UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended December 31, 1997
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from
to ---------------
----------------
Commission File Number: 0-22445
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FIRSTSPARTAN FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 56-2015272
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
380 East Main Street, Spartanburg, South Carolina 29302
-------------------------------------------------------
(Address of principal executive office)
(864) 582-2391
------------------
(Registrant's telephone number)
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 12 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.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock Issued and Outstanding: 4,430,375 as of February 11, 1998.
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FIRSTSPARTAN FINANCIAL CORP.
Table of Contents
Page
Part I. Financial Information
- ------- ---------------------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at December 31, 1997
and June 30, 1997 1
Consolidated Statements of Income for the Three and
Six-Month Periods Ended December 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the Three and
Six-Month Periods Ended December 31, 1997 and 1996 3-4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II. Other Information
- -------- ------------------ 13-14
Signatures 15
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ITEM 1. FINANCIAL STATEMENTS
FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
December 31, June 30,
ASSETS 1997 1997
----------- --------
Cash $ 7,678 $ 6,688
Federal funds sold and overnight
interest-bearing deposits 58,446 270,384
---------- - --------
Total cash and cash equivalents 66,124 277,072
Investment securities available-for-sale
- at fair value (amortized cost: $17,347
and $10,172 at December 31, 1997 and
June 30, 1997, respectively) 17,394 10,201
Mortgage-backed securities held-to-maturity
- at amortized cost (fair value: $105 and
$125 at December 31, 1997 and
June 30, 1997, respectively) 105 121
Loans receivable, net 396,367 362,728
Loans held-for-sale - at lower of cost
or market (market value: $1,292 and
$1,617 at December 31, 1997 and
June 30, 1997, respectively) 1,292 1,617
Office properties and equipment, net 7,398 6,594
Federal Home Loan Bank of Atlanta Stock -
at cost 3,011 3,011
Accrued interest receivable 2,833 2,590
Real estate acquired in settlement of loans 36 36
Other assets 759 1,476
---------- ----------
TOTAL ASSETS $ 495,319 $ 665,446
========== ==========
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts $ 358,057 $ 353,193
Stock subscription escrow accounts 259,329
Advances from borrowers for taxes
and insurance 414 1,001
Other liabilities 6,090 4,945
---------- ----------
Total liabilities 364,561 618,468
---------- ----------
EQUITY:
Common stock, $0.01 par value:
Authorized 12,000,000 shares; issued
and outstanding December 31, 1997
- 4,430,375 shares 44
Additional paid in capital 87,280
Unallocated ESOP shares (6,737)
Retained earnings 50,142 46,960
Unrealized gain on securities
available-for-sale, net of taxes 29 18
---------- ----------
Total equity 130,758 46,978
---------- ----------
TOTAL LIABILITIES AND EQUITY $ 495,319 $ 665,446
========== ==========
See accompanying notes to consolidated financial statements.
1
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FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
INVESTMENT INCOME:
Interest on loans $ 7,922 $ 6,723 $ 15,548 $ 13,305
Interest and dividends on
investment securities,
mortgage-backed securities
and other 1,293 437 3,078 852
--------- --------- --------- ---------
Total investment income 9,215 7,160 18,626 14,157
INTEREST EXPENSE:
Deposit accounts 4,292 3,828 8,591 7,568
--------- --------- --------- ---------
NET INTEREST INCOME 4,923 3,332 10,035 6,589
PROVISION FOR LOAN LOSSES 90 646 180 675
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,833 2,686 9,855 5,914
--------- --------- --------- ---------
NONINTEREST INCOME (LOSS):
Service charges and fees 364 275 693 544
Gain on sale of mortgage
loans 37 37
Loss on sale of investments (16)
Other, net 123 30 243 85
--------- --------- --------- ---------
Total noninterest income,
net 487 342 936 650
--------- --------- --------- ---------
NONINTEREST EXPENSE:
Employee compensation
and benefits 1,274 890 2,481 1,733
Federal deposit insurance
premium 79 137 156 2,131
Occupancy and equipment
expense 262 295 510 497
Computer services 168 125 321 250
Advertising and promotions 127 150 260 235
Office supplies, postage,
printing, etc. 138 114 284 246
Other 363 287 610 500
--------- --------- --------- ---------
Total noninterest expense 2,411 1,998 4,622 5,592
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 2,909 1,030 6,169 972
PROVISION FOR INCOME TAXES 1,150 387 2,375 365
--------- --------- --------- ---------
NET INCOME $ 1,759 $ 643 $ 3,794 $ 607
========= ========= ========= =========
Basic earnings per share $ 0.43 $ N/A $ 0.93 $ N/A
========= ========= ========= =========
Weighted average shares
outstanding(1) 4,088 N/A 4,084 N/A
========= ========= ========= =========
(1) FirstSpartan's initial public offering closed on July 8, 1997. For
purposes of earnings per share calculations, shares issued on July 8,
1997 have been assumed to be outstanding as of July 1, 1997.
