<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 June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 1934
For the transition period from to
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Commission File Number: 0-23890
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FIRST STATE CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1439347
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
</TABLE>
333 W. Broad Avenue, Albany, Georgia 31703
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(Address of principal executive offices)
(912) 432-8000
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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APPLICABLE-ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 30, 1996.
4,572,358 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 June 30, 1996 and December 31,
1995.
B. Consolidated Statements of Income for the three months and six months
ended June 30, 1996 and 1995.
C. Consolidated Statements of Cash Flows for the six months ended June
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 six
months are not necessarily indicative of the results of operations for the
entire year.
ITEM 2. Management's Discussion and Analysis
<PAGE> 3
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks 22,989 26,130
Interest-bearing deposits in banks 217 12,912
Investment securities - held to maturity 40,382 42,388
Investment securities - available for sale 40,229 29,171
Federal funds sold 2,000 10,558
Loans 315,530 299,161
Less allowance for loan losses 5,201 5,037
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Loans, net 310,329 294,124
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Premises and equipment, net 10,963 10,905
Other assets 10,252 10,671
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437,361 436,859
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits
Noninterest - bearing demand 82,161 85,362
Interest-bearing demand 96,111 101,615
Savings 26,533 24,850
Time, $100,000 and over 30,538 37,696
Other time 136,178 134,803
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Total deposits 371,521 384,326
Federal funds purchased and securities
sold under repurchase agreements 11,501 3,474
Debenture bonds and notes payable 3,200 885
Other liabilities 5,685 5,026
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Total liabilities 391,907 393,711
Stockholders' Equity
7% cumulative nonvoting preferred
stock, par value $50; 100,000 shares
authorized; no shares issued
Common stock, par value $1; 20,000,000
shares authorized: 4,572,358 and
6,853,365 shares issued 4,572 6,853
Additional paid-in capital 2,894 13,989
Retained earnings 38,068 35,513
Net unrealized gains (loss) on available
for sale securities (net of taxes) (80) 171
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45,454 56,526
Less cost of common treasury stock
0 , and 2,281,284 shares 0 13,378
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Total stockholders' equity 45,454 43,148
------- -------
437,361 436,859
======= =======
</TABLE>
<PAGE> 4
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,399 $7,093 $14,684 $13,775
Interest on investment securities
Taxable 885 1,114 1,732 2,309
Nontaxable 323 278 647 594
Interest on federal funds sold 30 17 174 36
Interest on deposits in banks 56 26 198 76
------ ------ ------- -------
$8,693 $8,528 $17,435 $16,790
------ ------ ------- -------
INTEREST EXPENSE
Interest on deposits $3,178 $2,930 $6,503 $ 5,555
Interest on federal funds purchased
and securities sold under repurchase
agreements 38 103 86 151
Interest on other borrowings 3 9 9 24
------ ------ ------- -------
$3,219 $3,042 $6,598 $ 5,730
------ ------ ------- -------
Net interest income 5,474 5,486 10,837 11,060
Provision for loan losses 124 188 268 377
Net interest income after
------ ------ ------- -------
provision for loan losses $5,350 $5,298 $10,569 $10,683
------ ------ ------- -------
OTHER INCOME
Service charges on deposit accounts 711 684 1,416 1,328
Other loan income 537 631 1,212 1,193
Trust department income 300 315 600 581
Gain/loss on security transactions
Other 117 473 228 659
------ ------ ------- -------
$1,665 $2,103 $ 3,456 $ 3,761
------ ------ ------- -------
Other Expense
Salaries and employee benefits 2,345 2,317 $ 4,799 $ 4,679
Equipment and occupancy, net 743 752 1,493 1,511
Data processing expense 241 155 418 319
FDIC Insurance 8 198 15 397
Stationery and supplies 101 122 207 224
Amortization of intangible assets 58 59 117 117
Legal fees 57 80 120 132
Telephone and telegraph 94 88 184 182
Trust investment losses 0 575 0 575
Other operating expenses 780 573 1,560 1,161
------ ------ ------- -------
4,427 4,919 $ 8,913 $ 9,297
------ ------ ------- -------
Income before taxes 2,588 2,482 5,112 5,147
APPLICABLE INCOME TAXES 865 766 1,628 1,527
------ ------ ------- -------
NET INCOME $1,723 $1,716 $ 3,484 $ 3,620
====== ====== ======= =======
Per share of common stock
Net Income 0.38 0.38 0.76 0.79
Dividends Declared 0.11 0.07 0.20 0.14
</TABLE>
<PAGE> 5
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 1996 AND JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 3,484 3,620
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 790 734
Provision for loan losses 268 377
Provision for deferred taxes (benefits) (52) (108)
Increase in taxes payable 818 251
Increase (decrease) in interest payable (149) 222
