FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------
Commission File Number 0-10974
-------
FIRST PULASKI NATIONAL CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1110294
- - ----------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
206 South First Street, Pulaski, Tennessee 38478
- - ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 931-363-2585
---------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report:
Common Stock, $1.00 par value -- 1,559,833 Shares Outstanding
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
September 30, December 31,
ASSETS 1998 1997
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $7,777,489 $10,111,703
Federal funds sold 11,140,578 6,180,468
------------ ------------
Cash and cash equivalents 18,918,067 16,292,171
Securities available for sale 45,624,324 51,012,300
Securities held to maturity 22,680,876 20,203,342
Net loans and leases 167,018,745 166,133,476
Bank premises and equipment 7,666,225 7,276,129
Accrued interest receivable 3,569,278 3,411,958
Prepayments and other assets 3,425,107 2,170,885
Other real estate owned 80,999 115,450
------------ ------------
TOTAL ASSETS $268,983,621 $266,615,711
============ ============
LIABILITIES
-----------
Deposits
Non-interest bearing balances $32,124,936 $32,676,530
Interest bearing balances 195,764,695 194,488,964
------------ ------------
227,889,631 227,165,494
Other borrowed funds 2,071,156 2,196,300
Accrued taxes 337,220 117,286
Accrued interest on deposits 1,869,422 2,009,066
Accrued profit sharing expense 139,664 132,582
Other liabilities 340,354 415,637
------------ ------------
TOTAL LIABILITIES 232,647,447 232,036,365
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
Common Stock, $1.00 par; authorized 10,000,000
shares; 1,559,833 and 1,550,994 shares issued
and outstanding, respectively 1,559,833 1,550,994
Capital Surplus 6,669,550 6,413,294
Retained Earnings 27,595,160 26,285,955
Accumulated other comprehensive income, net
of tax of $264,855 and $170,826,
respectively in 1998 and 1997 511,631 329,103
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 36,336,174 34,579,346
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $268,983,621 $266,615,711
============ ============
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
For Three Months Ended For Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including
fees $4,522,938 $4,496,260 $13,673,629 $13,140,352
Investment
securities 1,037,509 966,637 3,146,495 2,854,967
Federal funds sold 197,273 192,577 523,162 531,095
---------- ---------- ---------- ----------
5,757,720 5,655,474 17,343,286 16,526,414
INTEREST EXPENSE:
Interest on deposits:
NOW accounts 99,344 88,739 294,251 274,700
Savings and MMDA 190,899 180,019 565,860 535,598
Time 2,040,340 2,076,636 6,147,436 5,973,158
Borrowed funds 33,949 36,516 103,807 97,375
---------- ---------- ---------- ----------
2,364,532 2,381,910 7,111,354 6,880,831
---------- ---------- ---------- ----------
NET INTEREST INCOME 3,393,188 3,273,564 10,231,932 9,645,583
Loan loss provision 590,447 136,500 1,003,965 316,500
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 2,802,741 3,137,064 9,227,967 9,329,083
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on
deposit accounts 421,931 393,699 1,227,217 1,183,269
Other service
charges and fees 93,776 90,241 292,505 264,157
Security gains
(losses) 0 0 0 (30,816)
Other 29,692 14,877 159,946 242,353
---------- ---------- ---------- ----------
545,399 498,817 1,679,668 1,658,963
---------- ---------- ---------- ----------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For Three Months Ended For Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
OTHER EXPENSES:
Salaries and
employee benefits 1,071,603 1,125,086 3,291,721 3,246,880
Occupancy, net 232,421 200,547 646,999 566,788
Furniture and
equipment 202,395 194,257 586,772 538,357
Advertising and
public relations 108,471 128,629 354,024 368,837
Other operating 501,991 393,617 1,246,819 1,110,795
---------- ---------- ---------- ----------
2,116,881 2,042,136 6,126,335 5,831,657
---------- ---------- ---------- ----------
Income before
income taxes $1,231,259 $1,593,745 $4,781,300 $5,156,389
Applicable income
taxes 334,986 557,076 1,634,547 1,798,131
---------- ---------- ---------- ----------
NET INCOME $896,273 $1,036,669 $3,146,753 $3,358,258
========== ========== ========== ==========
PER SHARE DATA:
Net income per
share $0.57 $0.67 $2.02 $2.19
Dividends per share $0.40 $0.36 $1.18 $1.08
Number of shares 1,559,322 1,545,041 1,556,000 1,536,924
========== ========== ========= =========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDER'S EQUITY
