)
(Zip code)
(907) 228-4219
----------------------------------------------------
(Registrant's telephone number, including area code)
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 12 months (or for 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.
Yes [ ] No[X ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
-0- shares of common stock as of March 31, 1999
Transitional Small Business disclosure format (check one):
Yes [ ] No[X ]
<PAGE>
NEWCO ALASKA, INC.
FORM 10-QSB
MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE REFERENCE
Item 1: Financial Statements
Consolidated Balance Sheets of First Bancorp, Inc. -
March 31, 1999 and December 31, 1998 4
Consolidated Statements of Income First Bancorp,
Inc.- three months ended March 31, 1999 5
Consolidated Statements of Changes in Shareholders'
Equity of First Bancorp, Inc. - twelve months
ended December 31, 1998 and three months ended
March 31, 1999 6
Consolidated Statements of Cash Flows of First
Bancorp, Inc.- three months ended March 31,
1999 7
Notes to consolidated financial statements 8
Item 2: Management Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 18
Explanatory Note:
Newco Alaska, Inc. ("Registrant") was incorporated on January 7, 1999
solely for the purpose of effecting a reorganization of First Bancorp, Inc.,
Ketchikan, Alaska, as a subchapter S corporation. Pursuant to an Agreement and
Plan of Reorganization dated March 15, 1999, First Bancorp would merge with
and into the Registrant, with the Registrant being the surviving corporation
under the name "First Bancorp, Inc.". In the reorganization Newco will issue
shares of its common stock and cash in exchange for all of the outstanding
shares of First Bancorp common stock. Newco Alaska registered the shares to be
2
<PAGE>
issued in the reorganization pursuant to a registration statement on Form S-4
(file Number 333-72049). As of March 31, 1999, Newco Alaska had no assets or
liabilities and no operations. The reorganization, which has not been
consummated as of the date of this report, was approved by First Bancorp
shareholders at the annual shareholders meeting held on April 15, 1999, and is
currently subject to regulatory approvals by the Board of Governors of the
Federal Reserve System and the State of Alaska, Division of Banking.
As the registration statement became effective during the period covered
by this report, Newco Alaska is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934 under Section 15(d) thereof. As Newco
Alaska is and was a shell corporation with no assets, revenues or operations,
the information provided in the registration statement relates solely to First
Bancorp, Inc. Accordingly, the information provided herein relates solely to
First Bancorp, Inc. and is intended to update the information previously filed
in the registration statement.
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
First Bancorp, Inc.
March 31, December 31,
(in thousands - unaudited) 1999 1998
----------- ------------
Assets
<S> <C> <C>
Cash and due from banks ................................. $ 9,599 $ 9,783
Federal funds sold ...................................... -- 9,391
Investment securities available for sale ................ 101,589 103,858
Loans ................................................... 126,742 123,122
Less: Allowance for loan losses .................... (1,458) (1,421)
--------- ---------
Net Loans ............................... 125,284 121,701
Premises and equipment .................................. 5,956 5,797
Other assets ............................................ 3,680 4,265
--------- ---------
Total Assets ............................. $ 246,108 $ 254,795
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Demand ............................................. $ 63,838 $ 68,133
Savings ............................................ 47,715 48,847
Time deposits of $100,000 or more .................. 57,164 60,814
Other time deposits ................................ 51,236 51,734
--------- ---------
Total Deposits ........................... 219,953 229,528
Federal Home Loan Bank advances ......................... 1,000 --
Federal funds purchased ................................. 827 --
Other liabilities ....................................... 1,091 2,074
--------- ---------
Total Liabilities ........................ 222,871 231,602
--------- ---------
Stockholders' Equity
Common stock of $5 par value. Authorized
1,000,000 shares; issued and outstanding
214,040 in 1999 and 1998 ............................ 1,070 1,070
Surplus ............................................... 6,415 6,415
Undivided profits ..................................... 16,262 16,053
Accumulated other comprehensive income - net
unrealized gain (loss) on available for sale sec .. 19 184
Treasury stock, at cost (5,765 shares) ................ (529) (529)
--------- ---------
Total Stockholders' Equity 23,237 23,193
Commitments and contingencies -- --
--------- ---------
Total Liabilities and Stockholders' Equity $ 246,108 254,795
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statement
First Bancorp, Inc.
