<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1995
___________________
Commission File Number 0-15572
FIRST BANCORP
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
North Carolina 56-1421916
- --------------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
341 North Main Street, Troy, North Carolina 27371-0508
- -------------------------------------------------- ------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (910) 576-6171
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] YES [ ] NO
As of September 30, 1995, 1,504,185 shares of the registrant's Common
Stock, $5 par value, were outstanding. The registrant had no other classes of
securities outstanding.
Transitional Small Business Format [ ] YES [ X ] NO
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EXHIBIT INDEX BEGINS ON PAGE 20
<PAGE>
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
September 30, 1995 and 1994
(With Comparative Amounts at December 31, 1994) 3
STATEMENTS OF CONSOLIDATED INCOME -
For the Periods Ended September 30, 1995 and 1994 4
STATEMENTS OF CONSOLIDATED CASH FLOWS -
For the Periods Ended September 30, 1995 and 1994 5
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS'EQUITY -
For the Period Ended September 30, 1995
and for the Year Ended December 31, 1994 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 19
Exhibit Cross Reference Index 20
<PAGE>
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash & due from banks, noninterest bearing $ 13,177 $ 12,588 $ 11,198
Due from banks, interest bearing - - 1,075
Federal funds sold 6,478 6,660 -
--------- --------- ---------
Total cash and cash equivalents 19,655 19,248 12,273
--------- --------- ---------
Securities available for sale (approximate
costs of $46,925, $47,249 and $47,168) 47,134 46,150 46,398
Securities held-to-maturity (approximate
fair values of $21,384, $20,794 and $20,134) 20,638 20,942 19,925
Presold mortgages in process of settlement 800 631 743
Loans, net of unearned income 197,746 185,749 188,211
Less: Allowance for possible loan losses (4,645) (5,009) (5,285)
--------- --------- ---------
Net loans 193,101 180,740 182,926
--------- --------- ---------
Premises and equipment, net 7,581 7,138 7,315
Accrued interest receivable 2,455 2,235 2,234
Intangible assets 5,744 6,279 6,435
Other 4,071 6,250 6,465
--------- --------- ---------
Total assets $ 301,179 $ 289,613 $ 284,714
========= ========= =========
LIABILITIES
Deposits: Demand $ 38,823 $ 40,390 $ 35,992
Savings, NOW and money market 97,697 103,879 106,551
Time deposits of $100,000 or more 28,672 24,615 20,677
Other time deposits 101,377 89,546 90,360
--------- --------- ---------
Total deposits 266,569 258,430 253,580
Accrued interest on deposits 1,683 1,144 1,037
Other 1,736 1,249 1,669
--------- --------- ---------
Total liabilities 269,988 260,823 256,286
--------- --------- ---------
SHAREHOLDERS'EQUITY
Common stock, $5 par value per share
Authorized: 12,500,000 shares
Issued and outstanding: 1,504,185 shares 7,521 7,521 7,521
Capital surplus 11,308 11,308 11,308
Retained earnings 12,225 10,624 10,063
Unrealized gain (loss) on securities
available for sale, net of income taxes 137 (663) (464)
--------- --------- ---------
Total shareholders'equity 31,191 28,790 28,428
--------- --------- ---------
Total liabilities and shareholders'equity $ 301,179 $ 289,613 $ 284,714
========= ========= =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Statements Of Consolidated Income
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
($ in thousands except per share data) 1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,835 $ 3,977 $ 13,963 $ 10,845
Interest on investment securities:
Taxable interest income 701 633 2,084 1,910
Exempt from income taxes 272 244 810 741
Other, principally federal funds sold 91 74 293 180
--------- --------- --------- ---------
Total interest income 5,899 4,928 17,150 13,676
--------- --------- --------- ---------
INTEREST EXPENSE
Time deposits of $100,000 or more 420 201 1,190 589
Other time and savings deposits 1,905 1,362 5,296 3,852
Borrowed funds - 3 - 3
--------- --------- --------- ---------
Total interest expense 2,325 1,566 6,486 4,444
--------- --------- --------- ---------
NET INTEREST INCOME 3,574 3,362 10,664 9,232
Provision for possible loan losses 100 100 360 337
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,474 3,262 10,304 8,895
--------- --------- --------- ---------
OTHER INCOME
Service charges on deposit accounts 526 493 1,596 1,373
Commissions from insurance sales 88 75 283 204
Other charges, commissions and fees 192 147 615 416
Data processing fees 37 34 86 116
Securities gains - - - 37
--------- --------- --------- ---------
Total other income 843 749 2,580 2,146
--------- --------- --------- ---------
OTHER EXPENSES
Salaries 1,317 1,151 3,767 3,176
Employee benefits 312 278 904 759
--------- --------- --------- ---------
Total personnel expense 1,629 1,429 4,671 3,935
Net occupancy expense 220 184 638 533
Equipment related expenses 207 219 613 663
Other 978 1,054 3,459 2,885
--------- --------- --------- ---------
Total other expenses 3,034 2,886 9,381 8,016
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,283 1,125 3,503 3,025
Income taxes 420 332 1,120 854
--------- --------- --------- ---------
NET INCOME $ 863 $ 793 $ 2,383 $ 2,171
========= ========= ========= =========
PER SHARE AMOUNTS
Net income $ 0.57 $ 0.53 $ 1.58 $ 1.44
Cash dividends declared 0.18 0.16 0.52 0.48
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Statements Of Consolidated Cash Flows
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
($ in thousands) 1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,383 $ 2,171
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses 360 337
Net security premium amortization/discount accretion (28) 27
Loan fees and costs deferred net of amortization (57) 1
Depreciation of premises and equipment 542 567
Amortization of intangible assets 374 159
Realized and unrealized other real estate losses 75 -
Provision for deferred income taxes (459) 178
Gain on sale of investment securities - (37)
Gain on disposal of premises and equipment - (5)
Changes in operating assets and liabilities:
Increase in accrued interest receivable (220) (95)
Decrease in intangible assets 161 -
Decrease (increase) in other assets 2,089 (12)
Increase in accrued interest payable 539 26
Increase (decrease) in other liabilities 472 (1,123)
--------- ---------
Net cash provided by operating activities 6,231 2,194
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (18,926) (27,397)
Purchase of securities held-to-maturity (1,283) (2,835)
Proceeds from sale of securities available for sale - 2,707
Proceeds from maturities/issuer calls of securities
available for sale 19,323 25,492
Proceeds from maturities/issuer calls of securities
held-to-maturity 1,542 1,202
Net increase in loans (12,867) (4,874)
Net purchases of premises and equipment (985) (116)
Cash paid, net of cash acquired, in acquisition of
a financial institution - (1,272)
--------- ---------
Net cash used in investing activities (13,196) (7,093)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,139 (6,075)
Cash dividends paid (767) (707)
--------- ---------
Net cash provided by (used in) financing activities 7,372 (6,782)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 407 (11,681)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,248 23,954
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,655 $ 12,273
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 5,947 $ 4,418
Income taxes 964 758
Non-cash transactions:
Foreclosed loans transferred to other real estate 203 483
Loans to facilitate the sale of other real estate 1,199 -
Reclassification of securities available for sale - 49,288
Increase (decrease) in market value of securities
available for sale 1,308 (770)
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Statements Of Changes In Consolidated Shareholders'Equity
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS'EQUITY
<TABLE>
<CAPTION>
Common Stock Share-
------------------- Capital Retained holders'
(in thousands) Shares Amount Surplus Earnings Other Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1, 1994 1,504 $ 7,521 $ 11,308 $ 8,614 $ - $ 27,443
Unrealized gain on
securities classified
as available for sale
upon adoption of
SFAS No. 115 254 254
Net income 2,987 2,987
Cash dividends
declared (977) (977)
Net adjustment
for securities
available for sale (917) (917)
--------- --------- --------- --------- --------- ---------
BALANCES,
December 31, 1994 1,504 7,521 11,308 10,624 (663) 28,790
Net income 2,383 2,383
Cash dividends
declared (782) (782)
Net adjustment
for securities
available for sale 800 800
--------- --------- --------- --------- --------- ---------
BALANCES,
September 30, 1995 1,504 $ 7,521 $ 11,308 $ 12,225 $ 137 $ 31,191
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended September 30, 1995 and 1994
NOTE 1
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of September 30, 1995 and 1994 and the consolidated
results of operations and consolidated cash flows for the periods ended
September 30, 1995 and 1994 and changes in consolidated shareholders'equity
for the period ended September 30, 1995. Reference is made to the notes to
consolidated financial statements for the year ended December 31, 1994 filed
with the Annual Report on Form 10-KSB for a discussion of accounting policies
and other relevant information with respect to the financial statements.
NOTE 2
The results of operations for the periods ended September 30, 1995 and 1994
are not necessarily indicative of the results to be expected for the full
year. Earnings per share were computed by dividing net income by average
common shares outstanding. Common stock equivalents resulting from the
Company's stock option plan were not considered in the earnings per share
computation due to immateriality.
NOTE 3
Certain amounts reported in the period ended September 30, 1994 have been
reclassified to conform with the presentation for September 30, 1995. These
reclassifications had no effect on net income or shareholders'equity for
the periods presented.
NOTE 4
Based on management's evaluation of the loan portfolio, current economic
conditions and other risk factors, the Company's allowance for possible loan
losses was $4,645,000 as of September 30, 1995 compared to $5,009,000 and
$5,285,000 as of December 31, 1994 and September 30, 1994, respectively.
These reserve levels represented 2.35%, 2.70% and 2.81% of total loans as of
September 30, 1995, December 31, 1994 and September 30, 1994, respectively.
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. For each of the periods presented, the
Company had no loans past due 90 or more days and still accruing interest.
