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, 2002
Commission File Number 0-15572
North Carolina 56-1421916
---------------------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
341 North Main Street, Troy, North Carolina 27371-0508
------------------------------------------------ ---------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (910) 576-6171
----------------
Indicate by check mark whether the registrant (1) has filed all reports
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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 July 31, 2002, 9,144,493 shares of the registrant's Common Stock, no par value, were outstanding. The registrant had no other classes of securities outstanding.
INDEX
FIRST BANCORP AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
June 30, 2002 and 2001
(With Comparative Amounts at December 31, 2001) 3
Consolidated Statements of Income -
For the Periods Ended June 30, 2002 and 2001 4
Consolidated Statements of Comprehensive Income -
For the Periods Ended June 30, 2002 and 2001 5
Consolidated Statements of Shareholders' Equity -
For the Periods Ended June 30, 2002 and 2001 6
Consolidated Statements of Cash Flows -
For the Periods Ended June 30, 2002 and 2001 7
Notes To Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 24
Part II. Other Information
Item 4 - Submission of Matters to a Vote of Shareholders 26
Item 5 - Other Information 26
Item 6 - Exhibits and Reports on Form 8-K 27
Signatures 28
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Part I. Financial Information
Item 1 - Financial Statements
First Bancorp and Subsidiaries Consolidated Balance Sheets
June 30, December 31, June 30,
($ in thousands-unaudited) 2002 2001 2001
------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash & due from banks, noninterest-bearing $ 19,685 34,019 25,702
Due from banks, interest-bearing 49,067 41,552 8,190
Federal funds sold 16,653 11,244 14,834
------------- --------- ---------
Total cash and cash equivalents 85,405 86,815 48,726
------------- --------- ---------
Securities available for sale (costs of $84,811,
$95,445, and $111,932) 86,060 96,469 112,667
Securities held to maturity (fair values of $14,807,
$16,746, and $16,899) 14,129 16,338 16,356
Presold mortgages in process of settlement 3,099 10,713 4,410
Loans 969,409 890,310 869,713
Less: Allowance for loan losses (10,179) (9,388) (9,118)
------------- --------- ---------
Net loans 959,230 880,922 860,149
------------- --------- ---------
Premises and equipment 20,568 18,518 17,291
Accrued interest receivable 5,980 5,880 6,764
Intangible assets 23,739 24,488 22,069
Other 4,367 4,548 4,966
------------- --------- ---------
Total assets $ 1,202,577 1,144,691 1,093,844
============= ========= =========
LIABILITIES
Deposits: Demand - noninterest-bearing $ 103,436 96,065 92,431
Savings, NOW, and money market 367,336 353,439 314,961
Time deposits of $100,000 or more 181,811 189,948 178,470
Other time deposits 349,560 360,829 364,312
------------- --------- ---------
Total deposits 1,002,143 1,000,281 950,174
Borrowings 70,000 15,000 15,000
Accrued interest payable 2,444 3,480 4,032
Other liabilities 8,890 9,204 7,649
------------- --------- ---------
Total liabilities 1,083,477 1,027,965 976,855
------------- --------- ---------
SHAREHOLDERS' EQUITY
Common stock, No par value per share
Issued and outstanding: 9,120,235,
9,112,542, and 9,221,639 shares 48,860 50,134 53,688
Retained earnings 69,582 65,915 62,815
Accumulated other comprehensive income 658 677 486
------------- --------- ---------
Total shareholders' equity 119,100 116,726 116,989
------------- --------- ---------
Total liabilities and shareholders' equity $ 1,202,577 1,144,691 1,093,844
============= ========= =========
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See notes to consolidated financial statements.
First Bancorp and Subsidiaries Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
($ in thousands, except share data-unaudited) 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 16,666 17,079 32,870 33,501
Interest on investment securities:
Taxable interest income 1,336 1,689 2,741 3,288
Tax-exempt interest income 186 201 383 407
Other, principally overnight investments 188 732 476 929
----------- --------- --------- ---------
Total interest income 18,376 19,701 36,470 38,125
----------- --------- --------- ---------
INTEREST EXPENSE
Savings, NOW and money market 971 1,424 1,892 2,979
Time deposits of $100,000 or more 1,714 2,624 3,630 4,994
Other time deposits 3,151 5,169 6,865 9,825
Borrowings 210 331 460 855
----------- --------- --------- ---------
Total interest expense 6,046 9,548 12,847 18,653
----------- --------- --------- ---------
Net interest income 12,330 10,153 23,623 19,472
Provision for loan losses 775 308 1,215 528
----------- --------- --------- ---------
Net interest income after provision
for loan losses 11,555 9,845 22,408 18,944
----------- --------- --------- ---------
NONINTEREST INCOME
Service charges on deposit accounts 1,691 1,292 3,286 2,200
Other service charges, commissions and fees 574 514 1,210 1,040
Fees from presold mortgages 334 286 780 424
Commissions from sales of insurance and financial products 178 140 443 346
Data processing fees 100 49 156 96
Securities gains 7 -- 27 --
Other gains (losses) 17 2 (4) 39
----------- --------- --------- ---------
Total noninterest income 2,901 2,283 5,898 4,145
----------- --------- --------- ---------
NONINTEREST EXPENSES
Salaries 3,614 3,080 7,307 5,871
Employee benefits 932 685 1,852 1,299
----------- --------- --------- ---------
Total personnel expense 4,546 3,765 9,159 7,170
Net occupancy expense 523 437 1,028 839
Equipment related expenses 508 388 991 761
Intangibles amortization 364 425 728 607
Other operating expenses 2,478 2,068 4,611 3,771
----------- --------- --------- ---------
Total noninterest expenses 8,419 7,083 16,517 13,148
----------- --------- --------- ---------
Income before income taxes 6,037 5,045 11,789 9,941
Income taxes 2,107 1,778 4,099 3,450
----------- --------- --------- ---------
NET INCOME $ 3,930 3,267 7,690 6,491
=========== ===== ===== =====
Earnings per share:
Basic $ 0.43 0.36 0.84 0.73
Diluted 0.42 0.35 0.82 0.71
Weighted average common shares outstanding:
Basic 9,152,497 9,022,343 9,151,095 8,898,610
Diluted 9,344,900 9,281,715 9,340,049 9,136,406
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First Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
($ in thousands-unaudited) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------
Net income $ 3,930 3,267 7,690 6,491
-------- ----- ----- -----
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available for sale:
Unrealized holding gains (losses) arising
during the period, pretax 1,307 (402) 252 352
Tax benefit (expense) (565) 140 (154) (122)
Reclassification to realized gains (7) -- (27) --
Tax expense 3 -- 11 --
Adjustment to minimum pension liability:
Additional pension charge related to unfunded
pension liability -- -- (165) --
Tax benefit -- -- 64 --
-------- ----- ----- -----
Other comprehensive income (loss) 738 (262) (19) 230
-------- ----- ----- -----
Comprehensive income $ 4,668 3,005 7,671 6,721
======== ===== ===== =====
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See notes to consolidated financial statements.
First Bancorp and Subsidiaries Consolidated Statements of Shareholders' Equity
Accumulated
Common Stock Other Share-
--------------------- Retained Comprehensive holders'
(In thousands, except per share - unaudited) Shares Amount Earnings Income Equity
------------------------------------------------------------------------------------------------------------------------------
Balances, January 1, 2001 8,827 $ 50,148 60,280 256 110,684
Net income 6,491 6,491
Cash dividends declared ($0.44 per share) (3,956) (3,956)
Common stock issued under
stock option plan 54 264 264
Common stock issued into
dividend reinvestment plan 1 22 22
Common stock issued in acquisitions 602 9,159 9,159
Purchases and retirement of common
stock (262) (5,905) (5,905)
Other comprehensive income 230 230
----- -------- -------- ------- -------
Balances, June 30, 2001 9,222 $ 53,688 62,815 486 116,989
===== ======== ======== ======= =======
Balances, January 1, 2002 9,113 $50,134 $ 65,915 677 116,726
Net income 7,690 7,690
Cash dividends declared ($0.44 per share) (4,023) (4,023)
Common stock issued under
stock option plan 108 685 685
Common stock issued into
dividend reinvestment plan 24 565 565
Purchases and retirement of common
stock (125) (2,906) (2,906)
Tax benefit realized from exercise of
nonqualified stock options 382 382
Other comprehensive loss (19) (19)
----- -------- -------- ------- -------
Balances, June 30, 2002 9,120 $48,860 $ 69,582 658 119,100
===== ======== ======== ======= =======
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See notes to consolidated financial statements.
