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 June 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 August 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
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements
June 30, 2000 7-13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-22
PART II. Other Information 23
PART I. FINANCIAL INFORMATION
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
<CAPTION>
June 30, December 31,
2000 1999
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 21,643 $ 21,208
Federal Funds Sold 2,588 9,022
Total Cash and Cash Equivalents 24,231 30,230
Interest Bearing Deposits 621 599
Securities Available for Sale (at
Market Value) 130,994 134,563
Securities Held to Maturity
(Market value of $9,331 and $10,106,
respectively) 9,301 10,046
Loans 369,797 359,470
Less: Unearned Loan Income <1,377> <1,546>
Allowance for Loan Losses <4,391> <4,128>
Loans, Net 364,029 353,796
Premises and Equipment, Net 12,732 12,889
Accrued Income Receivable 5,854 5,635
Intangible Assets 4,279 4,378
Other Assets 4,304 4,722
Total $556,345 $556,858
LIABILITIES
Non-interest Bearing Demand Deposits $ 77,526 $ 81,997
Interest Bearing Demand Deposits 126,184 134,505
Savings Deposits 35,841 33,482
Large Denomination Time Deposits
(of $100 or more) 90,980 89,776
Time Deposits 135,084 127,692
Total Deposits 465,615 467,452
Short-Term Borrowings 13,960 14,999
Long-Term Debt 7,000 7,000
Other Liabilities 3,594 3,325
Total Liabilities 490,169 492,776
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 31,096 29,121
Accumulated Other Comprehensive Loss <2,798> <2,911>
Total Shareholders' Equity 66,176 64,082
Total $556,345 $556,858
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
<CAPTION>
Six Months Ended June 30,
2000 1999
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $16,684 $14,595
Investments: Taxable 3,012 3,410
Non-Taxable 1,348 1,365
Other 203 412
Total Interest Revenue 21,247 19,782
Interest Expense:
Deposits 8,764 8,571
Short-Term Borrowings 364 173
Long-Term Debt 193 169
Total Interest Expense 9,321 8,913
Net Interest Revenue 11,926 10,869
Provision for Loan Losses 535 323
Net Interest Revenue After Provision
for Loan Losses 11,391 10,546
Non-Interest Revenue:
Trust Income 799 671
Service Charges on Deposit Accounts 1,407 1,158
Securities Gains and (Losses), net 0 16
Other Income, Charges and Fees 397 332
Total Non-Interest Revenue 2,603 2,177
Non-Interest Expense:
Salaries 3,926 3,813
Pensions and Employee Benefits 1,074 993
Net Occupancy Expense 573 528
Furniture and Equipment Expense 674 722
Intangible Amortization 99 99
Other Expense 2,410 2,148
Total Non-Interest Expense 8,756 8,303
Income Before Income Taxes 5,238 4,420
Income Tax Expense 1,546 1,215
Net Income $3,692 $ 3,205
Basic Earnings Per Common Share $ 0.43 $ .37
Diluted Earnings Per Common Share $ 0.43 $ .37
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
<CAPTION>
Three Months Ended June 30,
2000 1999
(Dollars in thousands except
per share amounts)
<S> <C> <C>
Interest Revenue:
Loans $ 8,564 $ 7,431
Investments: Taxable 1,485 1,711
Non-Taxable 673 691
Other 117 137
Total Interest Revenue 10,839 9,970
Interest Expense:
Deposits 4,492 4,245
Short-Term Borrowings 196 103
Long-Term Debt 95 85
Total Interest Expense 4,783 4,433
Net Interest Revenue 6,056 5,537
Provision for Loan Losses 305 172
Net Interest Revenue After Provision
for Loan Losses 5,751 5,365
Non-Interest Revenue:
Trust Income 400 358
Service Charges on Deposit Accounts 710 592
Securities Gains and (Losses), net 0 (3)
Other Income, Charges and Fees 197 159
Total Non-Interest Revenue 1,307 1,106
Non-Interest Expense:
Salaries 1,948 1,943
Pensions and Employee Benefits 560 472
Net Occupancy Expense 291 272
Furniture and Equipment Expense 336 375
Intangible Amortization 49 49
Other Expense 1,232 1,087
Total Non-Interest Expense 4,416 4,198
Income Before Income Taxes 2,642 2,273
Income Tax Expense 783 619
Net Income $1,859 $ 1,654
Basic Earnings Per Common Share $ 0.22 $ .19
Diluted Earnings Per Common Share $ 0.22 $ .19
(See accompanying notes to consolidated financial statements.)