See accompanying notes to consolidated financial statements.
2
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FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,759 $ 643 $ 3,794 $ 607
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 90 646 180 675
Deferred income tax benefit (12) (216) (56) (325)
Amortization of deferred income (1) (53) (33) (83)
Accretion of discounts on
investment and mortgage-backed
securities (5) (11)
Depreciation 141 188 279 300
Allocation of ESOP shares
at fair value 384 651
Decrease (increase) in other
assets (95) 126 474 (306)
Additions to loans held-for-
sale (1,555) (1,473) (3,813) (6,031)
Proceeds from sale of loans
held-for-sale 2,143 4,045 4,138 6,535
Gain on sale of loans
held-for-sale (37) (37)
Loss on disposal of property
and equipment 16 16
Loss on sale of real estate
acquired in settlement of
loans 16
Loss on sale of investments
available-for-sale 16
Increase (decrease) in other
liabilities (1,115) (809) 606 41
-------- ------- -------- --------
Net cash provided by operating
activities 1,739 3,087 6,220 1,397
-------- ------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net loan originations and
principal collections (12,353) (4,146) (23,678) (14,208)
Purchase of loans (5,007) (2,987) (10,108) (3,204)
Purchase of investment
securities (2,104) (84) (10,174) (1,226)
Proceeds from sale of
investment securities
available-for-sale 5,000
Proceeds from maturities of
investment securities
available-for-sale 1,000 3,000 1,000
Principal collections from
mortgage-backed securities 11 25 16 68
Proceeds from sale of real
estate acquired in settle-
ment of loans 1 58
Purchase of property and
equipment (668) (420) (1,083) (685)
-------- ------- -------- --------
Net cash used in investing
activities (19,121) (7,611) (42,027) (13,197)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 12,613 11,988 24,906 18,120
Stock subscription refunds (197,851)
Stock issuance costs (1,584)
Dividends paid (612) (612)
------- ------- -------- --------
Net cash provided by
(used in) financing
activities $ 12,001 $ 11,988 $(175,141) $ 18,120
-------- ------- --------- --------
3
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FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS $ (5,381) $ 7,464 (210,948) 6,320
--------- ------- --------- -----
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 71,505 9,640 277,072 10,784
--------- ------- --------- -----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 66,124 $ 17,104 $ 66,124 $ 17,104
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest $ 4,160 $ 3,582 $ 8,604 $ 7,279
=========== =========== =========== ===========
Income taxes $ 2,360 $ 394 $ 2,435 $ 469
=========== =========== =========== ===========
Transfers from loans
to real estate
acquired in
settlement of loans $ $ (4) $ $ 102
=========== =========== =========== ===========
Change in unrealized
gain (loss) on
available-for-sale
investments and
marketable
equity securities $ (12)$ (170) $ 19 $ (118)
=========== =========== =========== ===========
Increase (decrease)
in deferred tax
asset related to
unrealized gain on
investments $ 5 $ (26) $ (8)$ (46)
=========== =========== =========== ===========
Sale of common stock
funded by
subscription
escrow accounts $ $ $ 61,478 $
=========== =========== =========== ===========
Sale of common stock
funded by deposit
accounts $ $ $ 20,042 $
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
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FIRSTSPARTAN FINANCIAL CORP.
