UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
(Mark one)
[X] Annual report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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
FIRST BANCORP, INC.
-------------------
(Name of small business issuer in its charter)
DELAWARE 92-0166346
----------------------- ---------------------
(State of Incorporation) (IRS Employer
Identification Number)
331 Dock Street
Ketchikan, Alaska 99901
(Address of principal executive offices)
(907) 228-4219
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: [ None]
Securities registered under Section 12(g) of the Exchange Act: [ None]
<PAGE>
Check whether the issuer (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[ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for the most recent fiscal year. [$18,100,659]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates. [$14,177,800]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. [175,312]
Documents incorporated by reference. [None]
Transitional Small Business Disclosure Format (check one). Yes [ ] No[X]
2
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FIRST BANCORP, INC.
FORM 10-KSB
DECEMBER 31, 1999
INDEX
PART I PAGE REFERENCE
Item 1: Description of Business...............................5
Item 2: Description of Property...............................7
Item 3: Legal Proceedings.....................................7
Item 4: Submission of Matters to Vote of Security
Holders...............................................7
PART II
Item 5: Market for Common Equity and Related Stockholder
Matters...............................................8
Item 6: Management's Discussion and Analysis .................8
PART II - FINANCIAL INFORMATION
Item 7: Financial Statements
Consolidated Balance Sheets of First Bancorp,
Inc. - December 31, 1999 and December 31,
1998.................................................18
Consolidated Statements of Income First
Bancorp, Inc.- Twelve months ended
December31, 1999, December 31, 1998 and
December 31, 1997....................................19
Consolidated Statements of Changes in
Shareholders' Equity of First Bancorp, Inc. -
twelve months ended December 31, 1999,
December 31, 1998 and December 31,
1997.................................................20
3
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Consolidated Statements of Cash Flows of First
Bancorp, Inc. - Twelve months ended December 31,
1999, December 31, 1998 and December 31,
1997.................................................21
Notes to consolidated financial
statements...........................................22
Item 8: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...............37
PART III
Item 9: Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a)
of the Exchange Act..................................37
Item 10: Executive Compensation...............................39
Item 11: Security Ownership of certain Beneficial Owners
and Management.......................................40
Item 12: Certain Relationships and Related Transactions.......40
Item 13: Exhibits and Reports on Form 8-K.....................41
Signatures....................................................42
Financial Data Schedule.......................................43
4
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PART I
FIRST BANCORP, INC.
Item 1. Description of Business.
General
First Bancorp, Inc. is a single-bank holding company registered under the
Bank Holding Company Act of 1956. The administrative office of First Bancorp
is located in Ketchikan, Alaska. The Company was organized as a holding
company for its principal banking subsidiary, First Bank, a state chartered,
FDIC insured commercial bank, through a reorganization completed in 1989.
First Bancorp's only operating subsidiary, First Bank, is the fifth largest
commercial bank in Alaska, currently operating eight full-service branches in
the boroughs of Ketchikan, Sitka, Wrangell, Petersburg, Craig, and Juneau.
First Bancorp offers commercial banking products and services to small and
medium size businesses, professionals and retail customers in the bank's
market area in southeast Alaska. These products and services include
commercial loans, accounts receivable and inventory financing, SBA loans for
equipment purchases and leasehold improvements, consumer installment loans,
acceptance of deposits, and personal savings and checking accounts. Through
third-party vendors, the bank offers credit life/credit health & accident
insurance to its loan customers. No commissions or other compensation is
paid to any officer for the sale of this insurance. Through a subsidiary,
the Bank acts as a title insurance agent.
The Bank's deposit accounts are insured by the Federal Deposit Insurance
Corporation. At December 31, 1999, First Bank had assets of $258million and
deposits of $234million.
Industry
The commercial banking industry continues to undergo increased competition,
consolidation and change. Non-insured financial service companies such as
mutual funds, brokerage firms, insurance companies, mortgage companies and
leasing companies are offering alternative investment opportunities for
customers' funds or lending sources for their needs. Banks have been granted
extended powers to better compete; including the limited right to sell
insurance and securities products, but the percentage of financial
transactions handled by commercial banks has dropped steadily. Although the
amount of deposits in banks is remaining steady, such deposits represent less
than 20% of household financial assets compared to over 35% twenty-five years
ago. This trend represents a continuing shift to stocks, bonds, mutual funds
and retirement accounts.
Nonetheless, commercial banks are reducing costs by consolidation and
exploring alternative ways of providing bank products. Although new community
5
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banks continue to be organized, bank mergers substantially outstrip
formations. In the last dozen years, the number of commercial banks has
dropped from 14,000 to 9,500, and this trend is expected to continue.
To more effectively and efficiently deliver its products, banks are opening
in-store branches, installing more ATMs and investing in technology to permit
telephone, personal computer and internet banking. While all banks are
experiencing the effects of the changing environment, the manner in which
banks choose to compete is increasing the gap between larger super-regional
banks, committed to becoming national or regional "brand names" providing a
broad selection of products at low cost and with advanced technology, and
community banks which provide most of the same products but with a commitment
to personal service and with local ties to the customers and communities they
serve.
Competition
First Bancorp is a one-bank holding company operating a traditional
commercial bank in southeast Alaska. In this regard, the Company's
subsidiary bank competes with a full range of modern financial institutions
from commercial banks and thrifts to credit unions, brokerage outfits, and
insurance companies.
At the present time the competition is fairly stable. The primary commercial
banking competition is the National Bank of Alaska, the First National Bank
of Anchorage, and Key Bank. National Bank of Alaska recently announced their
sale to Wells Fargo Bank, which is to be consummated by year-end 2000. These
financial institutions are very strong competitors that price their products
rationally and evaluate risk return relationships professionally. These
organizations are all significantly larger than First Bancorp. They have
extensive operations in other parts of the state, and both Key Bank and Wells
Fargo has a strong national presence. These competitors can conduct
wide-ranging advertising campaigns and allocate assets to much broader
geographic regions. By virtue of their greater capitalization, these banks
also have substantially higher lending limits. These organizations are also
financially capable of offering a variety of products from trust services to
international banking that First Bancorp is not prepared to offer.
In addition to commercial banks, First Bancorp competes with a number of
credit unions operating in its market area. In general, these credit unions
tend to be smaller than the commercial banks. However, credit unions
continue to prosper in southeast Alaska as a result of their favorable cost
structure and traditional appeal to a broad section of the population.
Nationwide, surveys indicate that credit unions attract a higher percentage
of high income, well-educated professional customers than their traditional
blue-collar roots would imply. Recent legislation at the national level has
liberalized membership rules. As a result, credit union membership is now
available to virtually anyone living in southeast Alaska. Credit unions
offer many of the same consumer financial products that First Bancorp
offers. These include a full range of consumer loan and deposit products.
Alaska Federal Savings Bank is the only savings bank operating in southeast
Alaska. It currently operates branches in Juneau, Sitka, Wrangell and
Ketchikan. In recent years the laws and regulations affecting Savings Banks
have been liberalized. As a result, savings banks currently offer their
customers essentially the same products available at a commercial bank.
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In addition to the traditional competitive financial institutions, the
development of alternative financial products and delivery systems such as
internet banking, has disrupted banking's traditional control over the
payments system and expanded the level of competition for financial services
in southeast Alaska. At the same time, deposit disintermediation is a
problem in both the consumer and commercial deposit sectors. Interest rates
on demand and time deposits remain at relatively low levels while the bull
market for stocks has continued to advance. This has encouraged an outflow
of funds from traditional deposit products to alternative investment vehicles
such as mutual funds.
Employees
As of December 31, 1999, we had a total of 110 full-time equivalent
employees. None of the employees are subject to a collective bargaining
agreement. We consider our relationship with our employees to be good.
Item 2. Description of Property.
First Bancorp's principal office is located at the main office of First Bank
in Ketchikan, Alaska. We conduct business through eight full-service branches
located in Ketchikan (2), Craig, Petersburg, Sitka, Wrangell, and Juneau (2).
