<PAGE>
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 March 31, 1997
/ / 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
incorporation or organization) Identification No.)
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 March 31, 1997.
4,549,918 shares
<PAGE>
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 March 31, 1997 and December 31, 1996.
B. Consolidated Statements of Income for the three months ended March 31,
1997 and 1996.
C. Consolidated Statements of Cash Flows for the three months ended March
31, 1997 and 1996.
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 three 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
2
<PAGE>
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ---------------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Cash and due from banks 25,638 30,151
Interest-bearing deposits in banks 1,464 6,298
Investment securities--held to maturity 32,916 34,813
Investment securities--available for sale 87,235 87,026
Federal funds sold 0 875
Loans 343,989 334,332
Less allowance for loan losses 5,175 5,062
------- -------
Loans, net 338,814 329,270
------- -------
Premises and equipment, net 10,465 10,358
Other assets 17,448 17,708
------- -------
513,980 516,499
------- -------
------- -------
Liabilities & Stockholders' Equity
Deposits
Noninterest bearing demand 85,883 90,636
Interest-bearing demand 110,693 111,837
Savings 29,935 28,380
Time, $100,000 and over 57,187 50,347
Other time 169,889 171,251
------- -------
Total deposits 453,587 452,451
------- -------
Federal funds purchased and securities sold under repurchase agreements 3,900 7,771
Debenture bonds and notes payable 3,116 3,395
Other liabilities 4,329 4,752
------- -------
Total liabilities 464,932 468,369
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: 4,549,918 shares
and 4,549,588 shares issued 4,550 4,550
Additional paid-in capital 2,351 2,348
Retained earnings 42,438 41,142
Net unrealized gains (losses) on available for sale securities (net of taxes) (291) 90
------- -------
Total stockholders' equity 49,048 48,130
------- -------
513,980 516,499
------- -------
------- -------
</TABLE>
3
<PAGE>
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the periods ended March 31, 1997 and 1996
(Dollars in Thousands, except earnings per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Interest Income
Interest and fees on loans $ 8,059 $ 7,285
Interest on investment securities
Taxable 1,582 847
Nontaxable 272 324
Interest on federal funds sold 6 144
Interest on deposits in banks 68 142
--------- ---------
$ 9,987 $ 8,742
--------- ---------
Interest Expense
Interest on deposits $ 3,946 $ 3,325
Interest on federal funds purchased and
securities sold under repurchase agreements 49 48
Interest on other borrowings 60 6
$ 4,055 $ 3,379
--------- ---------
Net interest income 5,932 5,363
Provision for loan losses 180 144
Net interest income after
provision for loan losses $ 5,752 $ 5,219
Other Income
Service charges on deposit accounts 824 705
Other loan income 387 675
Trust department income 301 300
Other 145 111
--------- ---------
$ 1,657 $ 1,791
Other Expense
Salaries and employee benefits $ 2,441 $ 2,454
Equipment and occupancy, net 873 750
Data processing expense 194 177
Stationery and supplies 113 106
Advertising and marketing 204 120
Amortization of intangible assets 183 59
Other operating expenses 750 820
-------------- ------------
$ 4,758 $ 4,486
-------------- ------------
Income before taxes 2,651 2,524
Applicable income taxes 854 763
-------------- ------------
Net Income $ 1,797 $ 1,761
------------- -----------
------------- -----------
Per share of common stock, fully diluted
Net Income $ 0.38 $ 0.37
------------- -----------
</TABLE>
4
<PAGE>
FIRST STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the periods ended March 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 1,797 1,761
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 585 382
Provision for loan losses 180 144
Provision for deferred tax benefits (51) (9)
Increase in taxes payable 534 809
Decrease in interest payable (72) (5)
Decrease in interest receivable 248 245
Other prepaids, deferrals and accruals, net (809) 75
----------- -------------
Total adjustments 615 1,641
----------- -------------
Net cash provided by operating activities 2,412 3,402
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest bearing deposits with banks 4,834 4,776
Proceeds from maturities of securities held to
maturity 1,897 3,008
Proceeds from maturities of securities held for sale 8,035 989
Purchase of securities held to maturity 0 (4,411)
Purchase of securities held for sale (8,821) (11,287)
Decrease in federal funds sold 875 6,469
Increase in loans (9,724) (4,269)
Purchase of premises and equipment (509) (403)
---------- ------------
Net cash used in investing activities (3,413) (5,128)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 2 0
Increase (decrease) in deposits 1,136 (2,412)
Increase (decrease) in federal funds purchased
and securities sold under repurchase
agreements (3,871) 538
Principal payments on debt (279) (885)
Dividends paid (500) (427)
---------- ------------
Net cash used in financing activities (3,512) (3,186)
---------- ------------
