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 June 30, 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
-------------------------------------
FIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 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 [X] No[ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
175,312 shares of common stock as of June 30, 1999
Transitional Small Business disclosure format (check one):
Yes [ ] No[X]
1
<PAGE>
FIRST BANCORP, INC.
FORM 10-QSB
JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE REFERENCE
Item 1: Financial Statements
Consolidated Balance Sheets of First Bancorp, Inc.-
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income First Bancorp, Inc.-
three months and six months ended June 30, 1999 4
Consolidated Statements of Changes in Shareholders'
Equity of First Bancorp, Inc. - twelve months ended
December 31, 1998 and six months ended June 30, 1999 5
Consolidated Statements of Cash Flows of First Bancorp, Inc.-
six months ended June 30, 1999
Notes to consolidated financial statements 6
Item 2: Management Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 20
2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
First Bancorp, Inc.
June 30, December 31,
(in thousands - unaudited) 1999 1998
-------------------- -------------------
Assets
<S> <C> <C>
Cash and due from banks $ 16,140 9,783
Federal funds sold - 9,391
Investment securities available for sale 97,777 103,858
Loans 132,230 123,122
Less: Allowance for loan losses (1,494) (1,421)
-------------------- -------------------
Net Loans 130,736 121,701
Premises and equipment 5,807 5,797
Other assets 4,286 4,265
==================== ===================
Total Assets $ 254,746 254,795
==================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Demand $ 68,865 68,133
Savings 46,362 48,847
Time deposits of $100,000 or more 63,643 60,814
Other time deposits 52,400 51,734
-------------------- -------------------
Total Deposits 231,270 229,528
Federal funds purchased 610 -
Note payable to Seafirst 3,000 -
Reserve for Sub S dissenting shareholders 1,693 -
Other liabilities 965 2,074
-------------------- -------------------
Total Liabilities 237,538 231,602
-------------------- -------------------
Stockholders' Equity:
Common stock of $5 par value. Authorized
1,000,000 shares; issued and outstanding
175,312 in 1999 and 214,040 in 1998 876 1,070
Surplus 5,254 6,415
Undivided profits 11,512 16,053
Accumulated other comprehensive income - net
unrealized gain (loss) on available for sale sec. (434) 184
Treasury stock, at cost (5,765 shares in 1998) - (529)
-------------------- -------------------
Total Stockholders' Equity 17,208 23,193
Commitments and contingencies
==================== ===================
Total Liabilities and Stockholders' Equity $ 254,746 254,795
==================== ===================
</TABLE>
See accompanying notes to consolidatd financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statement
First Bancorp, Inc.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
(in thousands except per share - unaudited) 1999 1998 1999 1998
---------- --------- -------- --------
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 3,205 $ 3,154 $ 6,306 $ 6,090
Interest on federal funds sold 24 57 60 102
Interest-bearing deposits at other banks 15 18 30 36
Interest on securities available for sale 1,355 1,566 2,792 3,231
------- ------- ------- -------
Total interest income 4,599 4,795 9,188 9,459
------- ------- ------- -------
Interest Expense:
Interest on deposits:
Time deposits of $100,000 or more 566 799 1,248 1,598
Other deposits 1,331 1,298 2,542 2,547
Interest on federal funds purchased 8 9 18 13
Other interest 34 24 42 37
------- ------- ------- -------
Total interest expense 1,939 2,130 3,850 4,195
------- ------- ------- -------
Net interest income 2,660 2,665 5,338 5,264
Provision for loan losses 48 60 120 132
------- ------- ------- -------
Net interest income after provision for loan losses 2,612 2,605 5,218 5,132
Noninterest Income:
Net realized gain on sales of available
for sale securities - 44 14 44
Service charges on deposit accounts 168 176 327 336
Other 395 422 808 803
------- ------- ------- -------
Total Noninterest Income 563 642 1,149 1,183
------- ------- ------- -------
Noninterest Expense:
Salaries and employee benefits 1,412 1,380 2,852 2,744
Occupancy, net 447 409 883 840
Other operating expenses 484 484 1,044 986
------- ------- ------- -------
Total Noninterest Expense 2,343 2,273 4,779 4,570
------- ------- ------- -------
Income before income taxes 832 974 1,588 1,745
Provision for income taxes (271) (247) (557) (522)
------- ------- ------- -------
Net Income $ 561 727 1,031 1,223
======= ======= ======= =======
Per share amounts - net income $2.84 $3.48 $5.08 $5.86
============= ============= ============= =============
Weighted average shares outstanding 197,287 208,734 202,864 208,596
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidatd financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
First Bancorp, Inc.
