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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
Commission File Number 0-15572
FIRST BANCORP
(Exact Name of Registrant as Specified in its Charter)
NORTH CAROLINA 56-1421916
(State of Incorporation) (I.R.S. Employer 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
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $5 PAR VALUE
(Title of each class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $29.9 million.
The aggregate market value of the voting stock, Common Stock, $5 par
value, held by non-affiliates of the registrant, based on the closing sale
price of the Common Stock on January 31, 1997 as reported on the NASDAQ
National Market System, was approximately $46,738,000. Shares of Common Stock
held by each officer and director and by each person who owns 5% or more of
the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding on
January 31, 1997 was 3,016,370.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed pursuant to
Regulation 14A are incorporated herein by reference into Part III.
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EXHIBIT INDEX BEGINS ON PAGE 59
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CROSS REFERENCE INDEX
Begins on
Page(s)
PART I Business:
Item 1 General Description 4
Net Interest Income 11,22
Average Balances and Net Interest Income Analysis 11,22
Volume and Rate Variance Analysis 11,22
Rate Sensitivity Analysis 12,23
Provision for Possible Loan Losses 13,27
Other Income 13,23
Other Expense 13,23
Income Taxes 14,23
Distribution of Assets and Liabilities 14,24
Investment Portfolio Composition and Maturities 14,24,25
Loan Portfolio Composition and Credit Risks 15,26
Loan Maturities and Sensitivity to Changes in
Interest Rates 15,26
Nonperforming Assets 15,26
Summary of Loan Loss and Recovery Experience 17,27
Allocation of the Allowance for Possible Loan Losses 17,27
Average Deposit Balances and Maturities 18,27,28
Return on Assets and Equity 18,21,28,29
Liquidity 18
Capital Resources, Components and Ratios 18,28
Inflation 19
Accounting Changes 19
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Shareholders 10
PART II
Item 5 Market for the Registrant's Common Stock and Related
Shareholder Matters 10
Item 6 Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
Item 7 Financial Statements and Supplementary Data:
Consolidated Balance Sheets
as of December 31, 1996 and 1995 30
Statements Of Consolidated Income
for each of the years in the three-year period
ended December 31, 1996 31
Statements Of Consolidated Cash Flows
for each of the years in the three-year period
ended December 31, 1996 32
Statements Of Changes In
Consolidated Shareholders' Equity
for each of the years in the three-year period
ended December 31, 1996 33
Notes To Consolidated Financial Statements
for each of the years in the three-year period
ended December 31, 1996 34
Report Of Independent Auditors 52
Management's Responsibility For Financial Reporting 53
Selected Consolidated Financial Data 21
Quarterly Financial Summary 29
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Begins on
Page(s)
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 54
PART III
Item 9 Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Exchange Act 54*
Item 10 Executive Compensation 54*
Item 11 Security Ownership of Certain Beneficial Owners and
Management 54*
Item 12 Certain Relationships and Related Transactions 54*
Item 13 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 54
SIGNATURES 57
* Information called for by Part III (Items 9 through 12) is incorporated
herein by reference to the Registrant's definitive Proxy Statement for the 1997
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission.
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PART I
Item 1. Business
General Description
The Company
First Bancorp (the "Company") is a one-bank holding company. The
principal activity of the Company is the ownership and operation of First Bank
(the "Bank"), a state chartered bank with its main office in Troy, North
Carolina. The Company also owns and operates two nonbank subsidiaries,
Montgomery Data Services, Inc. ("Montgomery Data"), a data processing company,
and First Bancorp Financial Services, Inc. ("First Bancorp Financial"),
formerly First Recovery, Inc. ("First Recovery"), which currently owns and
operates various real estate. On August 1, 1994, First Recovery's back-up
data processing operations were divested. Both nonbank subsidiaries are
headquartered in Troy. The Company also controls First Bank Insurance
Services, Inc. (First Bank Insurance), an insurance agency acquired in 1994 as
a subsidiary of the Bank. On December 29, 1995, the insurance agency
operations of First Bank Insurance were divested.
The Company was incorporated in North Carolina on December 8, 1983, as
Montgomery Bancorp, for the purpose of acquiring 100% of the outstanding
common stock of the Bank through stock-for-stock exchanges. On December 31,
1986, the Company changed its name to First Bancorp to conform its name to the
name of the Bank, which had changed its name from Bank of Montgomery to First
Bank in 1985.
The Bank was organized in 1934 and began banking operations in 1935 as
the Bank of Montgomery, named for the county in which it operated. With its
1995 acquisition of the Laurinburg and Rockingham offices of First Scotland
Bank ("First Scotland") and its 1994 acquisition of Central State Bank
("Central State"), High Point, North Carolina, the Bank operates in a ten
county area centered in Troy, North Carolina. Troy, population 3,400, is
located in the center of Montgomery County, approximately 60 miles east of
Charlotte and 50 miles south of Greensboro. The Bank conducts business from 31
branches located within a 60-mile radius of Troy, covering a geographical area
from Laurinburg to the southeast, to High Point to the north and to Kannapolis
to the west. Ranked by assets, the Bank was the 18th largest bank in North
Carolina as of December 31, 1996, according to the North Carolina Bankers
Association. The Bank provides a full range of banking services, including the
accepting of demand and time deposits, the making of secured and unsecured
loans to individuals and businesses, trust services (offered through a
contractual arrangement with another financial institution), discount brokerage
services and self-directed IRA's (both offered through a contractual
arrangement with a brokerage firm). In 1996, as in recent prior years, the
Bank accounted for substantially all of the Company's consolidated net income.
The Company's principal executive offices are located at 341 North Main
Street, Troy, North Carolina 27371-0508, and its telephone number is (910)
576-6171. Unless the context otherwise requires, references to the "Company"
in this Annual Report on Form 10-KSB shall mean collectively First Bancorp
and its subsidiaries.
General Business
The Bank engages in a full range of banking activities, providing such
services as checking, savings, NOW and money market accounts and other time
deposits of various types; loans for business, agriculture, real estate,
personal uses, home improvement and automobiles; credit cards; letters of
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credit; trust services; investment and discount brokerage services; IRA's;
safe deposit box rentals; bank money orders; and electronic funds transfer
services, including wire transfers and automated teller machines. Because the
majority of the Bank's customers are individuals and small to medium-sized
businesses located in the counties it serves, deposits and loans are well
diversified. There are no seasonal factors that would have any material
adverse effect on the Bank's business, and the Bank does not rely on foreign
sources of funds or income.
Montgomery Data provides electronic data processing services to financial
institutions. The Bank is currently Montgomery Data's largest customer,
accounting for 82% of its data processing revenues in the most recent fiscal
year. Ownership and operation of Montgomery Data allows the Company to do all
of its electronic data processing without paying fees for such services to an
independent provider. Maintaining its own data processing system also allows
the Company to adapt the system to its individual needs and to the services and
products it offers. Although not a significant source of income, Montgomery
Data does provide the Company with additional revenues through fees it charges
to its other data processing customer.
First Bancorp Financial was organized under the name of First Recovery in
September of 1988 for the purpose of providing a back-up data processing site
for Montgomery Data and other financial and non-financial clients. First
Recovery's back-up data processing operations were divested on August 1, 1994.
First Bancorp Financial now owns and leases the First Recovery building. In
1995, First Bancorp Financial purchased several parcels of real estate from
the Bank that were acquired through foreclosure. The parcels purchased
consist of real estate having various purposes. First Bancorp Financial is
actively pursuing the sale of these properties.
Territory Served and Competition
The Company serves primarily the south central area of the Piedmont
region of North Carolina, with offices in Cabarrus, Chatham, Davidson,
Guilford, Montgomery, Moore, Randolph, Richmond, Scotland and Stanly counties.
The Company's headquarters are located in Troy, Montgomery County. The
Company's 31 branches and facilities are all located within a 60-mile radius
of Troy. Most of these offices are located in small communities whose
economies are based primarily on manufacturing and light industry. Although
the Company's market is predominantly small communities and rural areas, the
area is not dependent on agriculture. Textiles, furniture, mobile homes,
electronics, plastic and metal fabrication, forest products, food products and
cigarettes are among the leading manufacturing industries in the trade area.
Leading producers of socks, hosiery and area rugs are located in Montgomery
County. The Pinehurst-Southern Pines area is a widely known golf resort and
retirement area. The High Point area is widely known for its furniture
market. Additionally, many of the communities served by the Company are
"bedroom" communities serving Charlotte and Greensboro in addition to smaller
cities such as Albemarle, Asheboro, Concord, High Point, Kannapolis,
Lexington, Pinehurst and Sanford.
The banking laws of North Carolina allow state-wide branching, and
consequently commercial banking in the state is highly competitive. The
Company competes in its various market areas with, among others, several large
interstate bank holding companies that are headquartered in North Carolina.
These large competitors have substantially greater resources than the Company,
including broader geographic markets, higher lending limits and the ability to
make greater use of large-scale advertising and promotions. A significant
number of interstate banking acquisitions have taken place in the past decade,
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thus further increasing the size and financial resources of some of the
Company's competitors, three of which are among the largest bank holding
companies in the nation. See "Supervision and Regulation" below for a further
discussion of regulations in the Company's industry that affect competition.
The Company competes not only against banking organizations, but also
against a wide range of financial service providers including federally and
state chartered savings and loan institutions, credit unions, investment and
brokerage firms and small-loan or consumer finance companies. Competition
among financial institutions of all types is virtually unlimited with respect
to legal ability and authority to provide most financial services. The
Company believes it has certain advantages over its competition in the areas
it serves. The Company seeks to maintain a distinct local identity in each of
the communities it serves and actively sponsors and participates in local
civic affairs. Most lending and other customer-related business decisions can
be made without delays associated with larger systems. Additionally,
employment of local managers and personnel in various offices and low turnover
of personnel enable the Company to establish and maintain long-term
relationships with individual and corporate customers.
Lending Policy and Procedures
Conservative lending policies and procedures and appropriate underwriting
standards are high priorities of the Bank. Loans are approved under the
Bank's written loan policy, which provides that lending officers, principally
branch managers, have sole authority to approve loans of various maximum
amounts up to $75,000. Each of the Bank's regional senior lending officers
has sole discretion to approve secured loans in principal amounts up to
$250,000 and together can approve loans up to $750,000. Lending limits may
vary depending upon whether the loan is secured or unsecured.
The Bank's board of directors reviews and approves loans that exceed
management's lending authority, loans to officers, directors and their
affiliates and, in certain instances, other types of loans. New credit
extensions are reviewed daily by the Bank's senior management and at least
monthly by the board of directors.
The Bank continually monitors its loan portfolio to identify areas of
concern and to enable management to take corrective action. Lending officers
and the board of directors meet periodically to review past due loans and
portfolio quality, while also assuring that the Bank is appropriately meeting
the credit needs of the communities it serves. Individual lending officers
are responsible for pursuing collection of past-due amounts and monitoring any
changes in the financial status of the borrowers.
Investment Policy and Procedures
The Bank has adopted an investment policy designed to optimize the Bank's
income from funds not needed to meet loan demand in a manner consistent with
appropriate liquidity and risk objectives. Pursuant to this policy, the Bank
may invest in federal, state and municipal obligations, public housing
authority bonds, industrial development revenue bonds, Federal National
Mortgage Association ("FNMA"), Government National Mortgage Association
("GNMA") and Student Loan Marketing Association ("SLMA") securities. The
Bank's investments must satisfy certain investment quality criteria. The
investments must be rated at least BAA by Moody's or BBB by Standard and
Poor's. Securities rated below A are periodically reviewed for
creditworthiness. The Bank may purchase non-rated municipal bonds only if
such bonds are in the Bank's general market area and determined by the Bank to
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have a credit risk no greater than the minimum ratings referred to above.
Industrial development authority bonds, which normally are not rated, are
purchased only if they are judged to possess a high degree of credit soundness
to assure reasonably prompt sale at a fair value.
The Company's investment officers implement the investment policy,
monitor the investment portfolio, recommend portfolio strategies, and report
to the Bank's investment committee. Reports of all purchases, sales, net
profits or losses and market appreciation or depreciation of the bond
portfolio are reviewed by the Company's board of directors each month. Once a
quarter, the Company's interest rate risk exposure is monitored by the board
of directors. Once a year, the written investment policy is reviewed by the
board of directors and the Bank's portfolio is compared with the portfolios of
other North Carolina banks of comparable size.
All the Bank's securities are kept in safekeeping accounts at
correspondent banks.
Recent Acquisitions
As part of its operations, the Company regularly evaluates the potential
acquisition of or merger with, and holds discussions with, various financial
institutions.
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.
On August 25, 1994, the Company completed its cash acquisition of Central
State Bank in High Point, North Carolina. Central State, a North Carolina
state-chartered commercial bank, had approximately $35 million in assets, at
the time of the acquisition, with earning assets of approximately $32 million,
including approximately $27 million in loans. Central State also had
approximately $32 million in deposits at the time of the merger with First
Bank.
For additional information on these acquisitions, please see
Management's Discussion and Analysis and Note 2 to the Consolidated Financial
Statements.
Employees
As of December 31, 1996, the Company had 213 full-time and 29 part-time
employees. The Company considers its employee relations to be good.
Supervision and Regulation
As a bank holding company, the Company is subject to supervision,
examination and regulation by the Board of Governors of the Federal Reserve
System and the North Carolina Banking Commission. The Bank is subject to
supervision and examination by the Federal Deposit Insurance Corporation and
the North Carolina Banking Commission. See also Note 12 to consolidated
financial statements.
Supervision and Regulation of the Company
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and
is required to register as such with the Board of Governors of the Federal
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Reserve System (the "Federal Reserve Board" or "FRB"). The Company also is
regulated by the North Carolina Commissioner of Banks (the "Commissioner")
under the Bank Holding Company Act of 1984.
A bank holding company is required to file with the Federal Reserve Board
quarterly reports and other information regarding its business operations and
those of its subsidiaries. It is also subject to examination by the Federal
Reserve Board and is required to obtain Federal Reserve Board approval prior
to making certain acquisitions of other institutions or voting securities.
The Commissioner of Banks is empowered to regulate certain acquisitions of
North Carolina banks and bank holding companies, issue cease and desist orders
for violations of North Carolina banking laws, and promulgate rules necessary
to effectuate the purposes of the Bank Holding Company Act of 1984.
Regulatory authorities have cease and desist powers over bank holding
companies and their nonbank subsidiaries where their actions would constitute
a serious threat to the safety, soundness or stability of a subsidiary bank.
Those authorities may compel holding companies to invest additional capital
into banking subsidiaries upon acquisition or in the event of significant loan
losses or rapid growth of loans or deposits.
The United States Congress and the North Carolina General Assembly have
periodically considered and adopted legislation that has resulted in, and
could result in further, deregulation of both banks and other financial
institutions. Such legislation could modify or eliminate geographic
restrictions on banks and bank holding companies and current restrictions on
the ability of banks to engage in certain nonbanking activities. For example,
the recently-enacted Reigle-Neal Interstate Banking Act allows expansion of
interstate acquisitions by bank holding companies and banks. This and other
legislative and regulatory changes have increased the ability of financial
institutions to expand the scope of their operations, both in terms of
services offered and geographic coverage. Such legislative changes could
place the Company in more direct competition with other financial
institutions, including mutual funds, securities brokerage firms, insurance
companies, and investment banking firms. The effect of any such legislation
on the business of the Company cannot be predicted. The Company cannot
predict what other legislation might be enacted or what other regulations
might be adopted or, if enacted or adopted, the effect thereof.
Supervision and Regulation of the Bank
Federal banking regulations applicable to all depositary financial
institutions, among other things, (i) provide federal bank regulatory agencies
with powers to prevent unsafe and unsound banking practices; (ii) restrict
preferential loans by banks to "insiders" of banks; (iii) require banks to
keep information on loans to major shareholders and executive officers; and
(iv) bar certain director and officer interlocks between financial
institutions.
As a state chartered bank, the Bank is subject to the provisions of the
North Carolina banking statutes and to regulation by the Commissioner. The
Commissioner has a wide range of regulatory authority over the activities and
operations of the Bank, and the Commissioner's staff conducts periodic
examinations of banks and their affiliates to ensure compliance with state
banking regulations. Among other things, the Commissioner regulates the
merger and consolidation of state-chartered banks, the payment of dividends,
loans to officers and directors, record keeping, types and amounts of loans
and investments, and the establishment of branches. The Commissioner also has
cease and desist powers over state-chartered banks for violations of state
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banking laws or regulations and for unsafe or unsound conduct that is likely
to jeopardize the interests of depositors.
The dividends that may be paid by the Bank to the Company are subject to
legal limitations under the North Carolina law. In addition, the regulatory
authorities may restrict dividends that may be paid by the Bank or the
Company's other subsidiaries. The ability of the Company to pay dividends to
its shareholders is largely dependent on the dividends paid to the Company by
its subsidiaries.