The Totem Branch in Ketchikan, as well as the Petersburg, Wrangell and the
Mendenhall Branch in Juneau have drive-up windows. We have nine automated
teller machines, of which five are located at branches in Ketchikan (2),
Petersburg, and Juneau (2). The bank or the holding company owns all but
four branches. We have options to extend existing leases on the leased
facilities. The eight branches range in size from approximately 1,000 square
feet to slightly more than 15,000 square feet.
Item 3. Legal Proceedings.
We are, from time to time, a party to various legal actions arising in the
normal course of business. We are not currently a party to any pending legal
proceeding, which, if determined adversely, would have a material effect on
our business or financial position
Item 4. Submission of Matter to a Vote of Security Holders.
None
7
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PART II
FIRST BANCORP, INC.
Item 5. Market for Common Equity and Related Shareholder Matters.
No registered broker/dealer makes a market in First Bancorp common stock and
the stock is not listed on any stock exchange. Trading is infrequent and
those transactions that have taken place in First Bancorp common stock cannot
be characterized as an established public market. Generally First Bancorp
common stock is traded by individuals on a personal basis, and prices
reported reflect only the transactions known to management. Due to the
limited information available, the following data may not accurately reflect
the actual market value of First Bancorp common stock.
<TABLE>
<CAPTION>
Number of Shares Common Stock Prices Cash Dividends
-------------------------
Period Reported as Traded High Low Declared per Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended 1999 2,673 $ 175 $ 115 $ 5.00
Year Ended 1998 822 $ 115 $ 115 $ 5.00
Year Ended 1997 2,496 $ 100 $ 91 $ 5.00
</TABLE>
As of December 31, 1999, we had approximately 65 shareholders.
First Bancorp's Dividend Policy. Our dividend policy is to review the
bank's financial performance, capital adequacy, regulatory compliance and
cash resources on a quarterly basis, and, if such review is favorable, to
declare and pay a cash dividend to stockholders. Although we expect to
continue to pay cash dividends, future dividends are subject to these
limitations and to the discretion of the Board of Directors, and could be
reduced or eliminated.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This discussion should be read in conjunction with the consolidated financial
statements of First Bancorp, Inc. (the "Company") and notes thereto
presented in Item 7 of 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,
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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 of 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%.
FINANCIAL CONDITION
The Company's total assets were $258.1 million at December 31, 1999, an
increase of $3.3 million, or 1.3% from $254.8 million at December 31, 1998.
Cash and deposit balances due from banks was $10.3 million on December 31,
1999 compared to $9.8 million on December 31, 1998, an increase of $493,000
or 5.0%. Earning assets increased $3.3 million, or 1.4% from $235 million on
December 31, 1998 to $238.3 million on December 31, 1999. As of December 31,
1999 earning assets were 92.3% of total assets, compared with 92.2% on
December 31, 1998. Loans and investment securities available for sale are the
primary components of earning assets. On December 31, 1999 gross loans were
$134 million, an increase of $10.9 million, or 8.8% from $123.1 million on
December 31, 1998. On December 31, 1999 investment securities were $105.9
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million, an increase of $2.1 million, or 2%, from $103.8 million on December
31, 1998. On December 31, 1999 net loans were 51.3% of total assets and on
December 31, 1998 they were 47.8%. On December 31, 1999 investment
securities were 41% of total assets and on December 31, 1998 they were 40.7%.
Total deposits increased $4.5 million, or 2% from $229.5 million on December
31, 1998 to $234 million on December 31, 1999. Deposit comparisons for
December 31, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
December 31, December 31, Dollar Percent
(in thousands - unaudited) 1999 1998 Change Change
- --------------------------------------------------------------------------------------------------------
Deposits
<S> <C> <C> <C> <C> <C>
Demand $ 72,472 $ 68,133 $ 4,339 6.37% 4,339
Savings $ 50,954 $ 48,847 $ 2,107 4.31% 2,107
Time deposits of $100,000 or more $ 59,963 $ 60,814 $ (851) -1.40% (851)
Other time deposits $ 50,645 $ 51,734 $ (1,089) -2.10% ,089)
Total Deposits $ 234,034 $ 229,528 $ 4,506 1.96% 4,506
</TABLE>
When comparing December 31, 1998 with December 31, 1999, demand and savings
(the lowest cost component of interest bearing deposits) increased while time
deposits (the highest cost component of interest bearing deposits)
decreased. Demand deposits increased by $4.3 million, or 6.4%, and savings
deposits increased $2.1 million, or 4.3%. However, time deposits greater
that $100,000 (large deposits) decreased $851,000, or 1.4%. and other time
deposits declined $1.1 million, or 2.1%. 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 December 31, 1999 and 1998, time
deposits greater than $100,000 represented 23.2% and 23.9% of total assets,
respectively.
CONSOLIDATED EARNINGS
The Company's net income for the twelve-months ending December 31, 1999 was
$1.86 million or $9.89 per weighted average share. This compares to net
income for the twelve- months ending December 31, 1998 of $2.32 million, or
$11.12 per weighted average share. The decrease in net income from the prior
year is primarily as a result of a $613,000 or 14.6% decline in non-interest
income. 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.
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 twelve-months ending December 31, 1999, net interest income before
provision for loan losses was $9.9 million, an increase of $184,000 or 1.9%,
when compared to $9.7 million for the twelve months ending December 31,
1998. Growth in net interest income has been primarily due to continued
growth in loan volume, the highest yielding component of earning assets. At
December 31, 1999 gross loans had increased 10.9% to $134 million from $123.1
million on December 31, 1998.
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For the twelve months ending December 31, 1999, net interest margin (net
interest income divided by average interest-bearing assets) increased to
3.66% in 1999 from 3.52% in 1998. Average interest-bearing assets grew to
$239.9 million as of December 31, 1999, compared with $236 million on
December 31, 1998, an increase of $3.9 million or 1.67%. Average
interest-bearing liabilities grew to $210.3 million on December 31, 1999
compared to $202 million on December 31, 1998, an increase of $8.3 million
or 4.11%. The average yield on interest-bearing assets during the
twelve-month period ending December 31, 1999 decreased to 7.55% in 1999 from
7.74% in 1998, a decrease of 19 basis points or 2.5%. In comparison, the
average cost of interest-bearing liabilities during the same period decreased
to 3.89% in 1999 from 4.22% in 1998, a decrease of 33 basis points or 7.8%.
<TABLE>
<CAPTION>
Analysis of Net Interest Margin
First Bancorp, Inc.
Twelve months ended
December 31,
------------------------ Increase
1999 1998 (Decrease) Change
--------- --------- -------- --------
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Average interest-bearing assets $ 239,900 $ 235,956 $ 3,944 1.67%
Average interest-bearing liabilities $ 210,304 $ 201,999 $ 8,305 4.11%
Average yields earned 7.55% 7.74% -0.19% -2.45%
Average rates paid 3.89% 4.22% -0.33% -7.82%
--------- --------- ------- -------
Net interest spread (including loan
placement fees) 3.66% 3.52% 0.14% 3.98%
========= ========= ======= =======
Net interest income to average
interest-earning assets 4.13% 4.13% 0.00% 0.00%
</TABLE>
NONINTEREST INCOME
Noninterest income decreased $613,000 to $3.6 million, or a -14.6% for the
twelve months ending December 31, 1999, when compared with $4.2 million over
the same period in 1998. This decrease is primarily due to the steady
increase in interest rates which began in early 1999 resulting in modest new
mortgage loan activity in 1999 and lower origination fee, servicing rights
income and title insurance agency revenue, especially when compared to
exceptionally strong activity in 1998. In addition, $73,000 in securities
gains was taken in 1998 while only $15,000 was taken in 1999.
NONINTEREST EXPENSE
Total noninterest expense increased $141,000, or 1.4%, to $10.1 million for
the twelve-month period ending December 31, 1999 when compared to $9.9
million for the same period in 1998. Salaries and employee benefits, the
largest component of noninterest expense, increased $185,000, or 3.3%, to
$5.74 million for the twelve-month period ending December 31, 1999, when
compared to $5.56 million for the twelve-month period ending December 31,
1999. Occupancy expenses decreased $71,000 to $547,000, or -11.5%, for the
twelve-month period ending December 31, 1999, compared to $618,000 million
for the twelve-month period ending December 31, 1998
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INCOME TAXES
The provision for income taxes decreased $104,000, or -7.4%, to $1.3 milling
for the period ending December 31, 1999, compared to $1.4 million for the
period ending December 31, 1998. The effective tax rate for the period
ending December 31, 1999 is 42% as compared to 38% for the period ending
December 31, 1998.