Net decrease in cash and due from banks (4,513) (4,912)
Cash and due from banks at beginning of period 30,151 26,130
---------- ------------
Cash and due from banks at end of period 25,638 21,218
---------- ------------
---------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings 4,126 3,383
</TABLE>
5
<PAGE>
PER SHARE INFORMATION
A 3-for-2 stock split had been declared effective May 20, 1997 to
shareholders of record May 10, 1997, at the time of this filing. Had the
financial statements been restated for this split, the following information
would have changed:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1997 MARCH 31, 1996
----------------- -----------------
<S> <C> <C>
Net income per share, fully diluted........ $ .25 $ .25
AT AT
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
Common shares outstanding.................. 6,824,877 6,824,382
</TABLE>
6
<PAGE>
FIRST STATE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
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.
BASIS OF FINANCIAL STATEMENT PRESENTATION
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.
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.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention on the
date of purchase. Securities which management has the intent and
ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost. All other debt securities are
classified as available-for-sale and carried at fair value with net
unrealized gains and losses included in stockholders' equity net of
tax. Marketable equity securities are carried at fair value with
net unrealized gains and losses included in stockholders' equity.
Other equity securities without a readily determinable fair value
are carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest
income. Realized gains and losses from the sales of securities are
determined using the specific identification method.
LOANS HELD FOR SALE
Loans held for sale include mortgage and other loans and are
carried at the lower of aggregate cost or fair value.
LOANS
Loans are carried at their 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.
Loan origination fees and certain direct costs of most loans are
recognized at the time the loan is recorded. Because net
origination loan fees and costs are not material, the results of
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 maintained at a level that
management believes to be adequate to absorb potential losses
in the loan portfolio. Management's determination of the adequacy
of the allowance is based on an evaluation of the portfolio, past
loan loss experience, current economic conditions, volume, growth,
composition of the loan portfolio, and other risks inherent in the
portfolio. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the Company to
record additions to the allowance based on their judgment about
information available to them at the time of their examinations.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments
as they become due. When accrual of interest is discontinued, all
unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the Company will be unable
to collect all principal and interest payments due in accordance
with the terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of payments
expected to be received, using the contractual loan rate as the
discount rate. Alternatively, measurement may be based on the
observable market prices or, for loans that are solely dependent
on the collateral for repayment, measurement may be based on the
fair value of the collateral.
If the recorded investment in the impaired loan exceeds the measure
of fair value, a valuation allowance is established as a component
of the allowance for loan losses. Changes to the valuation
allowance are recorded as a component of the provision for loan
losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure and acquisition. Other real estate owned is held for
sale and is carried at the lower of the recorded amount of the loan
or fair value of the properties less estimated selling costs. Any
write-down to fair value at the time of transfer to other real
estate owned is charged to the allowance for loan losses.
Subsequent gains or losses on sales and any subsequent adjustment
to the value are recorded as other expenses.
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.
Premiums paid for deposits are being amortized on the straight-line
basis over 15 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.
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and liabilities are
recognized on the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. Deferred tax expense or benefit is
then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax
operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items for
which it is more likely than not that realization will not occur.
10
<PAGE>
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 common share are computed by dividing net income by
the weighted average number of shares of common stock and common
stock equivalents outstanding. All per share amounts for prior
periods have been adjusted to reflect the 3-for-2 stock split
effected in the form of a 50% stock dividend effective July 1,
1996.
