<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
[X] QUARTERLY REPORT UNDER SECTION 13 AND 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 1934
For the transition period from to
------- -------
Commission File Number: 0-23890
-------
FIRST STATE CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1439347
------- ----------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
333 W. Broad Avenue, Albany, Georgia 31703
---------------------------------------------
(Address of principal executive offices)
(912) 432-8000
----- --------
(Registrant's telephone number, including area code)
Not Applicable
--- ----------
(Former name, former address and former 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
----- -----
APPLICABLE-ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 30, 1996.
4,549,588 SHARES
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following financial statements are provided for First State Corporation and
subsidiaries:
A. Consolidated Balance Sheets as of September 30, 1996 and December 31,
1995.
B. Consolidated Statements of Income for the three months and nine months
ended September 30, 1996 and 1995.
C. Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995.
The consolidated statements furnished have not been examined by independent
certified public accountants, but, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations. Results of operations for the nine
months are not necessarily indicative of the results of operations for the
entire year.
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation.
<PAGE> 3
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 25,105 $ 26,130
Interest-bearing deposits in banks 10,695 12,912
Investment securities - held to maturity 37,658 42,388
Investment securities - available for sale 80,860 29,171
Federal funds sold 3,200 10,558
Loans 332,571 299,161
Less allowance for loan losses 5,178 5,037
-------- --------
Loans, net 327,393 294,124
-------- --------
Premises and equipment, net 10,737 10,905
Other assets 19,795 10,671
-------- --------
$515,443 $436,859
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 84,638 $ 85,362
Interest-bearing demand 108,363 101,615
Savings 32,539 24,850
Time, $100,000 and over 51,547 37,696
Other time 175,525 134,803
-------- --------
Total deposits 452,612 384,326
Federal funds purchased and securities
sold under repurchase agreements 6,397 3,474
Debenture bonds and notes payable 4,823 885
Other liabilities 5,226 5,026
-------- --------
Total liabilities 469,058 393,711
Stockholders' Equity
7% cumulative nonvoting preferred
stock, par value $50; 100,000 shares
author: no shares issued
Common stock, par value $1; 20,000,000
shares authorized: 4,549,588 shares
issued 4,550 6,853
Additional paid-in capital 2,348 13,989
Retained earnings 39,563 35,513
Net unrealized gains on available
for sale securities (net of taxes) (76) 171
-------- --------
46,385 56,526
Less cost of common treasury stock
0, and 2,281,284 shares 0 13,378
-------- --------
Total stockholders' equity 46,385 43,148
-------- --------
$515,443 $436,859
======== ========
</TABLE>
<PAGE> 4
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,861 $7,417 $22,545 $21,192
Interest on investment securities
Taxable 1,301 1,005 3,033 3,314
Nontaxable 314 273 961 867
Interest on federal funds sold 23 9 197 45
Interest on deposits in banks 17 26 215 102
------ ------ ------- -------
9,516 8,730 26,951 25,520
------ ------ ------- -------
INTEREST EXPENSE
Interest on deposits 3,687 3,176 10,190 8,731
Interest on federal funds purchased
and securities sold under repurchase
agreements 158 51 244 202
Interest on other borrowings 52 4 61 28
------ ------ ------- -------
3,897 3,231 10,495 8,961
------ ------ ------- -------
Net interest income 5,619 5,499 16,456 16,559
Provision for loan losses 82 188 350 565
Net interest income after ------ ------ ------- -------
provision for loan losses 5,537 5,311 16,106 15,994
------ ------ ------- -------
OTHER INCOME
Service charges on deposit accounts 787 669 2,203 1,997
Other loan income 465 796 1,677 1,989
Trust department income 301 315 901 896
Other 49 130 277 789
------ ------ ------- -------
1,602 1,910 5,058 5,671
------ ------ ------- -------
OTHER EXPENSE
Salaries and employee benefits 2,392 2,495 7,191 7,174
Equipment and occupancy, net 811 931 2,304 2,442
Data processing expense 177 169 595 488
FDIC Insurance 14 (16) 29 381
Stationery and supplies 129 113 336 337
Amortization of intangible assets 142 58 259 175
Legal fees 26 56 146 188
Telephone and telegraph 68 88 252 270
Trust Investment Losses 0 187 0 762
Other operating expenses 546 668 2,106 1,829
------ ------ ------- -------
4,305 4,749 13,218 14,046
------ ------ ------- -------
Income before taxes 2,834 2,472 7,946 7,619
APPLICABLE INCOME TAXES 835 820 2,463 2,347
------ ------ ------- -------
NET INCOME $1,999 $1,652 $5,483 $ 5,272
====== ====== ====== =======
Per share of common stock
Net Income $ 0.44 $ 0.36 $ 1.21 $ 1.16
</TABLE>
<PAGE> 5
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASh FLOWS
