<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, 1996
___________________
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, 1996, 3,014,170 shares of the registrant's Common
Stock, $5 par value, were outstanding. The registrant had no other classes of
securities outstanding.
Transitional Small Business Format [ ] YES [ X ] NO
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EXHIBIT INDEX BEGINS ON PAGE 19
<PAGE>
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
September 30, 1996 and 1995
(With Comparative Amounts at December 31, 1995) 3
STATEMENTS OF CONSOLIDATED INCOME -
For the Periods Ended September 30, 1996 and 1995 4
STATEMENTS OF CONSOLIDATED CASH FLOWS -
For the Periods Ended September 30, 1996 and 1995 5
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY -
For the Period Ended September 30, 1996
and for the Year Ended December 31, 1995 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 18
Exhibit Cross Reference Index 19
<PAGE>
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash & due from banks, noninterest bearing $ 14,134 $ 12,190 $ 13,177
Federal funds sold -- 11,826 6,478
--------- --------- ---------
Total cash and cash equivalents 14,134 24,016 19,655
--------- --------- ---------
Securities available for sale (approximate
costs of $56,454, $49,297 and $46,925) 56,303 49,657 47,134
Securities held-to-maturity (approximate
fair values of $20,807, $20,374 and $21,384) 20,433 19,740 20,638
Presold mortgages in process of settlement 936 826 800
Loans, net of unearned income 219,732 211,522 197,746
Less: Allowance for possible loan losses (4,734) (4,587) (4,645)
--------- --------- ---------
Net loans 214,998 206,935 193,101
--------- --------- ---------
Premises and equipment, net 7,687 8,043 7,581
Accrued interest receivable 2,439 2,372 2,455
Intangible assets 5,976 6,306 5,744
Other 2,878 3,844 4,071
--------- --------- ---------
Total assets $ 325,784 $ 321,739 $ 301,179
========= ========= =========
LIABILITIES
Deposits: Demand $ 43,595 $ 41,941 $ 38,823
Savings, NOW and money market 103,924 106,339 97,697
Time deposits of $100,000 or more 30,732 31,961 28,672
Other time deposits 111,144 107,474 101,377
--------- --------- ---------
Total deposits 289,395 287,715 266,569
Accrued interest on deposits 1,756 1,889 1,683
Other 2,429 1,858 1,736
--------- --------- ---------
Total liabilities 293,580 291,462 269,988
--------- --------- ---------
SHAREHOLDERS' EQUITY
Common stock, $5 par value per share
Authorized: 12,500,000 shares
Issued and outstanding: 3,014,170,
3,014,170 and 3,008,370 shares 15,071 15,071 15,042
Capital surplus 3,819 3,819 3,787
Retained earnings 13,414 11,152 12,225
Unrealized gain (loss) on securities
available for sale, net of income taxes (100) 235 137
--------- --------- ---------
Total shareholders' equity 32,204 30,277 31,191
--------- --------- ---------
Total liabilities and shareholders' equity $ 325,784 $ 321,739 $ 301,179
========= ========= =========
<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) 1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,278 $ 4,835 $ 15,658 $ 13,963
Interest on investment securities:
Taxable interest income 865 701 2,216 2,084
Exempt from income taxes 283 272 825 810
Other, principally federal funds sold 108 91 434 293
--------- --------- --------- ---------
Total interest income 6,534 5,899 19,133 17,150
--------- --------- --------- ---------
INTEREST EXPENSE
Time deposits of $100,000 or more 456 420 1,321 1,190
Other time and savings deposits 2,016 1,905 6,065 5,296
--------- --------- --------- ---------
Total interest expense 2,472 2,325 7,386 6,486
--------- --------- --------- ---------
NET INTEREST INCOME 4,062 3,574 11,747 10,664
Provision for possible loan losses 75 100 225 360
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,987 3,474 11,522 10,304
--------- --------- --------- ---------
OTHER INCOME
Service charges on deposit accounts 654 526 1,910 1,596
Commissions from insurance sales 85 88 280 283
Other charges, commissions and fees 206 192 656 615
Data processing fees 64 37 180 86
Securities gains 6 -- 6 --
Net gain from sale of branches 211 -- 211 --
--------- --------- --------- ---------
Total other income 1,226 843 3,243 2,580
--------- --------- --------- ---------
OTHER EXPENSES
Salaries 1,370 1,317 4,047 3,767
Employee benefits 326 312 974 904
--------- --------- --------- ---------
Total personnel expense 1,696 1,629 5,021 4,671
Net occupancy expense 218 220 692 638
Equipment related expenses 214 207 630 613
Other 1,251 978 3,478 3,459
--------- --------- --------- ---------