Nonperforming assets are summarized as follows:
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,711 $ 1,724 $ 2,167
Restructured loans 678 252 268
--------- --------- ---------
Total nonperforming loans 2,389 1,976 2,435
Foreclosed, repossessed and idled
properties (included in other assets) 1,377 2,976 3,025
--------- --------- ---------
Total nonperforming assets $ 3,766 $ 4,952 $ 5,460
========= ========= =========
Nonperforming loans as a percentage of total loans 1.21% 1.06% 1.29%
Allowance for possible loan losses as a percentage
of nonperforming loans 194.43% 253.49% 217.04%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 1.89% 2.62% 2.86%
Nonperforming assets as a percentage of
total assets 1.25% 1.71% 1.92%
</TABLE>
<PAGE>
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1995 increased 8.8% to
$863,000, or $0.57 per share, compared to $793,000, or $0.53 per share,
for the third quarter of 1994. The earnings increase was achieved through
the combination of (i) higher net interest income that resulted from
increasing loan volume and (ii) higher noninterest income in 1995. For
substantially the same reasons, net income for the nine months ended
September 30, 1995 increased 9.8% to $2,383,000, or $1.58 per share, from
$2,171,000, or $1.44 cents per share, for the same period in 1994.
Although not significantly impacting net income, the August 1994
acquisition of Central State Bank ("Central") in High Point, North Carolina
did increase the components of net income, specifically net interest income
and noninterest income and expenses. See "Completed Acquisition" below for a
discussion of the terms of the purchase.
Net interest income is the largest component of earnings, representing
the difference between interest and fees generated from earning assets and the
interest costs of deposits and other funds needed to support those assets.
Net interest income increased by $212,000, or 6.3%, when comparing the third
quarter of 1995 with the third quarter of 1994, primarily because of growth
in loan volume resulting from the August 1994 acquisition of Central. The
operations in High Point acquired from Central generated approximately
$418,000 in net interest income for the third quarter of 1995. For
substantially the same reasons as the quarter-to-quarter increase, net
interest income for the nine months ended September 30, 1995 increased by
$1,432,000, or 15.5%, compared to the same period in 1994.
Under current conditions, future increases in market interest rates
could have a negative impact on net interest income if portfolio mixes are
held constant and rate-sensitive liabilities reprice upward more rapidly than
rate-sensitive earning assets. Generally, the Company manages portfolio
mixes to minimize changes in net interest income due to changing rates. The
Company is experiencing changes in its loan mix to variable rate loans from
fixed rate loans as well as a shift to time deposits from savings, NOW and
money market deposits.
The provision for possible loan losses was $100,000 for the third
quarters of 1995 and 1994. For the nine months ended September 30, 1995,
provisions for possible loan losses increased by $23,000, or 6.8%.
Provisions for possible loan losses are based on management's evaluation of
the loan portfolio, as discussed under "Financial Condition" below.
Noninterest income increased 12.6% for the third quarter primarily
because of the operations in High Point. The Company reported no gains from
the sale of securities in 1995. For the nine months ended September 30,
1995, noninterest income increased $434,000, or 20.2%, for substantially the
same reasons.
<PAGE>
Noninterest expenses, or overhead, increased 5.1% to $3,034,000 for the
third quarter of 1995, primarily because of the incremental overhead
associated with the acquisition of Central. Driving the quarterly change,
personnel expenses increased $200,000, or 14%, primarily related to acquired
personnel. Other noninterest expenses decreased $76,000, or 7.2%, mainly due
to second and third quarter deposit insurance premiums refunded in the third
quarter. For the nine months ended September 30, 1995, noninterest expenses
increased by $1,365,000, or 17% , with Central's operations accounting for
most of the year-to-date increase.
Income taxes increased $88,000, or 26.5%, for the third quarter, while
the effective tax rates were 32.7% and 29.5% for the quarters ended
September 30, 1995 and 1994, respectively. The increase was primarily
attributable to larger levels of nondeductible intangible amortization
associated with the acquisition of Central. For substantially the same
reasons, income taxes for the nine months ended September 30, 1995 increased
$266,000, or 31.1%, resulting in an effective tax rate of 32% compared to
28.2% for the same nine month period of 1994.
FINANCIAL CONDITION
The Company's total assets were $301.2 million at September 30, 1995, an
increase of $16.5 million, or 5.8%, from September 30, 1994. Interest-earning
assets increased by 6.4% compared to September 30, 1994. Loans, the primary
interest-earning asset, increased by 5.1% during this same period. Intangible
assets decreased $691,000 primarily because of amortization. Deposits
increased $13 million, or 5.1% to support the asset growth. The increases in
deposits were primarily in the categories of time deposits. The Company is
experiencing a shift in the mix of its deposits to time deposits from
savings, NOW and money market accounts. The Company's cost of funds has
remained relatively low compared to that of its competitors. The Company
does not rely heavily on large deposits of $100,000 or more to fund asset
growth and has not traditionally engaged in obtaining deposits through
brokers. Since December 31, 1994, the Company experienced annualized growth
of 6.4% in earning assets, while total assets and deposits grew at annualized
rates of 5.3% and 4.2%, respectively.
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90
or more days, restructured loans and foreclosed, repossessed and idled
properties. The following table summarizes the Company's nonperforming
assets at the dates indicated.
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,711 $ 1,724 $ 2,167
Restructured loans 678 252 268
--------- --------- ---------
Total nonperforming loans 2,389 1,976 2,435
Foreclosed, repossessed and idled
properties (included in other assets) 1,377 2,976 3,025
--------- --------- ---------
Total nonperforming assets $ 3,766 $ 4,952 $ 5,460
========= ========= =========
Nonperforming loans as a percentage of total loans 1.21% 1.06% 1.29%
Allowance for possible loan losses as a percentage
of nonperforming loans 194.43% 253.49% 217.04%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 1.89% 2.62% 2.86%
Nonperforming assets as a percentage of
total assets 1.25% 1.71% 1.92%
</TABLE>
Nonperforming assets were $3,766,000, $4,952,000 and $5,460,000 as of
September 30, 1995, December 31, 1994 and September 30, 1994, respectively.
Nonperforming assets as of September 30, 1995 include approximately $791,000
of nonperforming assets related to Central. Management has reviewed the
collateral for the nonperforming assets, specifically including nonaccrual
loans, and has included this review among the factors considered in the
evaluation of the allowance for possible loan losses discussed below.
A loan is placed on nonaccrual status when, in management's judgment,
the collection of interest appears doubtful. Interest on loans that are
classified as nonaccrual is recognized when received. The accrual of
interest is discontinued on all loans that become 90 days past due with
respect to principal or interest. In some cases, where borrowers are
experiencing financial difficulties, loans may be restructured to provide
terms significantly different from the originally contracted terms. If the
nonaccrual loans and restructured loans as of September 30, 1995 and 1994 had
been current in accordance with their original terms and had been outstanding
throughout the nine month periods (or since origination or acquisition if held
for part of the nine month periods), gross interest income in the amounts of
approximately $128,000 and $97,000 for nonaccrual loans and $53,000 and
$17,000 for restructured loans would have been recorded for the nine months
ended September 30, 1995 and 1994, respectively. Interest income on such
loans that was actually collected and included in net income in the nine
months ended September 30, 1995 and 1994 amounted to approximately $32,000 and
$1,000 for nonaccrual loans and $59,000 and $21,000 for restructured loans,
respectively.
<PAGE>
Nonperforming loans are defined as nonaccrual loans, loans past due 90
or more days and restructured loans. As of September 30, 1995, December 31,
1994 and September 30, 1994, nonperforming loans were approximately 1.21%,
1.06% and 1.29%, respectively, of the total loans outstanding at such dates.
Nonaccrual loans decreased $456,000, or 21%, to approximately $1,711,000
compared to September 30, 1994 and decreased approximately $13,000, or 0.8%,
since year-end. As of September 30, 1995, the largest nonaccrual loan balance
was $264,000 while the average balance of all nonaccrual loans was
approximately $36,000. Approximately $273,000 in nonaccrual loans were
attributable to the Central acquisition. The Company's management believes
that collateral values related to nonperforming loans exceed the loan
balances.
In addition to the nonperforming loan amounts discussed above,
management believes that an estimated $3,000,000-$3,300,000 of loans that
are currently performing in accordance with their contractual terms may
potentially develop problems depending upon the particular financial
situations of the borrowers and economic conditions in general. These loans
were considered in determining the appropriate level of the allowance for
possible loan losses. See "Summary of Loan Loss Experience" below.
Loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention that have not been disclosed in the problem loan amounts
above do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or represent material credits about
which management is aware of any information which causes management to have
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
As of September 30, 1995, the Company owned foreclosed and repossessed
assets totaling approximately $1,377,000, which consisted principally of
several parcels of foreclosed real estate. Three parcels with carrying
values of approximately $236,000, $458,000 and $200,000 accounted for 52% of
the total. Approximately $518,000 was added as a result of the acquisition
of Central. The Company's management has reviewed recent appraisals of these
properties and has concluded that their fair values, less estimated costs to
sell, exceed their respective carrying values at September 30, 1995. During
the second quarter of 1995, the Company sold foreclosed assets with a
book value of approximately $795,000. The Company's bank subsidiary financed
the transaction to facilitate the sale, which resulted in no gain or loss.
Legal matters related to this property and its sale are discussed below under
"Contingent Matters".
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period
in which such loans, in management's opinion, become uncollectible.
Recoveries during the period are credited to this allowance.
The factors that influence management's judgment in determining the
amount charged to operating expense include past loan loss experience,
composition of the loan portfolio, evaluation of possible future losses and
current economic conditions.
<PAGE>
The Company's bank subsidiary uses a loan analysis and grading program to
facilitate its evaluation of possible future loan losses and the adequacy of
its allowance for possible loan losses, otherwise referred to as its loan loss
reserve. In this program, a "watch list" is prepared and monitored monthly
by management and is tested quarterly by the bank's Internal Audit Department.
The list includes loans that management identifies as having potential credit
weaknesses in addition to loans past due 90 days or more, nonaccrual loans and
remaining unpaid loans identified during previous examinations.
Based on management's evaluation of the loan portfolio and economic
conditions, a provision for possible loan losses of $100,000 was added to the
allowance for possible loan losses during the third quarter of 1995. The
year-to-date provision for possible loan losses increased $23,000, or 6.8%.
At September 30, 1995, the allowance stood at $4,645,000, compared to
$5,009,000 at December 31, 1994 and $5,285,000 at September 30, 1994. At
September 30, 1995, the allowance for possible loan losses was approximately
194% of total nonperforming loans, compared to corresponding percentages of
253% at December 31, 1994 and 217% at September 30, 1994.