PERIOD ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 5,483 $ 5,272
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,301 1,282
Provision for loan losses 350 565
Provision for deferred taxes (benefits) (13) (159)
Increase(Decrease) in taxes payable 233 (15)
(Decrease) in interest payable 54 411
(Increase) decrease in interest receivable (1,171) (1,385)
Other prepaids, deferrals and accruals, net (58) 1,251
--------- --------
Total adjustments 696 1,950
--------- --------
Net cash provided by operating activities 6,179 7,222
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest bearing deposits
with banks 2,217 202
Proceeds from maturities of securities held to maturity 8,881 15,997
Proceeds from maturities of securities held for sale 53,149 5,831
Purchase of securities held to maturity (4,209) (5,712)
Purchase of securities held for sale (104,780) (1,358)
Decrease in federal funds sold 7,358 3,401
Decrease(Increase) in loans (33,458) (32,587)
Purchase of premises and equipment (874) (1,338)
Net cash received from acquisition of deposits 73,447
--------- --------
Net cash provided by (used in) investing activities 1,731 (15,564)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits (13,870) 2,473
(Decrease) in federal funds purchased and
securities sold under repurchase agreements 2,923 (684)
Principal payments on debt (912) (1,360)
Long term debt (Proceeds) 4,850
Purchase of fractional shares (1)
Proceeds from stock options exercised 2
Treasury stock transactions, net (569)
Dividends paid (1,358) (975)
--------- --------
Net cash provided by (used in) financing activities (8,935) (546)
--------- --------
Net increase (decrease) in cash and due from banks (1,025) (8,888)
Cash and due from banks at beginning of period 26,130 29,081
--------- --------
Cash and due from banks at end of period $ 25,105 $ 20,193
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $ 10,441 $ 8,550
</TABLE>
<PAGE> 6
FIRST STATE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
First State Corporation is a multi-bank holding company whose
business is presently conducted by its wholly-owned subsidiaries,
First State Bank and Trust Company of Albany, Georgia and subsidiary
and First State Bank and Trust Company of Cordele, Georgia. The
Company provides a full range of banking services to individual and
corporate customers in its primary market area of southwest Georgia.
The Company and its subsidiaries are subject to the regulations of
certain Federal and state agencies and are periodically examined by
certain regulatory authorities.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany transactions
and accounts are eliminated in consolidation. Assets held by the
Banks in a fiduciary or agency capacity are not assets of the Banks
and are not included in the financial statements.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including
cash items in process of clearing). Cash flows from loans
originated by the Company, deposits, interest-bearing
deposits and Federal funds purchased and sold are reported
net.
The Company maintains amounts due from banks which, at times,
may exceed Federally insured limits. The Company has not
experienced any losses in such accounts.
INVESTMENTS IN SECURITIES
The Company's investments in securities are classified and
accounted for as follows:
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt
securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity.
Any decision to sell a security classified as available for
sale would be based on various factors, including
significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations and other
similar factors. Securities available for sale are carried
at fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities
sold, are included in earnings.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt
securities the Company has both the intent and ability to
hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general
economic conditions. These securities are carried at
cost adjusted for amortization of premium and accretion
of discount, computed by the interest method over their
contractual lives. The sale of a security within three
months of its maturity date or after collection of at
least 85 percent of the principal outstanding at the time
the security was acquired is considered a maturity for
purposes of classification and disclosure.
A decline in the fair value below cost of any available for
sale or held to maturity security that is deemed other than
temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less
unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal
amount outstanding at the respective rate of interest except
for add on interest on certain installment loans for which
interest is recognized on the sum-of-the-months method.
Accrual of interest income is discontinued on loans when, in
the opinion of management, collection of such interest
income becomes doubtful. When a loan is placed on
nonaccrual status, all interest previously accrued but not
collected is reversed against current interest income.
Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and
principal becomes probable.
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books.
Because loan fees are not significant and the majority of
loans have maturities of one year or less, the results on
operations are not materially different than the results
which would be obtained by accounting for loan fees and
costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when
management believes that collectibility of the principal is
unlikely. The allowance is an amount that management
believes will be adequate to absorb estimated losses on
existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss
experience. This evaluation also takes into consideration
such
<PAGE> 10
factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may
affect the borrower's ability to pay. Certain estimates are
susceptible to change in the near term. Such estimates
include the creditworthiness of significant borrowers and
the collateral value of delinquent loans. While management
uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's
allowance for loan losses, and may require the Company to
record additions to the allowance based on their judgment
about information available to them at the time of their
examinations.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
LOANS AND INTEREST INCOME (CONTINUED)
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is
impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due
in accordance with the terms of the loan agreement. Accrual
of interest on an impaired loan is discontinued when
management believes, after considering collection efforts
and other factors, that the borrower's financial condition
is such that collection of interest is doubtful. Cash
collections on impaired loans are credited to the loans
receivable balance, and no interest income is recognized on
those loans until the principal balance has been collected.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation, computed principally on the straight-line
method over the following estimated useful lives:
YEARS
-----
Buildings 10-40
Equipment 5-20
Leasehold improvements 7-15
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties
acquired through foreclosure or other proceedings. OREO is
held for sale and is recorded at the lower of the recorded
amount of the loan or fair value of the properties less
estimated costs of disposal. Any write-down to fair value
at the time of transfer to OREO is charged to the allowance
for loan losses. Property is evaluated regularly to ensure
the recorded amount is supported by its current fair value,
and valuation allowances to reduce the carrying amount to
fair value less estimated costs to dispose are recorded as
necessary. Subsequent decreases in fair value and increases
in fair value, up to the value established at foreclosure,
are recognized as charges or credits to noninterest expense.
OREO is reported net of allowance for losses in the
Company's financial statements.
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price
over net assets acquired of purchased banks, are being
amortized on the straight-line method over various periods
not exceeding 25 years.
INCOME TAXES
The Company and its subsidiaries file a consolidated income
tax return. Each subsidiary provides for income taxes
based on its contribution to income taxes (benefits) of the
consolidated group.
<PAGE> 13
Provisions for income taxes are based on amounts reported in
the consolidated statements of income after exclusion of
nontaxable income such as interest on state and municipal
securities and include deferred taxes on temporary
differences in the recognition of income and expense for tax
and financial statement purposes.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences, and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the
effect of changes in tax laws on the date of enactment.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROFIT-SHARING PLAN
Profit-sharing plan costs are funded as accrued and are
based on a percentage of individual employee's salary, not
to exceed the amount that can be deducted for Federal
income tax purposes.
PENSION PLAN
The Company has a defined benefit pension plan covering
substantially all employees. The Company's policy is to
fund accrued pension costs.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the
weighted average number of shares outstanding.
TRUST DEPARTMENT
Trust income is included in the accompanying consolidated
financial statements on the cash basis in accordance with
established industry practices. Reporting of such fees on
the accrual basis would have no material effect on reported
income. Assets of the Trust Department are not included in
these financial statements because they are not assets of
the Company.
<PAGE> 15
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including
cash items in process of clearing). Cash flow from loans
originated by the Banks, deposits, interest bearing deposits,
and Federal Funds purchased and sold are reported net.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board issued
SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," effective for fiscal years beginning after December 15,
1994. The adoption of this statement is not expected to have
a material effect on the Company's consolidated statements.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. CAPITAL REQUIREMENTS
The minimum capital requirements to be "well capitalized" and
the actual capital ratios for the Company at September 30,
1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
--Actual Ratio--
September December Regulatory
30, 1996 31, 1995 Minimum
<S> <C> <C> <C>
Tier-1 Leverage Ratio 7.68% 9.70% 5.00%
Tier-1 Risk Based Capital Ratio 12.52% 14.38% 6.00%
Total Risk Based Capital Ratio 13.81% 15.63% 10.00%
</TABLE>
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1996 compared to the three months ended
September 30, 1995
and
Nine months ended September 30, 1996 compared to the nine months ended
September 30, 1995
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for the quarter ended September 30, 1996 was $9,516,000, as
compared to $8,730,000 in the same period of 1995. This is an increase of
$786,000, or 9.00%. The increase can be attributed to growth in earning assets
to $464,984,000 at 9/30/96 from $394,190,000 at year-end 1995, an increase of
17.96%. The increase in earning assets was the result of a 11.17% increase in
loan balances and a 39.34% increase in investments since December 31, 1995.