</TABLE>
<TABLE>
SOUTH ALABAMA BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Six Months Ended June 30,
2000 1999
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,692 $ 3,205
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 792 813
Provision for loan losses 535 323
Securities (gains) and losses,net 0 <16>
(Increase) decrease in:
Income receivable <219> <311>
Other assets 54 176
Increase (decrease) in other liabilities 269 <611>
Net cash provided by operating activities 5,123 3,579
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest bearing
deposits <22> <124>
Net (increase) decrease in loans <10,768> <32,220>
Proceeds from the sale of other real
estate owned 299 0
Purchase of premises and equipment <476> <2,612>
Proceeds from sale of securities
available for sale 0 10,434
Proceeds from maturities of investments 11,500 36,852
Purchase of investments <7,068> <48,676>
Net cash provided by (used in) investing
activities <6,535> <36,346>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits <1,837> <10,041>
Net increase (decrease) in short-
term borrowing <1,039> 1,151
Net increase in long-term debt 0 0
Proceeds from issuance of stock 6 98
Dividends paid <1,717> <1,465>
Net cash provided by (used in) financing
activities <4,587> <10,257>
NET INCREASE <DECREASE> IN CASH
AND CASH EQUIVALENTS <5,999> <43,024>
Cash and cash equivalents at beginning
of period 30,230 64,807
Cash and cash equivalents at end of
period $24,231 $21,783
Supplemental disclosures of cash flow
information:
Interest paid in cash $ 9,194 $ 9,139
Income taxes paid in cash 1,472 978
(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 allowance for losses on loans for the six month periods
ended June 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 535 323
Losses charged off <533> <364>
Recoveries 261 245
Balance at end of period $ 4,391 $ 3,868
</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 six month periods ended June 30,
2000 and 1999.
Diluted earnings per share for the six month periods ended
June 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 six month and three month periods ended
June 30, 2000 and 1999 (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Six Months Ended Income Shares Earnings per share
June 30, 2000
<S> <C> <C> <C>
Net income $3,692
Basic earnings per share:
Income available to common
shareholders $3,692 8,586 $0.43
Dilutive securities
Stock option plan shares 35
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $3,692 8,621 $0.43
Six Months Ended Income Shares Earnings per share
June 30, 1999
Net income $3,205
Basic earnings per share:
Income available to common
shareholders $3,205 8,580 $0.37
Dilutive securities
Stock option plan shares 81
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $3,205 8,661 $0.37
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Income Shares Earnings per share
June 30, 2000
<S> <C> <C> <C>
Net income $1,859
Basic earnings per share:
Income available to common
shareholders $1,859 8,587 $0.22
Dilutive securities
Stock option plan shares 27
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,859 8,614 $0.22
Three Months Ended Income Shares Earnings per share
June 30, 1999
Net income $1,654
Basic earnings per share:
Income available to common
shareholders $1,654 8,583 $0.19
Dilutive securities
Stock option plan shares 118
Dilutive earnings per share:
Income available to common
shareholders plus assumed
conversions $1,654 8,701 $0.19
</TABLE>
NOTE D: The Company has classified the majority of its securities as
available for sale in accordance with FASB Statement No. 115.
For the six month period ended June 30, 2000, the net
unrealized (loss) on these securities decreased by $180
thousand. For the six month period ended June 30, 1999, the
net unrealized (loss) on these securities increased by $4.3
million. 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 six month periods ended June 30, 2000 and 1999, the
Company recognized an increase of $113 thousand and a decrease
of $2.7 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
six month periods ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net Income $3,692 $3,205
Other comprehensive income (loss),
net of tax
Unrealized gain (loss) on securities 113 (2,739)
Comprehensive income $3,805 $ 466
</TABLE>
NOTE E: There have been no material changes in reported market risk
since year-end.