Notes to Consolidated Financial Statements
1. Basis of Presentation
FirstSpartan Financial Corp. ("FirstSpartan" or the "Company"), a
Delaware corporation, was incorporated on February 4, 1997 for the
purpose of becoming the holding company for First Federal Savings and
Loan Association of Spartanburg (now known as First Federal Bank)
("First Federal" or the "Bank") upon the Bank's conversion from a
federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association ("Conversion"). The
Conversion was completed on July 8, 1997 through the sale and issuance
of 4,430,375 shares of common stock by the Company. Information set
forth in this report relating to periods prior to the Conversion,
including consolidated financial statements and related data, relates
to First Federal and its subsidiary.
The accompanying consolidated financial statements of the Corporation
have been prepared in accordance with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
The results of operations for the three and/or six months ended
December 31, 1997 are not necessarily indicative of the results to be
expected for the year ending June 30, 1998. The consolidated financial
statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended June
30, 1997.
2. Earnings Per Share
Earnings per share has been computed for the three and six months ended
December 31, 1997 based upon weighted average common shares outstanding
of 4,087,721 and 4,083,729, respectively. For the purposes of
computing weighted average shares outstanding for the six months ended
December 31, 1997, shares issued in the Conversion on July 8, 1997 were
assumed to have been outstanding since July 1, 1997. Earnings per
share for the three and six months ended December 31, 1996 is not
presented as there was no common stock issued or outstanding.
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, established new standards for computing and presenting earnings
per share. The standard is effective for annual and interim periods
ending after December 15, 1997. This standard had no impact on the
computation of the Company's earnings per share upon adoption.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Financial Condition at December 31, 1997 and June 30, 1997
Total assets were $495.3 million at December 31, 1997 and $665.4
million at June 30, 1997, a decrease of $170.1 million or 25.6%. This
decrease resulted primarily from a $211.9 million decrease in federal
funds sold and overnight interest-bearing deposits offset by an
increase of $33.6 million, or 9.3%, in loans receivable, net, and an
increase of $7.2 million, or 70.6%, in investment securities
available-for-sale. The primary reason for the decrease in
interest-bearing deposits was the refund of subscription escrow
accounts of $197.9 million related to the Conversion. Loans
receivable, net, increased primarily as a result of an increase of
$22.5 million in mortgage loans since June 30, 1997. Included in the
$22.5 million increase was a $14.7 million increase in one- to- four
family mortgage loans (including the purchase of $10.1 million of one-
to- four family mortgage loans from the mortgage banking company in
which the Bank's service corporation has an equity investment), a $5.8
million increase in multifamily and commercial and other mortgage loans
and a $2.0 million increase in land mortgage loans. Loans receivable,
net, also increased due to a $4.1 million increase in non-mortgage
commercial business loans and a $3.8 million increase in home equity
loans. The increase in loans was attributable to market demand
unaffected by any promotional interest rate pricing or other
promotions. The increase in loans receivable, net, was funded
primarily through an increase in deposits before withdrawals to
purchase common stock issued in the Conversion and the use of cash
equivalents.
Deposit accounts increased $4.9 million to $358.1 million at December
31, 1997 from $353.2 million at June 30, 1997. This increase is after
approximately $20.0 million of withdrawals by depositors subsequent to
June 30, 1997 to purchase stock issued in the Conversion. Excluding
the effect of stock purchase withdrawals, there was an increase in
deposit accounts of $24.9 million. The increase in deposits was the
result of interest credited to deposit accounts during the period, the
effect of two recently opened branch officers, a special checking
account promotion and deposits of funds by account holders who had been
issued stock in the Conversion but sold their stock after issuance.
