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, 1998. Commission file #0-15423
SOUTH ALABAMA BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Alabama 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, 1998: 6,525,709
Page 1 of 22
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
INDEX TO FORM 10 - Q
PART I. Financial Information Page Number
Consolidated Statements of Condition
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Operations
Three Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements
September 30, 1998 7-11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-21
PART II. Other Information 22
. . PART I. FINANCIAL INFORMATION
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
A S S E T S
Cash and Due from Banks $ 15,883 $ 16,504
Federal Funds Sold 11,684 25,293
Total Cash and Cash Equivalents 27,567 41,797
Interest Bearing Deposits 322 100
Securities Available for Sale (at Market) 129,840 110,255
Securities Held to Maturity
(Market value of $4,834 and $8,483,
respectively) 4,716 8,345
Loans 225,201 196,644
Less: Unearned Loan Income <166> <127>
Allowance for Loan Losses <2,764> <2,685>
Loans, Net 222,271 193,832
Premises and Equipment 8,116 7,064
Other Real Estate Owned,Net 113
Accrued Income Receivable 3,871 3,447
Intangible assets 4,626 3,993
Other Assets 1,374 762
Total $402,816 $369,595
L I A B I L I T I E S
Non-interest Bearing Demand Deposits $ 58,154 $ 58,904
Interest Bearing Demand Deposits 116,216 110,199
Savings Deposits 25,893 22,849
Large Denomination Time Deposits
(of $100 or more) 52,677 44,494
Time Deposits 88,933 78,731
Total Deposits 341,873 315,177
Short-Term Borrowing 6,721 6,468
Other Liabilities 3,379 2,488
Total Liabilities 351,973 324,133
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 10,000,000
Shares Outstanding 1998-6,525,709
1997-6,371,379 65 64
Capital Surplus 35,769 33,222
Retained Earnings 13,172 11,361
Net Unrealized Gain (Loss) on Securities
Available for Sale 1,837 815
Total Shareholders' Equity 50,843 45,462
Total $402,816 $369,595
(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,
1998 1997
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $14,124 $13,516
Investments:Taxable 4,193 4,097
Non-Taxable 1,483 1,160
Other 1.116 404
Total Interest Revenue 20,916 19,177
Interest Expense:
Deposits 9,202 7,790
Other 222 187
Total Interest Expense 9,424 7,977
Net Interest Revenue 11,492 11,200
Provision for Loan Losses 140 144
Net Interest Revenue After Provision
for Loan Losses 11,352 11,056
Non-Interest Revenue:
Trust Income 970 868
Service Charges on Deposit Accounts 1,064 1,014
Securities Gains and Losses,net (7) 24
Other Income, Charges and Fees 369 299
Total Non-Interest Revenue 2,396 2,205
Non-Interest Expense:
Salaries 4,141 3,661
Pensions and Employee Benefits 928 893
Net Occupancy Expense 635 606
Furniture and Equipment Expense 782 697
Intangible Amortization 136 126
Other Expense 2,449 2,305
Total Non-Interest Expense 9,071 8,288
Income Before Income Taxes 4,677 4,973
Income Tax Expense 1,289 1,399
Net Income $3,388 $ 3,574
Basic Earnings Per Common Share $ 0.53 $ .56
Diluted Earnings Per Share $ 0.52 $ .56
(See accompanying notes to the consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
<CAPTION>
Three Months Ended September 30,
1998 1997
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $ 4,989 $ 4,592
Investments:Taxable 1,470 1,332
Non-Taxable 543 392
Other 320 137
Total Interest Revenue 7,322 6,453
Interest Expense:
Deposits 3,239 2,705
Other 82 63
Total Interest Expense 3,321 2,768
Net Interest Revenue 4,001 3,685
Provision for Loan Losses 42 38
Net Interest Revenue After Provision
for Loan Losses 3,959 3,647
Non-Interest Revenue:
Trust Income 321 308
Service Charges on Deposit Accounts 381 357
Securities Gains and Losses,net (1) 22
Other Income, Charges and Fees 129 110
Total Non-Interest Revenue 830 797
Non-Interest Expense:
Salaries 1,450 1,237
Pensions and Employee Benefits 311 294
Net Occupancy Expense 218 203
Furniture and Equipment Expense 283 242
Intangible Amortization 50 42
Other Expense 814 765
Total Non-Interest Expense 3,126 2,783
Income Before Income Taxes 1,663 1,661
Income Tax Expense 443 450
Net Income $1,220 $ 1,211
Basic Earnings Per Common Share $ 0.19 $ .19
Diluted Earnings Per Share $ 0.19 $ .19
(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,
1998 1997
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,388 $ 3,574
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 981 1,035
Provision for loan losses 140 144
Securities gains and losses,net 7 <24>
Deferred income tax provision (benefit) <60> 524
(Increase) decrease in:
Income receivable <237> <330>
Other assets <509> 145
Increase (decrease) in other liabilities 194 <8>
Net cash provided by operating activities 3,904 5,060
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing
