<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
June 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 June 30, 1995, 1,504,185 shares of the registrant's Common
Stock, $5 par value, were outstanding. The registrant had no other classes of
securities outstanding.
Transitional Small Business Format [ ] YES [ X ] NO
EXHIBIT INDEX BEGINS ON PAGE 21
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<PAGE>
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
June 30, 1995 and 1994
(With Comparative Amounts at December 31, 1994) 3
STATEMENTS OF CONSOLIDATED INCOME -
For the Periods Ended June 30, 1995 and 1994 4
STATEMENTS OF CONSOLIDATED CASH FLOWS -
For the Periods Ended June 30, 1995 and 1994 5
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS'EQUITY -
For the Period Ended June 30, 1995
and for the Year Ended December 31, 1994 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 8
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 20
Exhibit Cross Reference Index 21
<PAGE>
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Jun 30, Dec 31, Jun 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash & due from banks, noninterest bearing $ 11,907 $ 12,588 $ 12,111
Federal funds sold 662 6,660 2,550
--------- --------- ---------
Total cash and cash equivalents 12,569 19,248 14,661
--------- --------- ---------
Securities available for sale (approximate
costs of $48,027, $47,249 and $53,755) 48,183 46,150 53,095
Securities held-to-maturity (approximate
fair values of $22,152, $20,794 and $19,425) 21,661 20,942 18,954
Presold mortgages in process of settlement 1,052 631 53
Loans, net of unearned income 192,979 185,749 159,192
Less: Allowance for possible loan losses (4,853) (5,009) (2,849)
--------- --------- ---------
Net loans 188,126 180,740 156,343
--------- --------- ---------
Premises and equipment, net 7,500 7,138 5,863
Accrued interest receivable 2,208 2,235 1,987
Intangible assets 5,994 6,279 690
Other 4,576 6,250 4,305
--------- --------- ---------
Total assets $ 291,869 $ 289,613 $ 255,951
========= ========= =========
LIABILITIES
Deposits: Demand $ 37,860 $ 40,390 $ 31,041
Savings, NOW and money market 98,070 103,879 92,274
Time deposits of $100,000 or more 24,764 24,615 19,137
Other time deposits 97,315 89,546 83,557
--------- --------- ---------
Total deposits 258,009 258,430 226,009
Income taxes payable 154 - 112
Accrued interest on deposits 1,458 1,144 920
Other 1,684 1,249 971
--------- --------- ---------
Total liabilities 261,305 260,823 228,012
--------- --------- ---------
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 11,632 10,624 9,511
Unrealized gain (loss) on securities
available for sale, net of income taxes 103 (663) (401)
--------- --------- ---------
Total shareholders'equity 30,564 28,790 27,939
--------- --------- ---------
Total liabilities and shareholders'equity $ 291,869 $ 289,613 $ 255,951
========= ========= =========
<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 Six Months Ended
Jun 30, Jun 30,
($ in thousands except per share data) 1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,734 $ 3,548 $ 9,128 $ 6,868
Interest on investment securities:
Taxable interest income 735 634 1,383 1,277
Exempt from income taxes 271 253 538 497
Other, principally federal funds sold 82 52 202 106
--------- --------- --------- ---------
Total interest income 5,822 4,487 11,251 8,748
--------- --------- --------- ---------
INTEREST EXPENSE
Time deposits of $100,000 or more 411 198 770 388
Other time and savings deposits 1,811 1,267 3,391 2,490
--------- --------- --------- ---------
Total interest expense 2,222 1,465 4,161 2,878
--------- --------- --------- ---------
NET INTEREST INCOME 3,600 3,022 7,090 5,870
Provision for possible loan losses 160 100 260 237
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,440 2,922 6,830 5,633
--------- --------- --------- ---------
OTHER INCOME
Service charges on deposit accounts 533 449 1,070 880
Commissions from insurance sales 97 67 195 129
Other charges, commissions and fees 209 101 423 269
Data processing fees 32 42 49 82
Securities gains - 3 - 37
--------- --------- --------- ---------
Total other income 871 662 1,737 1,397