Stock subscription escrow accounts decreased by $259.3 million from
June 30, 1997 to December 31, 1997 as a result of $61.4 million of
stock issued in the Conversion funded by the escrow accounts and
refunds to subscribers of $197.9 million.
Stockholders' equity increased by $83.8 million from June 30, 1997 to
December 31, 1997 as a result of net proceeds received in the
Conversion of $79.9 million, net income of $3.8 million and allocation
of shares under the Bank's Employee Stock Ownership Plan ("ESOP") with
a market value of $650,000, offset by payment of dividends of $612,000.
Nonperforming assets and troubled debt restructurings decreased by
$608,000, or 21.0%, to $2.3 million at December 31, 1997 from $2.9
million at June 30, 1997. The decrease was due primarily to a $446,000
decrease in construction loans contractually past due more than 90 days
and still accruing and a $285,000 decrease in troubled debt
restructurings more than offsetting a $234,000 increase in construction
loans accounted for on a nonaccrual basis.
6
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Comparison of Operating Results for the Three Months Ended December 31, 1997
and December 31, 1996
Net Income. Net income increased to $1.8 million for the three months
ended December 31, 1997 from $643,000 for the three months ended
December 31, 1996 primarily as a result of increased investment income
offset partially by an increased provision for income taxes due to
increased income before income taxes. The increase in investment
income is principally the result of additional funds available for
investment in the three-month period ended December 31, 1997 from the
Conversion.
Net Interest Income. Net interest income increased 48.5% to $4.9
million for the three months ended December 31, 1997 from $3.3 million
for the three months ended December 31, 1996. Investment income
increased 27.8% to $9.2 million for the three months ended December 31,
1997 from $7.2 million for the three months ended December 31, 1996 as
a result of an increase in the average balance of interest-earning
assets to $474.5 million from $356.9 million more than offsetting a
decrease in average yield on interest-earning assets to 7.70% from
7.96% for the respective three-month periods. The decrease in the
average yield on interest-earning assets was due principally to
proceeds of the Conversion being invested principally in lower yielding
overnight interest-bearing deposits during the quarter ended December
31, 1997. The average balance of interest-earning assets increased as
a result of the net proceeds retained from the Conversion and an
increase in the average balance of loans receivable.
Interest expense increased 13.2% to $4.3 million for the three months
ended December 31, 1997 from $3.8 million for the three months ended
December 31, 1996 as a result of an increase in the average balance of
deposits to $352.9 million from $317.4 million in the comparable three
month period. The average cost of deposits also increased slightly to
4.83% for the three months ended December 31, 1997 from 4.79% for the
three months ended December 31, 1996. The average balance increased as
the result of the opening of two new branch offices and various deposit
promotions that have increased deposit balances since the prior year's
comparable quarter. Interest rate spread decreased to 2.88% for the
three months ended December 31, 1997 from 3.17% for the three months
ended December 31, 1996.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level
considered by management as adequate to provide for estimated loan
losses based on management's evaluation of the collectibility of the
loan portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific impaired
loans and economic conditions. Management also considers the level of
problem assets that the Company classifies according to OTS
regulations. The Company gives greater weight to the level of
classified assets than to the level of nonperforming assets (nonaccrual
loans, accruing loans contractually past due 90 days or more, and real
estate acquired in settlement of loans) because classified assets
include not only nonperforming assets but also performing assets that
otherwise exhibit, in management's judgment, potential credit
weaknesses.
7
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The provision for loan losses was $90,000 for the three months ended
December 31, 1997 compared to $646,000 for the three months ended
December 31, 1996. Although classified assets decreased slightly
during the three months ended December 31, 1997 management expects
classified assets to increase moderately, although no assurances can be
given that this will in fact occur. Management's expectation is based
upon its anticipation of continued loan growth, particularly in the
areas of construction, commercial real estate and consumer lending.
Management deemed the allowance for loan losses adequate at December
31, 1997.
