<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 000-26033
First Deposit Bancshares, Inc.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2443683
- ------------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8458 Campbellton Street, Douglasville, Georgia 30134-1803
---------------------------------------------------------
(Address of principal executive offices)
(770) 942-5108
(Issuer's telephone number
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No X
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 9, 1999: 1,575,000; no par value.
Transitional Small Business Disclosure Format (Check One) Yes No X
----- -----
<PAGE>
FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet - June 30, 1999....................3
Consolidated Statements of Income and Comprehensive
Income - Three Months Ended June 30, 1999 and 1998
and Six Months Ended June 30, 1999 and 1998................4
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1999 and 1998.........................5
Notes to Consolidated Financial Statements....................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................7
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................16
Signatures.......................................................17
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
BALANCE SHEET
JUNE 30, 1999
(Unaudited)
(Dollars in Thousands)
Assets
- ------
Cash and due from banks $ 33,368
Federal funds sold 50
Securities available-for-sale, at fair value 10,241
Securities held-to-maturity (fair value $1,969) 1,965
Loans 85,394
Less allowance for loan losses 1,027
------------------
Loans, net 84,367
------------------
Premises and equipment 1,769
Real estate held for development and sale 1,528
Other assets 1,173
------------------
Total assets $ 134,461
==================
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Demand $ 3,522
Interest-bearing demand 30,695
Savings 36,140
Time deposits 47,868
------------------
Total deposits 118,225
Other borrowings 5,000
Other liabilities 1,239
------------------
Total liabilities 124,464
------------------
Commitments and Contingent Liabilities
Retained earnings 10,048
Accumulated other comprehensive losses, net of tax (51)
------------------
Total stockholders' equity 9,997
------------------
Total liabilities and stockholders' equity $ 134,461
==================
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 1,707 $ 1,593 $ 3,377 $ 3,181
Taxable securities 54 67 121 169
Federal funds sold 96 66 173 107
--------------- --------------- --------------- ---------------
Total interest income 1,857 1,726 3,671 3,457
--------------- --------------- --------------- ---------------
Interest expense
Deposits 943 974 1,928 1,911
Other borrowings 70 73 139 147
--------------- --------------- --------------- ---------------
Total interest expense 1,013 1,047 2,067 2,058
--------------- --------------- --------------- ---------------
Net interest income 844 679 1,604 1,399
Provision for loan losses 15 15 30 30
--------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses 829 664 1,574 1,369
--------------- --------------- --------------- ---------------
Other income 260 180 362 266
--------------- --------------- --------------- ---------------
Other expenses
Salaries and employee benefits 325 298 634 566
Occupancy and equipment expenses 207 169 276 235
Other operating expenses 119 78 332 285
--------------- --------------- --------------- ---------------
Total other expenses 651 545 1,242 1,086
--------------- --------------- --------------- ---------------
Income before income taxes 438 299 694 549
Income tax expense 197 115 278 214
--------------- --------------- --------------- ---------------
Net income 241 184 416 335
--------------- --------------- --------------- ---------------
Other comprehensive income (loss)
Unrealized gains (losses) on
securities available-for-sale
arising during period, net
of tax (81) (25) (81) 29
--------------- --------------- --------------- ---------------
Other comprehensive income (loss) (81) (25) (81) 29
--------------- --------------- --------------- ---------------
Comprehensive income $ 160 $ 159 $ 335 $ 364
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 416 $ 335
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 176 155
Provision for loan losses 30 30
Other operating activities 775 472
---------------- ----------------
Net cash provided by operating activities 1,397 992
---------------- ----------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (8,136) (1,628)
Proceeds from maturities of securities available-for-sale 1,471 -
Purchases of securities held-to-maturity (1,000) -
Proceeds from maturities of securities held-to-maturity 77 2,443
Net decrease in Federal funds sold 665 -
Net increase in loans (1,020) (4,916)
Purchase of premises and equipment (168) (121)
---------------- ----------------
Net cash used in investing activities (8,111) (4,222)
---------------- ----------------
FINANCING ACTIVITIES
Net increase in deposits 32,525 4,702
Net decrease in other borrowings - (1,000)
---------------- ----------------
Net cash provided by financing activities 32,525 3,702
---------------- ----------------
Net increase in cash and due from banks 25,811 472
Cash and due from banks, beginning of period 7,557 5,663
---------------- ----------------
Cash and due from banks, end of period $ 33,368 $ 6,135
================ ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
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 six month period ended June 30, 1999
are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt this statement
effective January 1, 2001. SFAS No. 133 requires the Company to
recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated as
hedges, the gain or loss must be recognized in earnings in the period
of change. For derivatives that are designated as hedges, changes in
the fair value of the hedged assets, liabilities, or firm commitments
must be recognized in earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings, depending on
the nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS No.