The increase in investments was primarily due to the August 9, 1996 acquisition
of approximately $82 million in Dougherty County deposits of First Union
National Bank of Georgia, NA.
For the nine months ended September 30, 1996, total interest income increased
$1,431,000, or 5.61%, from the nine months ended September 30, 1995. This is
the result of increased interest and fees on loans of $1,353,000, coupled with
an increase in investment income of $78,000. The increase in interest and fee
income on loans was due to the net effect of 11.17% increase in loan balances
since December 31, 1995 and slight decrease in average loan yields. The
increase in investment income was due to a combination of an increase in
investment balances of $37,384,000 since 12/31/95 (most occurring in the First
Union acquisition in August 1996), offset by reduced yields in the investment
market. Average investment yield for the corporation dropped from 6.49% for
the nine months ended September 30, 1995, to 5.93% for the nine months ended
September 30, 1996, consistent with current market yields for the period.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1996 was $3,897,000,
as compared to $3,231,000 for the third quarter 1995. This is an increase of
20.61%. The increase is due to a 17.77% increase in deposits since December 31,
1995, which can be attributed to the net effect of (1) the $82 million First
Union acquisition in August 1996; offset by (2) a decrease in other deposits
of $14 million. An analysis of deposits also shows a 6.02% shift in deposits
to savings and time deposits (with higher interest rates) during 1996.
Interest on borrowings during the third quarter of 1996 was $52,000, up from
the third quarter of 1995, when interest on borrowings totaled $4,000. The
Corporation's debt was related to the matching of a large variable-rate
commercial loan with a variable-rate borrowing, and to the use of operating
lines of credit to supplement liquidity while pursuing a graduated investment
strategy for funds acquired in the First Union purchase.
For the nine months ended September 30, 1996, interest expense increased by
$1,534,000 from the first nine months of 1995, a rise of 17.12%. The increase
is explained by the increased deposits, higher interest rates, and a shift to
savings and time deposits. Interest on borrowings increased to $61,000 in the
first three quarters of 1996 from $28,000 in the first nine months of 1995, a
117.86% increase, although insignificant to overall earnings. The
Corporation's debt was related to the matching of a large commercial loan with
a variable rate borrowing, and to the use of operating lines of credit to
supplement liquidity while pursuing a graduated investment strategy for funds
acquired in the First Union purchase.
PROVISION FOR LOAN LOSSES
<PAGE> 18
The provision for loan losses for the three months ended September 30, 1996 was
$82,000 as compared to $188,000 for the three months ended September 30, 1995.
The performance of the loan portfolio allows the decreased provision, while
maintaining the allowance for loan losses at levels deemed acceptable by
management and the regulators of the affiliated institutions. The provision
for loan losses for the nine months ended September 30, 1996 was $350,000, down
$215,000 from the same period in the prior year.
OTHER INCOME
Noninterest income for the quarter ended September 30, 1996 was $1,602,000,
versus $1,910,000 for the third quarter of 1995. The net decrease of $308,000
in other income is the result of three factors: a decrease in volume of loan
sales in the secondary market caused other loan income to decline by $331,000;
other income declined by $81,000; and, offsetting these effects, service
charges on deposit accounts increased by $118,000 over the third quarter of
1995. The decrease in other income for the quarter can be primarily explained
by a drop in customer check income of $42,000 and year-to-date net losses on
disposals of fixed assets of $21,000.
Noninterest income through the third quarter of 1996 was down $613,000 from the
same period of 1995. $405,000 of the difference can be attributed to a
nonrecurring gain on a branch sale that occurred in the second quarter of 1995.
The remaining decrease of $208,000 in other income is the result of three
factors: a decrease in other loan income totaling $312,000, primarily
attributable to a decrease in sales of loans in the secondary market; a
decrease in other income of $107,000; and, offsetting these effects,
increased service charges on deposit accounts ($206,000 increase at 9/30/96).