Noninterest Income. Noninterest income increased to $487,000 for the
three months ended December 31, 1997 from $342,000 for the three months
ended December 31, 1996, primarily as a result of an increase in
service charges and fees. Service charges and fees increased to
$364,000 for the three months ended December 31, 1997 from $275,000 for
the three months ended December 31, 1996 primarily as a result of
increased income associated with the origination and sale of FHA and VA
mortgage loans and increased deposit account fees, particularly on the
increased number of NOW accounts. Other income, net increased to
$123,000 for the three months ended December 31, 1997 from $30,000 for
the three months ended December 31, 1996, partially attributable to
income of $12,000 in the current three-month period versus a $69,000
loss for the same period for the previous year, representing the
Company's share of net income of the mortgage banking company in which
the Bank's service corporation subsidiary has an equity investment.
Noninterest Expense. Noninterest expense was $2.4 million for the
three months ended December 31, 1997 compared to $2.0 million for the
same period in 1996. Employee compensation and benefits, increased to
$1.3 million for the three months ended December 31, 1997 from $890,000
for the three months ended December 31, 1996 primarily as a result of
the hiring of additional personnel for two new branch offices which
became fully operational during the quarter ended September 30, 1997,
the establishment of a commercial lending department, normal annual
salary increases and implementation of the Bank's ESOP. The increases
in other categories of other operating expenses generally are
attributable to the growth of the Company, additional costs associated
with operating as a public company and to inflation. The Company
anticipates that other operating expenses will continue to increase in
subsequent periods as a result of increased costs associated with
operating as a public company. The two new branch offices also will
continue to contribute to increased operating expenses in future
periods as will the two recently announced branch offices that are
expected to open in the quarters ending March 31, 1998 and June 30,
1998, respectively.
Income Taxes. The provision for income taxes was $1.2 million for the
three months ended December 31, 1997 compared to $387,000 for the three
months ended December 31, 1996 as a result of higher income before
income taxes.
8
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Comparison of Operating Results for the Six Months Ended December 31, 1997 and
December 31, 1996
Net Income. Net income increased to $3.8 million for the six months
ended December 31, 1997 from $607,000 for the six months ended December
31, 1996 primarily as a result of increased investment income,
increased noninterest income and decreased noninterest expense
partially offset by an increased provision for income taxes due to
increased income before income taxes. The increase in investment
income is principally the result of additional funds available for
investment from the Conversion in the six months ended December 31,
1997. The decrease in noninterest expense is principally the result of
decreased federal deposit insurance premiums which were impacted in the
six months ended December 31, 1996 by the legislatively-mandated,
one-time assessment levied by the Federal Deposit Insurance Corporation
("FDIC") on all institutions insured by the Savings Association
Insurance Fund ("SAIF") to recapitalize the SAIF.
Net Interest Income. Net interest income increased 51.5% to $10.0
million for the six months ended December 31, 1997 from $6.6 million
for the six months ended December 31, 1996. Investment income
increased 31.0% to $18.6 million for the six months ended December 31,
1997 from $14.2 million for the six months ended December 31, 1996 as a
result of an increase in the average balance of interest- earning
assets to $475.2 million from $352.4 million more than offsetting a
decrease in average yield on interest-earning assets to 7.78% from
8.03% for the respective six-month periods. The decrease in the
average yield on interest-earning assets was due principally to stock
subscription escrow funds held prior to the consummation of the
Conversion and proceeds of the Conversion being invested principally in
lower yielding overnight interest-bearing deposits during the six
months ended December 31, 1997. The average balance of
interest-earning assets increased as a result of the holding of stock
subscription escrow funds prior to the consummation of the Conversion
which were invested in overnight interest-bearing deposits, the net
proceeds retained from the Conversion and an increase in the average
balance of loans receivable.