133 will have on the Company's earnings or financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
<PAGE>
FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
First Deposit Bancshares, Inc. ("First Deposit") is a Georgia
corporation formed to serve as a holding company to acquire the capital
stock of Douglas Federal Bank (the "Bank") in connection with its
conversion from a mutual federal savings bank to a stock federal
savings bank. The conversion was approved by the Bank's depositors on
June 25, 1999 and the offering of 1,575,000 shares of the common stock
of First Deposit was closed on July 8, 1999. Until July 8, 1999, First
Deposit had no operations, had not issued any common stock, and did not
own the Bank. The following analysis discusses financial information
regarding the Bank during the periods presented.
The following selected financial and operating data presented below at
June 30, 1999 and for the three and six month periods ended June 30,
1999 and 1998 are derived from unaudited financial data, but, in the
opinion of management reflect all adjustments (consisting of only
recurring adjustments) which are necessary to present fairly the
results of such interim periods. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the
results of operations that may be expected for the year ended December
31, 1999.
Cautionary Statement about Forward-Looking Statements
This quarterly report on Form 10-QSB contains "forward looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. When used in this report, the words "believes,"
"expects," "anticipates," "estimates," and similar words and
expressions are generally intended to identify forward-looking
statements. Statements that describe the Company's future strategic
plans, goals, or objectives are also forward-looking statements,
including those regarding the intent, belief, or current expectations
of management and are not guarantees of future performance, results, or
events and involve risks and uncertainties, and that actual results and
events may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited
to, (i) general economic conditions in the markets in which the Bank
operates, (ii) competitive pressures in the markets in which the Bank
operates, (iii) the effect of future legislation or regulatory changes
on the Bank's operations, and (iv) other factors described from time to
time in the Company's filings with the Securities and Exchange
Commission. The forward-looking statements included in this report are
made only as of the date hereof. The Company undertakes no obligation
to update such forward-looking statements to reflect subsequent events
or circumstances.
7
<PAGE>
Liquidity and Capital Resources
As of June 30, 1999, the liquidity ratio of the Bank was 15.23%, and,
as determined under guidelines established by regulatory authorities,
was satisfactory.
At June 30, 1999, the capital ratios of the Bank were adequate based on
regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Bank are as follows:
Actual
---------------
Douglas Regulatory
Federal Bank Requirement
--------------- -------------
Leverage capital ratios 6.92 % 4.00 %
Risk-based capital ratios:
Core capital 12.76 4.00
Total capital 14.02 8.00
8
<PAGE>
Financial Condition
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 Increase (Decrease)
--------------- ---------------- -----------------------------------
(Dollars in Thousands) Amount Percent
----------------------------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 33,368 $ 7,557 $ 25,811 341.55 %
Securities available-for-sale 10,241 3,707 6,534 176.26
Securities held-to-maturity 1,965 1,042 923 88.58
Federal funds sold 50 715 (665) (93.01)
Loans 84,367 83,377 990 1.19
Premises and equipment 1,769 1,777 (8) (0.45)
Real estate held for development and sale 1,528 1,745 (217) (12.43)
Other assets 1,173 972 201 20.68
--------------- ---------------- --------------
$ 134,461 $ 100,892 $ 33,569 33.27
=============== ================ ==============
Deposits $ 118,225 $ 85,686 $ 32,539 37.97 %
Other borrowings 5,000 5,000 - -
Other liabilities 1,239 544 695 127.76
Stockholders' equity 9,997 9,662 335 3.47
--------------- ---------------- --------------
$ 134,461 $ 100,892 $ 33,569 33.27
=============== ================ ==============
</TABLE>
As indicated in the above table, the Company's total assets have increased by
33.27% during the first six months of 1999. This increase is due to a 37.96%
increase in total deposits.