NOTE F: Segment Reporting
Under Statement of Financial Accounting Standard ("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>
Six Months Ended
June 30, 2000
<CAPTION>
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 $ 7,791 $ 4,409 $ 3,833 $ 2,915 $ 2,365 $ 10 $ <76> $21,247
Total interest expense 3,515 1,780 1,557 1,480 1,065 0 <76> 9,321
Net interest income 4,276 2,629 2,276 1,435 1,300 10 0 11,926
Provision for loan losses 265 20 88 58 104 0 0 535
Net interest income after
provision 4,011 2,609 2,188 1,377 1,196 10 0 11,391
Total noninterest income 633 361 291 258 262 803 <5> 2,603
Total noninterest expense 2,834 1,557 1,360 996 923 1,091 <5> 8,756
Income before taxes 1,810 1,413 1,119 639 535 <278> 0 5,238
Provision for income taxes 647 352 326 166 144 < 89> 0 1,546
Net income $ 1,163 $ 1,061 $ 793 $ 473 $ 391 $ <189> $ 0 $ 3,692
Other significant items:
Total assets $202,406 $110,175 $111,045 $74,449 $57,768 $70,732 $<70,230> $556,345
Total investment securities 33,445 34,103 42,699 16,330 13,718 0 0 140,295
Total loans 152,052 68,470 55,436 52,971 39,491 0 0 368,420
Investment in subsidiaries 49 71 0 0 64,706 <64,826> 0
Total interest income from
external customers 7,790 4,384 3,783 2,915 2,365 10 0 21,247
Total interest income from
affiliates 1 25 50 0 0 <76> 0
</TABLE>
<TABLE>
Six Months Ended
June 30, 1999
<CAPTION>
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 $ 7,139 $ 4,156 $ 3,594 $ 2,733 $ 2,164 $ 13 $ <17> $19,782
Total interest expense 3,173 1,696 1,562 1,374 1,125 0 <17> 8,913
Net interest income 3,966 2,460 2,032 1,359 1,039 13 0 10,869
Provision for loan losses 201 14 0 90 18 0 0 323
Net interest income after
provision 3,765 2,446 2,032 1,269 1,021 13 0 10,546
Total noninterest income 469 291 260 263 223 676 <5> 2,177
Total noninterest expense 2,649 1,541 1,332 1,007 892 887 <5> 8,303
Income before taxes 1,585 1,196 960 525 352 <198> 0 4,420
Provision for income taxes 558 279 262 124 65 < 73> 0 1,215
Net income $ 1,027 $ 917 $ 698 $ 401 $ 287 $ <125> $ 0 $ 3,205
Other significant items:
Total assets $187,267 $112,037 $115,556 $72,461 $57,074 $66,182 $<63,621> $546,956
Total investment securities 34,049 35,289 54,398 17,735 15,865 0 0 157,336
Total loans 139,220 69,401 50,400 50,150 35,961 0 0 345,132
Investment in subsidiaries 7 67 0 0 63,927 <64,001> 0
Total interest income from
external customers 7,139 4,147 3,586 2,733 2,164 13 0 19,782
Total interest income from
affiliates 0 9 8 0 0 0 <17> 0
</TABLE>
<TABLE>
Three Months Ended
June 30, 2000
<CAPTION>
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 $ 4,070 $ 2,238 $ 1,924 $ 1,457 $ 1,191 $ 6 $ <47> $10,839
Total interest expense 1,837 921 782 747 543 0 <47> 4,783
Net interest income 2,233 1,317 1,142 710 648 6 0 6,056
Provision for loan losses 145 20 44 34 62 0 0 305
Net interest income after
provision 2,088 1,297 1,098 676 586 6 0 5,751
Total noninterest income 327 182 144 120 132 404 <2> 1,307
Total noninterest expense 1,451 783 670 498 472 544 <2> 4,416
Income before taxes 964 696 572 298 246 <134> 0 2,642
Provision for income taxes 346 170 170 75 65 < 43> 0 783
Net income $ 618 $ 526 $ 402 $ 223 $ 181 $ < 91> $ 0 $ 1,859
Other significant items:
Total assets $202,406 $110,175 $111,045 $74,449 $57,768 $70,732 $<70,230> $556,345
Total investment securities 33,445 34,103 42,699 16,330 13,718 0 0 140,295
Total loans 152,052 68,470 55,436 52,971 39,491 0 0 368,420
Investment in subsidiaries 49 71 0 0 64,706 <64,826> 0
Total interest income from
external customers 4,070 2,214 1,901 1,457 1,191 6 0 10,839
Total interest income from
affiliates 0 24 23 0 0 <47> 0
</TABLE>
<TABLE>
Three Months Ended
June 30, 1999
<CAPTION>
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 $ 3,631 $ 2,089 $ 1,824 $ 1,369 $ 1,070 $ 3 $ <16> $ 9,970
Total interest expense 1,571 840 778 684 576 0 <16> 4,433
Net interest income 2,060 1,249 1,046 685 494 3 0 5,537
Provision for loan losses 118 0 0 45 9 0 0 172
Net interest income after
provision 1,942 1,249 1,046 640 485 3 0 5,365
Total noninterest income 225 169 124 123 108 359 <2> 1,106
Total noninterest expense 1,357 783 669 506 446 439 <2> 4,198
Income before taxes 810 635 501 257 147 < 77> 0 2,273
Provision for income taxes 288 142 138 63 13 < 25> 0 619