Total other expenses 3,379 3,034 9,821 9,381
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,834 1,283 4,944 3,503
Income taxes 626 420 1,688 1,120
--------- --------- --------- ---------
NET INCOME $ 1,208 $ 863 $ 3,256 $ 2,383
========= ========= ========= =========
PER SHARE AMOUNTS
Net income $ 0.40 $ 0.29 $ 1.08 $ 0.79
Cash dividends declared 0.11 0.09 0.33 0.26
<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) 1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,256 $ 2,383
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses 225 360
Net security premium amortization/discount accretion (12) (28)
Loan fees and costs deferred net of amortization 1 (57)
Depreciation of premises and equipment 552 542
Amortization of intangible assets 425 374
Realized and unrealized other real estate losses 49 75
Provision for deferred income taxes 272 (459)
Gain on sale of investment securities (6) --
Net gain from sale of branches (211) --
Changes in operating assets and liabilities:
Increase in accrued interest receivable (67) (220)
Decrease (increase) in intangible assets (96) 161
Decrease in other assets 1,067 2,089
Increase (decrease) in accrued interest payable (133) 539
Increase in other liabilities 510 472
--------- ---------
Net cash provided by operating activities 5,832 6,231
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (37,011) (18,926)
Purchase of securities held-to-maturity (2,375) (1,283)
Proceeds from sale of securities available for sale 1,146 --
Proceeds from maturities/issuer calls of securities
available for sale 28,673 19,323
Proceeds from maturities/issuer calls of securities
held-to-maturity 1,740 1,542
Net increase in loans (10,028) (12,867)
Net purchases of premises and equipment (426) (985)
Net cash paid in sale of deposits (1,722) --
--------- ---------
Net cash used in investing activities (20,003) (13,196)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,224 8,139
Cash dividends paid (935) (767)
--------- ---------
Net cash provided by financing activities 4,289 7,372
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,882) 407
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,016 19,248
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,134 $ 19,655
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 7,519 $ 5,947
Income taxes 1,338 964
Non-cash transactions:
Foreclosed loans transferred to other real estate 359 203
Loans to facilitate the sale of other real estate 93 1,199
Increase (decrease) in market value of securities
available for sale (506) 1,308
<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, 1995 1,504 $ 7,521 $ 11,308 $ 10,624 $ (663)$ 28,790
Common stock issued
from two-for-one
stock split 1,504 7,521 (7,521) --
--------- --------- --------- --------- --------- ---------
BALANCES,
January 1, 1995,
as restated 3,008 15,042 3,787 10,624 (663) 28,790
Net income 1,582 1,582
Cash dividends
declared (1,054) (1,054)
Common stock issued
under stock option
plans 6 29 32 61
Net adjustment
for securities
available for sale 898 898
--------- --------- --------- --------- --------- ---------
BALANCES,
December 31, 1995 3,014 15,071 3,819 11,152 235 30,277
Net income 3,256 3,256
Cash dividends
declared (994) (994)
Net adjustment
for securities
available for sale (335) (335)
--------- --------- --------- --------- --------- ---------
BALANCES,
September 30, 1996 3,014 $ 15,071 $ 3,819 $ 13,414 $ (100)$ 32,204
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended September 30, 1996 and 1995
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, 1996 and 1995 and the consolidated
results of operations and consolidated cash flows for the periods ended
September 30, 1996 and 1995 and changes in consolidated shareholders' equity
for the period ended September 30, 1996. Reference is made to the notes to
consolidated financial statements for the year ended December 31, 1995 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, 1996 and 1995
are not necessarily indicative of the results to be expected for the full
year. Earnings per share were computed by dividing net income by the
weighted average common shares outstanding. Per share data and average
common shares outstanding have been restated for the 2-for-1 stock split paid
September 13, 1996. 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, 1995 have been
reclassified to conform with the presentation for September 30, 1996. 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 $4,734,000 as of September 30, 1996 compared to $4,587,000 and
$4,645,000 as of December 31, 1995 and September 30, 1995, respectively.