First Bancorp and Subsidiaries Consolidated Statements of Cash Flows
Six Months Ended
June 30,
----------------------------
($ in thousands-unaudited) 2002 2001
----------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 7,690 6,491
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses 1,215 528
Net security premium (discount) amortization 128 (33)
Loss (gain) on disposal of other real estate 7 (30)
Gain on sale of securities available for sale (27) --
Gain on sale of loans (3) (9)
Proceeds from sales of loans 42 --
Loan fees and costs deferred, net of amortization 98 (44)
Depreciation of premises and equipment 861 674
Tax benefit realized from exercise of nonqualified stock options 382 --
Amortization of intangible assets 728 607
Deferred income tax benefit (1,019) (133)
Decrease (increase) in accrued interest receivable (100) 56
Decrease (increase) in other assets 9,006 (3,262)
Decrease in accrued interest payable (1,036) (980)
Increase (decrease) in other liabilities (48) 2,113
-------- ------
Net cash provided by operating activities 17,924 5,978
-------- ------
Cash Flows From Investing Activities
Purchases of securities available for sale (9,095) (25,776)
Purchases of securities held to maturity (1) (1)
Proceeds from maturities/issuer calls of securities available for 18,611 20,815
sale
Proceeds from maturities/issuer calls of securities held to maturity 2,212 2,883
Proceeds from sales of securities available for sale 1,010 --
Net increase in loans (80,115) (17,256)
Purchases of premises and equipment (3,139) (1,770)
Net cash received in acquisition of insurance agencies -- 40
Net cash paid in acquisition of Century Bancorp -- (8,112)
Net cash received in purchase of branches -- 70,201
-------- ------
Net cash provided (used) by investing activities (70,517) 41,024
-------- ------
Cash Flows From Financing Activities
Net increase in deposits 1,862 5,477
Net proceeds (repayments) of borrowings 55,000 (24,700)
Cash dividends paid (4,023) (3,873)
Proceeds from issuance of common stock 1,250 286
Purchases and retirement of common stock (2,906) (5,905)
-------- ------
Net cash provided (used) by financing activities 51,183 (28,715)
-------- ------
Increase (Decrease) In Cash And Cash Equivalents (1,410) 18,287
Cash And Cash Equivalents, Beginning Of Period 86,815 30,439
-------- ------
Cash And Cash Equivalents, End Of Period $ 85,405 48,726
======== ======
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 13,883 19,388
Income taxes 4,553 718
Non-cash transactions:
Transfer of securities from held to maturity to available for sale - fair value -- 31,220
Unrealized gain on securities available for sale, net of taxes 82 230
Foreclosed loans transferred to other real estate 455 319
Premises and equipment transferred to other real estate 228 425
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See notes to consolidated financial statements.
First Bancorp and Subsidiaries
Notes To Consolidated Financial Statements
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of June 30, 2002 and 2001 and the consolidated
results of operations and consolidated cash flows for the periods ended June 30,
2002 and 2001. Reference is made to the 2001 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. The results of operations
for the periods ended June 30, 2002 and 2001 are not necessarily indicative of
the results to be expected for the full year.
Note 2 - Newly Adopted Accounting Policies
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets."
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. The
Company adopted this statement July 1, 2001. Statement 142 requires that all
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 also requires that
identifiable intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Certain provisions of Statement 142 relating to business combinations
consummated after June 30, 2001 were adopted by the Company on July 1, 2001. The
remaining provisions were adopted on January 1, 2002. In connection with
Statement 142's transitional goodwill impairment evaluation, the Statement
required the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. The Company completed this
assessment during the first quarter of 2002 and determined that there was no
goodwill impairment. See Note 7 for additional disclosures related to Statement
No. 142.
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This standard provides guidance of differentiating between long-lived assets to be held and used, long-lived assets to be disposed of other than by sale and long-lived assets to be disposed of by sale. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144 also supersedes Accounting Principals Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." This statement was adopted by the Company on January 1, 2002 and did not have a material impact on the Company's financial statements.
Note 3 - Reclassifications
Certain amounts reported in the period ended June 30, 2001 have been
reclassified to conform with the presentation for June 30, 2002. 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 4 - Earnings Per Share
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 stock option plan. The
following is a reconciliation of the numerators and denominators used in
computing basic and diluted earnings per share:
For the Three Months Ended June 30,
--------------------------------------------------------------------------------
2002 2001
--------------------------------------- --------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
-------------------------- --------- --------- -------- --------- --------- ---------
Basic EPS
Net income $ 3,930 9,152,497 $ 0.43 $ 3,267 9,022,343 $ 0.36
======== =========
Effect of Dilutive Securities -- 192,403 -- 259,372
--------- --------- --------- ---------
Diluted EPS $ 3,930 9,344,900 $ 0.42 $ 3,267 9,281,715 $ 0.35
========= ========= ======== ========= ========= =========
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
2002 2001
--------------------------------------- --------------------------------------
Income Shares Income Shares
($ in thousands except per (Numer- (Denom- Per Share (Numer- (Denom- Per Share
share amounts) ator) inator) Amount ator) inator) Amount
-------------------------- --------- --------- -------- --------- --------- ---------
Basic EPS
Net income $ 7,690 9,151,095 $ 0.84 $ 6,491 8,898,610 $ 0.73
======== =========
Effect of Dilutive Securities -- 188,954 -- 237,796
--------- --------- --------- ---------
Diluted EPS $ 7,690 9,340,049 $ 0.82 $ 6,491 9,136,406 $ 0.71
========= ========= ======== ========= ========= =========
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For the three and six month periods ended June 30, 2002. There were options of 0 and 24,000, respectively, that were antidilutive since the exercise price exceeded the average market price for their respective periods. Antidilutive options for the three and six month periods ended June 30, 2001 amounted to 22,500 and 32,500, respectively. Antidilutive options have been omitted from the calculation of diluted earnings per share for their respective periods.
Note 5 - Asset Quality Information
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and other real estate.
Nonperforming assets are summarized as follows:
June 30, December 31, June 30,
($ in thousands) 2002 2001 2001
-------------------------------------------------------------------------------------------------------
Nonperforming loans:
Nonaccrual loans $ 2,755 3,808 5,104
Restructured loans 77 83 226
Accruing loans > 90 days past due -- -- --
---------- ----- -----
Total nonperforming loans 2,832 3,891 5,330
Other real estate 1,264 1,253 1,497
---------- ----- -----
Total nonperforming assets $ 4,096 5,144 6,827
========== ===== =====
Nonperforming loans to total loans 0.29% 0.44% 0.61%
Nonperforming assets as a percentage of loans
and other real estate 0.42% 0.58% 0.78%
Nonperforming assets to total assets 0.34% 0.45% 0.62%
Allowance for loan losses to total loans 1.05% 1.05% 1.05%
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Note 6 - Deferred Loan Fees
Loans are shown on the Consolidated Balance Sheets net of net deferred loan
fees of approximately $756,000, $658,000, and $689,000 at June 30, 2002,
December 31, 2001, and June 30, 2001, respectively.
Note 7 - Goodwill and Other Intangible Assets
The following is a summary of the gross carrying amount and accumulated
amortization of amortized intangible assets as of June 30, 2002 and December 31,
2001 and the carrying amount of unamortized intangible assets as of June 30,
2002, and December 31, 2001:
June 30, 2002 December 31, 2001
--------------------------------- ----------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
(Dollars in thousands) Amount Amortization Amount Amortization
-------------- ------------ -------------- ------------
Amortized intangible assets:
Customer lists $ 243 15 243 7
Core deposit premium related to
whole-bank acquisition 335 254 335 246
Branch acquisitions 20,196 2,592 20,180 1,879
------- ----- ------ -----
Total $20,774 2,861 20,758 2,132
======= ===== ====== =====
Unamortized intangible assets:
Goodwill $ 5,609 5,609
======= ======
Pension $ 217 253
======= ======
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Amortization expense totaled $364,000 and $425,000 for the three months ended June 30, 2002 and 2001, respectively. Amortization expense totaled $728,000 and $607,000 for the six months ended June 30, 2002 and 2001, respectively.
