UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quaterly report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 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:
173,843 shares of common stock as of November 1, 1999
Transitional Small Business disclosure format (check one):
Yes [ ] No[X ]
<PAGE>
FIRST BANCORP, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE REFERENCE
Item 1: Financial Statements
Consolidated Balance Sheets of First Bancorp, Inc. -
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income First Bancorp, Inc.-
three months and nine months ended September 30,
1999 and September 30, 1998 4
Consolidated Statements of Changes in Shareholders'
Equity of First Bancorp, Inc. - twelve months
ended December 31, 1998 and nine months ended
September 30, 1999 5
Consolidated Statements of Cash Flows of First Bancorp,
Inc.- nine months ended September 30, 1999 and
September 30, 1998 6
Notes to consolidated financial statements 7
Item 2: Management Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
Consolidated Balance Sheet
First Bancorp, Inc.
September 30, December 31,
(in thousands) 1999 1998
------------- -------------
(unaudited)
Assets
Cash and due from banks $ 10,597 $ 9,783
Federal funds sold 1,627 9,391
Investment securities available for sale 108,990 103,858
Loans 131,865 123,122
Less: Allowance for loan losses (1,572) (1,421)
------------- -------------
Net Loans 130,293 121,701
Premises and equipment 5,816 5,797
Other assets 4,504 4,265
============= =============
Total Assets $ 261,827 254,795
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Demand $ 76,748 $ 68,133
Savings 52,453 48,847
Time deposits of $100,000 or more 58,972 60,814
Other time deposits 52,444 51,734
------------- -------------
Total Deposits 240,617 229,528
Note payable to Seafirst 3,000 -
Other liabilities 1,263 2,074
------------- -------------
Total Liabilities 244,880 231,602
------------- -------------
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 11,885 16,053
Accumulated other comprehensive income - net
unrealized gain (loss) on available
for sale sec. (811) 184
Treasury stock, at cost (5,765 shares in 1998
and 1,469 shares in 1999 (257) (529)
------------- -------------
Total Stockholders' Equity 16,947 23,193
Commitments and contingencies
============= =============
Total Liabilities and Stockholders'
Equity $ 261,827 $ 254,795
============= =============
- -------------------
See accompanying notes to consolidated financial statements.
3
<PAGE>
Consolidated Income Statement
First Bancorp, Inc.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
(in thousands except per share - unaudited) 1999 1998 1999 1998
----------- ----------- ------------ -----------
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 3,265 $ 3,138 $ 9,571 $ 9,228
Interest on federal funds sold 102 197 162 299
Interest-bearing deposits at other banks 9 18 39 54
Interest on securities available for sale 1,453 1,533 4,245 4,764
----------- ----------- ------------ -----------
Total interest income 4,829 4,886 14,017 14,345
----------- ----------- ------------ -----------
Interest Expense:
Interest on deposits:
Time deposits of $100,000 or more 760 809 2,008 2,407
Other deposits 1,305 1,380 3,847 3,927
Interest on federal funds purchased 1 - 19 13
Other interest 40 - 82 37
----------- ----------- ------------ -----------
Total interest expense 2,106 2,189 5,956 6,384
----------- ----------- ------------ -----------
Net interest income 2,723 2,697 8,061 7,961
Provision for loan losses 72 72 192 204
----------- ----------- ------------ -----------
Net interest income after provision for loan losses 2,651 2,625 7,869 7,757
Noninterest Income:
Net realized gain on sales of available
for sale securities - 16 14 60
Service charges on deposit accounts 156 167 483 503
Other 395 515 1,203 1,318
----------- ----------- ------------ -----------
Total Noninterest Income 551 698 1,700 1,881
----------- ----------- ------------ -----------
Noninterest Expense:
Salaries and employee benefits 1,400 1,375 4,252 4,119
Occupancy, net 389 377 1,272 1,217
Other operating expenses 510 481 1,554 1,467
----------- ----------- ------------ -----------
Total Noninterest Expense 2,299 2,233 7,078 6,803
----------- ----------- ------------ -----------
Income before income taxes 903 1,090 2,491 2,835
Provision for income taxes (312) (387) (869) (909)
----------- ----------- ------------ -----------
Net Income $ 591 $ 703 $ 1,622 $ 1,926
=========== =========== ============ ===========
Per share amounts - net income $3.39 $3.37 $8.39 $9.24
=========== =========== ============ ===========
Weighted average shares outstanding 174,333 208,333 193,298 208,523
=========== =========== ============ ===========
</TABLE>
- -------------------
See accompanying notes to consolidated financial statements.