These reserve levels represented 2.15%, 2.17% and 2.35% of total loans as of
September 30, 1996, December 31, 1995 and September 30, 1995, respectively.
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. For each of the periods presented, the
Company had no loans past due 90 or more days and still accruing interest.
Nonperforming assets are summarized as follows:
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,322 $ 772 $ 1,711
Restructured loans 730 668 678
--------- --------- ---------
Total nonperforming loans 2,052 1,440 2,389
Foreclosed, repossessed and idled
properties (included in other assets) 611 1,393 1,377
--------- --------- ---------
Total nonperforming assets $ 2,663 $ 2,833 $ 3,766
========= ========= =========
Nonperforming loans as a percentage of total loans 0.93% 0.68% 1.21%
Allowance for possible loan losses as a percentage
of nonperforming loans 230.70% 318.54% 194.43%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 1.21% 1.33% 1.89%
Nonperforming assets as a percentage of
total assets 0.82% 0.88% 1.25%
</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, 1996 increased 40% to
$1,208,000, or $0.40 per share, compared to $863,000, or $0.29 per share, for
the third quarter of 1995. The earnings increase was achieved through the
combination of (i) higher net interest income that primarily resulted from
increasing loan volume and (ii) higher noninterest income in 1996 primarily
caused by growth in deposit fees and nonrecurring gains on the sale of
branches of $128,000 after tax, or $0.04 per share. For substantially the
same reasons, net income for the nine months ended September 30, 1996
increased 36.6% to $3,256,000, or $1.08 per share, from $2,383,000, or $0.79
cents per share, for the same period in 1995. Earnings per share for 1995
have been restated to reflect the two-for-one stock split paid September 13,
1996 to shareholders of record August 30, 1996.
Although not significantly impacting net income, the December 1995
acquisition of two branches of First Scotland Bank ("First Scotland") in
Laurinburg and Rockingham, 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 $488,000, or 13.7%, when comparing the third
quarter of 1996 with the third quarter of 1995, primarily because of the
growth in loan volume. This growth caused earning assets to increase more
rapidly than interest-bearing liabilities. For substantially the same
reasons, net interest income for the nine months ended September 30, 1996
increased by $1,083,000, or 10.2%, compared to the same period in 1995. The
two branches acquired from First Scotland added approximately $80,000 and
$207,000, respectively, in net interest income for the third quarter and
year-to-date periods of 1996.
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. The Company is experiencing a shift to time
deposits from savings, NOW and money market deposits. Generally, the
Company's goal is to manage portfolio mixes to minimize changes in net
interest income due to changing rates.
The provision for possible loan losses for the third quarter decreased
$25,000, or 25%, to $75,000 from $100,000 for the third quarter of 1995,
primarily because of the improvement in the level of nonperforming assets.
For the nine months ended September 30, 1996, provisions for possible loan
losses decreased by $135,000, or 37.5%. Provisions for possible loan losses
are based on management's evaluation of the loan portfolio, as discussed
under "Financial Condition" below.
<PAGE>
Noninterest income increased $383,000, or 45.4%, for the third quarter,
reflecting nonrecurring net gains of $211,000 from the sale of the loans and
deposits of one branch office and from the sale of the building of another
branch office that will soon be relocating. Excluding the nonrecurring
gains, noninterest income increased $166,000, or 19.7%, primarily because of
growth in service charges on deposit accounts. Growth in data processing fees
contributed as well. For the nine months ended September 30, 1996,
noninterest income increased $663,000, or 25.7%, for substantially the same
reasons. Transaction deposit accounts acquired from First Scotland provided
increases of $63,000 and $200,000, respectively, in deposit fees for the
quarterly and year-to-date periods ended September 30, 1996. The Company
sold securities at a small gain in the third quarter of 1996 compared with no
sales of securities in the third quarter of 1995.
