=============================================================================== 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, 1997 ___________________ Commission File Number 0-15572 FIRST BANCORP ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) North Carolina 56-1421916 - --------------------------------------- ------------------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 341 North Main Street, Troy, North Carolina 27371-0508 - -------------------------------------------------- ------------------------ (Address of Principal Executive Offices) (Zip Code) (Registrant's telephone number, including area code) (910) 576-6171 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] YES [ ] NO As of June 30, 1997, 3,016,370 shares of the registrant's Common Stock, $5 par value, were outstanding. The registrant had no other classes of securities outstanding. Transitional Small Business Format [ ] YES [ X ] NO =============================================================================== EXHIBIT INDEX BEGINS ON PAGE 19
INDEX FIRST BANCORP AND SUBSIDIARIES Page Part I. Financial Information Item 1 - Financial Statements CONSOLIDATED BALANCE SHEETS - June 30, 1997 and 1996 (With Comparative Amounts at December 31, 1996) 3 STATEMENTS OF CONSOLIDATED INCOME - For the Periods Ended June 30, 1997 and 1996 4 STATEMENTS OF CONSOLIDATED CASH FLOWS - For the Periods Ended June 30, 1997 and 1996 5 STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY - For the Periods Ended June 30, 1997 and 1996 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition 8 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 18 Exhibit Cross Reference Index 19
Part I. Financial Information Item 1 - Financial Statements Consolidated Balance Sheets FIRST BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> Jun 30, Dec 31, Jun 30, ($ in thousands--unaudited) 1997 1996 1996 --------- --------- --------- <S> <C> <C> <C> ASSETS Cash & due from banks, noninterest bearing $ 17,345 $ 15,882 $ 16,165 Due from banks, interest bearing 8 -- -- Federal funds sold -- 5,025 5,125 --------- --------- --------- Total cash and cash equivalents 17,353 20,907 21,290 --------- --------- --------- Securities available for sale (approximate costs of $57,639, $53,721 and $51,448) 57,765 53,942 51,185 Securities held to maturity (approximate fair values of $21,328, $22,717 and $19,947) 20,824 22,323 19,664 Presold mortgages in process of settlement 738 1,395 765 Loans, net of unearned income 247,220 223,032 219,838 Less: Allowance for possible loan losses (4,755) (4,726) (4,758) --------- --------- --------- Net loans 242,465 218,306 215,080 --------- --------- --------- Premises and equipment, net 7,919 7,722 8,066 Accrued interest receivable 2,778 2,412 2,254 Intangible assets 5,319 5,834 6,119 Other 2,612 2,609 3,167 --------- --------- --------- Total assets $ 357,773 $ 335,450 $ 327,590 ========= ========= ========= LIABILITIES Deposits: Demand $ 47,954 $ 45,002 $ 44,334 Savings, NOW and money market 119,472 107,605 103,890 Time deposits of $100,000 or more 33,547 33,526 33,864 Other time deposits 117,835 111,728 110,070 --------- --------- --------- Total deposits 318,808 297,861 292,158 Accrued interest on deposits 1,914 1,882 1,787 Other 2,300 2,475 2,391 --------- --------- --------- Total liabilities 323,022 302,218 296,336 --------- --------- --------- SHAREHOLDERS' EQUITY Common stock, $5 par value per share Authorized: 12,500,000 shares Issued and outstanding: 3,016,370, 3,016,370 and 3,014,170 shares 15,082 15,082 15,070 Capital surplus 3,831 3,831 3,820 Retained earnings 15,754 14,173 12,537 Unrealized gain (loss) on securities available for sale, net of income taxes 84 146 (173) --------- --------- --------- Total shareholders' equity 34,751 33,232 31,254 --------- --------- --------- Total liabilities and shareholders' equity $ 357,773 $ 335,450 $ 327,590 ========= ========= ========= <FN> See Notes to Consolidated Financial Statements. </TABLE>