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For the Nine Months Ended September 30, 1998
Unrealized
Gains/<Losses>
Common Capital Retained on Securities Total
Stock Surplus Earnings Net of Taxes
____________ __________ ___________ ____________ ___________
<C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 $1,550,994 $6,413,294 $26,285,955 $329,103 $34,579,346
Comprehensive Income:
Net Income 3,146,753
Net change in
unrealized gains on
securities, net of
tax of $94,029 182,528
Comprehensive Income 3,329,281
Cash Dividends
($1.18 per share) (1,837,548) (1,837,548)
Common Stock Issued 8,839 256,256 265,095
---------- ---------- ----------- ----------- -----------
Balance,
September 30, 1998 $1,559,833 $6,669,550 $27,595,160 $511,631 $36,336,174
========== ========== =========== =========== ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income 3,146,753 3,358,258
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Provision for loan losses 1,003,965 316,500
Depreciation of premises and equipment 567,287 540,775
Amortization and accretion of investment
securities, net 75,019 134,876
Deferred income taxes (benefits) (212,818) 0
Security losses, net 0 30,816
Gains from sale of other assets (11,912) (18,947)
Increase in interest receivable (157,365) (48,459)
Increase in other assets (1,128,721) (106,641)
Increase (decrease) in accrued interest payable (139,643) 268,709
Increase in accrued taxes 204,675 92,663
Decrease in other liabilities (59,732) (189,406)
----------- ----------
Net Cash From Operating Activities 3,287,508 4,379,144
Cash Flows From Investing Activities:
Proceeds from maturity of investment
securities 12,097,635 22,969,743
Proceeds from sale of investment securities 0 1,500,000
Proceeds from sale of other assets 188,620 177,806
Purchase of investment securities (9,010,655) (24,816,157)
Net increase in loans (2,064,656) (9,454,277)
Capital expenditures (958,548) (710,243)
Other real estate acquired, net 34,451 (55,920)
------------ -----------
Net Cash Provided(Used) by Investing Activities 286,847 (10,389,048)
Cash Flows From Financing Activities:
Net increase in deposits 724,137 14,911,701
Cash dividends paid (1,837,547) (1,660,510)
Proceeds from issuance of common stock 290,095 398,101
Proceeds from borrowings 0 500,000
Borrowings repaid (125,144) (110,085)
----------- ----------
Net Cash From Financing Activities (948,459) 14,039,207
Net Increase in Cash and Cash Equivalent 2,625,896 8,029,303
Cash and Cash Equivalents at Beginning of Period 16,292,171 16,903,465
----------- ----------
Cash and Cash Equivalents at End of Period 18,918,067 24,932,768
=========== ==========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations.
The following analysis should be read in conjunction with the
financial statements set forth in Part I, Item 1, immediately preceding
this section.
Reference is made to the report of the registrant on Form 10-K
for the year ending December 31, 1997, which report was filed with the
Securities and Exchange Commission on or about March 30, 1998.
(a) Liquidity
Liquidity has been defined as the ability to fund increases in
loan demand or to compensate for decreases in deposits and other
sources of funds, or both. Maintenance of adequate liquidity is an
essential component of the financial planning process. The objective
of asset/liability management is to provide an optimum balance of
safety, liquidity and earnings. The registrant seeks to generate
adequate cash flows to meet its needs without sacrificing income or
taking undue risks. Cash and cash equivalents increased $2,625.8
thousand as of the end of the third quarter in 1998 due to an excess
of deposit growth over loan demand and management's decision to delay
investment activity due to the current interest rate environment.
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
Marketable investment securities, particularly those of short
maturities, are the principal source of asset liquidity. Securities
maturing in one year or less amounted to $15,535,108 at September 30,
1998, representing 22.7 percent of the investment securities portfolio
as compared to the 18.2 percent level of one year earlier. Management
classifies a majority of the investment portfolio in the available-for-
sale category and reports these securities at fair value. Management
does not anticipate the sale of a material amount of investment
securities classified as available-for-sale in the forseeable future.
However, these securities may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory
capital, or asset/liability strategy.
Other sources of liquidity include maturing loans and federal funds
sold.