Three Months Ended
March 31,
------------------------
(in thousands except per share - unaudited) 1999 1998
----------- -----------
Interest Income:
<S> <C> <C>
Interest and fees on loans ............................. $ 3,101 $ 2,936
Interest on federal funds sold ......................... 36 45
Interest-bearing deposits at other banks ............... 15 18
Interest on securities available for sale .............. 1,437 1,665
--------- ---------
Total interest income .................... 4,589 4,664
--------- ---------
Interest Expense:
Interest on deposits:
Time deposits of $100,000 or more ................. 682 799
Other deposits .................................... 1,211 1,249
Interest on federal funds purchased .................... 10 4
Other interest ......................................... 8 13
--------- ---------
Total interest expense ................... 1,911 2,065
--------- ---------
Net interest income ...................... 2,678 2,599
Provision for loan losses ................................ 72 72
--------- ---------
Net income after provision for loan losses 2,606 2,527
Noninterest Income:
Net realized gain on sales of available
for sale securities ............................ 14 --
Service charges on deposit accounts ................... 159 160
Other ................................................. 413 381
--------- ---------
Total Noninterest Income ................. 586 541
--------- ---------
Noninterest Expense:
Salaries and employee benefits ........................ 1,440 1,364
Occupancy, net ........................................ 436 431
Other operating expenses .............................. 560 502
--------- ---------
Total Noninterest Expense ................ 2,436 2,297
--------- ---------
Income before income taxes ............... 756 771
Provision for income taxes ............................... (286) (275)
--------- ---------
Net Income ............................... $ 470 $ 496
========= =========
Per share amounts - net income ........................... $ 2.26 $ 2.38
========= =========
Weighted average shares outstanding ...................... 208,375 208,734
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
First Bancorp, Inc.
Common Undivided Treasury Other Shareholders'
(in thousands - unaudited) Stock Surplus Profits Stock Income Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,070 6,415 14,775 (476) (180) 21,604
Net income 2,319 2,319
Change in unrealized holding loss
on available for sale securities,
net of taxes of $243,447 364 364
----------
Total comprehensive income 2,683
----------
Cash dividends ($5 per share) (1,042) (1,042)
Purchase of 459 shares of
treasury stock, at cost (53) (53)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 1,070 6,415 16,052 (529) 184 23,192
Net Income 470 470
Change in unrealized holding loss
on available for sale securities,
net of taxes of $34,050 (165) (165)
----------
Total comprehensive income 305
----------
Cash dividends ($1.25 per share) (260) (260)
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 $ 1,070 6,415 16,262 (529) 19 23,237
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
Worksheet - Consolidated Statements of Cash Flows
First Bancorp, Inc.
Three Months Ended
March 31,
(in thousands) 1999 1998
Operating Activities
<S> <C> <C>
Net Income ........................................ $ 470 $ 496
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses ........................ 72 72
Provision for losses on other real estate ........ 9 9
Depreciation and amortization .................... 168 151
Gain on sale of other real estate ................. -- 18
Amortization of investment security premiums ...... 28 35
Accretion of investment security discounts ........ (6) (47)
Net investment securities gains ................... (14) --
(Increase) decrease in interest receivable ........ (179) 182
Increase (decrease) in interest payable ........... (46) 19
Increase in deferred taxes ........................ -- (46)
(Increase) decrease in other assets ............... 755 (40)
Decrease in other liabilities ..................... (937) (372)
Net cash provided by operating activities ............. 320 477
Investing activities:
Proceeds from sale of available for sale securities 7,272 --
Proceeds from maturity of available for sale
securities ................................... 13,602 36,440
Purchase of available for sale securities ......... (18,778) (21,093)
Net increase in loans ............................. (3,655) (6,772)
Purchase of bank premises and equipment ........... (327) (346)
Net cash used in investing activities ................. (1,886) 8,229
Financing activities:
Net (decrease) in demand and savings deposits ..... (5,426) (10,911)
Net increase (decrease) in time deposits .......... (4,149) 5,707
Net increase in federal funds purchased ........... 827 --
Net (increase) decrease in federal funds sold ..... 9,391 (5,453)
Net increase in Federal Home Bank
advances ........................................ 1,000 --
Cash dividends paid ............................... (261) (261)
Net proceeds from financing activities: ............... 1,382 (10,918)
Net increase (decrease) in cash and due from banks .... (184) (2,212)
Cash and due from banks at beginning of the quarter ... 9,783 9,852
Cash and due from banks at end of the quarter ......... $ 9,599 $ 7,640
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest ......... $ 1,917 $ 2,073
Cash paid during the quarter for income taxes ..... -- 39
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities disclosure of contingent assets and
liabilities as of the date of the balance sheet, and revenue and
expenses for the period. Actual results could differ from those
estimates. The significant policies and estimates applied in the
preparation of these consolidated financial statements are discussed
below.
