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 September 30, 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 September
30, 1996: 3,001,563
Page 1 of 17
SOUTH ALABAMA BANCORPORATION,INC AND SUBSIDIARIES
INDEX TO FORM 10 - Q
PART I. Financial Information Page Number
Consolidated Statements of Condition
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements
September 30, 1996 7-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-16
PART II. Other Information 17
. . PART I. FINANCIAL INFORMATION
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
(Dollars in thousands)
A S S E T S
<S> <C> <C>
Cash and Due from Banks $ 14,586 $ 15,604
Federal Funds Sold 400 16,800
Total Cash and Cash Equivalents 14,986 32,404
Interest Bearing Deposits 200 652
Securities Available for Sale (at Market) 46,238 40,752
Securities Held to Maturity 18,458 21,441
(Market value of $18,544 and $21,664,
respectively)
Loans 165,253 144,147
Less: Unearned Loan Income <113> <122>
Allowance for Loan Losses <1,981> <2,222>
Loans, Net 163,159 141,803
Premises and Equipment 5,558 4,585
Other Real Estate Owned,Net 0 308
Accrued Income Receivable 2,433 2,377
Deferred Tax Asset 885 462
Other Assets 565 165
Total $252,482 $244,949
L I A B I L I T I E S
Non-interest Bearing Demand Deposits $ 41,308 $ 42,086
Interest Bearing Demand Deposits 75,713 73,623
Savings Deposits 14,833 12,699
Large Denomination Time Deposits
(of $100 or more) 29,429 30,184
Time Deposits 52,927 51,500
Total Deposits 214,210 210,092
Short-Term Borrowing 6,543 4,050
Other Liabilities 2,132 2,010
Total Liabilities 222,885 216,152
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 4,500,000
Shares Outstanding 3,001,563 30 30
Capital Surplus 16,538 16,538
Retained Earnings 13,130 11,671
Net Unrealized Gain (Loss) on Securities
Available for Sale (101) 558
Total Shareholders' Equity 29,597 28,797
Total $252,482 $244,949
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
<CAPTION>
Nine Months Ended September 30
1996 1995
(Dollars in thousands except
per share amounts)
Interest Revenue:
<S> <C> <C>
Loans $10,491 $10,074
Investments:Taxable 2,541 2,492
Non-Taxable 648 512
Other 358 276
Total Interest Revenue 14,038 13,354
Interest Expense:
Deposits 5,624 5,240
Other 139 173
Total Interest Expense 5,763 5,413
Net Interest Revenue 8,275 7,941
Provision for Loan Losses 167 7
Net Interest Revenue After Provision
for Loan Losses 8,108 7,934
Non-Interest Revenue:
Trust Department Income 821 725
Service Charges on Deposit Accounts 656 636
Securities Gains and Losses,net 105 53
Gain on sale of other real estate owned 18 0
Other Income, Charges and Fees 257 211
Total Non-Interest Revenue 1,857 1,625
Non-Interest Expense:
Salaries 2,857 2,649
Pensions and Employee Benefits 746 696
Net Occupancy Expense 488 454
Furniture and Equipment Expense 590 631
Other Expense 1,871 1,848
Total Non-Interest Expense 6,552 6,278
Income Before Income Taxes 3,413 3,281
Income Tax Expense 1,052 1,033
Net Income $2,361 $ 2,248
Earnings Per Common Share $ 0.79 $ .75
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 OPERATIONS(Unaudited)
<CAPTION>
Three Months Ended September 30
1996 1995
(Dollars in thousands except
per share amounts)
Interest Revenue:
<S> <C> <C>
Loans $ 3,645 $ 3,490
Investments:Taxable 824 827
Non-Taxable 242 170
Other 80 146
Total Interest Revenue 4,791 4,633
Interest Expense:
Deposits 1,895 1,908
Other 58 54
Total Interest Expense 1,953 1,962
Net Interest Revenue 2,838 2,671
Provision for Loan Losses 36 4
Net Interest Revenue After Provision
for Loan Losses 2,802 2,667
Non-Interest Revenue:
Trust Department Income 273 242
Service Charges on Deposit Accounts 221 216
Securities Gains and Losses,net 2 2
Gain on sale of other real estate owned 0 0
Other Income, Charges and Fees 87 77
Total Non-Interest Revenue 583 537
Non-Interest Expense:
Salaries 969 897
Pensions and Employee Benefits 248 235
Net Occupancy Expense 171 157
Furniture and Equipment Expense 203 251
Other Expense 618 528
Total Non-Interest Expense 2,209 2,068
Income Before Income Taxes 1,176 1,136
Income Tax Expense 354 366
Net Income $ 822 $ 770
Earnings Per Common Share $ 0.27 $ .26
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>
Nine Months Ended September 30,
1996 1995
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 2,361 $ 2,248
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 620 742
Provision for loan losses 167 7
Securities gains and losses,net <105> <53>
Gain on sale of other real estate owned <18> 0
(Increase) decrease in:
Deferred tax asset <20> 134
Income receivable <56> 130
Other assets <400> 36
Increase (decrease) in other liabilities 122 681
Net cash provided by operating activities 2,671 3,925
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing
deposits 452 6
Net increase in loans <21,523> <9,447>
Purchase of premises and equipment <1,446> <1,150>
Net decrease in other real estate owned 326 0
Proceeds from sale of securities
available for sale 9,192 563
Proceeds from maturities of investments 8,033 6,215
Purchase of investments <20,833> <6,405>