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 twelve month period ending December
31, 1999 the provision for loan losses was $240,000, a decrease of $12,000,
or -4.76% over the same period ending December 31, 1998 at $252,000. The
actual loan loss experience for the twelve-month period ending December 31 of
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Loan Losses and Recoveries
First Bancorp, Inc.
Twelve Months Ended
December 31,
-------------------------
1999 1998
(in thousands)
<S> <C> <C>
Loans outstanding at end period $ 134,009 $ 123,122
Reserve balance, beginning of period 1,421 1,294
Recoveries 22 16
Loans charged off (67) (141)
Net loans charged off (45) (125)
Provision charged to expense 240 252
--------- ---------
Reserve balance, end of period $ 1,616 $ 1,421
========= =========
Reserve as a percentage of outstanding loans 1.21% 1.15%
Minimum objective for reserve as
a percentage of outstanding loans 1.00%
Net loans charged off as a
percentage of outstanding loans 0.03% 0.10%
</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
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their examination process, periodically review the allowance. Such agencies
may require the recognition of additions and reductions to the allowance
based on their judgment of information available to them at the time of
their examination.
For the twelve-months ending December 31, 1999, management reviewed all of
the salient factors in determining the provision for loan loss. Total loans
increased from $123.1 million on December 31, 1998 to $134 million on
December 31, 1999, an 8.8% increase, and the reserve for loan loss increased
from $1.42 million to $1.62 million, or 13.7% 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 1.21% of total loans, 21% above the
minimum objective of 1.0%.
2. Charge-offs decreased from $141,000, or .01% of outstanding loans during
the twelve-months ending December 31, 1998 to $67,000, or .004%, for the
twelve-months ending December 31, 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 December 31, 1999 the Company had $83,000 in loans past due over 90
days, no loans in nonaccrual status and $185,000 in ORE for nonperforming
assets totaling $268,000 which represent .1% of total assets and 1.67% 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.
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<TABLE>
<CAPTION>
Past Due and Nonperforming Loans
First Bancorp, Inc.
(in thousands except for percentages)
December 31, 1999 December 31, 1998
Outstanding at end of period:
<S> <C> <C>
Total loans $134,009 $123,122
Total assets $258,096 $254,795
Shareholders' equity $16,079 $23,193
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999 December 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 ........................ $253 $-- $124 $--
Consumer loans ........................... 306 76 212 11
Credit cards ............................. 23 7 -- 6
Commercial loans ......................... 270 -- 366 248
---- ---- ---- ----
Total past due loans ..................... $852 $ 83 $702 $265
==== ==== ==== ====
Non-accrual loans ........................ $-- $-- $-- $--
Other real estate owned .................. $-- $185 $-- $222
---- ---- ---- ----
Total past due & non-accrual loans and ORE $852 $268 $702 $487
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Past due & non-accrual loans
and ORE as a percentage of:
<S> <C> <C> <C> <C>
Total loans 0.64% 0.20% 0.57% 0.40%
Total assets 0.33% 0.10% 0.28% 0.19%
Total shareholders' equity 5.30% 1.67% 3.03% 2.10%
</TABLE>
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YEAR 2000 ASSESSMENT
First Bank experienced no problems whatsoever at the millennium date change.
Additionally we have not experienced any problems associated with Year 200
issues subsequent to January 1, 2000. In preparation for Year 2000 readiness
First Bank tracked hard costs associated with the effort, but not all soft
costs. Management's best estimate is that approximately $100,000 in expenses
were incurred with the Year 2000 readiness program.
Management is aware of the guidelines established by the Federal Financial
Institutions Examination Council ("FFIEC") and the importance of monitoring
our computer systems on their future defined potential problem dates. We
will continue to comply with the FFIEC guidelines.
PROSPECTIVE ACCOUNTING ANNOUNCEMENTS
In June of 1998, the Financial Accounting Standards (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June of 1999 FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133". These statements provide
standards for accounting for derivative instruments and hedging activities.
SFAS No. 133 will be effective in First Bancorp's 2000 financial statements.
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>
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 December 31, 1999, total stockholders' equity was $16.1 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 December 31, 1999 the Company had a TIER 1 risk weighted
capital ratio of 12.56%. As of December 31, 1998 the Company had a TIER 1
risk weighted capital ratio of 16.5%.
16
<PAGE>
Item 7. Financial Statements:
Independent Auditors' Report
The Board of Directors
First Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of First
Bancorp, Inc. and subsidiary as of December31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity
and comprehensive income, and cash flows for each of the years in the
three-year period ended December31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Bancorp, Inc. and subsidiary as of December31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December31, 1999 in conformity with generally
accepted accounting principles.
January 20, 2000
Anchorage, Alaska KPMG, LLP
17
<PAGE>
FIRST BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
--------------------- --------------------
<S> <C> <C>
Cash and due from banks (note 2) $ 10,276,639 9,783,427
Federal funds sold -- 9,391,000
Investment securities available for sale (note 3) 102,804,268 100,960,973
Investment in Federal Home Loan Bank stock 3,120,100 2,896,900
Loans (note 4) 134,008,713 123,122,057
Less allowance for possible loan losses (note 5) 1,616,163 1,421,352
--------------------- --------------------
Net loans 132,392,550 121,700,705
--------------------- --------------------
Premises and equipment, net (note 6) 5,753,010 5,796,522
Accrued interest receivable 1,993,758 1,756,967
Other assets (note 8) 1,756,095 2,508,378
--------------------- --------------------
Total assets $ 258,096,420 254,794,872
===================== ====================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 72,472,131 68,133,335
Savings 50,953,775 48,846,681
Time deposits of $100,000 or more (note 7) 59,962,542 60,814,472
Other time deposits 50,645,183 51,733,617
--------------------- --------------------
Total deposits 234,033,631 229,528,105
Accrued interest payable 504,148 516,779
Federal funds purchased 3,900,000 --
Note payable (note 11) 3,000,000 --
Other liabilities 580,042 1,557,627
--------------------- --------------------
Total liabilities 242,017,821 231,602,511
--------------------- --------------------
Stockholders' equity:
Common stock of $5 par value. Authorized
1,000,000 shares; issued and outstanding
175,312 shares in 1999 and 214,040 shares in 1998 876,560 1,070,200
Surplus 5,254,039 6,414,704
Undivided profits 12,127,014 16,051,970
Accumulated other comprehensive income - net
unrealized gain (loss) on securities available for sale (1,921,939) 184,012
Treasury stock, at cost (1,469 shares in 1999 and
5,765 shares in 1998) (257,075) (528,525)
--------------------- --------------------
Total stockholders' equity 16,078,599 23,192,361
Commitments and contingencies (notes 8, 10, 11 and 15)
--------------------- --------------------
Total liabilities and stockholders' equity $ 258,096,420 254,794,872
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
Interest income:
<S> <C> <C> <C>
Interest on loans $ 12,039,708 $ 11,383,100 $ 10,284,722
Interest on federal funds sold 210,752 550,272 478,661
Interest-bearing deposits in other banks 40,179 69,617 68,611
Interest on securities available for sale:
Taxable (note 3) 5,712,440 6,146,080 6,510,753
Exempt from federal income taxes 97,580 106,482 66,936
---------------- ---------------- ----------------
Total interest income $ 18,100,659 $ 18,255,551 $ 17,409,683
Interest expense:
Interest on deposits:
Time deposits of $100,000 or more $ 2,680,135 $ 2,780,460 $ 2,445,427
Other 5,309,891 5,689,568 5,612,024
Interest on federal funds purchased 26,628 12,969 40,288
Other interest 164,627 36,734 135,926
---------------- ---------------- ----------------
Total interest expense $ 8,181,281 $ 8,519,731 $ 8,233,665
---------------- ---------------- ----------------
Net interest income 9,919,378 9,735,820 9,176,018
Provision for loan losses (note 5) 240,000 252,000 232,000
---------------- ---------------- ----------------
Net interest income after provision for loan losses $ 9,679,378 $ 9,483,820 $ 8,944,018
---------------- ---------------- ----------------
Other operating income:
Net realized gains on sales of securities available for sale (note 3) $ 14,661 $ 73,149 $ 225,240
Service charges on deposit accounts 622,680 645,722 637,960