4
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
First Bancorp, Inc.
<TABLE>
<CAPTION>
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 1,622 1,622
Change in unrealized holding loss
on available for sale securities,
net of taxes of $562,501 (995) (995)
---------------
Total comprehensive income 627
---------------
Reorganization (194) (1,161) (5,092) 529 (5,918)
Cash dividends ($3.75 per share) (697) (697)
Purchase of 1,469 shares of
treasury stock, at cost (257) (257)
-------------------------------------------------------------------------------
Balance at September 30, 1999 $ 876 $ 5,254 $ 11,885 $ (257) $ (811) $ 16,947
===============================================================================
</TABLE>
- -------------------
See accompanying notes to consolidated financial statements.
5
<PAGE>
Consolidated Statements of Cash Flows
First Bancorp, Inc.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in thousands) 1999 1998
-------------- --------------
Operating Activities
<S> <C> <C>
Net Income $ 1,622 $ 1,926
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 192 204
Provision for losses on other real estate 28 27
Depreciation and amortization 487 431
Gain on sale of other real estate - 18
Amortization of investment security premiums 100 103
Accretion of investment security discounts (117) (119)
Net investment securities gains (14) (60)
Gain from sale of bank premises and equipment (13) (13)
(Increase) decrease in interest receivable (251) 37
Increase in interest payable 89 33
Increase in deferred taxes - (46)
(Increase) decrease in other assets (16) 595
Decrease in other liabilities (901) (599)
-------------- --------------
Net cash provided by operating activities 1,206 2,537
-------------- --------------
Investing activities:
Proceeds from sale of available for sale securities 7,690 13,923
Proceeds from maturity of available for sale securities 30,003 64,340
Purchase of available for sale securities (43,789) (65,156)
Net increase in loans (8,784) (12,071)
Purchase of bank premises and equipment (506) (731)
Proceeds from the sale of bank premises & equip. 13 13
-------------- --------------
Net cash used (provided) in investing activities (15,373) 318
-------------- --------------
Financing activities:
Net increase in demand and savings deposits 12,221 3,563
Net increase (decrease) in time deposits (1,132) 5,926
Net (increase) decrease in federal funds sold 7,764 (11,478)
Net increase in Federal Home Bank advances - (1,000)
Net increase in long term debt 3,000 -
Reorganization (5,918)
Purchase of treasury stock (257) (53)
Cash dividends paid (697) (781)
-------------- --------------
Net proceeds from financing activities: 14,981 (3,823)
-------------- --------------
Net increase (decrease) in cash and due from banks 814 (968)
Cash and due from banks at beginning of the quarter 9,783 9,852
-------------- --------------
Cash and due from banks at end of the quarter $ 10,597 $ 8,884
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest $ 5,897 $ 6,384
Cash paid during the quarter for income taxes $ 810 $ 877
</TABLE>
- -------------------
See accompanying notes to consolidated financial statements.
6
<PAGE>
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
The financial statements at September 30, 1999 and 1998, and for the
three-month and nine-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 (collectively, the 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
<PAGE>
(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.".
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.
10
<PAGE>
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%.
FINANCIAL CONDITION
The Company's total assets were $261.8 million at September 30, 1999, an
increase of $8.4 million, or 3.3% from $253.4 million at September 30, 1998,
and an increase of $7.1 million or, 2.8%, from $254.7 million on June 30,
1999. Cash and deposit balances due from banks was $10.6 million on September
30, 1999 compared to $7.4 million on September 30, 1998, an increase of 43.2%,
and compared to $16.1 million on June 30, 1999, an decrease of 34.2%. Earning
assets increased $4.2 million, or 1.8% from $236.8 million on September 30,
1998 to $241 million on September 30, 1999, and when compared to June 30,
1999, an increase of $10.8 million, or 4.2% from $230 million. As of September
30, 1999 earning assets were 92.1% of total assets, compared with 93.4% on
September 30, 1998 and 90.2% on June 30, 1999. Loans and investment securities
available for sale are the primary components of earning assets. On September
30, 1999 gross loans were $131.9 million, an increase of $13 million, or 10.9%
from $118.9 million on September 30, 1998, and an decrease of $365,000, or
0.3% from $132.2 million on June 30, 1999. On September 30, 1999 investment
securities were $109 million, an increase of $6.6 million, or 6.4%, from
$102.4 million on September 30, 1998, and an increase of $11.2 million, or
11.5% from June 30, 1999. On September 30, 1998 net loans were 46.4% of total
assets, on June 30, 1999 they were 51.3% and on September 30, 1999 they were
49.7%. On September 30, 1998 investment securities were 40.4% of total assets,
on June 30, 1999 they were 38.4% and on September 30, 1999 they were 41.6%.