(a) Consolidation
The consolidated financial statements include the accounts of
First Bancorp, Inc. and its wholly-owned subsidiary, First Bank, and its
wholly-owned subsidiaries, Dock Street Building Corporation and Dock
Street Title Agency, Incorporated (Company). All significant
intercompany accounts and transactions have been eliminated. The
Company's primary market area is Southeast Alaska where the majority of
its activities have been with Alaska businesses and individuals.
(b) Reclassifications
Certain prior period balances have been changed to conform to the
present period presentation.
(c) Investments
Securities available for sale are stated at fair value with
unrealized holding gains and losses excluded from earnings and reported
as a net amount in a separate component of other comprehensive income.
Securities are classified as available for sale when management intends
to hold the securities for an indefinite period of time or when the
securities may be utilized for tactical asset/liability purposes and may
be sold from time to time to effectively manage interest rate exposure
and resultant prepayment risk and liquidity needs.
Federal Home Loan Bank stock is carried at cost which is its
redeemable (fair) value since the market for this stock is limited.
Premiums are amortized (deducted) and discounts are accreted
(added) to interest income on investment securities using methods that
approximate the level-yield method. Gains and losses on sales of
securities are computed using the specific-identification method of
determining the cost of securities sold.
(d) Loans
Loans are stated at the principal amount outstanding. Interest on
loans is taken into income when earned. Loan origination fees received
in excess of direct origination costs are deferred and amortized to
income by a method approximating the level-yield method over the
estimated loan term.
Interest income on loans is recorded on an accrual basis until an
interest or principal payment is more than 90 days past due and in the
opinion of management the collectibility of such income becomes
doubtful. The deferral or nonrecognition of interest does not constitute
forgiveness of the borrower's obligation.
8
<PAGE>
(e) Allowance for Loan Losses
The allowance for loan losses is a general reserve established by
management to absorb unidentified losses in the Company's loan
portfolio. In determining the adequacy of the allowance, management
evaluates prevailing economic conditions, results of regular
examinations and evaluations of the quality of the loan portfolio by
external parties, actual loan loss experience, the extent of existing
risks in the loan portfolio and other pertinent factors. The allowance
for impaired loans is based on discounted cash flows using the loans'
initial interest rates or, if the loan is secured, the fair value of the
collateral.
Future additions to the allowance may be necessary based on
changes in economic conditions and other factors used in evaluating the
loan portfolio. Additionally, various regulatory agencies, as an
integral part of their examination process, periodically review the
allowance. Such agencies may require the recognition of additions to the
allowance based on their judgment of information available to them at
the time of their examination.
(f) Loan Servicing
The cost of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing revenues. Impairment
of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows
based on a current market interest rate. The amount of impairment
recognized is the amount by which the capitalized mortgage servicing
rights exceed their fair value.
(g) Other Real Estate
Other real estate represents properties acquired through
foreclosure or its equivalent. Prior to foreclosure, the carrying value
is adjusted to the lower of cost or fair market value of the real estate
to be acquired by a charge to the allowance for loan losses. Any
subsequent reduction in carrying value is charged against operating
expenses.
(h) Premises and Equipment
Premises and equipment are stated at cost, less amortization and
accumulated depreciation. Depreciation expense on leasehold improvements
is computed by use of the straight-line method over the shorter of the
estimated useful lives of the assets or leasehold improvements.