Loan placement fees 1,369,572 1,704,721 1,181,208
Other 1,565,888 1,762,175 1,409,805
---------------- ---------------- ----------------
Total other operating income $ 3,572,801 $ 4,185,767 $ 3,454,213
---------------- ---------------- ----------------
Other operating expenses
Salaries and employee benefits $ 5,743,325 $ 5,558,140 $ 5,174,585
Occupancy, net 547,278 618,077 640,190
Equipment 1,134,961 1,061,888 960,273
Federal Deposit Insurance Corporation assessments 42,611 15,610 25,365
Other 2,591,743 2,664,893 2,342,562
---------------- ---------------- ----------------
Total other operating expenses $ 10,059,918 $ 9,918,608 $ 9,142,975
---------------- ---------------- ----------------
Income before income taxes 3,192,261 3,750,979 3,255,256
Provision for income taxes (note 8) 1,328,270 1,432,235 1,065,956
---------------- ---------------- ----------------
Net income $ 1,863,991 $ 2,318,744 $ 2,189,300
================ ================ ================
Per share amounts - net income $ 9.89 $ 11.129 $ 10.482
================ ================ ================
Weighted average shares outstanding $ 188,383 $ 208,460 $ 208,980
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
FIRST BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Undivided Treasury Comprehensive
Stock Surplus Profits Stock Income Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ......... $1,058,300 6,316,648 13,630,182 (369,640) (196,926) 20,438,564
Comprehensive income:
Net income ......................... -- -- 2,189,300 -- -- 2,189,300
Change in unrealized holding loss on
securities available for sale, net
of taxes of $11,538 .............. -- -- -- -- 17,309 17,309
Total comprehensive income .... 2,206,609
Cash dividends ($5 per share) ........ -- -- (1,044,483) -- -- (1,044,483)
Purchase of 1,125 shares of
treasury stock, at cost ............ -- -- -- (106,100) -- (106,100)
Exercise 2,380 shares of stock
options (note 10) .................. 11,900 98,056 -- -- -- 109,956
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 ......... 1,070,200 6,414,704 14,774,999 (475,740) (179,617) 21,604,546
Comprehensive income:
Net income ......................... -- -- 2,318,744 -- -- 2,318,744
Change in unrealized holding loss on
securities available for sale, net
of taxes of $243,447 ............. -- -- -- -- 363,629 363,629
Total comprehensive income .... 2,682,373
Cash dividends ($5 per share) ........ -- -- (1,041,773) -- -- (1,041,773)
Purchase of 459 shares of treasury
stock, at cost ..................... -- -- -- (52,785) -- (52,785)
----------- ----------- ----------- ----------- ----------- -----------
-----------
Balance at December 31, 1998 ......... 1,070,200 6,414,704 16,051,970 (528,525) 184,012 23,192,361
Comprehensive income:
Net income ......................... -- -- 1,863,991 -- -- 1,863,991
Change in unrealized holding loss on
securities available for sale, net
of taxes of $123,701 ............. -- -- -- -- (2,105,951) (2,105,951)
Total comprehensive income .... (241,960)
Cash dividends ($5 per share) ........ -- -- (697,395) -- -- (697,395)
Reorganization (retired 38,728 shares) (193,640) (1,160,665) (5,091,552) 528,525 -- (5,917,332)
Purchase of 1,469 shares of
treasury stock, at cost ............ -- -- -- (257,075) -- (257,075)
----------- ----------- ----------- ----------- ----------- -----------
-----------
Balance at December 31, 1999 ......... $ 876,560 5,254,039 12,127,014 (257,075) (1,921,939) 16,078,599
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
Operating activities:
<S> <C> <C> <C>
Net income ............................................... $ 1,863,991 2,318,744 2,189,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ........................... 240,000 252,000 232,000
Provision for losses on other real estate ........... 37,540 37,542 3,128
Depreciation and amortization ....................... 786,036 752,609 699,611
Deferred income taxes ............................... 131,820 36,786 (45,886)
Amortization of investment security premiums ........ 97,852 103,822 143,462
Accretion of investment security discounts .......... (99,936) (159,566) (171,364)
Net gains on sale of investment securities .......... (14,661) (73,149) (225,240)
Gain from sale of bank premises and equipment ....... (11,507) (21,239) --
(Increase) decrease in interest receivable .......... (236,791) 181,844 33,569
Increase (decrease) in interest payable ............. (12,631) 40,064 (5,506)
(Increase) decrease in other assets ................. 706,624 (671,611) (305,640)
Increase (decrease) in other liabilities ............ (977,585) 506,650 378,898
------------ ------------ ------------
Net cash provided by operating activities ........ 2,510,752 3,304,496 2,926,332
------------ ------------ ------------
Investing activities:
Proceeds from sale of securities available for sale ...... 13,968,644 35,011,052 21,993,955
Proceeds from maturity of securities available for sale .. 37,435,780 67,728,216 57,633,806
Purchase of securities available for sale ................ (55,683,827) (91,259,519) (81,689,001)
Net increase in loans .................................... (7,931,844) (16,317,313) (15,988,430)
Purchase of bank premises and equipment .................. (707,717) (816,481) (639,234)
Proceeds from sale of bank premises and equipment ........ (23,300) (24,000) --
------------ ------------ ------------
Net cash used in investing activities ............ (12,942,264) (5,678,045) (18,688,904)
------------ ------------ ------------
Financing activities:
Net increase in demand deposit and savings accounts ...... 6,445,890 1,583,497 4,127,941
Net increase (decrease) in time deposits ................. (1,940,364) 8,272,460 7,639,208
Net (increase) decrease in federal funds sold ............ 13,291,000 (5,456,000) 6,742,000
Net decrease in Federal Home Loan Bank advances .......... -- (1,000,000) (1,000,000)
Net (increase) decrease in treasury stock ................ (257,075) (52,785) (106,100)
Proceeds from sale of stock options ...................... -- -- 109,956
Reorganization ........................................... (5,917,332) -- --
Cash dividends paid ...................................... (697,395) (1,041,773) (1,044,483)
------------ ------------ ------------
Net cash provided by financing activities ........ 10,924,724 2,305,399 16,468,522
------------ ------------ ------------
Net increase (decrease) in cash and due from banks 493,212 (68,150) 705,950
Cash and due from banks at beginning of year ................. 9,783,427 9,851,577 9,145,627
------------ ------------ ------------
Cash and due from banks at end of year ....................... $ 10,276,639 9,783,427 9,851,577
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ................... $ 8,193,912 8,479,667 8,239,171
============ ============ ============
Cash paid during the year for income taxes ............... $ 1,329,333 1,267,000 909,500
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
FIRST BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(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.
The Company's primary market area is Southeast Alaska where the majority of
its activities has been with Alaska businesses and individuals.
The Bank has identified only one reportable segment in accordance with
Statement of Financial Accounting Standard (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information.
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 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 of 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 and retired 32,963
shares held by 127 shareholders at a cost of $5,768,525. The Company also
retired 5,765 shares of treasury stock with a cost of $528,525. Costs of
reorganization of $148,807 were charged to undivided profits.
The $5,768,525 stock repurchase was funded in part from a long-term loan from
Seafirst Bank (see note 11).
22
<PAGE>
(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.
(b) Reclassifications
Certain prior year balances have been changed to conform to the present
year 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.
(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
23
<PAGE>
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
Through December 31, 1999, income taxes were 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 were 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 was recognized in income in the
period that includes the enactment date.
In 1999, the Company elected, effective January 1, 2000, to report
earnings under Subchapter S of the Internal Revenue Code, whereby such
earnings are reported by the individual stockholders. Accordingly,
deferred income tax assets and liabilities were eliminated and charged
to income tax expense in 1999. The Company may be required to pay taxes
on certain built-in gains realized in the future years relating to
assets acquired prior to election of Subchapter S status. Taxes on these
gains would be realized only if the Company were to dispose of the
24
<PAGE>
assets within the next ten years after electing Subchapter S status and
then only to the extent of the lesser of the built-in gains tax
associated with the disposal or the Company's current year corporate tax
liability.