The allowance for possible loan losses was 2.35%, 2.70% and 2.81% of
total loans as of September 30, 1995, December 31, 1994 and September 30, 1994
respectively. Management considers the reserve levels adequate to cover
possible loan losses on the loans outstanding as of each reporting date. It
must be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about future economic conditions and other factors affecting loans. No
assurance can be given that the Company will not in any particular period
sustain loan losses that are sizable in relation to the amounts reserved or
that subsequent evaluations of the loan portfolio, in light of conditions and
factors then prevailing, will not require significant changes in the
allowance for possible loan losses or future charges to earnings. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances for
possible loan losses and losses on other real estate. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available at the time of such examinations.
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance arising from charge-offs and recoveries by category, and additions
to the allowance that have been charged to expense.
<PAGE>
<TABLE>
<CAPTION>
Nine Nine
Months Year Months
Ended Ended Ended
Sep 30, Dec 31, Sep 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Loans outstanding at period end $ 197,746 $ 185,749 $ 188,211
========= ========= =========
Average loans outstanding during period $ 188,920 $ 168,167 $ 161,945
========= ========= =========
Allowance for possible loan losses at
beginning of period $ 5,009 $ 2,797 $ 2,797
Addition related to acquired bank - 2,487 2,487
Loans charged off:
Commercial, financial and agricultural (378) (242) (105)
Real estate - mortgage (104) (207) (162)
Installment loans to individuals (300) (354) (125)
--------- --------- ---------
Total charge-offs (782) (803) (392)
--------- --------- ---------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 7 11 10
Real estate - mortgage 4 79 7
Installment loans to individuals 47 51 39
--------- --------- ---------
Total recoveries 58 141 56
--------- --------- ---------
Net charge-offs (724) (662) (336)
Additions to the allowance charged to expense 360 387 337
--------- --------- ---------
Allowance for possible loan losses at
end of period $ 4,645 $ 5,009 $ 5,285
========= ========= =========
Ratios:
Net charge-offs (annualized) to
average loans during period 0.51% 0.39% 0.28%
Net charge-offs (annualized) to
loans at end of period 0.49% 0.36% 0.24%
Allowance for possible loan losses to
average loans during period 2.46% 2.98% 3.26%
Allowance for possible loan losses to
loans at end of period 2.35% 2.70% 2.81%
Net charge-offs (annualized) to
allowance for possible loan losses 20.78% 13.22% 8.48%
Net charge-offs (annualized) to
provision for possible loan losses 268.15% 171.06% 132.94%
</TABLE>
Based on the results of the aforementioned loan analysis and grading
program and management's evaluation of the allowance for possible loan losses
at September 30, 1995, there have been no material changes to the allocation
of the allowance for possible loan losses among the various categories of
loans since December 31, 1994.
<PAGE>
LIQUIDITY
The Company's liquidity is determined by its ability to convert assets to
cash or acquire alternative sources of funds to meet the needs of its
customers who are withdrawing or borrowing funds, and to maintain required
reserve levels, pay expenses and operate the Company on an ongoing basis. The
Company's primary liquidity sources are cash and due from banks, federal funds
sold and other short-term investments. In addition, the Company (through its
bank subsidiary) has the ability, on a short-term basis, to purchase federal
funds from other financial institutions. The Company has not traditionally
had to rely on the purchase of federal funds as a source of liquidity. As
contemplated in the Company's cash acquisition of Central through the Bank,
the loan to deposit ratio has increased to levels more typical of the
Bank's North Carolina peer group. The Company's management believes its
liquidity sources are within acceptable levels and remain adequate to meet
its operating needs.
CAPITAL RESOURCES
The Company is required by its own policies and by applicable federal
regulations to maintain certain capital levels. The Company's ratio of stated
capital to total assets equaled or exceeded 10% as of September 30, 1995
and 1994 and December 31, 1994. In an effort to achieve a measurement of
capital adequacy that is sensitive to the individual risk profiles of
financial institutions, the various financial institution regulators have
minimum capital guidelines that categorize various components of capital and
types of assets and measure capital adequacy in relation to the financial
institution's relative level of those capital components and the level of
risk associated with various types of assets of that financial institution.
The guidelines call for minimum adjusted capital of 8% of risk-adjusted
assets. As of September 30, 1995, the Company's total risk-based capital
ratio was approximately 13.68%.
In addition to the risk-based capital requirements described above, the
Company is subject to a leverage capital requirement, which calls for a
minimum ratio of leverage capital, as defined in the regulations, to quarterly
average total assets of 3-5%. As of September 30, 1995, the Company's
leverage capital ratio was approximately 8.72%.
The Company is not aware of any recommendations of regulatory authorities
or otherwise which, if they were to be implemented, would have a material
effect on its liquidity, capital resources, or operations.
As of September 30, 1995, December 31, 1994 and September 30, 1994, the
Company was in compliance with all existing capital requirements, as
summarized in the following table:
<PAGE>
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Tier I capital:
Total stated shareholders'equity $ 31,191 $ 28,790 $ 28,428
Less: Intangible assets 5,744 6,279 6,435
Unrealized holding gain (loss)
on securities available for
sale, net of income taxes 137 (663) (464)
--------- --------- ---------
Total Tier I leverage capital 25,310 23,174 22,457
--------- --------- ---------
Tier II capital:
Allowable allowance for loan losses 2,590 2,535 2,650
--------- --------- ---------
Tier II capital additions 2,590 2,535 2,650
--------- --------- ---------
Total capital $ 27,900 $ 25,709 $ 25,107
========= ========= =========
Risk-adjusted assets $ 207,215 $ 208,438 $ 211,975
Tier I risk-adjusted assets (includes Tier I
capital adjustments) 201,334 202,822 206,004
Tier II risk-adjusted assets (includes Tiers I
and II capital adjustments) 203,924 205,357 208,654
Quarterly average total assets 296,136 289,904 268,894
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 290,255 284,288 262,923
Risk-based capital ratios:
Tier I capital 12.57% 11.43% 10.90%
Minimum required Tier I capital 4.00% 4.00% 4.00%
Total risk-based capital 13.68% 12.52% 12.03%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Leverage capital ratios:
Tier I leverage capital ratio 8.72% 8.15% 8.54%
Minimum required Tier I leverage capital 3-5.00% 3-5.00% 3-5.00%
</TABLE>
COMPLETED ACQUISITION
The Company completed its acquisition of Central State Bank in High
Point, North Carolina, in a cash purchase on August 25, 1994. Pursuant to
the terms of the merger, the shareholders of Central received cash in the
amount of approximately $538.05 per share ($535.50 in purchase price per
share and $2.55 in interest due to a delay in the closing date), making the
total purchase price approximately $6,994,639. The funds used to make the
acquisition were internally generated. As of August 25, 1994, Central's
total assets of approximately $35.1 million included earning assets of
approximately $32.1 million consisting primarily of approximately $26.9
million in loans. In addition, Central had deposits of approximately $32.1
million. The acquisition is described in greater detail in the Company's
filing on Form 8-K filed September 8, 1994.
PENDING ACQUISITION
The Company has reached a definitive agreement with First Scotland Bank
for First Bank, First Bancorp's banking unit, to acquire First Scotland
Bank's Laurinburg and Rockingham offices. As of September 30, 1995,
estimated assets to be acquired and liabilities to be assumed were
approximately $16.2 million and $15.1 million, respectively. The transaction
is structured as a purchase of certain assets and assumption of certain
liabilities with the purchase price determined by adding the book value of
net assets as of the closing date and a $540,000 premium on the deposits
assumed. The transaction is subject to the approval of the applicable
regulatory authorities. Closing is anticipated to be completed in the latter
fourth quarter of 1995.
<PAGE>
CONTINGENT MATTERS
On August 8, 1994, the Bank was named a codefendant in a lawsuit filed
in the United States District Court for the Middle District of North
Carolina. In the lawsuit, the plaintiff alleges that it loaned $4,140,000 to
one of the other defendants secured by two certificates of deposit allegedly
issued to it by the Bank in the aggregate face amount of $4,600,000. The
codefendant borrower has defaulted on the loan and the plaintiff has asserted
a claim against the Bank based upon the certificates of deposit. The
plaintiff has also asserted a claim against the Bank in the principal amount
of $300,000 based upon the borrower's pledge of plaintiff's accounts in which
these two certificates of deposit were held as collateral for a loan from
another codefendant. The Bank's records indicate that these two certificates
of deposit were in the total amount of $4,600.
The plaintiff has also asserted a claim against the Bank in the
principal amount of $350,000 based upon other certificates of deposit
allegedly issued to the customer by the Bank and delivered to the plaintiff
for safekeeping. An account in which these certificates of deposit were held
was subsequently pledged by the codefendant borrower as collateral for a loan
from another codefendant. The Bank's records indicate that these
certificates of deposit were issued in amounts far less than that claimed by
the plaintiff.
The Bank is continuing its investigation of the circumstances regarding
the plaintiff's claims and is vigorously defending itself against the
plaintiff's lawsuit. Discovery is scheduled to conclude on January 22,
1996. A July 8, 1996 trial date has been set by the Court.
Related claims and lawsuits appear to have arisen out of the same
circumstances that gave rise to the lawsuit referred to above. One such
claim is in the principal amount of $500,000 and is based upon a loan to the
same codefendant borrower allegedly secured by a First Bank certificate of
deposit in the amount of $600,000. The Bank's records indicate that this
certificate of deposit is in the amount of $600. These other claims and
lawsuits are being investigated and defended vigorously as well.
The appropriate law enforcement, regulatory and insurance authorities
have been notified. Because of potential losses in connection with these
claims, management has filed and is pursuing a claim under the Bank's
fidelity bond, which presently has a policy limit of approximately
$3,658,000. Based on a review of the terms of the fidelity bond and advice
of counsel, and based on the best information available to management at this
time, management is of the opinion that any losses sustained in connection
with the federal lawsuit would be covered up to the limits set forth in the
policy. Resolution of these matters, as well as fidelity bond coverage,
could be affected by future circumstances, the impact of which on the Bank's
financial position and results of operations is uncertain.