The Bank is a member of the Federal Deposit Insurance Corporation (the
"FDIC"), which currently insures the deposits of member banks. For this
protection, each bank pays a quarterly statutory assessment and is subject
to the rules and regulations of the FDIC. The FDIC also is authorized to
approve conversions, mergers, consolidations and assumptions of deposit
liability transaction between insured banks and uninsured banks or
institutions, and to prevent capital or surplus diminution in such
transactions where the resulting, continuing, or assumed bank is an insured
nonmember bank. In addition, the FDIC monitors the Bank's compliance with
several banking statutes, such as the Depository Institution Management
Interlocks Act and the Community Reinvestment Act of 1977. The FDIC also
conducts periodic examination of the Bank to assess its compliance with
banking laws and regulations, and it has the power to implement changes in or
restrictions on a bank's operations if it finds that a violation is occurring
or is threatened.
Neither the Company nor the Bank can predict what other legislation might
be enacted or what other regulations might be adopted, or if enacted or
adopted, the effect thereof on the Bank's operations.
Item 2. Properties
The main offices of First Bancorp, First Bank and First Bancorp Financial
are located in a three-story building in the central business district of Troy,
North Carolina. The building houses administrative, training and bank teller
facilities. The Bank's Operations Division, including customer accounting
functions, offices and operations of Montgomery Data Services, and offices for
loan operations, are housed in a one-story steel frame building approximately
one-half mile west of the main office. The Company operates 31 branches and
facilities, including the main office, in the trade area as follows: Troy -
main office and two additional full service branches and two teller-window
facilities; High Point and Albemarle - two full service branches in each;
Pinehurst - one full service branch and one teller-window facility; Aberdeen,
Asheboro, Archdale, Biscoe, Bennett, Candor, Denton, Kannapolis, Laurel Hill,
Laurinburg, Locust, Pinebluff, Richfield, Robbins, Rockingham, Seagrove, Seven
Lakes, Southern Pines, Vass and Wagram - one full service branch in each. The
Company owns all its premises except two branch offices for which the land and
buildings are leased and two branch offices for which the land is leased but
the buildings are owned. The Company plans to open offices in Sanford and
Lillington, both of which will be leased. There are no other options to
purchase or lease additional properties. The Company considers its facilities
adequate to meet current needs and idle or vacant properties are insignificant.
Item 3. Legal Proceedings
Various legal proceedings may arise in the ordinary course of business and
may be pending or threatened against the Company and/or its subsidiaries.
The Company is not involved in any pending legal proceedings which, in
management's opinion, could have a material effect on the consolidated
financial position of the Company.
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Item 4. Submission of Matters to a Vote of Shareholders
No matters were submitted for vote to the shareholders during the fourth
quarter.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The Company's common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol FBNC. Tables 1 and 20,
included in "Management's Discussion and Analysis" below, set forth the high
and low market prices of the Company's common stock as traded by the brokerage
firms that maintain a market in the Company's common stock and the dividends
declared for the periods indicated. As of December 31, 1996, there were 669
shareholders of record.
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Management's discussion and analysis is intended to assist readers in
understanding the Company's results of operations and changes in financial
position for the past three years. This review should be read in conjunction
with the consolidated financial statements and accompanying notes beginning
on page 34 of this report and the supplemental financial data contained in
Tables 1 through 20 included with this discussion and analysis. All per share
amounts for 1995 and 1994 contained in this discussion have been restated to
reflect the two-for-one stock split paid on September 13, 1996 to shareholders
of record August 30, 1996.
Near the end of 1995, First Bank completed its cash acquisition of the
Laurinburg and Rockingham branch offices of First Scotland Bank. Assets
acquired were approximately $15.8 million including earning assets of
approximately $14.2 million, of which approximately $8.9 million were loans.
Deposit liabilities assumed were approximately $15 million. During 1994, the
Company completed its cash acquisition of Central State Bank in High Point,
North Carolina. Central State had approximately $35 million in assets with
earning assets of approximately $32 million, including approximately $27
million in loans. Central State also had approximately $32 million in
deposits. For additional information on these acquisitions, please see
"Analysis of Results of Operations" and "Analysis of Financial Condition" below
and Note 2 to the Consolidated Financial Statements.
ANALYSIS OF RESULTS OF OPERATIONS
Net interest income, the "spread" between earnings on interest-earning
assets and the interest paid on interest-bearing liabilities, constitutes the
largest source of the Company's earnings. Other factors that significantly
affect operating results are the loan loss provision, other non-interest income
such as service fees and other non-interest expenses such as salaries, FDIC
insurance assessments and other overhead costs, and the effect of income taxes.
1996 Compared To 1995
First Bancorp reported record earnings for the year ended December 31,
1996. Net income for 1996 was $4,347,000, or $1.44 per share compared to
$1,582,000, or $0.53 per share for 1995. Excluding the after tax effects of
nonrecurring net gains in the third quarter of 1996 of $128,000, or $0.04 per
share, and nonrecurring losses in the fourth quarter of 1995 of $1,638,000,
<PAGE>
or $0.54 per share, recurring net income for 1996 grew 31% to $4,219,000, or
$1.40 per share, from $3,220,000, or $1.07 per share, for 1995.
Excluding the effects of the nonrecurring events, First Bancorp reported
strong growth in its core business during 1996. Net interest income increased
10.2% while noninterest income increased 11.1% for the year ended December 31,
1996. Also for 1996, the provision for possible loan losses decreased 18.8%
while noninterest expenses, or overhead, increased only 3.4%.
1995 Compared To 1994
Excluding the effects of the two nonrecurring events discussed below, the
Company experienced strong growth in its core business during 1995. Net
interest income increased 12.5% while noninterest income increased 13.4% for
the year ended December 31, 1995. Nonrecurring litigation related expenses
(including related legal fees) during the year and severance expenses accounted
for approximately 85% of the increase in noninterest expenses for 1995.
Late in the fourth quarter of 1995, First Bancorp made an economic
decision to settle certain litigation pending against First Bank. The cost of
the litigation was partially covered by First Bank's fidelity bond, but the
bond coverage limit was not sufficient to cover the entire cost of the
settlement and the Bank incurred and reported significant expenses in
connection with resolving the litigation. The settlement resulted in a
nonrecurring fourth quarter pretax charge of approximately $1,946,000, or $0.39
per share after tax. Included in the pretax charge are the out of pocket
costs to settle claims in the amount of approximately $1,446,000 and additional
provisions for loan losses of $500,000 which were recorded due to charge-offs
of loans related to the litigating parties. Excluded from the $1,446,000
settlement amount were legal fees and other expenses of approximately $789,000
pretax related to the litigation that were incurred during 1995 and were
included in other operating expenses. These amounts also exclude the costs
related to the significant time and energy of company personnel required by the
discovery process. In late December, First Bank also recognized severance
expenses related to two former senior managers in the aggregate pretax amount
of $745,000, or $0.15 per share after tax. These one-time charges totaling
$2,691,000 before taxes resulted in lower earnings of $1,582,000 for 1995
compared to $2,987,000 for the year ended December 31, 1994. For additional
information related to the settlement, please see Note 10 to the Consolidated
Financial Statements.
Net Interest Income
Table 2 analyzes net interest income on a taxable-equivalent basis to
adjust for the nontaxable status of income earned on certain investments, such
as municipal bonds. The Company's net interest income on a taxable-equivalent
basis increased by 10% in 1996 and 12% in 1995. Average earning assets
increased by 11% in 1996 and 10% in 1995. The net yield on average earning
assets (net interest income divided by average earning assets) was 5.55% in
1996, 5.58% in 1995 and 5.48% in 1994. The interest rate spread decreased by
6 basis points in 1996 and by 3 basis points in 1995.
Average interest-bearing liabilities increased 10% in both 1996 and 1995
The average rate paid on such liabilities increased 2 basis points in 1996 and
91 basis points in 1995. Total interest expense increased 11% in 1996
primarily because of growth in deposit volumes and 43% in 1995 primarily
because of changes in deposit rates.
Changes in interest income and interest expense can result from variances
in both volume and rates. Table 3 analyzes the effect of variance in volume
and rate on taxable-equivalent interest income, interest expense and net
<PAGE>
interest income. The net effect of changes in volumes was an increase in net
interest income of $1,801,000 in 1996 and $1,641,000 in 1995 primarily due to
an increase in loan originations.
Rate Sensitivity
An important aspect of achieving satisfactory levels of net interest
income is the management of the composition and maturities of rate-sensitive
assets and liabilities. Table 4 sets forth the Company's interest sensitivity
analysis for December 31, 1996, and describes, at various cumulative maturity
intervals, the gap ratios (ratios of rate-sensitive assets to rate-sensitive
liabilities) for assets and liabilities that management considers rate
sensitive.
In evaluating the Company's exposure to interest rate risk, certain
shortcomings inherent in Table 4 must be considered. For example, this method
only measures the magnitude of the timing differences and does not address
earnings, market value, or management actions. Also, interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. In addition to the effects of "when" various rate-sensitive
products reprice, market rate changes may not result in uniform changes in
rates among all products. For example, a 1% change in the prime lending rate
may result in other than a 1% change in the rates of other rate-sensitive
products. As a result, management regularly projects earnings over a variety
of interest rate scenarios to more accurately measure interest rate risk.
Increases in future 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.
During 1996, the increases in interest expense paid on rate-sensitive
liabilities was offset by similar increases in interest income received from
interest-earning assets. In addition, increased volumes of loans helped to
increase the Company's net interest income during the year. Deposit rates
changed only slightly during 1996. However, a shift in the deposit mix to time
deposits from transactional accounts resulted in a slight increase in funding
costs in 1996.
At December 31, 1996, the Company's rate-sensitive liabilities repricing
over the next twelve months exceeded the rate-sensitive earning assets
repricing over the next twelve months by approximately $75,523,000 as presented
in Table 4. As of December 31, 1996, approximately 50% of the Company's
interest-earning assets could be repriced within one year and approximately 92%
of interest-earning assets could be repriced within five years. Approximately
91% of interest-bearing liabilities could be repriced within one year and
substantially all interest-bearing liabilities could be repriced within five
years.
The Company calculates fair values of financial instruments in accordance
with Statement of Financial Accounting Standards Number 107 ("SFAS No. 107"),
"Disclosures About Fair Value of Financial Instruments." Fair values of rate
sensitive assets and liabilities with variable rates tend to approximate their
book values because of the low interest rate risk associated with variable rate
financial instruments. Fair values of rate sensitive assets with fixed rates
will increase when market rates fall and decrease when market rates rise.
Conversely, fair values of rate sensitive liabilities with fixed rates
will decrease when market rates fall and increase when market rates rise.
<PAGE>
At December 31, 1996, such fair value of loans was approximately $4,410,000
greater than the net book value of such loans, compared to approximately
$4,677,000 at December 31, 1995. This change was primarily due to a modest
shift in loan mix to variable rate from fixed rate loans. The calculated fair
value for deposit liabilities was approximately $448,000 greater than the book
value of such deposits at December 31, 1996, compared to a calculated fair
value of approximately $475,000 in excess of the net book value at December 31,
1995. This decrease was largely due to a continued shift in deposit growth
from demand and savings deposits to time deposits that results in more deposits
subject to fair value and carrying value differences.
Provision For Possible Loan Losses
The provision for possible loan losses charged to earnings is based on
management's continuing review and evaluation of its loan portfolio and general
economic conditions. The Company made provisions for possible loan losses of
$325,000 for 1996 compared to $900,000 for 1995 and $387,000 for 1994. The
1995 increase was primarily attributable to amounts provided for the purpose of
replenishing reserves that were depleted because of charge-offs of loans
related to the parties involved in the litigation that was settled on
December 28, 1995. Management made the determination to record these
charge-offs as a result of the related settlement negotiations. For additional
information, please see Note 10 to the Consolidated Financial Statements. The
allowance, or reserve, for possible loan losses was 2.12% and 2.17% of total
loans at December 31, 1996 and 1995, respectively. Approximately $187,000 and
$2,487,000 in loan loss reserves were acquired from First Scotland and Central
State in 1995 and 1994, respectively. Please see "Summary of Loan Loss
Experience" below for a more detailed discussion of the allowance for possible
loan losses. The allowance is monitored and analyzed in conjunction with the
Bank's loan analysis and grading program, and adjustments are made to maintain
an adequate allowance for possible loan losses.
Other Income
Other income, principally charges for the use of the Company's services,
is a significant contributor to net earnings. Other income for 1996 includes
$211,000 in nonrecurring net gains from the sale of the loans and deposits of
one branch office reduced by a loss from the sale of the building of another
branch office that will soon be relocating. Excluding the effects of these
nonrecurring events, other income increased by 11% in 1996 and 13% in 1995.
During 1996 and 1995, the Company has been able to increase other income by
increasing the prices of its services to partially offset increases in
recurring other expenses. Table 5 sets forth the principal components of other
income.
Other Expenses
Other expenses, or overhead, were $13,113,000 in 1996 compared to
$14,868,000 in 1995 and $11,380,000 in 1994. The 1995 increase was primarily
attributable to two nonrecurring events in the fourth quarter that resulted in
charges of approximately $745,000 in severance related personnel expenses and
approximately $1,446,000 in expenses related to the settlement of litigation.
For additional information, please see Note 10 to Consolidated Financial
Statements. Excluding the effects of these nonrecurring events in 1995, other
expenses increased by 3% in 1996 and 11% in 1995. Most of the remaining 1995
increase in total operating expenses was attributable to the absorption of
Central State Bank acquired in August of 1994. Partially offsetting the 1995
increases were recoveries of legal and other expenses of approximately $304,000
from the sale of other real estate and a $275,000 decrease in FDIC insurance
<PAGE>
premiums. Table 6 sets forth the principal components of other expenses.
Also please see Note 14 to the Consolidated Financial Statements.
Income Taxes
The provision for income taxes was $2,213,000 in 1996 compared to $580,000
in 1995 and $1,155,000 in 1994. The 1995 decrease was due to lower taxable
income primarily attributable to the two nonrecurring expenses in the aggregate
pretax amount of approximately $2,691,000. The Company's effective tax rates
were 34% in 1996, 27% in 1995 and 28% in 1994. The increase in the effective
tax rates in 1996 was due to an increase in state income taxes. Table 7
presents income tax expenses and the related effective tax rates.
ANALYSIS OF FINANCIAL CONDITION
The following discussion focuses on the factors considered by management
to be important in assessing the Company's financial condition. The Company's
assets and deposits have continued to grow, reflecting growth in existing
markets and expansion into new geographic areas. Total assets were $335
million at December 31, 1996, an increase of 4.3% in 1996 compared to an 11.1%
increase in 1995. Interest-earning assets were $304 million, an increase of 4%
in 1996 compared to 12.8% in 1995. Loans, the primary interest-earning asset,
grew 5.4% to $223 million in 1996 compared to 13.9% growth in 1995. Total
assets, interest-earning assets and loans acquired in the December 1995
purchase of two branch offices from First Scotland Bank were $16 million, $14
million and $9 million, respectively. Funding the 1996 asset growth was a
$10.1 million, or 3.5%, increase in deposits. Funding the 1995 asset growth
was a $29.3 million, or 11.3%, increase in deposits, approximately $15 million
of which was acquired from First Scotland. The Company's assets and deposits
have experienced slightly less than 8% compound growth rates over the last five
years.
Distribution Of Assets And Liabilities
Table 8 sets forth the percentage relationships of significant components
of the Company's balance sheets at December 31, 1996, 1995 and 1994. As a
percentage of total assets at December 31, 1995, the decrease in capital was
primarily attributable to the nonrecurring litigation and severance expenses
in the fourth quarter of 1995 that reduced earnings.
Investment Portfolio
The composition of the Company's investment portfolio as of December 31,
1996, 1995 and 1994 is presented in Table 9. In 1994, the Company classified
its investment securities as available for sale or held to maturity as required
by its adoption of Statement of Financial Accounting Standards Number 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities." Also please see Notes to Consolidated Financial Statements for
discussions of the changes implemented in accounting for investment securities.
Table 10 shows maturities of investment securities held by the Company at
December 31, 1996 and 1995, and the weighted average yields and effective
yields for the scheduled maturity of each security. As of December 31, 1996,
costs of securities available for sale were $53,721,000 compared to fair values
of $53,942,000. In accordance with SFAS No. 115, securities available for sale
are adjusted to their fair values with the unrealized gain or loss, net of
taxes, reflected as a component of shareholders' equity. As of December 31,
1996, the book values of securities held to maturity were $22,323,000 compared
to their fair values of $22,717,000. As of December 31, 1995, the fair values
of securities held to maturity were $20,374,000 compared to book values of
$19,740,000. As of December 31, 1996 and 1995 the average maturity of the
<PAGE>
aggregate available for sale and held to maturity portfolios was 3.8 years and
2.2 years, respectively, and the weighted average taxable-equivalent book
yields on such aggregate portfolios were 7.13% and 6.52% as of December 31,
1996 and 1995, respectively.
As of December 31, 1996 and 1995, the Company held no investment
securities of any one issuer, other than U. S. Treasury and U. S. Government
agencies, in which aggregate book values and approximate market values exceeded
10% of shareholders' equity.
Loan Portfolio and Credit Risks
The Company strives to maintain its loan portfolio in accordance with what
management believes are conservative loan underwriting policies that result in
loans specifically tailored to the needs of the Company's market areas. Every
effort is made to identify and minimize the credit risks associated with such
lending strategies. The Company has no foreign loans, few agricultural loans
and does not engage in significant lease financing or highly leveraged
transactions. Commercial loans are diversified among a variety of industries.