The following table presents the estimated amortization expense for each of the five calendar years ending December 31, 2006 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.
Estimated Amortization
(Dollars in thousands) Expense
---------------------- ----------------------
2002 $ 1,456
2003 1,454
2004 1,453
2005 1,448
2006 1,371
Thereafter 11,444
------------
Total $ 18,626
============
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The following tables present the adjusted effect on net income and on basic and diluted earnings per share excluding the amortization of goodwill for the three months ended June 30, 2002 and 2001, the six months ended June 30, 2002 and 2001, and for the years ended December 31, 2001, 2000 and 1999:
For the Three Months Ended June 30,
(Dollars in thousands, except -----------------------------------
earnings per share amounts) 2002 2001
------------ ------------
Reported net income $ 3,930 3,267
Add back: Goodwill amortization -- 120
------------ ------------
Adjusted net income $ 3,930 3,387
============ ============
Basic earnings per share:
As reported $ 0.43 0.36
Goodwill amortization -- 0.02
------------ ------------
Adjusted basic earnings per share $ 0.43 0.38
============ ============
Diluted earnings per share:
As reported $ 0.42 0.35
Goodwill amortization -- 0.01
------------ ------------
Adjusted diluted earnings per share $ 0.42 0.36
============ ============
For the Six Months Ended June 30,
(Dollars in thousands, except ---------------------------------
earnings per share amounts) 2002 2001
--------------- ----
Reported net income $ 7,690 6,491
Add back: Goodwill amortization -- 213
------------ ------------
Adjusted net income $ 7,690 6,704
============ ============
Basic earnings per share:
As reported $ 0.84 0.73
Goodwill amortization -- 0.02
------------ ------------
Adjusted basic earnings per share $ 0.84 0.75
============ ============
Diluted earnings per share:
As reported $ 0.82 0.71
Goodwill amortization -- 0.02
------------ ------------
Adjusted diluted earnings per share $ 0.82 0.73
============ ============
For the Years Ended December 31,
(Dollars in thousands, except ---------------------------------------------
earnings per share amounts) 2001 2000 1999
--------------------------- ------------- ----- ------
Reported net income $ 13,616 9,342 11,854
Add back: Goodwill amortization 511 373 373
------------ ------------ ------------
Adjusted net income $ 14,127 9,715 12,227
============ ============ ============
Basic earnings per share:
As reported $ 1.51 1.05 1.32
Goodwill amortization 0.05 0.04 0.04
------------ ------------ ------------
Adjusted basic earnings per share $ 1.56 1.09 1.36
============ ============ ============
Diluted earnings per share:
As reported $ 1.47 1.03 1.27
Goodwill amortization 0.05 0.04 0.04
------------ ------------ ------------
Adjusted diluted earnings per share $ 1.52 1.07 1.31
============ ============ ============
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Note 8. Accumulated Other Comprehensive Income
Shareholders' equity includes a line item entitled "Accumulated Other Comprehensive Income," which is comprised of the following components:
June 30, December 31, June 30,
2002 2001 2001
------- ------- -------
Unrealized gain on securities available for
sale $ 1,249 1,024 735
Deferred tax liability (490) (347) (249)
------- ------- -------
Net unrealized gain on securities available
for sale 759 677 486
------- ------- -------
Additional minimum pension liability (165) -- --
Deferred tax asset 64 -- --
------- ------- -------
Net additional minimum pension liability (101) -- --
------- ------- -------
Total accumulated other comprehensive income $ 658 677 486
======= === ===
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Note 9 - Pending Merger and Acquisition Activity
On April 30, 2002, the Company reported that it had agreed to purchase the RBC Centura bank branch in Broadway, North Carolina. The branch has approximately $11 million in deposits and $4 million in loans. The Company will pay RBC Centura a deposit premium of 7% of the average daily deposit base in the month leading up to the completion of the purchase. The transaction is expected to be completed in October 2002.
On July 16, 2002, the Company reported that it had agreed to acquire Carolina Community Bancshares, Inc. (CCB). CCB has total assets of approximately $70 million, with total loans of $46 million, total deposits of $59 million, and total shareholders' equity of $8.5 million. CCB operates out of three branches in Dillon County, South Carolina, with its headquarters and one of its branches located in Latta, and two branches in the city of Dillon. The terms of the agreement call for shareholders of Carolina Community to receive 0.8 shares of First Bancorp stock and $20.00 in cash for each share of Carolina Community stock they own. At the date of the announcement, the total deal value amounted to approximately $17.7 million. The transaction is expected to be completed in either the fourth quarter of 2002 or the first quarter of 2003. This represents the Company's first entry into South Carolina. Dillon County, South Carolina is contiguous to Robeson County, North Carolina, a county where the Company operates four branches.
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, 2002 amounted to $3,930,000, or $0.42 per diluted share, a 20.0% increase in diluted earnings per share over the net income of $3,267,000, or $0.35 per diluted share, recorded in the second quarter of 2001. Effective January 1, 2002, in accordance with new accounting pronouncements, the Company discontinued the amortization of certain of its intangible assets, which effectively increased earnings by $147,000, or 1.6 cents per share, over what would have been recorded under previous accounting standards during the second quarter of 2002. Nonrecurring items of income/expense were insignificant for each of the three month periods in 2001 and 2002.
Net income for the six months ended June 30, 2002 amounted to $7,690,000, or $0.82 per diluted share, a 15.5% increase in diluted earnings per share over the $0.71 per diluted share for the six months ended June 30, 2001. For the six months ended June 30, 2002, the discontinuation of amortization of certain intangible assets effectively increased earnings by $294,000, or 3.2 cents per diluted share, over what would have been recorded under previous accounting standards. Nonrecurring items of income/expense were insignificant for each of the six month periods in 2001 and 2002.
The reported earnings for the second quarter of 2002 represent a return on average assets of 1.37% and a return on average equity of 13.12%. Other key performance indicators for the second quarter of 2002 were a net interest margin of 4.63%, an efficiency ratio of 54.79%, a nonperforming asset to total asset ratio of 0.34%, and an annualized net charge-offs to average loans ratio of 0.14%. The Company's annualized return on average assets for the first half of 2002 was 1.35% compared to 1.32% for the first half of 2001. The Company's return on average equity for the first six months of 2002 was 12.98% compared to 11.52% for the first six months of 2001.
The increase in earnings for the three and six month periods in 2002 compared to the same periods in 2001 were primarily a result of higher net interest income and noninterest income, the effects of which were partially offset by an increase in the provision for loan losses and higher noninterest expenses. Higher net interest margins and a higher level of average loans and deposits resulted in the increases in net interest income. Noninterest income and noninterest expense have increased in 2002 as a result of the Company's overall growth. Noninterest income has also been positively affected by increased mortgage loan refinancing activity that has increased mortgage origination fees, as well as the offering of a check overdraft product beginning in August 2001 that has increased fees earned on deposit accounts. The increases in the provision for loan losses in 2002 have been primarily a result of higher loan growth in 2002 compared to 2001.
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, 2002 amounted to $12,330,000 and $23,623,000, respectively, increases of $2,177,000 and $4,151,000, or 21.4% and 21.3%, over the amounts of $10,153,000 and $19,472,000 recorded in the same three and six month periods in 2001, respectively.
There are two primary factors that cause changes in the amount of net
interest income recorded by the Company - 1) growth in loans and deposits, and
2) the Company's net interest margin. For the three and six months ended June
30, 2002, both factors contributed to the increase in the amount of net interest
income realized by the Company compared to the same periods in 2001.
The following tables present average balances and average rates earned/paid by the Company for the periods indicated.