In addition to the matters discussed above, during 1994 the Bank
vigorously defended a claim by which a plaintiff homeowners'association
sought to nullify the Bank's lien on certain common areas of a residential
development including the water and sewer system. The Bank's lien secured
loans for $819,000. The court granted summary judgment in favor of the Bank,
but the plaintiff gave notice of appeal. The Bank foreclosed on the
property. During the quarter ended June 30, 1995, the Bank negotiated the
sale of the property to the plaintiff homeowners'association. The terms of
the sale included satisfaction of all claims related to the property and a
dismissal of the litigation. See "Nonperforming Assets" above.
<PAGE>
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed with this report or, as noted, are
incorporated by reference.
3(i) Copy of Articles of Incorporation of the Registrant and amendments
thereto, was filed as Exhibit 3(a) to the Registrant's Registration
Statement Number 33-12692, and is incorporated herein by reference.
(ii) Copy of the Bylaws of the Registrant and amendments thereto, was
filed as Exhibit 3(b) to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994, and is incorporated herein by
reference.
10 Material Contracts
(a) Data processing Agreement dated October 1, 1984 by and between Bank
of Montgomery (First Bank) and Montgomery Data Services, Inc. was
filed as Exhibit 10(k) to the Registrant's Registration Statement
Number 33-12692, and is incorporated herein by reference.
(b) First Bank Salary and Incentive Plan, as amended, was filed as
Exhibit 10(m) to the Registrant's Registration Statement Number
33-12692, and is incorporated herein by reference.
(c) First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings
incentive plan and trust), as amended January 25, 1994 and July 19,
1994, was filed as Exhibit 10(c) to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994, and is
incorporated herein by reference.
(d) Directors and Officers Liability Insurance Policy of First Bancorp,
dated July 16, 1991, was filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991,
and is incorporated herein by reference.
(e) Indemnification Agreement between the Company and its Directors and
Officers was filed as Exhibit 10(t) to the Registrant's Registration
Statement Number 33-12692, and is incorporated herein by reference.
(f) Employment and Consulting Agreement between the Company and John C.
Wallace dated January 1, 1993, was filed as Exhibit 10(i) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, and is incorporated herein by reference.
(g) First Bancorp Employees'Pension Plan, as amended on August 16,
1994, was filed as Exhibit 10(g) to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994, and is
incorporated herein by reference.
<PAGE>
(h) First Bancorp Senior Management Supplemental Executive Retirement
Plan dated May 31, 1993, was filed as Exhibit 10(k) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, and is incorporated herein by reference.
(i) First Bancorp Senior Management Split-Dollar Life Insurance
Agreements between the Company and the Executive Officers, as
amended on December 22, 1994, was filed as Exhibit 10(i) to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, and is incorporated herein by reference.
(j) Software License and Equipment Purchase and Software Maintenance
Agreements between First Bancorp and Systematics, Inc. for the
procurement and use of data processing equipment and software dated
May 17, 1993, was filed as Exhibit 10(m) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and is
incorporated herein by reference.
(k) First Bancorp 1994 Stock Option Plan was filed as Exhibit 10(n) to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1994, and is incorporated herein by reference.
(l) Purchase and Assumption Agreement between First Bank and First
Scotland Bank, dated August 16, 1995.
27 Financial Data Schedules pursuant to Article 9 of Regulation S-X.
(b) There were no reports filed on Form 8-K during the quarter ended
September 30, 1995.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCORP
November 13, 1995 BY: James H. Garner
------------------- -----------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
November 13, 1995 BY: Anna G. Hollers
------------------- -----------------------------
Anna G. Hollers
Executive Vice President
and Secretary
November 13, 1995 BY: Kirby A. Tyndall
------------------- -----------------------------
Kirby A. Tyndall
Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT CROSS REFERENCE INDEX
Exhibit Page(s)
3(i) Copy of Articles of Incorporation of the Registrant *
(ii) Copy of the Bylaws of the Registrant *
10(a) Data processing Agreement by and between Bank of
Montgomery (First Bank) and Montgomery Data Services, Inc. *
(b) First Bank Salary and Incentive Plan, as amended *
(c) First Bancorp Savings Plus and Profit Sharing Plan (401(k)
savings incentive plan and trust), as amended *
(d) Directors and Officers Liability Insurance Policy of
First Bancorp *
(e) Indemnification Agreement between the Company and its
Directors and Officers *
(f) Employment and Consulting Agreement between the Company
and John C. Wallace *
(g) First Bancorp Employees'Pension Plan *
(h) First Bancorp Senior Management Supplemental Executive
Retirement Plan *
(i) First Bancorp Senior Management Split-Dollar Life Insurance
Agreements between the Company and the Executive Officers *
(j) Software License and Equipment Purchase and Software
Maintenance Agreements between First Bancorp and
Systematics, Inc. *
(k) First Bancorp 1994 Stock Option Plan *
(l) Purchase and Assumption Agreement between First Bank and
First Scotland Bank 21-42
27 Financial Data Schedules pursuant to Article 9 of
Regulation S-X *
* Incorporated herein by reference.
<PAGE>
Exhibit 10(l)
PURCHASE AND ASSUMPTION AGREEMENT
THIS AGREEMENT, entered into this 16th day of August,
1995, is by and between FIRST BANK, a state banking corporation
organized and existing under the laws of the state of North
Carolina, with its principal office in Troy, North Carolina
("Purchaser") and FIRST SCOTLAND BANK, a state banking corporation
organized and existing under the laws of the state of North
Carolina, with its principal office in Laurinburg, North Carolina
("Seller").
BACKGROUND STATEMENT
Seller is a North Carolina banking institution with three
offices located in Laurinburg, Maxton and Rockingham. Seller
desires to sell and Purchaser desires to purchase certain assets
and assume certain liabilities of Seller, including but not limited
to the assets and liabilities related to Seller's offices in
Rockingham and Laurinburg, upon the terms and conditions set forth
herein.
STATEMENT OF AGREEMENT
In consideration of the premises and the mutual covenants
contained herein, the parties hereto, for themselves, their
successors and assigns, agree as follows:
ARTICLE 1. DEFINITIONS.
1.1 "Agreement in Principle" shall mean the Agreement in
Principle, dated as of April 26, 1995, between Purchaser, Seller
and Claude E. Smith, Jr.
1.2 "Assets" shall mean the following:
(a) all right, title and interest of Seller in and to the
Seller Real Property;
(b) all right, title and interest of Seller in and to the
furniture, fixtures and equipment owned or (to the extent of the
lessee's interest) leased by Seller and located at either of the
Offices, except for signs and logos of Seller, and certain other
furniture, fixtures and equipment, all as listed on EXHIBIT 1.2(b)
attached hereto and made a part hereof;
(c) all other tangible assets owned by Seller that relate to
the Offices, except any right, title and interest of Seller in a
certain automobile currently being utilized by Seller's chief
executive officer;
<PAGE>
(d) all intangible assets owned by Seller that relate to the
Offices, including but not limited to cash, securities and
goodwill, unless otherwise listed on EXHIBIT 1.2(d); and
(e) certain contracts and agreements ancillary to Seller's
business as listed on EXHIBIT 1.2(e) attached hereto and made apart
hereof.
1.3 "Balance Sheet" shall mean Seller's balance sheet as of
the close of the month preceding the Closing Date.
1.4 "Building Lease Agreement" shall mean the lease
agreement, dated as of the Closing Date, between Purchaser and Tri-
City, Inc. under which Tri-City, Inc. will lease to Purchaser
certain real property and improvements thereon located at Tri-City
Shopping Center, Rockingham, North Carolina, substantially in the
form of EXHIBIT 1.4 attached hereto.
1.5 "Closing Date" shall mean the date when the purchase and
assumption described in this Agreement are consummated. Unless the
parties otherwise agree, the Closing Date shall occur on the
business day closest to the fifteenth day of the month following
the month during which the final necessary regulatory approval
required under SECTIONS 6.2, 6.3 and 6.4 is received and the last
of any legally required waiting or protest periods has expired.
1.6 "Closing Payment" shall have the meaning as defined in
SECTION 2.6.
1.7 "Deposit Liabilities" shall mean, as reflected on the
Balance Sheet, the: (i) deposits maintained by Seller at either of
the Offices that are subject to check; (ii) amounts due trust
companies, banks or bankers on instruments presented to Seller at
either of the Offices for payment that have not been paid; (iii)
savings accounts maintained with Seller at either of the Offices;
(iv) outstanding cashier's checks drawn by Seller at either of the
Offices; and (v) certificates of deposits originated by Seller at
either of the Offices.
1.8 "Escrow Agent" shall mean the Escrow Agent appointed in
the Escrow Agreement.
1.9 "Escrow Agreement" shall mean the escrow agreement, dated
as of the Closing Date, between Purchaser and Seller in the form
substantially similar to EXHIBIT 1.9.
1.10 "Laurinburg Office" shall mean that division of Seller
that conducts its business in Laurinburg, North Carolina, with its
sole office located at 909 South Main Street, Laurinburg, North
Carolina.
-2-
<PAGE>
1.11 "Maxton Office" shall mean that division of Seller that
conducts its business in Maxton, North Carolina, with its sole
office located at 110 West Saunders Street, Maxton, North Carolina.
1.12 "Net Book Value" shall mean the difference, as reflected
on the Balance Sheet and as determined in accordance with generally
accepted accounting principles, of the aggregated net book value of
the Assets and the Outstanding Loans minus the net book value of
the Deposit Liabilities and the Other Liabilities.
1.13 "Offices" shall mean the Laurinburg Office and the
Rockingham Office.
1.14 "Other Liabilities" shall mean the liabilities and
contracts of Seller listed on EXHIBIT 1.14.
1.15 "Outstanding Loans" shall mean all of the outstanding
loans made by Seller that originated from or are maintained by
either of the Offices that are evidenced by notes, overdrafts or
other documents, other than a loan from Seller to Laurel Hill Paper
Company in the original principal amount of $875,000.
1.16 "Purchaser Office" shall mean the division of Purchaser
that conducts its business in Laurinburg, North Carolina, with its
sole office located at 205 Fairley Street, Laurinburg, North
Carolina.
