UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1999
Commission File Number 0-15572
FIRST BANCORP
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
North Carolina 56-1421916
- ------------------------------------ ------------------------------
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
341 North Main Street, Troy, North Carolina 27371-0508
- ------------------------------------------- ------------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, (910) 576-6171
including area code) ------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] YES [ ] NO
As of June 30, 1999, 3,016,861 shares of the registrant's Common Stock,
no par value, were outstanding. The registrant had no other classes of
securities outstanding.
================================================================================
EXHIBIT INDEX BEGINS ON PAGE 29
<PAGE>
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS -
June 30, 1999 and 1998
(With Comparative Amounts at December 31, 1998) 3
CONSOLIDATED STATEMENTS OF INCOME -
For the Periods Ended June 30, 1999 and 1998 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
For the Periods Ended June 30, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -
For the Periods Ended June 30, 1999 and 1998 6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Periods Ended June 30, 1999 and 1998 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
Part II. Other Information
Item 5 - Other Information 24
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 28
Exhibit Cross Reference Index 29
<PAGE>
Part I. Financial Information
Item 1 - Financial Statements
First Bancorp and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31, June 30,
($ in thousands-unaudited) 1999 1998 1998
- ---------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash & due from banks, noninterest-bearing $ 18,290 22,073 16,205
Due from banks, interest-bearing 28,242 8,398 8,129
Federal funds sold 847 8,295 5,087
--------- --------- ---------
Total cash and cash equivalents 47,379 38,766 29,421
--------- --------- ---------
Securities available for sale (costs of $57,188, 56,122 58,800 44,017
$58,740, and $43,802)
Securities held to maturity (fair values of $17,124, 16,978 18,480 18,305
$19,223, and $18,858)
Presold mortgages in process of settlement 2,402 2,619 3,089
Loans 387,755 358,334 328,743
Less: Allowance for loan losses (5,822) (5,504) (5,160)
--------- --------- ---------
Net loans 381,933 352,830 323,583
--------- --------- ---------
Premises and equipment 9,423 9,091 8,527
Accrued interest receivable 3,059 2,789 2,900
Intangible assets 5,525 5,843 6,159
Other 3,466 2,620 2,759
--------- --------- ---------
Total assets $ 526,287 491,838 438,760
========= ========= =========
LIABILITIES
Deposits: Demand - noninterest-bearing $ 59,755 62,479 56,224
Savings, NOW, and money market 161,315 160,428 138,047
Time deposits of $100,000 or more 66,767 60,720 55,335
Other time deposits 163,519 156,639 146,027
--------- --------- ---------
Total deposits 451,356 440,266 395,633
Short-term borrowings 28,000 6,000 -
Accrued interest payable 3,316 3,080 2,717
Other liabilities 1,887 1,998 1,899
--------- --------- ---------
Total liabilities 484,559 451,344 400,249
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
($ in thousands-unaudited) 1999 1998 1998
- ---------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, No par value per share at June 30, 1999, $5 par
previously; Authorized: 12,500,000 shares;
Issued and outstanding: 3,016,861,
3,021,270, and 3,020,370 shares 18,813 15,106 15,102
Capital surplus - 3,864 3,861
Retained earnings 23,565 21,487 19,406
Accumulated other comprehensive income (loss) (650) 37 142
--------- --------- ---------
Total shareholders' equity 41,728 40,494 38,511
--------- --------- ---------
Total liabilities and shareholders' equity $ 526,287 491,838 438,760
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
First Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- ----------------------------------
($ in thousands, except share data-unaudited) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 8,283 7,451 16,202 14,370
Interest on investment securities:
Taxable interest income 822 689 1,620 1,496
Tax-exempt interest income 229 263 466 542
Other, principally overnight investments 160 281 364 501
--------- --------- --------- ---------
Total interest income 9,494 8,684 18,652 16,909
--------- --------- --------- ---------
INTEREST EXPENSE
Savings, NOW and money market 788 824 1,581 1,624
Time deposits of $100,000 or more 898 764 1,783 1,367
Other time deposits 2,002 1,938 4,001 3,770
Short-term borrowings 63 - 98 -
--------- --------- --------- ---------
Total interest expense 3,751 3,526 7,463 6,761
--------- --------- --------- ---------
Net interest income 5,743 5,158 11,189 10,148
Provision for loan losses 260 210 460 490
--------- --------- --------- ---------
Net interest income after provision
for loan losses 5,483 4,948 10,729 9,658
--------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- ----------------------------------
($ in thousands, except share data-unaudited) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST INCOME
Service charges on deposit accounts 719 647 1,383 1,257
Fees from presold mortgages 202 129 373 229
Commissions from insurance sales 58 59 145 118
Other service charges, commissions and fees 304 251 675 525
Data processing fees 10 - 20 -
Securities gains (losses) 15 (3) 20 (3)
Loan sale gains 2 - 2 147
--------- --------- --------- ---------
Total noninterest income 1,310 1,083 2,618 2,273
--------- --------- --------- ---------
NONINTEREST EXPENSES
Salaries 1,935 1,720 3,801 3,445
Employee benefits 471 402 950 775
--------- --------- --------- ---------
Total personnel expense 2,406 2,122 4,751 4,220
Net occupancy expense 282 242 579 488
Equipment related expenses 264 216 519 435
Other operating expenses 1,355 1,312 2,733 2,667
--------- --------- --------- ---------
Total noninterest expenses 4,307 3,892 8,582 7,810
--------- --------- --------- ---------
Income before income taxes 2,486 2,139 4,765 4,121
Income taxes 858 749 1,661 1,425
--------- --------- --------- ---------
NET INCOME $ 1,628 1,390 3,104 2,696
========= ========= ========= =========
xEarnings per share:
Basic $ 0.54 0.46 1.03 0.89
Diluted 0.53 0.45 1.01 0.87
Weighted average common shares outstanding:
Basic 3,014,472 3,020,370 3,014,928 3,020,370
Diluted 3,078,306 3,110,997 3,082,755 3,109,761
</TABLE>
See notes to consolidated financial statements.
<PAGE>
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
($ in thousands-unaudited) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,628 1,390 3,104 2,696
-------- -------- -------- --------
Other comprehensive income (loss):
Unrealized losses on securities
available for sale:
Unrealized holding gains (losses) arising
during the period, pretax (870) 44 (1,106) (70)
Tax benefit (expense) 338 (15) 431 24
Reclassification to realized losses (gains) (15) 3 (20) 3
Tax expense (benefit) 6 (1) 8 (1)
-------- -------- -------- --------
Other comprehensive income (loss) (541) 31 (687) (44)
-------- -------- -------- --------
Comprehensive income $ 1,087 1,421 2,417 2,652
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
First Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Share-
($ in thousands, except per share - ------------------------- Capital Retained Comprehensive holders'
unaudited) Shares Amount Surplus Earnings Income Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 3,020 $ 15,102 3,861 17,616 186 36,765
Net income 2,696 2,696
Cash dividends declared ($0.30 per share) (906) (906)
Other comprehensive income (loss) (44) (44)
--------- --------- --------- --------- --------- ---------
Balances, June 30, 1998 3,020 $ 15,102 3,861 19,406 142 38,511
========= ========= ========= ========= ========= =========
Balances, January 1, 1999 3,021 $ 15,106 3,864 21,487 37 40,494
Net income 3,104 3,104
Cash dividends declared ($0.34 per share) (1,026) (1,026)
Common stock issued under 2 15 5 20
stock option plan
Common stock issued into
dividend reinvestment plan 5 111 10 121
Purchases and retirement of common
stock (11) (55) (243) (298)
Effects of par value change - from $5
per share to no par value per 3,636 (3,636) -
share
Other comprehensive income (loss) (687) (687)
--------- --------- --------- --------- --------- ---------
Balances, June 30, 1999 3,017 $ 18,813 - 23,565 (650) 41,728
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
($ in thousands-unaudited) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,104 2,696
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses 460 490
Net security premium amortization 209 70
Gains on sales of loans (2) (147)
Proceeds from sales of loans 36 2,947
Losses (gains) on sales of securities available for sale (20) 3
Loan fees and costs deferred, net of amortization 9 7
Depreciation of premises and equipment 436 363
Amortization of intangible assets 318 328
Provision for deferred income taxes (80) 99
Increase in accrued interest receivable (270) (34)
Increase in other assets (44) (1,725)
Increase in accrued interest payable 236 418
Decrease in other liabilities (171) (542)
----------- -----------
Net cash provided by operating activities 4,221 4,973
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (12,623) (9,682)
Purchases of securities held to maturity (2,319) (444)
Proceeds from sales of securities available for sale 3,017 1,015
Proceeds from maturities/issuer calls of securities available for sale 10,960 14,796
Proceeds from maturities/issuer calls of securities held to maturity 3,830 2,984
Net increase in loans (29,637) (51,168)
Purchases of premises and equipment (804) (257)
----------- -----------
Net cash used in investing activities (27,576) (42,756)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
($ in thousands-unaudited) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net increase in deposits 11,090 34,409
Proceeds from short-term borrowings, net 22,000 -
Cash dividends paid (965) (846)
Proceeds from issuance of common stock 141 -
Purchases and retirement of common stock (298) -
----------- -----------
Net cash provided by financing activities 31,968 33,563
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,613 (4,220)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,766 33,641
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 47,379 29,421
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,227 6,343
Income taxes 1,582 1,529
Non-cash transactions:
Foreclosed loans transferred to other real estate 31 22
Unrealized loss on securities available for sale (1,126) (67)
Premises and equipment transferred to other real estate 36 206
</TABLE>
See notes to consolidated financial statements.