Expenditures for remodeling, improvements and construction are
capitalized, while expenditures for maintenance and repairs are charged
to expense.
(i) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which the temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
(j) Net Income Per Share
Per share amounts are calculated based on the weighted average
number of shares and common share equivalents outstanding during each
period. Outstanding stock options are common stock equivalents and
therefore are included in the calculation of the weighted average number
of shares outstanding, if dilutive.
9
<PAGE>
(k) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the
consolidated statements of stockholders' equity and comprehensive
income. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS
No. 130.
10
<PAGE>
Item 2. Management Discussion and Analysis of Finanacial Condition and
Results of Operations First Bancorp, Inc.
This discussion should be read in conjunction with the consolidated
financial statements of First Bancorp, Inc. (the "Company") and notes thereto
presented elsewhere in this report. In the following discussion, unless
otherwise noted, references to increases or decreases in average balances in
items of income and expense for a particular period and balances at a
particular date refer to the comparison with corresponding amounts for the
period or date one year earlier.
This discussion contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the
forward-looking statements due to a number of factors. Specific factors
include the Company's ability to compete on price and other factors with other
financial institutions; customer acceptance of new products and services;
general trends in the banking industry and the regulatory environment, as they
relate to the Company's cost of funds and returns on assets. In addition,
there are risks inherent in the banking industry relating to collectibility of
loans and changes in interest rates. Further, actual results could differ
materially from the forward looking statements in this report as a result of
general economic conditions and their impact on capital expenditures; business
technology and evolving banking industry standards; competitive standards;
competitive factors, including increased competition with community, regional
and national financial institutions; fluctuating interest rate environments;
and similar matters. The reader is advised that this list of risks is not
exhaustive and should not be construed as any prediction by the Company as to
which risks would cause actual results to differ materially from those
indicated by the forward-looking statements.
OVERVIEW
Despite the sluggish economic climate of southeast Alaska, the Company
continues to grow. Total assets at the end of the first quarter of 1999
increased $7.6 million over the quarter end of last year, an increase of 3.2%.
Shareholders' equity increased to $23.2 million at quarter end of 1999
compared to $21.8 million last year, an increase of 6.5%. Net income for the
first quarter of 1999 totaled $470 thousand, a slight decrease of 5.3% over
the $496 thousand reported for the first quarter of 1998. Basic earnings per
share for the three months ended March 31, 1999 were $2.26 compared to $ 2.38
reported for the first quarter of 1998, a decrease of 5.0%.
The Company is currently in the process of completing a reorganization
to a Subchapter S corporation. At the annual shareholders' meeting on April
15, 1999 the proposed reorganization was approved and we are currently
awaiting Federal and State regulatory approval. We expect the necessary
approvals in May 1999, with subsequent consummation of the reorganization
shortly thereafter.
FINANCIAL CONDITION
The Company's total assets were $246.1 million at March 31, 1999, an
increase of $7.6 million, or 3.2% from $238.4 million at March 31, 1998. Cash
and deposit balances due from banks was $9.6 million on March 31, 1999
compared to $6.3 million on March 31, 1998, an increase of 52.4%. This was due
primarily to unusually high single day check clearings on March 31, 1999.
Average cash and deposit balances due from banks for the month of March, 1999
was approximately $5.3 million, or $2.9 million less than the month end
balance. Earning assets increased $5.7 million, or 2.6% from $222.6 million on
March 31, 1998 to $228.3 million on March 31, 1999. As of March 31, 1999
11
<PAGE>
earning assets were 92.8% of total assets, compared with 93.3% on March 31,
1998. Loans and investment securities available for sale are the primary
components of earning assets. On March 31, 1999 gross loans were $126.7
million, an increase of $13 million, or 11.4% from $113.7 million on March 31,
1998. On March 31, 1999 investment securities were $101.6 million, an increase
of $2.2 million, or 2.2%, from $99.4 million on March 31, 1998. On March 31,
1998 net loans were 46.7% of total assets and on March 31, 1999 they were
50.9%, investment securities were 41.7% and 41.3% respectively.