1.17 "Purchaser Real Property" shall mean the real property on
which the Purchaser Office is located, as more fully described on
EXHIBIT 1.17 hereto, together with all improvements thereon;
1.18 "Rockingham Office" shall mean that division of Seller
that conducts its business in Rockingham, North Carolina, with its
sole office located at the Tri-City Shopping Center, Rockingham,
North Carolina.
1.19 "Seller Real Property" shall mean the real property on
which the Laurinburg Office is situated, as more fully described on
EXHIBIT 1.19 hereto, together with all improvements thereon.
1.20 "Settlement Amount" shall mean the Closing Payment less
the book value of the Purchaser Real Property as reflected on
Purchaser's balance sheet as of the last business day of the month
immediately preceding the Closing Date.
1.21 "Smith Agreement" shall mean the agreement between Claude
F. Smith, Jr. ("Smith") and Purchaser, whereby Smith agrees that
(i) for a period of three (3) years from the Closing Date, he will
not, directly or indirectly, compete with Purchaser in the banking
business in Cabarrus County, Chatham County, Davidson County,
Guilford County, Montgomery County, Moore County, Randolph County,
Richmond County, Robeson County, Scotland County, and Stanly
-3-
<PAGE>
County, North Carolina, (ii) he will vote the shares of Seller's
stock owned by him in favor of the transaction contemplated by this
Agreement in the event of such a shareholder vote, and (iii) he, or
an entity controlled by him, will enter into the Building Lease
Agreement as lessor.
ARTICLE 2. TERMS OF SALE.
2.1 SALE OF ASSETS. Seller shall sell and deliver to
Purchaser and Purchaser shall purchase from Seller the Assets.
2.2 SALE OF OUTSTANDING LOANS. Seller shall sell and deliver
to Purchaser, and Purchaser shall purchase from Seller, Seller's
rights in the Outstanding Loans (and the security therefore),
including all records and documents of Seller pertaining thereto.
Seller shall make available to Purchaser for inspection all
information Purchaser requests concerning any of the Outstanding
Loans.
2.3 ASSUMPTION OF LIABILITIES. Purchaser shall assume, and
Seller shall assign, the Deposit Liabilities and Other Liabilities.
Purchaser's assumption of the Deposit Liabilities shall be in
accordance with the terms of Seller's agreements with its customers
existing as of the Closing Date. On the Closing Date, the parties
shall enter into all documents necessary for Seller to assign to
Purchaser, and for Purchaser to assume from Seller, liability for
the payment and performance of Deposit Liabilities.
2.4 COMMUNITY MORTGAGE CORPORATION. Nothing in this
Agreement should be construed to require Purchaser to acquire any
of the assets or liabilities relating to Seller's interest in the
Community Mortgage Corporation.
2.5 CLOSING BALANCE SHEET. No later than five (5) business
days before the Closing Date, Seller will cause, at its expense,
its independent accountants to deliver to Purchaser (i) the Balance
Sheet, (ii) a comfort letter in form and substance satisfactory to
Purchaser regarding the Balance Sheet (including but not limited to
comfort regarding both the adequacy and allocation of the loan loss
allowance to such loans), (iii) schedules of the Deposit
Liabilities and the Outstanding Loans (including allocation of the
loan loss allowance to such loans), and (iv) such other financial
statements of Seller as Purchaser may request.
2.6 PURCHASE PRICE. The total purchase price of the Assets
shall be (i) Net Book Value plus a deposit premium of $540,000 (the
"Closing Payment") plus (ii) the post-closing payment made pursuant
to SECTION 2.9. The purchase price shall be settled as provided in
SECTION 2.7 and SECTION 2.8.
-4-
<PAGE>
2.7 PAYMENT BY PURCHASER. If the Settlement Amount is
greater than zero, the purchase price will be settled as follows:
(a) On the Closing Date, Purchaser will transfer to Seller
all right, title and interest of Purchaser in the Purchaser Real
Property;
(b) If the Settlement Amount is more than or equal to
$1,000,000, on the Closing Date Purchaser will transfer cash or
securities (i) to the Escrow Agent, to be held pursuant to the
Escrow Agreement, in the greater amount of (1) the Settlement
Amount minus $400,000 or (2) $1,000,000; and (ii) to Seller in the
amount of the difference between the Settlement Amount and the
amount Purchaser placed in escrow pursuant to SECTION 2.7(b)(i);
and
(c) If the Settlement Amount is less than $1,000,000,
Purchaser will transfer cash or securities in the amount of the
Settlement Amount to the Escrow Agent, to be held pursuant to the
Escrow Agreement, and Seller will transfer cash or securities to
the Escrow Agent, to be held pursuant to the Escrow Agreement, in
the amount of the difference between $1,000,000 and the Settlement
Amount; and
(d) Purchaser shall pay to Seller the post-closing payment as
provided in SECTION 2.9.
2.8 PAYMENT BY SELLER. If the Settlement Amount is zero or
less, the purchase price will be settled as follows:
(a) On the Closing Date, Purchaser will transfer to Seller
all right, title and interest of Purchaser in the Purchaser Real
Property;
(b) On the Closing Date, Seller will transfer cash or
securities in the amount of $1,000,000 to the Escrow Agent, to be
held pursuant to the Escrow Agreement;
(c) On the Closing Date, Seller will transfer cash or
securities to Purchaser in the amount of the Settlement Amount (for
this purpose the Settlement Amount shall be treated as a positive
number); and
(d) Purchaser shall pay to Seller the post-closing payment as
provided in SECTION 2.9.
2.9 POST-CLOSING PAYMENT. Purchaser will pay Seller cash in
an amount equal to twenty percent (20%) of Purchaser's net after-
tax profits from normal banking operations (excluding any
nonrecurring gains) derived from the Purchaser Office and the
Offices, as reflected by the books and records of Purchaser (using
Purchaser's normal and customary accounting practices), during the
-5-
<PAGE>
24-month period beginning on the first month-end following the
Closing Date. Such payment made pursuant to this SECTION 2.9 shall
be made within twenty (20) days after the end of such 24-month
period.
2.10 LEASE OF ANNEX. Seller will lease to Purchaser for a
period of six (6) months, at a rate of $500 per month, either (i)
the annex teller window portion of the Purchaser Real Property or
(ii) the drive-up window inside the main building on the Purchaser
Real Property (the "Leased Property"). Such lease will be on
similar terms to those applicable to the current lessee of the
annex teller window. Seller covenants to keep the Leased Property
in good repair.
2.11 LEASE OF BUILDING. Purchaser and Tri-City, Inc. will
enter into the Building Lease Agreement under which Purchaser will
lease, on a month-to-month basis, the real property on which the
Rockingham Office is situated and the improvements thereon. The
terms of the Building Lease Agreement will be substantially the
same as those between Seller and Tri-City, Inc., except that the
term shall be month-to-month and the lease agreement shall be
subject to a six (6) month notice requirement (i) by Tri-City,
Inc., for an increase in rent, or (ii) by Tri-City, Inc. or
Purchaser for termination or other material change in the lease.
2.12 COVENANT NOT TO COMPETE. Upon completion of the
transaction contemplated under this Agreement, for a period of
three (3) years from the Closing Date, Seller agrees that it will
not, directly or indirectly, compete with Purchaser in the banking
business in Cabarrus County, Chatham County, Davidson County,
Guilford County, Montgomery County, Moore County, Randolph County,
Richmond County, Robeson County, Scotland County, and Stanly
County, North Carolina. In addition, Seller agrees that within
five (5) days of the Closing Date, it will change its name to a
name that is not similar to or likely to be confused with its
current name or with the name of Purchaser or any of its
affiliates.
2.13 RESTRICTIONS ON USE OF THE PURCHASER REAL PROPERTY. Upon
completion of the transaction contemplated under this Agreement,
Seller agrees that it will not use the Purchaser Real Property
thereon for a banking operation, and for a period of one (1) year
from the Closing Date, will not, directly or indirectly, sell,
lease or otherwise transfer the Purchaser Real Property to (i) any
financial institution in Scotland County, North Carolina, (ii) any
financial institution in a county contiguous thereto, or (iii) any
other financial institution formed after the date of the Agreement
in Principle.
2.14 EMPLOYEE FUTURE EMPLOYMENT. Seller agrees not to solicit
employment of employees employed by Purchaser at the Offices for a
period of six (6) months after the Closing Date, except that Seller
-6-
<PAGE>
may continue to employ David Jones, chief executive officer of
Seller.
2.15 ADDITIONAL OBLIGATIONS OF PURCHASER.
(a) In addition to other obligations under this Agreement,
Purchaser agrees to assume and discharge the duties and obligations
of Seller, from and after the Closing Date, with respect to (i) the
deposit accounts assumed by Purchaser in accordance with the terms
and conditions of the contracts of deposit and the laws, rules and
regulations applicable thereto, and (ii) the safe deposit box
business at the Offices, and to maintain all necessary facilities
for the use of such boxes by the renters thereof during the period
for which such persons have paid rent therefor in advance to
Seller, subject to the provisions of the rental agreements between
it and the respective renters of such boxes. On the Closing Date,
Seller shall assign, transfer and deliver to Purchaser such records
as exist (in whatever form or medium maintained by Seller)
pertaining to the safe deposit operations at the Offices, including
all relevant safe deposit contracts. From and after the Closing
Date, Purchaser shall assume all risks associated with granting
access to and protecting the contents of safe deposit boxes located
at the Offices.
(b) Purchaser agrees that it will preserve and safely keep,
for as long as may be required by applicable law, all of the files,
books of account and records referred to in SECTION 2.16 for the
joint benefit of itself and Seller, and that it will permit Seller
or its representatives, at any reasonable time and at Seller's
expense, to inspect, make extracts from or copies of, any such
files, books of account, or records as Seller shall deem reasonably
necessary.
