LAMAR CAPITAL CORPORATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 Commission file number: 000-25145
LAMAR CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Mississippi 64-0733976
-------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
Registrant's telephone number, including area code: 601-794-6047
NOT APPLICABLE
-------------------------------------------------------------
(name, address and fiscal year, if changed since last report)
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 registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding as of August 11, 1999
----- ---------------------------------
Common stock ($.50 par value) 4,315,707 shares
<PAGE>
LAMAR CAPITAL CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements and Supplementary Data
Consolidated Balance Sheets -
June 30, 1999 (Unaudited) and December 31, 1998 4
Consolidated Statements of Income and Comprehensive
Income (Unaudited) -
Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 6
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1999 (Unaudited) and year
ended December 31,1998 7
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1999 and 1998 8
Notes to Consolidated Financial Statements (Unaudited) 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 16
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I. FINANCIAL INFORMATION
In addition to historical information, this report contains statements
which constitute forward-looking statements and information which are based on
management's beliefs, plans, expectations and assumptions and on information
currently available to management. The words "may," "should," "expect,"
"anticipate," "intend," "plan," "continue," "believe," "seek," "estimate," and
similar expressions used in this report that do not relate to historical facts
are intended to identify forward-looking statements. These statements appear in
a number of places in this report, including, but not limited to, statements
found in Item 2 "Management's Discussion and Analysis." All phases of the
Company's operations are subject to a number of risks and uncertainties.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projects in the forward-looking
statements. Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in this report, including,
without limitation, the portions referenced above, and the uncertainties set
forth from time to time in the Company's other public reports and filings and
public statements, many of which are beyond the control of the Company, and any
of which, or a combination of which, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
LAMAR CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
----------- --------------
(UNAUDITED)
ASSETS
Cash and due from banks $ 15,738 $ 15,038
Federal funds sold 3,840 11,400
---------- ----------
Cash and cash equivalents 19,578 26,438
Securities available for sale (amortized cost -
$100,117 in 1999 and $57,159 in 1998) 97,126 57,814
Securities held to maturity (fair value -
$34,886 in 1999 and $33,512 in 1998) 35,301 33,014
Loans:
Real Estate:
Residential 67,558 62,333
Construction 12,705 9,095
Commercial 33,577 31,915
Consumer 68,195 61,686
Commercial 45,345 39,493
---------- ----------
227,380 204,522
Unearned Income (2,933) (3,862)
Allowance for loan losses (3,681) (3,564)
---------- ----------
Net loans 220,766 197,096
Accrued interest receivable 3,739 3,256
Premises and equipment 9,289 9,111
Federal Home Loan Bank stock 3,186 788
Other assets 4,413 2,999
---------- ----------
Total assets $ 393,398 $ 330,516
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 28,334 $ 27,841
Interest bearing:
Demand 90,347 81,516
Savings 9,972 9,437
Time Deposits less than $100,000 120,488 114,438
Time Deposits more than $100,000 45,315 45,040
---------- ----------
Total deposits 294,456 278,272
Interest payable 844 615
Other liabilities 1,407 1,178
Other borrowed funds 64,120 19,120
---------- ----------
Total liabilities 360,827 299,185
STOCKHOLDERS' EQUITY
Common stock, $ .50 par value, 50,000,000 2,158 2,065
shares authorized, 4,315,707 shares
issued and outstanding at June 30, 1999
and 4,130,707 shares issued and outstanding
at December 31, 1998
Paid-in capital 17,513 15,885
Retained earnings 14,776 12,970
Accumulated other comprehensive income (1,876) 411
---------- ----------
Total stockholders' equity 32,571 31,331
---------- ----------
Total liabilities and stockholders' equity $ 393,398 $ 330,516
========== ==========
See accompanying notes.