Interest expense increased 13.2% to $8.6 million for the six months
ended December 31, 1997 from $7.6 million for the six months ended
December 31, 1996 as a result of an increase in the average balance of
deposits to $361.4 million from $313.7 million in the comparable
six-month period. The increase in the average balance of deposits more
than offset a decrease in the average cost of deposits to 4.72% for the
six months ended December 31, 1997 from 4.82% for the six months ended
December 31, 1996. The average balance of deposits during the six
months ended December 31, 1997 includes the average balance of the
special escrow accounts established to hold subscription funds received
in connection with the Conversion. These accounts amounted to $259.3
million and were outstanding for approximately two weeks during the
six-month period ended December 31, 1997. The average balance also
increased as the result of the opening of two new branch offices and
various deposit promotions that have increased deposit balances since
the prior year's comparable quarter and was offset by the withdrawal of
approximately $20.0 million of deposits to fund stock purchases in the
Conversion as discussed under "Comparison of Financial Condition at
December 31, 1997 and June 30, 1997." The decrease in the average cost
of deposits resulted from the passbook rate of interest (2.5%) being
paid on the subscription escrow accounts and an increase in the amount
of deposits in lower cost negotiable order of withdrawal ("NOW") and
passbook accounts as a result of promotions of NOW and passbook
accounts. Interest rate spread decreased to 3.06% for the six months
ended December 31, 1997 from 3.21% for the six months ended December
31, 1996.
9
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Provision for Loan Losses. The provision for loan losses was $180,000
for the six months ended December 31, 1997 compared to $675,000 for the
six months ended December 31, 1996. Although classified assets
decreased slightly during the six months ended December 31, 1997
management expects classified assets to increase moderately although no
assurances can be given that this will in fact occur. Management's
expectation is based upon its anticipation of continued loan growth,
particularly in the areas of construction, commercial real estate and
consumer lending.
Noninterest Income. Noninterest income increased to $936,000 for the
six months ended December 31, 1997 from $650,000 for the six months
ended December 31, 1996, primarily as a result of an increase in
service charges and fees. Service charges and fees increased to
$693,000 for the six months ended December 31, 1997 from $544,000 for
the six months ended December 31, 1996 primarily as a result of
increased income associated with the origination and sale of FHA and VA
mortgage loans and increased deposit account fees, particularly on the
increased number of NOW accounts. Other income, net increased to
$243,000 for the six months ended December 31, 1997 from $85,000 for
the six months ended December 31, 1996, partially attributable to
income of $22,000 in the current six-month period versus a $98,000 loss
for the same period in the previous year, representing the Company's
share of net income of the mortgage banking company in which the
Bank's service corporation subsidiary has an equity investment.
Noninterest Expense. Noninterest expense was $4.6 million for the six
months ended December 31, 1997 compared to $5.6 million for the same
period in 1996. This decrease resulted primarily from the FDIC special
assessment in 1996 on all SAIF-insured institutions to recapitalize the
SAIF. The Association's assessment amounted to $1.8 million and was
accrued during the quarter ended December 31, 1996. Prior to the SAIF
recapitalization, the Bank's total annual deposit insurance premiums
amounted to 0.23% of assessable deposits. Effective January 1, 1997,
the rate decreased to 0.065% of assessable deposits. Employee
compensation and benefits, increased to $2.5 million for the six months
ended December 31, 1997 from $1.7 for the six months ended December 31,
1996 primarily as a result of the hiring of additional personnel for
two new branch offices that became fully operational during the quarter
ended September 30, 1997, the establishment of a commercial lending
department, normal annual salary increases and implementation of the
Bank's ESOP. The increases in other categories of other operating
expenses generally are attributable to the growth of the Company,
additional costs associated with operating as a public company and to
inflation. The Company anticipates that other operating expenses will
continue to increase in subsequent periods as a result of increased
costs associated with operating as a public company. The two new
branch offices also will continue to contribute to increased operating
expenses in future periods as will the two recently announced branch
offices that are expected to open in the quarters ending March 31, 1998
and June 30, 1998, respectively.
Income Taxes. The provision for income taxes was $2.4 million for the
six months ended December 31, 1997 compared to $365,000 for the six
months ended December 31, 1996 as a result of higher income before
income taxes.