2.16 ADDITIONAL OBLIGATIONS OF SELLER. On the Closing Date,
Seller shall:
(a) deliver to Purchaser such of the assets purchased as
shall be capable of physical delivery, including, without
limitation, all assets comprising the safe deposit box business at
the Offices;
(b) execute, acknowledge and deliver to Purchaser all such
endorsements, assignments, bills of sale, warranty deeds, and other
instruments of conveyance, assignment and transfer as shall
reasonably be necessary or advisable to consummate the sale and
transfer of the purchased assets to Purchaser as hereinabove
provided;
(c) assign, transfer and deliver to Purchaser such of the
following records pertaining to the deposit liabilities to be
assumed by Purchaser as exist and are available in whatever form or
medium is maintained by Seller:
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(i)signature cards, orders, night deposit agreements,
borrower resolutions and other contracts between Seller and
Offices'depositors, and records of similar character;
(ii)deposit slips and cancelled checks or withdrawal
orders representing charges to depositors; and
(iii)records of accounts;
(d) assign, transfer and deliver to Purchaser all collateral
security of any nature whatsoever held by Seller as collateral for
the Outstanding Loans; and
(e) assign, transfer and deliver to Purchaser such loan files
and records (in whatever form or medium is maintained by Seller) as
may pertain to the Outstanding Loans.
2.17 CERTAIN TRANSITIONAL MATTERS. Following the Closing
Date:
(a) Purchaser agrees to pay in accordance with law and
customary banking practices all properly drawn and presented
checks, drafts and withdrawal orders presented to Purchaser by
mail, over the counter or through the check clearing system of the
banking industry, by depositors of the accounts assumed, whether
drawn on the checks, withdrawal or draft forms provided by Seller
or by Purchaser, and in all other respects to discharge, in the
usual course of the banking business, the duties and obligations of
Seller with respect to the balances due and owing to the depositors
whose accounts are assumed by Purchaser.
(b) If any of such depositors, instead of accepting the
obligation of Purchaser to pay the deposit liabilities assumed,
shall demand payment from Seller for all or any part of any such
assumed deposit liabilities, Seller shall not be liable or
responsible for making such payments; provided if Seller pays the
same, Purchaser agrees to reimburse Seller for any such payments or
charges. Seller and Purchaser shall make appropriate arrangements,
including but not limited to the transfer by Seller to Purchaser of
banking industry routing numbers, to provide for settlement by
Purchaser of checks, returns and other items which are presented
after the Closing Date and which are drawn on or chargeable to
accounts which have been assumed by Purchaser. In addition,
subsequent to regulatory approval, Seller will notify its affected
customers by letter of the pending assignment of Seller's deposit
accounts to Purchaser, which notice shall be at Seller's cost and
expense.
(c) Purchaser agrees to pay promptly to Seller an amount
equivalent to the amount of any checks, drafts or withdrawal orders
credited to an assumed account as of the Closing Date which are
returned to Seller after the Closing Date. Seller may charge this
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settlement account established by Purchaser hereunder in the amount
of any such item(s).
(d) If the balance due on any loan purchased pursuant to
SECTION 2.2 has been reduced by Seller as a result of a payment by
check received prior to the Closing Date, which item is returned
after the Closing Date, the asset value represented by the loan
transferred shall be correspondingly increased and an amount in
cash equal to such increase shall be paid by Purchaser to Seller
promptly upon demand.
2.18 INDEMNIFICATION BY SELLER. Seller shall indemnify, hold
harmless and defend Purchaser from and against all losses and
liabilities, including reasonable attorneys'fees and expenses,
arising out of:
(a) any actions, suits or proceedings commenced prior to the
Closing Date (other than proceedings to prevent or limit the
consummation of this transaction) relating to Seller or the
Offices;
(b) any actions, suits or proceedings commenced on or after
the Closing Date but which relate to operations of Seller or the
Offices prior to the Closing Date;
(c) any breaches of warranty made or deemed made by Seller in
this Agreement or any other agreement, document, instrument or
certificate delivered pursuant hereto;
(d) any representation, statement, certificate or other
information made or deemed made by Seller in this Agreement or any
other agreement, document, instrument or certificate delivered or
made pursuant hereto that shall prove to have been incorrect in any
material respect when made or deemed made; or
(e) any violation of any applicable statute or regulation for
the protection of the environment, and/or breach of the
representations in SECTION 3.11, which occurs upon the Seller Real
Property prior to the Closing Date regardless of when such
violation is discovered, or by reason of the imposition of any
governmental lien for the recovery of environmental clean up cost
expended by reason of such violation. To the extent that Purchaser
is strictly liable under any such statute, Seller's obligations to
Purchaser under this indemnity shall likewise be without regard to
fault on the part of Seller with respect to the violation of law
which results in liability to Purchaser.
Seller acknowledges that its obligations under this SECTION 2.18
shall survive the Closing Date.
2.19 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify,
hold harmless and defend Seller from and against all losses and
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liabilities, including reasonable attorneys'fees and expenses,
arising out of:
(a) any actions, suits or proceedings commenced on or prior
to the Closing Date (other than proceedings to prevent or limit the
consummation of this transaction) relating to Purchaser;
(b) any actions, suits or proceedings commenced after the
Closing Date but which relate to operations of the Offices by
Purchaser after the Closing Date;
(c) any breaches of warranty made or deemed made by Purchaser
in this Agreement or any other agreement, document, instrument or
certificate delivered pursuant hereto;
(d) any representation, statement, certificate or other
information made or deemed made by Purchaser in this Agreement or
any other agreement, document, instrument or certificate delivered
pursuant hereto that shall prove to have been incorrect in any
material respect when made or deemed made; or
(e) any violation of any applicable statute or regulation for
the protection of the environment, and/or breach of the
representations in SECTION 4.5, which occurs upon the Purchaser
Real Property prior to the Closing Date regardless of when such
violation is discovered, or by reason of the imposition of any
governmental lien for the recovery of environmental clean up cost
expended by reason of such violation. To the extent that Seller is
strictly liable under any such statute, Purchaser's obligations to
Seller under this indemnity shall likewise be without regard to
fault on the part of Purchaser with respect to the violation of law
which results in liability to Seller.
Purchaser acknowledges that its obligations under this SECTION 2.19
shall survive the Closing Date.
2.20 PRO RATA ADJUSTMENT OF EXPENSES. All rents, utility
payments and similar expenses relating to the physical plant of the
Offices and the Purchaser Office and the FDIC premium and other
expenses relating to the deposit or other liabilities assumed or
assets acquired by Purchaser shall be prorated between the parties
as of the Closing Date.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Purchaser as follows,
which representations and warranties shall survive the Closing Date
for a period of three (3) years:
3.1 CORPORATE ORGANIZATION. Seller is a banking institution
duly organized, validly existing and in good standing under the
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laws of the State of North Carolina. Seller has the corporate
power and authority to own its properties, to carry on its business
as presently conducted, and to effect this transaction.
3.2 NO VIOLATION. Neither the execution and delivery of this
Agreement, nor the consummation of this transaction, will violate
or conflict with (a) the Charter or By-laws of Seller, (b) any
provisions of any agreement or any other restriction of any kind to
which Seller is a party or by which Seller is bound, or (c) any
statute, law, decree, regulation or order of any governmental
authority, once the governmental consents referred to in this
Agreement are obtained, or will result in a default under, or cause
the acceleration of the maturity of, any obligation or loan to
which Seller is a party.
3.3 CORPORATE AUTHORITY. The execution and delivery of this
Agreement, and the consummation of this transaction, have been duly
authorized by the Board of Directors of Seller. No further
corporate authorization on the part of Seller is necessary to
consummate the transactions contemplated hereunder, except that
Seller must obtain the approval of its shareholders through a
shareholder vote or other authorized means.
3.4 INFORMATION. The financial and other information
provided or to be provided to Purchaser in connection with this
transaction, including all financial statements, the Balance Sheet,
all loan files, and the like, in whatever form contained, is
accurate and correct in all material respects as of the dates
reflected therein.
3.5 TITLE TO PROPERTIES. Seller has good title to all real
and personal property to be conveyed to Purchaser hereunder and
such property shall be conveyed to Purchaser free and clear of all
liens and encumbrances.
3.6 CONDITION AND ADEQUACY OF ASSETS. The Assets are in good
and marketable condition, and such assets consist of all of the
assets necessary for the operation of the Offices.
3.7 ADEQUACY OF LOAN LOSS ALLOWANCE. The loan loss allowance
as listed on Seller's financial statements and the Balance Sheet is
sufficient and adequate pursuant to, and in accordance with,
prudent banking practices.
3.8 TAXES. Seller is not delinquent in the payment of any
taxes or fees that have been levied or assessed by any governmental
or regulatory authority against it or its assets. Seller has
timely filed all tax returns that are required by law to be filed,
and has paid all taxes shown on said returns and all other
assessments or fees levied upon it or upon its properties to the
extent that such taxes, assessments or fees have become due, and if
not due, such taxes have been adequately provided for and
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sufficient reserves therefor established on Seller's financial
statements and on the Balance Sheet.
3.9 COMPLIANCE WITH LAWS. Except as disclosed on EXHIBIT
3.9, Seller is in full compliance with all applicable laws,
statutes and governmental regulations that relate to Seller or its
operations.
3.10 LITIGATION. There is no litigation pending or threatened
against Seller or otherwise arising out of Seller's operations, and
there is no litigation or other proceeding pending or threatened
that would affect the ability of Seller or Purchaser to consummate
this Agreement or any part thereof.
3.11 NO DEFAULT. No default or event of default (as defined
under any agreement to which Seller is a party) has occurred and is
continuing.
3.12 ENVIRONMENTAL MATTERS. To the best of Seller's
knowledge, as of the date of this Agreement: (1) the Seller Real
Property does not contain any hazardous wastes, hazardous
substances, hazardous materials, toxic substances, hazardous air
pollutants or toxic pollutants, as those terms are used in the
Resource Conservation and Recovery Act (42 U.S.C.A. 6901 et seq.),
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C.A. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C.A. 1801 et seq.), the Toxic
Substances Control Act (15 U.S.C.A. 2601 et seq.), the Clean Air
Act (42 U.S.C.A. 7401 et seq.), and the Clean Water Act (33
U.S.C.A. 1251 et seq.), or in any amendments thereto, or any
regulations promulgated pursuant thereto, or in any applicable
state or local law, regulation or ordinance; (2) the Seller Real
Property is not subject to federal, state or local regulations or
liability because of the presence of stored, leaked, spilled or
disposed petroleum products, waste materials or debris, "PCB's" or
PCB items (as defined in 40 C.F.R. 761.3), underground storage
tanks, "asbestos" (as defined in 40 C.F.R. 763.63) or the past or
present accumulation, treatment, storage, disposal, spillage or
leakage of any dangerous, hazardous or toxic substance as defined
in or regulated by any federal, state or local laws, regulations or
orders; (3) no portion of the Seller Real Property is filled land;
and (4) no condition exists which is or may be characterized by any
federal, state or local government or agency as an actual or
potential threat or danger to public health or the environment.