Statements Of Consolidated Income FIRST BANCORP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME <TABLE> <CAPTION> Three Months Ended Six Months Ended ($ in thousands except Jun 30, Jun 30, per share data--unaudited) 1997 1996 1997 1996 --------- --------- --------- --------- <S> <C> <C> <C> <C> INTEREST INCOME Interest and fees on loans $ 5,874 $ 5,259 $ 11,223 $ 10,380 Interest on investment securities: Taxable interest income 960 705 1,855 1,351 Exempt from income taxes 303 267 619 542 Other, principally federal funds sold 106 160 273 326 --------- --------- --------- --------- Total interest income 7,243 6,391 13,970 12,599 --------- --------- --------- --------- INTEREST EXPENSE Time deposits of $100,000 or more 476 445 938 865 Other time and savings deposits 2,194 2,000 4,265 4,049 Federal funds purchased 3 -- 3 -- --------- --------- --------- --------- Total interest expense 2,673 2,445 5,206 4,914 --------- --------- --------- --------- NET INTEREST INCOME 4,570 3,946 8,764 7,685 Provision for possible loan losses 125 75 200 150 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 4,445 3,871 8,564 7,535 --------- --------- --------- --------- OTHER INCOME Service charges on deposit accounts 620 624 1,227 1,256 Commissions from insurance sales 75 87 149 195 Other charges, commissions and fees 156 233 418 450 Data processing fees 69 62 142 116 --------- --------- --------- --------- Total other income 920 1,006 1,936 2,017 --------- --------- --------- --------- OTHER EXPENSES Salaries 1,522 1,397 3,038 2,677 Employee benefits 384 321 704 648 --------- --------- --------- --------- Total personnel expense 1,906 1,718 3,742 3,325 Net occupancy expense 232 238 468 474 Equipment related expenses 218 208 429 416 Other 1,150 1,111 2,352 2,227 --------- --------- --------- --------- Total other expenses 3,506 3,275 6,991 6,442 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 1,859 1,602 3,509 3,110 Income taxes 620 559 1,144 1,062 --------- --------- --------- --------- NET INCOME $ 1,239 $ 1,043 $ 2,365 $ 2,048 ========= ========= ========= ========= PER SHARE AMOUNTS Net income $ 0.41 $ 0.35 $ 0.78 $ 0.68 Cash dividends declared 0.13 0.11 0.26 0.22 <FN> See Notes to Consolidated Financial Statements. </TABLE>
Statements Of Consolidated Cash Flows FIRST BANCORP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS <TABLE> <CAPTION> Six Months Ended Jun 30, ($ in thousands--unaudited) 1997 1996 --------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,365 $ 2,048 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses 200 150 Net security premium amortization/discount accretion (13) (13) Loan fees and costs deferred net of amortization 5 (15) Depreciation of premises and equipment 352 372 Amortization of intangible assets 279 283 Realized and unrealized other real estate losses 16 49 Provision for deferred income taxes (16) 226 Changes in operating assets and liabilities: Decrease (increase) in accrued interest receivable (366) 118 Decrease (increase) in intangible assets 236 (96) Decrease in other assets 768 1,032 Increase (decrease) in accrued interest payable 32 (102) Increase (decrease) in other liabilities (235) 472 --------- --------- Net cash provided by operating activities 3,623 4,524 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale (16,370) (25,956) Purchase of securities held to maturity (1,220) (1,626) Proceeds from maturities/issuer calls of securities available for sale 12,481 23,786 Proceeds from maturities/issuer calls of securities held to maturity 2,704 1,740 Net increase in loans (24,446) (8,639) Net purchases of premises and equipment (549) (395) --------- --------- Net cash used in investing activities (27,400) (11,090) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 20,947 4,443 Cash dividends paid (724) (603) --------- --------- Net cash provided by financing activities 20,223 3,840 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (3,554) (2,726) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,907 24,016 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,353 $ 21,290 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 5,174 $ 5,016 Income taxes 1,015 671 Non-cash transactions: Foreclosed loans transferred to other real estate 82 359 Loans to facilitate the sale of other real estate 17 93 Decrease in market value of securities available for sale (94) (617) <FN> See Notes to Consolidated Financial Statements. </TABLE>
Statements Of Changes In Consolidated Shareholders' Equity FIRST BANCORP AND SUBSIDIARIES STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY <TABLE> <CAPTION> Common Stock Share- (in thousands- ------------------- Capital Retained holders' -unaudited) Shares Amount Surplus Earnings Other Equity --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> BALANCES, December 31, 1996 3,016 $ 15,082 $ 3,831 $ 14,173 $ 146 $ 33,232 Net income 2,365 2,365 Cash dividends declared (784) (784) Net adjustment for securities available for sale (62) (62) --------- --------- --------- --------- --------- --------- BALANCES, June 30, 1997 3,016 $ 15,082 $ 3,831 $ 15,754 $ 84 $ 34,751 ========= ========= ========= ========= ========= ========= BALANCES, December 31, 1995 3,014 $ 15,070 $ 3,820 $ 11,152 $ 235 $ 30,277 Net income 2,048 2,048 Cash dividends declared (663) (663) Net adjustment for securities available for sale (408) (408) --------- --------- --------- --------- --------- --------- BALANCES, June 30, 1996 3,014 $ 15,070 $ 3,820 $ 12,537 $ (173)$ 31,254 ========= ========= ========= ========= ========= ========= <FN> See Notes to Consolidated Financial Statements. </TABLE>