For the Three Months Ended June 30,
------------------------------------------------------------------------
2002 2001
--------------------------------- -------------------------------
Interest Interest
Average Average Earned Average Average Earned
($ in thousands) Volume Rate or Paid Volume Rate or Paid
---------------- ------ ---- ------- ------ ---- -------
Assets
Loans (1) $ 946,279 7.06% $ 16,666 $ 815,799 8.40% $ 17,079
Taxable securities 88,245 6.07% 1,336 98,037 6.91% 1,689
Non-taxable securities (2) 15,294 8.44% 322 16,257 9.15% 371
Short-term investments,
principally federal funds 30,259 2.49% 188 62,496 4.70% 732
---------- ------ ------- ------
Total interest-earning assets 1,080,077 6.87% 18,512 992,589 8.03% 19,871
------ ------
Liabilities
Savings, NOW and money
market deposits 370,585 1.05% 971 303,394 1.88% 1,424
Time deposits >$100,000 180,237 3.81% 1,714 169,343 6.22% 2,624
Other time deposits 351,022 3.60% 3,151 354,508 5.85% 5,169
---------- ------ ------- ------
Total interest-bearing deposits 901,844 2.60% 5,836 827,245 4.47% 9,217
Borrowings 14,944 5.64% 210 20,055 6.62% 331
---------- ------ ------- ------
Total interest-bearing liabilities 916,788 2.65% 6,046 847,300 4.52% 9,548
Non-interest-bearing deposits 103,042 ------ 87,519 ------
Net yield on interest-earning
assets and net interest income 4.63% $ 12,466 4.17% $ 10,323
======== =========
Interest rate spread 4.22% 3.51%
Average prime rate 4.75% 7.36%
-------------------------------------------------------------------------------------------------------------------------
|
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $136,000 and $170,000 in 2002 and
2001, respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
For the Six Months Ended June 30,
----------------------------------------------------------------------------------
2002 2001
------------------------------------- ---------------------------------------
Interest Interest
Averag Average Earned Average Average Earned
($ in thousands) Volume Rate or Paid Volume Rate or Paid
------ ---- ------- ------ ---- -------
Assets
Loans (1) $ 924,781 7.17% $ 32,870 $ 784,178 8.62% $ 33,501
Taxable securities 90,742 6.09% 2,741 97,440 6.80% 3,288
Non-taxable securities (2) 15,712 8.47% 660 16,402 8.85% 720
Short-term investments,
principally federal funds 40,156 2.39% 476 39,252 4.77% 929
--------- ------ ------- ------
Total interest-earning assets 1,071,391 6.92% 36,747 937,272 8.27% 38,438
------ ------
Liabilities
Savings, NOW and money
market deposits 362,467 1.05% 1,892 276,041 2.18% 2,979
Time deposits >$100,000 183,447 3.99% 3,630 157,788 6.38% 4,994
Other time deposits 354,175 3.91% 6,865 332,239 5.96% 9,825
--------- ------ ------- ------
Total interest-bearing deposits 900,089 2.78% 12,387 766,068 4.69% 17,798
Borrowings 14,972 6.20% 460 26,494 6.51% 855
--------- ------ ------- ------
Total interest-bearing liabilities 915,061 2.83% 12,847 792,562 4.75% 18,653
Non-interest-bearing deposits 99,972 ------ 78,045 ------
Net yield on interest-earning
assets and net interest income 4.50% $ 23,900 4.26% $ 19,785
====== ======
Interest rate spread 4.09% 3.52%
Average prime rate 4.75% 7.98%
-----------------------------------------------------------------------------------------------------------------------------
|
(1) Average loans include nonaccruing loans, the effect of which is to lower
the average rate shown.
(2) Includes tax-equivalent adjustments of $277,000 and $313,000 in 2002 and
2001, respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
The increase in average loans and deposits in 2002 compared to 2001 has been as a result of both 1) internally generated growth and 2) growth resulting from acquisitions. While the Company has not completed any acquisitions in 2002, during 2001 the Company completed three acquisitions with total loans of $116.2 million and total deposits of $204.6 million. These acquisitions took place in the first, second, and fourth quarters of 2001 and thus only partially affected the average balances for 2001 in the tables above (but are fully reflected in the 2002 average balances). Internally generated loan and deposit growth also contributed to the higher amount of average loans and deposits outstanding. See additional discussion regarding the nature of the growth in loans and deposits in the section entitled "Financial Condition" below. The effect of these higher amounts of average loans and deposits was to increase net interest income in 2002.
The Company's net interest margin increased for the second consecutive quarter, amounting to 4.63% in the second quarter of 2002, compared to the 4.36% margin realized in the first quarter of 2002 and the 4.17% margin realized in the second quarter of 2001. The Company's net interest margin for the first half of 2002 was 4.50% compared to 4.26% for the first six months of 2001. The increase in the Company's net interest margin in 2002 has been primarily due to the stable interest rate environment experienced during the year - there have been no changes to interest rates initiated by the Federal Reserve since the fourth quarter of 2001. This has allowed a significant portion of the Company's time deposits that were originated during periods of higher interest rates and matured during 2002 to reprice at lower levels. A majority of the Company's rate sensitive interest-earning assets repriced lower immediately upon the rate cuts by the Federal Reserve in 2001, and thus have not experienced further rate reductions in 2002.
The provision for loan losses for the second quarter of 2002 was $775,000, $467,000 more than the $308,000 recorded in the second quarter of 2001. For the six months ended June 30, 2002, the provision for loan losses was $1,215,000 compared to $528,000 for the six months ended June 30, 2001. The increases in the provision for loan losses in 2002 have primarily been a result of significantly higher loan growth. Net internal loan growth (excludes loans assumed in acquisitions) for the second quarter of 2002 amounted to $45.3 million compared to $8.8 million in the second quarter of 2001. Net internal loan growth for first six months of 2002 amounted to $79.1 million compared to $16.8 million in the first half of 2001. Asset quality ratios have generally improved when comparing June 30, 2002 to the prior year.
Noninterest income for the three and six month periods ended June 30, 2002 amounted to $2,901,000 and $5,898,000 respectively, increases of 27.1% and 42.3% over the amounts recorded in the same three and six month periods in 2001. Within noninterest income, service charges on deposit accounts experienced the largest increase in 2002, amounting to $1,691,000 in the second quarter of 2002, a 30.9% increase over the $1,292,000 recorded in the same quarter of 2001, and $3,286,000 for the first six months of 2002, a 49.4% increase over the $2,200,000 recorded in the first six months of 2001. The primary reason for the increase in service charges on deposit accounts when comparing the second quarter of 2002 to the second quarter of 2001 is the introduction of a product in August 2001 that charges a fee for allowing customers to overdraw their deposit account. This product has generated approximately $100,000 in fees per month (net of related expenses) since its introduction. As it relates to comparing service charges on deposit accounts for the first six months in 2002 to the same period in 2001, in addition to the aforementioned overdraft deposit product, in 2002, the Company realized a full six months of service charges relating to the acquisition of four bank branches on March 26, 2001 and one branch in December 2001. These branches had a high level of transaction accounts (non-time deposits), $84.8 million in total, which afforded the Company the opportunity to earn deposit service charges.
Also contributing to the increase in noninterest income was "other service charges, commissions, and fees," which increased from $514,000 in the second quarter of 2001 to $574,000 in the second quarter of 2002, an 11.7% increase. For the six months ended June 30, 2002, this category of noninterest income amounted to $1,210,000, a 16.3% increase compared to the $1,040,000 recorded in the first six months of 2001. This category of noninterest income includes items such as safety deposit box rentals, check cashing fees, credit card and merchant income, and ATM surcharges. This category of income grew primarily because of increases in these activity-related fee services as a result of overall growth in the Company's total customer base, including growth achieved from acquisitions.
Fees from presold mortgages for the three and six month periods ended June 30, 2002 amounted to $334,000 and $780,000, respectively, increases of 16.8% and 84.0% over the amounts recorded in the comparable periods in 2001. The increases in 2002 have been due to a higher level of mortgage loan refinancings caused by the lower interest rate environment.
Commissions from sales of insurance and financial products for the three and six month periods ended June 30, 2002 amounted to $178,000 and $443,000, respectively, increases of 27.1% and 28.0% over the amounts recorded in the comparable periods in 2001. This line item includes commissions the Company receives from three sources - 1) sales of credit insurance associated with new loans, 2) commissions from the sales of investment, annuity, and long-term care insurance products, and 3) commissions from the sale of property and casualty insurance. The following table presents these components for the three and six month periods ended June 30, 2002 compared to the same periods in 2001:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- ------------------------------------
% % $ %
2002 2001 Change Change 2002 2001 Change Change
---- ---- ------ ------ ---- ---- ------ ------
Commissions earned from:
Sales of credit insurance $ 72 72 -- -- $239 224 15 6.7%
Sales of investment, annuity,
and long term care
insurance 54 58 (4) (6.9)% 112 112 -- --
Sales of property and
casualty insurance 52 10 42 420.0% 92 10 82 820.0%
---- --- -- ----- ---- --- -- ----
Total $178 140 38 27.1% $443 346 97 28.0%
==== === == ===== ==== === == ====
|
Commissions from the sale of property and casualty insurance began to be realized upon the May 2001 completion of the purchase of two insurance companies that specialized in such insurance.