The majority of loans captioned in the tables discussed below as "real estate"
loans are primarily various personal and commercial loans where real estate
provides additional security for the loan. Collateral for virtually all of
these loans is located within the Company's principal market area. The
composition of the Company's loan portfolio is presented in Table 11 for the
periods indicated. The 1995 increase resulted primarily from increased loan
demand, although the $8.9 million in loans acquired from First Scotland
contributed to the growth. The 1994 increase in loans was largely attributable
to the acquisition of Central State. Loan demand varies with changes in
interest rates in the market.
Off-balance sheet lending commitments as of December 31, 1996 consisted of
unfunded loan commitments of $40.2 million (including unfunded commitments of
$8.3 million on revolving credit plans) and $0.6 million of standby letters of
credit.
Maturities And Sensitivities Of Loans To Changes In Interest Rates
Table 12 sets forth the maturity distribution of the Company's loans as
of December 31, 1996. The percentages of variable rate loans and fixed rate
loans to total performing loans were 51% and 49%, respectively, as of
December 31, 1996 compared to 49% and 51%, respectively, as of December 31,
1995. The Bank intentionally makes a blend of fixed and variable rate loans so
as to minimize rate sensitivity. As set forth in Table 4, loans repricing
within one year were 62% and 58% of the loan portfolios at December 31, 1996
and December 31, 1995, respectively. The overall yield on the loan portfolio
decreased 23 basis points comparing year-end 1996 with year-end 1995 primarily
because of competition in the market.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, loans past due 90 or more
days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. Table 13 summarizes the Company's
nonperforming assets at the dates indicated.
Nonaccrual loans are loans on which interest income is no longer being
recognized or accrued. The accrual of interest is discontinued on all loans
that become 90 days past due with respect to principal or interest. The
placing of loans on nonaccrual status negatively impacts earnings because (i)
interest accrued but unpaid as of the date a loan is placed on nonaccrual
status is either deducted from interest income or is charged off, (ii) future
<PAGE>
accruals of interest income are not recognized until it becomes highly probable
that both principal and interest will be paid and (iii) principal charged off,
if appropriate, may necessitate additional provisions for loan losses that are
charged against earnings. 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 December 31, 1996,
1995 and 1994 had been current in accordance with their original terms and had
been outstanding throughout the period (or since origination if held for part
of the period), gross interest income in the amounts of approximately $183,000,
$82,000 and $142,000 for nonaccrual loans and $71,000, $71,000 and $24,000
for restructured loans would have been recorded for 1996, 1995 and 1994,
respectively. Interest income on such loans that was actually collected and
included in net income in 1996, 1995 and 1994 amounted to approximately
$81,000, $36,000 and $67,000 for nonaccrual loans and $71,000, $69,000 and
$24,000 for restructured loans, respectively. As of December 31, 1996, 1995
and 1994, nonaccrual loans, loans past due 90 or more days and restructured
loans were approximately 1.14%, 0.68% and 1.06%, respectively, of the total
loans outstanding at such dates.
Nonaccrual loans were approximately $1,836,000 as of December 31, 1996
compared to $772,000 as of December 31, 1995 and $1,724,000 (of which $701,000
was in loans related to the litigation settled in December 1995) as of December
31, 1994. Approximately $1,461,000, $161,000 and $275,000 of nonaccrual loans
at December 31, 1996, 1995 and 1994, respectively, were acquired from other
financial institutions. Based upon a combination of (i) the loan loss reserves
related to these loans, (ii) the collateral securing these loans and (iii) the
funds escrowed from the proceeds paid to the sellers at the time these loans
were acquired, management believes that First Bancorp's exposure to loss from
these loans is significantly limited. Approximately $590,000 of the 1995
decrease in nonaccrual loans resulted from charge-offs of loans related to the
litigation settled in late December 1995. For additional information, please
see Note 10 to the Consolidated Financial Statements. Nonaccrual loans were
0.82% of loans at the end of 1996 compared to 0.36% and 0.93% (0.55% excluding
the loans related to the litigation settled in December 1995) at the end of
1995 and 1994, respectively. As of December 31, 1996, the largest nonaccrual
balance to any one borrower was approximately $456,000, and the average size of
the 43 nonaccrual loans was approximately $43,000.
In addition to the nonperforming loan amounts included above, management
believes that an estimated $1,800,000-$2,000,000 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. The majority of these potential problem
loans were acquired from First Scotland and Central State. Management has
taken these potential problem loans into consideration when evaluating the
adequacy of the allowance for loan losses at December 31, 1996.
Loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention that have not been disclosed in the problem loan amounts and
potential 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.
Foreclosed and repossessed properties were approximately $572,000 as of
December 31, 1996, compared to $1,393,000 as of December 31, 1995 and
<PAGE>
$2,976,000 as of December 31, 1994. Decreases of approximately $391,000 in
1996 and $363,000 in 1995 were due to sales and/or charge-offs of properties
acquired from Central State. Approximately $855,000 of the 1995 decrease in
foreclosed properties resulted from the sale of real estate to a homeowners'
association (please see Note 10 to the Consolidated Financial Statements.)
Foreclosed and repossessed properties represented 0.17%, 0.43% and 1.03% of
total assets at the end of 1996, 1995 and 1994, respectively. 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 December 31, 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. The
recoveries realized 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 (including off-balance sheet commitments), evaluation of
possible future losses and current economic conditions.
The Bank 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. In this program, risk grades are assigned by management
and tested by the Bank's Internal Audit Department and an independent third
party consulting firm. The program evaluates a sample of new loans, all loans
that management identifies as having potential credit weaknesses, loans past
due 90 days or more, nonaccrual loans and any other loans identified during
previous regulatory and other examinations.
Table 14 sets forth the allocation of the allowance for possible loan
losses at the dates indicated. Comparing 1996 to 1995, the Company's loan
loss reserves as a percentage of total loans slightly decreased to 2.12% from
2.17%. The portion of these reserves that was allocated to known weaknesses in
the loan portfolio was virtually unchanged at $4,104,000 at December 31, 1996,
compared to $4,093,000 at December 31, 1995.
Management considers the allowance for possible loan losses adequate to
cover possible loan losses on the loans outstanding as of each reporting date.
It must by emphasized, however, that the determination of the allowance 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 amount 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 allowances for possible loan
losses and losses on foreclosed real estate. Such agencies may require the
Bank to recognize additions to the allowances based on the examiners' judgments
about information available to them at the time of their examinations.
For the years indicated, Table 15 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. The Company charged off loans of
approximately $716,000 in 1996 and $1,600,000 in 1995. Charge-offs in 1995
<PAGE>
included approximately $590,000 of loans related to the parties involved in
the litigation that was settled on December 28, 1995. For additional
information, please see Note 10 to the Consolidated Financial Statements.
Charge-offs related to loans acquired from Central State were approximately
$235,000 and $161,000 for 1995 and 1994, respectively.
Deposits
The average amounts of deposits of the Company for the years ended
December 31, 1996, 1995 and 1994 are presented in Table 16. The Company has a
large, stable base of time deposits with little dependence on volatile deposits
of $100,000 or more. The time deposits are principally certificates of deposit
and individual retirement accounts obtained from individual customers.
Deposits of certain local governments and municipal entities represented 2.7%
of the Bank's total deposits at December 31, 1996. All such public funds are
collateralized by investment securities. The Company does not purchase
brokered deposits.
As of December 31, 1996, the Company held approximately $33,526,000 in
time certificates of deposit of $100,000 or more and other time deposits of
$111,728,000. Table 17 is a maturity schedule of time deposits of $100,000 or
more as of December 31, 1996.
Return On Assets And Equity
Table 18 shows return on assets (net income divided by average total
assets), return on equity (net income divided by average shareholders' equity),
dividend payout ratio (dividends declared per share divided by net income per
share) and shareholders' equity to assets ratio (average shareholders' equity
divided by average total assets) for each of the years in the three-year period
ended December 31, 1996. The changes in return on assets, return on equity and
dividend payout ratio are largely due to the effects of the two nonrecurring
charges previously discussed.
Liquidity
The Company's primary source of liquidity is dividends from the Bank. The
Bank'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 reserve requirements, pay
expenses and operate the Bank on an ongoing basis. The Bank's primary
liquidity sources are cash and due from banks and federal funds sold, as well
as other short-term investment securities. In addition, the Bank has the
ability, on a short-term basis, to purchase federal funds from other financial
institutions. The Bank typically has not had to rely on the purchase of
federal funds as a source of liquidity. The rate sensitivity of the Bank's
assets and liabilities also may have an effect on its liquidity (see Table 4,
"Rate Sensitivity Analysis"). The Bank's management believes its liquidity
sources are adequate to meet its operating needs.
Capital Resources
The Company is regulated by the Board of Governors of the Federal Reserve
Board ("FRB") and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Bank is regulated
by the Federal Deposit Insurance Corporation ("FDIC") and the North Carolina
State Banking Commission. 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>
The Company and the Bank must comply with regulatory capital requirements
established by the FRB and FDIC. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on both
the Company's and the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. These capital standards require the Company to
maintain minimum ratios of Tier 1 capital to total risk-weighted assets and
total capital to risk-weighted assets of 4.00% and 8.00%, respectively. Tier 1
capital is comprised of total shareholders' equity calculated in accordance
with generally accepted accounting principles less intangible assets, and total
capital is comprised of Tier 1 capital plus certain adjustments, the largest of
which for the Company is the allowance for possible loan losses. Risk-weighted
assets refer to the on- and off-balance sheet exposures of the Company adjusted
for their related risk levels using formulas set forth in FRB and FDIC
regulations.
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 Tier 1 capital (as defined above) to quarterly average total assets of
3.00% to 5.00%, depending upon the institution's composite ratings as
determined by its regulators. The FRB has not advised the Company of any
requirement specifically applicable to it.
At December 31, 1996 and 1995, the Company was in compliance with all
existing capital requirements, as summarized in Table 19. See "Supervision and
Regulation" under "Business" and Note 13 to the Consolidated Financial
Statements for discussion of other matters that may affect the Company's
capital resources.
Inflation
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same. The effect of inflation on banks is
normally not as significant as its influence on those businesses that have
large investments in plant and inventories. During periods of high inflation,
there are normally corresponding increases in the money supply, and banks will
normally experience above average growth in assets, loans and deposits. Also,
general increases in the price of goods and services will result in increased
operating expenses.
Accounting Changes
The Company prepares its financial statements and related disclosures in
conformity with standards established by, among others, the Financial
Accounting Standards Board (the "FASB"). Because the information needed by
users of financial reports is dynamic, the FASB frequently has new rules and
proposed new rules for companies to apply in reporting their activities. There
were no such changes as of December 31, 1996 that materially affect the
Company's future reporting.
<PAGE>
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect
of the proposed statements on the consolidated financial statements of the
Company and monitors the status of changes to issued exposure drafts and to
proposed effective dates.
<PAGE>
<TABLE>
<CAPTION>
Table 1 Selected Consolidated Financial Data
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Five-Year
($ in thousands except per share ----------------------------------------------------------- Compound
and nonfinancial data) 1996(1) 1995(1) 1994 1993 1992 Growth
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 25,722 $ 23,302 $ 19,009 $ 17,530 $ 18,453 4.7%
Interest expense 9,916 8,953 6,257 6,056 7,532 -0.9%
Net interest income 15,806 14,349 12,752 11,474 10,921 9.5%
Provision for possible loan losses 325 900 387 590 505 -10.5%
Net interest income after provision
for possible loan losses 15,481 13,449 12,365 10,884 10,416 10.4%
Other income 4,192 3,581 3,157 2,796 2,777 9.1%
Other expenses 13,113 14,868 11,380 9,958 9,721 6.7%
Income before income taxes 6,560 2,162 4,142 3,722 3,472 19.6%
Income taxes 2,213 580 1,155 1,021 1,019 26.6%
Net income $ 4,347 $ 1,582 $ 2,987 $ 2,701 $ 2,453 16.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data (2)
Net income $ 1.44 $ 0.53 $ 0.99 $ 0.90 $ 0.82 16.5%
Cash dividends declared 0.44 0.35 0.33 0.29 0.21 22.4%
Dividend payout 30.56% 66.04% 33.33% 32.22% 25.61% 5.1%
Market price:
High $ 19.50 $ 14.75 $ 11.50 $ 10.50 $ 8.75 21.9%
Low 11.50 10.25 9.00 7.38 5.50 16.4%
Close 18.50 12.75 10.50 10.50 7.63 26.9%
Stated book value 11.02 10.04 9.57 9.12 8.51 6.9%
Tangible book value 9.08 7.95 7.48 8.67 8.29 3.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data (at year end)
Securities available for sale $ 53,942 $ 49,657 $ 46,150 $ - $ - n/a
Securities held-to-maturity 22,323 19,740 20,942 65,746 68,359 -17.9%
Loans, net of unearned income 223,032 211,522 185,749 157,279 144,716 8.6%
Allowance for possible loan losses 4,726 4,587 5,009 2,797 2,526 13.7%
Intangible assets 5,834 6,306 6,279 1,374 681 40.7%
Total assets 335,450 321,739 289,613 257,339 242,622 7.6%
Deposits 297,861 287,715 258,430 227,043 214,867 7.7%
Total liabilities 302,218 291,462 260,823 229,896 217,007 7.7%
Total shareholders' equity 33,232 30,277 28,790 27,443 25,615 6.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Average Balances
Assets $ 326,221 $ 296,400 $ 267,227 $ 247,717 $ 236,198 7.8%
Securities 69,691 68,307 69,500 69,713 63,787 5.0%
Loans 217,900 192,035 168,167 149,247 146,710 8.4%
Earning assets 297,638 268,725 244,092 226,563 217,508 7.6%
Deposits 290,510 262,846 236,725 218,795 208,924 7.9%
Interest-bearing liabilities 247,883 225,006 204,141 193,988 188,489 6.7%
Shareholders' equity 31,896 30,461 28,197 26,751 24,721 6.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Nonfinancial Data
Number of shareholders of record 669 675 692 702 704
Number of employees (full/part time) 213/29 201/25 198/26 171/34 167/29
Number of banking offices 31 32 28 26 26
Number of communities 24 23 22 21 21
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average equity 13.63% 5.19% 10.59% 10.10% 9.92%
Return on average assets 1.33% 0.53% 1.12% 1.09% 1.04%
Net interest margin (taxable-equivalent basis) 5.55% 5.58% 5.48% 5.32% 5.33%
Average shareholders' equity to average assets 9.78% 10.28% 10.55% 10.80% 10.47%
Average loans to average deposits 75.01% 73.06% 71.04% 68.21% 70.22%
Net charge-offs to average loans 0.09% 0.79% 0.39% 0.21% 0.32%
<FN>
(1) 1996 results included a nonrecurring net gain of $211,000 before tax, or $128,000 after tax (or $0.04 per share), from the
third quarter sales of loans and deposits of one branch office and a building of another branch office. 1995 results included
a nonrecurring net loss of $2,691,000 before tax, or $1,638,000 after tax (or $0.54 per share), from the fourth quarter
settlement of litigation and unrelated severance expenses for two senior managers.
(2) Per share amounts have been restated to reflect the two-for-one stock split paid in September 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 2 Average Balances And Net Interest Income Analysis
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- ----------------------------------- -----------------------------------
Interest Interest Interest
Average Average Earned Average Average Earned Average Average Earned
($ in thousands) Volume Rate or Paid Volume Rate or Paid Volume Rate or Paid
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans(1) $ 217,900 9.61%$ 20,947 $ 192,035 9.87%$ 18,959 $ 168,167 9.07%$ 15,254
Taxable securities 49,617 6.27% 3,110 48,871 5.65% 2,762 51,844 4.82% 2,501
Non-taxable
securities(2) 20,074 9.09% 1,825 19,436 8.95% 1,739 17,656 9.13% 1,612
Federal funds sold 10,047 5.41% 544 8,383 5.94% 498 6,425 4.05% 260
----------- ----------- ----------- ----------- ----------- -----------
Total interest-
earning assets 297,638 8.88% 26,426 268,725 8.92% 23,958 244,092 8.04% 19,627
----------- ----------- -----------
Cash and due from
banks 12,906 11,575 10,912
Bank premises and
equipment, net 7,920 7,799 6,444
Other assets 7,757 8,301 5,779
----------- ----------- -----------
Total assets $ 326,221 $ 296,400 $ 267,227
=========== =========== ===========
Liabilities and
and Equity
Interest-bearing
deposits $ 247,876 4.00% 9,915 $ 224,999 3.98% 8,953 $ 204,080 3.06% 6,253
Short-term
borrowings 7 5.72% 1 7 - - 61 6.56% 4
----------- ----------- ----------- ----------- ----------- -----------
Total interest-
bearing
liabilities 247,883 4.00% 9,916 225,006 3.98% 8,953 204,141 3.07% 6,257
----------- ----------- -----------
Non-interest-
bearing deposits 42,634 37,847 32,645
Other liabilities 3,808 3,086 2,268
Shareholders'
equity 31,896 30,461 28,197
----------- ----------- -----------
Total liabilities
and shareholders'
equity $ 326,221 $ 296,400 $ 267,251
=========== =========== ===========
Net yield on interest-
earning assets and
net interest income 5.55%$ 16,510 5.58%$ 15,005 5.48%$ 13,370
=========== =========== ===========
Interest rate spread 4.88% 4.94% 4.97%
<FN>
(1) Average loans, net of unearned income. These amounts include non-accruing loans, the effect of which is to lower the average
rates shown. Interest earned includes recognized loan fees in the amounts of $766,000, $660,000 and $637,000 for 1996, 1995
and 1994, respectively.