<PAGE>
First Bancorp And Subsidiaries
Notes To Consolidated Financial Statements
For the Periods Ended June 30, 1999 and 1998
(unaudited)
================================================================================
NOTE 1
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the consolidated financial position of the
Company as of June 30, 1999 and 1998 and the consolidated results of operations
and consolidated cash flows for the periods ended June 30, 1999 and 1998.
Reference is made to the 1998 Annual Report on Form 10-K filed with the SEC for
a discussion of accounting policies and other relevant information with respect
to the financial statements.
NOTE 2
The results of operations for the periods ended June 30, 1999 and 1998 are not
necessarily indicative of the results to be expected for the full year. Certain
amounts reported in the period ended June 30, 1998 have been reclassified to
conform with the presentation for June 30, 1999. These reclassifications had no
effect on net income or shareholders' equity for the periods presented, nor did
they materially impact trends in financial information.
NOTE 3
Basic earnings per share were computed by dividing net income by the weighted
average common shares outstanding. Diluted earnings per share includes the
potentially dilutive effects of the Company's 1994 Stock Option Plan. The
following is a reconciliation of the numerators and denominators used in
computing basic and diluted earnings per share:
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $ 1,628 3,014,472 $ 0.54 $ 1,390 3,020,370 $ 0.46
========== ==========
Effect of Dilutive Securities - 63,834 - 90,627
---------- ---------- ---------- ----------
Diluted EPS $ 1,628 3,078,306 $ 0.53 1,390 3,110,997 $ 0.45
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $ 3,104 3,014,928 $ 1.03 $ 2,696 3,020,370 $ 0.89
========== ==========
Effect of Dilutive Securities - 67,827 - 89,391
---------- ---------- ---------- ----------
Diluted EPS $ 3,104 3,082,755 $ 1.01 $ 2,696 3,109,761 $ 0.87
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
NOTE 4
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or more
days and still accruing interest, restructured loans and foreclosed, repossessed
and idled properties. For each of the periods presented, the Company had no
loans past due 90 or more days and still accruing interest. Nonperforming assets
are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 621 601 346
Restructured loans 254 248 253
----------- ----------- -----------
Total nonperforming loans 875 849 599
Other real estate 546 505 581
----------- ----------- -----------
Total nonperforming assets $ 1,421 1,354 1,180
=========== =========== ===========
Nonperforming loans to total loans 0.23% 0.24% 0.18%
Allowance for loan losses to
nonperforming loans 665.37% 648.29% 861.44%
Nonperforming assets as a percentage of
loans and other real estate 0.37% 0.38% 0.36%
Nonperforming assets to total assets 0.27% 0.28% 0.27%
Allowance for loan losses to total loans 1.50% 1.54% 1.57%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5
Loans are shown on the Consolidated Balance Sheets net of net deferred loan fees
of approximately $137,000, $128,000, and $133,000 at June 30, 1999, December 31,
1998, and June 30, 1998, respectively.
NOTE 6
On April 30, 1999, in an action approved by the Company's shareholders, the par
value of the Company's common stock was changed from $5 par value per share to
no par value per share.
<PAGE>
Item 2 - Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
OVERVIEW
Net income for the three months ended June 30, 1999 was $1,628,000, a 17.1%
increase over the $1,390,000 reported in the second quarter of 1998. Basic and
diluted earnings per share for the second quarter of 1999 increased 17.4% and
17.8% to $0.54 and $0.53, respectively, compared to $0.46 and $0.45,
respectively, for the second quarter of 1998.
Net income for the six months ended June 30, 1999 was $3,104,000, a 15.1%
increase over the $2,696,000 reported for the first six months of 1998. Basic
earnings per share for the six months ended June 30, 1999 increased 15.7% to
$1.03 per share compared to $0.89 per share reported for the same six month
period in 1998. Earnings per share on a diluted basis amounted to $1.01 per
share for the six months ended June 30, 1999, a 16.1% increase over the $0.87
per share for the same six months of 1998.
The increase in net income for the three and six month periods ended June
30, 1999 is primarily due to an increase in net interest income earned by the
Company. Net interest income increased 11.3% and 10.3% for the three and six
month periods ended June 30, 1999, respectively, when compared to the same three
and six month periods of 1998. The increases in net interest income are largely
attributable to loan and deposit growth, the effects of which were partially
offset by lower net interest margins. The changes in the provisions for loan
losses among the periods presented did not have a material impact on net income.
The provisions for loans losses amounted to $260,000 and $460,000 for the three
and six month periods ended June 30, 1999, respectively, compared to $210,000
and $490,000 for the three and six month periods ended June 30, 1998,
respectively.
Noninterest income increased 21.0% and 15.2% for the three and six month
periods ended June 30, 1999, respectively, when compared to the same periods of
1998. The increases in noninterest income were a result of increases experienced
in most categories of fees and charges as a result of the larger customer base
compared to the prior year and a slightly higher fee structure that was
implemented in March 1999. Noninterest expenses increased by 10.7% and 9.9% for
the three and six month periods ended June 30, 1999, respectively, when compared
to the same periods of 1998, due primarily to the increase in the Company's
branch network, as well as additional expenses necessary to process, manage, and
service the Company's significant increases in its loan and deposit bases.
<PAGE>
COMPONENTS OF EARNINGS
Net interest income is the largest component of earnings, representing the
difference between interest and fees generated from earning assets and the
interest costs of deposits and other funds needed to support those assets. Net
interest income for the three and six month periods ended June 30, 1999 amounted
to $5,743,000 and $11,189,000, respectively, increases of $585,000 and
$1,041,000, or 11.3% and 10.3%, over the amounts of $5,158,000 and $10,148,000
recorded in the same three and six month periods in 1998, respectively. The
increases in net interest income have been due to the growth in the Company's
loans and deposits, the effects of which were partially offset by a lower net
interest margin experienced in 1999. Loans increased from $328.7 million at June
30, 1998 to $387.8 million at June 30, 1999, an increase of 18.0%, while
deposits increased from $395.6 million at June 30, 1998 to $451.4 million at
June 30, 1999, an increase of 14.1%.
Partially offsetting the positive effects on net interest income associated
with the loan and deposit growth was a decrease in the Company's net interest
margin. The Company's net interest margin was 5.04% for the second quarter of
1999 compared to 5.30% for the second quarter of 1998, a decrease of 26 basis
points. For the six months ended June 30, 1999, the Company's net interest
margin was 5.00%, a 42 basis point decrease from
<PAGE>
the 5.42% margin realized in the first half of 1998. The Company experienced
decreases in both the yield earned on interest earning assets and the rate paid
on interest bearing liabilities during the periods presented, primarily due to
the 75 basis point decrease in the prime rate that occurred in the fourth
quarter of 1998. However, the average decrease in the yield earned on interest
earning assets exceeded the decrease in the average rate paid on interest
bearing liabilities primarily because the Company aggressively priced its
deposits to facilitate the growth necessary to fund the strong demand in loans.