The significant increase in deposits of $32,539,000 is directly related to the
conversion from a mutual savings bank to a stock bank. In mid May the Bank began
accepting subscriptions for the 1,575,000 shares being offered in the
conversion. In connection with this process, funds were deposited into an escrow
account at Douglas Federal Bank until the completion of the offering. The
offering was over subscribed and prior to closing the offering on July 8, 1999,
$20,963,000 including interest was refunded from the total funds received
totaling $36,749,000. Included in the total subscriptions were account transfers
of approximately $4,991,000. These subscriptions were held in an escrow savings
account and held in an interest bearing account during the offering period. At
June 30, 1999, approximately $32.3 million were held in interest bearing
accounts and is included in cash and due from banks on the balance sheet.
The increase in securities during the six month period is also attributable to
proceeds from the offering. Loan volume remained flat during the second quarter
of 1999, increasing only $1 million through the first six months of 1999.
9
<PAGE>
Results of Operations For The Three Months and For The Six Months Ended June 30,
1999 and 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1999 1998 Increase (Decrease)
----------- ---------- ------------------------
(Dollars in Thousands) Amount Percent
------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Interest income $ 1,857 $ 1,726 $ 131 7.59 %
Interest expense 1,013 1,047 (34) (3.25)
Net interest income 844 679 165 24.30
Provision for loan losses 15 15 0.00 0.00
Other income 260 180 80 44.44
Other expense 651 545 106 19.45
Pretax income 438 299 139 46.49
Income taxes 197 115 82 71.30
Net income 241 184 57 30.98
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998 Increase (Decrease)
---------- -------------- ------------------------
(Dollars in Thousands) Amount Percent
-------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Interest income $ 3,671 $ 3,457 $ 214 6.19 %
Interest expense 2,067 2,058 9 0.44
Net interest income 1,604 1,399 205 14.65
Provision for loan losses 30 30 0 0
Other income 362 266 96 36.09
Other expense 1,242 1,086 156 14.36
Pretax income 694 549 145 26.41
Income taxes 278 214 64 29.91
Net income 416 335 81 24.18
</TABLE>
As indicated in the above tables, the Company's net interest income has
increased by $165,000 and $205,000 for the three and six month periods in 1999
as compared to the same periods in 1998. The Company's net interest margin
increased to 3.28% during the first six months of 1999 as compared to 3.13% for
the previous year. The increase in the net interest margin is due primarily to
an increase in average interest-earning assets as compared to the prior year
which increased $8.5 million.
10
<PAGE>
The provision for loan losses remained the same for both the three and six month
periods in 1999 as compared to the same periods in 1998. The Company's allowance
for loan losses to total loans amounted to 1.20% at June 30, 1999 as compared to
1.18% at December 31, 1998. The allowance for loan losses is maintained at a
level that is deemed appropriate by management to adequately cover all known and
inherent risks in the loan portfolio. Management's evaluation of the loan
portfolio includes a continuing review of loan loss experience, current economic
conditions which may affect the borrower's ability to repay and the underlying
collateral value.
Information with respect to nonaccrual, past due, and restructured loans at June
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans $ 810 $ 1,060
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing - -
Restructured loans - -
Loans, now current about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms - -
and restructured loans under original terms
Interest income that was recorded on nonaccrual and restructured loans - -
</TABLE>
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected and (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
11
<PAGE>
Information regarding certain loans and allowance for loan loss data through
June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C> <C> <C>
Average amount of loans outstanding $ 85,540 $ 79,015
=============== ===============
Balance of allowance for loan losses at beginning of period $ 1,000 $ 866
--------------- ---------------
Loans charged off
Commercial and financial $ - $ -
Real estate mortgage (5) -
Instalment - -
--------------- ---------------
(5) -
--------------- ---------------
Loans recovered
Commercial and financial 2 18
Real estate mortgage - -
Instalment - -
--------------- ---------------
2 18
--------------- ---------------
Net (charge-offs) recoveries (3) 18
--------------- ---------------
Additions to allowance charged to operating expense during period 30 30
--------------- ---------------
Balance of allowance for loan losses at end of period $ 1,027 $ 914
=============== ===============
Ratio of net loans (charged off) recovered during the period to
average loans outstanding - % .02%
=============== ===============
</TABLE>
Other income increased by $80,000 and $96,000 for the three month and six month
periods ended June 30, 1999, respectively, as compared to the same periods in
1998. The single most significant increase was an increase of $56,000 in gains
on sale of real estate held for development and sale. The majority of these
gains were recognized during the second calendar quarter of 1999.
