SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter ended March 31, 1996. Commission file #0-15423
SOUTH ALABAMA BANCORPORATION,INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0909434
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification Number)
100 St. Joseph Street, Mobile, Alabama 36602
(Address of principal executive offices) (Zip Code)
(334) 431-7800
(Registrant's telephone number, including area code)
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 .
Shares of common stock ($0.01 Par) outstanding at March 31,:
3,001,563
Page 1 of 15
SOUTH ALABAMA BANCORPORATION,INC AND SUBSIDIARIES
INDEX TO FORM 10 - Q
PART I. Financial Information Page Number
Consolidated Statements of Condition
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements
March 31, 1996 6-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-15
PART II. Other Information 15
. . PART I. FINANCIAL INFORMATION
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
(Dollars in thousands)
A S S E T S
<S> <C> <C>
Cash and Due from Banks $ 12,411 $ 15,604
Federal Funds Sold 11,350 16,800
Total Cash and Cash Equivalents 23,761 32,404
Interest Bearing Deposits 400 652
Securities Available for Sale (at Market) 45,136 40,752
Securities Held to Maturity 20,255 21,441
(Market value of $20,353 and $21,664,
respectively)
Loans 144,362 144,147
Less: Unearned Loan Income <109> <122>
Allowance for Loan Losses <1,925> <2,222>
Loans, Net 142,328 141,803
Premises and Equipment 5,383 4,585
Other Real Estate Owned,Net 308 308
Accrued Income Receivable 2,252 2,377
Deferred Tax Asset 630 462
Other Assets 329 165
Total $240,782 $244,949
L I A B I L I T I E S
Non-interest Bearing Demand Deposits $ 39,295 $ 42,086
Interest Bearing Demand Deposits 73,225 73,623
Savings Deposits 13,803 12,699
Large Denomination Time Deposits
(of $100 or more) 27,441 30,184
Time Deposits 53,055 51,500
Total Deposits 206,819 210,092
Short-Term Borrowing 2,925 4,050
Other Liabilities 2,223 2,010
Total Liabilities 211,967 216,152
S H A R E H O L D E R S' E Q U I T Y
Common Stock
Par Value $0.01
Shares Authorized 4,500
Shares Outstanding 3,002 30 30
Capital Surplus 16,538 16,538
Retained Earnings 12,124 11,671
Net Unrealized Gain (Loss) on Securities
Available for Sale 123 558
Total Shareholders' Equity 28,815 28,797
Total $240,782 $244,949
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
<CAPTION>
Three Months Ended March 31
1996 1995
(Dollars in thousands except
per share amounts)
Interest Revenue:
<S> <C> <C>
Loans $ 3,389 $ 3,190
Investments:Taxable 857 841
Non-Taxable 192 172
Other 192 18
Total Interest Revenue 4,630 4,221
Interest Expense:
Deposits 1,905 1,526
Other 42 75
Total Interest Expense 1,947 1,601
Net Interest Revenue 2,683 2,620
Provision for Loan Losses 101 0
Net Interest Revenue After Provision
for Loan Losses 2,582 2,620
Non-Interest Revenue:
Trust Department Income 274 244
Service Charges on Deposit Accounts 210 204
Securities Gains and Losses,net 111 5
Other Income, Charges and Fees 75 60
Total 670 513
Non-Interest Expense:
Salaries 915 849
Pensions and Employee Benefits 247 235
Net Occupancy Expense 155 143
Furniture and Equipment Expense 190 190
Other Expense 648 664
Total 2,155 2,081
Income Before Income Taxes 1,097 1,052
Income Tax Expense 343 334
Net Income $ 754 $ 718
Earnings Per Common Share $ 0.25 $ .24
Average Shares Outstanding (000's) 3,002 2,999
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Three Months Ended March 31,
1996 1995
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 754 $ 718
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 215 261
Provision for loan losses 101 0
Securities gains and losses,net <111> <5>
(Increase) decrease in:
Deferred tax asset 77 <85>
Income receivable 125 6
Other assets <164> <300>
Increase (decrease) in other liabilities 213 540
Net cash provided by operating activities 1,210 1,135
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing
deposits 252 2
Net increase in loans <626> <4,083>
Purchase of premises and equipment <952> <79>
Net decrease in other real estate owned 0 0
Proceeds from sale of securities
available for sale 3,581 510
Proceeds from maturities of investments 2,161 650
Purchase of investments <9,571> <508>
Net cash used in investing activities <5,155> <3,508>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits <3,273> <1,403>
Net increase (decrease) in short-
term borrowing <1,125> 831
Dividends paid <300> <240>
Net cash used in financing activities <4,698> <812>
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <8,643> <3,185>
Cash and cash equivalents at beginning
of period 32,404 16,299
Cash and cash equivalents at end of
period $23,761 $13,114
Supplemental disclosures of cash flow
information:
Interest paid in cash $ 1,936 $ 1,474
Income taxes paid in cash 60 266
Supplemental schedule of noncash
investing and financing activities:
Other real estate acquired in
settlement of loans $ 0 $ 0
(See accompanying notes to consolidated financial statements.)
</TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A: The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
information furnished reflects all adjustments, consisting of
normal and recurring accruals, which in the opinion of
management are necessary for a fair presentation of the
results of the interim periods. Results for interim periods
may not necessarily be indicative of results to be expected
for the year.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
report on Form 10-K for the year ended December 31, 1995.
NOTE B: Per Share data is computed on the basis of the weighted
average number of shares of common stock outstanding during
the period. The dilutive effect of stock options is not
material.
NOTE C: The allowance for losses on loans for the three month periods
ended March 31, 1996 and 1995 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
Allowance for loan losses:
<S> <C> <C>
Balance at beginning of period $ 2,222 $ 2,212
Provision charged to
operating expense 101 0
Losses charged off <424> <26>
Recoveries 26 19
Balance at end of period $ 1,925 $ 2,205
</TABLE>
NOTE D: During May 1993, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for the Impairment of
a Loan". This statement was later amended by SFAS No. 118.
The statements provide guidance on recognition of impairment
of a loan as well as methods for measurement of impairment.
SFAS No. 114 and No. 118 were adopted by the Company for the
year beginning January 1, 1995. Although there was no effect
upon net income upon adoption of the new standard, the
recorded investment in impaired loans at March 31, 1996 was
$634 thousand. The reserve for impaired loans was $317
thousand at March 31, 1996. The average recorded investment
in impaired loans during the quarter ended March 31, 1996 was
approximately $637 thousand.
NOTE E: On April 29, 1996, the Company announced that a merger was
being negotiated with First Monco Banshares, Inc., parent
company of Monroe County Bank. The Company expects to issue
shares of common stock for all the outstanding common stock of
First Monco Banshares.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Presented below is an analysis of the consolidated financial
condition and results of operations of South Alabama Bancorporation,
Inc. (the "Company") and its wholly owned subsidiaries, The Bank of
Mobile and First National Bank, Brewton. This analysis focuses upon
significant changes in financial condition between December 31, 1995 and
March 31, 1996 and significant changes for the two three-month periods
ended March 31, 1996 and 1995.
Financial Condition
Total assets at March 31, 1996 were $240.8 million, a decrease of
$4.2 million or 1.7 percent from $244.9 million at December 31, 1995.
Cash and cash equivalents decreased $8.6 million due primarily to the
decrease in deposits of $3.3 million and to the net increase in
investment securities of $3.2 million, or 5.1 percent.
Time deposits, consisting of certificates of deposit, increased
$1.6 million or 3.0 percent. Large denomination time deposits decreased
$2.7 million or 9.1 percent. The Company does not actively seek large
denomination time deposits as a source of funding. Non-interest bearing
demand deposits decreased $2.8 million or 6.6 percent while interest
bearing demand deposits remained relatively unchanged. Core deposits,
defined as total deposits less time deposits, decreased by $2.1 million
caused primarily by the reduction in non-interest bearing deposits.
Savings deposits grew 8.7 percent to $13.8 million. Short-term
borrowing decreased $1.1 million from year-end 1995.
The Company's equity as a percent of total assets at March 31, 1996
was 12.0 percent, compared to 11.8 percent at December 31, 1995. The
primary capital ratio (defined as the sum of common and preferred stock,
capital surplus, retained earnings, allowance for loan losses and
contingency and capital reserves divided by total assets) was 12.8
percent, compared to 12.7 percent at year-end.