(2) Interest earned on non-taxable securities has been (i) adjusted to a taxable-equivalent basis using the applicable combined
federal and state tax rate for the period and (ii) reduced by the nondeductible portion of interest expense.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 3 Volume And Rate Variance Analysis
- -----------------------------------------------------------------------------------------------------------------------------------
Changes in Changes in
Average Volumes Interest Earned or Paid Attributed to Changes in
----------------------- -----------------------------------------------------------------------
1996 1995 1996 1995
----------- ----------- ----------------------------------- -----------------------------------
(in thousands) Volume(1) Rate(1) Net Volume(1) Rate(1) Net
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 25,865 $ 23,868 $ 2,521 $ (533)$ 1,988 $ 2,264 $ 1,441 $ 3,705
Taxable securities 746 (2,973) 43 305 348 (157) 418 261
Non-taxable securities(2) 638 1,780 58 28 86 160 (33) 127
Federal funds sold 1,664 1,958 95 (49) 46 98 140 238
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning
assets $ 28,913 $ 24,633 2,717 (249) 2,468 2,365 1,966 4,331
=========== =========== ----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing deposits $ 22,877 $ 20,919 915 47 962 726 1,974 2,700
Short-term borrowings - (54) 1 - 1 (2) (2) (4)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities $ 22,877 $ 20,865 916 47 963 724 1,972 2,696
=========== =========== ----------- ----------- ----------- ----------- ----------- -----------
Net interest income $ 1,801 $ (296)$ 1,505 $ 1,641 $ (6)$ 1,635
=========== =========== =========== =========== =========== ===========
<FN>
(1) The combined rate/volume variance for each category has been allocated equally between rate and volume variances.
(2) Interest earned on non-taxable securities has been (i) adjusted to a taxable-equivalent basis using the applicable combined
federal and state tax rate for the period and (ii) reduced by the nondeductible portion of interest expense.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 4 Rate Sensitivity Analysis
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996
-----------------------------------------------------------
Total
3 Months 4 to 12 Within 12 Over 12
($ in thousands) or Less Months Months Months Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earning Assets
Loans $ 121,648 $ 16,590 $ 138,238 $ 84,794 $ 223,032
Securities available for sale 6,559 994 7,553 46,389 53,942
Securities held to maturity 305 2,424 2,729 19,594 22,323
Federal funds sold 5,025 - 5,025 - 5,025
----------- ----------- ----------- ----------- -----------
Total earning assets $ 133,537 $ 20,008 $ 153,545 $ 150,777 $ 304,322
=========== =========== =========== =========== ===========
Percent of total earning assets 43.88% 6.57% 50.45% 49.55% 100.00%
Cumulative percent of total earning assets 43.88% 50.45% 50.45% 100.00% 100.00%
Interest-bearing Liabilities
Time deposits of $100,000 or more $ 14,796 $ 14,953 $ 29,749 $ 3,777 $ 33,526
Savings, NOW and money market deposits 107,605 - 107,605 - 107,605
Other time deposits 35,663 56,051 91,714 20,014 111,728
----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities $ 158,064 $ 71,004 $ 229,068 $ 23,791 $ 252,859
=========== =========== =========== =========== ===========
Percent of total interest-bearing liabilities 62.51% 28.08% 90.59% 9.41% 100.00%
Cumulative percent of total interest-bearing
liabilities 62.51% 90.59% 90.59% 100.00% 100.00%
Interest sensitivity gap $ (24,527)$ (50,996)$ (75,523)$ 126,986 $ 51,463
Cumulative interest sensitivity gap $ (24,527)$ (75,523)$ (75,523)$ 51,463 $ 51,463
Cumulative interest sensitivity gap
as a percent of total earning assets -8.06% -24.82% -24.82% 16.91% 16.91%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 5 Other Income
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service charges on deposit accounts $ 2,561 $ 2,164 $ 1,935
Income from sales of credit insurance 313 381 279
Other service charges, commissions and fees 853 913 767
Data processing fees 248 123 139
Securities gains, net 6 - 37
Other nonrecurring net gains 211 - -
----------- ----------- -----------
Total $ 4,192 $ 3,581 $ 3,157
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 6 Other Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Salaries $ 5,447 $ 5,866 $ 4,457
Employee benefits 1,268 1,222 1,063
Total personnel expense 6,715 7,088 5,520
Net occupancy expense 904 858 735
Equipment rentals, depreciation and maintenance 833 798 883
Litigation settlement expenses - 1,446 -
Other operating expenses 4,661 4,678 4,242
----------- ----------- -----------
Total $ 13,113 $ 14,868 $ 11,380
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 7 Income Taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
($ in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense - Current - Federal $ 1,685 $ 767 $ 712
- State 268 - -
- Deferred - Federal 260 (187) 443
----------- ----------- -----------
Total $ 2,213 $ 580 $ 1,155
=========== =========== ===========
Effective tax rate 33.73% 26.83% 27.89%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 8 Distribution Of Assets And Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Interest-earning assets:
Net loans 65 % 64 % 62 %
Securities available for sale 16 15 16
Securities held to maturity 7 6 7
Federal funds sold 1 4 2
----------- ----------- -----------
Total interest-earning assets 89 89 87
Non-interest-earning assets:
Cash and due from banks 5 4 4
Premises and equipment 2 2 2
Other assets 4 5 7
----------- ----------- -----------
Total assets 100 % 100 % 100 %
=========== =========== ===========
Liabilities and Shareholders' Equity
Demand deposits 13 % 13 % 14 %
Savings, NOW and money market deposits 32 33 36
Time deposits of $100,000 or more 10 10 8
Other time deposits 33 33 31
----------- ----------- -----------
Total deposits 88 89 89
Accrued expenses and other liabilities 2 2 1
----------- ----------- -----------
Total liabilities 90 91 90
Shareholders' equity 10 9 10
----------- ----------- -----------
Total liabilities and shareholders' equity 100 % 100 % 100 %
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 9 Investment Portfolio Composition
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Securities available for Sale:
U.S. Treasury $ 5,537 $ 9,590 $ 10,292
U.S. Government agencies 42,239 39,054 35,666
Collateralized mortgage obligations 5,530 389 -
State and local governments 613 601 172
Other 23 23 20
----------- ----------- -----------
Total $ 53,942 $ 49,657 $ 46,150
=========== =========== ===========
Securities held to maturity:
U.S. Treasury $ - $ - $ 88
U.S. Government agencies - - 2,200
State and local governments 21,869 19,357 18,248
Other 454 383 406
----------- ----------- -----------
Total $ 22,323 $ 19,740 $ 20,942
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 10 Investment Portfolio Maturities
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------
Book Fair Book Book Fair Book
($ in thousands) Value Value Yield(1) Value Value Yield(1)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury
Due within 90 days $ 2,999 $ 3,009 7.31%$ 1,750 $ 1,749 5.11%
Due after 90 days but within one year - - - 4,244 4,229 4.74%
Due after one year but within five years 1,997 1,997 5.67% 2,996 3,062 7.31%
Due after five years but within ten years 504 531 7.28% 505 550 7.27%
----------- ----------- ----------- ----------- ----------- -----------
Total 5,500 5,537 6.71% 9,495 9,590 5.75%
----------- ----------- ----------- ----------- ----------- -----------
U.S. Government agencies
Due within 90 days 2,937 2,937 4.77% 8,989 8,984 5.22%
Due after 90 days but within one year 987 994 6.89% 12,999 12,968 4.84%
Due after one year but within five years 38,151 38,308 6.73% 16,804 17,102 6.70%
----------- ----------- ----------- ----------- ----------- -----------
Total 42,075 42,239 6.60% 38,792 39,054 5.73%
----------- ----------- ----------- ----------- ----------- -----------
Collateralized mortgage obligations
Due after one year but within five years 309 312 6.79% 386 389 6.90%
Due after five years but within ten years 1,041 1,049 5.37% - - -
Due after ten years 4,160 4,169 7.21% - - -
----------- ----------- ----------- ----------- ----------- -----------
Total 5,510 5,530 6.84% 386 389 6.90%
----------- ----------- ----------- ----------- ----------- -----------
State and local governments(1)
Due within 90 days 613 613 4.66% 601 601 6.08%
----------- ----------- ----------- ----------- ----------- -----------
Total 613 613 4.66% 601 601 6.08%
----------- ----------- ----------- ----------- ----------- -----------
Other
Due after five years but within ten years 23 23 6.00% 23 23 6.00%
----------- ----------- ----------- ----------- ----------- -----------
Total 23 23 6.00% 23 23 6.00%
----------- ----------- ----------- ----------- ----------- -----------
Total securities available for sale
Due within 90 days 6,549 6,559 5.92% 11,340 11,334 5.25%
Due after 90 days but within one year 987 994 6.89% 17,243 17,197 4.82%
Due after one year but within five years 40,457 40,617 6.68% 20,186 20,553 6.79%
Due after five years but within ten years 1,568 1,603 5.99% 528 573 7.21%
Due after ten years 4,160 4,169 7.21% - - -
----------- ----------- ----------- ----------- ----------- -----------
Total $ 53,721 $ 53,942 6.61%$ 49,297 $ 49,657 5.75%
=========== =========== =========== =========== =========== ===========
Securities held to maturity:
State and local governments(1)
Due within 90 days 305 306 8.61% 635 636 6.89%
Due after 90 days but within one year 2,424 2,449 9.32% 1,207 1,215 7.68%
Due after one year but within five years 9,195 9,431 8.54% 9,774 10,154 8.91%
Due after five years but within ten years 4,708 4,843 8.33% 6,692 6,901 8.16%
Due after ten years 5,237 5,234 7.88% 1,049 1,085 8.59%
----------- ----------- ----------- ----------- ----------- -----------
Total 21,869 22,263 8.42% 19,357 19,991 8.49%
----------- ----------- ----------- ----------- ----------- -----------
Other
Due after five years but within ten years 454 454 6.00% 383 383 6.00%
----------- ----------- ----------- ----------- ----------- -----------
Total 454 454 6.00% 383 383 6.00%
----------- ----------- ----------- ----------- ----------- -----------
Total securities held to maturity
Due within 90 days 305 306 8.61% 635 636 6.89%
Due after 90 days but within one year 2,424 2,449 9.32% 1,207 1,215 7.68%
Due after one year but within five years 9,195 9,431 8.54% 9,774 10,154 8.91%
Due after five years but within ten years 5,162 5,297 8.13% 7,075 7,284 8.04%
Due after ten years 5,237 5,234 7.88% 1,049 1,085 8.59%
----------- ----------- ----------- ----------- ----------- -----------
Total $ 22,323 $ 22,717 8.38%$ 19,740 $ 20,374 8.44%
=========== =========== =========== =========== =========== ===========
<FN>
(1) Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 34% tax rate.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 11 Loan Portfolio Composition
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------- ----------------------- ----------------------- ----------------------- -----------------------
($ in % of % of % of % of % of
thousands) Amount Total Amount Total Amount Total Amount Total Amount Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial
& agricul-
tural $ 33,139 14.86%$ 34,531 16.33%$ 33,948 18.28%$ 26,900 17.10%$ 25,058 17.32%
Real estate(1)
Construc-
tion 14,189 6.36% 10,033 4.74% 9,869 5.31% 8,651 5.50% 6,511 4.50%
Mortgage 147,243 66.02% 138,862 65.65% 114,705 61.75% 98,165 62.42% 90,330 62.41%
Installment
loans to
individ-
uals 26,625 11.94% 27,324 12.92% 25,503 13.73% 21,576 13.72% 20,792 14.37%
Nonaccrual 1,836 0.82% 772 0.36% 1,724 0.93% 1,987 1.26% 2,025 1.40%
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 223,032 100.00%$ 211,522 100.00%$ 185,749 100.00%$ 157,279 100.00%$ 144,716 100.00%
=========== =========== =========== =========== =========== =========== =========== =========== =========== ===========
<FN>
(1) The majority of these loans are various personal and commercial loans where real estate provides additional security for the
loan.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 12 Loan Maturities
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996
-----------------------------------------------------------------------------------------------
After One Year
Within But Within
One Year Five Years After Five Years Total
----------------------- ----------------------- ----------------------- -----------------------
($ in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate Loans:
Commercial, financial
and agricultural $ 13,271 8.88%$ 5,160 8.99%$ 1,606 9.15%$ 20,037 8.93%
Real estate-construction 9,551 9.06% 1,244 8.89% 147 10.50% 10,942 9.06%
Real estate-mortgage 24,929 8.82% 29,164 8.87% 23,549 9.24% 77,642 8.97%
Installment loans
to individuals 495 9.02% 2,320 10.52% 526 9.49% 3,341 10.14%
----------- ----------- ----------- -----------
Total at variable rates 48,246 8.89% 37,888 8.99% 25,828 9.25% 111,962 9.01%
----------- ----------- ----------- -----------
Fixed Rate Loans:
Commercial, financial
and agricultural 4,499 8.58% 7,496 9.10% 1,107 5.35% 13,102 8.60%
Real estate-construction 2,524 9.37% 326 8.93% 397 8.50% 3,247 9.22%
Real estate-mortgage 14,692 8.82% 45,877 8.98% 9,032 9.17% 69,601 8.97%
Installment loans
to individuals 4,565 10.04% 18,482 11.09% 237 9.29% 23,284 10.87%
----------- ----------- ----------- -----------
Total at fixed rates 26,280 9.04% 72,181 9.53% 10,773 8.76% 109,234 9.34%
----------- ----------- ----------- -----------
Subtotal 74,526 8.94% 110,069 9.34% 36,601 9.11% 221,196 9.17%
Nonaccrual loans 1,836 1,836
----------- ----------- ----------- -----------
Total loans $ 76,362 $ 110,069 $ 36,601 $ 223,032
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 13 Nonperforming Assets
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------
($ in thousands) 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans: Nonaccrual loans * $ 1,836 $ 772 $ 1,724 $ 1,987 $ 2,025
Restructured loans 703 668 252 591 276
----------- ----------- ----------- ----------- -----------
Total nonperforming loans 2,539 1,440 1,976 2,578 2,301
Foreclosed and repossessed properties 572 1,393 2,976 1,781 1,478
----------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 3,111 $ 2,833 $ 4,952 $ 4,359 $ 3,779
=========== =========== =========== =========== ===========
Nonperforming loans as a percentage
of total loans 1.14% 0.68% 1.06% 1.64% 1.59%
Allowance for possible loan losses as a
percentage of nonperforming loans 186.14% 318.54% 253.49% 108.49% 109.78%
Nonperforming assets as a percentage of
loans and foreclosed and repossessed assets 1.39% 1.33% 2.62% 2.74% 2.58%
Nonperforming assets as a percentage of
total assets 0.93% 0.88% 1.71% 1.69% 1.56%
<FN>
* Nonaccrual loans in the amounts of $1,461,000, $161,000 and $275,000 as of December 31, 1996, 1995 and 1994, respectively,
were loans acquired from other financial institutions. Based upon a combination of (i)the loan loss reserves related to these
loans, (ii)the collateral securing these loans and (iii)the funds escrowed from the proceeds paid to the sellers at the time
these loans were acquired, management believes that First Bancorp's exposure to loss from these loans is significantly limited.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 14 Allocation Of The Allowance For Possible Loan Losses
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 462 $ 758 $ 795 $ 346 $ 361
Real estate:
Construction 191 199 214 203 84
Mortgage 2,810 2,516 2,704 1,802 1,708
Installment loans to individuals 641 620 835 266 236
----------- ----------- ----------- ----------- -----------
Total allocated 4,104 4,093 4,548 2,617 2,389
Unallocated 622 494 461 180 137
----------- ----------- ----------- ----------- -----------
Total $ 4,726 $ 4,587 $ 5,009 $ 2,797 $ 2,526
=========== =========== =========== =========== ===========
<FN>
The percentages of total loans in each category to total loans are presented in Table 11.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 15 Loan Loss And Recovery Experience
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
($ in thousands) 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of year,
net of unearned income $ 223,032 $ 211,522 $ 185,749 $ 157,279 $ 144,716
=========== =========== =========== =========== ===========
Average amount of loans outstanding $ 217,900 $ 192,035 $ 168,167 $ 149,247 $ 146,710
=========== =========== =========== =========== ===========
Allowance for possible loan losses
at beginning of year $ 4,587 $ 5,009 $ 2,797 $ 2,526 $ 2,484
Provision for possible loan losses
charged to expense 325 900 387 590 505
Allowance of purchased banks - 187 2,487 - -
----------- ----------- ----------- ----------- -----------
4,912 6,096 5,671 3,116 2,989
----------- ----------- ----------- ----------- -----------
Loans charged off:
Commercial, financial and agricultural (209) (885) (242) (87) (60)
Real estate - mortgage (196) (184) (207) (158) (197)
Installment loans to individuals (311) (531) (354) (226) (294)
----------- ----------- ----------- ----------- -----------