Data processing fees for the three and six month periods ended June 30, 2002 amounted to $100,000 and $156,000, respectively, increases of 104% and 63% over the amounts recorded in the comparable periods in 2001. The second quarter of 2002 benefited from fees the Company earned as a result of a special project completed for one of its data processing clients.
Noninterest expenses for the three and six months ended June 30, 2002 amounted to $8,419,000 and $16,517,000, respectively, increases of 18.9% and 25.6% from the amounts recorded in the same three and six month periods in 2001. The increase in noninterest expenses occurred in all categories and is associated with the overall growth of the Company in terms of branch network, employees and customer base, including the incremental expenses associated with the Company's acquisitions. In addition to the typical cash expenses associated with the growth, the Company also recorded a total of $364,000 and $728,000 in non-cash amortization expense in the three and six month periods ended June 30, 2002, respectively compared to $425,000 and $607,000 for the same periods in 2001. See notes 2 and 7 to the financial statements for additional discussion regarding the accounting for intangible assets.
The provision for income taxes was $2,107,000 in the second quarter of 2002 compared to $1,778,000 in the second quarter of 2001. The provision for income taxes for the six months ended June 30, 2002 amounted to $4,099,000 compared to $3,450,000 for the first half of 2001. The effective tax rates did not vary significantly among the periods presented, amounting to approximately 35%. In the normal course of business, the Company carries out various tax planning intiatives in order to control its effective tax rate.
FINANCIAL CONDITION
During 2001, the Company's financial condition was materially impacted by three acquisitions:
o On March 26, 2001, the Company acquired four branches from First Union National Bank with $103 million in deposits and $17 million in loans.
o On May 17, 2001, the Company acquired Century Bancorp, a one branch savings institution with $72 million in deposits and $90 million in loans.
o On December 17, 2001, the Company acquired another branch from First Union (Salisbury) with $30 million in deposits and $9 million in loans.
The assets and liabilities assumed in the first two acquisitions above were reflected in the Company's June 30, 2001 balance sheet, and thus when comparing the balance sheet at June 30, 2002 to June 30, 2001, the only external growth affecting overall growth is the December branch purchase (Salisbury branch). Income and expense associated with the acquisitions affected the Company's 2001 income statement beginning on their respective acquisition dates.
The following table presents information regarding the nature of the Company's growth since June 30, 2001.
Growth from
Balance at Acquisitions Balance at Total Percentage growth,
beginning Internal (Salisbury end of percentage excluding
July 1, 2001 to of period Growth Branch period growth acquisitions
June 30, 2002 Purchase)
--------------------------- ------------- ----------- ------------ ---------- ---------- ------------------
Loans $ 869,713 90,425 9,271 969,409 11.5% 10.4%
========== ====== ===== ======= ==== ====
Deposits - Noninterest bearing $ 92,431 6,219 4,786 103,436 11.9% 6.7%
Deposits - Savings, NOW, and
Money Market 314,961 33,992 18,383 367,336 16.6% 10.8%
Deposits - Time>$100,000 178,470 2,226 1,115 181,811 1.9% 1.2%
Deposits - Time<$100,000 364,312 (20,786) 6,034 349,560 (4.0)% (5.7%)
------- ------- ----- ------- ---- ----
Total deposits $ 950,174 21,651 30,318 1,002,143 5.5% 2.3%
========== ====== ====== ========= === ===
January 1, 2002 to
June 30, 2002
---------------------------
Loans $ 890,310 79,099 -- 969,409 8.9% 8.9%
========== ====== === ======= === ===
Deposits - Noninterest bearing $ 96,065 7,371 -- 103,436 7.7% 7.7%
Deposits - Savings, NOW, and
Money Market 353,439 13,897 -- 367,336 3.9% 3.9%
Deposits - Time>$100,000 189,948 (8,137) -- 181,811 (4.3%) (4.3%)
Deposits - Time<$100,000 360,829 (11,269) -- 349,560 (3.1%) (3.1%)
------- ------- ------- ---- ----
Total deposits $1,000,281 1,862 -- 1,002,143 0.2% 0.2%
========== ===== === ========= === ===
|
The first table presents the Company's growth in loans and deposits for the twelve months ended June 30, 2002. This table reflects that almost all of the Company's growth in loans has been as a result of internal growth, whereas a majority of the Company's deposit growth came from its branch acquisition.
The second table presents the Company's growth in loans and deposits for the six months ended June 30, 2002. This table reflects the high growth rate of loans (17.8% annualized) experienced by the Company and the relatively flat deposit growth. Both tables reflect a slight shift in the Company's mix of deposits from time deposits to non-time deposits. The Company views this shift as favorable, as non-time deposits generally carry lower rates and present more opportunities for fees than do time deposits.
The Company's level of borrowings at June 30, 2002 totaled $70 million, compared to $15 million at December 31, 2001 and June 30, 2001. The reason for the increase is the Company drawing a net of $55 million in overnight Federal Home Loan Bank borrowings in order to achieve internally targeted liquidity ratios. The borrowings necessary to achieve the targeted liquidity ratios became necessary as a result of the high loan and low deposit growth experienced by the Company that reduced its liquidity. See "LIQUIDITY AND COMMITMENTS AND CONTINGENCIES" below for further discussion.
The Company's total assets were $1.20 billion at June 30, 2002, an increase of $108.7 million, or 9.9%, from the $1.09 billion at June 30, 2001. The primary reasons for the increase in total assets were the Company's December 2001 branch purchase and a higher level of borrowings that was neccessitated by the Company's high loan growth.
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and other real estate.
Nonperforming assets are summarized as follows:
June 30, December 31, June 30,
($ in thousands) 2002 2001 2001
--------------------------------------------------------------------------------------------------
Nonperforming loans:
Nonaccrual loans $2,755 3,808 5,104
Restructured loans 77 83 226
Accruing loans > 90 days past due -- -- --
------ ----- -----
Total nonperforming loans 2,832 3,891 5,330
Other real estate 1,264 1,253 1,497
------ ----- -----
Total nonperforming assets $4,096 5,144 6,827
====== ===== =====
Nonperforming loans to total loans 0.29% 0.44% 0.61%
Nonperforming assets as a percentage of loans
and other real estate 0.42% 0.58% 0.78%
Nonperforming assets to total assets 0.34% 0.45% 0.62%
Allowance for loan losses to total loans 1.05% 1.05% 1.05%
|
Management has reviewed the collateral for the nonperforming loans and has included this review among the factors considered in the evaluation of the allowance for loan losses discussed below.
The level of nonaccrual loans has decreased during 2002, amounting to $2.8 million at June 30, 2002, compared to $3.8 million at December 31, 2001 and $5.1 million at June 30, 2001. The decrease in the level of nonaccrual loans is primarily the result of paydowns received on one large credit. During the first half of 2001, the Company placed $2.9 million in loans related to one borrower on nonaccrual status. The borrower of this credit has liquidity problems. The loans related to this borrower are collateralized by various real estate properties, which the borrower has been actively selling to pay down the loan balance. The nonaccrual balance of this credit amounted to $1.4 million, $1.9 million, and $2.9 million as of June 30, 2002, December 31, 2001, and June 30, 2001, respectively. The level of restructured loans has also decreased due to the payoff of two loans that comprised the majority of the balance of this category of loans at June 30, 2001 during the third and fourth quarters of 2001.
At June 30, 2002, December 31, 2001, and June 30, 2001, the recorded investment in loans considered to be impaired was $1,554,000, $2,482,000, and $3,427,000, respectively, all of which were on nonaccrual status. The majority of the impaired loans for each of the three periods presented relates to the same credit noted above that is on nonaccrual status. At June 30, 2002, December 31, 2001, and June 30, 2001, the related allowance for loan losses for these impaired loans was $50,000 (related to two loans with balances totaling $1,629,000, with the remainder of impaired loans having no valuation allowance), $100,000 (related to two loans with a total balance of $271,000, with the remainder of the impaired loans have no valuation allowance), and $514,000 (all impaired loans at June 30, 2001 had a valuation allowance), respectively. The average recorded investments in impaired loans during the six month period ended June 30, 2002, the year ended December 31, 2001, and the six months ended June 30, 2001 were approximately $2,105,000, $2,450,000, and $2,209,000, 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.