(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 year.
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
The Company applies 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.
(2) Cash and Due from Banks
The Company is required to maintain a $200,000 minimum average daily balance
with the Federal Reserve Bank (FRB) for purposes of settling financial
transactions and charges for FRB services. The Company is also required to
maintain sufficient cash balances or deposits with the FRB to meet its
statutory reserve requirements. The reserve requirement for the two-week
maintenance period, which included December31, 1999 was satisfied by cash on
hand in the Company's vault and on deposit with the FRB.
25
<PAGE>
(3) Investment Securities
The following is a comparative summary of investment securities available for
sale at December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
1999:
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $ 64,488,627 8,264 (503,307) 63,993,584
States and political subdivisions .. 50,000 4,707 (13,426) 41,281
Corporate securities ............... 4,065,384 27,139 (34,215) 4,058,308
Mortgage-backed securities ......... 36,112,189 34,241 (1,537,451) 34,608,979
Federal National Mortgage
Association stock ............... 10,007 92,109 -- 102,116
------------ ------------ ------------ ------------
$104,726,207 166,460 (2,088,399) 102,804,268
============ ============ ============ ============
1998:
U.S. Government and federal agencies $ 54,763,462 438,739 (24,211) 55,177,990
States and political subdivisions .. 1,707,699 85,846 -- 1,793,545
Corporate securities ............... 8,963,078 80,739 (338) 9,043,479
Mortgage-backed securities ......... 33,796,314 110,906 (496,797) 33,410,423
Other debt securities .............. 1,414,450 1,973 -- 1,416,423
Federal National Mortgage
Association stock ............... 8,257 110,856 -- 119,113
------------ ------------ ------------ ------------
$100,653,260 829,059 (521,346) 100,960,973
============ ============ ============ ============
</TABLE>
The amortized cost and market value of available for sale debt securities at
December31, 1999, are distributed by contractual maturity as shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Within One to Five to Due after Amortized Market
available for sale one year five years ten years ten years cost value
----------- ----------- ----------- ----------- ----------- -----------
U.S. Government and
<S> <C> <C> <C> <C> <C> <C>
federal agencies $19,994,664 36,666,222 3,420,869 4,406,872 64,488,627 63,993,584
State and political
subdivisions .... 50,000 -- -- -- 50,000 41,281
Corporate securities 1,046,563 3,018,821 -- -- 4,065,384 4,058,308
Mortgage-backed
securities ...... -- 6,778,023 3,315,419 26,018,747 36,112,189 34,608,979
----------- ----------- ----------- ----------- ----------- -----------
$21,091,227 46,463,066 6,736,288 30,425,619 104,716,200 102,702,152
=========== =========== =========== =========== =========== ===========
</TABLE>
Proceeds from sales of available for sale securities during 1999, 1998 and
1997 were $13,968,644, $35,011,052 and $21,993,955, respectively. Gross gains
of $15,483, $94,602 and $241,917 and gross losses of $822, $21,453 and $16,677
were realized on those sales for the years ended December31, 1999, 1998 and
1997, respectively.
26
<PAGE>
Market value of investment securities of approximately $52,682,029 and
$45,753,000 are pledged to secure public deposits at December31, 1999 and
1998, respectively.
A summary of taxable interest on securities available for sale for the year
ended December31 follows:
1999 1998 1997
---------- ---------- ----------
U.S. Treasury securities ..... $2,127,514 1,534,168 1,288,127
Obligations of U.S. Government
agencies and corporations 2,908,923 3,943,459 4,674,469
Other ........................ 676,003 668,453 548,157
---------- ---------- ----------
$5,712,440 6,146,080 6,510,753
========== ========== ==========
(4) Loans
The Company's primary market area is Southeast Alaska, where the majority of
its lending is with Alaska businesses and individuals. Approximately 66% of
the Company's loans at December 31, 1999, are for general commercial uses,
including timber, tourism, retail and small businesses. Substantially all of
these loans are collateralized and repayment is expected from the borrowers'
cash flow or, secondarily, the collateral. The Company's exposure to credit
loss, if any, is the outstanding amount of the loan if the collateral is
proved to be of no value.
The carrying amount of the loan portfolio is as follows at December 31:
1999 1998
------------ ------------
Mortgage ............................. $ 7,263,721 8,653,771
Commercial ........................... 89,470,851 82,214,463
Consumer ............................. 37,961,586 32,906,260
------------ ------------
134,696,158 123,774,494
Less unamortized loan origination fees 687,445 652,437
------------ ------------
$134,008,713 123,122,057
============ ============
The following table sets forth the maturity distribution and sensitivity to
changes in interest rates of the Company's loan portfolio at December 31,
1999.
Within One to After
one year five years five years Total
----------- ----------- ----------- -----------
Mortgage ......... $ 2,495 152,590 7,108,636 7,263,721
Commercial ....... 17,274,685 40,850,826 31,349,735 89,475,246
Consumer ......... 8,029,089 28,575,673 1,352,429 37,957,191
----------- ----------- ----------- -----------
$25,306,269 69,579,089 39,810,800 134,696,158
=========== =========== =========== ===========
27
<PAGE>
The Company has and will continue to have banking transactions with its
directors, officers, principal shareholders and its associates in the
ordinary course of business. It is Company policy that all such loan
transactions be on the same terms, including interest rates and collateral,
as those prevailing at the same time for comparable transactions with
others. An analysis of these loan transactions at December 31 follows:
1999 1998
---------- ----------
Balance at beginning of year ............. $2,759,339 2,646,307
Net additions (deletions) ................ 2,732,510 113,032
---------- ----------
Balance at end of year ................... $5,491,849 2,759,339
========== ==========
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others were $106,976,112, $100,712,256 and $86,690,480 at
December 31, 1999, 1998 and 1997 respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $552,000 and
$461,000 at December 31, 1999 and 1998, respectively.
Mortgage servicing rights of $229,295, $379,422 and $153,286 were capitalized
during 1999, 1998, and 1997, respectively. The carrying value of unamortized
mortgage servicing rights of $730,692 and $576,021 approximates its fair
value as of December 31, 1999 and 1998, respectively. Amortization of
mortgage servicing rights was $74,624, $80,682 and $19,029 in 1999, 1998 and
1997, respectively.
(5) Allowance for Loan Losses
A summary of the allowance for loan losses as of December31 follows:
1999 1998 1997
----------- ----------- -----------
Balance at beginning of year . $ 1,421,352 1,293,512 1,103,414
Recoveries on loans previously
charged off ............. 22,154 16,225 49,524
Provision charged to expense . 240,000 252,000 232,000
Loans charged off ............ (67,343) (140,385) (91,426)
----------- ----------- -----------
Balance at end of year ....... $ 1,616,163 1,421,352 1,293,512
=========== =========== ===========
The amount of any impaired loans is insignificant at December 31, 1999 and
1998. The Company had no loans on nonaccrual status at December 31, 1999 and
1998.
28
<PAGE>
(6) Premises and Equipment
A summary of premises and equipment at December 31 follows:
1999 1998
----------- -----------
Company premises ....................... $ 4,681,300 4,659,484
Equipment .............................. 4,918,063 4,869,636
----------- -----------
9,599,363 9,529,120
Less accumulated depreciation .......... (5,921,141) (5,357,475)
----------- -----------
3,678,222 4,171,645
Construction work in process ........... 532,705 82,794
Land ................................... 1,542,083 1,542,083
----------- -----------
Total fixed assets ................ $ 5,753,010 5,796,522
=========== ===========
(7) Deposits
Time deposits in amounts of $100,000 or more and their remaining maturities
at December31 are as follows:
1999 1998
----------- -----------
Three months or less ..................... $30,222,217 27,611,027
Three through twelve months .............. 25,132,136 28,056,872
Over twelve months ....................... 4,608,189 5,146,573
----------- -----------
$59,962,542 60,814,472
=========== ===========
Income Taxes
In 1999, the Company elected, effective January 1, 2000, to report earnings
under Subchapter S of the Internal Revenue Code, whereby such earnings are
reported by the individual stockholders. Accordingly, deferred income tax
assets and liabilities were eliminated and charged to income tax expense in
1999. The Company will be required to pay taxes on certain built-in gains
realized in the future years relating to assets acquired prior to election of
Subchapter S status. Taxes on these gains would be realized only if the
Company were to dispose of the assets within the next ten years after
electing Subchapter S status and then only to the extent of the lesser of the
built-in gains tax associated with the disposal or the Company's current year
corporate tax liability.