Accum Other
Common Undivided Treasury Comprehensive Stockholders'
(in thousands - unaudited) Stock Surplus Profits Stock Income Equity
-------------------------------------------------------------------------------
<S> <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 1,031 1,031
Change in unrealized holding loss
on available for sale securities,
net of taxes of $315,737 (618) (618)
---------------
Total comprehensive income 413
---------------
Reorganization (194) (1,161) (5,091) 529 (5,917)
Cash dividends ($1.25 per share) (480) (480)
----------------------------------------------------------------
===============================================================================
Balance at June 30, 1999 $ 876 5,254 11,512 - (434) 17,208
===============================================================================
</TABLE>
See accompanying notes to consolidatd financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
First Bancorp, Inc.
Six Months Ended
June 30,
(in thousands) 1999 1998
------- -------
Operating Activities
<S> <C> <C>
Net Income $ 1,031 $ 1,223
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 120 132
Provision for losses on other real estate 19 18
Depreciation and amortization 395 381
Gain on sale of other real estate - 18
Amortization of investment security premiums 79 73
Accretion of investment security discounts (59) (115)
Net investment securities gains (14) (44)
Gain from sale of bank premises and equipment (13) (13)
(Increase) decrease in interest receivable (155) 29
Increase (decrease) in interest payable 25 73
Increase in deferred taxes - (46)
(Increase) decrease in other assets 115 88
Decrease in other liabilities 558 (751)
Net cash provided by operating activities 2,101 1,066
Investing activities:
Proceeds from sale of available for sale securities 7,690 10,092
Proceeds from maturity of available for sale securities 24,541 46,829
Purchase of available for sale securities (26,774) (41,963)
Net increase in loans (9,155) (10,256)
Purchase of bank premises and equipment (405) (602)
Proceeds from the sale of bank premises & equip. 13 13
Net cash used in investing activities (4,090) 4,113
Financing activities:
Net (decrease) in demand and savings deposits (1,753) (5,221)
Net increase (decrease) in time deposits 3,495 6,828
Net increase in federal funds purchased 610 -
Net (increase) decrease in federal funds sold 9,391 (5,061)
Net increase in Federal Home Bank advances (1,000)
Net increase in long term debt 3,000 -
Reorganization (5,917) -
Net (increase) decrease in treasury stock - (42)
Cash dividends paid (480) (522)
Net proceeds from financing activities: 8,346 (5,018)
Net increase (decrease) in cash and due from banks 6,357 161
Cash and due from banks at beginning of the quarter 9,783 9,852
Cash and due from banks at end of the quarter $ 16,140 10,013
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest $ 4,195 $ 3,832
Cash paid during the quarter for income taxes $ 552 $ 410
</TABLE>
See accompanying notes to consolidatd financial statements.
6
<PAGE>
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
The financial statements at June 30, 1999 and 1998, and for the
three-month and six-month periods then ended, included in this report on
form 10-QSB are unaudited. These financial statements, however, include
all adjustments, consisting only of normal recurring adjustments, which
are in the opinion of management, necessary for a fair presentation of the
financial condition, results of operations and cash flows for the interim
periods. 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.
7
<PAGE>
(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.
(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.
8
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(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.
(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.
9
<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
On March 15, 1999, First Bancorp entered into an Agreement and Plan of
Reorganization (the "Plan") for the purpose of becoming an S corporation for
income tax purposes. The Plan provided for the merger of First Bancorp with
and into Newco Alaska, Inc., a newly formed Delaware corporation organized at
the direction of First Bancorp solely to effect the Plan. Newco Alaska, prior
to the merger, had no material operations or assets, and had elected to
become an S corporation effective on January 1, 2000. The merger of First
Bancorp into Newco Alaska was completed on June 1, 1999, with Newco Alaska
being the surviving corporation under the name "First Bancorp, Inc.".
10
<PAGE>
The Plan provided that eligible shareholders would receive one share of Newco
Alaska, Inc. common stock for each share of First Bancorp, Inc. common stock
held of record on the effective date of the merger. All other shareholders
would receive $175.00 per share for their First Bancorp common stock.