The level of the Company's other real estate owned did not vary materially among the periods presented, amounting to $1,264,000, $1,253,000, and $1,497,000, of June 30, 2002, December 31, 2001 and June 30, 2001, respectively. Other real estate owned consists principally of several parcels of real estate. The Company's management has reviewed recent appraisals of its other real estate and believes that their fair values, less estimated costs to sell, equal or 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.
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 the 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 2002 was $775,000, $467,000 more than the $308,000 recorded in the second quarter of 2001. For the six months ended June 30, 2002, the provision for loan losses was $1,215,000 compared to $528,000 for the six months ended June 30, 2001. The increases in the provision for loan losses in 2002 have primarily been a result of significantly higher loan growth. Net internal loan growth (excludes loans assumed in acquisitions) for the second quarter of 2002 amounted to $45.3 million compared to $8.8 million in the second quarter of 2001. Net internal loan growth for first six months of 2002 amounted to $79.1 million compared to $16.8 million in the first half of 2001. Asset quality ratios have generally improved when comparing June 30, 2002 to the prior year.
At June 30, 2002, the allowance for loan losses amounted to $10,179,000, compared to $9,388,000 at December 31, 2001 and $9,118,000 at June 30, 2001. The allowance for loan losses was 1.05% of total loans as of each of those same dates.
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.
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, and additions to the allowance for loan losses that have been charged to expense and additions that were recorded related to acquisitions.
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
2002 2001 2001
---- ---- ----
Loans outstanding at end of period $ 969,409 890,310 869,713
========= ======= =======
Average amount of loans outstanding $ 924,781 831,817 784,178
========= ======= =======
Allowance for loan losses, at
beginning of period $ 9,388 7,893 7,893
Total charge-offs (505) (912) (313)
Total recoveries 81 131 74
--------- ------- -------
Net charge-offs (424) (781) (239)
--------- ------- -------
Additions to the allowance charged to expense 1,215 1,151 528
Addition related to loans assumed in corporate acquisitions -- 1,125 936
--------- ------- -------
Allowance for loan losses, at end of period $ 10,179 9,388 9,118
========= ======= =======
Ratios:
Net charge-offs (annualized) as a percent of average loans 0.09% 0.09% 0.06%
Allowance for loan losses as a
percent of loans at end of period 1.05% 1.05% 1.05%
|
There have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2001.
LIQUIDITY AND COMMITMENTS AND CONTINGENCIES
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 to internally generated liquidity sources, the Company has the ability to obtain borrowings from the following three sources - 1) an approximately $180 million line of credit with the Federal Home Loan Bank (of which $70 million has been drawn), 2) a $50 million overnight federal funds line of credit with a correspondent bank (none of which was outstanding at June 30, 2002), and 3) an approximately $39 million line of credit through the Federal Reserve Bank of Richmond's discount window (none of which was outstanding at June 30, 2002).
The Company's liquidity declined during the first half of 2002 as a result of loan growth of $79.1 million outpacing deposit growth of $1.9 million. This resulted in the Company's loan to deposit ratio increasing from 89.0% at December 31, 2001 to 96.7% at June 30, 2002, and the level of the Company's liquid assets (consisting of cash, due from banks, federal funds sold, presold mortgages in process of settlement and securities) as a percentage of deposits and borrowings decreasing from 20.7% at December 31, 2001 to 17.6% at June 30, 2002. During the second quarter of 2002, although the Company has not had any liquidity or funding difficulties, the Company began making periodic draws and repayments on its lines of credit, on an overnight basis, to maintain liquidity ratios at internally targeted levels.
In the normal course of business, there are various outstanding contractual obligations of the Company that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows.
The following table reflects the contractual obligations of the Company outstanding as of June 30, 2002.
Payments Due by Period (in thousands)
--------------------------------------------------------------------------------
On
Demand or
Contractual Less After
Obligations Total than 1 Year 1-3 Years 4-5 Years 5 Years
-------------------------------------- --------------- ---------------- ------------- ----------- ----------
Overnight borrowings $ 60,000 60,000 -- -- --
Long-term debt 10,000 5,000 -- -- 5,000
Operating leases 902 250 233 117 302
--------- ------- ------ ------ ---
Total contractual cash obligations,
excluding deposits 70,902 65,250 233 117 5,302
Deposits 1,002,143 939,374 50,608 11,994 167
--------- ------- ------ ------ ---
Total contractual cash obligations,
including deposits
$1,073,045 1,004,624 50,841 12,111 5,469
========= ========= ========= ========= =========
|
The $5 million in long-term debt that matures in the "After 5 Years" column above has a call option whereby the lender (the FHLB) may call the debt in 2004. Also, any outstanding borrowings with the FHLB may be accelerated immediately by the FHLB in certain circumstances, including material adverse changes in the condition of the Company or if the Company's qualifying collateral amounts to less than 1.33 times the amount of borrowings outstanding. At June 30, 2002, the Company's qualifying collateral amounted to 2.8 times the amount of borrowings outstanding.
It has been the experience of the Company that deposit withdrawals are generally replaced with new deposits, thus not requiring any net cash outflow. Based on that assumption, management believes that it can meet its contractual cash obligations from normal operations.
The amount and expiration period of the Company's other commercial commitments outstanding as of June 30, 2002 has not changed materially since December 31, 2001, detail of which is presented on page 35 of the Company's 2001 Form 10-K.
The Company is not involved in any legal proceedings that, in management's opinion, could have a material effect on the consolidated financial position of the Company.
Off-balance-sheet derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. The Company does not engage in off-balance-sheet derivatives activities.
The Company's management believes its liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet its operating needs in the foreseeable future.
CAPITAL RESOURCES
The Company is regulated by the Board of Governors of the Federal Reserve Board (FED) 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 Office of the Commissioner of Banks. 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 FED 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, excluding accumulated other comprehensive income (loss), 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 FED and FDIC regulations.
In addition to the risk-based capital requirements described above, the Company is subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution's composite ratings as determined by its regulators. The FED has not advised the Company of any requirement specifically applicable to it.
At June 30, 2002, the Company's capital ratios exceeded the regulatory minimum ratios discussed above with a Tier 1 capital ratio to Tier 1 risk adjusted ratio of 10.54%, a total capital to total risk adjusted asset ratio of 11.54%, and a leverage ratio of 8.39%. The leverage ratio is within five basis points of its level at December 31, 2001, whereas the Company's two risk based capital ratios have each decreased approximately 45 basis points since December 31, 2001 as a result of the high loan growth the Company has experienced.
The Company's bank subsidiary is also subject to similar capital requirements as those discussed above. At June 30, 2002, the Company's bank subsidiary exceeded the minimum ratios established by the FED and FDIC.
SHARE REPURCHASES
The Company repurchased 83,020 shares of its own common stock at an average price of $24.23 per share during the second quarter of 2002. Total repurchases in 2002 have amounted to 124,595 shares at an average price of $23.35 per share.
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 five calendar years the Company's net interest margin has ranged from a low of 4.23% (realized in 2001) to a high of 4.88% (realized in 1997). During that five year period the prime rate of interest has ranged from a low of 4.75% to a high of 9.50%.
In 2001, the Company experienced downward pressure on its net interest margin, primarily as a result of the significant decreases in the interest rate environment - the Company's interest-earning assets adjusted downwards quicker and by a greater amount than did the Company's interest-bearing liabilities. In the first quarter of 2002, the Company's 4.36% net interest margin was the highest it had been since the fourth quarter of 2000, primarily as a result of the stable interest rate environment, when for the first time in five quarters, there were no decreases in rates initiated by the Federal Reserve. This allowed a significant portion of the Company's time deposits that were originated during periods of higher interest rates and matured during the quarter to reprice at lower levels, whereas the Company's rate sensitive interest-earning assets had repriced lower immediately upon the rate cuts by the Federal Reserve in 2001, and thus did not experience further rate reductions. There were also no changes in rates in the second quarter of 2002, which allowed the Company's time deposits to continue to mature and reprice at lower levels. As a result, the Company's net interest margin for the second quarter of 2002 was 4.63%, it's highest level since the Company's merger with First Savings Bancorp in 2000.
