SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-15423
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)
N/A
Former Name, Former Address and Former Fiscal Year, if
changed since last report
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 November
10, 2000: 8,587,055
Page 1 of 24
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
INDEX TO FORM 10 - Q
PART I. Financial Information Page Number
Consolidated Statements of Condition
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements
September 30, 2000 7-14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15-23
PART II. Other Information 24
PART I. FINANCIAL INFORMATION
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
<CAPTION>
September 30, December 31,
2000 1999
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 23,227 $ 21,208
Federal Funds Sold 5,049 9,022
Total Cash and Cash Equivalents 28,276 30,230
Interest Bearing Deposits 457 599
Securities Available for Sale (at
Market Value) 131,020 134,563
Securities Held to Maturity
(Market value of $9,257 and $10,106,
respectively) 9,184 10,046
Loans 373,555 359,470
Less: Unearned Loan Income <1,430> <1,546>
Allowance for Loan Losses <4,494> <4,128>
Loans, Net 367,631 353,796
Premises and Equipment, Net 12,785 12,889
Accrued Income Receivable 5,913 5,635
Intangible Assets 4,229 4,378
Other Assets 3,960 4,722
Total $563,455 $556,858
LIABILITIES
Non-interest Bearing Demand Deposits $ 84,573 $ 81,997
Interest Bearing Demand Deposits 126,164 134,505
Savings Deposits 34,097 33,482
Large Denomination Time Deposits
(of $100 or more) 94,289 89,776
Time Deposits 139,202 127,692
Total Deposits 478,325 467,452
Short-Term Borrowings 8,585 14,999
Long-Term Debt 4,000 7,000
Other Liabilities 4,363 3,325
Total Liabilities 495,273 492,776
SHAREHOLDERS' EQUITY
Common Stock
Par Value $0.01
Shares Authorized 20,000,000
Shares Outstanding 2000-8,587,055
1999-8,585,555 86 86
Capital Surplus 37,792 37,786
Retained Earnings 32,065 29,121
Accumulated Other Comprehensive Loss <1,761> <2,911>
Total Shareholders' Equity 68,182 64,082
Total $563,455 $556,858
(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,
2000 1999
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $25,492 $22,263
Investments: Taxable 4,470 5,044
Non-Taxable 2,023 2,067
Other 284 545
Total Interest Revenue 32,269 29,919
Interest Expense:
Deposits 13,540 12,817
Short-Term Borrowings 444 272
Long-Term Debt 292 263
Total Interest Expense 14,276 13,352
Net Interest Revenue 17,993 16,567
Provision for Loan Losses 911 508
Net Interest Revenue After Provision
for Loan Losses 17,082 16,059
Non-Interest Revenue:
Trust Income 1,208 1,029
Service Charges on Deposit Accounts 2,121 1,781
Securities Gains and (Losses), net 2 14
Other Income, Charges and Fees 638 489
Total Non-Interest Revenue 3,969 3,313
Non-Interest Expense:
Salaries 5,964 5,739
Pensions and Employee Benefits 1,625 1,471
Net Occupancy Expense 887 811
Furniture and Equipment Expense 1,048 1,089
Intangible Amortization 149 149
Other Expense 3,587 3,313
Total Non-Interest Expense 13,260 12,572
Income Before Income Taxes 7,791 6,800
Income Tax Expense 2,271 1,894
Net Income $5,520 $ 4,906
Basic Earnings Per Common Share $ 0.64 $ .57
Diluted Earnings Per Common Share $ 0.64 $ .57
(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,
2000 1999
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $ 8,808 $ 7,669
Investments: Taxable 1,458 1,634
Non-Taxable 675 701
Other 81 133
Total Interest Revenue 11,022 10,137
Interest Expense:
Deposits 4,776 4,246
Short-Term Borrowings 80 99
Long-Term Debt 99 94
Total Interest Expense 4,955 4,439
Net Interest Revenue 6,067 5,698
Provision for Loan Losses 376 185
Net Interest Revenue After Provision
for Loan Losses 5,691 5,513
Non-Interest Revenue:
Trust Income 409 358
Service Charges on Deposit Accounts 714 623
Securities Gains and (Losses), net 2 (3)
Other Income, Charges and Fees 241 158
Total Non-Interest Revenue 1,366 1,136
Non-Interest Expense:
Salaries 2,038 1,928
Pensions and Employee Benefits 551 476
Net Occupancy Expense 314 283
Furniture and Equipment Expense 374 367
Intangible Amortization 50 50
Other Expense 1,177 1,165
Total Non-Interest Expense 4,504 4,269
Income Before Income Taxes 2,553 2,380
