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, 1999. 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 May 13,
1999: 7,735,425
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
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements
March 31, 1999 6-11
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>
March 31, December 31,
1999 1998
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
A S S E T S
Cash and Due from Banks $ 18,594 $ 20,370
Federal Funds Sold 9,220 40,254
Total Cash and Cash Equivalents 27,814 60,624
Interest Bearing Deposits 508 410
Securities Available for Sale (at Market) 150,988 144,234
Securities Held to Maturity
(Market value of $3,658 and $3,736,
respectively) 3,568 3,635
Loans 302,486 278,182
Less: Unearned Loan Income <163> <171>
Allowance for Loan Losses <3,325> <3,248>
Loans, Net 298,998 274,763
Premises and Equipment 11,196 9,831
Accrued Income Receivable 4,369 4,369
Intangible assets 4,527 4,576
Other Assets 2,014 1,405
Total $503,982 $503,847
L I A B I L I T I E S
Non-interest Bearing Demand Deposits $ 69,585 $ 73,501
Interest Bearing Demand Deposits 138,481 137,326
Savings Deposits 31,131 29,831
Large Denomination Time Deposits
(of $100 or more) 80,058 76,050
Time Deposits 109,429 111,368
Total Deposits 428,684 428,076
Short-Term Borrowing 6,386 7,457
Long-Term Debt 6,000 6,000
Other Liabilities 3,719 3,368
Total Liabilities 444,789 444,901
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 1999-7,729,425
1998-7,560,095 77 77
Capital Surplus 37,126 37,059
Retained Earnings 21,136 20,393
Accumulated Other Comprehensive Income 854 1,417
Total Shareholders' Equity 59,193 58,946
Total $503,982 $503,847
(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,
1999 1998
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $ 6,319 $ 5,557
Investments:Taxable 1,583 1,411
Non-Taxable 584 566
Other 232 402
Total Interest Revenue 8,718 7,936
Interest Expense:
Deposits 3,775 3,537
Short-Term Borrowings 70 70
Long-Term Debt 84 43
Total Interest Expense 3,929 3,650
Net Interest Revenue 4,789 4,286
Provision for Loan Losses 142 95
Net Interest Revenue After Provision
for Loan Losses 4,647 4,191
Non-Interest Revenue:
Trust Income 313 324
Service Charges on Deposit Accounts 475 394
Securities Gains and Losses,net 18 (5)
Other Income, Charges and Fees 150 119
Total Non-Interest Revenue 956 832
Non-Interest Expense:
Salaries 1,640 1,492
Pensions and Employee Benefits 455 404
Net Occupancy Expense 239 239
Furniture and Equipment Expense 330 242
Intangible Amortization 50 42
Other Expense 945 875
Total Non-Interest Expense 3,659 3,294
Income Before Income Taxes 1,944 1,729
Income Tax Expense 544 476
Net Income $1,400 $ 1,253
Basic Earnings Per Common Share $ 0.18 $ .17
Diluted Earnings Per Share $ 0.18 $ .16
(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,
1999 1998
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,400 $ 1,253
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 341 398
Provision for loan losses 142 95
Securities gains and losses,net <18> 5
(Increase) decrease in:
Income receivable 0 362
Other assets <382> <620>
Increase (decrease) in other liabilities 351 <362>
Net cash provided by operating activities 1,834 1,131
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing
deposits <98> <153>
Net (increase) decrease in loans <24,377> 6,839
Purchase of premises and equipment <1,653> <714>
Proceeds from sale of securities
available for sale 3,980 1,196
Proceeds from maturities of investments 24,560 15,617
Purchase of investments <36,003> <23,677>
Net cash acquired from business
combinations 0 0
Net cash provided by (used in) investing
activities <33,591> <892>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 608 11,114
Net increase (decrease) in short-
term borrowing <1,071> <3,020>
Net increase in long-term debt 0 2,000
Proceeds from issuance of stock 67 113
Dividends paid <657> <468>
Net cash provided by (used in) financing
activities <1,053> 9,739
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <32,810> 9,978
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 60,624 44,743
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $27,814 $54,721
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid in cash $ 4,049 $ 3,613
Income taxes paid in cash 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, 1998.
NOTE B: The allowance for losses on loans for the three month periods
ended March 31, 1999 and 1998 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
Allowance for loan losses:
<S> <C> <C>
Balance at beginning of period $ 3,248 $ 3,167
Balance acquired 0
Provision charged to
operating expense 142 95
Losses charged off <149> <183>
Recoveries 84 153
Balance at end of period $ 3,325 $ 3,232
</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 three month periods ended March 31,
1999 and 1998.
Diluted earnings per share for the three month periods ended
March 31, 1999 and 1998, 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.