--------- --------- --------- ---------
OTHER EXPENSES
Salaries 1,260 1,045 2,450 2,025
Employee benefits 239 195 592 481
--------- --------- --------- ---------
Total personnel expense 1,499 1,240 3,042 2,506
Net occupancy expense 209 170 418 349
Equipment related expenses 199 212 406 444
Other 1,208 942 2,481 1,831
--------- --------- --------- ---------
Total other expenses 3,115 2,564 6,347 5,130
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,196 1,020 2,220 1,900
Income taxes 391 285 700 522
--------- --------- --------- ---------
NET INCOME $ 805 $ 735 $ 1,520 $ 1,378
========= ========= ========= =========
PER SHARE AMOUNTS
Net income $ 0.54 $ 0.49 $ 1.01 $ 0.92
Cash dividends declared 0.17 0.16 0.34 0.32
<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>
Six Months Ended
Jun 30,
($ in thousands) 1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,520 $ 1,378
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses 260 237
Net security premium amortization/discount accretion (13) 18
Loan fees and costs deferred net of amortization (41) 8
Depreciation of premises and equipment 362 382
Amortization of intangible assets 285 80
Realized and unrealized other real estate losses 48 -
Provision for deferred income taxes (160) 29
Gain on sale of investment securities - (37)
Loss on disposal of premises and equipment - 7
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable 27 (57)
Decrease in other assets 1,078 561
Increase in accrued interest payable 314 49
Increase (decrease) in other liabilities 22 (903)
Increase (decrease) in income taxes payable 567 (11)
--------- ---------
Net cash provided by operating activities 4,269 1,741
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (17,637) (21,797)
Purchase of securities held-to-maturity (1,283) (1,835)
Proceeds from sale of securities available for sale - 715
Proceeds from maturities/issuer calls of securities
available for sale 16,894 14,771
Proceeds from maturities/issuer calls of securities
held-to-maturity 542 1,202
Net increase in loans (7,808) (2,528)
Net purchases of premises and equipment (724) (62)
--------- ---------
Net cash used in investing activities (10,016) (9,534)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (421) (1,034)
Cash dividends paid (511) (466)
--------- ---------
Net cash used in financing activities (932) (1,500)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (6,679) (9,293)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,248 23,954
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,569 $ 14,661
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 3,847 $ 2,829
Income taxes 331 504
Non-cash transactions:
Foreclosed loans transferred to other real estate 203 422
Loans to facilitate the sale of other real estate 1,105 -
Reclassification of securities available for sale - 49,288
Increase (decrease) in market value of securities
available for sale 1,255 (660)
<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 1,520 1,520
Cash dividends
declared (512) (512)
Net adjustment
for securities
available for sale 766 766
--------- --------- --------- --------- --------- ---------
BALANCES,
June 30, 1995 1,504 $ 7,521 $ 11,308 $ 11,632 $ 103 $ 30,564
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended June 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 June 30, 1995 and 1994 and the consolidated
results of operations and consolidated cash flows for the periods ended
June 30, 1995 and 1994 and changes in consolidated shareholders'equity
for the period ended June 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 June 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 June 30, 1994 have been
reclassified to conform with the presentation for June 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 $4,853,000 as of June 30, 1995 compared to $5,009,000 and
$2,849,000 as of December 31, 1994 and June 30, 1994, respectively.
These reserve levels represented 2.51%, 2.70% and 1.79% of total loans as of
June 30, 1995, December 31, 1994 and June 30, 1994, respectively.
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. For each of the periods presented, the
Company had no loans past due 90 or more days and still accruing interest.