The registrant knows of no unusual demands, commitments, or
events which could adversely impact the liquidity of the registrant.
(b) Capital Adequacy
The Federal Reserve Board, the Office of the Comptroller of the
Currency and the FDIC have issued risk-based capital guidelines for U.S.
banking organizations. These guidelines provide a uniform capital frame-
work that is sensitive to differences in risk profiles among banks.
Under these guidelines, total capital consists of Tier I capital
(core capital, primarily stockholders' equity) and Tier II capital
(supplementary capital, including certain qualifying debt instruments
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
and the loan loss reserve). Assets are assigned risk weights ranging
from 0 percent to 100 percent depending on the level of credit risk
normally associated with such assets. Off-balance sheet items (such as
commitments to make loans) are also included in assets through the use
of conversion factors established by regulators and are assigned risk
weights in the same manner as on-balance sheet items. Banking
institutions are expected to maintain a Tier I capital to risk-weighted
assets ratio of at least 4.00 percent, a total capital (Tier I plus
Tier II) to total risk-weighted assets ratio of at least 8.00 percent,
and a Tier I capital to total assets ratio (leverage ratio) of at least
3.00 percent. The following table sets out the appropriate regulatory
standards as well as First Pulaski National Corporation's actual ratios
at September 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(in thousands of dollars)
<S> <C> <C>
Tier I Capital to Risk-Weighted Assets:
Tier I capital 35,822 34,247
Risk-weighted assets 189,497 184,343
Tier I capital to risk-weighted assets 18.90% 18.58%
Regulatory requirement 4.00% 4.00%
Total Capital to Risk-Weighted Assets:
Total capital (Tier I plus Tier II) 38,202 36,555
Risk-weighted assets 189,497 184,343
Total capital to risk-weighted assets 20.16% 19.83%
Regulatory requirement 8.00% 8.00%
Tier I Capital to Total Assets (Leverage Ratio)
Tier I capital 35,822 34,247
Total assets 268,983 266,616
Tier I capital to total assets 13.32% 12.85%
Regulatory requirement 3.00% 3.00%
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
(c) Results of Operations
Net income of the registrant was $3,146,753 in the first nine
months of 1998. This amounted to a decrease of $211,505, or 6.3
percent, compared to the first nine months of 1997. Although net
interest income increased, net income was lower as compared to the
same period last year largely due to a substantial increase in the
provision for loan loss.
Net interest income, the largest component of earnings for the
registrant, is the difference between income earned on loans and
investments and interest paid on deposits and other sources of funds.
The net interest income of the registrant for the nine month period
ending September 30, 1998 increased by $586,349, or 6.1 percent, as
compared to the same period in 1997, reflecting the fact that an
appropriate balance is being maintained between the company's interest
sensitive assets and interest sensitive liabilities to provide yields
appropriate to the risk and liquidity involved. Growth in income
earned on loans, including fees, and securities more than offset the
growth in interest expense, which resulted primarily from an increase
in interest paid on time deposits over the period ending September 1997.
Other income showed an increase from the same period last year
primarily due to an increase in service charges on deposit accounts
and other service charges and fees. However, this was offset by the
increase in total other expenses which was primarily the result of
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
miscellaneous other operating costs, including occupancy and furniture
and equipment expense. Salaries and employee benefits increased
slightly over the period ending September 1997.
In the third quarter, the Company increased its provision for
loan losses by approximately $450,000 above the provision in the 1997
third quarter. A substantial portion of the increased provision was
with respect to a group of loans to certain entities or persons related
to the former Chairman, who resigned on August 11, 1998, which total
approximately $3.2 million, which loans are in default. Although the
Bank has engaged in extensive negotiations with the entities in an
effort to restructure these loans, these negotiations to date have
been unsuccessful. The Bank has recently taken appropriate legal
steps to enforce its rights. Resolution of the various issues could
involve protracted litigation and additional provisions may be required
under certain circumstances.
Income before taxes decreased by $375,089 or 7.3 percent as
compared to the same period from the prior year. The decrease in
applicable income taxes was $163,584 or 9.1 percent.
On a per share basis, net income was $2.02 per share based on
1,556,000 shares for the first nine months of 1998 as compared to $2.19
per share on 1,536,924 shares for the first nine months of 1997.