Other expenses increased for the three and six month periods in 1999 as compared
to the same periods in 1998 by $106,000 and $156,000, respectively. The increase
in other expenses was not attributable to any one particular item. For the six
month period ended June 30, 1999, salaries and employee benefits increased
$68,000, occupancy and equipment expenses increased $41,000, and other operating
expenses increased $47,000, as compared to the same period in 1998. The
increases for the three month period were $27,000, $38,000, and $41,000,
respectively. The increase in salaries and employee benefits is due to the
increase in full-time equivalent employees which increased from 35 at June 30,
1998 to 38 at June 30, 1999. The increase in occupancy and equipment expenses is
primarily due to an increase in depreciation expense of $21,000 for the six
month period ending June 30, 1999 as compared to 1998. The increase in
depreciation expense is related to the computer conversion which was completed
in 1998. The increase in other operating expenses is not attributable to any one
particular item, but includes normal increases.
12
<PAGE>
The Company's provision for income taxes increased by $82,000 and $64,000 for
the three and six month periods in 1999 as compared to the same periods in 1998
due to higher taxable income. The Company's effective tax rate increased to 40%
for the first six months of 1999 as compared to 39% for the first six months of
1998.
Net income increased by $57,000 and $81,000, respectively, for the three and six
months ended June 30, 1999. This increase is a combination of the increase in
net interest income and the gains on sale of real estate held for development
and sale.
Year 2000 Issues
- ----------------
Introduction. Similar to other financial institutions, the Bank's operations are
particularly sensitive to potential problems arising from the inability of many
existing computer hardware and software systems and associated applications to
process accurately information relating to any two-digit "date field" entries
referring to the year 2000 and beyond. Many existing systems are constructed to
read such entries as referring to dates beginning with "19," rather than "20."
This set of issues is generally referred to as the "Year 2000" problem. The
Federal Financial Institutions Examination Council, through the bank regulatory
agencies, has issued compliance guidelines requiring financial institutions to
develop and implement plans for addressing Year 2000 issues relevant to their
operations.
State of Readiness. The Bank has implemented a detailed Year 2000 plan, as
required by its regulators, to evaluate Year 2000 compliance of its computer
systems and the equipment which supports its operations. Also included in this
Year 2000 plan is a detailed review of the readiness of the Bank's service
providers, vendors, major fund providers, major borrowers, and companies with
which the Bank has material investments. These reviews and updates have revealed
that these entities that the Year 2000 issue will not have a material adverse
impact on their relationship with the Bank. While these assurances do not rise
to the level of a certification of warranty, management is comfortable with the
assurances it has received. As of June 30, 1999, the Bank has met all current
target objectives of the Year 2000 plan, and management believes that the Bank
will continue to meet all future target objectives in accordance with the terms
of the plan.
Like many financial institutions, the Bank relies upon computers for the daily
conduct of its business and for data processing generally. As part of the Bank's
regular upgrading of computer systems, the Bank purchased and installed new
computers, servers, and software. The Bank also upgraded all of its ATMs. The
vendor of the Bank's core account processing system is executing its Year 2000
readiness plan in cooperation with the Bank and has certified that the system is
2000 compliant.
In addition to a core account processing system, the Bank has financial
accounting and mortgage loan origination systems that are computer-based, and
thus vulnerable to the Year 2000 issues. The Bank has installed new financial
accounting, mortgage loan origination, and mortgage loan servicing systems which
are Year 2000 compliant as part of its computer upgrade.
As a result of the Bank's core account processing system and the new financial
accounting, mortgage loan origination, and mortgage loan servicing systems,
management believes that it has resolved the Year 2000 issues with respect to
the most critical computer systems and applications. Management has completed
the testing phase with respect to the Bank's computer systems and other
equipment that is Year 2000 sensitive, which includes equipment containing
embedded microprocessors or other technology related to the recognition of
dates. The results of testing performed through June 30, 1999 have not
identified any non-compliance systems or equipment.
13
<PAGE>
Because of the substantial progress made towards its Year 2000 conversion, the
Bank does not anticipate that any additional significant changes will be
required or that the Year 2000 issue will pose significant operational problems
for the Bank. However, if the necessary changes are not made or completed in a
timely fashion or unanticipated problems arise, the Year 2000 issue may take
longer for the Bank to address and may have a material impact on its financial
condition and results of operations.