29
<PAGE>
Components of regular income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
----------- ----------- -----------
1999:
<S> <C> <C> <C>
Federal ........................ $ 1,004,084 (19,293) 984,791
State .......................... 192,366 (5,861) 186,505
----------- ----------- -----------
Regular ................ 1,196,450 (25,154) 1,171,296
Elimination of deferred taxes
as a result of Sub Chapter S
conversion ................. -- 156,974 156,974
----------- ----------- -----------
$ 1,196,450 131,820 1,328,270
=========== =========== ===========
1998:
Federal ........................ $ 1,129,357 33,536 1,162,893
State .......................... 266,092 3,250 269,342
----------- ----------- -----------
$ 1,395,449 36,786 1,432,235
=========== =========== ===========
1997:
Federal ........................ $ 1,010,936 (44,073) 966,863
State .......................... 100,906 (1,813) 99,093
----------- ----------- -----------
$ 1,111,842 (45,886) 1,065,956
=========== =========== ===========
</TABLE>
The actual tax expense for 1999, 1998 and 1997 differs from the "expected"
tax expense for those years (computed by applying the U.S. Federal statutory
tax rate of 34% to earnings before income taxes) as follows:
1999 1998 1997
----------- ----------- -----------
Computed "expected" income taxes $ 1,085,369 1,275,333 1,106,787
State income taxes .............. 123,093 177,767 65,401
Tax-exempt interest ............. (52,091) (69,838) (49,834)
Other ........................... 14,925 48,973 (56,398)
----------- ----------- -----------
Regular tax ............ 1,171,296 1,432,235 1,065,956
Elimination of deferred taxes
as a result of Sub Chapter S
conversion ................. 156,974 -- --
----------- ----------- -----------
$ 1,328,270 1,432,235 1,065,956
=========== =========== ===========
The Company will be subject to a corporate-level tax on the net unrealized
built-in gain at the date of conversion that is realized during the ten-year
period after conversion. The net unrealized built-in gain is the excess of
the fair value of the S corporation's assets at the effective date of the S
corporation election over the aggregate adjusted tax bases of those assets at
that date. The taxable built-in gain is that portion of a gain on the
disposition of an asset during the ten-year period subsequent to the
conversion that is attributable to a difference between the fair value and
the tax basis of the asset at the date of conversion. During the ten-year
period after conversion, tax is computed by applying the applicable corporate
tax rate for the year. The company has performed an analysis of its
potential built-in gain tax liability and after considering its current tax
planning strategies to reduce those gains has estimated their liability to be
zero.
30
<PAGE>
The Company has approximately $1,700,000 of built-in gains attributable to
the Federal Home Loan Bank (FHLB) stock dividends they have received. The
Company has the ability and anticipates holding the stock beyond the ten-year
holding period. However, the FHLB has notified the Company that they may
redeem a portion of the Company's outstanding stock, which would trigger a
built-in gains tax liability. The Company is unable to estimate the amount,
if any that may be redeemed and therefore has not recorded a liability.
Management believes that the ultimate outcome of this uncertainty will not
have a material affect on the Company's financial position but may on future
results of operations.
The components of and changes in the net deferred tax asset (liability) are
as follows:
<TABLE>
<CAPTION>
Balance
charged
(Deferred (Deferred to 1999
December 31, expense) December 31, expense) Income tax
1997 benefit 1998 benefit expense
---------- ---------- ---------- ---------- ----------
Deferred tax assets:
<S> <C> <C> <C> <C> <C>
Bad debt deduction ...... $ 342,122 95,860 437,982 122,781 560,763
Loan fees ............... 255,883 6,397 262,280 14,073 276,353
Depreciation ............ 168,606 19,292 187,898 26,796 214,694
Other real estate owned . 19,390 15,092 34,482 15,087 49,569
Unrealized loss (gain) on
available sale
investment securities 119,746 (243,447) (123,701) 123,701 --
Other ................... 24,758 14,886 39,644 (9,102) 30,542
---------- ---------- ---------- ---------- ----------
Total gross deferred
tax assets ...... 930,505 (91,920) 838,585 293,336 1,131,921
---------- ---------- ---------- ---------- ----------
Deferred tax liabilities:
Federal Home Loan
Bank stock dividends . (503,987) (85,988) (589,975) (89,725) (679,700)
Accretion on bonds ...... (26,699) 17,768 (8,931) 7,422 (1,509)
Loan servicing rights ... (111,467) (120,093) (231,560) (62,178) (293,738)
---------- ---------- ---------- ---------- ----------
Total deferred
tax liabilities . (642,153) (188,313) (830,466) (144,481) (974,947)
---------- ---------- ---------- ---------- ----------
Valuation allowance ......... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net deferred
tax asset ....... $ 288,352 (280,233) 8,119 148,855 156,974
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Amounts attributed to gain (loss)
on available for sale investment
securities and recorded as a
reduction to unrealized
<S> <C> <C>
holding gain or loss 243,447 (123,701)
---------- ----------
$ (36,786) 25,154
========== ==========
</TABLE>
A valuation allowance on a deferred tax asset is provided when it is more
likely than not that some portion of the deferred tax asset will not be
realized. The Company had available tax planning strategies, anticipated
31
<PAGE>
future taxable income and historically had had taxable income; accordingly, a
valuation allowance was not established. In 1998, the net deferred tax asset
was included in other assets.
(9) Comprehensive Income
At December 31, 1999, the related tax effects allocated to each component of
other comprehensive income follows:
Before (expense) Net of
tax amount benefit tax amount
---------- ---------- ----------
Unrealized holding losses
on securities available for
sale arising during 1999 .... $(2,214,991) (117,837) (2,097,154)
Less: reclassification adjustment
for net gains realized
in net income ............... 14,661 5,864 8,797
---------- ---------- ----------
Net unrealized gains $(2,229,652) (123,701) (2,105,951)
========== ========== ==========
(10) Employee Benefit Plans
On January 1, 1992, the Company merged approximately 60% of its profit
sharing plan into the existing noncontributory defined contribution 401(k)
retirement plan. Contributions made to the 401(k) plan and charged to
expense amounted to $75,000, $100,000 and $75,000 in 1999, 1998 and 1997,
respectively.
Concurrently, the Company established an employee stock ownership plan (ESOP)
with the remaining 40% of the profit sharing plan's assets. Contributions
made to the ESOP and charged to expense amounted to $50,000, $75,000 and
$50,000 in 1999, 1998 and 1997, respectively.
Participation in the plans is available to employees who have completed six
months of service with the Company.
(11) Commitments and Contingencies
(a) General
The Company from time to time may be a defendant in legal proceedings
related to the conduct of its banking business. In the opinion of
management, the Company's financial position and results of operations
will not be affected materially by the final outcome of any present
legal proceedings.
32
<PAGE>
(b) Lease
The Company is obligated under noncancelable operating leases for
premises, some of which have renewal options. Net future minimum rental
payments required under the lease are as follows:
Year ending December 31: Amount
------------------------ -------------------
2000 $ 197,801
2001 159,156
2002 159,156
2003 142,068
2004 97,845
Thereafter 37,000
-------------------
$ 793,026
===================
Rental expense amounted to $220,358, $198,385 and $196,950 in 1999, 1998
and 1997, respectively.
(c) Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into various
types of transactions, which involve financial instruments with
off-balance sheet risk. These instruments include commitments to extend
credit and standby and commercial letters of credit and are not
reflected in the accompanying balance sheets. These transactions may
involve, to varying degrees, credit and interest rate risk in excess of
the amount, if any, recognized in the balance sheets. The Company
applies the same credit standards to these contracts as it uses in its
lending process. Management does not anticipate any loss to result from
these commitments.