FIRST BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands- -unaudited) For the Periods Ended June 30, 1997 and 1996 NOTE 1 In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of the Company as of June 30, 1997 and 1996 and the consolidated results of operations and consolidated cash flows for the periods ended June 30, 1997 and 1996 and changes in consolidated shareholders' equity for the period ended June 30, 1997. Reference is made to the notes to consolidated financial statements for the year ended December 31, 1996 filed with the Annual Report on Form 10-KSB for a discussion of accounting policies and other relevant information with respect to the financial statements. NOTE 2 The results of operations for the periods ended June 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. Earnings per share were computed by dividing net income by the weighted average common shares outstanding. Per share data and average common shares outstanding have been restated for the 2-for-1 stock split paid September 13, 1996. Common stock equivalents resulting from the Company's stock option plan were not considered in the earnings per share computation due to immateriality. NOTE 3 Certain amounts reported in the period ended June 30, 1996 have been reclassified to conform with the presentation for June 30, 1997. These reclassifications had no effect on net income or shareholders' equity for the periods presented. NOTE 4 Based on management's evaluation of the loan portfolio, current economic conditions and other risk factors, the Company's allowance for possible loan losses was $4,755,000 as of June 30, 1997 compared to $4,726,000 and $4,758,000 as of December 31, 1996 and June 30, 1996, respectively. These reserve levels represented 1.92%, 2.12% and 2.16% of total loans as of June 30, 1997, December 31, 1996 and June 30, 1996, respectively. Nonperforming assets are defined as nonaccrual loans, loans past due 90 or more days and still accruing interest, restructured loans and foreclosed, repossessed and idled properties. For each of the periods presented, the Company had no loans past due 90 or more days and still accruing interest. Nonperforming assets are summarized as follows: <TABLE> <CAPTION> Jun 30, Dec 31, Jun 30, ($ in thousands) 1997 1996 1996 --------- --------- --------- <S> <C> <C> <C> Nonperforming loans: Nonaccrual loans $ 678 $ 1,836 $ 1,396 Restructured loans 712 703 793 --------- --------- --------- Total nonperforming loans 1,390 2,539 2,189 Foreclosed, repossessed and idled properties (included in other assets) 407 572 836 --------- --------- --------- Total nonperforming assets $ 1,797 $ 3,111 $ 3,025 ========= ========= ========= Nonperforming loans as a percentage of total loans 0.56% 1.14% 1.00% Allowance for possible loan losses as a percentage of nonperforming loans 342.09% 186.14% 217.36% Nonperforming assets as a percentage of loans and foreclosed, repossessed and idled properties 0.73% 1.39% 1.37% Nonperforming assets as a percentage of total assets 0.50% 0.93% 0.92% </TABLE>
Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition RESULTS OF OPERATIONS Net income for the quarter ended June 30, 1997 increased 18.8% to $1,239,000, or $0.41 per share, compared to $1,043,000, or $0.35 per share, for the second quarter of 1996. The earnings increase was primarily achieved through higher net interest income that principally resulted from increases in volumes in the loan and securities portfolios. For substantially the same reasons, net income for the six months ended June 30, 1997 increased 15.5% to $2,365,000, or $0.78 per share, from $2,048,000, or $0.68 cents per share, for the same period in 1996. Earnings per share for 1996 have been restated to reflect the two-for-one stock split paid September 13, 1996 to shareholders of record August 30, 1996. Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets. Net interest income increased by $624,000, or 15.8%, when comparing the second quarter of 1997 with the second quarter of 1996, primarily because of the growth in the volumes of interest-earning assets. This growth allowed earning assets to increase more rapidly than deposits. For substantially the same reasons, net interest income for the six months ended June 30, 1997 increased by $1,079,000, or 14%, compared to the same period in 1996. Under current conditions, future increases in market interest rates could have a negative impact on net interest income if portfolio mixes are held constant and rate-sensitive liabilities reprice upward more rapidly than rate-sensitive earning assets. The Company is experiencing a slight change in its loan mix to variable rate loans from fixed rate loans as well as a shift to savings, NOW and money market deposits from time deposits. Generally, the Company's goal is to manage portfolio mixes to minimize changes in net interest income due to changing market interest rates. The provision for possible loan losses for the second quarter increased $50,000, or 66.7%, to $125,000 from $75,000 for the second quarter of 1996. For the six months ended June 30, 1997, provisions for possible loan losses increased by $50,000, or 33.3%. The provisions were considered prudent in light of the significant loan growth experienced by the Company. Also supporting the higher provisions were increases in net charge-offs primarily attributable to lower recoveries. Provisions for possible loan losses are based on management's evaluation of the loan portfolio, as discussed under "Financial Condition" below. Noninterest income decreased $86,000, or 8.5%, for the second quarter. For the six months ended June 30, 1997, noninterest income decreased $81,000, or 4%. The Company sold no securities in the second quarters of 1997 or 1996. Noninterest overhead expenses increased by $231,000, or 7.1%, for the second quarter of 1997, primarily because of expenses associated with opening branch offices in Seagrove, Lillington and Sanford--three new markets for the Company. Personnel expenses increased $188,000, or 10.9%, and other noninterest expenses increased $39,000. For substantially the same reasons, noninterest expenses increased by $549,000, or 8.5%, for the six months ended June 30, 1997. Income taxes increased $61,000, or 10.9%, for the second quarter, while the effective tax rates were 33.4% and 34.9% for the quarters ended June 30, 1997 and 1996, respectively. The decrease in the effective tax rate was partially attributable to higher levels of tax-exempt interest income. For substantially the same reasons, income taxes for the six months ended June 30, 1997 increased $82,000, or 7.7%, resulting in an effective tax rate of 32.6% compared to 34.1% for the same six month period of 1996.
FINANCIAL CONDITION The Company's total assets were $357.8 million at June 30, 1997, an increase of $30.2 million, or 9.2%, from June 30, 1996. Interest-earning assets increased by 10.1% compared to June 30, 1996. Loans, the primary interest-earning asset, increased by 12.5% during this same period. Deposits increased $26.7 million, or 9.1% to support the asset growth. The increases in deposits were primarily in the categories of savings, NOW and money market deposits. The Company is experiencing a shift in the mix of its deposits to savings, NOW and money market accounts from time deposits. The Company's cost of funds has remained relatively low compared to that of its competitors. The Company does not rely heavily on large deposits of $100,000 or more to fund asset growth and has not traditionally engaged in obtaining deposits through brokers. Since December 31, 1996, the Company experienced increases of 7.1%, 6.7% and 7% in earning assets, total assets and deposits, respectively. NONPERFORMING ASSETS Nonperforming assets are defined as nonaccrual loans, loans past due 90 or more days, restructured loans and foreclosed, repossessed and idled properties. The following table summarizes the Company's nonperforming assets at the dates indicated. <TABLE> <CAPTION> Jun 30, Dec 31, Jun 30, ($ in thousands) 1997 1996 1996 --------- --------- --------- <S> <C> <C> <C> Nonperforming loans: Nonaccrual loans $ 678 $ 1,836 $ 1,396 Restructured loans 712 703 793 --------- --------- --------- Total nonperforming loans 1,390 2,539 2,189 Foreclosed, repossessed and idled properties (included in other assets) 407 572 836 --------- --------- --------- Total nonperforming assets $ 1,797 $ 3,111 $ 3,025 ========= ========= ========= Nonperforming loans as a percentage of total loans 0.56% 1.14% 1.00% Allowance for possible loan losses as a percentage of nonperforming loans 342.09% 186.14% 217.36% Nonperforming assets as a percentage of loans and foreclosed, repossessed and idled properties 0.73% 1.39% 1.37% Nonperforming assets as a percentage of total assets 0.50% 0.93% 0.92% </TABLE> Management has reviewed the collateral for the nonperforming assets, including nonaccrual loans, and has included this review among the factors considered in the evaluation of the allowance for possible loan losses discussed below.