11
<PAGE>
Total deposits increased $11.5 million, or 5% from $229.1 million on September
30, 1998 to $240.6 million on September 30, 1999, and they increased $9.4
million, or 4% from $231.2 million on June 30, 1999. Deposit comparisons for
September 30, 1999, and June 30, 1999, December 31, 1998 and September 30,
1998 are as follows:
Comparative Total Deposits
First Bancorp, Inc.
<TABLE>
<CAPTION>
September 30, June 30, December 31, September 30,
(in thousands - unaudited) 1999 1999 1998 1998
------------------------------------------------------
Deposits
<S> <C> <C> <C> <C>
Demand $ 76,748 $ 68,865 $ 68,133 $ 71,201
Savings 52,453 46,362 48,847 47,758
Time deposits of $100,000 or more 58,972 63,643 60,814 56,252
Other time deposits 52,444 52,400 51,734 53,950
-------- -------- -------- --------
Total Deposits $240,617 $231,270 $229,528 $229,161
</TABLE>
When comparing September 30, 1998 with September 30, 1999, deposits increased
across most categories with demand deposits increasing by $5.5 million, or
7.8%, savings deposits increasing $4.7 million, or 9.8%, and time deposits
greater that $100,000 (large deposits) increased $2.7 million, or 4.8%. The
only declining category was other time deposits, which declined $1.5 million,
or 2.8%. 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 September 30, 1999
and 1998, time deposits greater than $100,000 represented 22.5% and 22.2% of
total assets respectively.
CONSOLIDATED EARNINGS
The Company's net income for the nine months ending September 30, 1999 was
$1.62 million or $8.39 per weighted average share. This compares to net income
for the nine months ending September 30, 1998 of $1.93 million, or $9.24 per
weighted average share. Net income for the three months ending September 30,
1999 was $591,000 or $3.39 per weighted average share as compared to net
income for the three months ending September 30, 1998 of $703,000 or $3.37 per
share. The decrease in year-to-date net income from the prior year is
primarily as result of a $181,000, or 9.6% decline in non-interest income, and
a $275,000, or 4% increase in total non-interest expense. The decrease in
non-interest income is primarily attributable to a decline in mortgage loan
activity and the resulting impact on servicing rights income and income from
the Company's title insurance subsidiary. The increase in non-interest expense
is largely attributable to increased salaries and employee benefits plus
increased operating expenses in our electronic banking department.
12
<PAGE>
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 nine months ending September 30, 1999, net interest income before
provision for loan losses was $8.1 million, an increase of $100,000 or 1.3%,
when compared to $7.9 million for the nine months ending September 30, 1998.
For the three month period ending September 30, 1999 net interest income
before provision for loan losses was $2.72 million an increase of $30,000, or
.96% when compared to $2.69 million for the three months ending September 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 September
30, 1999 gross loans increased 10.9% to $131.9 million from $118.9 million on
September 30, 1998, and declined .28% from $132.2 million on June 30, 1999.
For the nine months ending September 30, 1999, net interest margin (net
interest income divided by average interest-bearing assets) was adversely
affected by the upward trend in interest rates. The Company's balance sheet is
liability sensitive, which is 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 nine-month period
ending September 30, 1999. Net interest margin decreased slightly to 4.61% in
the nine months of 1999 from 4.69% in the first nine months of 1998. Average
interest-bearing assets grew to $233 million as of September 30 1999, compared
with $226.4 million on September 30 1998, an increase of $6.6 million or 2.9%.