Other declines can be explained by a drop in customer check income of $24,000
and a decline in miscellaneous income of $83,000. The decline in
miscellaneous income was due to life insurance income in 1995 of $86,000,
recognized upon the death of a board member of the First State Bank and Trust
Company in Albany subsidiary.
OTHER EXPENSES
Other noninterest expenses were $4,305,000 in the third quarter of 1996, a
9.35% decrease from the $4,749,000 in these expenses in the same period of
1995. The $444,000 decrease is due to a number of factors. First, salaries
and benefits expense declined $103,000 from that of the third quarter of 1995.
Second, occupancy and equipment expenses declined $120,000 from the third
quarter of 1995. Third, consultant fees decreased by approximately $60,000 from
the third quarter of 1995. The fees were for a continuing project to update
Trust Division policies and procedures that began in 1995 and was completed
before the third quarter of 1996. Finally, the decline in noninterest expenses
can be explained by nonrecurring charges to earnings of $187,000 in the third
quarter of 1995 pertaining to a contingency reserve for certain bond
investments of the Trust Division of the First State Bank and Trust Company
subsidiary.
For the nine months ended September 30, 1996, other noninterest expense shows
an $828,000, or 5.89%, decline from that for the nine months ended September
30, 1995. The decrease is due to the net effect of several fluctuations: (1)
a decrease in FDIC Insurance Expense of $352,000, or 92.39%, due to a roll back
of insurance premiums payable to the regulatory agency; (2), the one-time
funding in 1995 of a $575,000 contingency reserve for certain bond investments
of the Trust Division; (3), a $138,000 decrease in equipment and occupancy
expense; and offset by (4), increases in data processing expenses, which rose
$107,000 from the levels of the prior year due to upgrades of
technology-related products and services, and (5), a $69,000 increase in
consultant fees for the Trust Division project discussed above.
NET INCOME
Net income for the third quarter of 1996 was $1,999,000, as compared to
$1,652,000 during the third quarter of 1995. This represents an increase of
21.00%. Earnings per share for the quarter were $.44 per share, up 22.22% from
the third quarter 1995 figure of $.36 per share. The increased earnings result
from a combination of higher net interest income for the quarter and reduced
noninterest expenses.
<PAGE> 19
Net income for the nine months ended September 30, 1996 was $5,483,000,
compared to $5,272,000 for the same period of 1995, an increase of 4.00%. Net
income per share of common stock increased to $1.21 for the nine months ended
September 30, 1996, from $1.16 for the nine months ended September 30, 1995.
These figures have been adjusted for the July 1, 1996 stock split. The
$211,000 increase in net income was primarily due to a combination of lower
noninterest expenses (down $828,000) and reduced provisions for loan loss (down
$215,000), offset by reduced noninterest income (down $613,000) and net
interest income (down $103,000).
BALANCE SHEET COMMENTS
Total assets at September 30, 1996 were $515,443,000, as compared to
$436,859,000 at year-end 1995, an increase of 17.99%. The expansion can be
attributed to the First Union acquisition ($82,000,000 in deposits acquired
leading to cash invested) and to loan growth of $33,410,000 since the beginning
of the year. The growth in loans constitutes an 11.17% rate of growth on an
annual basis. The $9,124,000 increase in other assets includes a $7,416,000
core deposit intangible and $1,450,000 in real estate and fixed assets related
to the First Union acquisition. Since September 30, 1996, $825,000 of the real
estate has been sold for book value.
Deposits at September 30, 1996 were $452,612,000, having increased 17.77% since
December 31, 1995. The trend of deposits shifting into higher-yielding time
deposits has continued. The total of savings, time deposits over $100,000 and
other time deposits has increased as a percentage of overall deposits since
year-end 1995, from 51.3% of the deposit base at 12/31/95, to 57.4% at
September 30, 1996. This is primarily due to the deposit mix of the acquired
First Union deposits.
Debenture bonds and notes payable, and federal funds purchased and securities
sold under repurchase agreements increased by $6,861,000 to $11,220,000 at
September 30, 1996. Securities sold under repurchase agreements accounted for
most of the increase, as the First State Bank & Trust Company in Albany
subsidiary entered into repurchase agreements with two major customers in 1996,
adding over $5,300,000 to this category. Debenture bonds payable under an
operating line of credit increased by $765,000 to meet temporary demands for
liquidity. $3,200,000 was borrowed under a note payable to the Federal Home
Loan Bank of Atlanta to match and fund a variable-rate commercial loan in the
current year. Federal funds purchased declined by $2,450,000 in 1996.