Noninterest overhead expenses increased by $345,000, or 11.4%, for the
third quarter of 1996. Contributing to the increase were overhead expenses
in the amount of approximately $132,000 attributable to the branches acquired
from First Scotland. Personnel expenses increased $67,000, or 4.1%, of which
$55,000 was attributable to personnel acquired from First Scotland. Other
noninterest expenses increased $273,000, or 27.9%, of which $59,000 was
attributable to the offices acquired from First Scotland. The Company also
incurred expenses in the quarter for product promotion and miscellaneous
write-offs that aggregated approximately $145,000. For substantially the
same reasons, noninterest expenses increased by $440,000, or 4.7%, for the
nine months ended September 30, 1996. Year-to-date personnel expenses
increased $350,000, or 7.5%, of which approximately $166,000 was attributable
to personnel acquired from First Scotland.
Income taxes increased $206,000, or 49%, for the third quarter, while
the effective tax rates were 34.1% and 32.7% for the quarters ended
September 30, 1996 and 1995, respectively. The increase in the effective tax
rate was primarily attributable to larger levels of nondeductible intangible
amortization. For substantially the same reasons, income taxes for the nine
months ended September 30, 1996 increased $568,000, or 50.7%, resulting in an
effective tax rate of 34.1% compared to 32% for the same nine month period
of 1995.
FINANCIAL CONDITION
The Company's total assets were $325.8 million at September 30, 1996, an
increase of $24.6 million, or 8.2%, from September 30, 1995.
Interest-earning assets increased by 9% compared to September 30, 1995.
Loans, the primary interest-earning asset, increased by 11.1% during this
same period. Deposits increased $22.8 million, or 8.6% 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. In December of 1995, the Company acquired two
branch offices of First Scotland Bank which added assets, earning assets and
deposits of approximately $15.8 million, $14.2 million and $15 million,
respectively. Since December 31, 1995, the two newly acquired offices
experienced a decrease of approximately $1.4 million in earning assets and
deposits. In addition, earning assets of approximately $1.4 million and
deposits of approximately $3.5 million were sold to another financial
institution in July of 1996. These two decreases limited the Company's
annualized growth to 1.7%, 1.7% and 0.8% in earning assets, total assets and
deposits, respectively, since December 31, 1995.
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90
or more days, restructured loans and foreclosed, repossessed and idled
properties. The following table summarizes the Company's nonperforming
assets at the dates indicated.
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 1,322 $ 772 $ 1,711
Restructured loans 730 668 678
--------- --------- ---------
Total nonperforming loans 2,052 1,440 2,389
Foreclosed, repossessed and idled
properties (included in other assets) 611 1,393 1,377
--------- --------- ---------
Total nonperforming assets $ 2,663 $ 2,833 $ 3,766
========= ========= =========
Nonperforming loans as a percentage of total loans 0.93% 0.68% 1.21%
Allowance for possible loan losses as a percentage
of nonperforming loans 230.70% 318.54% 194.43%
Nonperforming assets as a percentage of loans and
foreclosed, repossessed and idled properties 1.21% 1.33% 1.89%
Nonperforming assets as a percentage of
total assets 0.82% 0.88% 1.25%
</TABLE>
Nonperforming assets were $2,663,000, $2,833,000 and $3,766,000 as of
September 30, 1996, December 31, 1995 and September 30, 1995, respectively.
Nonperforming assets as of September 30, 1996 include approximately $488,000
of loans acquired from First Scotland that have been placed on nonaccrual
status since December 31, 1995. 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, 1996 and 1995 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 $97,000 and $128,000 for nonaccrual loans and $52,000 and
$53,000 for restructured loans would have been recorded for the nine months
ended September 30, 1996 and 1995, respectively. Interest income on such
loans that was actually collected and included in net income in the nine
months ended September 30, 1996 and 1995 amounted to approximately $18,000 and
$32,000 for nonaccrual loans and $47,000 and $59,000 for restructured loans
loans respectively. There have been no material increases in the levels of
impaired loans since December 31, 1995.
<PAGE>
Nonperforming loans are defined as nonaccrual loans, loans past due 90
or more days and restructured loans. As of September 30, 1996, December 31,
1995 and September 30, 1995, nonperforming loans were approximately 0.93%,
0.68% and 1.21%, respectively, of the total loans outstanding at such dates.