The following table represents the earnings per share
calculations for the three months ended March 31, 1999 and
1998, (in thousands except per share amounts):
<TABLE>
<CAPTION>
Income Shares Earnings per share
March 31, 1999
<S> <C> <C> <C>
Net income $1,400
Basic earnings per share:
Income available to common
shareholders $1,400 7,727 $0.18
Dilutive securities
Stock option plan shares 88
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,400 7,815 $0.18
Income Shares Earnings per share
March 31, 1998
Net income $1,253
Basic earnings per share:
Income available to common
shareholders $1,253 7,559 $0.17
Dilutive securities
Stock option plan shares 117
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,253 7,676 $0.16
</TABLE>
NOTE D: The American Institute of Certified Public Accountants has
issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-up Activities." This SOP provides guidance on
the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and
organization activities to be expensed as incurred and the
initial application of this SOP should be reported as the
cumulative effect of a change in accounting principle. This
SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. Earlier application is
encouraged for fiscal years for which annual financial
statements previously have not been issued. Management does
not believe that the adoption of this SOP will have a material
impact on the presentation of the Company's financial
condition or results of operations.
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 three months ended March 31, 1999, the net
unrealized gain on these securities decreased by $894
thousand. For the three months ended March 31, 1998, the net
unrealized gain (loss) on these securities increased by $197
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 three months ended March 31, 1999 and 1998, the
Company recognized a decrease of $563 thousand and an increase
of $124 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
three months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net Income $1,400 $1,253
Other comprehensive income (loss),
net of tax
Unrealized gain (loss) on securities <563> 124
Comprehensive income $ 837 $1,377
</TABLE>
NOTE F: There have been no material changes in reported market risk
since year-end.
NOTE G: Segment Reporting
Under SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related information", certain information is
disclosed for the four reportable operating segments of the
Company. The reportable segments were determined using the
internal management reporting system. They are composed of
the Company's significant subsidiaries. The accounting
policies for each segment are the same as those used by the
Company. The segment results include certain overhead
allocations and intercompany transactions that were recorded
at current market prices. All intercompany transactions have
been eliminated to determine the consolidated balances. The
results for the four reportable segments of the company are
included in the following tables:
<TABLE>
<CAPTION>
March 31, 1999
Monroe-
Mobile Brewton ville Demopolis
Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 3,508 $ 2,067 $ 1,770 $ 1,364 $ 10 $ <1> $ 8,718
Total interest expense 1,600 856 784 690 <1> 3,929
Net interest income 1,908 1,211 986 674 10 4,789
Provision for loan losses 83 14 45 142
Net interest income after
provision 1,825 1,197 986 629 10 4,647
Total noninterest income 245 122 136 140 316 <3> 956
Total noninterest expense 1,293 758 663 501 447 <3> 3,659
Income before taxes 777 561 459 268 <121> 1,944
Provision for income taxes 271 137 124 61 <49> 544
Net income $ 506 $ 424 $ 335 $ 207 $ <72> $ 1,400
Other significant items:
Total assets $198,779 $112,591 $117,250 $73,298 $59,468 $<57,404> $503,982
Total investment securities 45,011 36,035 55,469 18,041 154,556
Total loans 138,765 67,793 45,873 50,055 302,486
Investment in subsidiaries 5 38 56,914 <56,957>
Total interest income from
external customers 3,508 2,066 1,770 1,364 10 8,718
Total interest income from
affiliates 1 <1>
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
Monroe-
Mobile Brewton ville Demopolis
Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 3,075 $ 2,044 $ 1,482 $ 1,335 $ 7,936
Total interest expense 1,438 860 663 689 3,650
Net interest income 1,637 1,184 819 646 4,286
Provision for loan losses 21 56 18 95
Net interest income after
provision 1,616 1,128 819 628 4,191
Total noninterest income 185 104 124 95 $ 325 $ <1> 832
Total noninterest expense 1,217 700 569 449 360 <1> 3,294
Income before taxes 584 532 374 274 <35> 1,729
Provision for income taxes 201 106 110 69 <10> 476
Net income $ 383 $ 426 $ 264 $ 205 $ <25> $ 1,253
Other significant items:
Total assets $163,752 $112,972 $ 96,160 $72,996 $53,677 $<51,211> $448,346
Total investment securities 28,084 42,478 50,411 19,478 140,451
Total loans 107,483 56,545 27,282 46,656 237,966
Investment in subsidiaries <2> 10 51,374 <51,382>
Total interest income from
external customers 3,075 2,044 1,482 1,335 7,936
Total interest income from
affiliates
</TABLE>
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, The
Commercial Bank of Demopolis and South Alabama Trust Company, Inc. This
analysis focuses upon significant changes in financial condition between
December 31, 1998 and March 31, 1999, and significant changes for the
three month periods ended March 31, 1999 and 1998.