The following table presents average rates earned/paid by the Company for
the three and six months ended June 30, 1999 compared to the same periods in
1998:
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Yield on loans 8.74% 9.35% 8.77% 9.45%
Yield on taxable securities 5.68% 6.40% 5.63% 6.67%
Yield on tax-exempt securities (tax equivalent) 8.23% 8.71% 8.42% 8.82%
Yield on other interest earning assets,
primarily overnight funds 5.21% 5.53% 5.13% 5.62%
Yield on all interest earning assets 8.25% 8.81% 8.25% 8.92%
Weighted average rate on savings, NOW,
and money market deposits 1.94% 2.37% 1.97% 2.37%
Rate on time deposits>$100,000 5.49% 5.88% 5.56% 5.87%
Rate on other time deposits 4.98% 5.37% 5.06% 5.37%
Rate on short-term borrowings 5.12% n/a 4.98% n/a
Rate on all interest bearing liabilities 3.81% 4.21% 3.86% 4.18%
Interest rate spread 4.44% 4.60% 4.40% 4.74%
Net interest margin 5.04% 5.30% 5.00% 5.42%
Average prime rate 7.75% 8.50% 7.75% 8.50%
</TABLE>
<PAGE>
See additional discussion regarding interest rate risk below in Item 3 -
Quantitative and Qualitative Disclosures About Market Risk.
The provision for loan losses for the second quarter of 1999 was $260,000,
$50,000 higher than the $210,000 recorded in the same quarter of 1998. The
increase in the provision for loan losses was impacted by strong loan growth and
also $52,000 higher net charge-offs in the second quarter of 1999 ($110,000)
compared to the same quarter of 1998 ($58,000). The $460,000 provision for loan
losses recorded for the six months ended June 30, 1999 was $30,000, or 6.1%,
lower than the $490,000 recorded for the same six months of 1998. The decrease
in the provision for loan losses in 1999 was impacted by the lower loan growth
experienced during the first half of 1999 compared to the first half of 1998,
the effects of which were partially offset by slightly weaker asset quality
ratios at June 30, 1999 compared to June 30, 1998.
Total noninterest income increased $227,000, or 21.0%, to $1,310,000 in the
second quarter of 1999 from the $1,083,000 recorded in the second quarter of
1998. Noninterest income for the first half of 1999 increased $345,000, or
15.2%, to $2,618,000 compared to $2,273,000 for the first half of 1998. The
increase in noninterest income for the three and six month periods in 1999
compared to the same periods in 1998 is primarily due to the following factors:
1) increases in service charges earned on deposit accounts caused by the
increase in the Company's deposit base, as well as a slightly higher fee
schedule that was implemented in March 1999, 2) higher fees from presold
mortgages which have been driven by high levels of refinancings as a result of
lower mortgage loan rates in 1999, and 3) higher levels of other service
charges, commissions, and fees caused primarily by the Company's larger customer
base. This category of noninterest income includes items such as safety deposit
box rentals, check cashing fees, merchant card income, and ATM surcharges.
<PAGE>
The Company has recorded $10,000 of noninterest income in each of the first
two quarters in 1999 related to data processing services provided to two de novo
banks in the area. The Company's data processing subsidiary, Montgomery Data
Services, Inc. (Montgomery Data) makes its excess data processing capabilities
available to area financial institutions for a fee. Montgomery Data did not have
any nonaffiliated customers from December 1997 to December 1998. In December
1998, a contract was signed to provide data processing for a nearby de novo
bank. This customer is expected to contribute approximately $40,000 in fees
during 1999. In May 1999, another contract was signed with a de novo bank, which
is expected to contribute approximately $12,000 in annual fees. Montgomery Data
is not aggressively marketing this service and has no other prospective
customers at this time.
Loan and security gains amounted to $17,000 and $22,000 for the three and
six months ended June 30, 1999, compared to a loss of $3,000 for the second
quarter of 1998 and a net $144,000 gain for the first six months of 1998. In
first quarter of 1998 the Company realized a gain of $147,000 from the sale of
approximately $3 million in newly originated commercial loans that were sold in
order to assist the Company in keeping a proper balance between the amount of
loans and deposits that the Company maintains. Similar sales that may also
result in gains (or losses) may be made in the future depending on the
circumstances.
Noninterest expenses for the second quarter of 1999 amounted to $4,307,000,
a 10.7% increase over the $3,892,000 recorded in the second quarter of 1998.
Noninterest expenses for the first half of 1999 totaled $8,582,000, a 9.9%
increase over the $7,810,000 recorded in the first half of 1998. The 1999
increases are primarily associated with the higher expenses that are necessary
to properly process, manage, and service the increases in loans and deposits
experienced by the Company. Also contributing to the increase in noninterest
expenses was the continued expansion of the Company's branch network and the
annual wage increases that are granted to substantially all employees in January
of each year. The $33,000 increase in other operating expenses for the six
months ended June 30, 1999 compared to 1998 shown in the table below was also
due to generally higher operating expenses associated with the Company's growth
that were largely offset by approximately $150,000 in fewer non-credit losses
experienced by the Company during the first quarter of 1999 compared to the
first quarter of 1998. Non-credit losses include miscellaneous operating losses
experienced by the Company such as robbery losses. The following table presents
the significant components of the Company's noninterest expenses for the three
and six month periods ended June 30, 1999 compared to the same periods in 1998.
<PAGE>
<TABLE>
<CAPTION>
Noninterest Expenses Three Months Ended June 30, Six Months Ended June 30,
-------------------- --------------------------- ----------------------------
(In thousands) 1999 1998 1999 1998
----- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries $ 1,935 1,720 3,801 3,445
Employee benefits 471 402 950 775
------- ------- ------- -------
Total personnel expense 2,406 2,122 4,751 4,220
Net occupancy expense 282 242 579 488
Equipment related expenses 264 216 519 435
Amortization of intangible assets 159 164 318 328
Stationery and supplies 211 196 414 382
Telephone 122 107 230 219
Other operating expenses 863 845 1,771 1,738
------- ------- ------- -------
Total $ 4,307 3,892 8,582 7,810
======= ======= ======= =======
Noncash expenses included above
- consists of amortization of
intangible assets and fixed $ 383 347 754 691
asset depreciation ======= ======= ======= =======
</TABLE>
<PAGE>
Income taxes recorded for the three months ended June 30, 1999 amounted to
$858,000, a 14.6% increase over the $749,000 recorded for the same three months
of 1998. Income taxes recorded for the first half of 1999 amounted to
$1,661,000, a 16.6% increase over the $1,425,000 recorded in the first half of
1998. The effective tax rate for all periods presented was approximately 35%.
During the second quarter of 1999, the Company made certain investments that are
expected ultimately to eliminate substantially all state income taxes paid by
the Company. The effect on net income from this expected reduction in state
income taxes will be largely offset in 1999 by the implementation costs
associated with the investments. The Company paid $413,000 in state income taxes
in 1998.
FINANCIAL CONDITION
The Company's total assets were $526.3 million at June 30, 1999, an
increase of $87.5 million, or 19.9%, from the $438.8 million at June 30, 1998.
Interest-earning assets increased by 20.9%, from $407.4 million at June 30, 1998
to $492.3 million at June 30, 1999. Loans, the primary interest-earning asset,
grew from $328.7 million at June 30, 1998 to $387.8 million at June 30, 1999, an
increase of $59.0 million, or 18.0%. Deposits increased $55.7 million, or 14.1%,
supporting the asset growth. The increases in deposits occurred in all
significant categories, with noninterest bearing demand deposits increasing by
$3.5 million, or 6.3%; savings, NOW and money market accounts increasing by
$23.3 million, or 16.9%; time deposits of $100,000 or more increasing by $11.4
million, or 20.7%; and other time deposits increasing by $17.5 million, or
12.0%. The 20.7% increase in time deposits of $100,000 or more was due to the
Company more aggressively pricing these deposits to provide funding for the
strong loan growth experienced. The Company has not traditionally engaged in
obtaining deposits through brokers and had no such deposits in 1999 or 1998.