Eligible shareholders could elect to tender their First Bancorp stock for
cash instead of Newco Alaska stock, and at the discretion if the Board of
Directors of the surviving corporation, those shares would be purchased for
cash at the same price.
Upon consummation of the merger, the Company purchased 32,963 shares held by
127 shareholders at a cost of $5,768,525. Of that number four shareholders
representing 9,674 shares at a value of $1,692,950 exercised their right to
dissent from the reorganization and funds were reserved pending final
settlement. As of July 31, 1999 all of the dissenting shareholders had
withdrawn their demand for an appraisal and had been paid in full.
The $5,768,525 stock repurchase was funded in part from a long-term loan from
Seafirst Bank. The loan is structured to provide for quarterly interest
payments and six annual principal payments $500,000 with maturity on June 30,
2005. Interest is calculated at a floating rate of LIBOR plus 2.50%.
The reorganization had a significant impact on the stockholders' equity of the
Company. On March 31, 1999 total stockholders' equity was $23.24 million, and
the risk weighted tier one capital ratio was 16.6%. On June 30, 1999, after
the reorganization, stockholders' equity was $17.21 million, and the
risk-weighted tier on capital ratio was 12.29%. Highlights of the changes in
stockholders' equity for the period December 31, 1998 to June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
First Bancorp, Inc.
Accum Other
Common Undivided Treasury Comprehensive Stockholders'
(in thousands - unaudited) Stock Surplus Profits Stock Income Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 1,070 6,415 16,052 (529) 184 23,192
Net Income 1,031 1,031
Change in unrealized holding loss
on available for sale securities,
net of taxes of $315,737 (618) (618)
---------------
Total comprehensive income 413
---------------
Reorganization (194) (1,161) (5,091) 529 (5,917)
Cash dividends ($1.25 per share) (480) (480)
===============================================================================
Balance at June 30, 1999 $ 876 5,254 11,512 - (434) 17,208
===============================================================================
</TABLE>
See accompanying notes to consolidatd financial statements.
11
<PAGE>
FINANCIAL CONDITION
The Company's total assets were $254.7 million at June 30, 1999, an increase
of $9.9 million, or 4.0% from $244.8 million at June 30, 1998, and an
increase of $8.6 million or, 3.5%, from $246.1 million on March 31, 1999.
Cash and deposit balances due from banks was $16.1 million on June 30, 1999
compared to $8.9 million on June 30, 1998, an increase of 91.1%, and when
compared to $8.2 million on March 31, 1999, an increase of 96.3%. This
significant increase was due primarily to unusually high single day check
clearings on June 30, 1999. As a comparative, average cash and deposit
balances due from banks for the month ending June 30, 1999 was approximately
$12.0 million, or $4.1 million less than the June 30, 1998 balance of $16.1
million. Earning assets increased $3.7 million, or 1.6% from $226.2 million
on June 30, 1998 to $229.9 million on June 30, 1999, and when compared to
March 31, 1999, an increase of $1.6 million, or 0.7% from $228.3 million. As
of June 30, 1999 earning assets were 90.2% of total assets, compared with
92.5% on June 30, 1998 and 92.8% on March 31, 1999. Loans and investment
securities available for sale are the primary components of earning assets.
On June 30, 1999 gross loans were $132.2 million, an increase of $15 million,
or 12.9% from $117.1 million on June 30, 1998, and an increase of $5.5
million, or 4.3% from $126.7 million on March 31, 1999. On June 30, 1999
investment securities were $97.8 million, a decrease of $2.3 million, or
2.3%, from $100.1 million on June 30, 1998, and a decrease of $3.8 million,
or 3.8% from March 31, 1999. On June 30, 1998 net loans were 47.2% of total
assets, on March 31, 1999 they were 50.9% and on June 30, 1999 they were
51.3%. On June 30, 1998 investment securities were 40.1% of total assets, on
March 31, 1999 they were 41.3% and on June 30, 1999 they were 38.4%.
Total deposits increased $10 million, or 4.52% from $221.3 million on June
30, 1998 to $231.3 million on June 30, 1999, and they increased $11.3
million, or 5.2% from $220
million on March 31, 1999. Deposit comparisons for June 30, 1999, and March
31, 1999, December 31, 1998 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Comparative Total Deposits
First Bancorp, Inc.