Total charge-offs (716) (1,600) (803) (471) (551)
----------- ----------- ----------- ----------- -----------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 114 23 11 61 7
Real estate - mortgage 127 6 79 9 31
Installment loans to individuals 113 62 51 82 50
Other 176 - - - -
----------- ----------- ----------- ----------- -----------
Total recoveries 530 91 141 152 88
----------- ----------- ----------- ----------- -----------
Net charge-offs (186) (1,509) (662) (319) (463)
----------- ----------- ----------- ----------- -----------
Allowance for possible loan losses
at end of year $ 4,726 $ 4,587 $ 5,009 $ 2,797 $ 2,526
=========== =========== =========== =========== ===========
Ratios:
Net charge-offs during year to average
loans outstanding during year 0.09% 0.79% 0.39% 0.21% 0.32%
Net charge-offs to loans at end of year 0.08% 0.71% 0.36% 0.20% 0.32%
Allowance for possible loan losses
to average loans 2.17% 2.39% 2.98% 1.87% 1.72%
Allowance for possible loan losses
to loans at end of year 2.12% 2.17% 2.70% 1.78% 1.75%
Net charge-offs to allowance for
possible loan losses 3.94% 32.90% 13.22% 11.41% 18.33%
Net charge-offs to provision for
possible loan losses 57.23% 167.67% 171.06% 54.07% 91.68%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 16 Average Deposits
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
Average Average Average Average Average Average
($ in thousands) Amount Rate Amount Rate Amount Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand deposits $ 74,778 2.03%$ 71,571 2.09%$ 69,597 1.92%
Savings deposits 31,495 2.42% 29,322 2.56% 28,369 2.52%
Time deposits 141,603 5.39% 124,106 5.40% 106,114 3.96%
----------- ----------- -----------
Total interest-bearing deposits 247,876 4.00% 224,999 3.98% 204,080 3.06%
Non-interest-bearing deposits 42,634 - 37,847 - 32,645 -
----------- ----------- -----------
Total deposits $ 290,510 3.41%$ 262,846 3.41%$ 236,725 2.64%
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 17 Maturities Of Time Deposits Of $100,000 Or More
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996
-----------------------------------------------------------
3 Months 4 to 6 7 to 12 Over 12
(in thousands) or less Months Months Months Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit of
$100,000 or more $ 14,796 $ 7,903 $ 7,049 $ 3,778 $ 33,526
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 18 Return On Assets And Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Return on assets 1.33% 0.53% 1.12%
Return on equity 13.63% 5.19% 10.59%
Dividend payout 30.56% 66.04% 33.33%
Average shareholders' equity to average assets 9.78% 10.28% 10.55%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 19 Risk-Based And Leverage Capital, Capital Components And Ratios
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31,
-----------------------------------
($ in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Risk-Based And Leverage Capital
Tier I capital:
Common shareholders' equity $ 33,232 $ 30,277
Intangible assets (5,834) (6,306)
Unrealized gain on securities
available for sale, net of income taxes (146) (235)
----------- -----------
Total Tier I leverage capital 27,252 23,736
----------- -----------
Tier II capital:
Allowable allowance for possible loan losses 2,789 2,661
----------- -----------
Tier II capital additions 2,789 2,661
----------- -----------
Total risk-based capital $ 30,041 $ 26,397
=========== ===========
Risk-adjusted assets $ 229,084 $ 219,439
Tier I risk-adjusted assets
(includes Tier I capital adjustments) 223,104 212,898
Tier II risk-adjusted assets
(includes Tiers I and II capital adjustments) 225,893 215,559
Fourth quarter average assets 333,337 309,996
Adjusted fourth quarter average assets
(includes Tier I capital adjustments) 327,357 303,455
Risk-based capital ratios:
Tier I capital to Tier I risk-adjusted assets 12.21% 11.15%
Minimum required Tier I capital 4.00% 4.00%
Total risk-based capital to
Tier II risk-adjusted assets 13.30% 12.25%
Minimum required total risk-based capital 8.00% 8.00%
Leverage Capital Ratios:
Tier I leverage capital to
adjusted fourth quarter average assets 8.32% 7.82%
Minimum required Tier I leverage capital 3-5.00% 3-5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 20 QUARTERLY FINANCIAL SUMMARY
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------- -----------------------------------------------
($ in thousands Fourth Third Second First Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Summary
Interest income, taxable
equivalent $ 6,775 $ 6,711 $ 6,561 $ 6,379 $ 6,317 $ 6,064 $ 5,988 $ 5,589
Interest expense 2,530 2,472 2,445 2,469 2,467 2,325 2,222 1,939
Net interest income,
taxable equivalent 4,245 4,239 4,116 3,910 3,850 3,739 3,766 3,650
Taxable equivalent
adjustment 186 177 170 171 165 165 166 160
Net interest income 4,059 4,062 3,946 3,739 3,685 3,574 3,600 3,490
Provision for loan losses 100 75 75 75 540 100 160 100
Net interest income after
provision for possible
loan losses 3,959 3,987 3,871 3,664 3,145 3,474 3,440 3,390
Other income 949 1,226 1,006 1,011 1,001 843 871 866
Other expenses 3,292 3,379 3,275 3,167 5,487 3,034 3,115 3,232
Income (loss) before taxes 1,616 1,834 1,602 1,508 (1,341) 1,283 1,196 1,024
Income taxes 525 626 559 503 (540) 420 391 309
Net income (loss) 1,091 1,208 1,043 1,005 (801) 863 805 715
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data(1)
Net income (loss) $ 0.36 $ 0.40 $ 0.35 $ 0.33 $ (0.27)$ 0.29 $ 0.27 $ 0.24
Cash dividends declared 0.11 0.11 0.11 0.11 0.09 0.09 0.085 0.085
Dividend payout 30.56% 27.50% 31.43% 33.33% -33.33% 31.03% 31.48% 35.42%
Market price:
High $ 19.50 $ 17.00 $ 15.25 $ 13.50 $ 14.75 $ 14.50 $ 11.25 $ 11.25
Low 14.75 14.50 12.63 11.50 12.75 10.50 10.50 10.25
Close 18.50 16.00 14.63 12.88 12.75 14.13 11.00 11.00
Stated book value 11.02 10.68 10.37 10.23 10.04 10.37 10.16 9.83
Tangible book value 9.08 8.70 8.34 8.16 7.95 8.46 8.17 7.79
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Average Balances
Assets $ 333,337 $ 327,005 $ 325,912 $ 318,630 $ 309,996 $ 296,136 $ 291,981 $ 287,487
Securities 74,884 73,666 66,396 63,818 66,852 67,582 70,874 67,920
Loans 222,064 218,184 217,643 213,709 201,380 194,022 188,433 184,305
Earning assets 305,342 299,474 296,502 289,234 282,933 267,379 264,722 259,866
Deposits 296,024 290,546 290,919 284,551 274,648 261,650 259,305 255,781
Interest-bearing liabilities 251,903 248,125 247,539 243,965 235,287 223,977 221,772 218,988
Shareholders' equity 33,039 32,139 31,519 30,887 31,595 30,899 29,845 29,505
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.31% 1.48% 1.28% 1.26% -1.03% 1.17% 1.10% 0.99%
Return on average equity 13.21% 15.03% 13.24% 13.02% -10.14% 11.17% 10.79% 9.69%
Average equity to
average assets 9.91% 9.83% 9.67% 9.69% 10.19% 10.43% 10.22% 10.26%
Risk-based capital ratios:
Tier I capital 12.21% 11.89% 11.45% 11.27% 11.15% 12.57% 12.59% 12.51%
Total risk-based capital 13.30% 13.01% 12.57% 12.39% 12.25% 13.68% 13.70% 13.62%
Tier I leverage capital 8.32% 8.20% 7.91% 7.83% 7.82% 8.72% 8.56% 8.44%
Average loans to
average deposits 75.02% 75.09% 74.81% 75.10% 73.32% 74.15% 72.67% 72.06%
Average earning assets to
interest-bearing
liabilities 121.21% 120.69% 119.78% 118.56% 120.25% 119.38% 119.37% 118.67%
Net interest margin 5.56% 5.66% 5.55% 5.41% 5.44% 5.59% 5.69% 5.62%
Nonperforming loans as a
percentage of total loans 1.14% 0.93% 1.00% 1.13% 0.68% 1.21% 1.10% 1.13%
Allowance for possible loan
losses as a percentage of
nonperforming loans 186.14% 230.70% 217.36% 193.66% 318.54% 194.43% 227.95% 229.98%
Nonperforming assets as a
percentage of loans and
foreclosed, repossessed
and idled properties 1.39% 1.21% 1.37% 1.80% 1.33% 1.89% 2.00% 2.52%
Nonperforming assets as a
percentage of total assets 0.93% 0.82% 0.92% 1.21% 0.88% 1.25% 1.33% 1.65%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 7. Financial Statements
FIRST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------
($ in thousands) 1996 1995
----------- -----------
ASSETS <C> <C>
Cash and due from banks, noninterest-bearing $ 15,882 $ 12,190
Federal funds sold 5,025 11,826
----------- -----------
Total cash and cash equivalents 20,907 24,016
----------- -----------
Securities available for sale (costs of
$53,721 in 1996 and $49,297 in 1995) 53,942 49,657
Securities held to maturity (approximate fair
values of $22,717 in 1996 and $20,374 in 1995) 22,323 19,740
Presold mortgages in process of settlement 1,395 826
Loans, net of unearned income 223,032 211,522
Less: Allowance for possible loan losses (4,726) (4,587)
----------- -----------
Net loans 218,306 206,935
----------- -----------
Premises and equipment, net 7,722 8,043
Accrued interest receivable 2,412 2,372
Intangible assets, net 5,834 6,306
Other assets 2,609 3,844
----------- -----------
Total assets $ 335,450 $ 321,739
=========== ===========
LIABILITIES
Deposits, domestic:
Demand $ 45,002 $ 41,941
Savings, NOW and money market 107,605 106,339
Time deposits of $100,000 or more 33,526 31,961
Other time deposits 111,728 107,474
----------- -----------
Total deposits 297,861 287,715
Accrued interest on savings and time deposits 1,882 1,889
Other 2,475 1,858
----------- -----------
Total liabilities 302,218 291,462
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, par value $5 per share:
Authorized: 12,500,000 shares
Issued and outstanding: 3,016,370 shares
in 1996 and 3,014,170 shares in 1995 15,082 15,071
Capital surplus 3,831 3,819
Retained earnings 14,173 11,152
Unrealized gain on securities
available for sale, net of income taxes 146 235
----------- -----------
Total shareholders' equity 33,232 30,277
----------- -----------
Total liabilities and shareholders' equity $ 335,450 $ 321,739
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
(in thousands except per share data) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 20,947 $ 18,959 $ 15,254
Interest on investment securities
Taxable interest income 3,110 2,762 2,501
Exempt from federal income taxes 1,121 1,083 994
Other, principally from federal funds sold 544 498 260
----------- ----------- -----------
Total interest income 25,722 23,302 19,009
----------- ----------- -----------
INTEREST EXPENSE
Time deposits of $100,000 or more 1,811 1,662 861
Other time and savings deposits 8,104 7,291 5,392
Short-term borrowings 1 - 4
----------- ----------- -----------
Total interest expense 9,916 8,953 6,257
----------- ----------- -----------
Net interest income 15,806 14,349 12,752
Provision for possible loan losses 325 900 387
----------- ----------- -----------
Net interest income after provision for possible
loan losses 15,481 13,449 12,365
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 2,561 2,164 1,935
Income from sales of credit insurance 313 381 279
Other service charges, commissions and fees 853 913 767
Data processing fees 248 123 139
Securities gains, net 6 - 37
Other nonrecurring net gains 211 - -
----------- ----------- -----------
Total other income 4,192 3,581 3,157
----------- ----------- -----------
OTHER EXPENSES
Salaries 5,447 5,866 4,457
Employee benefits 1,268 1,222 1,063
----------- ----------- -----------
Total personnel expense 6,715 7,088 5,520
Net occupancy 904 858 735
Equipment rentals, depreciation and maintenance 833 798 883
Litigation settlement - 1,446 -
Other operating expenses 4,661 4,678 4,242
----------- ----------- -----------
Total other expenses 13,113 14,868 11,380
----------- ----------- -----------
Income before income taxes 6,560 2,162 4,142
Income taxes 2,213 580 1,155
----------- ----------- -----------
NET INCOME $ 4,347 $ 1,582 $ 2,987
=========== =========== ===========
PER SHARE AMOUNTS
Net income $ 1.44 $ 0.53 $ 0.99
Cash dividends declared 0.44 0.35 0.33
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,347 $ 1,582 $ 2,987
Adjustments to reconcile net income to
net cash provided by operations:
Provision for possible loan losses 325 900 387
Net securities amortization (accretion) (17) (44) 37
Loan fees and costs deferred net of amortization 10 (43) (7)
Depreciation of premises and equipment 723 726 764
Amortization of intangible assets 568 501 315
Realized and unrealized other real estate losses (gains) 49 78 (11)
Provision for deferred income taxes 260 (187) 443
Gains on sales of investment securities (6) - (37)
Loss on disposal of premises and equipment - - 49
Net gain from sale of branch facilities and deposits (211) - -
Changes in operating assets and liabilities:
Increase in accrued interest receivable (40) (7) (96)
Decrease (increase) in intangible assets (96) 161 -
Decrease in other assets 842 1,941 880
Increase (decrease) in accrued interest payable (7) 728 133
Increase (decrease) in other liabilities 556 513 (1,558)
----------- ----------- -----------
Net cash provided by operating activities 7,303 6,849 4,286
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale (41,816) (26,269) (33,050)
Purchase of securities held to maturity (4,386) (1,683) (5,733)
Proceeds from sale of securities available for sale 1,146 - 1,998
Proceeds from maturities and issuer calls of
securities available for sale 36,222 27,789 33,513
Proceeds from maturities and issuer calls of
securities held to maturity 1,855 2,240 1,332
Net increase in loans (13,525) (18,600) (3,417)
Net purchases of premises and equipment (632) (1,323) (190)
Net cash paid in sale of deposits (1,722) - -
Net cash acquired (paid) in acquisition of
a financial institution - 2,417 (1,272)
----------- ----------- -----------
Net cash used in investing activities (22,858) (15,429) (6,819)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 13,690 14,325 (1,226)
Cash dividends paid (1,267) (1,038) (947)
Proceeds from issuance of common stock 23 61 -
----------- ----------- -----------
Net cash provided by (used in) financing activities 12,446 13,348 (2,173)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,109) 4,768 (4,706)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,016 19,248 23,954
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,907 $ 24,016 $ 19,248
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,923 $ 8,225 $ 6,124
Income taxes 2,023 1,362 999
Non-cash transactions:
Foreclosed loans transferred to other real estate 439 259 1,170
Loans to facilitate the sale of other real estate 93 1,199 -
Reclassification of securities available for sale - - 49,288
Increase (decrease) in market value of securities
available for sale (134) 1,459 (1,099)
Book value of premises exchanged in acquisition
of net assets from another financial institution - 219 -
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------
Capital Retained Total
(in thousands except per share data) Shares Amount Surplus Earnings Other Equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 1,504 $ 7,521 $ 11,308 $ 8,614 $ - $ 27,443
Effect of 1996 two-for-one stock split 1,504 7,521 (7,521) - - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 1, 1994, as restated 3,008 15,042 3,787 8,614 - 27,443
Unrealized gain on securities classified as
available for sale upon adoption of
SFAS No. 115 on January 1, 1994 - - - - 254 254
Net income - - - 2,987 - 2,987
Cash dividends declared ($0.33 per share) - - - (977) - (977)
Net adjustment for securities available for sale - - - (917) (917)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 3,008 15,042 3,787 10,624 (663) 28,790
Net income - - - 1,582 - 1,582
Cash dividends declared ($0.35 per share) - - - (1,054) - (1,054)
Common stock issued under
stock option plans 6 29 32 - - 61
Net adjustment for securities available for sale - - - - 898 898
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 3,014 15,071 3,819 11,152 235 30,277
Net income - - - 4,347 - 4,347
Cash dividends declared ($0.44 per share) - - - (1,326) - (1,326)
Common stock issued under
stock option plans 2 11 12 - - 23
Net adjustment for securities available for sale - - - - (89) (89)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 3,016 $ 15,082 $ 3,831 $ 14,173 $ 146 $ 33,232
=========== =========== =========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION. The consolidated financial statements include
the accounts of First Bancorp (the "Company") and its wholly owned
subsidiaries, First Bank (the "Bank") and its wholly owned subsidiary First
Bank Insurance Services, Inc. ("First Bank Insurance"), Montgomery Data
Services, Inc. ("Montgomery Data"), and First Bancorp Financial Services, Inc.,
("First Bancorp Financial"), formerly First Recovery, Inc. All significant
intercompany accounts and transactions have been eliminated. The Company is a
bank holding company. The principal activity of the Company is the ownership
and operation of First Bank, a state chartered bank with its main office in
Troy, North Carolina. The Company also owns and operates Montgomery Data, a
data processing company, and First Bancorp Financial, a real estate investment
subsidiary, both of which are also headquartered in Troy.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant
estimates made by the Company in the preparation of its consolidated
financial statements are the determination of the reserve for loan losses, the
valuation of other real estate, the valuation allowance for deferred tax
assets and fair value estimates for financial instruments.