deposits <222> 0
Net (increase) decrease in loans <22,478> <12,691>
Purchase of premises and equipment <1,539> <282>
Net decrease in other real estate owned 0 0
Proceeds from sale of securities
available for sale 1,989 3,545
Proceeds from maturities of investments 43,580 19,808
Purchase of investments <57,121> <18,341>
Net cash acquired from business
combinations 8,132 0
Net cash provided by (used in) investing
activities <27,659> <7,961>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 10,839 6,006
Net increase (decrease) in short-
term borrowing 253 730
Proceeds from issuance of stock 9 106
Dividends paid <1,576> <6,601>
Net cash provided by (used in) financing
activities 9,525 241
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <14,230> <2,660>
Cash and cash equivalents at beginning
of period 41,797 29,913
Cash and cash equivalents at end of
period $27,567 $27,253
Supplemental disclosures of cash flow
information:
Interest paid in cash $ 9,241 $ 8,010
Income taxes paid in cash 919 1,160
(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, 1997.
NOTE B: The allowance for losses on loans for the nine month periods
ended September 30, 1998 and 1997 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
Allowance for loan losses:
<S> <C> <C>
Balance at beginning of period $ 2,685 $ 2,600
Balance acquired 287
Provision charged to
operating expense 140 144
Losses charged off <580> <210>
Recoveries 232 75
Balance at end of period $ 2,764 $ 2,609
</TABLE>
NOTE C: Basic earnings per share were computed by dividing net income
by the weighted average number of shares of common stock
outstanding during the nine month periods ended September 30,
1998 and 1997.
Diluted earnings per share for the nine month periods ended
September 30, 1998 and 1997, were computed by dividing net
income by the weighted average number of shares of common
stock and the dilutive effects of the shares awarded under the
Stock Option plans, based on the treasury stock method using
an average fair market value of the stock during the
respective periods.
In 1997, the Company adopted SFAS 128, "Earnings Per Share,"
effective December 15, 1997. As a result, the Company's
previously reported earnings per share amounts were restated.
The following table represents the earnings per share
calculations for the nine months ended September 30, 1998 and
1997,(in thousands except per share amounts):
<TABLE>
<CAPTION>
Income Shares Earnings per share
<S> <C> <C> <C>
September 30, 1998
Net income $3,388
Basic earnings per share:
Income available to common
shareholders $3,388 6,450 $0.53
Dilutive securities
Stock option plan shares 123
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $3,388 6,573 $0.52
Income Shares Earnings per share
September 30, 1997
Net income $3,574
Basic earnings per share:
Income available to common
shareholders $3,574 6,346 $0.56
Dilutive securities
Stock option plan shares 50
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $3,574 6,396 $0.56
</TABLE>
NOTE D: The American Institute of Certified Public Accountants has
issued Statements of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use."
This statement requires capitalization of external direct
costs of materials and services; payroll and payroll-related
costs for employees directly associated; and interests costs
during development of computer software for internal use
(planning and preliminary costs should be expensed.) Also,
capitalized costs of computer software developed or obtained
for internal use should be amortized on a straight-line basis
unless another systematic and rational basis is more
representative of the software's use.
This statement is effective for financial statements for
fiscal years beginning after December 31, 1998 (prospectively)
and is not expected to have a material effect on the
consolidated financial statements.
NOTE E: The Company adopted SFAS No. 130 January 1, 1998. SFAS No. 130
established standards for reporting and display of
comprehensive income and its components.
The Company has classified the majority of its securities as
available for sale in accordance with FASB Statement No. 115.
For the nine months ended September 30, 1998, the net
unrealized gain on these securities increased by $1.7 million.
For the nine months ended September 30, 1997, the net
unrealized gain (loss) on these securities increased by $684
thousand. Pursuant to Statement No. 115, any unrealized gain
or loss activity of available for sale securities is to be
recorded as an adjustment to a separate component of
shareholders' equity, net of income tax effect. Accordingly,
for the nine months ended September 30, 1998 and 1997, the
Company recognized increases of $1.0 million and $431 thousand,
respectively, in the net unrealized gain (loss) component of
equity.