A loan is placed on nonaccrual status when, in management's judgment, the collection of interest appears doubtful. Interest on loans that are classified as nonaccrual is recognized when received. The accrual of interest is discontinued on all loans that become 90 days past due with respect to principal or interest. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. If the nonaccrual loans and restructured loans as of June 30, 1997 and 1996 had been current in accordance with their original terms and had been outstanding throughout the six month periods (or since origination or acquisition if held for part of the six month periods), gross interest income in the amounts of approximately $33,000 and $70,000 for nonaccrual loans and $34,000 and $36,000 for restructured loans would have been recorded for the six months ended June 30, 1997 and 1996, respectively. Interest income on such loans that was actually collected and included in net income in the six months ended June 30, 1997 and 1996 amounted to approximately $9,000 and $8,000 for nonaccrual loans and $31,000 and $30,000 for restructured loans loans respectively. There have been no material changes in the levels of impaired loans since December 31, 1996. Nonperforming loans are defined as nonaccrual loans, loans past due 90 or more days and restructured loans. As of June 30, 1997, December 31, 1996 and June 30, 1996, nonperforming loans were approximately 0.56%, 1.14% and 1.00%, respectively, of the total loans outstanding at such dates. Nonaccrual loans decreased $718,000, or 51%, to approximately $678,000 compared to June 30, 1996 and decreased approximately $1,158,000, or 63.1%, since year-end. As of June 30, 1997, the borrower with the largest aggregate balance of nonaccrual loan(s) owed an aggregate of approximately $119,000 while the overall average nonaccrual loan balance was approximately $16,000. In addition to the nonperforming loan amounts discussed above, management believes that an estimated $1,000,000-$1,500,000 of loans that are currently performing in accordance with their contractual terms may potentially develop problems depending upon the particular financial situations of the borrowers and economic conditions in general. These loans were considered in determining the appropriate level of the allowance for possible loan losses. See "Summary of Loan Loss Experience" below. Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed in the problem loan amounts above do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. As of June 30, 1997, the Company owned foreclosed and repossessed assets totaling approximately $407,000, which consisted principally of several parcels of foreclosed real estate. The Company's management has reviewed recent appraisals of these properties and has concluded that their fair values, less estimated costs to sell, equal or exceed their respective carrying values at June 30, 1997.
SUMMARY OF LOAN LOSS EXPERIENCE The allowance for possible loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management's opinion, become uncollectible. Recoveries during the period are credited to this allowance. The factors that influence management's judgment in determining the amount charged to operating expense include past loan loss experience, composition of the loan portfolio, evaluation of possible future losses and current economic conditions. The Company's bank subsidiary uses a loan analysis and grading program to facilitate its evaluation of possible future loan losses and the adequacy of its allowance for possible loan losses, otherwise referred to as its loan loss reserve. In this program, a "watch list" is prepared and monitored monthly by management and is tested quarterly by the bank's Internal Audit Department. The list includes loans that management identifies as having potential credit weaknesses in addition to loans past due 90 days or more, nonaccrual loans and remaining unpaid loans identified during previous examinations. Based on management's evaluation of the loan portfolio and economic conditions, a provision for possible loan losses of $125,000 was added to the allowance for possible loan losses during the second quarter of 1997, which brought the year-to-date provision to $200,000. The quarterly provision for loan losses made during 1997 was greater than that made during the corresponding period of 1996 because of the significant loan growth experienced by the Company and increased net charge-offs primarily attributable to lower recoveries. The year-to-date provision for possible loan losses increased $50,000, or 33.3%, for substantially the same reasons. At June 30, 1997, the allowance stood at $4,755,000, compared to $4,726,000 at December 31, 1996 and $4,758,000 at June 30, 1996. At June 30, 1997, the allowance for possible loan losses was approximately 342% of total nonperforming loans, compared to corresponding percentages of 186% at December 31, 1996 and 217% at June 30, 1996. The allowance for possible loan losses was 1.92%, 2.12% and 2.16% of total loans as of June 30, 1997, December 31, 1996 and June 30, 1996 respectively. The reduction in this ratio to 1.92% at June 30, 1997 was supported by lower levels of nonperforming loans. Management considers the reserve levels adequate to cover possible loan losses on the loans outstanding as of each reporting date. It must be emphasized, however, that the determination of the reserve using the Company's procedures and methods rests upon various judgments and assumptions about future economic conditions and other factors affecting loans. No assurance can be given that the Company will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for possible loan losses or future charges to earnings. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for possible loan losses and losses on other real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available at the time of such examinations.