June 30, March 31, December 31, June 30,
(in thousands - unaudited) 1999 1999 1998 1998
----------------------------------------------
Deposits
<S> <C> <C> <C> <C>
Demand $ 68,865 $ 63,838 $ 68,133 $ 64,921
Savings 46,362 47,715 48,847 45,254
Time deposits of $100,000 or more 63,643 57,164 60,814 58,334
Other time deposits 52,400 51,236 51,734 52,769
----------------------------------------------
Total Deposits $ 231,270 $ 219,953 $ 229,528 $ 221,278
</TABLE>
See accompanying notes to consolidatd financial statements.
12
<PAGE>
When comparing June 30, 1998 with June 30, 1999, deposits increased across
most categories with demand deposits increasing by $3.9 million, or 6.1%,
savings deposits increasing $1.1 million, or 2.4%, and time deposits greater
that $100,000 (large deposits) increased $5.3 million, or 9.1%. The only
declining category was other time deposits, which declined $369,000, or
.7%. This exhibit shows that deposit totals follow a defined seasonal
trend, consistent with seasonality of economic activity in southeast Alaska.
Deposit totals will be at their highest in the third quarter of the year and
run off through the first quarter at which time they begin to build again.
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 June 30, 1999 and 1998, time deposits greater than $100,000
represented 25.0% and 23.8% of total assets respectively.
CONSOLIDATED EARNINGS
The Company's net income for the six months ending June 30, 1999 was $1.03
million or $5.08 per weighted average share. This compares to net income for
the six months ending June 30, 1998 of $1.22million, or $5.86 per weighted
average share. Net income for the three months ending June 30, 1999 was
$561,000 or $2.84 per weighted average share as compared to net income for
the three months ending June 30, 1998 of $727,000 or $3.48 per share. The
decrease in year-to-date net income from the prior year is primarily as
result of a $439,000, or 13.6% decline in securities income, and a $209,000,
or 4.6% increase in total non-interest expense. The increase in non-interest
expense is largely attributable to increased salaries and employee benefits
plus increased operating expenses in our electronic banking department.
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.
For the six months ending June 30, 1999, net interest income before provision
for loan losses was $5.338 million, an increase of $74,000 or 1.4%, when
compared to $5.264 million for the six months ending June 30, 1998. For the
three month period ending June 30, 1999 net interest income before provision
for loan losses was $2.66 million a decrease of $5,000, or .19% when compared
to $2.665 million for the three months ending June 30, 1998. Growth in net
interest income has been primarily due to continued growth in loan volume,
the highest yielding component of earning assets. At June 30, 1999 gross
loans increased 12.9% to $132.2 million from $117.1 million on June 30, 1998,
and 4.3% from $126.7 million on March 31, 1999. Net interest margin was
adversely affected by a change in the composition of interest-bearing
liabilities with growth in interest bearing savings and time deposits
outpacing growth in demand deposits. This composition change increased the
Company's liability sensitivity, when interest rates change liabilities
reprice faster than assets. This means that in a rising rate scenario net
interest margin will be adversely affected, as it was during the three-month
period ending June 30, 1999.
13
<PAGE>
Net interest margin (net interest income divided by average interest-bearing
assets) increased slightly to 4.64% in the six months of 1999 from 4.59% in
the first six months of 1998. Average interest-bearing assets grew to $230
million as of June 30 1999, compared with $223 million on June 30 1998, an
increase of 3.1%. Average interest-bearing liabilities grew to $199 million
on June 30, 1999 compared to $193 million on June 30, 1998, an increase of
3.1%. The average yield on interest-bearing assets during the first quarter
decreased to 7.98% in 1999 from 8.47% in 1998, or a decrease of 5.79%. In
comparison, the average cost of interest-bearing liabilities during the first
quarter decreased to 3.87% in 1999 from 4.35% in 1998, or a decrease of
11.03%.
<TABLE>
<CAPTION>
Analysis of Net Interest Margin
First Bancorp, Inc.