As of December 31, the Company's off-balance sheet credit risk exposure
is the contractual amount of commitments to extend credit and letters of
credit, is as follows:
1999 1998
----------- -----------
Off-balance sheet commitments:
Commitments to extend credit ........ $15,264,000 8,741,433
Standby and commercial
letters of credit ................. 200,000 395,120
(d) Line of Credit
The Company has a line of credit up to 20% of assets or approximately
$52,000,000 at December31, 1999 with the Federal Home Loan Bank (FHLB).
There is no outstanding balance on the credit line at December 31, 1999.
The Company has pledged its FHLB stock and other assets as collateral on
the line of credit.
(e) Note Payable
On June 1, 1999, the Company borrowed $3,000,000 from Bank of America at
2.5% above LIBOR, which is adjusted quarterly. The Company will make six
annual principal paydowns of $500,000 on June 30 of each year until the
loan is paid in full on June 30, 2005.
33
<PAGE>
(12) Regulatory Matters
The Federal Deposit Insurance Corporation has established risk-based
standards for evaluating a bank's capital adequacy. These standards require
the Company to maintain 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). Management believes as of December 31, 1999 and 1998, that
the Company meets all capital adequacy requirements. TIER 1 capital includes
the Company's stockholders' equity, minus all intangible assets. The
Company's actual capital amounts at December 31 are as follows:
1999 1998
------- ------
Total risk-based capital ratio ................ 13.73% 17.6%
TIER 1 risk-based capital ratio ............... 12.56% 16.5%
Leverage capital ratio ........................ 6.87% 8.8%
(13) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value
disclosures as defined under SFAS No.107, Disclosures About Fair Value of
Financial Instruments:
Cash and due from banks and federal funds sold - the carrying amounts
reported in the balance sheet represent their fair values.
Investment securities - fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. Investments in the Federal Reserve Bank (FRB) and FHLB are
recorded at cost, which also represents fair market value.
Loans - for variable-rate loans that reprice frequently, fair values are
based on carrying amounts. Fair values of residential mortgages with
commitments to sell within 90 days are based on the amounts receivable under
the commitments. An estimate of the fair value of the remaining portfolio is
based on discounted cash flow analyses applied to pools of similar loans,
using weighted average coupon rate, weighted average maturity, and interest
rates currently being offered for similar loans. The carrying amount of
accrued interest receivable approximates its fair value.
Deposit liabilities - the fair values of demand and savings deposits are
equal to the carrying amount at the reporting date. The carrying amount for
variable rate time deposits approximate their fair value. Fair values for
fixed rate time deposits are estimated using a discounted cash flow
calculation that applies currently offered interest rates to a schedule of
aggregate expected monthly maturities of time deposits. The carrying amount
of accrued interest payable approximates its fair value.
Short-term borrowings - for FHLB advances and Federal funds purchased with
maturities less than 90 days, the carrying amount represents their fair
value. For FHLB advances and federal funds purchased with maturities longer
than 90 days, fair values are estimated using a discounted cash flow
calculation using current interest rates for similar borrowings.
Commitments to Extend Credit and Standby Letters of Credit - The fair value
of commitments is estimated using the fees currently charged to enter into
34
<PAGE>
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of letters of
credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation with the
counterparties at the reporting date.
Limitations - Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire holdings
of a particular financial instrument. Because no market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ -------------------------------------
Carrying Fair Carrying Fair
amount value amount value
----------------- ----------------- ------------------ -----------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 10,276,639 10,276,639 9,783,427 9,783,427
Federal funds sold - - 9,391,000 9,391,000
Investment securities 102,804,268 102,804,268 100,960,973 100,960,973
Loans 134,696,158 133,901,666 123,744,494 125,101,850
Accrued interest receivables 1,993,758 1,993,758 1,756,967 1,756,967
Financial liabilities:
Deposits 234,033,631 234,247,207 229,528,105 229,929,659
Accrued interest payable 504,148 504,148 516,779 516,779
Short-term borrowings 3,900,000 3,900,000 - -
Note payable 3,000,000 3,000,000 - -
Unrecognized financial instruments:
Commitments to extend credit 15,264,000 152,640 8,741,433 87,414
Standby and commercial letters
of credit 200,000 2,000 395,120 3,951
</TABLE>
35
<PAGE>
4) Quarterly Results of Operations
<TABLE>
<CAPTION>
(in thousands except per share data. Unaudited.)
Quarter ended
----------------------------------------------------------------------------
1999 Dec. 31 Sept. 30 June 30 Mar. 31
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Total interest income $ 4,083 4,829 4,599 4,589
Total interest expense 2,225 2,106 1,939 1,911
----------------- ----------------- ----------------- ----------------
Net interest income 1,858 2,723 2,660 2,678
Provision for loan losses 48 72 48 72
Other operating income 1,873 551 563 572
Other operating expense 2,982 2,299 2,343 2,436
Securities gains - - - 14
----------------- ----------------- ----------------- ----------------
Income before income taxes 701 903 832 756
Income taxes 459 312 271 286
----------------- ----------------- ----------------- ----------------
Net income $ 242 591 561 470
================= ================= ================= ================
Earnings per share $ 1.40 3.39 2.84 2.26
================= ================= ================= ================
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------------------------------
1998 Dec. 31 Sept. 30 June 30 Mar. 31
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Total interest income $ 3,911 4,886 4,795 4,664
Total interest expense 2,136 2,189 2,130 2,065
----------------- ----------------- ----------------- ----------------
Net interest income 1,775 2,697 2,665 2,599
Provision for loan losses 48 72 60 72
Other operating income 2,292 682 598 541
Other operating expense 3,116 2,233 2,273 2,297
Securities gains 13 16 44 -
----------------- ----------------- ----------------- ----------------
Income before income taxes 916 1,090 974 771
Income taxes 523 387 247 275
----------------- ----------------- ----------------- ----------------
Net income $ 393 703 727 496
================= ================= ================= ================
Earnings per share $ 1.88 3.37 3.49 2.38
================= ================= ================= ================
</TABLE>
Total interest income of $808,000 in 1999 and $1,071,000 in 1998 has been
reclassed to other operating income in fourth quarter to purposely reflect
loan placement fees originally included in total interest income during the
first three-quarters of each year. Additionally, other operating income of
$748,000 in 1999 and $631,000 in 1998 has been released from other operating
expense in the fourth quarter to reflect bankcard fees originally included as
a reduction of other operating expenses in the first three-quarters of each
year.
36
<PAGE>
(15) Subsequent Event
In January 2000, the Board of Directors approved a dividend of $1.25 per
share.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
FIRST BANCORP, INC.
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.
The following describes certain information about each director and each
executive officer of First Bancorp. The business experience of each of the
directors and executive officers for the past five years has been as follows:
William G. Moran, Sr., age 81, serves as the Chairman of the Board of
Directors. Mr. Moran has been with First Bank for approximately 46 years
William G. Moran, Jr., age 46, serves as a director, and as the President and
Chief Executive Officer, a position he has had for over 16 years. Mr. Moran
is the son of William G. Moran, Sr. and the brother of Joseph M. Moran,
another director.
Joseph M. Moran, age 48, has served as a director of First Bank since 1984.
Mr. Moran is an attorney and is president of his law firm, DeLisio Moran
Geraghty & Zobel PC in Anchorage, where he has practiced for over 20 years.
Mr. Moran is the son of William G. Moran, Sr., Chairman of the Board of
Directors and brother of William G. Moran, Jr., President of First Bancorp.
Ernest J. Anderes, age 71, has served as a director of First Bank since 1975
and of First Bancorp since its inception in 1989. Mr. Anderes has been the
owner of Anderes Oil, Inc. a petroleum products distributor, for over 25
years.
37
<PAGE>
Michael J. Cessnun, age 44, has been a pilot for Alaska Airlines for 18
years. He has served as a director of First Bancorp since 1994.
Michael J. Elerding, age 47, has served as a director since 1990. Mr.
Elerding is the owner of Northern Sales Co. of Alaska, a wholesale food
distributor, and currently serves as its president. Prior to joining that
company in 1983, Mr. Elerding was employed by First Bank as a branch
manager.
Lisa A. Murkowski, age 42, has served as a director since 1990. Ms.
Murkowski is an attorney in Anchorage where she has practiced for over 10
years. Ms Murkowski is an elected member of the Alaska House of
Representatives.