Income Tax Expense 725 679
Net Income $1,828 $ 1,701
Basic Earnings Per Common Share $ 0.21 $ .20
Diluted Earnings Per Common Share $ 0.21 $ .20
(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,
2000 1999
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,520 $ 4,906
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,177 1,280
Provision for loan losses 911 508
Securities (gains) and losses,net <2> <14>
(Increase) decrease in:
Income receivable <278> <300>
Other assets <196> <108>
Increase (decrease) in other liabilities 1,038 <461>
Net cash provided by operating activities 8,170 5,811
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest
bearing deposits 142 <189>
Net (increase) decrease in loans <14,746> <48,042>
Proceeds from the sale of other real
estate owned 288 66
Purchase of premises and equipment <845> <2,917>
Proceeds from sale of securities
available for sale 1,054 10,995
Proceeds from maturities of investments 14,259 46,866
Purchase of investments <9,165> <56,031>
Net cash provided by (used in) investing
activities <9,013> <49,252>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 10,873 <7,312>
Net increase (decrease) in short-
term borrowing <6,414> 11,096
Net increase (decrease)in long-term debt <3,000> 1,000
Proceeds from issuance of stock 6 75
Dividends paid <2,576> <2,275>
Net cash provided by (used in) financing
activities <1,111> 2,584
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <1,954> <40,857>
Cash and cash equivalents at beginning
of period 30,230 64,808
Cash and cash equivalents at end of
period $28,276 $23,951
Supplemental disclosures of cash flow
information:
Interest paid in cash $13,742 $13,602
Income taxes paid in cash 2,180 1,671
(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, 1999.
NOTE B: The allowances for losses on loans for the nine month
periods ended September 30, 2000 and 1999 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Allowance for loan losses:
Balance at beginning of period $ 4,128 $ 3,664
Provision charged to
operating expense 911 508
Losses charged off <1,096> <469>
Recoveries 551 350
Balance at end of period $ 4,494 $ 4,053
</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, 2000 and 1999.
Diluted earnings per share for the nine month periods ended
September 30, 2000 and 1999 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 tables represent the earnings per share
calculations for the nine month and three month periods ended
September 30, 2000 and 1999 (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Nine Months Ended Income Shares Earnings per share
September 30, 2000
<S> <C> <C> <C>
Net income $5,520
Basic earnings per share:
Income available to common
shareholders $5,520 8,587 $0.64
Dilutive securities:
Stock option plan shares 31
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $5,520 8,618 $0.64
Nine Months Ended Income Shares Earnings per share
September 30, 1999
Net income $4,906
Basic earnings per share:
Income available to common
shareholders $4,906 8,582 $0.57
Dilutive securities:
Stock option plan shares 79
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $4,906 8,661 $0.57
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Income Shares Earnings per share
September 30, 2000
<S> <C> <C> <C>
Net income $1,828
Basic earnings per share:
Income available to common
shareholders $1,828 8,587 $0.21
Dilutive securities:
Stock option plan shares 25
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,828 8,612 $0.21
Three Months Ended Income Shares Earnings per share
September 30, 1999
Net income $1,701
Basic earnings per share:
Income available to common
shareholders $1,701 8,671 $0.20
Dilutive securities:
Stock option plan shares 52
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,701 8,723 $0.20
</TABLE>
NOTE D: The Company has classified the majority of its securities as
available for sale in accordance with Statement of Financial
Accounting Standards ("SFAS") Statement No. 115. For the nine
month period ended September 30, 2000, the net unrealized
loss on these securities decreased by $1.8 million. For the
nine month period ended September 30, 1999, the net unrealized
(loss) on these securities increased by $5.1 million.