Nonaccrual loans decreased $389,000, or 23%, to approximately $1,322,000
compared to September 30, 1995 and increased approximately $550,000, or
71.2%, since year-end. Excluding the $488,000 in loans acquired from First
Scotland that were placed on nonaccrual status in 1996, nonaccrual loans
increased approximately $62,000, or 8%, since year-end. As of September 30,
1996, the borrower with the largest nonaccrual loan owed a balance of
$456,000 while the average nonaccrual loan balance was approximately $34,000.
In addition to the nonperforming loan amounts discussed above,
management believes that an estimated $2,400,000-$2,600,000 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, 1996, the Company owned foreclosed and repossessed
assets totaling approximately $611,000, which consisted principally of
several parcels of foreclosed real estate. Two parcels with carrying values
of approximately $169,000 and $129,000 accounted for 49% of the total. The
remaining seven parcels have an aggregate carrying value of approximately
$290,000. 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, 1996.
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 $75,000 was added to the
allowance for possible loan losses during the third quarter of 1996, which
brought the year-to-date provision to $225,000. The quarterly provision for
loan losses made during 1996 was less than that made during the corresponding
period of 1995 because nonperforming loans decreased to approximately
$2,052,000. The year-to-date provision for possible loan losses decreased
$135,000, or 37.5%, for substantially the same reasons. At September 30,
1996, the allowance stood at $4,734,000, compared to $4,587,000 at
December 31, 1995 and $4,645,000 at September 30, 1995. At September 30,
1996, the allowance for possible loan losses was approximately 231% of total
nonperforming loans, compared to corresponding percentages of 319% at
December 31, 1995 and 194% at September 30, 1995.
The allowance for possible loan losses was 2.15%, 2.17% and 2.35% of
total loans as of September 30, 1996, December 31, 1995 and September 30, 1995
respectively. Management considers the reserve levels adequate to cover
possible loan losses on the loans outstanding as of each reporting date. It
must be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about future economic conditions and other factors affecting loans. No
assurance can be given that the Company will not in any particular period
sustain loan losses that are sizable in relation to the amounts reserved or
that subsequent evaluations of the loan portfolio, in light of conditions and
factors then prevailing, will not require significant changes in the
allowance for possible loan losses or future charges to earnings. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances for
possible loan losses and losses on other real estate. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available at the time of such examinations.
<PAGE>
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance arising from charge-offs and recoveries by category, and additions
to the allowance that have been charged to expense.
<TABLE>
<CAPTION>
Nine Nine
Months Year Months
Ended Ended Ended
Sep 30, Dec 31, Sep 30,
($ in thousands) 1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Loans outstanding at period end $ 219,732 $ 211,522 $ 197,746
========= ========= =========
Average loans outstanding during period $ 216,512 $ 192,035 $ 188,920
========= ========= =========
Allowance for possible loan losses at
beginning of period $ 4,587 $ 5,009 $ 5,009
Addition related to acquired bank -- 187 --
Loans charged off:
Commercial, financial and agricultural (71) (885) (378)
Real estate - mortgage (156) (184) (104)
Installment loans to individuals (204) (531) (300)
--------- --------- ---------
Total charge-offs (431) (1,600) (782)
--------- --------- ---------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 75 23 7
Real estate - mortgage 125 6 4
Installment loans to individuals 90 62 47
Other 63 -- --
--------- --------- ---------
Total recoveries 353 91 58
--------- --------- ---------
Net charge-offs (78) (1,509) (724)
Additions to the allowance charged to expense 225 900 360
--------- --------- ---------
Allowance for possible loan losses at
end of period $ 4,734 $ 4,587 $ 4,645
========= ========= =========
Ratios:
Annualized net charge-offs
to average loans during period 0.05% 0.79% 0.51%
Annualized net charge-offs
to loans at end of period 0.05% 0.71% 0.49%
Allowance for possible loan losses to
average loans during period 2.19% 2.39% 2.46%
Allowance for possible loan losses to
loans at end of period 2.15% 2.17% 2.35%
Annualized net charge-offs
to allowance for possible loan losses 2.20% 32.90% 20.78%
Annualized net charge-offs
to provision for possible loan losses 46.22% 167.67% 268.15%
</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, 1996, 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, 1995.