Increase in interest receivable (150) (486)
Other prepaids, deferrals and accruals, net 724 1,503
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Total adjustments 2,249 2,493
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Net cash provided by operating activities 5,733 6,113
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CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest bearing deposits
with banks 12,695 998
Proceeds from maturities of securities held to maturity 5,932 12,062
Proceeds from maturities of securities held for sale 3,996 4,487
Purchase of securities held to maturity (4,411) (4,741)
Purchase of securities held for sale (15,047) (1,358)
Decrease in federal funds sold 8,558 3,780
Increase in loans (16,473) (27,208)
Purchase of premises and equipment (731) (923)
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Net cash provided by (used in) investing activities (5,481) (12,903)
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CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposits (12,805) (770)
Increase in federal funds purchased and
securities sold under repurchase agreements 8,027 810
Principal payments on debt (885) (1,710)
Long term debt 3,200 - -
Treasury stock transactions, net
Dividends paid (930) (640)
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Net cash provided by (used in) financing activities (3,393) (2,310)
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Net increase (decrease) in cash and due from banks (3,141) (9,100)
Cash and due from banks at beginning of period 26,130 29,081
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Cash and due from banks at end of period 22,989 19,981
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings 6,747 5,508
Federal income taxes paid 809 1,372
</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:
<TABLE>
<CAPTION>
YEARS
-----
<C> <C>
Buildings 10-40
Equipment 5-20
Leasehold improvements 7-15
</TABLE>
<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
NOTE 2. CAPITAL REQUIREMENTS
The minimum capital requirements to be "well capitalized" and the
actual capital ratios for the Company at June 30, 1996, and
December 31, 1995, are as follows:
--Actual Ratio--
<TABLE>
<CAPTION>
June December Regulatory
30, 1996 31, 1995 Minimum
<S> <C> <C> <C>
Tier-1 Leverage Ratio 10.17% 9.70% 5.00%
Tier-1 Risk Based Capital Ratio 15.29% 14.38% 6.00%
Total Risk Based Capital Ratio 16.55% 15.63% 10.00%
</TABLE>
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended June 30, 1996 compared to the three months ended June 30,
1995
and
Six months ended June 30, 1996 compared to the six months ended June 30, 1995
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for the quarter ended June 30, 1996 was $8,693,000, as compared
to $8,528,000 in the same period of 1995. This is an increase of $165,000, or
1.93%. The increase can be attributed to the net effect of an increase in
earning assets to $393,157,000 at 6/30/96 from $372,898,000 at 6/30/95, an
increase of 5.43%, and a slight decrease in net interest margin, as
anticipated. 1994-95 brought record interest margins for the financial
institutions industry.
For the six months ended June 30, 1996, total interest income increased
$645,000, or 3.84%, from the six months ended June 30, 1995. This is the
result of increased interest and fees on loans of $909,000, coupled with a
decrease in investment income of $264,000. The increase in interest income was
primarily due to a 7.1% increase in loan balances since June 30, 1995. The
decrease in investment income was due to market conditions, requiring the
Corporation to replace maturing investments with lower yielding instruments.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1996 was $3,219,000, as
compared to $3,042,000 for the second quarter 1995. This is an increase of
5.82%, primarily due to higher interest rates and a 2.32% increase in deposits
since June 30, 1995. An analysis of deposits shows a 4.65% increase in
longer-maturity, time deposits with higher interest rates. Interest on
borrowings during the second quarter of 1996 was $3,000, down from the second
quarter of 1995, when interest on borrowings totaled $9,000. The Corporation
was debt-free for most of the quarter ended 6/30/96.
For the six months ended 6/30/96, interest expense increased by $868,000 from
the first six months of 1995, a rise of 15.15%. The increase is explained by
the increased deposits, higher interest rates, and a shift to longer-maturity
time deposits. Interest on borrowings decreased to $9,000 in the first two
quarters of 1996 from $24,000 in the first six months of 1995, a 62.5%
decrease. First State Corporation was primarily debt-free in the first six
months of 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended June 30, 1996 was
$124,000 as compared to $188,000 for the three months ended June 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 six months ended June 30, 1996 was $268,000, down
$109,000 from the same period in the prior year.
OTHER INCOME
Noninterest income for the quarter ended June 30, 1996 was $1,665,000, versus
$2,103,000 for the second quarter of 1995. Noninterest income through the
second quarter of 1996 was consistent with that of the
<PAGE> 17
prior year, after taking into account a $405,000 nonrecurring gain on a branch
sale that occurred in the second quarter of 1995.