Since December 31, 1998, the Company has experienced annualized increases of
16.4%, 14.0%, and 5.0% in loans, total assets and deposits, respectively.
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and foreclosed,
repossessed and idled properties. For each of the periods presented, the Company
had no loans past due 90 or more days and still accruing interest. Nonperforming
assets are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
($ in thousands) 1999 1998 1998
------------------------------------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 621 601 346
Restructured loans 254 248 253
--------- --------- ---------
Total nonperforming loans 875 849 599
Other real estate 546 505 581
--------- --------- ---------
Total nonperforming assets $ 1,421 1,354 1,180
========= ========= =========
Nonperforming loans to total loans 0.23% 0.24% 0.18%
Allowance for loan losses to
nonperforming loans 665.37% 648.29% 861.44%
Nonperforming assets as a percentage of
loans and other real estate 0.37% 0.38% 0.36%
Nonperforming assets to total assets 0.27% 0.28% 0.27%
Allowance for loan losses to total loans 1.50% 1.54% 1.57%
</TABLE>
Management has reviewed the collateral for the nonperforming assets,
including nonaccrual loans, and has included this review among the factors
considered in the evaluation of the allowance for loan losses discussed below.
<PAGE>
A loan is placed on nonaccrual status when, in management's judgment, the
collection of interest appears doubtful. The accrual of interest is discontinued
on all loans that become 90 days past due with respect to principal or interest.
While a loan is on nonaccrual status, the Company's policy is that all cash
receipts are applied to principal. Once the recorded principal balance has been
reduced to zero, future cash receipts are applied to recoveries of any amounts
previously charged off. Further cash receipts are recorded as interest income to
the extent that any interest has been foregone. Loans are removed from
nonaccrual status when they become current as to both principal and interest and
when concern no longer exists as to the collectability of principal or interest.
In some cases, where borrowers are experiencing financial difficulties, loans
may be restructured to provide terms significantly different from the originally
contracted terms.
Nonperforming loans are defined as nonaccrual loans and restructured loans.
As of June 30, 1999, December 31, 1998 and June 30, 1998, nonperforming loans
were approximately 0.23%, 0.24%, and 0.18%, respectively, of the total loans
outstanding at such dates. Although nonaccrual loans at June 30, 1999 were 79%
higher than at June 30, 1998, the nonaccrual amount at June 30, 1999 of $621,000
is consistent with the amounts reported at each of the other quarter ends since
March 31, 1998 and is considered low when compared to historical levels. The
level of restructured loans and other real estate has also not varied by
material amounts for the periods presented.
As of June 30, 1999, the borrower with the largest nonaccrual loan owed a
balance of $130,000, while the average nonaccrual loan balance was approximately
$28,000. If the nonaccrual loans and restructured loans as of June 30, 1999 and
1998 had been current in accordance with their original terms and had been
outstanding throughout the six month periods (or since origination or
acquisition if held for part of the six month periods), gross interest income in
the amounts of approximately $30,000 and $17,000 for nonaccrual loans and
$12,000 and $13,000 for restructured loans would have been recorded for the six
months ended June 30, 1999 and 1998, respectively. Interest income on such loans
that was actually collected and included in net income in the six months ended
June 30, 1999 and 1998 amounted to approximately $8,000 and $3,000,
respectively, for nonaccrual loans (prior to their being placed on nonaccrual
status) and $11,000 and $14,000, respectively, for restructured loans.
<PAGE>
A loan is considered to be impaired when, based on current information and
events, it is probable the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. The value of impaired
loans is measured using either 1) an estimate of the cash flows that the Company
expects to receive from the borrower discounted at the loan's effective rate, or
2) in the case of a collateral-dependent loan, the estimated fair value of the
collateral. While a loan is considered to be impaired, the Company's policy is
that interest accrual is discontinued and all cash receipts are applied to
principal. Once the recorded principal balance has been reduced to zero, future
cash receipts are applied to recoveries of any amounts previously charged off.
Further cash receipts are recorded as interest income to the extent that any
interest has been foregone.
At June 30, 1999, December 31, 1998, and June 30, 1998 the recorded
investment in loans considered to be impaired was $123,000, zero, and $29,000,
respectively, all of which were on nonaccrual status. The related allowance for
loan losses for these impaired loans was $18,000, zero, and $4,000,
respectively. There were no impaired loans for which there was no related
allowance. The average recorded investments in impaired loans during the six
month period ended June 30, 1999, the year ended December 31, 1998, and the six
months ended June 30, 1998 were approximately $70,000, $110,000, and $174,000,
respectively. For the same periods, the Company recognized no interest income on
those impaired loans during the period that they were considered to be impaired.
In addition to the nonperforming loan amounts discussed above, management
believes that an estimated $1,600,000-$2,000,000 of loans that are currently
performing in accordance with their contractual terms may potentially develop
problems. These loans were considered in determining the appropriate level of
the allowance for loan losses. See "Summary of Loan Loss Experience" below.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been disclosed in the problem loan amounts above
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
As of June 30, 1999, December 31, 1998 and June 30, 1998, the Company owned
other real estate totaling approximately $546,000, $505,000, and $581,000,
respectively, which consisted principally of several parcels of foreclosed real
estate. The Company's management has reviewed recent appraisals of these
properties and believes that their fair values, less estimated costs to sell,
exceed their respective carrying values at the dates presented.
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for 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.
<PAGE>
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, probable losses inherent in the portfolio and current
economic conditions.
The Company uses a loan analysis and grading program to facilitate its
evaluation of probable loan losses and the adequacy of its allowance for loan
losses. In this program, risk grades are assigned by management and tested by
the Company's internal audit department and an independent third party
consulting firm. The testing program includes an evaluation of a sample of new
loans, loans that management identifies as having credit weaknesses, loans past
due 90 days or more, nonaccrual loans and any other loans identified during
previous regulatory and other examinations.
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
Company's 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 provision for loan losses for the second quarter of 1999 was $260,000,
$50,000 higher than the $210,000 recorded in the same quarter of 1998. The
increase in the provision for loan losses was impacted by strong loan growth and
also $52,000 higher net charge-offs in the second quarter of 1999 ($110,000)
compared to the same quarter of 1998 ($58,000). The $460,000 provision for loan
losses recorded for the six months ended June 30, 1999 was $30,000, or 6.1%,
lower than the $490,000 recorded for the same six months of 1998. The decrease
in the provision for loan losses in 1999 was impacted by the lower loan growth
experienced during the first half of 1999 compared to the first half of 1998,
the effects of which were partially offset by slightly weaker asset quality
ratios at June 30, 1999 compared to June 30, 1998.
At June 30, 1999, the allowance for loan losses amounted to $5,822,000,
compared to $5,504,000 at December 31, 1998 and $5,160,000 at June 30, 1998. At
June 30, 1999, the allowance for loan losses was approximately 665% of total
nonperforming loans, compared to corresponding percentages of 648% at December
31, 1998 and 861% at June 30, 1998. The allowance for loan losses was 1.50%,
1.54% and 1.67% of total loans as of June 30, 1999, December 31, 1998 and June
30, 1998, respectively.
Management believes the Company's reserve levels are adequate to cover
probable loan losses on the loans outstanding as of each reporting date. It must
be emphasized, however, that the determination of the reserve using the
Company's procedures and methods rests upon various judgments and assumptions
about economic conditions and other factors affecting loans. No assurance can be
given that the Company will not in any particular period sustain loan losses
that are sizable in relation to the amounts reserved or that subsequent
evaluations of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges to earnings.
<PAGE>
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses
and value of other real estate. Such agencies may require the Company to
recognize adjustments to the allowance or the carrying value of other real
estate based on their judgments about information available at the time of their
examinations.
For the periods indicated, the following table summarizes the Company's
balances of loans outstanding, average loans outstanding, changes in the
allowance for loan losses arising from charge-offs and recoveries by category,
and additions to the allowance for loan losses that have been charged to
expense.