Nonperforming assets are summarized as follows:
<TABLE>
<CAPTION>
Jun 30, Dec 31, Jun 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,425 $ 1,724 $ 1,611
Restructured loans 704 252 269
--------- --------- ---------
Total nonperforming loans 2,129 1,976 1,880
Foreclosed, repossessed and idled
properties (included in other assets) 1,757 2,976 2,154
--------- --------- ---------
Total nonperforming assets $ 3,886 $ 4,952 $ 4,034
========= ========= =========
Nonperforming loans as a percentage of total loans 1.10% 1.06% 1.18%
Allowance for possible loan losses as a percentage
of nonperforming loans 227.95% 253.49% 151.54%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 2.00% 2.62% 2.50%
Nonperforming assets as a percentage of
total assets 1.33% 1.71% 1.58%
</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 June 30, 1995 increased 9.5% to
$805,000, or $0.54 per share, compared to $735,000, or $0.49 per share,
for the second quarter of 1994. The earnings increase was achieved through
the combination of higher net interest income resulting from increasing loan
volume and higher noninterest income in 1995. For substantially the same
reasons, net income for the six months ended June 30, 1995 increased 10.3% to
$1,520,000, or $1.01 per share, from $1,378,000, or $0.92 cents per share,
for the same period in 1994.
Although not significantly impacting net income, the 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 on deposits and other funds needed to support those assets.
Net interest income increased by $578,000, or 19.1%, when comparing the second
quarter of 1995 with the second quarter of 1994, primarily because of growth
in loan volume. Approximately $452,000 of the increase for the quarter was
attributable to the acquisition of Central. For substantially the same
reasons, net interest income for the six months ended June 30, 1995 increased
by $1,220,000, or 20.8%, compared to the same period in 1994.
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. 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 for the quarter increased $60,000
to $160,000. For the six months ended June 30, 1995, provisions for possible
loan losses increased by $23,000, or 9.7%. Provisions for possible loan
losses are based on management's evaluation of the loan portfolio, as
discussed under "Financial Condition" below.
Noninterest income increased 31.6% for the second quarter primarily
because of the newly acquired operations in High Point. Data processing fees
declined by $10,000 for the quarter. The Company reported no gains from
the sale of securities in 1995. For the six months ended June 30, 1995,
noninterest income increased $340,000, or 24.3%, for substantially the same
reasons.
<PAGE>
Noninterest expenses, or overhead, increased 21.5% to $3,115,000 for the
second quarter of 1995, primarily because of the incremental overhead
associated with the acquisition of Central. Driving the quarterly change,
personnel expenses increased $259,000, or 20.9%, of which $215,000 was
related to acquired personnel, and other noninterest expenses increased
$266,000, or 28.2%. For the six months ended June 30, 1995, noninterest
expenses increased $1,217,000, or 23.7%, with Central's operations accounting
for most of the year-to-date increase.
Income taxes increased $106,000, or 37.2%, for the second quarter, while
the effective tax rates were 32.7% and 27.9% for the quarters ended June 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 six months ended June 30, 1995 increased $178,000, or 34.1%, resulting
in an effective tax rate of 31.5% compared to 27.5% for the same six month
period of 1994.
FINANCIAL CONDITION
The Company's total assets were $291.9 million at June 30, 1995, an
increase of $35.9 million, or 14%, from June 30, 1994. Interest-earning
assets increased by 12.7% compared to June 30, 1994. Loans, the primary
interest-earning asset, increased by 21.2% during this same period. The
$2 million increase in the allowance for loan losses was largely attributable
to the acquisition of Central. Premises and equipment and intangible assets
increased $1.6 million and $5.3 million, respectively. Deposits increased
$32 million, or 14.2%. The balance sheet changes were largely attributable
to the acquisition of Central. An estimated $5.8 million intangible asset
resulted from the acquisition due to purchase accounting. The increases in
deposits were primarily in the categories of core deposits and time deposits
less than $100,000. 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 $100,000
or more to fund asset growth and has not traditionally engaged in obtaining
deposits through brokers. Since December 31, 1994, the Company experienced
annualized growth of 3.1% in earning assets while total assets and deposits
remain near year-end levels.
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90
or more days, restructured loans and foreclosed, repossessed and idled
properties. The following table summarizes the Company's nonperforming
assets at the dates indicated.