For the periods indicated, the following table summarizes the Company's balances of loans outstanding, average loans outstanding, changes in the allowance arising from charge-offs and recoveries by category, and additions to the allowance that have been charged to expense. <TABLE> <CAPTION> Six Six Months Year Months Ended Ended Ended Jun 30, Dec 31, Jun 30, ($ in thousands) 1997 1996 1996 --------- --------- --------- <S> <C> <C> <C> Loans outstanding at period end $ 247,220 $ 223,032 $ 219,838 ========= ========= ========= Average loans outstanding during period $ 229,095 $ 217,900 $ 215,676 ========= ========= ========= Allowance for possible loan losses at beginning of period $ 4,726 $ 4,587 $ 4,587 Loans charged off: Commercial, financial and agricultural (15) (209) (45) Real estate - mortgage (199) (196) (104) Installment loans to individuals (153) (311) (155) --------- --------- --------- Total charge-offs (367) (716) (304) --------- --------- --------- Recoveries of loans previously charged off: Commercial, financial and agricultural 79 114 63 Real estate - mortgage 34 127 118 Installment loans to individuals 132 113 59 Other (49) 176 85 --------- --------- --------- Total recoveries 196 530 325 --------- --------- --------- Net recoveries (charge-offs) (171) (186) 21 Additions to the allowance charged to expense 200 325 150 --------- --------- --------- Allowance for possible loan losses at end of period $ 4,755 $ 4,726 $ 4,758 ========= ========= ========= Ratios: Annualized net charge-offs (recoveries) to average loans during period 0.15% 0.09% -0.02% Annualized net charge-offs (recoveries) to loans at end of period 0.14% 0.08% -0.02% Allowance for possible loan losses to average loans during period 2.08% 2.17% 2.21% Allowance for possible loan losses to loans at end of period 1.92% 2.12% 2.16% Annualized net charge-offs (recoveries) to allowance for possible loan losses 7.19% 3.94% -0.88% Net charge-offs (recoveries) to provision for possible loan losses 85.50% 57.23% -14.00% </TABLE> Based on the results of the aforementioned loan analysis and grading program and management's evaluation of the allowance for possible loan losses at June 30, 1997, there have been no material changes to the allocation of the allowance for possible loan losses among the various categories of loans since December 31, 1996.
LIQUIDITY The Company's liquidity is determined by its ability to convert assets to cash or acquire alternative sources of funds to meet the needs of its customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. The Company's primary liquidity sources are cash and due from banks, federal funds sold and other short-term investments. In addition, the Company (through its bank subsidiary) has the ability, on a short-term basis, to purchase federal funds from other financial institutions. The Company has not traditionally had to rely on the purchase of federal funds as a source of liquidity. The Company's management believes its liquidity sources are at an acceptable level and remain adequate to meet its operating needs. CAPITAL RESOURCES The Company is required by its own policies and by applicable federal regulations to maintain certain capital levels. The Company's ratio of stated capital to total assets equaled or exceeded 10% as of June 30, 1997 and 1996 and December 31, 1996. In an effort to achieve a measurement of capital adequacy that is sensitive to the individual risk profiles of financial institutions, the various financial institution regulators have minimum capital guidelines that categorize various components of capital and types of assets and measure capital adequacy in relation to the financial institution's relative level of those capital components and the level of risk associated with various types of assets of that financial institution. The guidelines call for minimum adjusted capital of 8% of risk-adjusted assets. As of June 30, 1997, the Company's total risk-based capital ratio was approximately 13.1%. In addition to the risk-based capital requirements described above, the Company is subject to a leverage capital requirement, which calls for a minimum ratio of leverage capital, as defined in the regulations, to quarterly average total assets of 3-5%. As of June 30, 1997, the Company's leverage capital ratio was approximately 8.5%. 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.