11
<PAGE>
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 March 31, 1997, and
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
ACTUAL RATIO
------------------------
<S> <C> <C> <C>
MARCH DECEMBER REGULATORY
31, 1997 31, 1996 MINIMUM
----------- ----------- -----------
Tier-1 Leverage Ratio...................... 8.42% 7.99% 5.00%
Tier-1 Risk Based Capital Ratio............ 13.00% 12.98% 6.00%
Total Risk Based Capital Ratio............. 14.26% 14.24% 10.00%
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared to the three
months ended March 31, 1996
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for the quarter ended March 31, 1997 was $9,987,000, as
compared to $8,742,000 in the same period of 1996. This is an increase of
$1,245,000, or 14.24%. The increase can be attributed to growth in quarterly
average earning assets to $462,640,000 at 3/31/97 from $393,277,000 at
3/31/96, an increase of 17.64%. The effect of the increase in earning assets
was partially offset by the effect of a drop in average loan and investment
yields. Average loan yield declined from 9.76% for the quarter ended March
31, 1996, to 9.72% for the quarter ended March 31, 1997, a decrease of 0.04%.
Average yields on investments, federal funds sold, and interest-bearing
deposits as a group declined slightly from 6.29% for the quarter ended March
31, 1996, to 6.19% for the quarter ended March 31, 1997, a decrease of 0.10%.
The increase in average earning assets was the result of a 12.06%
increase in average loan balances and a 35.62% increase in average balances
of investments (including federal funds sold and interest-bearing deposits)
as compared to the quarter ended March 31, 1996. The increase in investments
was primarily due to funds acquired in the August 9, 1996 acquisition of
approximately $82 million in Dougherty County deposits of First Union
National Bank of Georgia, NA.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1997 was
$4,055,000, as compared to $3,379,000 for the first quarter of 1996. This is
an increase of $676,000, or 20.01%. The increase is due to an increase in
average deposit balances of $69.5 million, or 18.40%, since March 31, 1996.
Deposit expense averaged 3.58% of deposit balances for the first quarter of
1997, up slightly from the 3.54% figure for the first quarter of 1996. An
analysis of average deposit balances also shows a 3.90% shift in deposit
composition to savings and time deposits (with higher interest rates) since
the first quarter of 1996.
Interest on borrowings during the first quarter of 1997 was $60,000, up
from the first quarter of 1996, when interest on borrowings totaled $6,000.
The Corporation's debt is related to the matching of one large variable-rate
commercial loan with a variable-rate borrowing of the same maturity.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1997
was $180,000 as compared to $144,000 for the three months ended March 31,
1996. The current provision maintains the allowance for loan losses at levels
deemed acceptable by management and the regulators of the affiliated
institutions. In anticipation of loan growth in 1997, management increased
the loan loss provision to maintain a proportionate level of reserves.
13
<PAGE>
OTHER INCOME
Noninterest income for the quarter ended March 31, 1997 was $1,657,000,
versus $1,791,000 for the first quarter of 1996. The net decrease of $134,000
in other income is the result of two factors: a decrease in volume of loan
sales in the secondary market caused other loan income to decline by $288,000
and, offsetting these effects, service charges on deposit accounts increased
by $119,000 over the first quarter of 1996. Service charges were higher due
to the increased number of accounts due to the First Union deposit
acquisition.
OTHER EXPENSES
Other noninterest expenses were $4,758,000 in the first quarter of 1997,
a 6.06% increase from the $4,486,000 reported in the same period of 1996. The
$272,000 increase is due to a number of factors. First, amortization of
intangibles attributable to the First Union deposit acquisition resulted in
an increase in intangible expense of $124,000. Secondly, the Company
experienced increased equipment expenses and depreciation charges related to
upgrades to the Corporation's data processing systems, which resulted in
$128,000 of additional expense. Finally, the Company's other operating
expenses rose by $42,000. The increase was due to (a) an $84,000 increase in
advertising and marketing; (b) a $24,000 increase in operational losses
(chiefly due to two robberies in the first quarter of 1997); (c) a $20,000
increase in training expense; (d) a $19,000 increase in postage expense;
offset by (e) a decline in other real estate expenses of $61,000 and (f) a
decline in consulting fees of $48,000.