Deposits increased $5.5 million, or 2.6% from $214.4 million on March
31, 1998 to $219.9 million on March 31, 1999. The increase occurred across
most deposit categories with demand deposits increasing by $5.2 million, or
9.0%, savings deposits increasing $1.8 million, or 4.0%, and time deposits
greater that $100,000 (large deposits) increased $1.2 million, or 2.3%. The
only declining category was other time deposits which declined $2.8 million,
or 5.3%. At the present time, all of the Company's large deposits come from
established customers in our market area. The Company has a strict policy
against the use of brokered deposits. A significant portion of large deposits
is generally made up of reserve funds of various municipal communities where
the Company has branch offices. For the most part, these deposits are priced
on the basis of competitive bid and have relatively short maturities. On March
31, 1998 and 1999, time deposits greater than $100,000 represented 23.4% and
23.2% of total assets respectively.
CONSOLIDATED EARNINGS
The Company's net income for the three months ending March 31, 1999 was
$470,000, or $2.26 per share. This compares to net income for the three months
ending March 31, 1998 of $496,000, or $2.38 per share. The decrease in first
quarter net income from the prior year is primarily a result of a 6.1%
increase in total non-interest expense. The increase in non-interest expense
is largely attributable to seasonal increased salaries and employee benefits
plus increased operating expenses in our electronic banking and mortgage loan
production departments.
NET INTEREST INCOME
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 $79,000, or 3%, when comparing the first quarter
of 1999 to the first quarter of 1998. The increase in net interest income was
primarily due to continued growth in loan volume, the highest yielding
component of earning assets. Net interest margin was also favorably affected
by a change in the composition of interest-bearing liabilities with growth in
demand deposits outpacing growth in savings and time deposits. At March 31,
1999, gross loans had increased by 11.5% to $126.7 million from $113.7 million
at March 31, 1998 while demand deposits had increased 9% to $63.8 million at
March 31, 1999 from $58.6 million at March 31, 1998.
Net interest margin (net interest income divided by average
interest-bearing assets) increased slightly to 1.16% in the first quarter of
1999 from 1.17% in the first quarter of 1998. Average interest-bearing assets
grew to $230 million during the first quarter of 1999, compared with $222
million in the first quarter of 1998. The average yield on interest-bearing
assets during the first quarter decreased to 1.99% in 1999 from 2.10% in 1998,
or -5.04%. In comparison, the average cost of interest-bearing liabilities
during the first quarter decreased to .96% in 1999 from 1.07% in 1998, or
- -10.22%.
12
<PAGE>
<TABLE>
<CAPTION>
Analysis of Net Interest Margin
First Bancorp, Inc.
Three months ended
March 31, Increase
1999 1998 (Decrease) Change
----------- ----------- ---------- ----------
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Average interest-bearing assets ........... $ 230,058 $ 222,026 $ 8,032 3.62%
Average interest-bearing liabilities ...... $ 198,927 $ 192,984 $ 5,943 3.08%
Average yields earned ..................... 1.99% 2.10% -0.11% -5.04%
Average rates paid ........................ 0.96% 1.07% -0.11% -10.22%
Net interest spread (including loan
placement fees) 1.03% 1.03% 0.00% 0.33%
Net interest income to average
interest-earning assets ............. 1.16% 1.17% -0.01% -0.56%
</TABLE>
NONINTEREST INCOME
Noninterest income increased $45,000 to $586,000, or 8.3% in the first
quarter of 1999 compared with $541,000 during the same period in 1998. This
first quarter 1999 increase was primarily centered in mortgage banking and the
Company's title insurance subsidiary. In general, the Company experienced
increased serviced mortgage loans and continued strength in mortgage lending
activity in the first quarter of 1999 compared to the first quarter of 1998.
NONINTEREST EXPENSE
Total noninterest expense increased $139,000, or 6.1%, in the first
quarter of 1999 compared with the same period in 1998. Salaries and employee
benefits, the largest component of noninterest expense, increased $76 thousand
to $1.44 million in the first quarter of 1999 compared to $1.36 million for
the same period in 1998, or 5.6%. Other operating expenses increase $58,000 to
$560,000 in the first quarter of 1999 compared to $502,000 for the same period
in 1998, or 11.6%. Auditing and accounting fees were up to $48,000 for the
first quarter in 1999 compared to $35,000 for the same period in 1998.