Net cash used in investing activities <25,799> <10,218>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,118 20,446
Net increase (decrease) in short-
term borrowing 2,493 <1,040>
Dividends paid <901> <720>
Net cash used in financing activities 5,710 18,686
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <17,418> 12,393
Cash and cash equivalents at beginning
of period 32,404 16,299
Cash and cash equivalents at end of
period $14,986 $28,692
Supplemental disclosures of cash flow
information:
Interest paid in cash $ 5,838 $ 4,998
Income taxes paid in cash 1,200 919
(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 nine month periods
ended September 30, 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 167 7
Losses charged off <493> <115>
Recoveries 85 68
Balance at end of period $ 1,981 $ 2,172
</TABLE>
NOTE D: On May 31, 1996, the Company announced that a merger
agreement had been executed with First Monco Bancshares, Inc.,
parent company of Monroe County Bank, Monroeville, Alabama.
The merger transaction will be consummated on October 31,
1996, at which time the Company will issue approximately 104
shares of the Company's common stock for each share of
outstanding common stock of First Monco Bancshares.
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
September 30, 1996 and significant changes for the two three month
periods ended September 30, 1996 and 1995, as well as significant
changes in the results of operation for the two nine month periods
ending September 30, 1996 and 1995.
Financial Condition
Total assets at September 30, 1996 were $252.5 million, a increase
of $7.5 million or 3.1 percent from $244.9 million at December 31, 1995.
The increase in investment securities of $2.5 million, or 4.0 percent,
and the increase in loans of $21.1 million, or 14.6 percent were funded
primarily by the decrease in cash and cash equivalents of $17.4 million
and to the increase in deposits of $4.1 million, or 2.0 percent.
Time deposits, consisting of certificates of deposit, increased
$1.4 million or 2.8 percent. Large denomination time deposits decreased
$755 thousand or 2.5 percent. The Company does not actively seek large
denomination time deposits as a source of funding. Non-interest bearing
demand deposits decreased $778 thousand or 1.8 percent while interest
bearing demand deposits increased $2.1 million, or 2.8 percent. Core
deposits, defined as total deposits less time deposits, increased by
$3.4 million, caused primarily by the increase in interest bearing
deposits and the increase in savings deposits of $2.1 million, or 16.8
percent. Short-term borrowing increased $2.5 million, or 61.6 percent
from year-end 1995. The increase occurred primarily in securities sold
under agreement to repurchase.
The Company's equity as a percent of total assets at September 30,
1996 was 11.7 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 12.5
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 $29.7 million at
September 30, 1996. Under regulatory guidelines the effect on capital
of SFAS No. 115 is not included in regulatory capital calculations.
Under these guidelines, $101 thousand is included at September 30, 1996
for regulatory capital purposes that is not included for book 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
$31.7 million at September 30, 1996. The 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 11.53
percent and 12.30 percent, respectively, at September 30, 1996. Both
the December 1995 and the September 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 September 30, 1996 are shown below:
<TABLE>
<CAPTION>
September 30,
1996
Tier I capital--
<S> <C>
Common shareholders' equity $29,597
Net unrealized Gain (Loss) on
Securities Available for Sale 101
Tier I capital 29,698
Tier II capital--
Allowable portion of the allowance
for loan losses 1,981
Total capital (Tiers I and II) $31,679
Risk-adjusted assets $257,554
Quarterly average assets 246,764
Risk-based capital ratios:
Tier I capital 11.53%
Total capital (Tiers I and II) 12.30%
</TABLE>
The Company declared a regular quarterly dividend of $0.10 per
share, October 1, 1996, to shareholders of record September 30, 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 $32.0 million at September 30, 1996. These assets
represented 12.7 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 nine month period ended September 30, 1996 was a
decrease of $17.4 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>
September 30, December 31,
1996 1995
<S> <C> <C>
Accruing loans 90 days or more past due $ 18 $ 62
Loans on non-accrual 1,044 490
Renegotiated loans 0 0
Total non-performing loans 1,062 552
Other real estate owned 0 308
Total non-performing assets $1,062 $ 860
Accruing Loans 90 days or more past due
as a percent of loans 0.01% 0.04%
Total non-performing loans as a
percent of loans 0.64% 0.38%
Total non-performing assets as a percent
of loans and other real estate owned 0.64% 0.60%
</TABLE>
Non-performing loans increased by $510 thousand from year-end 1995.