Since comprehensive income is a measure of all changes in
equity of an enterprise that result from transactions and other
economic events of the period, this change in unrealized gain
(loss) serves to increase or decrease comprehensive income.
The following table represents comprehensive income for the
nine months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net Income $3,388 $3,574
Other comprehensive income (loss),
net of tax
Unrealized gain (loss) on securities 1,022 431
Comprehensive income $4,410 $4,005
</TABLE>
The following table represents comprehensive income for the
three months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net Income $1,220 $1,211
Other comprehensive income (loss),
net of tax
Unrealized gain (loss) on securities 948 340
Comprehensive income $2,168 $1,551
</TABLE>
NOTE F: There have been no material changes in reported market risk
since year-end.
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, South Alabama
Bank, First National Bank, Brewton, the Monroe County Bank, and South
Alabama Trust Company. This analysis focuses upon significant changes
in financial condition between December 31, 1997 and September 30, 1998,
and significant changes for the three month periods ended September 30,
1998 and 1997, as well as significant changes for the nine months
periods ended September 30, 1998 and 1997.
In January 1998, the trust departments of South Alabama Bank and
First National Bank, Brewton were merged to form South Alabama Trust
Company, a wholly owned subsidiary. This combination will allow the
Company to realize certain economies of scale from operational
expenses.
On May 15, 1998, Peterman State Bank, a Peterman, Alabama state
bank, was acquired by the Company and merged into the Monroe County
Bank. This transaction has been accounted for as a purchase (the
"Peterman purchase").
On May 12, 1998, the Company announced a stock split effected in
the form of a stock dividend of one-half of a share of the Company's
common stock to be paid on each share of the Company's common stock
outstanding at the close of business on June 15, 1998. All share and
per share information in these financial statements have been restated
to give effect to the stock split.
This report on Form 10-Q contains certain forward looking
statements with respect to financial condition, liquidity, non-
performing assets and results of operations, including the Notes to
Consolidated Financial Statements and statements in the following
discussion. The Company cautions readers that forward looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward
looking statements. Factors that may cause actual results to differ
materially from those contemplated include, among others, the stability
of interest rates, the rate of growth of the economy in the Company's
market area, the success of the Company's marketing efforts, the ability
to expand into new segments of the market area, competition, changes in
technology, the strength of the consumer and commercial credit sectors,
levels of consumer confidence, the impact of regulation applicable to
the Company and the performance of stock and bond markets.
Financial Condition
Total assets at September 30, 1998 were $402.8 million, an increase
of $33.2 million, or 9.0 percent, from $369.6 million at December 31,
1997. Approximately $18 million of this increase was attributable to
the Peterman purchase. Approximately $6.5 million of the $28.6 million
increase in loans, or 22.7 percent, was attributable to the Peterman
purchase. Deposits increased by $26.7 million, or 8.5 percent.
Approximately 60 percent of this increase resulted from the Peterman
purchase. The internal deposit growth was used in part to fund the
increase in investment securities of $16.0 million, or 13.5 percent, and
the increase in loans not resulting from the Peterman purchase.
Time deposits, consisting of certificates of deposit, increased
$10.2 million, or 13.0 percent. Large denomination time deposits
increased $8.2 million, or 18.4 percent. The Company does not actively
seek large denomination time deposits as a source of funding. Non-
interest bearing demand deposits decreased $750 thousand, or 1.3
percent, while interest bearing demand deposits increased $6.0 million,
or 5.5 percent. Core deposits, defined as total deposits less time
deposits, increased by $8.3 million. Short-term borrowing increased
$253 thousand, or 3.9 percent, from year-end 1997.
The Company's equity as a percent of total assets at September 30,
1998 was 12.6 percent, compared to 12.3 percent at December 31, 1997.
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 13.3
percent, compared to 13.0 at year-end 1997.