<PAGE>
LAMAR CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans, including fees $ 5,380 $ 4,575 10,496 8,868
Federal funds sold 86 197 196 390
Interest on securities:
Taxable 1,544 812 2,888 1,356
Non-taxable 442 371 866 697
-------- -------- ------- -------
1,986 1,183 3,754 2,053
-------- -------- ------- -------
Total interest income 7,452 5,955 14,446 11,311
Interest expense:
Deposits 3,424 3,194 6,791 5,910
Other borrowed funds 688 306 1,262 613
-------- -------- ------- -------
Total interest expense 4,112 3,500 8,053 6,523
-------- -------- ------- -------
Net interest income 3,340 2,455 6,393 4,788
Provision for loan losses 217 190 389 359
Net interest income after -------- -------- ------- ------
provision for loan losses 3,123 2,265 6,004 4,429
Other income:
Service charges on deposit
accounts 549 434 956 884
Gain on sale of securities
available for sale 4 4 6 221
Other fees and operating income 394 371 723 647
-------- -------- ------- -------
Total other income 947 809 1,685 1,752
Other expense:
Salaries and employee benefits 1,515 1,236 2,644 2,269
Occupancy expense 170 148 346 311
Furniture and equipment expense 276 221 530 435
Other operating expense 689 567 1,242 1,026
-------- -------- ------- -------
Total other expense 2,650 2,172 4,762 4,041
-------- -------- ------- -------
Income before income taxes 1,420 902 2,927 2,140
Income tax expense 376 226 775 535
-------- -------- ------- -------
Net income 1,044 676 2,152 1,605
Other comprehensive income (loss),
net of income taxes:
Change in unrealized gain (loss)
on securities available for sale (1,659) 115 (2,287) (116)
Reclassification of realized amount (3) (3) (4) (139)
-------- -------- ------- -------
Net unrealized gain (loss)
recognized in comprehensive
income (1,662) 112 (2,291) (255)
-------- -------- ------- -------
Comprehensive income (loss) $ (618) $ 788 $ (139) $1,350
======== ======== ======= =======
Earnings per share - basic and
dilutive $ .24 $ .25 $ .50 $ .59
======== ======== ======= =======
Weighted average shares outstanding -
basic and dilutive 4,316 2,738 4,304 2,743
======== ======== ======= =======
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
LAMAR CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME SHARES AMOUNT EQUITY
---------------------- -------- --------- ------------- --------------------- -------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 46,569.44 $466 $ 5,374 $10,283 $279 763.44 $(242) $16,160
Net income for 1998 3,049 3,049
Stock split
(60-for-1) 2,747,596.96 931 (931) 56,842.96 --
Dividend ($.12
per share) (362) (362)
Purchase of
treasury stock 200.00 (72) (72)
Sale of treasury stock 51 (30,711.00) 174 225
Retirement of
treasury stock (27,095.40) (14) (126) (27,095.40) 140 --
Sale of common stock 1,363,636 682 11,517 12,199
Change in unrealized
gain (loss), net
of income taxes,
on securities
available for sale 132 132
------------ -------- --------- --------- ------------- ------------ ------- -------------
Balance at
December 31, 1998 4,130,707 2,065 15,885 12,970 411 -- -- 31,331
Net income for
six months ended
June 30, 1999 2,152 2,152
Dividend ($.04
per share) (346) (346)
Sale of common stock 185,000 93 1,628 1,721
Change in unrealized
gain (loss), net
of income taxes,
on securities
available for sale (2,287) (2,287)
Balance at
June 30, 1999 ------------ -------- --------- --------- ------------- ------------ ------- -------------
(Unaudited) 4,315,707 $ 2,158 $17,513 $14,776 $(1,876) -- $ -- $32,571
============ ======== ========= ========= ============= ============ ======= =============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
LAMAR CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
------ ------
Operating activities
Net income $2,152 $1,605
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 389 360
Provision for loan losses on other real estate 5 11
Depreciation and amortization expense 438 348
Amortization of securities premiums 115 121
Accretion of securities discounts (25) (12)
Gain on sale of securities available for sale (6) (222)
Gain (loss) of sales of other real estate 1 (7)
Increase in interest receivable (483) (500)
Increase (decrease) in interest payable 229 (54)
Increase in other assets (308) (241)
Increase (decrease) in other liabilities 180 (21)
------- -------
Net cash provided by operating activities 2,687 1,388
Investing activities
Securities held to maturity:
Proceeds from calls, maturities, and
principal reductions 580 2,935
Purchase of securities (2,140) (13,456)
Securities available for sale:
Proceeds from calls, maturities,
and principal reductions 2,622 -
Proceeds from sales of securities 10,498 7,179
Purchases of securities (56,896) (24,618)
(Purchase) sales of Federal Home Loan Bank stock (2,398) 209
Net increase in loans (24,072) (19,803)
Proceeds from sales of other real estate 267 25
Purchases of premises and equipment (616) (2,025)
--------- --------
Net cash used in investing activities (72,155) (49,554)
Financing activities
Net increase in deposits 16,184 57,098
Net increase in revolving line of credit - 100
Borrowings from banks 50,000 -
Payments on notes payable to banks (5,000) -
Purchases of treasury stock - (72)
Proceeds from sale of treasury stock - 150
Proceeds from sale of common stock 1,721 -
Dividends paid (297) (150)
--------- --------
Net cash provided by financing activities 62,608 57,126
--------- --------
Net increase (decrease) in cash and cash equivalents (6,860) 8,960
Cash and cash equivalents at beginning of period 26,438 15,737
--------- --------
Cash and cash equivalents at end of period $19,578 $24,697
--------- --------
See accompanying notes.