<PAGE>
<TABLE>
<CAPTION>
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
($ in thousands) 1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Loans outstanding at end of period $ 387,755 358,334 328,743
========= ========= =========
Average amount of loans outstanding $ 372,466 325,477 306,749
========= ========= =========
Allowance for loan losses, at
beginning of year 5,504 4,779 4,779
Loans charged off:
Commercial, financial and agricultural (14) (92) (27)
Real estate - mortgage (101) (97) (44)
Installment loans to individuals (81) (245) (117)
--------- --------- ---------
Total charge-offs (196) (434) (188)
--------- --------- ---------
Recoveries of loans previously charged-off
Commercial, financial and agricultural 9 51 13
Real estate - mortgage 4 18 4
Installment loans to individuals 41 100 62
--------- --------- ---------
Total recoveries 54 169 79
--------- --------- ---------
Net charge-offs (142) (265) (109)
Additions to the allowance charged to expense 460 990 490
--------- --------- ---------
Allowance for loan losses, at end of period $ 5,822 5,504 5,160
========= ========= =========
Ratios:
Net charge-offs (annualized) as a percent of
average loans 0.08% 0.08% 0.07%
Allowance for loan losses as a
percent of loans at end of period 1.50% 1.54% 1.57%
</TABLE>
<PAGE>
LIQUIDITY
The Company's liquidity is determined by its ability to convert assets to
cash or acquire alternative sources of funds to meet the needs of its customers
who are withdrawing or borrowing funds, and to maintain required reserve levels,
pay expenses and operate the Company on an ongoing basis. The Company's primary
liquidity sources are net income from operations, cash and due from banks,
federal funds sold and other short-term investments. The Company's securities
portfolio is comprised almost entirely of readily marketable securities which
could also be sold to provide cash. In addition, the Bank has the ability, on a
short-term basis, to purchase $15 million in federal funds from other financial
institutions and has a $50 million line of credit with the Federal Home Loan
Bank (the "FHLB") that can provide short or long term financing. The Company has
not historically had to rely on these sources of credit as a source of
liquidity. The Company has experienced an increase in its loan to deposit ratio
over the past two and a half years, from 74.9% at December 31, 1996, to 77.7% at
December 31, 1997, to 81.4% at December 31, 1998, to 85.9% at June 30, 1999, as
a result of the significant loan growth experienced. This strong loan growth has
reduced the Company's liquidity sources. To further enhance available liquidity
sources, during 1998 the Company increased its available line of credit with the
FHLB from $36 million to $50 million. Since the third quarter of 1998, although
the Company has not had any liquidity or funding difficulties, the Company has
periodically made draws and repayments on this line of credit on an overnight
basis to maintain liquidity ratios at internally targeted levels. At June 30,
1999, the Company had outstanding short-term borrowings totaling $28.0 million,
while the average amount outstanding year to date was $4.0 million. The
Company's management believes its liquidity sources are at an acceptable level
and remain adequate to meet its operating needs.
<PAGE>
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 Company's banking
subsidiary 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.
The Company 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 the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company'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 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.
<PAGE>
In addition to the minimum capital requirements described above, the
regulatory framework for prompt corrective action also contains specific capital
guidelines for classification as "well capitalized," which are presented with
the minimum ratios and the Company's ratios at June 30, 1999, December 31, 1998,
and June 30, 1998 in the table below.
Although the Company continues to exceed even the regulatory thresholds for
"well capitalized" status, the Company's capital ratios have been steadily
declining with the strong growth the Company has experienced. The Company's
Total Risk-Based Capital to Tier II Risk Adjusted Assets ratio of 10.66% at June
30, 1999, compared to the "well capitalized" threshold of 10.00%, is the only
one of the three regulatory ratios that is within 200 basis points of falling
below the "well capitalized" threshold. The Company has action plans in place to
improve any ratio that falls below the "well capitalized" threshold.
As of June 30, 1999, December 31, 1998 and June 30, 1998, the Company was
in compliance with all existing regulatory capital requirements, as summarized
in the following table:
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
($ in thousands) 1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk-Based and Leverage Capital
Tier I capital:
Common shareholders' equity $ 41,728 40,494 38,511
Intangible assets (5,525) (5,843) (6,159)
Unrealized loss (gain) on securities
available for sale, net of taxes 650 (37) (142)
--------- --------- ---------
Total Tier I leverage capital 36,853 34,614 32,210
--------- --------- ---------
Tier II capital:
Allowable allowance for loan losses 4,825 4,493 3,968
--------- --------- ---------
Tier II capital additions 4,825 4,493 3,968
--------- --------- ---------
Total risk-based capital $ 41,678 39,107 36,178
========= ========= =========
Risk adjusted assets $ 390,884 365,288 323,779
Tier I risk-adjusted assets
(includes Tier I capital adjustments) 386,009 359,408 317,478
Tier II risk-adjusted assets
(includes Tiers I and II capital 390,834 363,901 321,446
adjustments)
Quarterly average total assets 500,953 475,698 433,047
Adjusted quarterly average total assets
(includes Tier I capital adjustments) 496,078 469,818 426,746
Risk-based capital ratios:
Tier I capital to Tier I risk adjusted 9.55% 9.63% 10.15%
assets
Minimum required Tier I capital 4.00% 4.00% 4.00%
Threshold for well-capitalized status 6.00% 6.00% 6.00%
Total risk-based capital to
Tier II risk-adjusted assets 10.66% 10.75% 11.25%
Minimum required total risk-based capital 8.00% 8.00% 8.00%
Threshold for well-capitalized status 10.00% 10.00% 10.00%
Leverage capital ratios:
Tier I leverage capital to
adjusted fourth quarter average assets 7.43% 7.37% 7.55%
Minimum required Tier I leverage capital 4.00% 4.00% 4.00%
Threshold for well-capitalized status 5.00% 5.00% 5.00%
</TABLE>
<PAGE>
UPDATE ON YEAR 2000
The Company recognizes the potentially severe implications of the "Year
2000 Issue." The "Year 2000 Issue" (also known as "Y2K") is a general term used
to describe the various problems that may result from the improper processing of
dates and date-sensitive calculations as the year 2000 approaches. This issue is
caused by the fact that many of the world's existing computer programs use only
two digits to identify the year in the date field of a program. These programs
were designed and developed without considering the impact of the upcoming
change in the century and could experience serious malfunctions when the last
two digits of the year change to "00" as a result of identifying a year
designated "00" as the year 1900 rather than the year 2000. This
misidentification could prevent the Company from being able to engage in normal
business operations, including, among other things, miscalculating interest
accruals and the inability to process customer transactions. Because of the
potentially serious ramifications of the Year 2000 Issue, the Company has
devoted significant time and resources to ensure the Company's Year 2000
readiness.
The Company believes that it is currently Year 2000 ready. The Company's
systems and processes have been evaluated and tested, and have been determined
to be Year 2000 compliant. The following discussion contains additional detail
regarding the Company's Year 2000 preparations, as well as disclosures regarding
costs incurred to date and projected additional costs related to the Year 2000
Issue.
The Company's Technology Committee, which is comprised of a cross-section
of the Company's employees, has led the Company's Year 2000 efforts and involved
all employees of the Company in ensuring that the Company is properly prepared
for the year 2000. The Company's Board of Directors approved a plan submitted by
the Technology Committee that was developed in accordance with guidelines set
forth by the Federal Financial Institutions Examination Council. This plan had
three primary phases related to internal Year 2000 compliance.
The first phase of the Company's efforts to address the Year 2000 Issue was
to inventory all known Company processes that could reasonably be expected to be
impacted by the Year 2000 Issue and their related vendors, if applicable. This
inventory of processes and vendors included not only typical computer processes
such as the Company's transaction applications systems, but all known processes
that could be impacted by micro-chip malfunctions. These include but are not
limited to the Company's alarm system, phone system, check ordering process, and
ATM network. This phase is complete, although it is periodically updated as
necessary.
The Company's second phase in addressing the Year 2000 Issue was to contact
all third party vendors, request documentation regarding their Year 2000
compliance efforts, and analyze the responses. This was a significant phase
because the Company does not perform in-house programming, and thus is dependent
on external vendors to ensure and modify, if necessary, the hardware, software,
or service they provide to the Company to be Year 2000 compliant. This phase is
complete, although it is updated as necessary. The Company is satisfied that its
third party vendors have properly addressed the Year 2000 Issue.