The net decrease of $305,000 in other income for year-to-date 1996, as compared
to the six months ended 6/30/95, is the result of three factors: increased
service charges on deposit accounts ($88,000 increase at 6/30/96); increases
in trust department and other loan income totaling $38,000; and the
nonrecurring gain in 1995, as mentioned above. Excluding the one-time gain in
1995, other income would have increased $100,000, or 2.98%, through the second
quarter of 1996, as compared to the same period in 1995.
OTHER EXPENSES
Other noninterest expenses were $4,427,000 in the second quarter of 1996, a 10%
decrease from the $4,919,000 in like expenses in the same period of 1995. The
$492,000 decrease is due to a number of factors. First, data processing
expenses rose $86,000 in the three months ended June 30, 1996 as compared to
the same period of 1995. Second, consultant fees increased by approximately
$46,000 over the second quarter of 1995. The increase was due to a continuing
project to update trust department policies and procedures which has now been
completed. In addition, the Corporation's FDIC Insurance Expense decreased
$190,000, or 95.96%, due to a roll back of insurance premiums payable to the
regulatory agency. Finally, the Corporation experienced a one-time charge to
earnings of $575,000 in the second quarter of 1995 pertaining to a contingency
reserve for certain bond investments of the Trust Division of First State Bank
and Trust in Albany subsidiary.
For the six months ended June 30, 1996, other noninterest expense shows a
$384,000 decline. The decrease is primarily due to (1) increases in data
processing expenses, which rose $99,000 from the levels of the prior year; (2)
a $128,000 increase in consultant fees; (3) the decreased FDIC insurance
expense, which was down $382,000 for the six month period ended 6/30/96; and
(4), the nonrecurring charge of $575,000 in 1995. In addition, salaries and
employee benefits expense increased $120,000, or 2.56%, for the six months
ended June 30, 1996, as compared to the prior year. This increase is explained
by a $157,000 increase in benefit costs, offset by a $41,000 decrease in
salaries and commissions from the same period last year, primarily due to
further reductions in force at the Southeastern Mortgage Corporation
subsidiary.
NET INCOME
Net income for the second quarter of 1996 was $1,723,000, as compared to
$1,716,000 during the second quarter of 1995. This represents a nominal
increase of 0.41%. Earnings per share, stated to include the effects of a
3-for-2 stock split effective 7/1/96, were $.38 per share, identical to the
second quarter of 1995. The comparable earnings result from a combination of
comparable net interest income (the result of higher loan volume with a
decreased interest margin) and nonrecurring charges and credits to income in
1995. These nonrecurring items roughly offset the net effect of the
combination of slightly increased operating expenses and a lower loan loss
provision in 1996.
Net income for the six months ended June 30, 1996 was $3,484,000, compared to
$3,620,000 for the same period of 1995. Net income per share of common stock
decreased slightly, to $.76 for the six months ended June 30, 1996, from $.79
for the six months ended June 30, 1995. These figures have been adjusted for
the July 1, 1996 stock split. The $136,000 decrease in net income was
primarily due to a combination of lower net interest income (down $223,000)
offset by a reduction of $109,000 in the provision for loan losses.
BALANCE SHEET COMMENTS
Total assets at June 30, 1996 were $437,361,000, as compared to $436,859,000 at
year-end 1995, a slight increase of 0.1%. Since the beginning of 1996, the
investment portfolio has decreased by $12,201,000,
<PAGE> 18
while loans have grown by $16,369,000. This growth in loans constitutes a 10.9%
rate of growth on an annual basis. Cash and due from banks declined by
approximately $3.1 million. The decline in cash and investments financed the
loan growth.
Deposits at June 30, 1996 were $371,521,000, declining 3.33% since January 1,
1996. The trend of deposit shifting into higher-yielding time deposits has
continued. While the total of savings, time deposits over $100,000 and other
time deposits has dropped $4,100,000 since the beginning of 1996, these
deposits comprise 52.0% of the deposit base at 6/30/96, up from 51.3% at
year-end 1995.
Federal funds purchased, and debenture bonds and notes payable, increased by
$10,342,000 to $14,701,000 at June 30, 1996. A definitive agreement to
purchase the Albany/Dougherty County branches of First Union National Bank is
scheduled to be consummated in early August, 1996. Regulatory approval from
the Federal Deposit Insurance Corporation and the Georgia Department of Banking
and Finance has been received. The acquisition will increase deposits by
approximately $90,000,000. Management is taking a graduated investment strategy
in accordance with its acquisition, since it considers it prudent to invest the
anticipated funds as opportunities occur, rather than investing all funds at
the acquisition date. This has required some borrowing late in the second
quarter of 1996, in anticipation of cash to be received on the acquisition
date.