Seller further represents and warrants to Purchaser that the Seller
Real Property shall be maintained through the Closing Date in the
condition represented and warranted above.
3.13 EMPLOYMENT CONTRACTS. Seller has no employment
contracts other than those listed on EXHIBIT 3.13. Purchaser will
have no liability with respect to any employment contract to which
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Seller is a party or otherwise with respect to any of Seller's
employees.
3.14 FINDERS OR BROKERS. Seller has not in any manner
whatsoever paid or agreed to pay any fee or commission to any
agent, broker, finder or other person for or on account of services
rendered as a broker or finder in connection with this Agreement or
the transactions covered and contemplated hereby. All negotiations
relating to this Agreement have been conducted by Seller directly
and without the intervention of any person in such manner as to
give rise to any valid claim against any party hereto for any
brokerage commission or finder's fee or other like payment.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows,
which representations and warranties shall survive the Closing Date
for a period of three (3) years:
4.1 CORPORATE ORGANIZATION. Purchaser is a banking
institution duly organized, validly existing and in good standing
under the laws of the State of North Carolina. Purchaser has the
corporate power and authority to own its properties, to assume the
liabilities being transferred, and to effect this transaction.
4.2 NO VIOLATION. Neither the execution and delivery of this
Agreement, nor the consummation of this transaction, will violate
or conflict with (a) the Charter or By-laws of Purchaser, (b) any
provision of any agreement or any other restriction of any kind to
which Purchaser is a party or by which Purchaser is bound, or (c)
any statute, law, decrees, regulation or order of any governmental
authority once the governmental consents referred to in this
Agreement are obtained, or will result in a default under, or cause
the acceleration of the maturity of, any obligation or loan to
which Purchaser is a party.
4.3 CORPORATE AUTHORITY. The execution and delivery of this
Agreement, and the consummation of this transaction, have been duly
authorized by the Board of Directors of Purchaser. No further
corporate authorization on the part of Purchaser is necessary to
consummate the transactions contemplated hereunder.
4.4 TITLE TO PROPERTIES. Purchaser has good title to all
real and personal property to be conveyed to Seller hereunder and
such property shall be conveyed to Seller free and clear of all
liens and encumbrances.
4.5 ENVIRONMENTAL MATTERS. To the best of Purchaser's
knowledge, as of the date of this Agreement: (1) the Purchaser Real
Property does not contain any hazardous wastes, hazardous
substances, hazardous materials, toxic substances, hazardous air
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pollutants or toxic pollutants, as those terms are used in the
Resource Conservation and Recovery Act (42 U.S.C.A. 6901 et seq.),
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C.A. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C.A. 1801 et seq.), the Toxic
Substances Control Act (15 U.S.C.A. 2601 et seq.), the Clean Air
Act (42 U.S.C.A. 7401 et seq.), and the Clean Water Act (33
U.S.C.A. 1251 et seq.), or in any amendments thereto, or any
regulations promulgated pursuant thereto, or in any applicable
state or local law, regulation or ordinance; (2) the Purchaser Real
Property is not subject to federal, state or local regulations or
liability because of the presence of stored, leaked, spilled or
disposed petroleum products, waste materials or debris, "PCB's" or
PCB items (as defined in 40 C.F.R. 761.3), underground storage
tanks, "asbestos" (as defined in 40 C.F.R. 763.63) or the past or
present accumulation, treatment, storage, disposal, spillage or
leakage of any dangerous, hazardous or toxic substance as defined
in or regulated by any federal, state or local laws, regulations or
orders; (3) no portion of the Purchaser Real Property is filled
land; and (4) no condition exists which is or may be characterized
by any federal, state or local government or agency as an actual or
potential threat or danger to public health or the environment.
Purchaser further represents and warrants to Seller that the
Purchaser Real Property shall be maintained through the Closing
Date in the condition represented and warranted above.
4.6 FINDERS OR BROKERS. Purchaser has not in any manner
whatsoever paid or agreed to pay any fee or commission to any
agent, broker, finder or other person for or on account of services
rendered as a broker or finder in connection with this Agreement or
the transactions covered and contemplated hereby. All negotiations
relating to this Agreement have been conducted by Purchaser
directly and without the intervention of any person in such manner
as to give rise to any valid claim against Seller for any brokerage
commission or finder's fee or like payment.
ARTICLE 5. CONDUCT OF BUSINESS PENDING THE CLOSING DATE
From and after the date hereof until the Closing Date:
5.1 ACTIVITY IN THE ORDINARY COURSE. Seller shall carry on
the business of Seller and the Offices substantially in the same
manner as heretofore so as to maintain the goodwill of its
customers and employees, with no material adverse change in the
operations, performance, financial condition or management of
Seller. Without limiting in any way the foregoing, Seller
covenants that it will not change its rates for deposits and loans
in a way that is materially different from the current relationship
of such rates to market rates.
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5.2 NOTICE TO PURCHASER. Seller shall not, without providing
written notice to Purchaser prior to consummation, (a) make any new
loan or loan commitment of greater than or equal to $100,000; (b)
make any capital expenditure of $10,000, or (c) take any other
action not in the ordinary course of business.
5.3 APPROVAL BY PURCHASER. Seller shall not, without written
approval of Purchaser, sell (a) any real estate, loans, securities,
deposits, or a material amount of equipment or fixtures, or (b) any
other assets outside the ordinary course of its business; provided,
however, Seller may sell the assets related to the Maxton Office to
Lumbee Guaranty Bank pursuant to the terms of a Letter of Intent
dated February 28, 1995 between Seller and Lumbee Guaranty Bank as
amended on July 13, 1995.
ARTICLE 6. OBLIGATIONS OF PARTIES
PRIOR TO AND AFTER CLOSING DATE
6.1 FULL ACCESS. Seller shall afford to the officers and
authorized representatives of Purchaser access to the properties,
books, and records pertaining to Seller in order that Purchaser may
have full opportunity to make investigations, at reasonable times
without substantially interfering with Seller's normal business and
operations, of the affairs of Seller relating to the Offices, and
the officers of Seller shall furnish Purchaser with such additional
financial and operating data and other information as to its
business and properties at the Offices as Purchaser may, from time
to time, request, including, without limitation, information
required for inclusion in all governmental applications necessary
to effect this transaction.
6.2 REQUIREMENTS OF REGULATORY AUTHORITIES. Seller shall, as
soon as is practicable, notify the proper regulatory authorities of
its intent to terminate operation of the Offices and to consummate
this transaction and thereafter shall (i) comply with the normal
and usual requirement imposed by such authorities applicable to
effectuate this transaction, and (ii) use its good faith efforts to
obtain any required permission of such regulatory authorities to
cease operating the Offices.
6.3 APPLICATION FOR APPROVAL TO EFFECT PURCHASE OF ASSETS AND
ASSUMPTION OF LIABILITIES. Purchaser shall, within twenty-five
(25) days following the execution of this Agreement, prepare and
file an application, as required by law, to the appropriate federal
and/or state regulatory authorities for approval to purchase and
assume the aforesaid assets and liabilities, to establish a branch
at the locations of the Offices, and to effect in all other
respects the transaction(s) contemplated herein. Purchaser agrees
to process the application(s) in a diligent manner and to provide
Seller with a copy of the application(s) as filed (except for any
confidential portions thereof) and all material notices, orders,
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opinions, correspondence and other documents with respect thereto,
and to use its best efforts to obtain all necessary regulatory
approvals. Purchaser agrees to promptly notify Seller upon receipt
by Purchaser of notification that any application provided for
hereunder has been denied.
6.4 FURTHER APPROVALS. The parties hereto agree to execute
and deliver such instruments and to take such other actions as the
other party may reasonably require in order to carry out the intent
of the Agreement. Seller agrees to give such bills of sale, deeds,
acknowledgements and other instruments of conveyance and transfer
as shall be necessary and appropriate to convey to Purchaser all of
Seller's right, title and interest in and to the Assets,
Outstanding Loans and to any collateral to be transferred and the
liens in connection therewith. Purchaser shall be responsible for
the costs of all title examinations, titling fees, surveys,
attorneys'fees and expenses (excluding those of Seller's counsel),
recording costs, transfer fees and other expenses in connection the
transfer of with the Assets and Outstanding Loans. Seller shall be
responsible for the costs of all title examinations, titling fees,
surveys, attorneys'fees and expenses (excluding those of
Purchaser's counsel), recording costs, transfer fees, and other
expenses in connection with the transfer of the Purchaser Real
Property.
6.5 SHAREHOLDER APPROVAL. As soon as possible after the
execution of this Agreement, but in any event within thirty (30)
days after the execution of this Agreement, Seller will procure the
approval of its shareholders, by means of a shareholder vote or
other authorized means, of this Agreement, all other agreements to
be executed by Seller pursuant hereto, and the transaction
contemplated by this Agreement.
6.6 INSURANCE. Effective as of the Closing Date, Seller will
discontinue its insurance coverage maintained in connection with
the Offices and the activities conducted thereon.
6.7 RECEIPTS AFTER CLOSING. Purchaser agrees that any money
collected on account of a loan not transferred to Purchaser will be
paid promptly to Seller.
6.8 OTHER OFFERS. From the date hereof until the Closing
Date, neither Seller nor any of its shareholders, directors,
officers or agents shall discuss or otherwise entertain any other
offers to acquire the stock, assets or liabilities of the Offices,
nor will any such offers be solicited or encouraged, unless
Purchaser shall have first terminated this Agreement pursuant to
the terms hereof.