<PAGE>
LAMAR CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet at December 31, 1998 and consolidated
statement of stockholders' equity for the year ended December 31, 1998 have been
derived from the audited financial statements at that date. The accompanying
unaudited consolidated financial statements include the accounts of Lamar
Capital Corporation and subsidiaries. Intercompany profits, transactions and
balances have been eliminated in consolidation. The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for interim periods are not necessarily indicative
of the results that may be expected for the entire year. For further
information, refer to the consolidated financial statements and notes thereto of
Lamar Capital Corporation's 1998 Annual Report to Shareholders.
SECURITIES PORTFOLIOS
In accordance with FAS No. 115 "Accounting for Certain Investment in Debt
and Equity Securities", as of June 30, 1999 the securities in the "Available
for Sale" category included $2,991,000 in unrealized losses. Accordingly, total
securities and total stockholders' equity were decreased by $2,991,000 and
$1,876,000 (net of taxes) respectively at June 30, 1999 to reflect the
adjustment of the securities portfolio to market.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For the six month period ended June 30, 1999, the Company's net income
increased to $2,152,000 as compared to $1,605,000 for the same period in 1998,
an increase of 34.1%. Basic and diluted earnings per share was $0.50 in 1999
as compared to $0.59 in 1998 with an increase in weighted average shares
outstanding (basic and dilutive) to 4.3 million from 2.7 million for those
periods, respectively. The 1998 net income included a one-time gain from the
sale of investment securities of $139,000 (net of tax), or $0.05 per basic and
dilutive share. The increase in net income resulted primarily from increased
volume in earning assets. The increase in net income was partially offset by a
decline in net interest margin from 3.74% for the six month period ended
June 30, 1998 to 3.65% for the six month period ended June 30, 1999.
<PAGE>
Total assets at June 30, 1999, increased 19.0% over year end 1998 to
$393.4 million. Increases of $41.6 million in investment securities and $23.7
million in net loans reflect this growth which was funded in part by $1.7
million in net proceeds from the sale of the underwriters' overallotment of
shares in connection with the Company's Initial Public Offering.
For quarter ended June 30, 1999, the Company's net income increased to
$1,044,000 as compared to $676,000 for the same quarter in 1998, an increase of
54.4%. Basic and diluted earnings per share was $0.24 in 1999 as compared to
$0.25 in 1998 with an increase in weighted average shares outstanding (basic
and dilutive) to 4.3 million from 2.7 million for those periods, respectively.
The increase in net income resulted primarily from increased volume in earnings
assets. The increase in net income was also due to an increase in net interest
margin from 3.57% for the quarter ended June 30, 1998 to 3.72% for the quarter
ended June 30, 1999.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is income produced by interest earning assets reduced
by the interest expense associated with the funding of those assets. Changes in
the mix of these interest-earning assets and interest-bearing liabilities and
their yields and rates contribute to the levels of net interest income realized
and have an impact on earnings.