NET INCOME
Net income for the first quarter of 1997 was $1,797,000, as compared to
$1,761,000 during the first quarter of 1996. This represents an increase of
2.04%. Fully-diluted earnings per share for the quarter was $.38 per share,
up $.01 from the split-adjusted first quarter 1996 figure of $.37 per share.
The increase in earnings for the first quarter of 1997 was the result of
an increase in net interest income (up $569,000 or 10.61%, from the first
quarter of 1996), primarily due to the net increase in assets resulting from
the third quarter 1996 acquisition of First Union deposits in Dougherty
County, GA. This increase was offset by (a) a decrease in noninterest income
(down $134,000 or 7.48% from the first quarter of 1996), due to decreased
activity in the First State Mortgage lending division, (b) an increase in
noninterest expenses (up $272,000, or 6.06% from the first quarter of 1996),
due to increased amortization of intangibles attributable to the First Union
deposit acquisition and due to increased depreciation charges related to
upgrades to the Corporation's data processing systems, and (c) an increase in
the Corporation's provision for income taxes (up $91,000, or 11.93% from the
first quarter of 1996).
The Corporation's net income for the first quarter of 1997 was on target
with management's expectations for the quarter.
BALANCE SHEET COMMENTS
Total assets at March 31, 1997 were $513,980,000, as compared to
$516,499,000 at year-end 1996, a decrease of 0.49%. The small change is the
result of several factors: (a) cash and interest bearing deposits, declined
by $9,347,000; (b) investments held-to-maturity declined by
14
<PAGE>
$1,897,000 due to maturities of municipal bonds; and, (c), other assets
declined by $260,000 primarily due to a reduction in intangible assets
through amortization; these decreases were partially offset by (d) net loan
growth of $9,544,000, or 2.90%, since year-end 1996 and (e) premises and
equipment balance growth of $107,000 due to the purchase of computer
equipment.
Deposits at March 31, 1997 were $453,587,000, having increased
$1,136,000, or 0.25%, since December 31, 1996. The composition of the
Company's deposits continues to trend toward higher-yielding time deposits.
The total of savings deposits, time deposits over $100,000 and other time
deposits has increased as a percentage of overall deposits since year-end
1996, from 55.25% of the deposit base at December 31, 1996, to 56.66% at
March 31, 1997.
Debenture bonds and notes payable, and federal funds purchased and
securities sold under repurchase agreements decreased by $4,150,000 to
$7,016,000 at March 31, 1997. Securities sold under repurchase agreements
accounted for most of the decrease. The $3,116,000 in debentures and notes
payable consists entirely of funds borrowed under a note payable to the
Federal Home Loan Bank of Atlanta to match and fund a variable-rate
commercial loan. Federal funds purchased declined by $1,000,000 in the first
quarter of 1997.
CAPITAL RESOURCES
Stockholders' equity at March 31, 1997 totaled $49,048,000, as compared
to $48,130,000 at year-end 1996. This is an increase of 1.91%. At March 31,
1997, total capital was 9.54% of total assets. Due to changes in market
conditions, the FAS 115 allowance for unrealized gains (losses) on securities
changed by $381,000 during the quarter, resulting in a reduction of capital
of $291,000 at quarter-end.
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 the Company's
Asset Liability Management Committee, and by state and federal regulatory
authorities. Regulatory guidelines and management policies of the Company
establish liquidity ratios that must be maintained. The current liquidity
levels are considered satisfactory.
OUTLOOK FOR THE REMAINDER OF 1997 AND FORWARD LOOKING STATEMENT
The remainder of 1997 brings with it new opportunities for growth in our
existing markets, as well as opportunities to expand into new market areas
through profitable bank acquisitions and branch purchases. Our philosophy
remains to provide the services, products, and customer service that our
customers have come to expect, while further enhancing stockholder value.
15
<PAGE>
In order for the Company to sustain the track record of growth established
over the past several years, both internal and external growth must occur. While
we strive for core internal growth of the Company, factors outside our control
could affect future growth opportunitites.
16
<PAGE>
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 director, officer or affiliate or any principal
security holder of the company, or any associate of the foregoing, is a party
or has an interest adverse to the Company.