<PAGE>
The next phase for the Company under the plan was to complete a
comprehensive testing of all known processes. Under the plan, processes were
initially tested on a stand-alone basis and then they were tested on an
integrated basis with other processes. Testing of the Company's processes on a
stand-alone basis, as well as on an integrated basis, has been successfully
completed. The most significant phase of testing was the testing of the
Company's core software applications. Upgrades of the core software applications
currently used by the Company were received from the software vendor in June
1998 and were represented to be Year 2000 compliant by the vendor. These
applications were successfully loaded onto the Company's hardware system in July
1998 and Year 2000 testing began in September 1998. The testing of the core
applications revealed no Year 2000 problems.
<PAGE>
Another part of the Company's Year 2000 plan was to assess the Year 2000
readiness of its significant borrowers and depositors. Through the use of
questionnaires and personal contacts, the Company has gathered information
regarding the Year 2000 readiness of significant borrowers and depositors of the
Company. The assessment of the Company's significant depositors and borrowers is
complete. Customers who the Company has Year 2000 concerns about are being
counseled on the Year 2000 Issue, urged to take action, and placed on an
internal watch list that is updated on a quarterly basis and reviewed and
monitored by the Company for any potential effects on the Company. Based on the
Company's evaluation, management does not believe that the number or magnitude
of customers with potential Year 2000 problems will be significant. Prospective
new loan customers are also assessed for Year 2000 compliance as a part of the
underwriting process of significant loans.
Management is also working closely with outside consultants and the FDIC on
the Company's Year 2000 readiness.
In the Company's 1998 Form 10-K, the Company's projected total costs to
address the Year 2000 Issue to be approximately $100,000. Based on ongoing
evaluations of the Company's current Year 2000 status, it is management's
current belief that total Year 2000 costs will be approximately $140,000, which
are being expensed as they occur. The increase in the estimated total expense is
attributable to additional projected expenses associated with customer education
and certain precautionary measures the Company is planning to take.
A total of $70,000 has been recorded in 1998 and 1999 related to the Year
2000 Issue. In 1998, the Company expensed approximately $32,000 in Year 2000
Issue related costs, none of which was expensed in the first half of 1998. In
1999, the Company has expensed a total of $38,000 in Year 2000 Issue related
costs, of which $12,000 was recorded in the second quarter and $26,000 in the
first quarter. The remaining expenses are expected to be incurred over the
remainder of 1999. The estimated and actual Year 2000 costs include only direct
external costs associated with Year 2000 readiness, and do not include any
amounts attributable to the significant time that management and the staff of
the Company has spent planning, preparing and testing for Year 2000 readiness.
Although funding of the Year 2000 project costs will come from normal operating
cash flow, the external expenses associated with the Year 2000 Issue are
directly reducing otherwise reported net income for the Company.
<PAGE>
Management of the Company believes that the potential effects on the
Company's internal operations of the Year 2000 Issue have been addressed and
that the Company will not experience any significant Year 2000 related problems.
However, it is possible that unforeseen circumstances related to the Year 2000
Issue could arise and disrupt normal business operations. The most reasonably
likely worst case Year 2000 scenarios foreseeable at this time would include the
Company temporarily not being able to process, in some combination, various
types of customer transactions. This could affect the ability of the Company to,
among other things, originate new loans, post loan payments, accept deposits or
allow immediate withdrawals, and, depending on the amount of time such a
scenario lasted, could have a material adverse effect on the Company. In the
event that unforeseen circumstances do occur, the Company has developed and
tested a contingency plan that would allow for limited transactions, including
the ability to make certain deposit withdrawals, until the Year 2000 problems
are remediated.
The costs of the Year 2000 project are based on management's best
estimates, which were derived using numerous assumptions of future events such
as the availability of certain resources (including internal and external
resources), third party vendor plans and other factors. However, there can be no
guarantee that these estimates will be achieved at the cost disclosed, and
actual results could differ materially from these plans. The discussion in this
section contains Year 2000 readiness disclosures within the meaning of the Year
2000 Information and Readiness Disclosure Act of 1998.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK)
Net interest income is the Company's most significant component of
earnings. Notwithstanding changes in volumes of loans and deposits, the
Company's level of net interest income is continually at risk due to the effect
that changes in general market interest rate trends have on interest yields
earned and paid with respect to the various categories of earning assets and
interest-bearing liabilities. It is the Company's policy to maintain portfolios
of earning assets and interest-bearing liabilities with maturities and repricing
opportunities that will afford protection, to the extent practical, against wide
interest rate fluctuations. The Company's exposure to interest rate risk is
analyzed on a regular basis by management using standard GAP reports, maturity
reports, and an asset/liability software model that simulates future levels of
interest income and expense based on current interest rates, expected future
interest rates, and various intervals of "shock" interest rates. Over the years,
the Company has been able to maintain a fairly consistent yield on average
earning assets (net interest margin). Over the past ten years the net interest
margin has not varied in any single calendar year by more than the 41 basis
point change experienced by the Company in 1998, and the lowest net interest
margin realized over that same period is within 60 basis points of the highest.
Prior to 1998, the most that the Company's net interest margin varied from one
calendar year to the next was 20 basis points.
As of June 30, 1999, the Company had approximately $149 million more in
interest-bearing liabilities that are subject to interest rate changes within
one year than earning assets. This generally would indicate that net interest
income would experience downward pressure in a rising interest rate environment
and would benefit from a declining interest rate environment. However, this
method of analyzing interest sensitivity 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,
included in interest-bearing liabilities at June 30, 1999 subject to interest
rate changes within one year are deposits totaling $161.3 million comprised of
NOW, savings, and certain types of money market deposits with interest rates set
by management. These types of deposits historically have not repriced
coincidentally with or in the same proportion as general market indicators.
Thus, the Company believes that near term net interest income would not likely
experience significant downward pressure from rising interest rates. Similarly,
management would not expect a significant increase in near term net interest
income from falling interest rates. In fact, as discussed in the following
paragraph, management believes the opposite to be true, that the recent
short-term effects of a declining interest rate environment have had a negative
impact on the Company's net interest income and that the near term effects of an
increase in rates should have a positive effect on net interest income. The
Company has relatively little long-term interest rate exposure, with
approximately 84% of interest-earning assets subject to repricing within five
years and all interest-bearing liabilities subject to repricing within five
years.
<PAGE>
In the second quarter of 1999, the Company experienced a reversal in the
recent trend of declining net interest margins with a margin of 5.04%, seven
basis points higher than the net interest margin reported in the first quarter
of 1999. The Company reported a net interest margin of 4.97% in the first
quarter of 1999, 5.03% in the fourth quarter of 1998, 5.14% in the third quarter
of 1998, 5.30% in the second quarter of 1998 and 5.55% in the first quarter of
1998. The increase in the net interest margin in the second quarter of 1999
compared to the first quarter of 1999 was primarily due to a lower average rate
paid on interest bearing deposits during the quarter; the Company's yield on
average earning assets remained virtually unchanged when comparing the second
quarter of 1999 to the first quarter of 1999, while the average rate paid on
interest bearing deposits decreased ten basis points. This decrease in rate was
caused primarily by the repricing of the Company's time deposits. At the end of
the third quarter of 1998, when changes in the prime rate began to occur, the
Company was more liability sensitive in the "over 3 to 12 month" horizon than in
the "3 months or less" horizon due to the Company having a significant portion
of its time deposits with a maturity between four and twelve months. In 1999, as
the effects of the 1998 fourth quarter drop in the prime rate have continued to
manifest, the Company has had more liabilities, primarily time deposits,
repricing at the lower prime-adjusted rate than assets.
<PAGE>
On July 1, 1999, the Company increased its prime rate from 7.75% to 8.00%
in conjunction with a 25 basis point increase in the national discount rate.
This increase is expected to have a slightly positive effect on the Company's
near term net interest margin for similar reasons to the initial negative
effects of the 1998 decrease in the prime rate on the Company's net interest
margin, as discussed above. It is anticipated that the Company's loans,
especially the $172 million in adjustable rate loans, will reprice upward faster
and by a higher percentage than the Company's deposits, the pricing of which is
generally set by management. However these positive effects are likely to be
partially offset by the Company's continuing trend of having a higher percentage
of its deposits comprised of time deposits and its highest yielding money market
and savings accounts, the Company's highest yielding deposit types. At December
31, 1997, the Company's time and highest yielding money market and savings
deposits comprised 58% of total deposits. At December 31, 1998, the percentage
had increased to 61% and at June 30, 1999, the percentage had risen to 63%. The
trend towards a higher yielding deposit mix has been necessary to fund the
Company's strong loan growth.