Six months ended
June 31, Increase
1999 1998 (Decrease) Change
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Average interest-bearing assets $ 230,235 $ 223,402 $ 6,833 3.06%
Average interest-bearing liabilities $ 198,797 $ 192,887 $ 5,910 3.06%
Average yields earned 7.98% 8.47% -0.49% -5.79%
Average rates paid 3.87% 4.35% -0.48% -11.03%
Net interest spread (including loan
placement fees) 4.11% 4.12% -0.01% -0.24%
Net interest income to average
interest-earning assets 4.64% 4.71% -0.07% -1.49%
</TABLE>
NONINTEREST INCOME
Noninterest income decreased $34,000 to $1.149 million, or -2.9% for the six
months ending June 30, 1999, when compared with $1.183 million over the same
period in 1998. For the three-month period ending June 30, 1999, noninterest
income totaled $563,000, a decrease of $79,000, or -12.3%, over the
three-month period ending June 30, 1998 total of $642,000. This difference
is primarily due to $44,000 in securities gains taken in the first six months
of 1998, while none was taken in 1999. In addition, Interest rates began to
increase in early 1999 resulting in modest new mortgage loan activity in 1999
and lower origination fee and servicing rights income, especially when
compared to exceptionally strong activity in 1998.
14
<PAGE>
NONINTEREST EXPENSE
Total noninterest expense increased $209,000, or 4.6%, to $4.8 million for
the six- month period ending June 30, 1999 when compared to $4.6 million for
the same period in 1998. For the three-month period ending June 30, 1999,
noninterest expense totaled $2.34 million, an increase of $70,000, or 3.1%,
over the three-month period ending June 30, 1998 total of $2.27 million.
Salaries and employee benefits, the largest component of noninterest expense,
increased $108,000, or 3.9%, to $2.85 million for the six months ending June
30, 1999 when compared to $2.74 million for the six months ending June 30,
1998. For the three months ending June 30, 1999, salaries and employee
benefits increased $32,000, or 2.3%, when compared to the three months ending
June 30, 1998. Occupancy expenses increased $38,000 to $447,000, or 9.3%,
for the three-months ending June 30, 1999, compared to $409,000 for the three
months ending June 30, 1998. This increase is primarily the result of
increase equipment and maintenance expenses associated with enhancements to
our systems and data processing department.
INCOME TAXES
The provision for income taxes increased $35,000, or 6.7%, to $557,000 for
the period ending June 30, 1999, compared to $522,000 for the period ending
June, 30 1998. The effective tax rate for the period ending June 30, 1999 is
35% as compared to 30% for the period ending June 30, 1998.
15
<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 the six-month period ending June 30,
1999 the provision for loan losses was $120,000, a decrease of $12,000, or
9.1% over the period ending June 30, 1998 at $132,000. The actual loan loss
experience for 1998 and the first six months of 1999 is as follows:
<TABLE>
<CAPTION>
Loan Losses and Recoveries
First Bancorp, Inc.
Three Months Ended Six Months Ended
June 30, June 30, 1998
1999 1998 1999 1998
--------------------------- --------------------------
(in thousands)
Loans outstanding at end
<S> <C> <C> <C> <C>
of period $ 132,230 $ 117,155 $ 132,230 $ 117,155
Reserve balance, beginning
of period 1,458 1,355 1,421 1,294
Recoveries 2 2 4 3
Loans charged off (14) (22) (51) (34)
------- ------- ------- -------
Net loans charged off (12) (20) (47) (31)
Provision charged to expense 48 60 120 132
------- ------- ------- -------
Reserve balance, end of period $ 1,494 $ 1,395 $ 1,494 $ 1,395
======= ======= ======= =======
Reserve as a percentage of
outstanding loans 1.13% 1.19% 1.13% 1.19%
Minimum objective for reserve as
a percentage of outstanding loans 1.00% 1.00%
Net loans charged off as a
percentage of outstanding loans 0.01% 0.02% 0.04% 0.03%
</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.
16
<PAGE>
For the period ending June 30, 1999, management reviewed all of the salient
factors in determining the provision for loan loss. While total loans
increased from $117.2 million on June 30, 1998 to $132.2 million on June 30,
1999, a 12.9% increase, the reserve for loan loss increased from $1.39
million to $1.49 million, or 7.1% 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 1.13% of total loans, 13% above the
minimum objective of 1.0%.
2. Charge-offs increased from $34,000, or .03% of outstanding loans during
the period ending June 30, 1998 to $51,000, or .04%, for the period
ending June 30, 1999. However the dollar amount remains relatively
minimal and the percentage remains below our peer group average of
.16% as of March 31, 1999.
3. Loan quality continues to remain sound (see "Nonperforming Assets"
section below).