(b) CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
assets such as cash on hand, noninterest-bearing and interest-bearing amounts
due from banks and federal funds sold to be "cash equivalents".
(c) INVESTMENT SECURITIES. On January 1, 1994, the Company adopted
Statement of Financial Accounting Standards Number 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities," which
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. As required, SFAS 115 was initially applied as of the beginning of
the Company's fiscal year and could not be applied retroactively to prior
years' financial statements. These investments are classified in three
categories and accounted for as follows: (1) debt securities that the entity
has the positive intent and the ability to hold to maturity are classified as
held to maturity securities and reported at amortized cost; (2) debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
and (3) debt and equity securities not classified as either held to maturity
securities or trading securities would be classified as available for sale
securities and reported at fair value, with unrealized gains and losses, net of
tax, excluded from earnings and reported as a separate component of
shareholders' equity. Although the Company has not historically relied upon
security sales as a source of liquidity, the sale of securities classified as
available for sale may be necessary due to liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or significant unforeseen changes in market
conditions, including interest rates and market values of securities held in
the portfolio. On January 1, 1994, the Company classified approximately
$49,288,000 of investment securities at amortized cost as available for sale
securities.
<PAGE>
Gains and losses on investment securities are recognized at the time of
sale based upon the specific identification method. Premiums and discounts
are amortized into income on a level yield basis.
(d) PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation, computed by the straight-line method,
is charged to operations over the estimated useful lives of the properties,
which range from 5 to 40 years or, in the case of leasehold improvements, over
the term of the lease, if shorter. Maintenance and repairs are charged to
operations in the year incurred. Gains and losses on dispositions are included
in current operations.
(e) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses charged to operations is an amount sufficient to bring the allowance for
possible loan losses to an estimated balance considered adequate to absorb
losses inherent in the portfolio. Management's determination of the adequacy
of the allowance is based on an evaluation of the portfolio, current economic
conditions, historical loan loss experience and other risk factors. While
management uses the best information available to make evaluations, future
adjustments may be necessary if economic and other conditions differ
substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses and losses on foreclosed real estate. Such agencies may require the
Bank to recognize additions to the allowances based on the examiners' judgments
about information available to them at the time of their examinations.
Effective January 1, 1995, as required, the Company adopted the
provisions of Statement of Financial Accounting Standards Number 114,
"Accounting by Creditors for Impairment of a Loan," as amended by Statement of
Financial Accounting Standards Number 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition" (collectively referred to hereafter
as "SFAS No. 114"). The adoption of SFAS No. 114 did not have a material
effect on the Companys financial condition or results of operations. Under
the provisions of SFAS No. 114, the reserve for loan losses related to
loans that are identified for impairment in accordance with SFAS No. 114 is
based on discounted cash flows using the loans initial interest rates or
the fair value of the collateral if the loan is collateral dependent. Large
groups of smaller balance homogenous loans that are collectively evaluated
for impairment (such as credit card, residential mortgage and consumer
installment loans) are excluded from this impairment evaluation in accordance
with SFAS No. 114, and their reserve for loan losses is calculated in
accordance with the reserve for loan losses policy discussed above.
(f) REAL ESTATE ACQUIRED BY FORECLOSURE. Real estate acquired by foreclosure
is recorded at the lower of cost or fair value based on recent appraisals, less
estimated costs to sell. Declines in the fair value of real estate acquired by
foreclosure are recorded by a charge to expense during the period of decline.
(g) INCOME TAXES. The Company accounts for income taxes using the asset and
liability method as provided under Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." The objective of the
asset and liability method is to establish deferred tax assets and liabilities
for the temporary differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities at enacted rates expected to
be in effect when such amounts are realized or settled. Deferred tax assets
are reduced, if necessary, by the amount of such benefits that are not
expected to be realized based upon available evidence.
<PAGE>
(h) INCOME AND EXPENSE. The Company and its subsidiaries use the accrual
method of accounting. Substantially all loans earn interest on the level yield
method based on the daily outstanding balance. The accrual of interest on
loans is discontinued when, in management's judgment, the principal or interest
may not be fully collected.
All loan origination and commitment fees and certain incremental direct
costs of loan origination are deferred and amortized over the life of the
related loan.
(i) INTANGIBLE ASSETS. Deposit base intangibles acquired are amortized on
an accelerated basis over their estimated useful lives, which range
principally from 5 to 10 years. Deposit base intangibles at December 31, 1996
and 1995 totaled $3,632,000, less accumulated amortization of $2,904,000 and
$2,756,000, respectively. Excess of costs over value assigned to net assets
acquired are being amortized on a straight-line basis over their estimated
useful lives, which range principally from 10 to 15 years. Such excess at
December 31, 1996 and 1995 was $6,012,000 and $5,917,000, less accumulated
amortization of $1,277,000 and $857,000, respectively. Intangible assets are
subject to periodic review and are adjusted for any impairment of value.
The Company records an intangible asset in the amount of any additional
liability which must be recorded in connection with defined benefit pension
plans. Such intangible assets and additional liabilities are adjusted annually
based on the current fair value of plan assets relative to the
actuarially-determined accumulated benefit obligations for such plans.
Intangible assets related to the defined benefit plans totaled $135,000 at
December 31, 1996 and $275,000 at December 31, 1995.
(j) STOCK OPTION PLAN. Prior to January 1, 1996, the Company accounted for
its stock option plan in accordance with the provisions of Accounting
Principles Board Opinion No. 25 ("APB Opinion No. 25"), "Accounting for Stock
Issued to Employees," and related interpretations. As such, compensation
expense was recorded on the date of grant only if the market price of the
underlying stock on the date of grant exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standard
Number 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(k) PER SHARE AMOUNTS. Net income per share has been computed based on the
weighted average number of shares outstanding, or 3,014,573, 3,009,172 and
3,008,170 shares, for each of the years ended December 31, 1996, 1995 and
1994, respectively. Cash dividends per share are based on actual amounts
declared. Per share amounts have been restated for the two-for-one stock
split paid September 13, 1996 to shareholders of record August 30, 1996.
Common stock equivalents resulting from the Company's stock option
plan were not considered in the earnings per share computation due to
immateriality.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards Number 107 ("SFAS No. 107"), "Disclosures About Fair Value of
Financial Instruments," requires that the Company disclose estimated fair
<PAGE>
values for its financial instruments. Fair value methods and assumptions are
set forth below for the Company's financial instruments.
CASH, FEDERAL FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, SHORT-TERM
BORROWINGS AND ACCRUED INTEREST PAYABLE. The carrying amounts for cash,
federal funds sold, accrued interest receivable, short-term borrowings and
accrued interest payable approximate their fair value because of the short
maturity of these financial instruments.
INVESTMENT SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS. The fair
value of investment securities, except certain state and political subdivision
securities, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
state and political subdivision securities is not readily available through
market sources other than dealer quotations, so fair value estimates are based
on quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.
LOANS. Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
financial and agricultural, real estate construction, real estate mortgages and
installment loans to individuals. Each loan category is further segmented into
fixed and variable interest rate terms and by performing and nonperforming
categories.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risks inherent in the loan. The
estimate of maturity is based on the Company's contractual borrower agreements,
modified, as required, by an estimate of the effect of current economic and
lending conditions. The fair value of nonperforming loans is based on the book
value of each loan less an allocated allowance for loan losses. This allocated
allowance for loan losses is determined on a loan-by-loan basis using external
appraisals of collateral and internal assessments using available market
information and specific borrower information.
DEPOSIT LIABILITIES. Under SFAS No. 107, the fair value of deposits
with no stated maturity, such as non-interest-bearing demand deposits,
savings, NOW and money market accounts, is equal to the amount payable on
demand as of December 31, 1996 and 1995. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT. At
December 31, 1996 and 1995, the Company's off-balance sheet financial
instruments had no carrying value. The large majority of commitments to
extend credit and standby letters of credit are at variable rates and/or have
relatively short terms to maturity. Therefore, the fair value for these
financial instruments is considered to be immaterial.
(m) IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
Number 121 ("SFAS No. 121"), "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
those to be disposed of. This statement requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. An
<PAGE>
impairment loss should be recognized if the sum of the undiscounted future cash
flows is less than the carrying amount of the asset. Those assets to be
disposed of are to be reported at the lower of the carrying amount or fair
value, less costs to sell. Adoption of SFAS No. 121 was required for fiscal
years beginning after December 15, 1995. The Company adopted SFAS No. 121 with
no material impact on the consolidated financial statements.
(n) RECLASSIFICATIONS. Certain amounts for prior years have been
reclassified to conform to the 1996 presentation. The reclassifications have
had no effect on net income or shareholders' equity as previously presented.
Note 2. ACQUISITIONS
On December 15, 1995, First Bank completed its cash acquisition of the
Laurinburg and Rockingham branches of First Scotland Bank. As of December 15,
1995, assets acquired were approximately $15,814,000, including approximately
$8,898,000 in loans, while liabilities assumed were approximately $15,058,000,
including deposits of $14,960,000. The purchase price of $1,296,000 to acquire
these two branches, and the additional costs of closing of $150,000, exceeded
the value assigned to the net assets acquired and resulted in recording an
intangible asset of approximately $786,000. Pro forma results of operations as
though the Company had acquired First Scotland Bank at the beginning of 1995
and 1994 are not considered material.
On August 25, 1994, First Bank completed its cash acquisition of Central
State Bank in High Point, North Carolina. First Bank paid cash of $538.05
($535.50 purchase price plus $2.55 in interest due to a closing delay) for each
of Central State's 13,000 shares outstanding. Intangible assets, principally
goodwill, of approximately $5,824,000 resulted from the excess of the total
purchase price of $6,962,000 and additional costs of closing of $517,000 over
the fair value of assets acquired of $35,005,000 less liabilities assumed of
$33,350,000. The transaction was accounted for as a purchase, and,
accordingly, the results of Central State were included in the consolidated
financial statements since the date of acquisition. At the date of
acquisition, Central State, a North Carolina state-chartered commercial bank,
had earning assets of approximately $32 million including $27 million in loans.
Central State also had approximately $32 million in deposits.
Note 3. STOCK SPLIT
The Company paid a two-for-one stock split on September 13, 1996 to
shareholders of record August 30, 1996. All share and per share data have been
restated to reflect the impact of the stock split for all periods presented.
<PAGE>
Note 4. INVESTMENT SECURITIES
The book values and approximate fair values of investment securities at
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- -----------------------------------------------
Book Fair Unrealized Book Fair Unrealized
----------------------- -----------------------
(in thousands) Value Value Gains (Losses) Value Value Gains (Losses)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury $ 5,500 $ 5,537 $ 42 $ (5)$ 9,495 $ 9,590 $ 113 $ (18)
U.S. Government agencies 42,075 42,239 251 (87) 38,792 39,054 374 (112)
Collateralized mortgage
obligations 5,510 5,530 24 (4) 386 389 3 -
State and local governments 613 613 - - 601 601 - -
Other 23 23 - - 23 23 - -
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total available for sale $ 53,721 $ 53,942 $ 317 $ (96)$ 49,297 $ 49,657 $ 490 $ (130)
=========== =========== =========== =========== =========== =========== =========== ===========
Securities held to maturity:
State and local governments $ 21,869 $ 22,263 $ 538 $ (144)$ 19,357 $ 19,991 $ 743 $ (109)
Other 454 454 - - 383 383 - -
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total held to maturity $ 22,323 $ 22,717 $ 538 $ (144)$ 19,740 $ 20,374 $ 743 $ (109)
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
As of December 31, 1996, the Company held no investments in structured
notes.
The book values and approximate fair values of investment securities at
December 31, 1996 and 1995, by contractual maturity, are summarized as in the
table below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------- -----------------------------------
Book Fair Book Fair
(in thousands) Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities available for sale:
Due within one year $ 7,536 $ 7,553 $ 28,583 $ 28,531
Due after one year
but within five years 40,457 40,617 20,186 20,553
Due after five years
but within ten years 1,568 1,603 528 573
Due after ten years 4,160 4,169 - -
----------- ----------- ----------- -----------
Total $ 53,721 $ 53,942 $ 49,297 $ 49,657
=========== =========== =========== ===========
Securities held to maturity:
Due within one year $ 2,729 $ 2,755 $ 1,842 $ 1,851
Due after one year
but within five years 9,195 9,431 9,774 10,154
Due after five years
but within ten years 5,162 5,297 7,075 7,284
Due after ten years 5,237 5,234 1,049 1,085
----------- ----------- ----------- -----------
Total $ 22,323 $ 22,717 $ 19,740 $ 20,374
=========== =========== =========== ===========
</TABLE>
At December 31, 1996 and 1995, investment securities with book values of
$9,964,000 and $13,834,000, respectively, were pledged as collateral for
public deposits.
Sales of securities available for sale with aggregate proceeds of
$1,146,000 in 1996 and $1,998,000 in 1994 resulted in gross gains of $6,000 in
1996 and no gain or loss in 1994. There were no security sales in 1995. The
gross realized gains of $37,000 in 1994 resulted from issuer calls of debt
securities.
<PAGE>
Note 5. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural $ 33,139 $ 34,531
Real estate - construction 14,189 10,033
Real estate - mortgage 147,243 138,862
Installment loans to individuals 26,625 27,324
Nonaccrual loans 1,836 772
----------- -----------
Total $ 223,032 $ 211,522
=========== ===========
</TABLE>
Loans described above as "Real estate - mortgage" included loans secured
by 1-4 family dwellings in the amounts of $76,966,000 and $77,642,000 as of
December 31, 1996 and 1995, respectively. The loans above also include loans
to executive officers and directors and to their associates totaling
approximately $5,749,000 and $2,316,000 at December 31, 1996 and 1995,
respectively. During 1996, additions to such loans were approximately
$4,349,000 and repayments totaled approximately $916,000. These loans were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
non-related borrowers. Management does not believe these loans involve more
than the normal risk of collectibility or present other unfavorable features.
Nonperforming assets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Loans: Nonaccrual loans $ 1,836 $ 772
Restructured loans 703 668
----------- -----------
Total nonperforming loans 2,539 1,440
Foreclosed, repossessed and idled properties (included in other assets) 572 1,393
----------- -----------
Total nonperforming assets $ 3,111 $ 2,833
=========== ===========
</TABLE>
At December 31, 1996 and 1995 there were no loans 90 days or more past due
that were still accruing interest.
If the nonaccrual loans and restructured loans as of December 31, 1996,
1995 and 1994 had been current in accordance with their original terms and had
been outstanding throughout the period (or since origination if held for part
of the period), gross interest income in the amounts of approximately $183,000,
$82,000 and $142,000 for nonaccrual loans and $71,000, $71,000 and $24,000
for restructured loans would have been recorded for 1996, 1995 and 1994,
respectively. Interest income on such loans that was actually collected and
included in net income in 1996, 1995 and 1994 amounted to approximately
$81,000, $36,000 and $67,000 for nonaccrual loans and $71,000, $69,000 and
$24,000 for restructured loans, respectively.
Activity in the allowance for possible loan losses for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 4,587 $ 5,009 $ 2,797
Provision charged to operations 325 900 387
Allowance of purchased bank - 187 2,487
Recoveries of loans charged off 530 91 141
Loans charged off (716) (1,600) (803)
----------- ----------- -----------
Balance, end of year $ 4,726 $ 4,587 $ 5,009
=========== =========== ===========
</TABLE>
<PAGE>
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $1,228,000 and $1,108,000,
respectively, of which all were on a nonaccrual basis at December 31, 1996 and
$711,000 were on a nonaccrual basis as of December 31, 1995. The related
allowance for loan losses for these impaired loans as determined in accordance
with SFAS No. 114 was $184,000 and $167,000, respectively. There were no
impaired loans for which there was no related allowance determined in
accordance with this statement. The average recorded investments in impaired
loans during the years ended December 31, 1996 and 1995, were approximately
$859,000 and $997,000, respectively. For the years ended December 31, 1996 and
1995, the Company recognized interest income on those impaired loans of
approximately $83,000 and $27,000, respectively. The amount of interest income
recognized on a cash basis for impaired loans was not material.