10
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Liquidity and Capital Resources
The Company's primary sources of funds are customer deposits, proceeds
from principal and interest payments from and the sale of loans,
maturing securities and FHLB of Atlanta advances. While maturities and
scheduled amortization of loans are a predictable source of funds,
deposit flows and mortgage prepayments are influenced greatly by
general interest rates, other economic conditions and competition.
Regulations of the Office of Thrift Supervision ("OTS"), the Bank's
primary regulator, require the Bank to maintain an adequate level of
liquidity to ensure the availability of sufficient funds to fund loan
originations, deposit withdrawals and to satisfy other financial
commitments. Currently, the OTS regulatory liquidity requirement for
the Bank is the maintenance of an average daily balance of liquid
assets (cash and eligible investments) equal to at least 4% of the
average daily balance of net withdrawable deposits and short-term
borrowings. This liquidity requirement is subject to periodic change.
The Company and the Bank generally maintain sufficient cash and short-
term investments to meet short-term liquidity needs. At December 31,
1997, cash and cash equivalents totaled $66.1 million, or 13.3% of
total assets, and investment securities classified as available-
for-sale with maturities of one year or less totaled $10.3 million. At
December 31, 1997, the Bank also maintained, but did not draw upon, an
uncommitted credit facility with the FHLB of Atlanta, which provides
for immediately available advances up to an aggregate amount of $40.0
million.
As of December 31, 1997, the Bank's regulatory capital was in excess of
all applicable regulatory requirements. At December 31, 1997, under
regulations of the OTS, the Bank's actual tangible, core and risk-based
capital ratios were 19.0%, 19.0% and 31.6%, respectively, compared to
requirements of 1.5%, 3.0% and 8.0%, respectively.
At December 31, 1997, the Company had loan commitments (excluding
undisbursed portions of interim construction loans) of approximately
$3.0 million ($2.2 million at fixed rates ranging from 6.75% to 9.00%).
In addition, at December 31, 1997, the unused portion of lines of
credit (principally variable rate home equity lines of credit) extended
by the Company was approximately $39.3 million. Furthermore, at
December 31, 1997, the Company had certificates of deposit scheduled to
mature in one year or less of $186.7 million.
11
<PAGE>
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of December 31, 1997 than presented in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
12
<PAGE>
<PAGE>
FirstSpartan Financial Corp.
Part II. Other Information
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
------------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
None
13
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(3)(a) Certificate of Incorporation of the Registrant*
(3)(b) Bylaws of the Registrant*
(10)(a) Employment Agreement with Billy L. Painter**
(10)(b) Employment Agreement with Hugh H. Brantley**
(10)(c) Employment Agreement with J. Stephen Sinclair**
(10)(d) Employment Agreement with R. Lamar Simpson***
(10)(e) Severance Agreement with Rand Peterson**
(10)(f) Severance Agreement with Thomas Bridgeman**
(10)(g) Severance Agreement with Katherine A. Dunleavy***
(10)(h) Employee Severance Compensation Plan**
(10)(i) Employee Stock Ownership Plan**
(10)(j) Registrant's 1997 Stock Option Plan****
(10)(k) Registrant's Management Recognition and
Development Plan****
(21) Subsidiaries of the Registrant**
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On December 3, 1997, Form 8-K was filed reporting that
First Federal intends to open two new branch offices in
Greenville County, South Carolina.
- --------------------
* Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (333-23015) and incorporated herein by reference.
** Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 and incorporated herein by
reference.
*** Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 and incorporated herein by
reference.
**** Filed as an exhibit to the Registrant's Annual Meeting Definitive Proxy
Statement dated December 12, 1997 and incorporated herein by reference.
14
<PAGE>
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FirstSpartan Financial Corp.
Date: February 11, 1998 By: /s/ Billy L. Painter
-------------------------------------
Billy L. Painter
President and Chief Executive Officer
Date: February 11, 1998 By: /s/ R. Lamar Simpson
-------------------------------------
R. Lamar Simpson
Treasurer, Secretary and Chief
Financial Officer
15
<PAGE>
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<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
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