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 June 30, 1999 the Company had $23,000 in loans past due over 90 days,
$11,000 in nonaccrual status loans, and $203,000 in ORE for nonperforming
assets totaling $237,000 which represent .09% of total assets and 1.38% of
shareholders' equity. This is a significant improvement over December 31,
1998 totals of $265,000 in loans past due over 90 days, no loans in
nonaccrual status, and $222,000 in ORE for nonperforming assets totaling
$487,000 which represent 0.19% of total assets and 2.10% of shareholders'
equity.
17
<PAGE>
<TABLE>
<CAPTION>
Past Due and Nonperforming Loans
First Bancorp, Inc.
(in thousands except for percentages)
June 30, 1999 December 31, 1998 June 30, 1998
Outstanding at end of period:
<S> <C> <C> <C>
Total loans $132,230 $123,122 $117,155
Total assets $254,746 $254,795 $244,498
Shareholders' equity $ 17,208 $ 23,193 $ 22,369
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
Past Due Loans Past Due Loans Past Due Loans
30-89 days 90+ days 30-89 days 90+ days 30-89 days 90+ days
Past due and nonperforming loans:
<S> <C> <C> <C> <C> <C> <C>
Real estate loans $ 245 $ - $ 124 $ - $ - $ -
Consumer loans 162 - 212 11 349 45
Credit cards 12 11 - 6 15 3
Commercial loans 9 12 366 248 686 31
Total past due loans $ 428 $ 23 $ 702 $ 265 $ 1,050 $ 79
Non-accrual loans $ - $ 11 $ - $ - $ - $ -
Other real estate owned $ - $ 203 $ - $ 222 $ - $ 241
============================== =========================== ===========================
Total past due & non-accrual
loans and ORE $ 428 $ 237 $ 702 $ 487 $ 1,050 $ 320
Past due & non-accrual loans
and ORE as a percentage of:
Total loans 0.32% 0.18% 0.57% 0.40% 0.90% 0.27%
Total assets 0.17% 0.09% 0.28% 0.19% 0.43% 0.13%
Total shareholders' equity 2.49% 1.38% 3.03% 2.10% 4.69% 1.43%
</TABLE>
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.
18
<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 STOCKHOLDERS' 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 June 30, 1999, total stockholders' equity was $17.2 million. This was
down from $23.2 million on December 31, 1998. This decrease was the result
of June 1, 1999 reorganization of the Company. 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 at
least 4% must be in the form of core capital (TIER 1 capital). TIER 1
capital includes the Company's stockholders' equity, minus all intangible
assets. As of June 30, 1999 the Company had a TIER 1 risk weighted capital
ratio of 12.2%. As of December 31, 1998 the Company had a TIER 1 risk
weighted capital ratio of 16.5%.
19
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is being filed herewith and this shall constitute
the Exhibit Index:
27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Bancorp, Inc.
(Registrant)
/s/ William G. Moran, Jr. /s/ James C. Sarvela
- ------------------------------------- -------------------------------------
William G. Moran, Jr. James C. Sarvela
President and Chief Executive Officer Vice President and Chief Financial
Officer
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements for the six-month period ending June 30, 1999,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001077762
<NAME> First Bancorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 16,140
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,777
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 132,230
<ALLOWANCE> 1,494
<TOTAL-ASSETS> 254,746
<DEPOSITS> 231,270
<SHORT-TERM> 610
<LIABILITIES-OTHER> 5,658
<LONG-TERM> 0
0
0
<COMMON> 876
<OTHER-SE> 16,332
<TOTAL-LIABILITIES-AND-EQUITY> 254,746
<INTEREST-LOAN> 6,308
<INTEREST-INVEST> 2,792
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 9,188
<INTEREST-DEPOSIT> 3,790
<INTEREST-EXPENSE> 3,850
<INTEREST-INCOME-NET> 5,338
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 4,779
<INCOME-PRETAX> 1,588
<INCOME-PRE-EXTRAORDINARY> 1,588
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,031
<EPS-BASIC> 5.08
<EPS-DILUTED> 5.08
<YIELD-ACTUAL> 4.64
<LOANS-NON> 11
<LOANS-PAST> 23
<LOANS-TROUBLED> 203
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,421
<CHARGE-OFFS> 51
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1,494
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,494
</TABLE>