Average interest-bearing liabilities grew to $201.2 million on September 30,
1999 compared to $194.6 million on September 30, 1998, an increase of $6.6
million or 3.4%. The average yield on interest-bearing assets during the first
nine-months decreased to 8.02% in 1999 from 8.44% in 1998, a decrease of 42
basis points or 5%. In comparison, the average cost of interest-bearing
liabilities during the first quarter decreased to 3.95% in 1999 from 4.37% in
1998, a decrease of 42 basis points or 9.6%.
13
<PAGE>
Analysis of Net Interest Margin
First Bancorp, Inc.
<TABLE>
<CAPTION>
Nine months ended
September 30, Increase
1999 1998 (Decrease) Change
----------- ----------- ----------- -----------
(amounts in thousands, except percrntages)
<S> <C> <C> <C> <C>
Average interest-bearing assets $233,012 $226,487 $ 6,525 2.88%
Average interest-bearing liabilities $201,288 $194,634 $ 6,654 3.42%
Average yields earned 8.02% 8.44% -0.42% -4.98%
Average rates paid 3.95% 4.37% -0.42% -9.61%
Net interest spread (including loan
placement fees) 4.07% 4.07% 0.00% 0.00%
=========== =========== =========== ===========
Net interest income to average
interest-earning assets 4.61% 4.69% -0.08% -1.71%
</TABLE>
NONINTEREST INCOME
Noninterest income decreased $180,000 to $1.7 million, or -9.6% for the nine
months ending September 30, 1999, when compared with $1.88 million over the
same period in 1998. For the three-month period ending September 30, 1999,
noninterest income totaled $551,000, a decrease of $147,000, or -21.6%, over
the three-month period ending September 30, 1998 total of $698,000. This
difference is primarily due to the interest rate increase which began 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. In addition, $60,000 in securities
gains was taken in the first nine months of 1998, while only $14,000 was taken
in 1999.
14
<PAGE>
NONINTEREST EXPENSE
Total noninterest expense increased $275,000, or 4%, to $7.1 million for the
nine-month period ending September 30, 1999 when compared to $6.8 million for
the same period in 1998. For the three-month period ending September 30, 1999,
noninterest expense totaled $2.3 million, an increase of $70,000, or 3%, over
the three-month period ending September 30, 1998 total of $2.23 million.
Salaries and employee benefits, the largest component of noninterest expense,
increased $130,000, or 3.2%, to $4.25 million for the nine months ending
September 30, 1999 when compared to $4.12 million for the nine months ending
September 30, 1998. For the three months ending September 30, 1999, salaries
and employee benefits increased $25,000, or 1.8%, when compared to the three
months ending September 30, 1998. Occupancy expenses increased $50,000 to
$1.27 million, or 4.1%, for the nine months ending September 30, 1999,
compared to $1.22 million for the nine months ending September 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 decreased $40,000, or 4.4%, to $869,000 for the
period ending September 30, 1999, compared to $909,000 for the period ending
September, 30 1998. The effective tax rate for the period ending September 30,
1999 is 35% as compared to 32% for the period ending September 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 nine month period ending September
30, 1999 the provision for loan losses was $192,000, a decrease of $12,000, or
5.9% over the period ending September 30, 1998 at $204,000. The actual loan
loss experience for 1998 and the three months and nine months ending September
30 of 1998 and 1999 are as follows:
Loan Losses and Recoveries
First Bancorp, Inc.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1999 1998 1999 1998
--------- -------- -------- --------
(in thousands)
Loans outstanding at end
<S> <C> <C> <C> <C>
of period $131,865 $118,921 $131,865 $118,921
Reserve balance, beginning
of period 1,494 1,395 1,421 1,294
Recoveries 15 2 19 5
Loans charged off (9) (50) (60) (84)
Net loans charged off 6 (48) (41) (79)
Provision charged to expense 72 72 192 204
Reserve balance, end of period $ 1,572 $ 1,419 $ 1,572 $ 1,419
Reserve as a percentage of
outstanding loans 1.19% 1.19% 1.19% 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 0.00% 0.04% 0.03% 0.07%
</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 September 30, 1999, management reviewed all of the
salient factors in determining the provision for loan loss. Total loans
increased from $118.9 million on September 30, 1998 to $131.9 million on
September 30, 1999, a 10.9% increase, and the reserve for loan loss increased
from $1.42 million to $1.57 million, or 10.6% during that same period. There
are a number of reasons management feels that both the reserve and provision
are adequate:
1. Reserve for loan loss is currently 1.19% of total loans, 19% above the
minimum objective of 1.0%.