Using stated maturities for all instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are included in the period of their expected call), at June 30, 2002 the Company had $363.1 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, 2002 subject to interest rate changes within one year are deposits totaling $367.3 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 in the near term (twelve months), 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 above under the heading "Components of Earnings," a declining interest rate environment during 2001 negatively impacted (at least temporarily) the Company's net interest margin). Generally, when rates change, the Company's interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while the Company's interest-sensitive liabilities that are subject to adjustment reprice at a lag to the rate change and typically not to the full extent of the rate change. The net effect is that in the twelve month horizon, as rates change, the impact of having a higher level of interest-sensitive liabilities is substantially negated by the later and typically lower proportionate change these liabilities experience compared to interest sensitive assets.
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. 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."
Expected Maturities of Market Sensitive
Instruments Held at June 30, 2002
--------------------------------------------------------------------------------
Average Estimated
Interest Fair
($ in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years Beyond Total Rate (1) Value
------ ------- ------- ------- ------- ------ ----- -------- -----
Due from banks,
interest bearing $ 49,067 -- -- -- -- -- 49,067 1.65% $ 49,067
Federal funds sold 16,653 -- -- -- -- -- 16,653 1.65% 16,653
Debt securities- at
amortized cost (1) (2) 29,166 15,304 17,888 6,728 3,886 19,968 92,940 6.25% 94,867
Loans - fixed (3) (4) 107,490 98,569 84,956 52,687 126,701 60,411 530,814 7.72% 537,078
Loans - adjustable (3) (4) 164,088 59,680 67,457 37,904 54,803 51,908 435,840 5.87% 436,857
------- ------ ------ ------ ------ ------ ------- ----- -------
Total $ 366,464 173,553 170,301 97,319 185,390 132,287 1,125,314 6.53% $1,134,522
========== ======= ======= ====== ======= ======= ========= ==== ==========
Savings, NOW, and
money market
deposits $ 367,336 -- -- -- -- -- $ 367,336 1.07% $ 367,336
Time deposits 468,602 39,945 10,663 3,545 8,449 167 531,371 3.49% 533,500
Borrowings (2) 65,000 5,000 -- -- -- -- 70,000 2.58% 70,392
---------- ------ ------ ------ ------ ------ ------- ----- -------
Total $ 900,938 44,945 10,663 3,545 8,449 167 968,707 2.51% $ 971,228
========== ======= ======= ====== ======= ======= ========= ==== ==========
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(1) Tax-exempt securities are reflected at a tax-equivalent basis using a 35% tax rate.
(2) Callable securities and borrowings with above market interest rates at June 30, 2002 are assumed to mature at their call date for purposes of this table. Mortgage-backed securities are assumed to mature in the period of their expected repayment based on estimated prepayment speeds.
(3) Excludes nonaccrual loans and allowance for loan losses.
(4) Single-family mortgage loans are assumed to mature in the period of their expected repayment based on estimated prepayment speeds. All other loans are shown in the period of their contractual maturity.
The Company's long-term interest-earning assets and interest-bearing liabilities each have estimated fair values that are slightly higher than their carrying value. This is due to the yields on these portfolios being higher than market yields at June 30, 2002 for instruments with maturities similar to the remaining term of the portfolios, due to the declining interest rate environment.
See additional discussion of the Company's net interest margin in the "Components of Earnings" section above.
CRITICAL ACCOUNTING POLICIES
Due to the estimation process and the potential materiality of the amounts involved, the Company has identified the accounting for the allowance for loan losses and the related provision for loan losses as an accounting policy critical to the Company's financial statements. The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.
Management's determination of the adequacy of the allowance is based primarily on a mathematical model that estimates the appropriate allowance for loan losses. This model has two components. The first component involves the estimation of losses on loans defined as "impaired loans." 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 estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by 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 fair value of the collateral.
The second component of the allowance model is to estimate losses for all loans not considered to be impaired loans. First, loans that have been risk graded by the Company as having more than "standard" risk but are not considered to be impaired are assigned estimated loss percentages generally accepted in the banking industry. Loans that are classified by the Company as having normal credit risk are segregated by loan type, and estimated loss percentages are assigned to each loan type, based on the historical losses, current economic conditions, and operational conditions specific to each loan type.
The reserve estimated for impaired loans is then added to the reserve estimated for all other loans. This becomes the Company's "allocated allowance." In addition to the allocated allowance derived from the model, management also evaluates other data such as the ratio of the allowance for loan losses to total loans, net loan growth information, nonperforming asset levels and trends in such data. Based on this additional analysis, the Company may determine that an additional amount of allowance for loan losses is necessary to reserve for probable losses. This additional amount, if any, is the Company's "unallocated allowance." The sum of the allocated allowance and the unallocated allowance is compared to the actual allowance for loan losses recorded on the books of the Company and any adjustment necessary for the recorded allowance to equal the computed allowance is recorded as a provision for loan losses.
While management uses the best information available to make evaluations, future adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on the examiners' judgment about information available to them at the time of their examinations.
For further discussion, see "SUMMARY OF LOAN LOSS EXPERIENCE" above.
CURRENT ACCOUNTING MATTERS
See Notes 2 and 7 to the Consolidated Financial Statements above.
FORWARD-LOOKING STATEMENTS
Part I of this report 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, the Company's level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions.
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 30, 2002:
Proposal 1
A proposal to elect 17 directors to serve until the next annual
meeting of shareholders and until their successors are elected and
qualified.
Voted Withheld
Nominee For Authority
------- ------- ---------
Jack D. Briggs 7,714,828 41,187
H. David Bruton, M.D. 7,702,603 53,412
David L. Burns 7,716,455 39,560
John F. Burns 7,701,103 54,912
Jesse S. Capel 7,712,233 43,782
James H. Garner 7,720,683 35,332
James G. Hudson, Jr. 7,720,467 35,548
George R. Perkins, Jr. 7,640,560 115,455
Thomas F. Philips 7,707,049 48,966
William E. Samuels 7,695,641 60,374
Edward T. Taws 7,715,032 40,983
Frederick H. Taylor 7,716,645 39,370
Virginia C. Thomasson 7,707,439 48,576
Goldie H. Wallace 7,715,032 40,983
A. Jordan Washburn 7,716,645 39,370
Dennis A. Wicker 7,713,676 42,339
John C. Willis 7,717,103 38,912
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Proposal 2
A proposal to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
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.
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.
3.a.ii Copy of the amendment to Articles of Incorporation - adding a new
Article Nine.
3.a.iii Copy of the amendment to Articles of Incorporation - adding a new
Article Ten.
3.a.iv Copy of the amendment to Article IV of the Articles of Incorporation.
3.a.v. Copy of the amendment to Article IV of the Articles of Incorporation.
3.b Copy of the Bylaws of the Registrant was filed as Exhibit 3.b to the
Company's Annual Report on Form 10-K for the year ended December 31,
2001, and is incorporated herein by reference.
10.s Definitive Merger Agreement with Carolina Community Bancshares, Inc.
dated July 16, 2002 was filed on Form 8-K on July 17, 2002 and is
incorporated herein by reference.
21 List of Subsidiaries of Registrant was filed as Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2001, and is incorporated herein by reference.
99.a Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.b Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Copies of Exhibits Are Available Upon Written Request To: First
Bancorp, Anna G. Hollers, Executive Vice President, P.O. Box 508,
Troy, NC 27371
(b) There were no reports filed on Form 8-K during the quarter ended
June 30, 2002.
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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 13, 2002 BY: James H. Garner
---------------------------
James H. Garner
President
(Principal Executive Officer),
Treasurer and Director
August 13, 2002 BY: Anna G. Hollers
---------------------------
Anna G. Hollers
Executive Vice President
and Secretary
August 13, 2002 BY: Eric P. Credle
---------------------------
Eric P. Credle
Senior Vice President
and Chief Financial Officer
|
Exhibit 3.a.i
ARTICLES OF INCORPORATION
OF
MONTGOMERY BANCORP
The undersigned, being of the age of 18 years or more, does hereby make and acknowledge these Articles of Incorporation for the purpose of forming a business corporation under and by virtue of the laws of the State of North Carolina.
ARTICLE I
The name of the corporation is MONTGOMERY BANCORP.
ARTICLE II
The period of duration of the corporation is unlimited.