During the six month period ended June 30, 1999, net interest income
increased 33.5% over the comparable period in 1998. The increase in 1999 is
attributable to an increase in the Company's average interest-earning assets of
34.9%, primarily in the loan and investment securities portfolios. Interest-
bearing liabilities increased 30.6% for the same periods primarily from
increases in other borrowed funds, time deposits and transaction accounts.
<PAGE>
The Company's net interest margin was 3.65% for the six month period ended
June 30, 1999 compared to 3.74% for the same period in 1998. The reduction
in net interest margin resulted from a decrease in yield on interest-earning
assets of .51% partially offset by a decline in the cost of interest-bearing
liabilities of .30%. The net interest margin may be affected by the interest
rate environment and changes in the earning asset mix and deposit fund mix.
During the quarter ended June 30, 1999, net interest income increased 36.0%
over the comparable period in 1998. The increase in 1999 is attributable to an
increase in the Company's average interest-earning assets of 30.5%, primarily,
in the loan and investment securities portfolios. Interest-bearing liabilities
increased 25.7% for the same periods primarily from increases in other borrowed
funds, time deposits and transaction accounts.
The Company's net interest margin was 3.72% for the quarter ended June 30,
1999 compared to 3.57% for the same period in 1998. The increase in net interest
margin resulted from a decrease in yield on interest-earning assets of .35%
offset by a decline in the cost of interest-bearing liabilities of .36%.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses is regularly evaluated by management and
approved by the Board of Directors and is maintained at a level believed to be
adequate to absorb future loan losses in the Company's portfolio. The provision
for loan losses is determined in part using an internal watch list developed by
a review of essentially all loans by management.
The Company's allowance for loan losses increased $295,000 to $3.7 million
at six month period ended June 30, 1999 compared to the same period in 1998. The
Company's allowance for loan losses to total loans decreased from 1.8% at
June 30, 1998 to 1.6% at June 30, 1999.
NON-INTEREST INCOME
For the six month period ended June 30, 1999, non-interest income was
$1,685,000 compared to $1,752,000 for the same period in 1998, a decrease of
3.8%. This decrease was primarily due to the gain on sale of securities
available for sale of $220,000 in 1998.
For the quarter ended June 30, 1999, non-interest income was $947,000
compared to $809,000 for the same period in 1998, an increase of 17.1%. This
increase was primarily due to the increases in service charges on deposit
accounts.
<PAGE>
NON-INTEREST EXPENSE
For the six month period ended June 30, 1999, non-interest expense was
$4.8 million compared to $4.0 million for the same period in 1998, a 17.8%
increase. Non-interest expense levels are often measured using an efficiency
ratio. The efficiency ratio measures the level of expense required to generate
one dollar of revenue. At June 30, 1999, the Company's efficiency ratio was
58.95% as compared to 61.78% at June 30, 1998.
For the quarter ended June 30, 1999, non-interest expense was $2.7 million
compared to $2.2 million for the same quarter in 1998, a 22.0% increase. For
the quarter ended June 30, 1999, the Company's efficiency ratio was 61.83% as
compared to 65.24% for the same quarter in 1998.
Salaries and benefits is the largest component of non-interest expense
and increased 22.6% and 16.5%, respectively when compared to the quarter and six
months ended June 30, 1998. Additional staffing has been required in
several locations as a result of volume and increased demand.
FINANCIAL CONDITION
LIQUIDITY
The Company maintains sufficient liquidity to fund loan demand, deposit
withdrawals and debt repayments. Liquidity is managed by retaining sufficient
liquid assets in the form of cash and cash equivalents and core deposits to meet
such demand. The Company also realizes funding and cash flows from the
investment securities portfolio and pay downs from the loan portfolio. In
addition, the Company has funds available to address liquidity needs under a
line of credit, federal funds lines, the retail deposit market, and additional
FHLB borrowings.
The Company's objectives include preserving an adequate liquidity position.
Asset/liability management is designed to ensure safety and soundness, maintain
liquidity and regulatory capital standards, and achieve an acceptable net
interest margin. The Company continues to experience strong loan demand and
management continues to monitor interest rate and liquidity risks while
implementing appropriate funding and balance sheet strategies.