<TABLE>
<CAPTION>
Jun 30, Dec 31, Jun 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,425 $ 1,724 $ 1,611
Restructured loans 704 252 269
--------- --------- ---------
Total nonperforming loans 2,129 1,976 1,880
Foreclosed, repossessed and idled
properties (included in other assets) 1,757 2,976 2,154
--------- --------- ---------
Total nonperforming assets $ 3,886 $ 4,952 $ 4,034
========= ========= =========
Nonperforming loans as a percentage of total loans 1.10% 1.06% 1.18%
Allowance for possible loan losses as a percentage
of nonperforming loans 227.95% 253.49% 151.54%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 2.00% 2.62% 2.50%
Nonperforming assets as a percentage of
total assets 1.33% 1.71% 1.58%
</TABLE>
Nonperforming assets were $3,886,000, $4,952,000 and $4,034,000 as of
June 30, 1995, December 31, 1994 and June 30, 1994, respectively.
Nonperforming assets as of June 30, 1995 include approximately $771,000
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 June 30, 1995 and 1994 had
been current in accordance with their original terms and had been outstanding
throughout the six month periods (or since origination or acquisition if held
for part of the six month periods), gross interest income in the amounts of
approximately $72,000 and $68,000 for nonaccrual loans and $36,000 and
$11,000 for restructured loans would have been recorded for the six months
ended June 30, 1995 and 1994, respectively. Interest income on such
loans that was actually collected and included in net income in the six
months ended June 30, 1995 and 1994 amounted to approximately $10,000 and
$6,000 for nonaccrual loans and $22,000 and $15,000 for restructured loans,
respectively.
<PAGE>
Nonperforming loans are defined as nonaccrual loans, loans past due 90
or more days and restructured loans. As of June 30, 1995, December 31,
1994 and June 30, 1994, nonperforming loans were approximately 1.10%,
1.06% and 1.18%, respectively, of the total loans outstanding at such dates.
Nonaccrual loans decreased $186,000, or 11.5%, to approximately $1,425,000
compared to June 30, 1994 and decreased approximately $299,000, or 17.3%,
since year-end. As of June 30, 1995, the largest nonaccrual loan balance
was $166,000 while the average balance of all nonaccrual loans was
approximately $32,000. Approximately $254,000 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 $3,500,000-$3,900,000 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 June 30, 1995, the Company owned foreclosed and repossessed
assets totaling approximately $1,757,000, which consisted principally of
several parcels of foreclosed real estate. Three parcels with carrying
values of approximately $252,000, $458,000 and $200,000 accounted for 52% of
the total. In addition, approximately $517,000 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, exceeds the respective carrying values at
June 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.
As reflected in the table below, Central's reserve level significantly
increased the post-acquisition loan loss reserves of the Company. The
allowance for loan losses in the amount of approximately $2,487,000 that
Central had recorded prior to the acquisition was based largely on its levels
of nonperforming assets and potential problem loans. Prior to the
acquisition and during the performance of "due diligence" regarding Central,
the Company's management became aware of substantial differences between the
credit underwriting practices of Central and those of the Company.
Management believes the current level of reserves is appropriate and
sufficient to afford the Company the opportunity to conform Central's loan
portfolio to the underwriting standards of the Company.
Based on management's evaluation of the loan portfolio and economic
conditions, a provision for possible loan losses of $160,000 was added to the
allowance for possible loan losses during the second quarter of 1995. The
quarterly provision for loan losses made during 1995 was greater than that
made during the corresponding period of 1994 because nonperforming loans
increased to approximately $2,129,000. The year-to-date provision for
possible loan losses increased $23,000, or 9.7% for substantially the same
reasons. These provisions were considered adequate in light of the
information available to management. At June 30, 1995, the allowance stood at
$4,853,000, compared to $5,009,000 at December 31, 1994 and $2,849,000 at
June 30, 1994. At June 30, 1995, the allowance for possible loan losses was
approximately 228% of total nonperforming loans, compared to corresponding
percentages of 253% at December 31, 1994 and 152% at June 30, 1994. The
increase since June 30, 1994 was caused primarily by the additional loan loss
allowance acquired through the merger with Central.