2. Charge-offs decreased from $84,000, or .07% of outstanding loans during
the nine months ending September 30, 1998 to $60,000, or .03%, for the
nine months ending September 30, 1999. Charge off amounts remains
relatively minimal and the percentage of net loan losses remains below
our peer group average of .18% as of June 30, 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 September 30, 1999 the Company had $19,000 in loans past due over 90
days, $7,000 in nonaccrual status loans, and $194,000 in ORE for nonperforming
assets totaling $220,000 which represent .08% of total assets and 1.3% 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. It is also
an improvement over September 30, 1998 totals of $60,000 in loans past due
over 90 days, no loans in nonaccrual status, and $232,000 in ORE for
nonperforming assets totaling $292,000 which represent 0.12% of total assets
and 1.31% of shareholders' equity.
17
<PAGE>
Past Due and Nonperforming Loans
First Bancorp, Inc.
<TABLE>
<CAPTION>
(in thousands except for percentages)
September 30, 1999 December 31, 1998 September 30, 1998
------------------------ ------------------------ ------------------------
Outstanding at end of period:
<S> <C> <C> <C>
Total loans $131,865 $123,122 $118,921
Total assets $261,827 $254,795 $253,435
Shareholders' equity $ 16,947 $ 23,193 $ 22,369
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 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 $ 76 $ - $ 124 $ - $ 116 $ -
Consumer loans 286 - 212 11 97 12
Credit cards 12 7 - 6 10 11
Commercial loans 33 12 366 248 72 37
---------- ---------- ---------- ---------- ---------- ----------
Total past due loans $ 407 $ 19 $ 702 $ 265 $ 295 $ 60
---------- ---------- ---------- ---------- ---------- ----------
Non-accrual loans $ - $ 7 $ - $ - $ - $ -
Other real estate owned $ - $ 194 $ - $ 222 $ - $ 232
Total past due & non-accrual
loans and ORE
---------- ---------- ---------- ---------- ---------- ----------
$ 407 $ 220 $ 702 $ 487 $ 295 $ 292
========== ========== ========== ========== ========== ==========
Past due & non-accrual loans
and ORE as a percentage of:
Total loans 0.31% 0.17% 0.57% 0.40% 0.25% 0.25%
Total assets 0.16% 0.08% 0.28% 0.19% 0.12% 0.12%
Total shareholders' equity 2.40% 1.30% 3.03% 2.10% 1.32% 1.31%
</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 September 30, 1999, total stockholders' equity was $16.9 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 Reserve has
established risk-based standards for evaluating a holding company'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
September 30, 1999 the Company had a TIER 1 risk weighted capital ratio of
12.34%. As of December 31, 1998 the Company had a TIER 1 risk weighted capital
ratio of 16.5%.
19
<PAGE>
Year 2000 Readiness
First Bank has two primary objectives driving our Year 2000 compliance
efforts:
(1) Compliance - to satisfy bank examiners using guidelines established
by the Federal Finance Institutions Examinations Council (FFIEC) and
(2) Self-assurance - to meet our responsibility to our customers to make
every effort possible to ensure our systems continue to function
during the millennium date change and beyond.
First Bank has undergone three on-site Federal Deposit Insurance Corporation
audits as well as interim audits by telephone. This has involved nearly all
embedded systems, computer software applications, and network systems. These
examinations have assisted us in determining our progress toward compliance.
During 1999, we put more and more emphasis on the self-assurance portion of
the objectives as compliance goals were met.
A Year 2000 Task Force was designated by the Board of Directors consisting of
Information Systems Manager E. Michael Youngblood as Chairman and includes
senior department managers. Individual task force members focus their
attentions on various areas regarding Year 2000 issues. The Systems department
conducted an in-depth review of all computer and software currently in use.
These systems and applications were cataloged and prioritized with "Mission
Critical" systems receiving top priority for compliance testing. A full-time
technical position was created to identify, track, monitor, and test (or
assist in testing) the various systems. The primary Mission Critical software
packages in use by the bank for core processing are Year 2000 compliant, as
certified by their vendors. While having this certification is beneficial, the
bank was still obligated to test these packages for Year 2000 compliance, and
this process was completed. Moreover, these certifications would only at best
serve as a basis for a legal claim for damages in the event of software
failure at the turn of the year.