Non-performing assets at December 31, 1997 included $115.4 thousand
in other real estate owned, $701.9 thousand in non-accrual loans, and
$176.0 thousand in loans past due ninety days or more as to interest or
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
principal payment. Additionally, there were no restructured loans at
year-end. At September 30, 1998, the corresponding figures were $81.0
thousand in other real estate owned, $4,049.5 thousand in non-accrual
loans, 340.5 thousand in loans past due ninety days or more, and no loans
restructured. The increase in nonaccrual loans was largely the result
of the default on the loans to persons and entities related to the
Bank's former Chairman. The Company has computed allowances for loan
losses which management believes to be sufficient. Although there was
an increase in nonaccrual loans from December 31, 1997, the allowance
for loan losses totaling $3,291.1 thousand is deemed sufficient by
management to cover potential losses in the loan portfolio.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
The registrant and its subsidiary are involved, from time to time,
in ordinary routine litigation incidental to the banking business.
Neither the registrant nor its subsidiary is involved in any material
pending legal proceedings, except as follows:
The registrant is the defendant in a declaratory judgment action
filed by BancInsure, Inc.("BancInsure"), in the United States District
Court for the Middle District of Tennessee. The action seeks a
declaratory judgment that BancInsure, the fidelity bond insurance
company for the First National Bank of Pulaski, ("FNB"), is not liable
in FNB's fidelity bond claim of $858,003 involving improperly issued
cashiers checks executed by the FNB's former Chairman. FNB has denied
the claims of BancInsure and counter-claimed that BancInsure is liable
to pay the FNB claim. FNB intends to vigorously contest BancInsure's
assertions and currently believes that it should prevail in this action.
Item 6. Exhibits and Reports on Form 8-K.
(a) Following the signature page of this report on Form 10-Q is
an Index of Exhibits listed according to the numbers assigned to such
exhibits as shown on Table II of Regulation S-K.
(b) A Form 8-K Report was filed on August 17, 1998 of the
third quarter, concerning a press release of the resignation of the
Chairman of the Board.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
FIRST PULASKI NATIONAL CORPORATION
Date: November 13, 1998 /s/ William R. Horne
---------------- ---------------------------------------
William R. Horne, President
Date: November 13, 1998 /s/ Glen Lamar
---------------- ---------------------------------------
Glen Lamar, Secretary/Treasurer
<PAGE>
INDEX TO EXHIBITS FOR THE FIRST PULASKI NATIONAL CORPORATION
------------------------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
(11) Statement regarding computation of per share earnings
(27) Financial Data Schedules
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS OF
------------------------------------
FIRST PULASKI NATIONAL CORPORATION
----------------------------------
Computation of per share earnings relative to the common capital
stock of First Pulaski National Corporation is calculated by dividing
the net income of the registrant by the weighted average of the then
outstanding shares of common capital stock ($1.00 par value) during
the quarter.
For the quarter ended September 30, 1998, 1,556,000 shares were used
in the computation; 1,536,924 shares were used in the computation for
the quarter ended September 30, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR PERIOD ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,777,489
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,140,578
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,624,324
<INVESTMENTS-CARRYING> 22,680,876
<INVESTMENTS-MARKET> 23,004,002
<LOANS> 170,309,876
<ALLOWANCE> 3,291,131
<TOTAL-ASSETS> 268,983,621
<DEPOSITS> 227,889,631
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,686,660
<LONG-TERM> 2,071,156
0
0
<COMMON> 1,559,833
<OTHER-SE> 34,776,341
<TOTAL-LIABILITIES-AND-EQUITY> 268,983,621
<INTEREST-LOAN> 13,673,629
<INTEREST-INVEST> 3,146,495
<INTEREST-OTHER> 523,162
<INTEREST-TOTAL> 17,343,286
<INTEREST-DEPOSIT> 7,007,547
<INTEREST-EXPENSE> 7,111,354
<INTEREST-INCOME-NET> 10,231,932
<LOAN-LOSSES> 1,003,965
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,126,335
<INCOME-PRETAX> 4,781,300
<INCOME-PRE-EXTRAORDINARY> 3,146,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,146,753
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<YIELD-ACTUAL> 4.16
<LOANS-NON> 4,049,456
<LOANS-PAST> 340,524
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,604,080
<CHARGE-OFFS> 518,867
<RECOVERIES> 201,860
<ALLOWANCE-CLOSE> 3,291,131
<ALLOWANCE-DOMESTIC> 3,291,131
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