Mortgage loan participation costs were up to $30,000 for the first quarter of
1999 compared to $12,000 for the same period in 1998.
INCOME TAXES
The provision for income taxes increased to $286,000 for the first
quarter of 1999 compared to $275,000 for the same period in 1998, or 4%. The
effective tax rate for the first quarter of 1999 is 37.8% as compared to 35.7%
during the same period in 1998.
13
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSS
The provision for loan losses is an accrual charge or expense based on
the Company's estimate of the amount necessary to maintain the allowance for
possible loan losses at a level adequate to absorb any losses that may occur
in the loan portfolio over time. For both the first quarter of 1998 and 1999
the provision for loan losses was $72,000. The actual loan loss experience for
1998 and the first three months of 1999 is as follows:
<TABLE>
<CAPTION>
Loan Losses and Recoveries
First Bancorp, Inc.
Three Months Ended Twelve Months Ended Three Months Ended
March 31, 1999 December 31, 1998 March 31, 1998
--------------------- -------------------- ---------------------
(in thousands)
Loans outstanding at end
<S> <C> <C> <C>
of period $ 126,742 $ 123,122 $ 113,691
Reserve balance, beginning
of period 1,421 1,293 1,294
Recoveries 2 16 1
Loans charged off (37) (140) (12)
--------- --------- ---------
Net loans charged off (35) (124) (11)
Provision charged to expense 72 252 72
--------- --------- ---------
Reserve balance, end of period $ 1,458 $ 1,421 $ 1,355
========= ========= =========
Reserve as a percentage of
outstanding loans 1.15% 1.15% 1.19%
Minimum objective for reserve as
a percentage of outstanding loans 1.00% 1.00% 1.00%
Net loans charged off as a
percentage of outstanding loans 0.03% 0.10% 0.01%
</TABLE>
The provision for loan losses and the adequacy of the allowance for
possible loan losses are periodically reviewed by the Board of Directors and
management based upon an assessment of historic credit losses, delinquent and
problem loan trends, peer group experience, economic outlook and anticipated
growth. Additionally, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance. Such agencies
may require the recognition of additions to the allowance based on their
judgement of information available to them at the time of their examination.
For the quarter ending March 31, 1999, management reviewed all of the
salient factors in determining the provision for loan loss. While total loans
increased from $113.7 million on March 31, 1998 to $126.7 million on March 31,
1999, an 11.5% increase, the reserve for loan loss increased from $1.36
14
<PAGE>
million to $1.46 million, or 7.6% during that same period. While the reserve
for loan loss grew at a slower rate, there are several reasons management
feels that both the reserve and provision are adequate:
1. Reserve for loan loss is currently 1.15% of total loans, 15% above the
minimum objective of 1.0%.
2. Net charge-offs increased from $11,000, or .01% in the first quarter of
1998 to $35,000, or .03% in 1999. However the dollar amount remains
relatively minimal and the percentage remains below our peer group
average of .09% as of March 31, 1998.
3. Loan quality continues to remain sound (see Nonperforming Assets
section).
NONPERFORMING ASSETS
In general, nonperforming assets consist of loans that are 90 days or
more past due, loans on which the accrual of interest has been discontinued,
and other real estate (ORE). Other real estate represents real property that
was acquired through foreclosure or taken in lieu of foreclosure.
As of March 31, 1999 the Company had $393,000 in loans past due over 90
days, no loans in nonaccrual status, and $213,000 in ORE for total
nonperforming assets of $606,000 representing .25% of total assets and 2.61%
of shareholders' equity. This is a slight change over March 31, 1998 totals of
$345,000 in loans past due over 90 days, no loans in nonaccrual status, and
$250,000 in ORE for total nonperforming assets of $595,000 representing .25%
of total assets and 2.73% of shareholders' equity.
The most important measure of the safety and soundness of a commercial
bank is the quality of its assets. The statistics outlined above are key
measures of asset quality and reflect favorably on the soundness of the
Company. They provide a clear picture of management's careful, ongoing
attention to this important area of the Company.