We have conducted a review of peripheral equipment, security systems,
telephone systems, and building heating and cooling systems for all branch
locations. We have paid close attention to the task of internal and external
communications, including communicating with and training bank staff as well
as customer communications through general publications or response to direct
inquiries. Our senior lending officer is coordinating risk assessment of our
large commercial borrowers and organized an interview process for each
identified borrower.
First Bank's plan to address Year 2000 issues has been to follow the
guidelines established by the Federal Financial Institutions Examination
Council ("FFIEC"). FFIEC guidelines require the Bank to assess risks and
analyze those systems, software and services provided by third-party vendors.
The Bank's project plan addresses the five phases FFIEC has identified as
critical to Year 2000 readiness. These phases are as follows:
20
<PAGE>
o Awareness - This phase requires us to define the problem and set
objectives, as well as establish a task force or committee to develop a
strategic response to the problem. We have completed this phase.
o Assessment - In this phase we assess the overall magnitude of the
project, including identifying hardware and software that may be
affected, evaluating the effects of Y2K on our strategic business plan,
and formulating contingency plans. We have completed this phase.
o Renovation - In this phase we perform upgrades to hardware and software
that has been identified as critical. We also review our outside vendors
for progress on meeting their Y2K compliance obligations. We have
completed this phase.
o Validation - This is the testing phase for all systems that have been
evaluated and upgraded as necessary to ensure Y2K compliance. This phase
has been completed, and we have not discovered any software that is not
Y2K compliant.
o Implementation - This is the final phase in which all systems, internal
as well as those of outside vendors, are certified as Year 2000
compliant. This phase has been completed and all systems are fully
compliant.
As a contingency, First Bank has established lines of credit with the Federal
Reserve Bank of San Francisco, the Federal Home Loan Bank of Seattle, and with
three commercial banks. First Bank has a contractual arrangement with a
disaster recovery provider as an additional backup. This provider has
equipment similar to equipment used at the bank. We regularly rotate backup
tapes with them, and we have conducted at least one test with them to ensure
that this is a satisfactory contingency arrangement. A schedule of additional
system backups is being developed for implementation in advance of the date
change. Customer communications will be of utmost importance in order to ease
concerns our customers may have regarding Year 2000 readiness. The Year 2000
date change will not affect FDIC deposit insurance coverage.
Overall, no significant problems are anticipated in achieving Year 2000
compliance.
21
<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
On July 21, 1999, the Company filed a Form 8-K to report under Item 5,
Other Information, the completion of the reorganization for purposes of
qualifying as a subchapter S corporation. In connection with, and
concurrent with the consummation of, that reorganization, the registrant
changed its name from Newco Alaska, Inc. to First Bancorp, Inc.
22
<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 on November 9, 1999.
First Bancorp, Inc.
(Registrant)
/s/ William G. Moran, Jr.
-------------------------------------------
William G. Moran, Jr.
President and Chief Executive Officer
/s/ James C. Sarvela
-------------------------------------------
James C. Sarvela
Vice President and Chief Financial Officer
23
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements for the nine-month period ending September 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001077762
<NAME> First Bancorp, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.0
<CASH> 10,597
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,627
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,990
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 131,865
<ALLOWANCE> 1,572
<TOTAL-ASSETS> 261,827
<DEPOSITS> 240,617
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,263
<LONG-TERM> 3,000
0
0
<COMMON> 876
<OTHER-SE> 16,071
<TOTAL-LIABILITIES-AND-EQUITY> 261,827
<INTEREST-LOAN> 9,571
<INTEREST-INVEST> 4,245
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 14,017
<INTEREST-DEPOSIT> 5,855
<INTEREST-EXPENSE> 5,956
<INTEREST-INCOME-NET> 8,061
<LOAN-LOSSES> 192
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 7,078
<INCOME-PRETAX> 2,491
<INCOME-PRE-EXTRAORDINARY> 2,491
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,622
<EPS-BASIC> 8.39
<EPS-DILUTED> 8.39
<YIELD-ACTUAL> 4.61
<LOANS-NON> 7
<LOANS-PAST> 19
<LOANS-TROUBLED> 194
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,421
<CHARGE-OFFS> 60
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 1,572
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,572
</TABLE>