Kay D. Sims, age 60, is a long-time resident of Ketchikan, and has been
active in the community, both in business and in community service
organizations. Ms. Sims is a managing member of Hospitality Unlimited, LLC,
the owner and operator of the Best Western Landing Hotel and Annabelle's
Famous Keg and Chowder House, in Ketchikan, and the Prospector Hotel in
Juneau.
James C. Sarvela, age 44, serves as Vice President and Chief Financial
Officer, a position he has had for over 10 years. Mr. Sarvela has more than
20 years of banking experience, most of which is with First Bank.
Jack E. Vaughn, age 52, serves as Vice President and Senior Lending Officer.
Mr. Vaughn has over 22 years of banking experience and has been employed by
First Bank since 1985 in various positions, including loan officer and branch
manager.
E. Michael Youngblood, age 49, serves as Vice President and oversees the
Systems Development Department. Mr. Youngblood has been with First Bank for
over 20 years.
38
<PAGE>
Item 10. Executive Compensation.
The following table sets forth the aggregate compensation for services
rendered to the Bank in all capacities paid or accrued for the fiscal years
ended December 31, 1999, 1998 and 1997 to each person serving as an executive
officer of the Bank whose aggregate cash and cash equivalent forms of
compensation exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------------------- ----------------
Other Annual* All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- ------------------------------------------ ---- --------- --------- ------------- ------------
<S> <C> <C> <C> <C>
William G. Moran, Jr. 1999 $ 208,866 $ 110,000 $ 6,120 None
President of First Bancorp 1998 $ 198,721 $ 105,000 $ 8,459
Chief Executive Officer, First Bank 1997 $ 200,214 $ 100,000 $ 5,684
James C. Sarvela 1999 $ 113,512 $ 9,000 $ 3,968 None
Vice President, Chief Financial Officer 1998 $ 110,643 $ 8,000 $ 5,701
1997 $ 107,364 $ 7,000 $ 3,949
E. Michael Youngblood 1999 $ 120,463 $ 9,000 $ 4,159 None
Vice President, Chief Information Officer 1998 $ 117,491 $ 8,000 $ 6,153
1997 $ 113,892 $ 7,000 $ 4,265
Jack E. Vaughn 1999 $ 102,789 $ 8,500 $ 3,505 None
Vice President, Senior Lending Officer 1998 $ 100,417 $ 7,500 $ 5,278
1997 $ 97,025 $ 6,500 $ 3,660
*Contributions to 401(k) and ESOP.
</TABLE>
39
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table set forth certain information concerning the beneficial
ownership of the Bank's common stock as of December 31, 1999 by (i) each
director; (ii) Executive Officers; and (iii) persons known to management to
beneficially own more than five percent (5%) of the outstanding common stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner (1) Beneficial Ownership(2) Class
- --------------------------------------------------- ------------------------ -----------
<S> <C> <C>
William G. Moran - Director, Chairman of the Board 20,593 (3) 11.8%
William G. Moran, Jr. - Director, President 21,902 12.5
Ernest J. Anderes 9,461 (4) 5.4%
Lisa A. Murkowski 8,359 (4) 4.8%
Joseph M. Moran 6,030 (3) 3.4%
Kay D. Sims 5,617 3.2%
Michael J. Cessnun 1,200 0.7%
Michael J. Elerding 223 (4) 0.1%
All Directors and Executive Officers as a Group (8) 52,792 41.9%
</TABLE>
(1) The address of all directors and executive officers of the Bank is 331
Dock Street Ketchikan, Alaska 99901.
(2) Unless otherwise indicated, shares are all held directly with sold
voting and investment power.
(3) Includes shares held jointly with spouse.
(4) Includes shares held in the Employee Stock Ownership Program of which
this person serves as a trustee.
Item 12. Certain Relationships and Related Transactions.
From time to time, some of the directors and officers of the Bank, members of
their immediate families, and firms and corporations with which they are
associated do business with First Bank. Generally this business involves
ordinary banking transactions, such as borrowings and investments in time
deposits. All such loans and investments in time deposits have been made in
the ordinary course of business, have been made on substantially the same
terms, including interest rates paid or charged and collateral required, as
those prevailing at the time for comparable transactions with unaffiliated
persons. These loans do not involve more than the normal risk of
collectibility or have other features that would be disadvantageous to the
40
<PAGE>
bank. As of December31, 1999, the aggregate outstanding amount of all loans
to officers and directors was approximately $4,594,000 which represented
28.6% of the Bank's consolidated stockholders' equity at that date. All of
these loans are currently in good standing and are being paid in accordance
with their terms.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are being filed herewith or incorporated by
reference and this shall constitute the Exhibit Index:
3.1 Certificate of Incorporation of First Bancorp, Inc. *
3.2 Bylaws of First Bancorp, Inc. *
10.1 Lease, dated April 24, 1989, by and between Clifford White et al
and First Bank, relating to the Wrangell branch *
10.2 Lease, dated April 20, 1990, by and between Sealaska Corporation
and First Bank, relating to the Downtown (Juneau) branch *
10.3 Lease, dated July 1, 1998, by and between ADV Properties and First
Bank, relating to the Mendenhall mall (Juneau) branch. *
10.4 Agreement of Lease, dated August 11, 1980, by and between the
Sitka Professional Center I and First Bank, relating to the Sitka
branch *
27 Financial Data Schedule
* Incorporated by reference to the registration statement on Form S-4 (file
number 333-72049) and declared effective by the Commission on March 26,
1999.
(b) Reports on Form 8-K
None.
41
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly Authorized on March 15, 2000.
First Bancorp, Inc. (Registrant)
/s/ William G. Moran, Jr. 3/10/00
---------------------------------------
William G. Moran, Jr. Date
In accordance with the Exchange Act, this report has been signed below by the
following Persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ William G. Moran, Jr. 3/10/00
---------------------------------------
William G. Moran, Jr. Date
President and Chief Executive Officer
/s/ James C. Sarvela 3/10/00
---------------------------------------
James C. Sarvela Date
Vice President & Chief Financial Officer
(Principal Accounting Officer)
--------------------------------------------
William G. Moran, Chairman Date
of the Board
--------------------------------------------
Ernest J. Anderes, Director Date
/s/ Lisa A. Murkowski 3/20/00
--------------------------------------------
Lisa A. Murkowski, Director Date
/s/ Joseph M. Moran 3/20/00
--------------------------------------------
Joseph M. Moran, Director Date
/s/ Kay D. Sims 3/20/00
--------------------------------------------
Kay D. Sims, Director Date
/s/ Michael J. Cessnun 3/20/00
--------------------------------------------
Michael J. Cessnun, Director Date
/s/ Michael J. Elerding 3/20/00
--------------------------------------------
Michael J. Elerding, Director Date
Supplemental Information to be furnished with reports filed to Section 1(d)of
the Exchange Act by non-reporting issuers:
Annual report and proxy material have been sent to security holders concurrent
with the filing of this report, and copies have been submitted by mail to the
Commission.
42
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements for the twelve-month period ending December 31,
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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 10112
<INT-BEARING-DEPOSITS> 165
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,804
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 134,009
<ALLOWANCE> 1,616
<TOTAL-ASSETS> 258,096
<DEPOSITS> 234,034
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,984
<LONG-TERM> 3,000
0
0
<COMMON> 877
<OTHER-SE> 15,202
<TOTAL-LIABILITIES-AND-EQUITY> 258,096
<INTEREST-LOAN> 12,040
<INTEREST-INVEST> 5,810
<INTEREST-OTHER> 251
<INTEREST-TOTAL> 18,101
<INTEREST-DEPOSIT> 7,990
<INTEREST-EXPENSE> 8,812
<INTEREST-INCOME-NET> 9,919
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 10,060
<INCOME-PRETAX> 3,192
<INCOME-PRE-EXTRAORDINARY> 1,864
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,863
<EPS-BASIC> 9.89
<EPS-DILUTED> 9.89
<YIELD-ACTUAL> 3.66
<LOANS-NON> 0
<LOANS-PAST> 83
<LOANS-TROUBLED> 185
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,421
<CHARGE-OFFS> 67
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,616
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,616
</TABLE>
