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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
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 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
Page 2
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
============= ========= =========
See notes to consolidated financial statements.
Page 3
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
Page 4
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
======== ===== ===== =====
See notes to consolidated financial statements.
Page 5
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
===== ======== ======== ======= =======
See notes to consolidated financial statements.
Page 6
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
See notes to consolidated financial statements.
Page 7
First Bancorp and Subsidiaries
Notes To Consolidated Financial Statements
(unaudited) For the Periods Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
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.
Page 8
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
========= ========= ======== ========= ========= =========
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%
Page 9
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
======= ======
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
============
Page 10
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
============ ============ ============
Page 11
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
======= === ===
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.
Page 12
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 $19,472,000
recorded in the same three and six month periods in 2001, respectively.
Page 13
There are two primary factors that cause changes in the amount of net
interest income recorded by the Company - 1) growth in loans and deposits, and
2) the Company's net interest margin. For the three and six months ended June
30, 2002, both factors contributed to the increase in the amount of net interest
income realized by the Company compared to the same periods in 2001.
The following tables present average balances and average rates earned/paid
by the Company for the periods indicated.
For the Three Months Ended June 30,
------------------------------------------------------------------------
2002 2001
--------------------------------- -------------------------------
Interest Interest
Average Average Earned Average Average Earned
($ 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 $170,000 in 2002 and
2001, respectively, to reflect the federal and state benefit of the
tax-exempt securities, reduced by the related nondeductible portion of
interest expense.
Page 14
For the Six Months Ended June 30,
----------------------------------------------------------------------------------
2002 2001
------------------------------------- ---------------------------------------
Interest Interest
Averag Average Earned Average Average Earned
($ 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.
Page 15
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:
Page 16
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.
Page 17
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 $1.09 billion at June 30, 2001. The primary
reasons for the increase in total assets were the Company's December 2001 branch
purchase and a higher level of borrowings that was neccessitated by the
Company's high loan growth.
Page 18
NONPERFORMING ASSETS
Nonperforming assets are defined as nonaccrual loans, loans past due 90 or
more days and still accruing interest, restructured loans and other real estate.
Nonperforming assets are summarized as follows:
June 30, December 31, June 30,
($ 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.
Page 19
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.
Page 20
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.
Page 21
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.
Page 22
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.
Page 23
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
========== ======= ======= ====== ======= ======= ========= ==== ==========
(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.
Page 24
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.
Page 25
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
Proposal 2
A proposal to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
For 7,695,697 Against 24,200
--------- -----------
Item 5 - Other Information
The bylaws of the Company establish an advance notice procedure for
shareholder proposals to be brought before a meeting of shareholders of the
Company. Subject to any other applicable requirements, only such business may be
conducted at a meeting of the shareholders as has been brought before the
meeting by, or at the direction of, the Board of Directors or by a shareholder
who has given to the Secretary of the Company timely written notice, in proper
form, of the shareholder's intention to bring that business before the meeting.
The presiding officer at such meeting has the authority to make such
determinations.
Page 26
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.
Page 27
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
Page 28
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
Page -2-
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
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
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
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.
IN WITNESS WHEREOF, these articles are signed by the President
and Secretary of the corporation this 9th day of May, 1988.
---
/s/ John C. Wallace
-------------------
By: John C. Wallace
President
/s/ Anna G. Maness
------------------
By: Anna G. Maness
Secretary
-2-
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