Pursuant to SFAS 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 month
periods ended September 30, 2000 and 1999, the Company
recognized an increase of $1.2 million and a decrease of $3.3
million, 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 month periods ended September 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net Income $5,520 $4,906
Other comprehensive income (loss),
net of tax
Unrealized gain (loss) on securities 1,150 (3,253)
Comprehensive income $6,670 $1,653
</TABLE>
NOTE E: There have been no material changes in reported market risk
since year-end.
NOTE F: Segment Reporting
Under SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," certain information is
disclosed for the five 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 five reportable segments of the company
are included in the following tables (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
Monroe- Sweet
Mobile Brewton ville Demopolis Water
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $12,000 $ 6,676 $ 5,752 $ 4,399 $ 3,540 $ 16 $ <114> $32,269
Total interest expense 5,437 2,716 2,359 2,266 1,612 0 <114> 14,276
Net interest income 6,563 3,960 3,393 2,133 1,928 16 0 17,993
Provision for loan losses 495 20 102 105 189 0 0 911
Net interest income after
provision 6,068 3,940 3,291 2,028 1,739 16 0 17,082
Total noninterest income 986 561 433 384 397 1,215 <7> 3,969
Total noninterest expense 4,286 2,364 2,029 1,478 1,419 1,691 <7> 13,260
Income before taxes 2,768 2,137 1,695 934 717 <460> 0 7,791
Provision for income taxes 992 530 497 238 189 <175> 0 2,271
Net income $ 1,776 $ 1,607 $ 1,198 $ 696 $ 528 $ <285> $ 0 $ 5,520
Other significant items:
Total assets $207,422 $110,707 $110,749 $74,761 $58,335 $71,710 $<70,229> $563,455
Total investment securities 33,439 34,301 42,085 16,740 13,639 0 0 140,204
Total loans 155,298 69,640 55,055 52,552 39,580 0 0 372,125
Investment in subsidiaries 59 71 0 0 68,529 <68,659> 0
Total interest income from
external customers 11,998 6,628 5,688 4,399 3,540 16 0 32,269
Total interest income from
affiliates 2 48 64 0 0 <114> 0
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
Monroe- Sweet
Mobile Brewton ville Demopolis Water
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $10,769 $ 6,297 $ 5,436 $ 4,143 $ 3,279 $ 17 $ <22> $29,919
Total interest expense 4,738 2,534 2,336 2,084 1,682 0 <22> 13,352
Net interest income 6,031 3,763 3,100 2,059 1,597 17 0 16,567
Provision for loan losses 302 44 0 135 27 0 0 508
Net interest income after
provision 5,729 3,719 3,100 1,924 1,570 17 0 16,059
Total noninterest income 717 430 422 379 336 1,036 <7> 3,313
Total noninterest expense 4,019 2,334 1,997 1,524 1,346 1,359 <7> 12,572
Income before taxes 2,427 1,815 1,525 779 560 <306> 0 6,800
Provision for income taxes 857 425 429 183 110 <110> 0 1,894
Net income $ 1,570 $ 1,390 $ 1,096 $ 596 $ 450 $ <196> $ 0 $ 4,906
Other significant items:
Total assets $197,576 $113,718 $115,258 $73,495 $58,543 $67,248 $<64,704> $561,134
Total investment securities 35,969 34,660 49,294 17,250 16,203 0 0 153,376
Total loans 146,921 71,741 52,697 52,051 37,543 0 0 360,953
Investment in subsidiaries 10 67 0 0 64,582 <64,659> 0
Total interest income from
external customers 10,764 6,288 5,428 4,143 3,279 17 0 29,919
Total interest income from
affiliates 5 9 8 0 0 0 <22> 0
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
Monroe- Sweet
Mobile Brewton ville Demopolis Water
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 4,209 $ 2,267 $ 1,919 $ 1,484 $ 1,175 $ 6 $ <38> $11,022