See additional discussion of the Company's net interest margin in the
"Components of Earnings" section above.
The Company has no market risk sensitive instruments held for trading
purposes, nor does it maintain any foreign currency positions. The following
table presents the expected maturities of the Company's other than trading
market risk sensitive financial instruments.
<PAGE>
The following table also presents the fair values of market risk sensitive
instruments as estimated in accordance with Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments."
<TABLE>
<CAPTION>
Expected Maturities of Market Sensitive
Instruments Held at June 30, 1999 Average Estimated
----------------------------------------------------------------------------- Interest Fair
($ in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years Beyond Total Rate (1) Value
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities- at
amortized cost (2) $ 17,826 11,575 3,175 4,651 16,642 18,684 72,553 6.29% $ 71,500
Loans - fixed (3) 36,993 25,458 29,615 35,756 50,561 35,958 214,341 8.69% 214,908
Loans - adjustable (3) 87,617 18,152 12,833 13,972 23,635 16,584 172,793 8.33% 172,793
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $142,436 55,185 45,623 54,379 90,838 71,226 459,687 8.20% $ 459,201
========== ========== ========== ========== ========== ========== ========== ====== ==========
Savings, NOW, and
money market
deposits $161,315 - - - - - 161,315 1.98% $ 161,315
Time deposits 201,782 19,897 3,719 2,550 2,338 - 230,286 5.05% 231,135
Short-term borrowings 28,000 - - - - - 28,000 4.95% 28,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $391,097 19,897 3,719 2,550 2,338 - 419,601 3.82% $ 420,450
========== ========== ========== ========== ========== ========== ========== ====== ==========
</TABLE>
(1) Tax-exempt securities are reflected at a tax-equivalent basis using a 34%
tax rate.
(2) Callable securities with above market interest rates at June 30, 1999 are
assumed to mature at their call date for purposes of this table.
(3) Excludes nonaccrual loans and allowance for loan losses.
<PAGE>
The Company's fixed rate earning assets have estimated fair values that are
slightly higher than their carrying value. This is due to the yields on these
portfolios being slightly higher than market yields at June 30, 1999 for
instruments with maturities similar to the remaining term of the portfolios, due
to the generally declining interest rate environment over the past year. The
estimated fair value of the Company's time deposits is higher than its book
value for the same reason.
ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. This Statement, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Because the
Company has not historically and does not currently employ the use of
derivatives, this Statement is not expected to impact the Company.
FORWARD LOOKING STATEMENTS
The foregoing discussion contains statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations or
beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," or other statements concerning opinions or
judgment of the Company and its management about future events. Factors that
could influence the accuracy of such forward-looking statements include, but are
not limited to, the financial success or changing strategies of the Company's
customers, actions of government regulators, the level of market interest rates,
and general economic conditions, as well as the factors identified in the last
paragraph of the section above entitled "Update on Year 2000."
<PAGE>
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders
The following proposals were considered and acted upon at the annual
meeting of shareholders of the Company held on April 21, 1999:
Proposal 1
A proposal to elect the following eleven (11) nominees to the board
of directors to serve until the 2000 annual meeting of shareholders,
or until their successors are elected and qualified.
<TABLE>
<CAPTION>
Voted Withheld
Nominee For Authority
------- --- ---------
<S> <C> <C>
Jack D. Briggs 2,481,322 14,283
David L. Burns 2,483,682 11,923
Jesse S. Capel 2,483,682 11,923
James H. Garner 2,483,682 11,923
George R. Perkins, Jr. 2,483,682 11,923
G. T. Rabe, Jr. 2,483,682 11,923
Edward T. Taws 2,483,682 11,923
Frederick H. Taylor 2,483,682 11,923
Goldie H. Wallace 2,483,682 11,923
A. Jordan Washburn 2,483,682 11,923
John C. Willis 2,483,682 11,923
</TABLE>
<PAGE>
Proposal 2
A proposal to amend the Company's 1994 Stock Option Plan to increase
the number of shares available for issuance by 100,000 shares to
370,000 shares and to extend the automatic annual grants of options
to non-employee directors through June 1, 2003.
For 2,335,315 Against 154,014 Abstain 6,275
---------- ------- -----
Proposal 3
A proposal to change the par value of the Company's common stock from
five dollars per share to no par value per share.
For 2,451,506 Against 23,385 Abstain 15,713
---------- ------ ------
Proposal 4
A proposal to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
For 2,484,619 Against 5,798 Abstain 5,187
--------- ----- -----
Item 5 - Other Information
The bylaws of the Company establish an advance notice procedure for
shareholder proposals to be brought before a meeting of shareholders of the
Company. Subject to any other applicable requirements, only such business may be
conducted at a meeting of the shareholders as has been brought before the
meeting by, or at the direction of, the Board of Directors or by a shareholder
who has given to the Secretary of the Company timely written notice, in proper
form, of the shareholder's intention to bring that business before the meeting.
The presiding officer at such meeting has the authority to make such
determinations.
<PAGE>
To be timely, notice of other business to be brought before any meeting must
generally be received by the Secretary of the Company within 60 to 90 days in
advance of the shareholders' meeting. The notice of any shareholder proposal
must set forth the various information required under the bylaws. The person
submitting the notice must provide, among other things, the name and address
under which such shareholder appears on the Company's books and the class and
number of shares of the Company's capital stock that are beneficially owned by
such shareholder. Any shareholder desiring a copy of the Company's bylaws will
be furnished one without charge upon written request to the Secretary of the
Company at the Company's headquarters.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed with this report or, as noted, are
incorporated by reference. Management contracts, compensatory plans
and arrangements are marked with an asterisk (*).
3.a.i Copy of Articles of Incorporation of the Registrant and amendments
thereto, was filed as Exhibit 3(a) to the Registrant's Registration
Statement Number 33-12692, and is incorporated herein by reference.
3.a.ii Copy of the amendment to Articles of Incorporation - adding a new
Article IX, 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.a.iii Copy of the amendment to Articles of Incorporation - adding a
new Article X.
3.a.iv. Copy of the amendment to Article IV of the Articles of Incorporation.
3.b.i Copy of the Bylaws of the Registrant and amendments thereto, was
filed as Exhibit 3(b) to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994, and is incorporated herein by
reference.
4 Form of Common Stock Certificate
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 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. (*)
<PAGE>
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 Executive Retirement
Plan dated May 31, 1993, was filed as Exhibit 10(k) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993,
and is incorporated herein by reference. (*)
10.h First Bancorp Senior Management Split-Dollar Life Insurance
Agreements between the Company and the Executive Officers, as amended
on December 22, 1994, was filed as Exhibit 10(i) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994,
and is incorporated herein by reference. (*)
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. (*)
10.j 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 by reference. (*)
10.k Amendment to the First Bancorp Savings Plus and Profit Sharing Plan
(401(k) savings incentive plan and trust), dated December 17, 1996,
was filed as Exhibit 10(m) to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996, and is incorporated
herein by reference. (*)
10.l First Amendment to the First Bancorp Senior Management Executive
Retirement Plan dated April 21, 1998 was filed as Exhibit 10.(o) to
the Company's Annual Report on Form 10-k for the year ended December
31, 1998, and is incorporated herein by reference. (*)
10.m Employment Agreement between the Company and James H. Garner dated
August 17, 1998 was filed as Exhibit 10(l) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
10.n Employment Agreement between the Company and Anna G. Hollers dated
August 17, 1998 was filed as Exhibit 10(m) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
<PAGE>
10.o Employment Agreement between the Company and Teresa C. Nixon dated
August 17, 1998 was filed as Exhibit 10(n) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and is incorporated by reference. (*)
10.p Employment Agreement between the Company and Eric P. Credle dated
August 17, 1998 was filed as Exhibit 10.p to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, and is
incorporated herein by reference. (*)
10. q Amendments 1 and 2 to the Company's 1994 Stock Option Plan.(*)