Note 6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Land $ 1,338 $ 1,230
Buildings 6,902 6,860
Furniture and equipment 4,679 6,964
Leasehold improvements 388 743
----------- -----------
Total 13,307 15,797
Less accumulated depreciation and amortization 5,585 7,754
----------- -----------
Net premises and equipment $ 7,722 $ 8,043
=========== ===========
Note 7. INCOME TAXES
The components of income tax expense (benefit) for the years ended
December 31, 1996, 1995 and 1994 are as follows:
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current - Federal $ 1,685 $ 767 $ 712
- State 268 - -
Deferred - Federal 260 (187) 443
----------- ----------- -----------
Total $ 2,213 $ 580 $ 1,155
=========== =========== ===========
</TABLE>
<PAGE>
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) at December 31,
1996, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 1,501 $ 1,525
Excess book over tax retirement plan cost 37 36
Basis of investment in subsidiary 69 69
Net loan fees recognized for tax reporting purposes 36 32
Reserve for employee medical expense for financial
reporting purposes 60 52
Deferred compensation 47 49
Deferred payments under severance arrangements 138 291
All other 149 48
----------- -----------
Gross deferred tax assets 2,037 2,102
Less: valuation allowance (123) (164)
----------- -----------
Net deferred tax assets 1,914 1,938
----------- -----------
Deferred tax liabilities:
SFAS No. 91 loan expenses (214) -
Excess tax over book pension cost (230) (266)
Depreciable basis of fixed assets (481) (472)
Amortizable basis of intangible assets (144) (103)
Unrealized gain on securities available for sale (75) (119)
All other (21) (13)
----------- -----------
Gross deferred tax liabilities (1,165) (973)
----------- -----------
Net deferred tax asset (included in other assets) $ 749 $ 965
=========== ===========
</TABLE>
A portion of the change in the net deferred tax asset relates to
unrealized gains and losses on securities available for sale. The related
current period deferred tax benefit of approximately $44,000 as of
December 31, 1996 and deferred tax liability of approximately $555,000 as of
December 31, 1995 have been recorded directly to shareholders' equity. In
addition, the Bank recorded an increase in its net deferred tax asset during
1995 of approximately $390,000 related to purchase acquisitions. The balance
of the 1996 change in the net deferred tax asset of $260,000 is reflected as a
deferred income tax expense in the statement of consolidated income.
The valuation allowance applies primarily to offset the recognition of
deferred tax benefits on certain temporary differences for state income tax
purposes. Approximately $60,000 of the increase during 1995 relates to
purchase acquisitions.
The following is a reconcilement of federal income tax expense at the
statutory rate of 34% to the income tax provision reported in the financial
statements.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax provision at statutory rate $ 2,230 $ 735 $ 1,408
Increase (decrease) in income taxes resulting from:
Tax exempt interest income (400) (371) (342)
Non-deductible interest expense 43 40 28
Non-deductible portion of amortization of
intangible assets 151 160 75
State income tax net of federal benefit 177 - -
Other, net 12 16 (14)
----------- ----------- -----------
Total $ 2,213 $ 580 $ 1,155
=========== =========== ===========
</TABLE>
<PAGE>
Note 8. LEASES
Certain bank premises are leased under operating lease agreements.
Generally, operating leases contain renewal options on substantially the same
basis as current rental terms. Rent expense charged to operations under all
operating lease agreements was $103,000 in 1996, $93,000 in 1995 and $58,000 in
1994.
Future obligations for minimum rentals under noncancelable operating
leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Year ending December 31:
1997 $ 82
1998 54
1999 46
2000 31
2001 29
Later years 67
-----------
Total $ 309
===========
</TABLE>
Note 9. EMPLOYEE BENEFIT PLANS
SALARY REDUCTION PROFIT SHARING PLAN. The Company sponsors a salary
reduction profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code. Employees who have completed one year of service are eligible to
participate in the plan. An eligible employee may contribute up to 14% of
annual salary to the plan. The Company contributes an amount equal to 50% of
the first 6% of the employee's salary contributed. Participants vest in
Company contributions at the rate of 20% after one year of service, and 20%
for each additional year of service, with 100% vesting after five years of
service. The Company's matching contribution expense was $100,000, $102,000
and $88,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company may make additional discretionary profit sharing contributions to
the plan.
INCENTIVE COMPENSATION PLAN. The Company also has an incentive
compensation plan covering certain management and staff employees. Payments
pursuant to the plan are based on achievement of certain performance goals.
The Company's incentive compensation plan expense was $567,000, $407,000 and
$451,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
RETIREMENT PLAN. The Company sponsors a noncontributory defined benefit
retirement plan (the "Retirement Plan"), which is intended to qualify under
Section 401(a) of the Internal Revenue Code. Employees who have attained age
21 and completed one year of service are eligible to participate in the
Retirement Plan. The Retirement Plan provides for a monthly payment, at
normal retirement age 65, equal to one-twelfth of the sum of (i) 0.75% of
Final Average Annual Compensation (5 highest consecutive calendar years
earnings out of the last 10 years of employment) multiplied by the employee's
years of service not in excess of 40 years, and (ii) 0.65% of Final Average
Annual Compensation in excess of "covered compensation" multiplied by years of
service not in excess of 35 years. "Covered compensation" means the average
of the social security taxable wage base during the 35 year period ending with
the year the employee attains social security retirement age. Early
retirement, with reduced monthly benefits, is available at age 55 after 15
years of service. The Retirement Plan provides for 100% vesting after 5 years
of service, and provides for a death benefit to a vested participant's
<PAGE>
surviving spouse. The costs of benefits under the Retirement Plan, which are
borne by First Bancorp and/or its subsidiaries, are computed actuarially and
defrayed by earnings from the Retirement Plan's investments. The compensation
covered by the Retirement Plan includes total earnings before reduction for
contributions to a cash or deferred profit-sharing plan (such as the 401(k)
feature of the Profit Sharing Plan described above) and amounts used to pay
group health insurance premiums and includes bonuses (such as amounts paid
under the incentive compensation plan). Compensation for the purposes of the
Retirement Plan may not exceed statutory limits; such limit in 1996, 1995 and
1994 was $150,000.
The following table sets forth the estimated funded status of the
Retirement Plan and amounts recognized in the Company's consolidated financial
statements as of December 31, 1996 and 1995, as computed by independent
actuarial consultants:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (ABO) including
vested benefits of $1,696 in 1996 and
$1,789 in 1995 $ (1,711) $ (1,849)
=========== ===========
Projected benefit obligation (PBO) for service
rendered to date $ (2,323) $ (2,048)
Plan assets at fair value--primarily listed
common stocks, U.S. Government and agency
securities, and collective funds 2,235 1,963
----------- -----------
Plan assets less than PBO (88) (85)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (106) (7)
Unrecognized net transition obligation 63 65
Unrecognized prior service cost 720 707
----------- -----------
Prepaid pension cost $ 589 $ 680
=========== ===========
</TABLE>
Net pension cost for the Retirement Plan included the following components
for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 123 $ 108 $ 103
Interest cost on projected benefit obligation 165 149 113
Actual return on plan assets (337) (357) (119)
Net amortization and deferral 262 279 126
----------- ----------- -----------
Net periodic pension cost $ 213 $ 179 $ 223
=========== =========== ===========
</TABLE>
The Company's contributions to the Retirement Plan are based on
computations by independent actuarial consultants and are intended to provide
the Company with the maximum deduction for income tax purposes.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company sponsors a
Supplemental Executive Retirement Plan (the "SERP Plan") for the benefit of
certain senior management executives of the Company. The purpose of the SERP
Plan is to provide additional monthly pension benefits to ensure that each such
senior management executive would receive lifetime monthly pension benefits
equal to 3% of his or her final average compensation multiplied by his or her
years of service (maximum of 20 years) to the Company or its subsidiaries,
subject to a maximum of 60% of his or her final average compensation. The
amount of a participant's monthly SERP benefit is reduced by (i) the amount
payable under the Company's qualified Retirement Plan (described above), and
<PAGE>
(ii) fifty percent (50%) of the participant's primary social security benefit.
Final average compensation means the average of the 5 highest consecutive
calendar years of earnings during the last 10 years of service prior to
termination of employment.
The following table sets forth the estimated funded status of the SERP
Plan as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (ABO) including
vested benefits of $209 in 1996 and
$378 in 1995 $ (234) $ (411)
=========== ===========
Projected benefit obligation (PBO) for service
rendered to date $ (331) $ (539)
----------- -----------
Plan assets less than PBO (331) (539)
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions (107) 86
Unrecognized prior service cost 339 372
Adjustment to recognize minimum liability (135) (275)
----------- -----------
Accrued pension cost $ (234) $ (356)
=========== ===========
</TABLE>
Net pension cost for the SERP Plan included the following components for
the year ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 8 $ 17 $ 30
Interest cost on projected benefit obligation 25 37 35
Net amortization and deferral 25 33 33
----------- ----------- -----------
Net periodic pension cost $ 58 $ 87 $ 98
=========== =========== ===========
</TABLE>
The Company's funding policy with respect to the SERP Plan is to fund the
related benefits through investments in insurance policies, which are not
considered plan assets for the purpose of determining the SERP Plan's funded
status.
The following assumptions were used in determining the actuarial
information for the Retirement Plan and the SERP Plan for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
Retirement SERP Retirement SERP Retirement SERP
Plan Plan Plan Plan Plan Plan
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.75% 7.75% 7.25% 7.25% 8.00% 8.00%
Expected long-term rate of return
on assets 8.00% 8.00% 7.50%
Rate of increase in compensation
levels 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
</TABLE>
Included in intangible assets at December 31, 1996 and 1995 are
approximately $135,000 and $275,000, respectively, which were recognized in
connection with the accrual of the additional minimum liability for the
SERP Plan.
SPLIT DOLLAR LIFE INSURANCE PLAN. Effective January 1, 1993, the Company
adopted a Split Dollar Life Insurance Plan (the "Split Dollar Plan") whereby
individual whole life insurance is made available to certain senior management
executives designated and approved by the Board of Directors. Coverage ranges
from $100,000 to $250,000. The Company pays the premiums under this plan and
maintains a collateral interest in each participant's policy equal to the sum
of premiums paid. If a policy is terminated or becomes payable because of the
death of a participant, the premiums paid by the Company are recovered before
<PAGE>
any payment is made to the participant or the participant's beneficiary. In
addition, the Company will recover its investment in the policy before transfer
of the policy to the participant. Upon the death of a participant, the
participant's designated beneficiary will receive a death benefit equal to the
amount of coverage under his or her policy that is in excess of the amount of
cumulative premiums paid by the Company. The amounts of insurance premiums
paid by the Company in 1996, 1995 and 1994 under the Split-Dollar Plan on
behalf of all executive officers as a group were $19,000, $27,000 and $24,000,
respectively.
Note 10. COMMITMENTS AND CONTINGENCIES
See Note 8 with respect to future obligations under noncancelable
operating leases.
In the normal course of business there are various outstanding commitments
and contingent liabilities such as commitments to extend credit, which are not
reflected in the financial statements. As of December 31, 1996, the Company
had outstanding loan commitments of $40,205,000 of which $33,133,000 were at
variable rates and $7,072,000 were at fixed rates. Included in outstanding
loan commitments were unfunded commitments of $8,308,000 on revolving credit
plans, $4,642,000 of which were at variable rates and $3,666,000 were at fixed
rates. Additionally, standby letters of credit of approximately $646,000 and
$823,000 were outstanding at December 31, 1996 and 1995, respectively.
Management does not anticipate any losses to result from these off-balance
sheet financial instruments. These commitments represent no more than the
normal lending risk that the Company commits to its borrowers. If these
commitments are drawn, the Company will obtain collateral if it is deemed
necessary based on management's credit evaluation of the counter party.
Collateral held varies but may include accounts receivable, inventory and
commercial or residential real estate. Management expects these commitments,
if drawn, to be funded through normal operations.
The Bank grants primarily commercial and installment loans to customers
throughout its market area, which consists of Cabarrus, Chatham, Davidson,
Guilford, Montgomery, Moore, Randolph, Richmond, Scotland and Stanly Counties
in North Carolina. The real estate loan portfolio can be affected by the
condition of the local real estate market. The commercial and installment
loan portfolios can be affected by local economic conditions.
The Company is not involved in any legal proceedings which, in
management's opinion, could have a material effect on the consolidated
financial position of the Company.
During the quarter ended December 31, 1995, First Bank reached a
settlement among all parties involved in litigation brought by Prudential
Securities, Inc. and filed on August 8, 1994 in the United States District
Court for the Middle District of North Carolina, against one of First Bank's
customers and First Bank, arising out of loans made by Prudential and secured
by certificates of deposit issued by First Bank. First Bank's records
indicated that the certificates of deposit were issued for amounts far less
than those shown on the documents held by Prudential. The First Bank branch
manager involved in the issuance of the certificates of deposit died on
August 5, 1994. After significant discovery and a mediation conference held in
early December of 1995, First Bancorp concluded that it was in the best
interests of its shareholders, customers and employees to settle the Prudential
litigation and other related litigation and avoid costly trials. Because First
Bancorp's fidelity bond coverage limit was not sufficient to cover the entire
cost of the settlement, the Company reported significant expenses in
<PAGE>
connection with resolving the litigation. The settlement resulted in a
nonrecurring fourth quarter pretax charge of approximately $1,946,000 which
equates to approximately $1,185,000 after-tax, or 79 cents per share. Included
in the pretax charge were the out of pocket costs to settle claims in the
pretax amount of approximately $1,446,000 and additional provisions for loan
losses of $500,000 which First Bancorp recorded due to charge-offs of loans
related to the litigating parties. Before the settlement-related charge,
First Bank had already incurred approximately $789,000 in pretax expenses in
1995 for legal services and other expenses incurred in matters related to the
litigation.
Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates as of December 31, 1996 and 1995 and limitations
thereon are set forth below for the Company's financial instruments. Please
see Note 1 for a discussion of fair value methods and assumptions, as well as
fair value information for off balance sheet financial instruments.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 15,882 $ 15,882 $ 12,190 $ 12,190
Federal funds sold 5,025 5,025 11,826 11,826
Securities available for sale 53,942 53,942 49,657 49,657
Securities held to maturity 22,323 22,717 19,740 20,374
Presold mortgages in process of
settlement 1,395 1,395 826 826
Loans, net of allowance 218,306 221,694 206,935 211,612
Accrued interest receivable 2,412 2,412 2,372 2,372
Deposits 297,861 298,309 287,715 288,190
Accrued interest payable 1,882 1,882 1,889 1,889
</TABLE>
LIMITATIONS OF FAIR VALUE ESTIMATES. Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include net premises and equipment,
intangible and other assets such as foreclosed properties, deferred income
taxes, and prepaid expense accounts, income taxes currently payable and other
various accrued expenses. In addition, the income tax ramifications related to
the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of the
estimates.
<PAGE>
Note 12. STOCK OPTION PLAN
Pursuant to provisions of the Company's 1994 Stock Option Plan (the
"Option Plan"), options to purchase up to 270,000 shares of First Bancorp's
authorized but unissued common stock may be granted to employees ("Employee
Options") and directors ("Nonemployee Director Options") of the Company and its
subsidiaries. The purposes of the Option Plan are (i) to align the interests
of participating employees and directors with the Company's shareholders by
reinforcing the relationship between shareholder gains and participant rewards,
(ii) to encourage equity ownership in the Company by participants and (iii) to
provide an incentive to employee participants to continue their employment with
the Company. For both Employee and Nonemployee Director Options, the option
price is the fair market value of the stock at the date of grant. Employee
Options vest over a five-year period, with the first 20% becoming vested on
June 1, 1995. Director Options are granted over a five year period, and are
100% vested on the date of grant. All options are to expire not more than 10
years from the date of grant.
At December 31, 1996, there were 105,800 additional shares available for
grant under the Option Plan. The per share weighted-average fair value of
options granted during 1996 and 1995 was $4.44 and $2.72 on the date(s) of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1996-expected dividend yield of 2.93%, risk-free
interest rate of 6.36%, expected life of 8 years, and expected volatility of
19% over the expected life; 1995-expected dividend yield of 3.17%, risk-free
interest rate of 6.40%, expected life of 8 years, and expected volatility of
19% over the expected life.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands except per share data) 1996 1995
----------- -----------
<S> <C> <C>
Net income As reported $ 4,347 $ 1,582
Pro forma 4,299 1,552
Earnings per share As reported $ 1.44 $ 0.53
Pro forma 1.43 0.52
</TABLE>
Pro forma net income and earnings per share reflect only options granted
in 1996 and 1995. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income and earnings per share amounts presented above because compensation cost
is reflected over the options' vesting period of 5 years and compensation cost
for options granted prior to January 1, 1995 is not considered. Consequently,
the effects of applying SFAS No. 123 pro forma disclosures during the initial
phase-in period may not be representative of the effects on reported net income
in future periods.
<PAGE>
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding At Year-End
----------------------- -----------------------------------
Weighted- Weighted-
Number Average Number Average
Of Exercise Of Exercise
Shares Price Shares Price
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 120,700 $ 10.66 11,000 $ 10.00
Granted 11,000 10.88
Exercised (5,800) 10.52
Forfeited (19,200) 10.63
Expired - -
-----------
Balance at December 31, 1995 106,700 10.59 38,140 10.53
Granted 56,000 17.06
Exercised (2,200) 10.45
Forfeited (4,300) 10.63
Expired - -
-----------
Balance at December 31, 1996 156,200 12.91 62,480 11.30
===========
</TABLE>
Note 13. REGULATORY RESTRICTIONS
The Company is regulated by the Board of Governors of the Federal Reserve
System ("FRB") and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Bank is regulated
by the Federal Deposit Insurance Corporation ("FDIC"), the North Carolina State
Banking Commission and the FRB.