In January 1998, the trust departments of South Alabama Bank and
First National Bank, Brewton were merged to form South Alabama Trust
Company, Inc., a wholly owned subsidiary of the Company. This
combination should allow the Company to realize certain economies of
scale and reduce 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.
On December 15, 1998, The Commercial National Bank of Demopolis was
merged into a wholly-owned subsidiary of the Company, with the resulting
company changing its name to The Commercial Bank of Demopolis. This
merger has been accounted for as a pooling-of-interests and accordingly
the results of operations of The Commercial Bank of Demopolis have been
included in the consolidated results for all periods presented.
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. These statements can be identified by the use of words like
"expect", "may", "could", "should", "intend", "project", "estimate", or
"anticipate". 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 March 31, 1999 were $504.0 million, an increase of
$135 thousand from $503.8 million at December 31, 1998. Federal funds
sold decreased $31.0 million from December 31, 1998. This decrease in
federal funds sold was used primarily to fund the increase in loans of
$24.3 million, or 8.7 percent, from $278.2 million at December 31, 1998
to $302.5 million at March 31, 1999 and the increase in investment
securities of $6.7 million, or 4.5 percent, from $147.9 million at
December 31, 1998 to $154.6 million at March 31, 1999. Total deposits
at March 31, 1999 of $428.7 million were virtually unchanged from
December 31, 1998.
Time deposits, consisting of certificates of deposit, decreased
$1.9 million, or 1.7 percent. Large denomination time deposits
increased $4.0 million, or 5.3 percent. The Company does not actively
seek large denomination time deposits as a source of funding. Non-
interest bearing demand deposits decreased $3.9 million, or 5.3 percent,
while interest bearing demand deposits increased $1.2 million, or 0.1
percent. Core deposits, defined as total deposits less time deposits,
decreased by $1.5 million. Short-term borrowing decreased $1.1 million,
or 14.4 percent, from year-end 1998 and long-term debt was unchanged.
The Company's equity as a percent of total assets at March 31, 1999
was 11.7 percent, unchanged from December 31, 1998. 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 12.2 percent, compared
to 12.1 at year-end 1998.
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 accumulated other comprehensive income, was $53.0 million at
December 31, 1998 and $53.8 million at March 31, 1999. Tier II capital,
which is Tier I capital plus the allowable portion of the allowance for
loan losses, was $56.2 million at December 31, 1998 and $57.1 million at
March 31, 1999. The ratios, expressed as a percent of total risk-
weighted assets for Tier I and Tier II capital, were 16.23 percent and
17.23 percent, respectively, at December 31, 1998, and 15.66 percent and
16.62 percent, respectively, at March 31, 1999. Both the December 1998
and the March 1999 ratios exceed the minimum ratios of four percent and
eight percent for Tier I and Tier II capital, respectively.
The components of the Company's risk-based capital calculations
for March 31, 1999 are shown below (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
1999
<S> <C>
Tier I capital--
Tangible Common shareholders'
equity $53,812
Tier II capital--
Allowable portion of the allowance
for loan losses 3,325
Total capital (Tiers I and II) $57,137
Risk-weighted assets $343,685
Quarterly average assets 493,868
Risk-based capital ratios:
Tier I capital 15.66%
Total capital (Tiers I and II) 16.62%
</TABLE>
During the first quarter of 1999 the Company declared a regular
quarterly dividend of $0.085 per share, payable April 1, 1999, to
shareholders of record March 15, 1999.
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 $95.3 million at March 31, 1999. These assets
represented 18.9 percent of total assets at quarter end as compared to
23.6 percent at December 31, 1998. The net change in cash and cash
equivalents for the three month period ended March 31, 1999 was a
decrease of $32.8 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>
March 31, December 31,
1999 1998
<S> <C> <C>
Accruing loans 90 days or more past due $ 273 $ 465
Loans on non-accrual 659 419
Renegotiated loans 0 0
Total non-performing loans 932 884
Other real estate owned 123 168
Total non-performing assets $1,055 $1,052
Accruing Loans 90 days or more past due
as a percent of loans 0.09% 0.17%
Total non-performing loans as a
percent of loans 0.31% 0.32%
Total non-performing assets as a percent
of loans and other real estate owned 0.35% 0.38%
</TABLE>
Non-performing loans increased by $48 thousand, or 5.4 percent,
from year-end 1998. 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 FIRST QUARTER
The Company recorded net income of $1.4 million, or $0.18 per share,
during the first quarter of 1999, compared to net income in the first
quarter of 1998 of $1.3 million, or $0.17 per share. The increase in
total interest revenue of $782 thousand, or 9.9 percent, and the
increase in interest expense of $279 thousand, or 7.6 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 4.29
percent in the first quarter of 1998 to 4.20 percent in the first
quarter of 1999, resulted in an increase in net interest revenue of $503
thousand, or 11.7 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 $142 thousand for loan losses during
the first quarter of 1999, compared to a $95 thousand provision for the
first quarter of 1998. Net charge offs during the first three months of
1999 were $65 thousand compared to $30 thousand in the first three
months of 1998. The allowance for loan losses at March 31, 1999 and
December 31, 1998 as a percent of loans was 1.10 percent and 1.17
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 3.57 times non-performing loans at
March 31, 1999 and 3.67 times non-performing loans at December 31, 1998.