ARTICLE III
The purposes for which the corporation is organized are:
(a) To operate as a one bank or as a multi-bank holding company.
(b) To engage in any lawful act or activity for which corporations may be organized under Chapter 55 of the General Statutes of North Carolina, including but not limited to constructing, manufacturing, raising or otherwise producing and repairing, servicing, storing or otherwise caring for any type of structure, commodity, or livestock, whatsoever; processing, selling, brokering, factoring, or distributing any type of property whether real or personal; extracting and processing natural resources; transporting freight or passengers by land, sea, or air; collecting and disseminating information or advertisement through any medium whatsoever; performing personal services of any nature; and entering into or serving in any type of management, investigative, advisory, promotional, protective, insurance, guarantyship, suretyship, fiduciary or representative capacity or relationship for any persons of corporations whatsoever.
To do all and everything necessary, suitable, expedient or proper for the accomplishment of any of the purposes, or the attainment of any one or more of the objects herein enumerated or incident to the powers herein named, or which shall at any time appear conductive to or expedient for the protection or benefit of the corporation either as holders of, or interested in any property or otherwise; with all the powers now or hereafter conferred by the laws of North Carolina upon corporations of like character.
ARTICLE IV
The corporation shall have authority to issue three hundred thousand (300,000) shares of common stock with a par value of Five Dollars ($5.00) per share.
ARTICLE V
The minimum amount of consideration to be received by the corporation for its shares before it shall commence business is Twenty-Five Dollars ($25.00) in cash or property of equivalent value.
ARTICLE VI
The address of the initial registered office of the corporation in the State of North Carolina is 341 North Main Street, Troy, Montgomery County, North Carolina, and the name of its initial registered agent at such address is John C. Wallace.
ARTICLE VII
The number of directors of the corporation shall be fixed by the bylaws. The number of directors constituting the initial Board of Directors shall be eleven (11), and the names and addresses of the persons who are to serve as directors until the first meeting of the shareholders, or until their successors be elected and qualify, are:
Name Address
---------------------------------------------------
Jack Briggs P.O. Box 218
Denton, North Carolina 27239
Charles W. Bruton, MD 508 Wood Street
Troy, North Carolina 27371
Jessie S. Capel 831 North Main Street
Troy, North Carolina 27371
D. C. Deaton, Jr. P.O. Box 100
Biscoe, North Carolina 27209
John L. Frye P.O. Box 835
Robbins, North Carolina 27325
Jack L. Harper 220 Watkins Street
Troy, North Carolina 27371
A. T. Russell 617 East Main Street
Troy, North Carolina 27371
John J. Russell P.O. Box 38
Mt. Gilead, North Carolina 27306
|
Frederick Taylor P. O. Box 748
Troy, North Carolina 27371
John C. Wallace P. O. Box 508
Troy, North Carolina 27371
John C. Willis 626 E. Main Street
Troy, North Carolina 27371
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ARTICLE VIII
The name and address of the incorporator is:
Name Address
---- -------
Russell J. Hollers P.O. Box 567
Troy, North Carolina 27371
|
IN WITNESS WHEREOF, I have hereunto set my hand and seal, this 30th day of November, 1983.
/s/ Russell J. Hollers(SEAL)
----------------------
RUSSELL J. HOLLERS
|
ARTICLES OF AMENDMENT
OF
MONTGOMERY BANCORP
The undersigned corporation hereby executes these Articles of Amendment for the purpose of amending its charter:
1. The name of the corporation is Montgomery Bancorp.
2. The following amendment to the charter of the corporation was adopted by its shareholders on the 5th day of November, 1986, in the manner prescribed by law:
Article I of the Articles of Incorporation is amended to read as follows: The name of the corporation is FIRST BANCORP
Article IV of the Articles of Incorporation is 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 a par value of Five Dollars ($5.00) per share.
Article IX is added to the Articles of Incorporation and provides as follows: The shareholders of the corporation shall have no preemptive right to acquire additional or treasury shares of the corporation.
3. The number of shares of the corporation outstanding at the time of such adoption was 265,688; and the number of shares entitled to vote thereon was 265,688.
4. The number of shares voted for and against such amendment was as follows:
For Against Abstained
--- ------- ---------
Amendment to Article I 458,531 0 100
Amendment to Article I 458,531 0 0
Amendment Adding Article IX 458,531 0 0
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5. The amendment herein effected does not give rise to dissenter's rights to payment for the reason that the only effect of such amendment is to change the name of the corporation, increase the number of authorized shares of common stock and provide that shareholders shall no preemptive rights.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary or the corporation this 30th day of December , 1986.
--- -------------------
MONTGOMERY BANCORP
By: /s/ John C. Wallace
--------------------------------
President
MONTGOMERY BANCORP
By: /s/ Anna G. Maness
-----------------------------
Secretary
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Exhibit 3.a.ii
|
ARTICLES OF AMENDMENT
OF
FIRST BANCORP
The undersigned corporation hereby executes these Articles of Amendment for the purpose of amending its charter:
1. The name of the corporation is First Bancorp.
2. The following amendment to the charter of the corporation was adopted by its shareholders on the 28th day of April, 1988, in the manner prescribed by law:
The Articles of Incorporation of the Corporation are amended by adding a new Article IX as follows:
ARTICLE IX Elimination of Certain Liability of Directors. To the fullest extent permitted by the North Carolina Business Corporation Act as it exists or may hereafter be amended, a director of the corporation shall not be liable to the corporation or any of its shareholders for monetary damages for breach of duty as a director.
3. The number of shares of the corporation outstanding at the time of such adoption was 1,130,550; and the number of shares entitled to vote thereon was 1,130,500.
4. The number of shares voted for such amendment was 718,074; and the number of shares voted against such amendment was 12,203.
5. The amendment herein effected does not give rise to dissenter's rights to payment for the reason that the only effect of such amendment is to add a new Article to the charter to eliminate the personal liability of directors for certain breaches of fiduciary duty.
/s/ John C. Wallace ------------------- By: John C. Wallace President /s/ Anna G. Maness ------------------ By: Anna G. Maness Secretary |
Exhibit 3.a.iii
ARTICLES OF AMENDMENT
OF
FIRST BANCORP
The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its articles of incorporation:
1. The name of the corporation is First Bancorp.
2. The following amendment to the articles of incorporation of the corporation was adopted by its shareholders on the 30th day of April, 1998, in the manner prescribed by law:
The articles of Incorporation are amended by adding a new Article X as follows:
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.
This the 6th day of July, 1998.
--- ----
FIRST BANCORP
By: /s/ James H. Garner
James H. Garner, President
By: /s/ Anna G. Hollers
Anna G. Hollers, Secretary
|
Exhibit 3.a.iv
ARTICLES OF AMENDMENT
OF
FIRST BANCORP
The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its articles of incorporation:
1. The name of the corporation is First Bancorp.
2. The following amendment to the articles of incorporation of the corporation was adopted by its shareholders on the 21st day of April, 1999, in the manner prescribed by law:
Article IV of the Articles of Incorporation is amended to read as follows: The corporation shall have authority to issue twelve million five thousand (12,500,000) shares of common stock with no par value. This the 22nd day of April, 1999.
FIRST BANCORP
By: /s/ James H. Garner James H. Garner, President By: /s/ Anna G. Hollers Anna G. Hollers, Secretary |
Exhibit 3.a.v
ARTICLES OF AMENDMENT
OF
FIRST BANCORP
The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its articles of incorporation:
1. The name of the corporation is First Bancorp.
2. The following amendment to the articles of incorporation of the corporation was adopted by its shareholders on the 1st day of May, 2001, in the manner prescribed by law:
Article IV of the Articles of Incorporation is amended to read as
follows: The corporation shall have authority to issue twenty million
(20,000,000) shares of common stock with no par value. This the 8th
day of June, 2001.
FIRST BANCORP
By: /s/ James H. Garner James H. Garner, President By: /s/ Anna G. Hollers Anna G. Hollers, Secretary |
Exhibit 99.a
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of First Bancorp (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James H. Garner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ James H. Garner ----------------------- James H. Garner Chief Executive Officer August 13, 2002 |
Exhibit 99.b
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of First Bancorp (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric P. Credle, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Eric P. Credle ----------------------- Eric P. Credle Chief Financial Officer August 13, 2002 |