The allowance for possible loan losses was 2.51%, 2.70% and 1.79% of
total loans as of June 30, 1995, December 31, 1994 and June 30, 1994
respectively. Management considers the reserve levels adequate to cover
possible loan losses on the loans outstanding as of each reporting date. It
must be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about future economic conditions and other factors affecting loans. No
assurance can be given that the Company will not in any particular period
sustain loan losses that are sizable in relation to the amounts reserved or
that subsequent evaluations of the loan portfolio, in light of conditions and
factors then prevailing, will not require significant changes in the
allowance for possible loan losses or future charges to earnings. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances for
possible loan losses and losses on other real estate. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available at the time of such examinations.
<PAGE>
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance arising from charge-offs and recoveries by category, and additions
to the allowance that have been charged to expense.
<TABLE>
<CAPTION>
Six Six
Months Year Months
Ended Ended Ended
Jun 30, Dec 31, Jun 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Loans outstanding at period end $ 192,979 $ 185,749 $ 159,192
========= ========= =========
Average loans outstanding during period $ 186,369 $ 168,167 $ 157,816
========= ========= =========
Allowance for possible loan losses at
beginning of period $ 5,009 $ 2,797 $ 2,797
Addition related to acquired bank - 2,487 -
Loans charged off:
Commercial, financial and agricultural (260) (242) (100)
Real estate - mortgage (67) (207) (60)
Installment loans to individuals (127) (354) (59)
--------- --------- ---------
Total charge-offs (454) (803) (219)
--------- --------- ---------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 6 11 3
Real estate - mortgage 1 79 2
Installment loans to individuals 31 51 29
--------- --------- ---------
Total recoveries 38 141 34
--------- --------- ---------
Net charge-offs (416) (662) (185)
Additions to the allowance charged to expense 260 387 237
--------- --------- ---------
Allowance for possible loan losses at
end of period $ 4,853 $ 5,009 $ 2,849
========= ========= =========
Ratios:
Net charge-offs (annualized) to
average loans during period 0.45% 0.39% 0.23%
Net charge-offs (annualized) to
loans at end of period 0.43% 0.36% 0.23%
Allowance for possible loan losses to
average loans during period 2.60% 2.98% 1.81%
Allowance for possible loan losses to
loans at end of period 2.51% 2.70% 1.79%
Net charge-offs (annualized) to
allowance for possible loan losses 17.14% 13.22% 12.99%
Net charge-offs (annualized) to
provision for possible loan losses 320.00% 171.06% 156.12%
</TABLE>
<PAGE>
Based on the results of the aforementioned loan analysis and grading
program and management's evaluation of the allowance for possible loan losses
at June 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.
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 June 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 June 30, 1995, the Company's total risk-based capital ratio
was approximately 13.70%.
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 June 30, 1995, the Company's leverage
capital ratio was approximately 8.56%.
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.
<PAGE>
As of June 30, 1995, December 31, 1994 and June 30, 1994, the Company
was in compliance with all existing capital requirements, as summarized in
the following table:
<TABLE>
<CAPTION>
Jun 30, Dec 31, Jun 30,
($ in thousands) 1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
Tier I capital:
Total stated shareholders'equity $ 30,564 $ 28,790 $ 27,939
Less: Intangible assets 5,994 6,279 690
Unrealized holding gain (loss)
on securities available for
sale, net of income taxes 103 (663) (401)
--------- --------- ---------
Total Tier I leverage capital 24,467 23,174 27,650
--------- --------- ---------
Tier II capital:
Allowable allowance for loan losses 2,506 2,535 2,214
--------- --------- ---------
Tier II capital additions 2,506 2,535 2,214
--------- --------- ---------
Total capital $ 26,973 $ 25,709 $ 29,864
========= ========= =========
Risk-adjusted assets $ 200,469 $ 208,438 $ 177,139
Tier I risk-adjusted assets (includes Tier I
capital adjustments) 194,372 202,822 176,850
Tier II risk-adjusted assets (includes Tiers I
and II capital adjustments) 196,878 205,357 179,064
Quarterly average total assets 291,981 289,904 256,237
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 285,884 284,288 255,948
Risk-based capital ratios:
Tier I capital 12.59% 11.43% 15.63%
Minimum required Tier I capital 4.00% 4.00% 4.00%
Total risk-based capital 13.70% 12.52% 16.68%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Leverage capital ratios:
Tier I leverage capital ratio 8.56% 8.15% 10.80%
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.