The Company and its subsidiary banks are required by the various
depository institutions regulatory agencies to maintain certain capital-
to-asset ratios. Risk-based capital guidelines consider risk factors
associated with various components of assets, both on and off the
Statement of Condition. Under these guidelines, capital is measured in
two tiers. These capital tiers are used in conjunction with "risk-
adjusted" assets in determining "risk-adjusted" capital ratios. The
Company's Tier I capital, which is shareholders' equity less certain
adjustments, was $28.2 million at December 31, 1995 and $28.7 million at
March 31, 1996. Regulatory guidelines disallow a portion of capital
created by accounting for income taxes under SFAS No. 109 and all
capital created by accounting for securities under SFAS No. 115. Under
these guidelines, $123 thousand is disallowed at March 31, 1996 for
regulatory capital purposes. Tier II capital, which is Tier I plus the
allowable portion of the allowance for loan losses, was $30.5 million at
December 31, 1995 and $30.6 million at March 31, 1996. The new ratios,
expressed as a percent of total risk-adjusted assets for Tier I and Tier
II, were 11.39 percent and 12.28 percent, respectively, at December 31,
1995 and 11.92 percent and 12.72 percent, respectively, at March 31,
1996. Both the December 1995 and the March 1996 ratios exceed the
minimum ratios of four percent and eight percent for Tier I and Tier II,
respectively.
The components of the Company's risk-based capital calculations
for March 31, 1996 are shown below:
<TABLE>
<CAPTION>
March 31
1996
Tier I capital--
<S> <C>
Common shareholders' equity $28,815
Disallowed portion <123>
Tier I capital 28,692
Tier II capital--
Allowable portion of the allowance
for loan losses 1,925
Total capital (Tiers I and II) $30,617
Risk-adjusted assets $240,767
Quarterly average assets 241,335
Risk-based capital ratios:
Tier I capital 11.92%
Total capital (Tiers I and II) 12.72%
</TABLE>
The Company declared a regular quarterly dividend of $0.10 per
share, payable April 1, 1996, to shareholders of record March 18, 1996.
Liquidity
Liquidity management involves the ability to meet the day-to-day
cash flow requirements of customers, primarily depositors' withdrawals
and borrowers' requirements for funds. This is achieved by carefully
monitoring the amount of liquid assets available to meet these needs.
Liquid assets (cash and cash items, deposits with other banks, federal
funds sold and securities available for sale excluding pledged
securities) totaled $47.6 million at March 31, 1996. These assets
represented 19.8 percent of total assets at quarter end as compared to
21.0 percent at December 31, 1995. The net change in cash and cash
equivalents for the three month period ended March 31, 1996 was a
decrease of $8.6 million. Cash includes currency on hand and demand
deposits with other financial institutions. Cash equivalents are defined
as short-term and highly liquid investments, which are readily
convertible to known amounts of cash and so near maturity that there is
no significant risk of changes in value because of changes in interest
rates. The Company has federal fund lines of credit, Federal Reserve
discount window operations and Federal Home Loan Bank lines of credit
available.
Management is not aware of any trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on the
liquidity, capital resources or operations of the Company. Management
is not aware of any current recommendations by regulatory authorities
which, if they were implemented, would have such an effect.
Non-Performing Assets
Non-performing assets include accruing loans 90 days or more past
due, loans on non-accrual, renegotiated loans and other real estate
owned. Commercial, business and installment loans are classified as
non-accrual by Management upon the earlier of: (i) a determination that
collection of interest is doubtful, or (ii) the time at which such loans
become 90 days past due, unless collateral or other circumstances
reasonably assure full collection of principal and interest.
<TABLE>
Summary of Non-Performing Assets
(Dollars in Thousands)
<CAPTION>
March 31 December 31,
1996 1995
<S> <C> <C>
Accruing loans 90 days or more past due $ 7 $ 62
Loans on non-accrual 634 490
Renegotiated loans 0 0
Total non-performing loans 641 552
Other real estate owned 308 308
Total non-performing assets $ 949 $ 860
Loans 90 days or more past due
as a percent of loans 0.00% 0.04%
Total non-performing loans as a
percent of loans 0.44% 0.38%
Total non-performing assets as a percent
of loans and other real estate owned 0.66% 0.60%
</TABLE>
The level of non-performing assets at March 31, 1996 increased $89
thousand from year-end 1995.
Other real estate owned consists of two properties. Because the
carrying values of these properties approximate the net realizable
values, Management does not believe an allowance for losses on other
real estate owned is necessary.
The amount of impaired loans determined under SFAS No. 114 and 118
were not material. These credits were considered in determining the
adequacy of the allowance for loan losses and, while current, are
regularly monitored for changes within a particular industry or general
economic trends which could cause the borrowers severe financial
difficulties.