CAPITAL RESOURCES
Stockholders' equity at June 30, 1996 totaled $45,454,000, as compared to
$43,148,000 at year-end 1995. This is an increase of 5.3%. At June 30, 1996,
total capital was 10.4% 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> 19
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 bank is filing a motion for
reconsideration of the decision by the Court of Appeals.
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.
The Annual Meeting of Shareholders was held on April 29, 1996, and the
Stockholders voted on the following matters: (i) the election of four
nominees to serve as directors of the Company for a term of three years until
1999; (ii) to approve an amendment to the Company's Articles of Incorporation,
increasing the number of shares of common stock authorized to 20,000,000;
(iii) to approve an amendment to the Company's Articles of Incorporation,
conforming the liability of directors of the Company to the Georgia Code.
Represented at the Annual Meeting were 2,496,966 shares of common stock, $100
par value, or 81.92% of the issued and outstanding shares of the Company.
<PAGE> 20
Pursuant to the Company's Articles of Incorporation, its Board of
Directors is divided into three classes. The Board of Directors proposed that
the four directors whose terms expired in 1996 be reelected directors of the
Company to serve additional three-year terms. The four directors were
reelected by the following vote:
<TABLE>
<CAPTION>
Shares Voted Authority
Director For Reelection Withheld
-------- -------------- -----------
<S> <C> <C>
Henry M. Goodyear, Jr. 2,287,123 209,843
James Griffin, Jr 2,287,123 209,843
William L. Walden 2,287,123 209,843
Douglas E. Wren 2,287,123 209,843
</TABLE>
Proposal Two: To approve an amendment to the Company's Articles of
Incorporation, increasing the number of shares of common stock authorized to
20,000,000. The holders of 1,976,297 shares voted in favor of the approval of
the amendment to the Company's Articles of Incorporation, increasing the number
of shares of common stock authorized to 20,000,000. The holders of 520,669
shares voted against the approval.
Proposal Three: To approve an amendment to the Company's Articles of
Incorporation, conforming the liability of directors of the Company to the
Georgia Code. The holders of 2,052,035 shares voted in favor of the approval of
the amendment to the Company's Articles of Incorporation, conforming the
liability of directors of the Company to the Georgia Code. The holders of
398,852 shares voted against the approval and 46,079 shares abstained from
voting.
ITEM 5. Other Information.
On March 19, First State Bank and Trust Company signed a definitive
agreement with First Union National Bank of Georgia to purchase the two
existing First Union branches located in Dougherty County, Albany, Georgia.
The transaction involves the purchase of approximately 90 million dollars
in deposits, the two branch facilities(fixed assets) in Dougherty County,
and certain other assets of First Union(excluding loans).
This transaction is expected to be completed during the latter part of this
year. It is anticipated the impact on earnings for this transaction will be
insignificant and create little dilution in earnings per share.
ITEM 6. Exhibits and reports on Form 8-K
A. Exhibits - 27 Financial Data Schedule (for SEC use only)
B. There have been no reports filed on Form 8-K for the quarter ended June 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
8-7-96 /s/ Douglas E. Wren
- --------------------- ---------------------------
Date Douglas E. Wren,
President & Chief Operating
Officer
8-7-96 /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 JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,989,000
<INT-BEARING-DEPOSITS> 217,000
<FED-FUNDS-SOLD> 2,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,229,000
<INVESTMENTS-CARRYING> 40,382,000
<INVESTMENTS-MARKET> 0
<LOANS> 315,530,000
<ALLOWANCE> 5,201,000
<TOTAL-ASSETS> 437,361,000
<DEPOSITS> 371,521,000
<SHORT-TERM> 11,501,000
<LIABILITIES-OTHER> 5,685,000
<LONG-TERM> 3,200,000
0
0
<COMMON> 4,572,000
<OTHER-SE> 40,882,000
<TOTAL-LIABILITIES-AND-EQUITY> 437,361,000
<INTEREST-LOAN> 14,684,000
<INTEREST-INVEST> 2,577,000
<INTEREST-OTHER> 174,000
<INTEREST-TOTAL> 17,435,000
<INTEREST-DEPOSIT> 6,503,000
<INTEREST-EXPENSE> 6,598,000
<INTEREST-INCOME-NET> 10,837,000
<LOAN-LOSSES> 268,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,913,000
<INCOME-PRETAX> 5,112,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,484,000
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 804,000
<LOANS-PAST> 580,000
<LOANS-TROUBLED> 0<F1>
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,037,000
<CHARGE-OFFS> 190,000
<RECOVERIES> 87,000
<ALLOWANCE-CLOSE> 5,201,000
<ALLOWANCE-DOMESTIC> 268,000
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>NOT APPLICABLE
</FN>
</TABLE>