The primary source of funds for the payment of dividends by First Bancorp
is dividends received from its subsidiary, First Bank. The Bank, as a North
Carolina banking corporation, may pay dividends only out of undivided profits
as determined pursuant to North Carolina General Statutes Section 53-87. As
of December 31, 1996, the Bank had undivided profits of approximately
$16,898,000 which were available for the payment of dividends. In addition,
approximately $14,451,000 of the Company's investment in the Bank as of
December 31, 1996 is restricted as to transfer to the Company without
obtaining prior regulatory approval.
The Company and the Bank must comply with regulatory capital requirements
established by the FRB and FDIC. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on both
the Company's and the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. These capital standards require the Company to
maintain minimum ratios of Tier 1 capital to total risk-weighted assets and
total capital to risk-weighted assets of 4.00% and 8.00%, respectively. Tier 1
capital is comprised of total shareholders' equity calculated in accordance
with generally accepted accounting principles less intangible assets, and total
capital is comprised of Tier 1 capital plus certain adjustments, the largest of
which for the Company is the allowance for possible loan losses. Risk-weighted
assets refer to the on- and off-balance sheet exposures of the Company adjusted
for their related risk levels using formulas set forth in FRB and FDIC
regulations.
<PAGE>
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 Tier 1 capital (as defined above) to quarterly average total assets of
3.00% to 5.00%, depending upon the institution's composite ratings as
determined by its regulators. The FRB has not advised the Company of any
requirement specifically applicable to it.
At December 31, 1996, the Company was in compliance with all of the
aforementioned capital requirements, as set forth in the table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------------- ----------------------- -----------------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ----------- ----------- -----------
(must equal or exceed) (must equal or exceed)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $ 30,041 13.30%$ 18,071 8.00%$ 22,589 10.00%
Tier I Capital
(to Risk Weighted Assets) 27,252 12.21% 8,924 4.00% 13,386 6.00%
Tier I Capital
(to Average Assets) 27,252 8.32% 13,094 4.00% 16,368 5.00%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $ 26,397 12.25%$ 17,245 8.00%$ 21,556 10.00%
Tier I Capital
(to Risk Weighted Assets) 23,736 11.15% 8,516 4.00% 12,774 6.00%
Tier I Capital
(to Average Assets) 23,736 7.82% 12,138 4.00% 15,173 5.00%
</TABLE>
The average reserve balance maintained under the requirements of the
Federal Reserve was approximately $3,950,000 for the year ended December 31,
1996.
Note 14. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Components of other expenses exceeding 1% of total income for any of the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Amortization of intangible assets $ 568 $ 501 $ 315
FDIC insurance 2 269 544
Legal and audit 207 955 342
Repossession and collection expense 255 150 380
Stationery and supplies 605 579 461
Telephone 318 275 250
</TABLE>
<PAGE>
Note 15. CONDENSED PARENT COMPANY INFORMATION
Condensed financial data for First Bancorp (parent company only) follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS As of December 31,
-----------------------------------
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Cash on deposit with bank subsidiary $ 25 $ 12
Securities 388 459
Investments in subsidiaries, at equity:
First Bank and subsidiary 31,349 28,448
Montgomery Data Services, Inc. 246 79
First Bancorp Financial Services, Inc. 1,549 1,544
Land 7 7
Other assets - (1)
----------- -----------
Total $ 33,564 $ 30,548
=========== ===========
Other liabilities (dividends payable) $ 332 $ 271
Shareholders' equity 33,232 30,277
----------- -----------
Total $ 33,564 $ 30,548
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED RESULTS OF OPERATIONS Year Ended December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Equity in earnings (losses) of subsidiaries:
Dividends - First Bank and subsidiary $ 1,350 $ 1,546 $ 1,825
- Montgomery Data Services, Inc. - 375 75
Undistributed - First Bank and subsidiary 2,990 85 1,248
- Montgomery Data Services, Inc. 167 (266) (1)
- First Bancorp Financial Services, Inc. 5 (10) (17)
All other income and expenses, net (165) (148) (143)
----------- ----------- -----------
Net income $ 4,347 $ 1,582 $ 2,987
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CASH FLOWS Year Ended December 31,
-----------------------------------------------------------
(in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income $ 4,347 $ 1,582 $ 2,987
Equity in undistributed earnings of subsidiaries (3,162) 191 (1,230)
Changes in operating assets and liabilities:
Decrease in other assets 1 3 13
----------- ----------- -----------
Total - operating activities 1,186 1,776 1,770
----------- ----------- -----------
Investing Activities:
Purchase of investment securities (1,493) (1,799) (1,211)
Sales and maturities of investment securities 1,564 1,424 1,161
Increase in investment in subsidiaries - (415) (775)
----------- ----------- -----------
Total - investing activities 71 (790) (825)
----------- ----------- -----------
Financing Activities:
Payment of cash dividends (1,267) (1,038) (947)
Proceeds from issuance of common stock 23 61 -
----------- ----------- -----------
Total - financing activities (1,244) (977) (947)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 13 9 (2)
Cash and cash equivalents, beginning of year 12 3 5
----------- ----------- -----------
Cash and cash equivalents, end of year $ 25 $ 12 $ 3
=========== =========== ===========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
[KPMG Peat Marwick, LLP logo here]
The Board of Directors and Shareholders
of First Bancorp
We have audited the accompanying consolidated balance sheets of First
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related
statements of consolidated income, consolidated cash flows and changes in
consolidated shareholders' equity for each of the years in the three-year
period ended December 31, 1996, included on pages 30 through 51 herein. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Bancorp and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, on
January 1, 1994, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
/s/ KPMG Peat Marwick LLP
Charlotte, North Carolina
January 31, 1997
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
[First Bancorp logo here]
The management of First Bancorp is responsible for the preparation of the
financial statements, related financial data and other information in this
annual report. In order to meet this responsibility, the financial statements
have been prepared in accordance with generally accepted accounting principles
and include amounts based on management's estimates and judgment where
appropriate. Financial information appearing throughout this annual report is
consistent with the financial statements.
In meeting its responsibility both for the integrity and fairness of
these statements and information, management depends on the accounting system
and related internal controls that are designed to provide reasonable
assurances that transactions are authorized and recorded in accordance with
established procedures and that assets are safeguarded and proper and reliable
records are maintained.
The concept of reasonable assurance is based on the recognition that the
cost of internal controls should not exceed the related benefits. As an
integral part of the internal controls, the Company maintains a professional
staff of internal auditors who monitor compliance with and assess the
effectiveness of the internal controls and coordinate audit coverage with the
independent auditors.
The Audit Committee of First Bancorp, composed solely of outside
directors, meets regularly with the Company's management, internal auditors,
independent auditors and regulatory examiners to review matters relating to
financial reporting, internal controls and the nature, extent and results of
the audit effort. The independent auditors, internal auditors and banking
regulators have direct access to the Audit Committee with or without
management present.
/s/ James H. Garner /s/ Kirby A. Tyndall
- ----------------------- -----------------------
James H. Garner Kirby A. Tyndall
Chief Executive Officer Chief Financial Officer
First Bancorp First Bancorp
January 31, 1997 January 31, 1997
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the two years ended December 31, 1996, and any subsequent interim
periods, there were no changes in accountants and/or disagreements on any
matters of accounting principles or practices or financial statement
disclosures.
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance with
Section 16(a) of the Exchange Act
Incorporated herein by reference is the information under the caption
"Nominees and Executive Officers" from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A.
Item 10. Executive Compensation
Incorporated herein by reference is the information under the caption
"Compensation of Directors and Executive Officers" from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference is the information under the caption
"Nominees and Executive Officers" from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A.
Item 12. Certain Relationships and Related Transactions
Incorporated herein by reference is the information under the caption
"Certain Transactions" from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed with this report or, as noted,
are incorporated herein by reference. Management contracts,
compensatory plans and arrangements are marked with an asterisk (*).
3.i.a 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.
3.i.b Copy of the amendment to Articles of Incorporation- adding a new
Article Nine, filed as exhibit 3(e) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988, and is
incorporated herein by reference.
3.ii Copy of the Bylaws of the Registrant, as amended, 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.
4 Form of Common Stock Certificate was filed as Exhibit 4 to the
Registrant's Registration Statement Number 33-12692, and is
incorporated herein by reference.
<PAGE>
10 Material Contracts
10.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.
10.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. (*)
10.c First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings
incentive plan and trust), as amended on 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. (*)
10.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.
10.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.
10.f 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. (*)
10.g First Bancorp Senior Management Supplemental 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. (*)
10.h First Bancorp Senior Management Split-Dollar Life Insurance
Agreements between the Company and the Company's 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. (*)
10.i 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. (*)
<PAGE>
10.j Severance Agreement between the Company and James A. Gunter dated
October 12, 1995, was filed as Exhibit 10(m) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995,
and is incorporated herein by reference. (*)
10.k Settlement Agreement dated December 29, 1995 among the Company's
bank subsidiary, First Bank, and Prudential Securities,
Incorporated; Cranford B. Garner, Timothy E. Garner, C.B. Garner
Incorporated and others was filed as Exhibit 10(n) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995,
and is incorporated herein by reference. (*)
10.l Severance Agreement between the Company and Patrick A. Meisky
dated December 29, 1995, was filed as Exhibit 10(o) to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995, and is incorporated herein by reference. (*)
10.m Amendment to the First Bancorp Savings Plus and Profit Sharing Plan
(401(k) savings incentive plan and trust), dated December 17,
1996. (*)
21 List of Subsidiaries of Registrant was filed as Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and is incorporated herein by reference.
23.a Consent of Independent Auditors of Registrant, KPMG Peat Marwick
LLP.
27 Financial Data Schedules pursuant to Article 9 of Regulation S-X.
(b) The Registrant filed no reports on Form 8-K during the quarter
ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, FIRST BANCORP has duly caused this Annual Report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Troy, and State of North Carolina, on the 18th day
of March, 1997.
First Bancorp
By: /s/ James H. Garner
-------------------
James H. Garner
President, Chief Executive Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on behalf of the Company by the following persons
and in the capacities and on the dates indicated.
Executive Officers
/s/ James H. Garner
-------------------
James H. Garner
President, Chief Executive Officer and Treasurer
/s/ Anna G. Hollers /s/ Kirby A. Tyndall
----------------------- -----------------------
Anna G. Hollers Kirby A. Tyndall
Executive Vice President, Senior Vice President,
Executive Secretary Chief Financial Officer
March 18, 1997 March 18, 1997
Board of Directors
------------------
/s/ John C. Willis /s/ G. T. Rabe, Jr.
----------------------- -----------------------
John C. Willis G. T. Rabe, Jr.
Chairman of the Board, Director
Director March 18, 1997
March 18, 1997
/s/ Jesse S. Capel /s/ John J. Russell
----------------------- -----------------------
Jesse S. Capel John J. Russell
Director Director
March 18, 1997 March 18, 1997
/s/ Jack D. Briggs /s/ Frederick H. Taylor
----------------------- -----------------------
Jack D. Briggs Frederick H. Taylor
Director Director
March 18, 1997 March 18, 1997
/s/ David L. Burns /s/ Edward T. Taws, Jr.
----------------------- -----------------------
David L. Burns Edward T. Taws, Jr.
Director Director
March 18, 1997 March 18, 1997
/s/ Jack L. Harper /s/ John C. Wallace
----------------------- -----------------------
Jack L. Harper John C. Wallace
Director Director
March 18, 1997 March 18, 1997
/s/ George R. Perkins, Jr. /s/ A. Jordan Washburn
----------------------- -----------------------
George R. Perkins, Jr. A. Jordan Washburn
Director Director
March 18, 1997 March 18, 1997
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT CROSS REFERENCE INDEX
Exhibit Page(s)
3.i.a Copy of Articles of Incorporation of the Registrant and
amendments thereto *
3.i.b Copy of the amendment to Articles of Incorporation-
adding a new Article Nine *
3.ii Copy of the Bylaws of the Registrant, as amended *
4 Form of Common Stock Certificate *
10 Material Contracts
10.a Data processing Agreement by and between First Bank and
Montgomery Data Services, Inc. *
10.b First Bank Salary and Incentive Plan, as amended *
10.c First Bancorp Savings Plus and Profit Sharing Plan,
(401(k) savings incentive plan and trust), as amended *
10.d Directors and Officers Liability Insurance Policy of
First Bancorp *
10.e Indemnification Agreement between the Company and its
Directors and Officers *
10.f First Bancorp Employees' Pension Plan *
10.g First Bancorp Senior Management Supplemental Retirement
Plan *
10.h First Bancorp Senior Management Split-Dollar Life
Insurance Agreements *
10.i First Bancorp 1994 Stock Option Plan *
10.j Severance Agreement between First Bancorp and James A.
Gunter *
10.k Settlement Agreement among the First Bank, Prudential
Securities, Incorporated and others *
10.l Severance Agreement between First Bancorp and Patrick A.
Meisky *
10.m Amendment to the First Bancorp Savings Plus and Profit
Sharing Plan (401(k) savings incentive plan and trust) 61
<PAGE>
Exhibit Page(s)
13 First Bancorp Annual Report to shareholders for the year
ended December 31, 1996 *
21 List of Subsidiaries of Registrant *
23.a Consent of Independent Auditors of Registrant,
KPMG Peat Marwick LLP 62
27 Financial Data Schedules pursuant to Article 9 of
Regulation S-X 63
* Incorporated herein by reference.
<PAGE>
Exhibit 10.m
CERTIFICATE OF RESOLUTION
OF
FIRST BANCORP
I, ANNA G. HOLLERS, hereby certify that I am the duly elected and acting
Secretary of First Bancorp, a North Carolina Company, and that the following
is a true and correct copy of a series of resolutions duly adopted by the
Board of Directors of said company at a meeting thereof held on the 17TH day
of DECEMBER, 1996.
"WHEREAS, the Company maintains a qualified 401(k) plan known as the
First Bancorp Employees' Savings Plus and Profit Sharing Plan and further
identified as plan number 001 (hereinafter referred to as the "Plan") for
the exclusive benefit of its employees and their beneficiaries; and
WHEREAS, section 13.02 of the Plan authorized the Company to amend the
Plan; and
WHEREAS, it is deemed desirable to amend the Plan effective January 1,
1996 to add discretionary Employer Matching Contributions; and
WHEREAS, the Company has been presented with an amendment to add said
language to the Plan.
BE IT RESOLVED, that the Company hereby adopts said amendment to the Plan
as presented hereto; and
BE IT FURTHER RESOLVED, that the proper officers of this Company are
hereby authorized and directed to execute such amendments on behalf of
the Company."
IN WITNESS WHEREOF, the undersigned has executed this Certificate on this 2ND
day of JANUARY, 1997.
/s/ ANNA G. HOLLERS
-------------------------
Secretary
/s/ PATRICIA McCORMICK
- --------------------------
Witness
<PAGE>
Exhibit 23.a
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
First Bancorp
We consent to incorporation by reference in the Amendment No. 1 to the
Registration Statement of First Bancorp on Form S-8 relating to the First
Bancorp 1994 Stock Option Plan, of our report dated January 31, 1997,
relating to the consolidated balance sheets of First Bancorp and
subsidiaries as of December 31, 1996 and 1995, and the related statements of
consolidated income, consolidated cash flows and changes in consolidated
shareholders' equity for each of the years in the three-year period ended
December 31, 1996, which report appears in the December 31, 1996 Annual
Report and is incorporated by reference in the FORM 10-KSB of First Bancorp.
Our report dated January 31, 1997, refers to the fact that on January 1,
1994, First Bancorp adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
/s/ KPMG Peat Marwick LLP
Charlotte, North Carolina
March 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CAPTION>
<S> <C>
<CASH> 15,882
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,025
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,942
<INVESTMENTS-CARRYING> 22,323
<INVESTMENTS-MARKET> 22,717
<LOANS> 223,032
<ALLOWANCE> 4,726
<TOTAL-ASSETS> 335,450
<DEPOSITS> 297,861
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,357
<LONG-TERM> 0
<COMMON> 15,082
0
0
<OTHER-SE> 18,150
<TOTAL-LIABILITIES-AND-EQUITY> 335,450
<INTEREST-LOAN> 20,947
<INTEREST-INVEST> 4,231
<INTEREST-OTHER> 544
<INTEREST-TOTAL> 25,722
<INTEREST-DEPOSIT> 9,915
<INTEREST-EXPENSE> 9,916
<INTEREST-INCOME-NET> 15,806
<LOAN-LOSSES> 325
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 13,113
<INCOME-PRETAX> 6,560
<INCOME-PRE-EXTRAORDINARY> 6,560
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,347
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 5.55
<LOANS-NON> 1,836
<LOANS-PAST> 0
<LOANS-TROUBLED> 703
<LOANS-PROBLEM> 1,900
<ALLOWANCE-OPEN> 4,587
<CHARGE-OFFS> 716
<RECOVERIES> 530
<ALLOWANCE-CLOSE> 4,726
<ALLOWANCE-DOMESTIC> 4,726
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 622
</TABLE>