CAPITAL RESOURCES
Stockholders' equity at September 30, 1996 totaled $46,385,000, as compared to
$43,148,000 at year-end 1995. This is an increase of 7.50%. At September 30,
1996, total capital was 9.00% of total assets.
LIQUIDITY
Management of the Company's liquidity position involves the understanding and
matching of customers' cash flow needs. This includes the depositors' desire
to withdraw funds from the Company, as well as the borrowers' assurance of the
ability to fund their credit needs. The Company meets these needs primarily
through the management of its short term investments. Another source of
liquidity is the repayment of installment and single payment loans. Should the
need arise, the Company maintains relationships with several correspondent
banks who can provide funds on short notice.
Liquidity is monitored on a regular basis by management, and by state and
federal regulatory authorities. Regulatory guidelines establish liquidity
ratios that must be maintained. The current liquidity levels are considered
satisfactory.
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending proceedings to which the Company is a
party or to which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any associate of the foregoing, is a party or has an
interest adverse to the Company.
First State Bank & Trust Company, Albany, Georgia ("FSB Albany") is
involved in an appeal of litigation filed by shareholder and former trust
beneficiary, Frederick D. Ledbetter, in which Mr. Ledbetter alleges that FSB
Albany breached its fiduciary duties to him in connection with a revocable
trust that he established with FSB Albany. After the United States District
Court for the Middle District of Georgia granted summary judgement in favor of
FSB Albany on all counts and dismissed Mr. Ledbetter's complaint, Mr. Ledbetter
filed a notice of appeal to the United States Court of Appeals for the Eleventh
Circuit. On June 25, 1996, the Court of Appeals reversed the District Court's
ruling and remanded the case for trial. The appellate Court subsequently
denied the bank's filing a motion for rehearing. Accordingly, the case is
being remanded to the trial court and the case is expected to go to trial
during the first quarter of 1997.
Reference is made to the Company's Form 10-K for the year ended
December 31, 1994 for additional information concerning this litigation.
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and reports on Form 8-K
A. Exhibits - 27 Financial Data Schedule (for SEC use only)
B. There were no reports filed on Form 8-K for the quarter ended September
30, 1996.
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST STATE CORPORATION
11-8-96 /s/ Douglas E. Wren
- --------------------- ----------------------------
Date Douglas E. Wren,
President & Chief Operating
Officer
11-8-96 /s/ Robert E. Lee
- ---------------------- ---------------------------
Date Robert E. Lee,
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST STATE CORPORATION FOR THE PERIOD ENDING SEPTEMBER
30, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,105,000
<INT-BEARING-DEPOSITS> 10,695,000
<FED-FUNDS-SOLD> 3,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,860,000
<INVESTMENTS-CARRYING> 37,658,000
<INVESTMENTS-MARKET> 0
<LOANS> 332,571,000
<ALLOWANCE> 5,178,000
<TOTAL-ASSETS> 515,443,000
<DEPOSITS> 452,612,000
<SHORT-TERM> 6,397,000
<LIABILITIES-OTHER> 5,226,000
<LONG-TERM> 4,823,000
0
0
<COMMON> 4,550,000
<OTHER-SE> 41,835,000
<TOTAL-LIABILITIES-AND-EQUITY> 515,443,000
<INTEREST-LOAN> 22,545,000
<INTEREST-INVEST> 4,209,000
<INTEREST-OTHER> 197,000
<INTEREST-TOTAL> 26,951,000
<INTEREST-DEPOSIT> 10,190,000
<INTEREST-EXPENSE> 10,495,000
<INTEREST-INCOME-NET> 16,456,000
<LOAN-LOSSES> 350,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,218,000
<INCOME-PRETAX> 7,946,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,483,000
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 0
<LOANS-NON> 906,000
<LOANS-PAST> 670,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,037,000
<CHARGE-OFFS> 341,000
<RECOVERIES> 132,000
<ALLOWANCE-CLOSE> 5,178,000
<ALLOWANCE-DOMESTIC> 350,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