15
<PAGE>
<TABLE>
<CAPTION>
Past Due and Nonperforming Loan Detail
First Bancorp, Inc.
(in thousands except for percentages)
March 31, 1999 March 31, 1998
<S> <C> <C>
Outstanding at end of period:
Total loans $126,742 $113,691
Total assets $246,108 $238,454
Shareholders' equity $ 23,237 $ 21,811
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
Past Due Loans Past Due Loans
--------------------------- ------------------------
30-89 days 90+ days 30-89 days 90+ days
------------ ------------- ----------- -----------
Past due and nonperforming loans:
<S> <C> <C> <C> <C>
Real estate loans $ 115 $ - $ 15 $ -
Consumer loans 303 2 162 14
Credit cards 17 5 16
Commercial loans 449 386 388 331
Total past due loans $ 884 $ 393 $ 581 $ 345
Non-accrual loans -- -- -- --
Other real estate owned $ 213 $ 250
Total past due & non-accrual
loans and ORE $ 884 $ 606 $ 581 $ 595
Past due & non-accrual loans and ORE
as a percentage of:
Total loans 0.70% 0.48% 0.51% 0.52%
Total assets 0.36% 0.25% 0.24% 0.25%
Total shareholders' equity 3.80% 2.61% 2.66% 2.73%
</TABLE>
16
<PAGE>
LIQUIDITY
The Company has adopted policies to maintain adequate liquidity to
enable it to respond to changes in the Company's needs and financial
environment. The Company's primary sources of funds are customer deposits,
sales and maturities of investment securities, the use of federal funds
markets, advances from the Federal Home Loan Bank of Seattle and net cash
provided by operating activities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and unscheduled loan
prepayments, which are influenced by general interest rate levels, interest
rates available on other investments, competition, economic conditions and
other factors, are not.
CAPITAL PLANNING AND SHAREHOLDERS' EQUITY
The policy of the Company is to maintain capital adequate to support the
Company's activities and meet the needs of its customers. Current and future
capital needs are evaluated periodically based upon an analysis of asset and
earnings trends, asset and liability diversification and maturity, asset
quality, industry comparisons and economic conditions. In evaluating the use
of capital, management considers economic conditions and cash flow
expectations as well as effects on reported earnings. The current market
values of assets and liabilities and off-balance sheet items and contingent
liabilities such as letters of credit are also considered.
As of March 31, 1999, total shareholders' equity was$23.24 million. This
was up from $23.19 million on December 31, 1998 and $21.81 million on March
31, 1998. The Federal Deposit Insurance Corporation has established risk-based
standards for evaluating a bank's capital adequacy. These standards require
the Company to maintain a minimum ratio of qualifying total capital to risk
weighted assets of 8%, of which a at least 4% must be in the form of core
capital (TIER 1 capital). TIER 1 capital includes the Company's shareholders'
equity, minus all intangible assets. As of March 31, 1999 the Company had a
TIER 1 risk weighted capital ratio of 16.6%. As of March 31, 1998 the Company
had a TIER 1 risk weighted capital ratio of 17.3%. After reorganization the
Company will continue to maintain capital ratios in excess of regulatory
minimums.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith or incorporated by reference,
and this list constitutes the exhibit index:
2.0 Agreement and Plan of Reorganization, dated March 15, 1999, by and
between Newco Alaska and First Bancorp, Inc., incorporated by
reference to Registrant's Registration Statement (Number
333-72049) as declared effective on March 26, 1999.
3.1 Certificate of Incorporation, incorporated by reference
Registrant's Registration Statement (Number 333-72049) as declared
effective on March 26, 1999.
3.2 Bylaws of Newco Alaska, Inc., incorporated by reference
Registrant's Registration Statement (Number 333-72049) as declared
effective on March 26, 1999.
4.0 Specimen stock certificate, incorporated by reference Registrant's
Registration Statement (Number 333-72049) as declared effective on
March 26, 1999.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly Authorized.
Newco Alaska, Inc.
(Registrant)
/s/ William G. Moran, Jr. /s/ James C. Sarvela
- ---------------------------------- ---------------------------------------
William G. Moran, Jr. James C. Sarvela
President and Chief Executive Vice President and Chief Financial
Officer Officer