The Bank receives periodic updates from its third party service providers on the
status of their progress in remediation and testing. These providers are also
subject to Year 2000 compliance examinations by the federal bank regulatory
agencies. While these updates do not rise to the level of certification or
warranties, they do indicate what management believes to be satisfactory
progress toward a timely resolution of the Year 2000 issue by these providers.
In addition to the Bank's interaction with major service providers, the Bank has
contacted in writing every vendor, major service providers, major borrowers, and
companies with which it has material investments, to evaluate their Year 2000
compliance plans and state of readiness and to determine the extent to which its
systems may be affected by the failure of others to remediate their own Year
2000 issues. To date, the Bank has received written responses from surveys
distributed from over 50% of such parties. While these written responses do not
rise to the level of certification or warranty, they generally indicate that
these parties have developed adequate plans to address the Year 2000 issue or
that their failure to resolve Year 2000 issues will have a minimal impact on the
Bank's systems or operations. The Bank intends to re-contact those parties from
whom it has not received a response, either in writing or through personal
contact. The Bank has not independently confirmed any information received from
other parties with respect to Year 2000 issues. These other parties may not
complete their Year 2000 conversion in a timely fashion or they may suffer a
Year 2000 business disruption that may adversely affect the Bank's financial
condition and results of operations.
The Bank does not generally utilize Year 2000 compliance as a criteria in the
loan underwriting process because approximately 96% of its loan portfolio is
composed of either one- to four-family residential mortgage loans, construction
and development loans, or consumer loans. Generally, borrowers of such loans do
not present as significant a risk to repayment as a result of Year 2000 issues.
No commercial real estate borrower was identified as mission critical during the
Year 2000 assessment process.
Costs to Address the Year 2000 Issue. The new computer systems were installed as
a result of management's desire to keep the Bank competitive by ensuring that
its systems take advantage of recent advances in technology. The Bank's costs to
achieve Year 2000 compliance are currently budgeted to be $50,000, and these
costs are not expected to have a material financial impact on the Bank. The Bank
has and intends to continue to fund such costs from its operations. However, as
the Bank progresses with its Year 2000 conversion and implement the necessary
changes to its systems, certain additional costs may be identified. Additional
costs could have a material adverse effect on the Bank's financial condition and
results of operations.
Risks of Year 2000 Issues. To date, the Bank has not identified any system which
presents a material risk of not being Year 2000 compliant in a timely fashion or
for which a suitable alternative cannot be implemented. However, as the Bank
progresses with its Year 2000 conversion, the Bank may identify systems which do
present a material risk of Year 2000 disruption. Such disruption may include,
among other things, the inability to process and underwrite loan applications,
to credit deposits and withdrawals from customer accounts, to credit loan
payments or track delinquencies, to reconcile and record daily activity
properly, or to engage in normal banking activities properly. Additionally, if
the Bank's commercial customers are not Year 2000 compliant and suffer adverse
effects on their operations, their ability to meet their obligations to the
14
<PAGE>
Bank could be adversely affected. The Bank's failure to identify systems which
require Year 2000 conversion that are critical to its operations or the Bank's
failure or that of others with which it does business to become Year 2000
compliant in a timely manner could have a material adverse impact on the Bank's
financial condition and results of operations. Moreover, to the extent that the
risks posed by the Year 2000 problem are pervasive in data processing and
transmission and communications services worldwide, the management cannot
predict with any certainty that its operations will remain materially unaffected
after January 1, 2000 or on dates preceding this date at which time post-January
1, 2000 dates become significant within the Bank's systems.
The Bank has identified seven mission-critical vendors, of which six are Year
2000 compliant. The remaining vendor is in the process of testing for Year 2000
compliance.
Contingency Plans. The Bank has two types of contingency plans: Remediation and
Business Interruption. Remediation plans are designed to mitigate the risks
associated with the failure to complete renovation, validation, and
implementation of mission-critical systems successfully. Business interruption
plans are plans of action to ensure the Bank's ability to continue functioning
as a business entity in the event of unanticipated systems failures at critical
dates before, on, or after the Year 2000.
The Company is not aware of any known trends, events, or uncertainties, other
than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources,
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST DEPOSIT BANCSHARES, INC.
BY: /s/ J. David Higgins
----------------------
President, Chief Executive Officer and
Treasurer
BY: /s/ John L. King
-----------------
Senior Vice President and Chief
Financial Officer
DATE: August 13, 1999
---------------
17
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<PAGE>
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<S> <C>
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<PERIOD-START> JAN-01-1999
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0
0
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