As of June 30, 1997, December 31, 1996 and June 30, 1996, the Company was in compliance with all existing capital requirements, as summarized in the following table: <TABLE> <CAPTION> Jun 30, Dec 31, Jun 30, ($ in thousands) 1997 1996 1996 --------- --------- --------- <S> <C> <C> <C> Tier I capital: Total stated shareholders' equity $ 34,751 $ 33,232 $ 31,254 Less: Intangible assets 5,319 5,834 6,119 Unrealized holding gain (loss) on securities available for sale, net of income taxes 84 146 (173) --------- --------- --------- Total Tier I leverage capital 29,348 27,252 25,308 Tier II capital: Allowable allowance for loan losses 3,065 2,789 2,764 --------- --------- --------- Total capital $ 32,413 $ 30,041 $ 28,072 ========= ========= ========= Risk-adjusted assets $ 250,565 $ 229,084 $ 227,059 Tier I risk-adjusted assets (includes Tier I capital adjustments) 245,162 223,104 221,113 Tier II risk-adjusted assets (includes Tiers I and II capital adjustments) 248,227 225,893 223,877 Quarterly average total assets 350,746 333,337 325,912 Adjusted quarterly average total assets (includes Tier I capital adjustments) 345,343 327,357 319,966 Risk-based capital ratios: Tier I capital 11.97% 12.21% 11.45% Minimum required Tier I capital 4.00% 4.00% 4.00% Total risk-based capital 13.06% 13.30% 12.54% Minimum required total risk-based capital 8.00% 8.00% 8.00% Leverage capital ratios: Tier I leverage capital ratio 8.50% 8.32% 7.91% Minimum required Tier I leverage capital 3-5.00% 3-5.00% 3-5.00% </TABLE> FORWARD LOOKING STATEMENTS The foregoing discussion may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act. The accuracy of such forward looking statements could be affected by such factors as, but not limited to, the financial success or changing strategies of the Company's customers, actions of government regulators, or 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 24, 1997: Proposal 1 A proposal to fix the number of directors to be elected at twelve (12). For 2,559,585 Against 7,744 Abstain 0 Proposal 2 A proposal to elect the following twelve (12) nominees to the Board of Directors to serve until the 1998 Annual Meeting of Shareholders, or until their successors are elected and qualified: Voted Withheld For Authority Jack D. Briggs 2,564,909 2,420 David L. Burns 2,564,909 2,420 Jesse S. Capel 2,564,909 2,420 James H. Garner 2,564,909 2,420 George R. Perkins, Jr. 2,564,909 2,420 G. T. Rabe, Jr. 2,564,909 2,420 John J. Russell 2,564,909 2,420 Frederick H. Taylor 2,564,909 2,420 Edward T. Taws 2,564,909 2,420 Goldie H. Wallace 2,522,750 44,579 A. Jordan Washburn 2,564,909 2,420 John C. Willis 2,564,909 2,420 Proposal 3 A proposal to ratify the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the current fiscal year. For 2,560,440 Against 4,516 Abstain 2,373 No other business came before the meeting, or any adjournment or adjournments thereof.
Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed with this report or, as noted, are incorporated by reference. Management contracts, compensatory plans and arrangements are marked with an asterisk (*). 3.a.i Copy of Articles of Incorporation of the Registrant and amendments thereto, was filed as Exhibit 3(a) to the Registrant's Registration Statement Number 33-12692, and is incorporated herein by reference. 3.a.ii Copy of the amendment to Articles of Incorporation- adding a new Article Nine, filed as exhibit 3(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, and is incorporated herein by reference. 3.b.i Copy of the Bylaws of the Registrant and amendments thereto, was filed as Exhibit 3(b) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. 10 Material Contracts 10.a Data processing Agreement dated October 1, 1984 by and between Bank of Montgomery (First Bank) and Montgomery Data Services, Inc. was filed as Exhibit 10(k) to the Registrant's Registration Statement Number 33-12692, and is incorporated herein by reference. 10.b First Bank Salary and Incentive Plan, as amended, was filed as Exhibit 10(m) to the Registrant's Registration Statement Number 33-12692, and is incorporated herein by reference. (*) 10.c First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings incentive plan and trust), as amended January 25, 1994 and July 19, 1994, was filed as Exhibit 10(c) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. (*) 10.d Directors and Officers Liability Insurance Policy of First Bancorp, dated July 16, 1991, was filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and is incorporated herein by reference. 10.e Indemnification Agreement between the Company and its Directors and Officers was filed as Exhibit 10(t) to the Registrant's Registration Statement Number 33-12692, and is incorporated herein by reference. 10.f First Bancorp Employees' Pension Plan, as amended on August 16, 1994, was filed as Exhibit 10(g) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. (*)
10.g First Bancorp Senior Management Supplemental Executive Retirement Plan dated May 31, 1993, was filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, and is incorporated herein by reference. (*) 10.h First Bancorp Senior Management Split-Dollar Life Insurance Agreements between the Company and the Executive Officers, as amended on December 22, 1994, was filed as Exhibit 10(i) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994, and is incorporated herein by reference. (*) 10.i First Bancorp 1994 Stock Option Plan was filed as Exhibit 10(n) to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1994, and is incorporated herein by reference. (*) 10.j Severance Agreement between the Company and James A. Gunter dated October 12, 1995, was filed as Exhibit 10(m) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995, and is incorporated herein by reference. (*) 10.k Severance Agreement between the Company and Patrick A. Meisky dated December 29, 1995, was filed as Exhibit 10(o) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995, and is incorporated herein by reference. (*) 10.l Amendment to the First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings incentive plan and trust), dated December 17, 1996, was filed as Exhibit 10(m) to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996, and is incorporated herein by reference. (*) 10.m Purchase and Assumption Agreement dated June 18, 1997 between First Union National Bank and First Bank. 27 Financial Data Schedules pursuant to Article 9 of Regulation S-X. (b) There were no reports filed on Form 8-K during the quarter ended June 30, 1997.
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST BANCORP July 31, 1997 BY: James H. Garner ------------------- ----------------------------- James H. Garner President (Principal Executive Officer), Treasurer and Director July 31, 1997 BY: Anna G. Hollers ------------------- ----------------------------- Anna G. Hollers Executive Vice President and Secretary
EXHIBIT CROSS REFERENCE INDEX Exhibit Page(s) 3.a.i Copy of Articles of Incorporation of the Registrant * 3.a.ii Copy of the amendment to Articles of Incorporation * 3.b.i Copy of the Bylaws of the Registrant * 10.a Data processing Agreement by and between Bank of Montgomery (First Bank) and Montgomery Data Services, Inc. * 10.b First Bank Salary and Incentive Plan, as amended * 10.c First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings incentive plan and trust), as amended * 10.d Directors and Officers Liability Insurance Policy of First Bancorp * 10.e Indemnification Agreement between the Company and its Directors and Officers * 10.f First Bancorp Employees' Pension Plan * 10.g First Bancorp Senior Management Supplemental Executive Retirement Plan * 10.h First Bancorp Senior Management Split-Dollar Life Insurance Agreements between the Company and the Executive Officers * 10.i First Bancorp 1994 Stock Option Plan * 10.j Severance Agreement between the Company and James A. Gunter * 10.k Severance Agreement between the Company and Patrick A. Meisky * 10.l Amendment to the First Bancorp Savings Plus and Profit Sharing Plan (401(k) savings incentive plan and trust) * 10.m Purchase and Assumption Agreement between First Union National Bank and First Bank. 20 27 Financial Data Schedules pursuant to Article 9 of Regulation S-X 49 * Incorporated herein by reference.