Total interest expense 1,922 936 802 786 547 0 <38> 4,955
Net interest income 2,287 1,331 1,117 698 628 6 0 6,067
Provision for loan losses 230 0 14 47 85 0 0 376
Net interest income after
provision 2,057 1,331 1,103 651 543 6 0 5,691
Total noninterest income 353 200 142 126 135 412 <2> 1,366
Total noninterest expense 1,452 807 669 482 496 600 <2> 4,504
Income before taxes 958 724 576 295 182 <182> 0 2,553
Provision for income taxes 345 178 171 72 45 < 86> 0 725
Net income $ 613 $ 546 $ 405 $ 223 $ 137 $ < 96> $ 0 $ 1,828
Other significant items:
Total assets $207,422 $110,707 $110,749 $74,761 $58,335 $71,710 $<70,229> $563,455
Total investment securities 33,439 34,301 42,085 16,740 13,639 0 0 140,204
Total loans 155,298 69,640 55,055 52,552 39,580 0 0 372,125
Investment in subsidiaries 59 71 0 0 68,529 <68,659> 0
Total interest income from
external customers 4,208 2,244 1,905 1,484 1,175 6 0 11,022
Total interest income from
affiliates 1 23 14 0 0 0 <38> 0
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
Monroe- Sweet
Mobile Brewton ville Demopolis Water
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 3,630 $ 2,141 $ 1,842 $ 1,410 $ 1,115 $ 4 $ <5> $10,137
Total interest expense 1,565 838 774 710 557 0 <5> 4,439
Net interest income 2,065 1,303 1,068 700 558 4 0 5,698
Provision for loan losses 101 30 0 45 9 0 0 185
Net interest income after
provision 1,964 1,273 1,068 655 549 4 0 5,513
Total noninterest income 247 139 162 116 114 360 <2> 1,136
Total noninterest expense 1,370 793 665 517 454 472 <2> 4,269
Income before taxes 841 619 565 254 209 <108> 0 2,380
Provision for income taxes 298 146 167 59 46 < 37> 0 679
Net income $ 543 $ 473 $ 398 $ 195 $ 163 $ < 71> $ 0 $ 1,701
Other significant items:
Total assets $197,576 $113,718 $115,258 $73,495 $58,543 $67,248 $<64,704> $561,134
Total investment securities 35,969 34,660 49,294 17,250 16,203 0 0 153,376
Total loans 146,921 71,741 52,697 52,051 37,543 0 0 360,953
Investment in subsidiaries 10 67 0 0 64,582 <64,659> 0
Total interest income from
external customers 3,625 2,141 1,842 1,410 1,115 4 0 10,137
Total interest income from
affiliates 5 0 0 0 0 0 <5> 0
</TABLE>
NOTE G: In June 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which establishes
accounting and reporting standards requiring that every
derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset of liability measured at its
fair value. The Statement requires that changes in a
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in
the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133," which
delays the original effective date of Statement 133 until
fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which
amends SFAS No. 133. SFAS No. 138 addresses a limited number
of issues related to the implementation of SFAS No. 133.
Management will adopt the statement as of January 1, 2001, as
allowed, but does not expect the impact of implementation to
be significant.
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, Sweet Water State Bank and South Alabama
Trust Company, Inc. This analysis focuses upon significant changes in
financial condition between December 31, 1999 and September 30, 2000,
and significant changes for the three month periods ended September 30,
2000 and 1999, as well as significant changes for the nine month periods
ended September 30, 2000 and 1999.
On September 10, 1999, Sweet Water State Bancshares, Inc., the
parent company of Sweet Water State Bank, was merged into the Company.