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-
weighted" assets in determining "risk-weighted" capital ratios. The
Company's Tier I capital, which is shareholders' equity less goodwill
and unrealized gains and losses on available for sale securities, was
$40.7 million at December 31, 1997 and $44.4 million at September 30,
1998. Tier II capital, which is Tier I plus the allowable portion of
the allowance for loan losses, was $43.3 million at December 31, 1997
and $47.1 million at September 30, 1998. The ratios, expressed as a
percent of total risk-weighted assets for Tier I and Tier II, were 17.24
percent and 18.38 percent, respectively, at December 31, 1997, and 16.42
percent and 17.44 percent, respectively, at September 30, 1998. Both
the December 1997 and the September 1998 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, 1998 are shown below (dollars in thousands):
<TABLE>
<CAPTION>
September 30,
1998
<S> <C>
Tier I capital--
Tangible Common shareholders'
equity $44,380
Tier II capital--
Allowable portion of the allowance
for loan losses 2,764
Total capital (Tiers I and II) $47,144
Risk-weighted assets $270,293
Quarterly average assets 398,142
Risk-based capital ratios:
Tier I capital 16.42%
Total capital (Tiers I and II) 17.44%
</TABLE>
During the third quarter of 1998 the Company declared a regular
quarterly dividend of $0.085 per share, payable October 1, 1998, to
shareholders of record September 18, 1998.
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 $92.2 million at September 30, 1998. These assets
represented 22.9 percent of total assets at quarter end as compared to
24.7 percent at December 31, 1997. The net change in cash and cash
equivalents for the nine month period ended September 30, 1998 was a
decrease of $14.2 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 available, if needed, federal fund lines of
credit, Federal Reserve discount window operations, Federal Home Loan
Bank lines of credit, and an operating line of credit from a
correspondent bank.
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,
1998 1997
<S> <C> <C>
Accruing loans 90 days or more past due $ 491 $ 43
Loans on non-accrual 224 665
Renegotiated loans 0 0
Total non-performing loans 715 708
Other real estate owned 113 0
Total non-performing assets $ 828 $ 708
Accruing Loans 90 days or more past due
as a percent of loans 0.22% 0.02%
Total non-performing loans as a
percent of loans 0.32% 0.36%
Total non-performing assets as a percent
of loans and other real estate owned 0.37% 0.36%
</TABLE>
Non-performing loans increased by $7 thousand, or 1.0 percent, from
year-end 1997. Other real estate owned consists of several small
parcels of property.
The amount of impaired loans determined under SFAS No. 114 and 118
was 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 $1.2 million, or $0.19 per share,
during the third quarter of 1998, compared to net income in the third
quarter of 1997 of $1.2 million, or $0.19 per share. The increase in
total interest revenue of $869 thousand, or 13.5 percent, and the
increase in interest expense of $553 thousand, or 20.0 percent, were due
primarily to an increase in average interest earning assets and interest
bearing liabilities, caused in part by the Peterman purchase. The
increases in average interest earning assets and interest bearing
liabilities, offset by the decrease in the net interest margin from 4.73
percent in the third quarter of 1997 to 4.31 percent in the third
quarter of 1998, resulted in a small increase in net interest revenue of
$316 thousand, or 8.6 percent. Contributing to the narrower net
interest margin was the fact that several higher yielding agency
securities have been called over the past year and replaced with lower
yielding securities. Management provided $42 thousand for loan losses
during the third quarter of 1998, compared to a $38 thousand provision
for the third quarter of 1997. Net charge offs during the first nine
months of 1998 were $348 thousand compared to $135 thousand in the first
nine months of 1998. This increase in net charge offs is primarily a
result of the Peterman purchase. The allowance for loan losses at
September 30, 1998 and December 31, 1997 as a percent of loans was 1.23
percent and 1.37 percent respectively. The decrease in the allowance
for loan losses as a percentage of loans was due primarily to the
increase in loans. The allowance for loan losses represented 3.87 times
non-performing loans at September 30, 1998 and 3.79 times non-performing
loans at December 31, 1997. 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, 1998.
Non-interest revenue was $830 thousand for the third quarter of
1998, compared to $797 thousand for the same period in 1997, an increase
of 4.1 percent, due primarily to the increase in deposit account service
charges of $24 thousand.
Salary and employee benefit expense increased $230 thousand, or
15.0 percent, caused by an increase in full time equivalent employees
from 195 at September 30, 1997 to 210 at September 30, 1998, primarily
a result of the Peterman purchase, and by merit increases. Net
occupancy expense increased $15 thousand when compared to the same
period in 1997, while furniture and equipment expense increased $41
thousand.
Other expenses include data processing fees for the trust company,
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 1998 increased
by $49 thousand, or 6.4 percent. Contributing to the increase in all
categories of non-interest expense was the opening of a Baldwin county
branch of South Alabama Bank and the Peterman purchase. A name change
at South Alabama Bank contributed to the increase in other expenses.
Income tax expense was $443 thousand for the third quarter of 1998,
compared to $450 thousand for the same period in 1997. The decrease in
income tax expense in 1998 compared to 1997 resulted primarily from a
decrease in taxable income.