Any loans classified for regulatory purposes as loss, doubtful,
substandard or special mention, and not included above as non-performing
assets, do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future
operating results, or (ii) represent material credits about which
management is aware of any information which causes management to have
serious doubts as to the ability of such borrower to comply with the
loan repayment terms.
Results of Operations
THE FIRST QUARTER
The Company recorded net income of $754 thousand ($0.25 per share)
during the first quarter of 1996 compared to net income in the first
quarter of 1995 of $718 thousand ($0.24 per share). Total interest
revenue increased by $409 thousand or 9.7 percent due to increased
volume in loans as well as an increase in rates charged on loans.
Interest expense increased by $346 thousand or 21.6 percent due to the
general rise in interest rates and the increase in deposit levels.
Management provided $101 thousand for loan losses during the first three
months of 1996 compared to no provision for the first three months of
1995. Net charge offs during the first three months of 1996 were $398
thousand compared to $7 thousand in the first three months of 1995.
Included in net charge offs in the first quarter of 1996 were charged
off loans to an individual of $75 thousand and charged off loans to a
commercial customer of $304 thousand. Management does not feel that
these charge offs are indicative of a deterioration in the quality of
the loan portfolio. The allowance for loan losses at March 31, 1996 and
December 31, 1995 as a percent of loans was 1.33 percent and 1.54
percent respectively. The decrease in the allowance for loan losses as
a percentage of loans was due primarily to net charge offs in the first
quarter of 1996. The allowance for loan losses represented 3.00 times
non-performing loans at March 31, 1996 and 4.03 times non-performing
loans at December 31, 1995. Management reviews the adequacy of the
allowance for loan losses on a continuous basis by assessing the quality
of the loan portfolio, including non-performing loans, and adjusting the
allowance when appropriate. The allowance for loan losses was
considered adequate at March 31, 1996.
Non-interest revenue was $670 thousand for the first three months
of 1996, compared to $513 thousand for the same period in 1995, an
increase of 30.6 percent. Excluding securities gains and losses, non-
interest revenue increased by $51 thousand.
Salary and employee benefit expense increased $78 thousand or 7.2
percent, caused by an increase in full time equivalent employees from
151 at March 31, 1995 to 153 at March 31, 1996 and by merit increases.
Net occupancy expense increased $12 thousand when compared to the same
period in 1995, while furniture and equipment expense remained
unchanged.
Other expenses include data processing fees for the trust
departments, FDIC insurance, insurance costs, accounting and legal fees,
stationery and supplies, credit card service fees, loan collection fees
and advertising. Other non-interest expense in first quarter 1996
decreased by $16 thousand or 2.4 percent.
Income tax expense was $343 thousand for the first three months of
1996, compared to $334 thousand for the same period in 1995. The
increase in income tax expense in 1996 compared to 1995 resulted
primarily from higher levels of pretax income.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(b)Reports on Form 8-K
There were no reports filed of Form 8-K for the three month period
ended March 31, 1996.
Pursuant to the requirement 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.
SOUTH ALABAMA BANCORPORATION
05/15/1996 /s/ W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
05/15/1996 /s/F. Michael Johnson
Date F. Michael Johnson
Executive Vice-President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000783739
<NAME> SOUTH ALABAMA BANCORPORATION, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 12411
<INT-BEARING-DEPOSITS> 400
<FED-FUNDS-SOLD> 11350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45136
<INVESTMENTS-CARRYING> 20255
<INVESTMENTS-MARKET> 20353
<LOANS> 144253
<ALLOWANCE> 1925
<TOTAL-ASSETS> 240782
<DEPOSITS> 206819
<SHORT-TERM> 2925
<LIABILITIES-OTHER> 2223
<LONG-TERM> 0
0
0
<COMMON> 28692
<OTHER-SE> 123
<TOTAL-LIABILITIES-AND-EQUITY> 240782
<INTEREST-LOAN> 3389
<INTEREST-INVEST> 1049
<INTEREST-OTHER> 192
<INTEREST-TOTAL> 4630
<INTEREST-DEPOSIT> 1905
<INTEREST-EXPENSE> 1947
<INTEREST-INCOME-NET> 2683
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 111
<EXPENSE-OTHER> 2155
<INCOME-PRETAX> 1097
<INCOME-PRE-EXTRAORDINARY> 754
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 754
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 4.84
<LOANS-NON> 634
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 734
<ALLOWANCE-OPEN> 2222
<CHARGE-OFFS> 424
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 1925
<ALLOWANCE-DOMESTIC> 1925
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 356
</TABLE>