CAPITAL
The Company maintains risk-based capital levels well in excess of the
minimum guidelines adopted by the Federal Reserve Board for bank holding
companies. The Company's tier 1 capital and total risk-based capital ratios at
June 30, 1999 were 14.44% and 15.69%, respectively. This compares to a tier 1
capital ratio of 14.65% and total risk-based capital ratio of 15.90% at
December 31, 1998. The Company's leverage ratio was 8.79% at June 30, 1999
compared to 9.55% at December 31, 1998.
<PAGE>
YEAR 2000
The Company continues to implement plans to address the Year 2000 issue.
The issue arises from the fact that many existing computer programs were written
to store only two digits of date-related information in order to more
efficiently handle and store data. Thus, the programs were unable to properly
distinguish between the year 1900 and the year 2000. The Company has converted
or replaced various programs, hardware and instrumentation systems to make them
Year 2000 compliant. The Company's Year 2000 project is comprised of two
components - business applications and equipment.
In addressing the Year 2000 problem, the Company has examined its own
software and equipment, potential problems with borrowers, and potential
problems with government entities and others providing services to the Company.
In addition to computer equipment, the Company has addressed possible problems
with microprocessors embedded within operating equipment, such as
telecommunication equipment, vaults, security and alarm systems, and automated
teller machines. The Company continues to monitor the impact of the failure of
a borrower's systems or a borrower's failure to comply with debt covenant terms
regarding Year 2000 issues on the credit quality of the borrower's loan by
communicating with its significant existing and new loan customers and
ascertaining whether the customers need to include remediation and/or
replacement of systems as part of their Year 2000 program and when they will
have that completed. Presently, the Company has no reason to believe that its
borrowers will not be able to adequately address the Year 2000 issue.
The Company's President is Chairman of its Year 2000 committee. The
Committee has devoted appropriate personnel resources to achieve Year 2000
compliance in a timely manner. Such personnel has worked with the Company's
Board of Directors and other members of management in completing its action,
testing and contingency plans. The Company is also subject to oversight by the
FDIC, the Federal Reserve Board and the Mississippi Department of Banking and
Consumer Finance with respect to Year 2000 compliance.
The Company has completed the Year 2000 awareness, assessment, and
remediation phases. Minor implementations have been completed as of June 30,
1999. Service provider testing of critical information systems were completed
for the majority testing required by June 30, 1999. Testing of all critical
systems and a contingency/business resumption plan was completed by the
June 30, 1999 regulatory deadline. The Company has expended approximately
$120,000 through June 30, 1999 and projects no additional cost of remediation
for the remainder of the year. To date, independent analysis of the Company's
Year 2000 exposure has not been obtained. Approximately $50,000 has been
capitalized because certain systems and equipment are being replaced and these
costs are associated with purchasing new systems. Corrective actions to make
the Company's core operating systems Year 2000 compliant have been made by the
Company's software providers under existing licensing agreements with the
Company at no additional expense.
<PAGE>
The Year 2000 issue principally involves the installation of selected
software releases which are Year 2000 compliant. Certain of these installations
would have been scheduled for completion by the Year 2000 in the normal course
of business. The Year 2000 compliance of the Company's software suppliers will
be essential for the Company's successful implementation of its Year 2000
objectives.
The Company has examined the Year 2000 issues' impact on services such as
payroll and investment securities operations that are provided by third parties.
The capabilities and readiness for Year 2000 of other vendors have also been
reviewed. Presently, the testing phase provides the Company with no reason to
believe that its software providers, service providers and vendors will not be
able to adequately address the Year 2000 issue. To the extent the software
providers', service providers' and vendor's responses are not satisfactory, the
Company will proceed with the steps outlined in its contingency/business
resumption plan.
The contingency/business resumption plan includes critical Company areas
such as operations, personnel, network and business systems as well as systems
external to the Company. The plan addresses various alternatives and includes
assessing a variety of scenarios that could emerge in the year 2000 and require
the Company to react. As an integral part of the plan potential liquidity
challenges are being addressed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/liability management control is designed to ensure safety and
soundness, maintain liquidity and regulatory capital standards, and achieve
acceptable net interest income. Management considers interest rate risk to be
the Company's most significant market risk. Interest rate risk is the exposure
to adverse changes in the net interest income as a result of market fluctuations
in interest rates.