On December 31, 1993, Frederick D. Ledbetter filed suit against FSB
Albany in the U. S. District Court, Albany Division. The suit alleged certain
fiduciary violations with respect to a revocable management trust established
by Mr. Ledbetter at FSB Albany. The suit was based on dissatisfaction with a
number of actions taken by the Board of Directors of the Company, including
authorization of the stock offering which commenced December 2, 1993 (Count
One), the failure of the Board of Directors to take affirmative action to
sell the Company to a third party (Count Two) and the compensation of senior
management of the Company (Count Three). The suit was later amended to add a
fourth claim that the Bank improperly resigned as trustee of plaintiff's
trust (Count Four). On March 15, 1995, the district court granted to FSB
Albany summary judgment and complete dismissal of all claims. Mr. Ledbetter
appealed the district court's judgment to the United States Court of Appeals
for the Eleventh Circuit. On June 25, 1996, the Eleventh Circuit reversed the
trial court's grant of summary judgment and remanded the case for trial
before a jury. The suit was tried before a jury starting Tuesday, February
25, 1997 in U. S. District Court in Albany, Georgia. At the conclusion of the
trial, the Court decided in favor of the plaintiff as a matter of law as to
Count One, but left to the jury whether any damages should be awarded to
plaintiff under Count One. On March 6, 1997, the jury returned its verdict in
which it found the defendant not liable on Counts Two and Three of the suit
and liable on Count Four of the suit. The jury awarded no compensatory
damages under the two counts in which the jury and the Court found for
plaintiff, and awarded $100 in nominal damages and $42,000 in attorneys'
fees. The parties agreed not to appeal the verdict and judgment, and on April
23, 1997, FSB Albany paid $42,100 plus interest and costs, in satisfaction of
the judgment.
In a matter related to the Ledbetter litigation discussed above, the
Board of Directors of FSB Albany and First State received a derivative demand
letter dated October 4, 1996, from Sarah Haley Hixon, a shareholder from
Greenville, South Carolina. Ms. Hixon, through her attorneys, demanded that
an action be filed against the Directors of FSB Albany to indemnify FSB
Albany for any liabilities which might arise from the Ledbetter litigation.
In accordance with Georgia law, FSB Albany's Board
17
<PAGE>
established an independent committee to determine whether the demand was in
the best interests of FSB Albany and its shareholders. First State
Corporation's Board has also established an independent committee to
determine whether the demand was in the best interests of First State
Corporation and its shareholders. Neither Committee has made any
recommendations to either Board as of this date, nor has any litigation been
filed in connection with Ms. Hixon's demand.
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 March 31,
1997.
18
<PAGE>
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
May 9, 1997 signed
- ------------------------ --------------------------
Date Douglas E. Wren,
President & Chief Operating
Officer
May 9, 1997 signed
- ------------------------- ----------------------------
Date Robert E. Lee,
Senior Vice President and
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 25638
<INT-BEARING-DEPOSITS> 1464
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 87235
<INVESTMENTS-CARRYING> 32916
<INVESTMENTS-MARKET> 33292
<LOANS> 343989
<ALLOWANCE> 5175
<TOTAL-ASSETS> 513980
<DEPOSITS> 453587
<SHORT-TERM> 50
<LIABILITIES-OTHER> 8179
<LONG-TERM> 3116
0
0
<COMMON> 4550
<OTHER-SE> 44498
<TOTAL-LIABILITIES-AND-EQUITY> 513980
<INTEREST-LOAN> 8059
<INTEREST-INVEST> 1854
<INTEREST-OTHER> 74
<INTEREST-TOTAL> 9987
<INTEREST-DEPOSIT> 3946
<INTEREST-EXPENSE> 4055
<INTEREST-INCOME-NET> 5932
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4758
<INCOME-PRETAX> 2651
<INCOME-PRE-EXTRAORDINARY> 2651
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1797
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 8.75
<LOANS-NON> 894
<LOANS-PAST> 1085
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5062
<CHARGE-OFFS> 113
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 5175
<ALLOWANCE-DOMESTIC> 5175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