<PAGE>
CONTINGENT MATTERS
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.
In addition, 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 plaintiff by the Bank. 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 December 22,
1995. 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.
<PAGE>
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders
The following proposals were considered and acted upon at the annual
meeting of shareholders of the Company held on April 27, 1995:
Proposal 1
A proposal to elect the following thirteen (13) nominees to the
Board of Directors to serve until the 1996 Annual Meeting of
Shareholders, or until their successors are elected and qualified:
Voted Withheld
For Authority
Jack D. Briggs 1,237,835 536
David L. Burns 1,237,835 536
Jesse S. Capel 1,237,835 536
John L. Frye, Sr. 1,237,835 536
James A. Gunter 1,237,835 536
Jack L. Harper 1,237,835 536
G. T. Rabe, Jr. 1,235,173 3,198
John J. Russell 1,237,835 536
Frederick H. Taylor 1,237,835 536
Edward T. Taws 1,237,835 536
John C. Wallace 1,237,835 536
A. Jordan Washburn 1,237,835 4,698
John C. Willis 1,237,835 536
Proposal 2
A proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the current fiscal year.
For 1,236,693 Against 175 Abstain 1,503
No other business came before the meeting, or any adjournment or
adjournments thereof.
<PAGE>
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) Agreement and Plan of Merger between First Bancorp and Central
State Bank, dated March 18, 1994, was filed as Exhibit 10(o) to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1994, and is incorporated herein by reference.
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
June 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
August 10, 1995 BY: James A. Gunter
------------------- -----------------------------
James A. Gunter
President
(Principal Executive Officer),
Treasurer and Director
August 10, 1995 BY: Anna G. Hollers
------------------- -----------------------------
Anna G. Hollers
Executive Vice President
and Secretary
August 10, 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) Agreement and Plan of Merger between First Bancorp and
Central State Bank *
27 Financial Data Schedules pursuant to Article 9 of
Regulation S-X
* Incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,907
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 662
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,183
<INVESTMENTS-CARRYING> 21,661
<INVESTMENTS-MARKET> 22,152
<LOANS> 192,979
<ALLOWANCE> 4,853
<TOTAL-ASSETS> 291,869
<DEPOSITS> 258,009
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,296
<LONG-TERM> 0
<COMMON> 7,521
0
0
<OTHER-SE> 23,043
<TOTAL-LIABILITIES-AND-EQUITY> 291,869
<INTEREST-LOAN> 9,128
<INTEREST-INVEST> 1,921
<INTEREST-OTHER> 202
<INTEREST-TOTAL> 11,251
<INTEREST-DEPOSIT> 4,161
<INTEREST-EXPENSE> 4,161
<INTEREST-INCOME-NET> 7,090
<LOAN-LOSSES> 260
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,347
<INCOME-PRETAX> 2,220
<INCOME-PRE-EXTRAORDINARY> 2,220
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,520
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 0
<LOANS-NON> 1,425
<LOANS-PAST> 0
<LOANS-TROUBLED> 704
<LOANS-PROBLEM> 3,700
<ALLOWANCE-OPEN> 5,009
<CHARGE-OFFS> 454
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 4,853
<ALLOWANCE-DOMESTIC> 4,853
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