6.9 MONTHLY SCHEDULES. As soon as practicable after the end
of each month from the date hereof until the Closing Date, Seller
will provide Purchaser schedules of (i) the Deposit Liabilities,
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(ii) the Outstanding Loans with allocation of the loan loss
allowance, (iii) the letters of credit liabilities of Seller, and
(iv) the unfunded loan commitments of Seller.
ARTICLE 7. CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of Purchaser to complete the transactions
provided for in this Agreement are conditioned upon fulfillment, at
or before the Closing Date, of each of the following conditions:
7.1 PURCHASER SATISFACTION. Purchaser's obligation to
consummate the transaction is conditioned upon Purchaser's
satisfaction, in its sole discretion, with the results of its
review of Seller, including a review of financial statements,
audits, loan documentation, condition of real estate and personal
property, environmental audit, compliance with laws and
regulations, valuations of assets, including OREO, adequacy of loan
loss allowance, and other aspects of Seller's business.
7.2 SELLER DEPOSITS AND LOANS. Purchaser's obligations to
consummate the transaction are further subject to the fulfillment
of the following conditions regarding the Offices as of the Closing
Date:
(a)core deposits (non-interest bearing DDA, NOW, money
market, and savings accounts) shall be at least $9,780,000;
(b)total performing Outstanding Loans (Outstanding
Loans on an accrual basis and not more than 90 days past due)
shall be at least $9,150,000; and
(c)total deposits, excluding certificates of deposit in
excess of $100,000, shall be at least $13,605,000.
7.3 SCHEDULES OF DEPOSITS LIABILITIES AND OUTSTANDING LOANS;
NO MATERIAL CHANGE. Purchaser shall have received schedules of the
Deposit Liabilities and the Outstanding Loans as of the Closing
Date and Purchaser, in its sole discretion, shall be satisfied that
there is no material change in the amounts of the Deposit
Liabilities and the Outstanding Loans from the Balance Sheet.
7.4 RELATED DOCUMENTS. Purchaser shall have received a duly
executed copy of the following in form and substance satisfactory
to Purchaser: (a) the Smith Agreement, (b) the Building Lease
Agreement, (c) the Escrow Agreement, and (d) all other bills of
sale, deeds, and other instruments and documents necessary for the
consummation of the transactions described herein.
7.5 REPRESENTATION AND WARRANTIES TRUE. The representations
and warranties made by Seller in this Agreement shall be true in
all material respects at and as of the Closing Date as though such
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representations and warranties were made at and as of such time,
except for any changes permitted by the terms hereof or consented
to in writing by Purchaser.
7.6 OBLIGATIONS PERFORMED. Seller shall have performed and
complied in all material respects with all obligations and
agreements required by this Agreement to be performed or complied
with by it prior to or at the Closing Date.
7.7 SHAREHOLDER APPROVAL. The shareholders of Seller shall
have approved this Agreement and all other agreements entered into
pursuant hereto by means of a shareholder vote or some other
authorized means.
7.8 NO ADVERSE LITIGATION. On the Closing Date, no action,
suit, investigation or proceeding shall be pending or threatened
against Seller which might reasonably be expected to (a) materially
and adversely affect the business, properties and assets of Seller
or the Offices, or (b) materially and adversely affect this
transaction.
7.9 CERTIFICATE OF COMPLIANCE; NO MATERIAL ADVERSE CHANGE.
Seller shall have delivered to Purchaser a certificate of its
Chairman and President, dated the Closing Date, certifying (a) to
the fulfillment of all of the foregoing conditions, and (b) that
there has been no material adverse change in the financial
condition of Seller from the date of the Balance Sheet or other
financial statements delivered pursuant to SECTION 2.5 to the
Closing Date.
7.10 REGULATORY APPROVAL. Purchaser shall have received from
the appropriate regulatory authorities approval (a) of the
transaction(s) contemplated herein, and (b) to operate the Offices.
7.11 BOARD OF DIRECTORS APPROVAL. The board of directors of
Purchaser shall have approved this Agreement and all other
agreements entered into pursuant hereto by means of a resolution or
some other authorized means.
ARTICLE 8. CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of Seller to complete the transactions provided
for in this Agreement are conditioned upon fulfillment, at or
before the Closing Date, of each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by Purchaser in this Agreement shall be true in
all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time,
except for any changes permitted by the terms hereof or consented
to by Seller.
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8.2 NO ADVERSE LITIGATION. On the Closing Date, no action,
suit or proceeding shall be pending or threatened against Purchaser
or Seller which might materially and adversely affect the
transactions contemplated thereunder.
8.3 ESCROW AGREEMENT. Seller shall have received a duly
executed copy of the Escrow Agreement.
8.4 CERTIFICATE OF COMPLIANCE. Purchaser shall have
delivered to Seller a certificate of its President, dated the
Closing Date, certifying to the fulfillment of all of the foregoing
conditions.
8.5 REGULATORY APPROVAL.
(a) The appropriate party shall have received all necessary
regulatory approvals to cease operating the Offices, if such
approval is necessary, and all notice and waiting periods required
by law to pass after the granting of such approval shall have
passed and no proceeding to enjoin, restrain, prohibit or
invalidate such sale.
(b) Purchaser shall have received from the appropriate
regulatory authorities approval (i) of the transaction(s)
contemplated herein, and (ii) to operate the Offices.
ARTICLE 9. TERMINATION
9.1 METHODS OF TERMINATION. This Agreement may be terminated
in any of the following ways:
(a) at any time on or prior to the Closing Date by the mutual
consent in writing of Purchaser and Seller;
(b) on the Closing Date, by Purchaser in writing if the
conditions set forth in Article 7 of this Agreement shall not have
been met or waived in writing by Purchaser;
(c) on the Closing Date, by Seller in writing if the
conditions set forth in Article 8 of this Agreement shall not have
been met by Purchaser or waived in writing by Seller;
(d) at any time on or prior to the Closing Date, by Purchaser
or Seller in writing if the other shall have been in breach of any
representation and warranty in any material respect (as if such
representation and warranty had been made on and as of the date
hereof and on the date of the notice of breach referred to below),
or in breach of any covenant, undertaking or obligation contained
herein, and such breach has not been cured by the earlier of thirty
(30) days after the giving of notice to the breaching party of such
breach or the Closing Date; and
-19-
<PAGE>
(e) by Purchaser or Seller in writing at any time after any
of the regulatory authorities has denied approval of the sale of
the Offices or any application of Purchaser for approval of the
transaction(s) contemplated herein.
9.2 PROCEDURE UPON TERMINATION. In the event of termination
pursuant to SECTION 9.1 hereof, written notice thereof shall
forthwith be given to the other party, and this Agreement shall
terminate upon receipt of such notice immediately unless an
extension is consented to by the party having the right to
terminate. If this Agreement is terminated as provided herein:
(a) each party will return all documents, work papers and
other materials of the other party relating to this transaction,
whether obtained before or after the execution hereof, to the party
furnishing the same; and
(b) all information received by either party hereto with
respect to the business of the other party (other than information
which is a matter of public knowledge or which has heretofore been
or is hereafter published in any publication for public
distribution or filed as public information with any governmental
authority) shall not at any time be used for any business purpose
by such party or disclosed by such party to third persons.
9.3 LIABILITIES FOR BREACHES AND DEFAULTS. Nothing in this
Article 9 shall be construed to in any way release or absolve a
party terminating the Agreement from liability for any breach or
default of any provision of this Agreement or any agreement entered
into pursuant hereto.
ARTICLE 10. MISCELLANEOUS PROVISIONS
10.1 AMENDMENT AND MODIFICATION. The parties hereto, by
mutual consent of their duly authorized officers may amend, modify
and supplement this Agreement only in such manner as may be agreed
upon by them in writing.
10.2 WAIVER OR EXTENSION. Either party, by written
instrument signed by its Chairman or President, may extend the time
for the performance of any of the obligations or other acts of the
other party and may waive (a) any inaccuracies in the
representations or warranties in any document delivered by the
other party pursuant hereto or (b) compliance with any of the
undertakings, obligations, covenants or other acts required of the
other party contained herein.
10.3 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights,
-20-
<PAGE>
interests or obligations hereunder shall be assigned, prior to the
Closing Date, by either of the parties hereto without the prior
written consent of the other.
10.4 SEVERABILITY. If any court determines that any
provision of this Agreement, or any part thereof, is invalid or
unenforceable, the remainder of this Agreement shall not thereby be
affected and shall be given full effect, without regard to the
invalid portion or portions.
10.5 PAYMENT OF EXPENSES. Except as otherwise specifically
provided in this Agreement, each party hereto shall bear and pay
all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder. Except as
otherwise provided herein, any expenses, fees and costs necessary
for any approvals of the appropriate federal and/or state
regulatory authorities or for any notice to depositors of the
assumption of deposit liabilities provided for in this Agreement
shall be paid by Purchaser.
10.6 ADDRESSES FOR NOTICE, ETC. All notices, requests,
demands, consents and other communications provided for hereunder
and under the related documents shall be in writing (including
telecopy communication) and mailed (by registered or certified
mail) or telecopied or delivered to the applicable party at the
address indicated below:
If to Seller: First Scotland Bank
10 Cochrane Circle
Pinehurst, North Carolina 28374
Attn: E. W. Davis, Jr.
telephone - (910) 692-0812
facsimile - (910) 692-9657
If to Purchaser: First Bank
Post Office Box 508
Troy, North Carolina 27371
Attn: James A. Gunter
telephone - (910) 576-6171
facsimile - (910) 576-1070
or, as to each party, at such other address as shall be designated
by such party in a written notice to the other party complying as
to delivery with the terms of this Section.
10.7 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
10.8 HEADINGS. The headings of the Sections and Articles of
this Agreement are inserted for convenience only and shall not
constitute a part thereof.
-21-
<PAGE>
10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of North
Carolina.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and
their corporate seals to be affixed as of the date first written
above.
FIRST SCOTLAND BANK
By: \s\ David S. Jones
------------------
Title: President
------------------
By: \s\ E.W. Davis, Jr.
------------------
Title: Chairman
------------------
FIRST BANK
By: \s\ James A. Gunter
------------------
Title: President and C.E.O.
------------------
<TABLE> <S> <C>
<ARTICLE> 9
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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0
0
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