This merger has been accounted for as a pooling-of-interests, and,
accordingly, the results of operations of Sweet Water State Bank 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 September 30, 2000 were $563.5 million, an increase
of $6.6 million from $556.9 million at December 31, 1999. Federal
funds sold decreased $4.0 million, and investment securities decreased
$4.4 million, from December 31, 1999. These decreases in federal funds
sold and investment securities were used in part to fund the increase in
loans of $14.1 million, or 3.9 percent, from $359.5 million at December
31, 1999 to $373.6 million at September 30, 2000. The increase in total
deposits of $10.9 million, or 2.3 percent, from $467.5 million at
December 31, 1999 to $478.3 million at September 30, 2000 was also a
source of funds for loans. In addition, this increase in deposits
allowed the company to decrease short term borrowings, primarily Federal
Funds Purchased, from $15.0 million at December 31, 1999 to $8.6 million
at September 30, 2000, a decrease of $6.4 million, or 42.8 percent and
to decrease Long Term Debt from $7.0 million at December 31, 1999 to
$4.0 million at September 30, 2000, a decrease of $3.0 million, or 42.9
percent.
Time deposits, consisting of certificates of deposit, increased
$11.5 million, or 9.0 percent. Large denomination time deposits
increased $4.5 million, or 5.0 percent. Non-interest bearing demand
deposits increased $2.6 million, or 3.0 percent, while interest bearing
demand deposits decreased $8.3 million, or 6.2 percent. Core deposits,
considered to be total deposits less time deposits of $100 thousand or
more, increased by $6.4 million, or 1.7 percent.
The Company's equity as a percent of total assets at September 30,
2000 was 12.1 percent, compared to 11.5 percent at December 31, 1999.
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 13.2
percent, compared to 12.8 percent at year-end 1999.
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 $62.6 million at
December 31, 1999 and $65.7 million at September 30, 2000. Tier I
capital plus Tier II capital, which is the allowable portion of the
allowance for loan losses, was $66.7 million at December 31, 1999 and
$70.2 million at September 30, 2000. The ratios, expressed as a
percent of total risk-weighted assets for Tier I and Tier II capital,
were 15.95 percent and 17.00 percent, respectively, at December 31,
1999, and 16.19 percent and 17.30 percent, respectively, at September
30, 2000. Both the December 1999 and the September 2000 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 September 30, 2000 are shown below (dollars in thousands):
<TABLE>
<CAPTION>
September 30,
2000
<S> <C>
Tier I capital--
Tangible Common shareholders'
equity $65,714
Tier II capital--
Allowable portion of the allowance
for loan losses 4,494
Total capital (Tiers I and II) $70,208
Risk-weighted assets $405,836
Quarterly average assets 554,517
Risk-based capital ratios:
Tier I capital 16.19%
Total capital (Tiers I and II) 17.30%
</TABLE>
During the second quarter of 2000 the Company declared a regular
quarterly dividend of $0.10 per share, payable October 2, 2000, to
shareholders of record September 11, 2000.
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 $64.2 million at September 30, 2000. These assets
represented 11.4 percent of total assets at quarter end as compared to
16.4 percent at December 31, 1999. The net change in cash and cash
equivalents for the nine month period ended September 30, 2000 was a
decrease of $2.0 million, or 6.5 percent. 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,
2000 1999
<S> <C> <C>
Accruing loans 90 days or more past due $ 273 $ 446
Loans on non-accrual 2,513 1,352
Renegotiated loans 0 0
Total non-performing loans 2,786 1,798
Other real estate owned 208 466
Total non-performing assets $2,994 $2,264
Accruing Loans 90 days or more past due
as a percent of loans 0.07% 0.12%
Total non-performing loans as a
percent of loans 0.75% 0.50%
Total non-performing assets as a percent
of loans and other real estate owned 0.80% 0.63%
</TABLE>
Non-performing assets increased by $730 thousand from year-end
1999. This increase was caused by an additional $1.2 million in loans
on non-accrual, as all other categories of non-performing assets
decreased. The increase in loans on non-accrual is primarily due to one
loan with an outstanding balance of approximately $890 thousand. This
loan is secured by several parcels of real estate and a $100 thousand
certificate of deposit.