THE NINE MONTHS
The Company recorded net income of $3.4 million, or $0.53 per share,
during the first nine months of 1998 compared to net income in the first
nine months of 1997 of $3.6 million, or $0.56 per share. Total interest
revenue increased by $1.7 million, or 9.1 percent, due to increased
volume in loans and investment securities and to the Peterman purchase.
Interest expense increased $1.4 million, or 18.1 percent, due primarily
to increased deposit volume and to the Peterman purchase. Management
provided $140 thousand for loan losses during the first nine months of
1998 compared to $144 thousand for the first nine months of 1997.
Non-interest revenue was $2.4 million for the first nine months of
1998, compared to $2.2 million for the same period in 1997, an increase
of 8.7 percent.
Non-interest expense in the nine month period was $9.1 million in
1998, an increase of $783 thousand from 1997. Salary and employee
benefits increased $515 thousand, or 11.3 percent, a combination of
merit increases and an increase in full time equivalent employees.
Income tax expense was $1.3 million for the first nine months of
1998, compared to $1.4 million for the same period in 1997. The
decrease in income tax expense in 1998 compared to 1997 resulted
primarily from lower levels of taxable income.
YEAR 2000 PROBLEM
The Year 2000 ("Y2K") problem is the programming problem caused by
some computer software programs and hardware systems using only two
digits to indicate a year and assuming that the first two digits of any
year are "19". Risks to the Company if its computer systems are not Y2K
compliant include the inability to process customer deposits or checks
drawn on the Banks, inaccurate interest accruals and maturity dates of
loans and time deposits, and the inability to update accounts for daily
transactions. Other risks to the Company exist if certain of its
vendors', suppliers' and customers' computer systems are not Y2K
compliant. These risks include the inability of two of the Banks to
communicate with the centralized data processing center if phone systems
are not working, the interruption of business in the event of power
outages, the inability of loan customers to comply with repayment terms
if their businesses are interrupted, and the inability to make payment
for checks drawn on the Banks, receive payment for checks deposited by
the Bank's customers, or invest excess funds if the Federal Reserve
Bank's or correspondent banks' are not Y2K compliant.
The Company's most important mission critical system is the
software and hardware responsible for maintaining and processing general
ledger, deposits, and loans accounts. The Banks will be involved in a
test of this system prior to year end 1998. Testing of all other
systems is also scheduled to be completed by the end of 1998. The
Company is in the process of contacting its key vendors, suppliers and
customers to determine their Y2K compliance. The Company is also in the
process of establishing a contingency plan, which is scheduled to be
completed by the end of 1998.
The Company estimates that the cost of testing and updating its
systems for Y2K compliance will be less than $150 thousand, of which
approximately $65 thousand has been incurred.
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, 1998.
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
11/13/1998 /s/W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
11/13/1998 /s/F. Michael Johnson
Date F. Michael Johnson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 15,883
<INT-BEARING-DEPOSITS> 322
<FED-FUNDS-SOLD> 11,684
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 129,840
<INVESTMENTS-CARRYING> 4,716
<INVESTMENTS-MARKET> 4,834
<LOANS> 225,035
<ALLOWANCE> (2,764)
<TOTAL-ASSETS> 402,816
<DEPOSITS> 341,873
<SHORT-TERM> 6,721
<LIABILITIES-OTHER> 3,379
<LONG-TERM> 0
0
0
<COMMON> 49,006
<OTHER-SE> 1,837
<TOTAL-LIABILITIES-AND-EQUITY> 402,816
<INTEREST-LOAN> 14,124
<INTEREST-INVEST> 5,676
<INTEREST-OTHER> 1,116
<INTEREST-TOTAL> 20,916
<INTEREST-DEPOSIT> 9,202
<INTEREST-EXPENSE> 9,424
<INTEREST-INCOME-NET> 11,492
<LOAN-LOSSES> 140
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 9,071
<INCOME-PRETAX> 4,677
<INCOME-PRE-EXTRAORDINARY> 3,388
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,388
<EPS-PRIMARY> .53
<EPS-DILUTED> .52
<YIELD-ACTUAL> 4.31
<LOANS-NON> 224
<LOANS-PAST> 491
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,517
<ALLOWANCE-OPEN> 2,685
<CHARGE-OFFS> (580)
<RECOVERIES> 232
<ALLOWANCE-CLOSE> 2,764
<ALLOWANCE-DOMESTIC> 2,390
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 374
</TABLE>