Management regularly monitors interest rate risk in relation to
prospective market and business conditions. The Company's Board of Directors
sets policy guidelines establishing maximum limits on the Company's interest
rate risk exposure. Management monitors and adjusts exposure to interest rate
fluctuations as influenced by the Company's loan, investment and deposit
portfolios.
The Company uses an earnings simulation model to analyze net interest
income sensitivity. Potential changes in market interest rates and their
subsequent effect on interest income are then evaluated. The model projects the
effect of instantaneous movements in interest rates of 200 basis points.
Assumptions based on the historical behavior of the Company's deposit rates
and balances in relation to changes in interest rates are also incorporated
into the model. These assumptions are inherently uncertain, and as a result,
the model cannot precisely measure net interest income or precisely predict
the impact of fluctuations in market interest rates on net interest income.
Actual results will differ from the model's simulated results due to timing,
magnitude and frequency of interest rate changes, as well as changes in market
conditions and the application of various management strategies.
<PAGE>
Interest rate risk management focuses on maintaining acceptable net
interest income within policy limits approved by the Board of Directors. The
Company's Board of Directors monitors and manages interest rate risk to
maintain an acceptable level of change to net interest income resulting from
market interest rate changes. The Company's interest rate risk policy, as
approved by the Board of Directors, is stated in terms of change in net
interest income given a 200 basis point immediate and sustained increase or
decrease in market interest rates. The current limits approved by the Board of
Directors are plus or minus 10% of net interest income for a 200 basis point
movement.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In December 1998, the Company completed its initial public offering
(the "Offering") of 1,548,636 shares of Common Stock (including 185,000 shares
issued January 11, 1999 in connection with the exercise of the underwriters'
over-allotment option) at a price per share of $10.00.
(1) Effective date of Registration Statement: December 16, 1998
(File No. 333-61355)
(2) The Offering commenced on December 16, 1998 and was consummated
on December 22, 1998.
(3) All securities registered in the Offering were sold.
(4) The managing underwriters of the Offering were Morgan Keegan &
Company, Inc. and Sterne, Agee & Leach, Inc.
(5) Common Stock, $.50 par value.
(6) Amount registered and sold: 1,548,636.
(7) Aggregate purchase price: $15,486,360.
(8) All shares were sold for the account of the Issuer.
(9) $1,084,045 in underwriting discounts and commissions were paid
to the underwriters. $483,081 of other expenses were incurred,
including estimated expenses.
(10) $13,919,234 of net Offering proceeds to the Issuer.
(11) Use of Proceeds: $3,660,288 to retire indebtedness of the
Company to Bank One, New Orleans, Louisiana; $7,500,000 was
injected into the capital of the Bank in order to improve the
capital ratios of the Bank so that the Bank will be positioned
to make necessary capital expenditures to establish two de novo
branches in Hattiesburg, Mississippi one of which the Company
expects to be operational in the first quarter of 2000; and the
remainder of the Offering proceeds are being held by the Company
for the possible future acquisition of other financial
institutions or branches and the contribution of additional
capital to the Bank to support loan growth.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. Annual Meeting held May 11, 1999
B. Directors elected at the Annual Meeting held May 11, 1999:
Votes Cast
----------
Affirmed Withheld
-------- --------
1. Robert W. Roseberry 3,568,313 1,500
2. Jane P. Roberts 3,568,313 1,500
3. Kenneth M. Lott 3,568,313 1,500
4. O. B. Black, Jr. 3,568,113 1,700
5. William H. Jordan 3,568,113 1,700
6. James R. Pylant 3,568,113 1,700
7. Monty C. Roseberry 3,568,313 1,500
C. Approval of Ernst & Young, LLP as the independent public accountants of
the Company. Approval was made with a favorable vote of 82.62%.
For Against Abstained
--- ------- ---------
3,565,705 2,108 2,000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit (27) Selected financial data.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
BY: /s/ Robert W. Roseberry
-------------------------
ROBERT W. ROSEBERRY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE: AUGUST 16, 1999
BY: /s/ Donna T. Rutland
------------------------
DONNA T. RUTLAND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
DATE: AUGUST 16, 1999
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