<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. The
Company has increased its loan to deposit ratio to a level more typical of
the Bank's North Carolina peer group. The Company's management believes its
liquidity sources are at an acceptable level 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, 1996
and 1995 and December 31, 1995. 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, 1996, the Company's total risk-based capital
ratio was approximately 13%.
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, 1996, the Company's
leverage capital ratio was approximately 8.2%.
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 September 30, 1996, December 31, 1995 and September 30, 1995, the
Company was in compliance with all existing capital requirements, as
summarized in the following table:
<TABLE>
<CAPTION>
Sep 30, Dec 31, Sep 30,
($ in thousands) 1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Tier I capital:
Total stated shareholders' equity $ 32,204 $ 30,277 $ 31,191
Less: Intangible assets 5,976 6,306 5,744
Unrealized holding gain (loss)
on securities available for
sale, net of income taxes (100) 235 137
--------- --------- ---------
Total Tier I leverage capital 26,328 23,736 25,310
--------- --------- ---------
Tier II capital:
Allowable allowance for loan losses 2,842 2,661 2,590
--------- --------- ---------
Tier II capital additions 2,842 2,661 2,590
--------- --------- ---------
Total capital $ 29,170 $ 26,397 $ 27,900
========= ========= =========
Risk-adjusted assets $ 227,330 $ 219,439 $ 207,215
Tier I risk-adjusted assets (includes Tier I
capital adjustments) 221,454 212,898 201,334
Tier II risk-adjusted assets (includes Tiers I
and II capital adjustments) 224,296 215,559 203,924
Quarterly average total assets 327,005 309,996 296,136
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 321,129 303,455 290,255
Risk-based capital ratios:
Tier I capital 11.89% 11.15% 12.57%
Minimum required Tier I capital 4.00% 4.00% 4.00%
Total risk-based capital 13.01% 12.25% 13.68%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Leverage capital ratios:
Tier I leverage capital ratio 8.20% 7.82% 8.72%
Minimum required Tier I leverage capital 3-5.00% 3-5.00% 3-5.00%
</TABLE>
COMPLETED ACQUISITION
On December 15, 1995, First Bank completed its cash acquisition of the
Laurinburg and Rockingham branch offices of First Scotland Bank. As of
December 15, 1995, assets acquired were approximately $15.8 million. The
acquisition included earning assets of approximately $14.2 million, of which
approximately $8.9 million were loans. Deposit liabilities assumed were
approximately $15 million.
<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 Cabarrus
Bank of North Carolina was filed as Exhibit 10(l) to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996, 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
September 30, 1996.
<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 12, 1996 BY: James H. Garner
------------------- -----------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
November 12, 1996 BY: Anna G. Hollers
------------------- -----------------------------
Anna G. Hollers
Executive Vice President
and Secretary
November 12, 1996 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
Cabarrus Bank of North Carolina *
27 Financial Data Schedules pursuant to Article 9 of
Regulation S-X 20
* Incorporated herein by reference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<S> <C>
<CASH> 14,134
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,303
<INVESTMENTS-CARRYING> 20,433
<INVESTMENTS-MARKET> 20,807
<LOANS> 219,732
<ALLOWANCE> 4,734
<TOTAL-ASSETS> 325,784
<DEPOSITS> 289,395
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,185
<LONG-TERM> 0
<COMMON> 15,071
0
0
<OTHER-SE> 17,133
<TOTAL-LIABILITIES-AND-EQUITY> 32,204
<INTEREST-LOAN> 15,658
<INTEREST-INVEST> 3,041
<INTEREST-OTHER> 434
<INTEREST-TOTAL> 19,133
<INTEREST-DEPOSIT> 7,386
<INTEREST-EXPENSE> 7,386
<INTEREST-INCOME-NET> 11,747
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 9,821
<INCOME-PRETAX> 4,944
<INCOME-PRE-EXTRAORDINARY> 4,944
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,256
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 5.54
<LOANS-NON> 1,322
<LOANS-PAST> 0
<LOANS-TROUBLED> 730
<LOANS-PROBLEM> 2,500
<ALLOWANCE-OPEN> 4,587
<CHARGE-OFFS> 431
<RECOVERIES> 353
<ALLOWANCE-CLOSE> 4,734
<ALLOWANCE-DOMESTIC> 4,734
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