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, 1999.
Non-interest revenue was $956 thousand for the first quarter of
1999, compared to $832 thousand for the same period in 1998, an increase
of 14.9 percent, due primarily to the increase in deposit account
service charges of $81 thousand.
Salary and employee benefit expense increased $199 thousand, or
10.5 percent, caused by an increase in full time equivalent employees
from 236 at March 31, 1998 to 240 at March 31, 1999, and by merit
increases. Net occupancy expense of $239 in first quarter 1999 was
unchanged from 1998 while furniture and equipment expense increased $88
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 first quarter 1999 increased
by $70 thousand, or 8.0 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.
Income tax expense was $544 thousand for the first quarter of 1999,
compared to $476 thousand for the same period in 1998. The increase in
income tax expense in 1999 compared to 1998 resulted primarily from an
increase in taxable income.
YEAR 2000 PROBLEM
The Year 2000 ("Y2K") issue is a result of 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 Banks' customers, or
invest excess funds if the Federal Reserve Banks or correspondent banks
are not Y2K compliant.
Each Bank and the Trust Company formed a Year 2000 committee to address
Y2K issues. These committees performed a Y2K risk assessment, identified
systems requiring changes due to Y2K risks, established a time line to
correct noncompliant systems, verified that all new systems purchased
are Y2K compliant and determined types of assistance needed by customers
to be Y2K compliant. These committees will have completed and tested
contingency plans by June 30, 1999. These committees report to the Board
of Directors of the Banks and the Trust Company, and reports for all
Banks and the Trust Company are given to the Company's Board of
Directors.
The Y2K committees identified the most important mission critical system
as the software and hardware responsible for maintaining and processing
general ledger, deposits, and loans accounts. The testing of this system
has been completed and the results of the tests are currently being
reviewed. Other mission critical systems have been tested, and any
necessary corrections completed. Vendor testing and review of proxy
testing for non-mission critical systems will be completed by March 31,
1999, as required by federal guidelines.
The Company estimates that the cost of testing and updating its systems
for Y2K compliance will be less than $170 thousand, of which
approximately $106 thousand has been incurred. These costs do not include
indirect costs, such as salaries and employee benefits of South Alabama
employees, as these costs are not separately tracked.
South Alabama believes it has an effective plan to correct its Y2K
issues. However, if these corrections are not made, or if problems go
undetected, the Y2K issue could materially impact South Alabama's
operations. South Alabama believes that it and its vendors and customers
are on schedule to achieve Y2K compliance, and South Alabama does not
expect a material adverse impact on its operations.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On February 26, 1999 , the Company filed a current report on Form
8-K/A. This report amended the 8-K filed by the Company on December 28,
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
05/13/1999 /s/W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
05/13/1999 /s/F. Michael Johnson
Date F. Michael Johnson
Chief Financial Officer
Exhibit Index
The following is a list of exhibits filed herewith.
27 Financial Data Schedule
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 18,594
<INT-BEARING-DEPOSITS> 508
<FED-FUNDS-SOLD> 9,220
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,988
<INVESTMENTS-CARRYING> 3,568
<INVESTMENTS-MARKET> 3,658
<LOANS> 302,323
<ALLOWANCE> (3,325)
<TOTAL-ASSETS> 503,982
<DEPOSITS> 428,684
<SHORT-TERM> 6,386
<LIABILITIES-OTHER> 3,719
<LONG-TERM> 6,000
0
0
<COMMON> 58,339
<OTHER-SE> 854
<TOTAL-LIABILITIES-AND-EQUITY> 503,982
<INTEREST-LOAN> 6,319
<INTEREST-INVEST> 2,167
<INTEREST-OTHER> 232
<INTEREST-TOTAL> 8,718
<INTEREST-DEPOSIT> 3,775
<INTEREST-EXPENSE> 3,929
<INTEREST-INCOME-NET> 4,789
<LOAN-LOSSES> 142
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 3,659
<INCOME-PRETAX> 1,944
<INCOME-PRE-EXTRAORDINARY> 1,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,400
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<YIELD-ACTUAL> 4.20
<LOANS-NON> 659
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,895
<ALLOWANCE-OPEN> 3,248
<CHARGE-OFFS> 149
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 3,325
<ALLOWANCE-DOMESTIC> 3,223
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 102
</TABLE>