This increase consists primarily of three loans placed on non-accrual
during 1996. These loans are secured and management does not anticipate
a material loss on these loans.
The Company currently holds no properties in other real estate
owned.
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 THIRD QUARTER
The Company recorded net income of $822 thousand, or $0.27 per share
during the third quarter of 1996 compared to net income in the third
quarter of 1995 of $770 thousand, or $0.26 per share. Total interest
revenue increased by $158 thousand or 3.4 percent primarily due to
increased volume in loans. Interest expense decreased by $9 thousand or
0.5 percent. Management provided $36 thousand for loan losses during
the third quarter months of 1996 compared to a $4 thousand provision for
the third quarter of 1995. Net charge offs during the first nine months
of 1996 were $408 thousand compared to $47 thousand in the first nine
months of 1995. Included in net charge offs in the first nine months of
1996 were charged off loans to an individual of $75 thousand and charged
off loans to a commercial customer of $304 thousand. The allowance for
loan losses at September 30, 1996 and December 31, 1995 as a percent of
loans was 1.20 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 nine months of 1996 and to the increase
in loans. The allowance for loan losses represented 1.87 times non-
performing loans at September 30, 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 September 30, 1996.
Non-interest revenue was $583 thousand for the third quarter of
1996, compared to $537 thousand for the same period in 1995, a increase
of 8.6 percent.
Salary and employee benefit expense increased $85 thousand or 7.5
percent, caused by an increase in full time equivalent employees from
153 at September 30, 1995 to 156 at September 30, 1996 and by merit
increases. Net occupancy expense increased $14 thousand when compared
to the same period in 1995, while furniture and equipment expense
decreased $48 thousand.
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 third quarter 1996
increased by $90 thousand or 17.0 percent.
Income tax expense was $354 thousand for the third quarter of 1996,
compared to $366 thousand for the same period in 1995. The decrease in
income tax expense in 1996 compared to 1995 resulted primarily from an
increase in tax exempt income.
THE NINE MONTHS
The Company recorded net income of $2.4 million, or $0.79 per share
during the first nine months of 1996 compared to net income in the first
nine months of 1995 of $2.2 million, or $0.75 per share. Total interest
revenue increased by $684 thousand or 5.1 percent due to increased
volume in loans and investment securities. Interest expense increased
by $350 thousand or 6.5 percent due to the general rise in interest
rates and the increase in deposit levels. Management provided $167
thousand for loan losses during the first nine months of 1996 compared
to $7 thousand for the first nine months of 1995.
Non-interest revenue was $1.9 million for the first nine months of
1996, compared to $1.6 million for the same period in 1995, a increase
of 14.3 percent. Excluding securities gains and losses and the gain on
sale of other real estate owned, non-interest revenue increased by $162
thousand.
Non-interest expense in the nine month period was $6.6 million in
1996, an increase of $274 thousand from 1995. Salary and employee
benefits increased $258 thousand or 7.7 percent, a combination of merit
increases and an increase in staff. Other expense increased by $23
thousand.
Income tax expense was $1.1 million for the first nine months of
1996, compared to $1.0 million for the same period in 1995. The
increase in income tax expense in 1996 compared to 1995 resulted
primarily from higher levels of taxable income.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
There were no reports filed of Form 8-K for the three month period
ended September 30, 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
11/12/96 /s/ W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
11/12/96 /s/ F. Michael Johnson
Date F. Michael Johnson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 14,586
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,238
<INVESTMENTS-CARRYING> 18,458
<INVESTMENTS-MARKET> 18,544
<LOANS> 165,253
<ALLOWANCE> 1,981
<TOTAL-ASSETS> 252,482
<DEPOSITS> 214,210
<SHORT-TERM> 6,543
<LIABILITIES-OTHER> 2,132
<LONG-TERM> 0
0
0
<COMMON> 29,698
<OTHER-SE> (101)
<TOTAL-LIABILITIES-AND-EQUITY> 252,482
<INTEREST-LOAN> 10,491
<INTEREST-INVEST> 3,189
<INTEREST-OTHER> 358
<INTEREST-TOTAL> 14,038
<INTEREST-DEPOSIT> 5,624
<INTEREST-EXPENSE> 5,763
<INTEREST-INCOME-NET> 8,275
<LOAN-LOSSES> 167
<SECURITIES-GAINS> 105
<EXPENSE-OTHER> 6,552
<INCOME-PRETAX> 3,413
<INCOME-PRE-EXTRAORDINARY> 2,361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,361
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 4.91
<LOANS-NON> 1,044
<LOANS-PAST> 18
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 745
<ALLOWANCE-OPEN> 2,222
<CHARGE-OFFS> 493
<RECOVERIES> 85
<ALLOWANCE-CLOSE> 1,981
<ALLOWANCE-DOMESTIC> 1,766
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 215
</TABLE>