The amount of impaired loans determined under SFAS No. 114 and 118
have been considered in the summary of non-performing assets above.
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 $1.8 million, or $0.21 per share,
during the third quarter of 2000, compared to net income in the third
quarter of 1999 of $1.7 million, or $0.20 per share. A shift to loans
from investment securities and federal funds sold and the general
increase in interest rates in the economy enabled the Company to
increase total interest revenue by $885 thousand, or 8.7 percent.
Interest expense increased by $516 thousand. The net interest margin
increased to 4.69 percent in the third quarter of 2000 compared to 4.63
percent in the third quarter of 1999.
Management provided $376 thousand for loan losses during the third
quarter of 2000, compared to a $185 thousand provision for the third
quarter of 1999. The increase in the provision was in response to the
Company's loan portfolio growth, as well as a higher level of net charge
offs and non-performing loans in the first nine months of 2000 compared
to 1999. The allowances for loan losses at September 30, 2000 and
December 31, 1999 as percentages of loans net of unearned income were
1.21 percent and 1.15 percent respectively. The allowances for loan
losses represented 1.61 times non-performing loans at September 30, 2000
and 2.30 times non-performing loans at December 31, 1999. 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, 2000.
Non-interest revenue was $1.4 million for the third quarter of
2000, compared to $1.1 million for the same period in 1999, an increase
of 20.2 percent, due primarily to the increase in deposit account
service charges of $91 thousand and an increase in Trust Company revenue
of $51 thousand. Several of the Company's subsidiary banks have
introduced new fee schedules, and these new fee schedules are having a
positive impact on this category.
Salary and employee benefit expense increased $185 thousand, or 7.7
percent, from third quarter of 1999 to the third quarter of 2000, caused
primarily by merit increases and increased medical insurance expense.
Net occupancy expense was $314 thousand in the third quarter of 2000, an
increase of $31 thousand, or 11.0 percent, from the same period of 1999.
This increase was caused primarily by the opening in December 1999 of a
branch in Gulf Shores. Furniture and equipment expense increased $7
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 expense in third quarter 2000 increased by $12
thousand, or 1.0 percent from third quarter 1999.
Income tax expense was $725 thousand for the third quarter of 2000,
compared to $679 thousand for the same period in 1999. The increase in
income tax expense in 2000 compared to 1999 resulted primarily from an
increase in taxable income.
THE NINE MONTH PERIOD
The Company recorded net income of $5.5 million, or $0.64 per share,
during the first nine months of 2000 compared to net income in the first
nine months of 1999 of $4.9 million, or $0.57 per share. Total interest
revenue increased by $2.4 million, or 7.9 percent, due in part to the
increased volume in loans. Interest expense increased $924 thousand, or
6.9 percent. The increases in total interest revenue and total interest
expense were due both to the general rise in interest rates in the
economy and volume increases at the Company. Management provided $911
thousand for loan losses during the first nine months of 2000 compared
to $508 thousand for the first nine months of 1999, with the increase
necessitated by loan growth, higher levels of charge offs and some
growth in non-performing loans.
Non-interest revenue was $4.0 million for the first nine months of
2000, compared to $3.3 million for the same period in 1999. This
increase of 19.8 percent was due primarily to the increase in Trust
revenue of $179 thousand and the increase in deposit account service
charges of $340 thousand.
Non-interest expense in the nine month period was $13.3 million in
2000, an increase of $688 thousand, or 5.5 percent from 1999. Salary
and employee benefits increased $379 thousand, or 5.3 percent, a result
of merit increases and increased medical insurance expense.
Income tax expense was $2.3 million for the first nine months of
2000, compared to $1.9 million for the same period in 1999. The
increase in income tax expense in 2000 compared to 1999 resulted
primarily from higher levels of taxable income.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed of Form 8-K for the three month
period ended September 30, 2000.
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
11/14/2000 /s/W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
11/14/2000 /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