21 List of Subsidiaries of Registrant
27 Financial Data Schedule pursuant to Article 9 of Regulation S-X.
(b) There were no reports filed on Form 8-K during the six months ended
June 30, 1999.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCORP
August 11, 1999 BY: James H. Garner
----------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
August 11, 1999 BY: Anna G. Hollers
----------------------------
Anna G. Hollers
Executive Vice President
and Secretary
August 11, 1999 BY: Eric P. Credle
----------------------------
Eric P. Credle
Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
Exhibit Page(s)
<S> <C> <C>
3.a.i Copy of Articles of Incorporation of the Registrant *
3.a.ii Copy of the amendment to Articles of Incorporation *
3.a.iii Copy of the amendment to Articles of Incorporation - adding a new Article Ten 30
3.a.iv. Copy of the amendment to Article IV of the Articles of Incorporation 31
3.b.i Copy of the Bylaws of the Registrant *
4 Form of Common Stock Certificate 32
10.a Data processing Agreement by and between Bank of Montgomery (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 Executive Retirement Plan *
10.h First Bancorp Senior Management Split-Dollar Life Insurance Agreements between
the Company and the Executive Officers *
<PAGE>
10.i First Bancorp 1994 Stock Option Plan *
10.j Severance Agreement between the Company and Patrick A. Meisky *
10.k Amendment to the First Bancorp Savings Plus and Profit Sharing Plan *
10.l First Amendment to the First Bancorp Supplemental Executive Retirement Plan *
10.m Employment Agreement between the Company and James H. Garner *
10.n Employment Agreement between the Company and Anna G. Hollers *
10.o Employment Agreement between the Company and Teresa C. Nixon *
10.p Employment Agreement between the Company and Eric P. Credle *
10. q Amendments 1 and 2 to the Company's 1994 Stock Option Plan 33
21 List of Subsidiaries of Registrant 34
27 Financial Data Schedule pursuant to Article 9 of Regulation S-X for the three
months ended June 30, 1999 (SEC copy only) 35
* Incorporated herein by reference.
</TABLE>
Exhibit 3.a.iii
Addition of Article Ten to the Company's Articles of Incorporation
------------------------------------------------------------------
The Company's Articles of Incorporation were amended on July 21, 1998 to add
Article X.
Article X
---------
Every shareholder entitled to vote at an election of directors is
entitled to multiply the number of votes he is entitled to cast by the
number of directors for whom he is entitled to vote and cast the
product for a single candidate or distribute the product among two or
more candidates. This right of cumulative voting shall not be exercised
unless (i) the meeting notice or proxy statement accompanying the
notice states conspicuously that cumulative voting is authorized; or
(ii) some shareholder or proxy holder announces in open meeting, before
the voting for directors starts, his intention so to vote cumulatively;
and if such announcement is made, the chair shall declare that all
shares entitled to vote have the right to vote cumulatively and shall
thereupon grant a recess of not less than two (2) days, nor more than
seven (7) days, as he shall determine, or of such other period of time
as is unanimously agreed upon.
Exhibit 3.a.iv.
Amendment to Article IV of the Articles of Incorporation
--------------------------------------------------------
On April 30, 1999, Article IV of the Articles of Incorporation was amended to
read as follows:
"The corporation shall have authority to issue twelve million five hundred
thousand (12,500,000) shares of common stock with no par value."
Exhibit 4
NUMBER SHARES
------------- -------------
|FB | | |
| | [EAGLE] | |
------------- -------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NORTH CAROLINA CERTAIN DEFINITIONS
CUSIP 318910 10 6
First Bancorp
INCORPORATED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA
- --------------------------------------------------------------------------------
|This Certifies that |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|is the owner of |
- --------------------------------------------------------------------------------
SHARES OF THE COMMON STOCK, NO PAR VALUE, OF FIRST BANCORP
hereinafter called the Company, transferable only on the books of the Company by
the holder hereof in person or by duly authorized attorney, upon the surrender
of this certificate properly endorsed.
This certificate and the shares represented hereby are issued and shall be held,
subject to all of the provisions of the Articles of Incorporation and Bylaws of
the Company, as amended or to be amended hereafter (copies of which Articles,
Bylaws and all Amendments thereto are on file at the office of the Company), to
all of which the holder by acceptanc are hereof assents. WITNESS the facsimile
seal of the Company and the signatures of its duly authorized officers.
Dated:
FIRST BANCORP
CHARTERED
S E A L
/s/ Anna G. Hollers /s/ James H. Garner
- ------------------ 1984 ------------------
Anna G. Hollers TROY, NORTH CAROLINA James H. Garner
SECRETARY PRESIDENT
<PAGE>
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR
DESTROYED THE COMPANY WILL REQUIRE A BOND OF INDEMNITY
AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ...........Custodian..........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,..............hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
| |
- -------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the written named Corporation
with full power of substitution in the premises.
Dated
------------------------------
<PAGE>
NOTICE:
------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
Exhibit 10 q.
Amendments 1 and 2 to the First Bancorp 1994 Stock Option Plan
The following amendments to the First Bancorp 1994 Stock Option Plan were
adopted at the First Bancorp Annual Meeting of Shareholders held on April 21,
1999. The 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.
Amendment 1: The last sentence of Section 2 is amended to read: "The
maximum number of shares that may be issued pursuant to this Plan is 370,000."
Amendment 2: The first sentence of the second paragraph of Section 5 of the
Option Plan is amended to read: "On June 1 of each calendar year to and
including June 1, 2003 (or, if June 1 is not a business day, the immediately
preceding business day (the "Grant Date")), each Eligible Director shall
automatically receive from Bancorp an option to acquire 1,000 shares of common
stock at an exercise price equal to the closing sales price of the common stock
on the Grant Date."
Exhibit 21
First Bancorp and Subsidiaries
List of Subsidiaries of Registrant
<TABLE>
<CAPTION>
Name of Subsidiary
and Name under I.R.S. Employer
Which Subsidiary Identification
Transacts Business State of Incorporation Address of Subsidiary Number
- ----------------------- ----------------------- -------------------------------- ----------------
<S> <C> <C> <C>
341 North Main Street
First Bank (1) North Carolina Troy, North Carolina 27371-0508 56-0132230
Montgomery Data Services, 355 Bilhen Street
Inc. North Carolina Troy, North Carolina 27371-0627 56-1421914
First Bancorp Financial 341 North Main Street
Services, Inc. North Carolina Troy, North Carolina 27371-0508 56-1597887
</TABLE>
(1) First Bank wholly owns two subsidiaries 1) First Troy Realty Corporation, a
North Carolina corporation incorporated on May 12, 1999, located at 341
North Main Street, Troy, North Carolina 27371-0508 (I.R.S. Employer
Identification Number 56-2140094) and 2) First Bank Insurance Services,
Inc. a North Carolina corporation, located at 341 North Main Street, Troy,
North Carolina 27371-0508 (I.R.S. Employer Identification Number
56-1659931)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,290
<INT-BEARING-DEPOSITS> 28,242
<FED-FUNDS-SOLD> 847
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,122
<INVESTMENTS-CARRYING> 16,978
<INVESTMENTS-MARKET> 17,124
<LOANS> 387,755
<ALLOWANCE> 5,822
<TOTAL-ASSETS> 526,287
<DEPOSITS> 451,356
<SHORT-TERM> 28,000
<LIABILITIES-OTHER> 5,203
<LONG-TERM> 0
0
0
<COMMON> 18,813
<OTHER-SE> 22,915
<TOTAL-LIABILITIES-AND-EQUITY> 526,287
<INTEREST-LOAN> 16,202
<INTEREST-INVEST> 2,086
<INTEREST-OTHER> 364
<INTEREST-TOTAL> 18,652
<INTEREST-DEPOSIT> 7,365
<INTEREST-EXPENSE> 7,463
<INTEREST-INCOME-NET> 11,189
<LOAN-LOSSES> 460
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 8,582
<INCOME-PRETAX> 4,765
<INCOME-PRE-EXTRAORDINARY> 4,765
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,104
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 5.00
<LOANS-NON> 621
<LOANS-PAST> 0
<LOANS-TROUBLED> 254
<LOANS-PROBLEM> 1,400
<ALLOWANCE-OPEN> 5,504
<CHARGE-OFFS> 196
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 5,822
<ALLOWANCE-DOMESTIC> 4,368
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,454
</TABLE>