Net income $ 522 $ 493 $ 363 $ 194 $ 134 $ < 52> $ 0 $ 1,654
Other significant items:
Total assets $187,267 $112,037 $115,556 $72,461 $57,074 $66,182 $<63,621> $546,956
Total investment securities 34,049 35,289 54,398 17,735 15,865 0 0 157,336
Total loans 139,220 69,401 50,400 50,150 35,961 0 0 345,132
Investment in subsidiaries 7 67 0 0 63,927 <64,001> 0
Total interest income from
external customers 3,631 2,081 1,816 1,369 1,070 3 0 9,970
Total interest income from
affiliates 0 8 8 0 0 0 <16> 0
</TABLE>
NOTE G: In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." This statement
delays the effective date of Statement 133. Management will
adopt the statement as of January 1, 2001, as allowed, but
has not yet quantified the impact of implementation.
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 June 30, 2000, and
significant changes for the three month periods ended June 30, 2000 and
1999, as well as significant changes for the six month periods ended
June 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 June 30, 2000 were $556.3 million, a slight
decrease of $513 thousand from $556.9 million at December 31, 1999.
Federal funds sold decreased $6.4 million and investment securities
decreased $4.3 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 $10.3 million, or 2.9 percent, from $359.5
million at December 31, 1999 to $369.8 million at June 30, 2000. The
decrease in total deposits of $1.8 million, or 0.4 percent, from $467.5
million at December 31, 1999 to $465.6 million at June 30, 2000 was also
a factor in the decrease in federal funds sold and investment
securities. Short term borrowings decreased from $15.0 million at
December 31, 1999 to $14.0 million at June 30, 2000, a decrease of $1.0
million, or 6.9 percent.
Time deposits, consisting of certificates of deposit, increased
$7.4 million, or 5.8 percent. Large denomination time deposits
increased $1.2 million, or 1.3 percent. The Company does not actively
seek large denomination time deposits as a source of funding. Non-
interest bearing demand deposits decreased $4.5 million, or 5.5 percent,
while interest bearing demand deposits decreased $8.3 million, or 6.2
percent. Core deposits, defined as total deposits less time deposits of
$100 thousand or more, decreased by $3.0 million, or 0.8 percent. Long-
term debt was unchanged at $7.0 million.
The Company's equity as a percent of total assets at June 30, 2000
was 11.9 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 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 $64.7 million at June 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 $69.1
million at June 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 16.18 percent
and 17.27 percent, respectively, at June 30, 2000. Both the December
1999 and the June 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 June 30, 2000 are shown below (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
2000
<S> <C>
Tier I capital--
Tangible Common shareholders'
equity $64,695
Tier II capital--
Allowable portion of the allowance
for loan losses 4,391
Total capital (Tiers I and II) $69,086
Risk-weighted assets $399,945
Quarterly average assets 557,532
Risk-based capital ratios:
Tier I capital 16.18%
Total capital (Tiers I and II) 17.27%
</TABLE>
During the second quarter of 2000 the Company declared a regular
quarterly dividend of $0.10 per share, payable July 3, 2000, to
shareholders of record June 13, 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 $61.8 million at June 30, 2000. These assets
represented 11.1 percent of total assets at quarter end as compared to
16.4 percent at December 31, 1999, as Federal Funds Sold were used to
fund loan growth. The net change in cash and cash equivalents for the
six month period ended June 30, 2000 was a decrease of $6.0 million, or
19.8 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>
June 30, December 31,
2000 1999
<S> <C> <C>
Accruing loans 90 days or more past due $ 58 $ 446
Loans on non-accrual 1,492 1,352
Renegotiated loans 0 0
Total non-performing loans 1,550 1,798
Other real estate owned 41 466
Total non-performing assets $1,591 $2,264
Accruing Loans 90 days or more past due
as a percent of loans 0.02% 0.12%
Total non-performing loans as a
percent of loans 0.42% 0.50%
Total non-performing assets as a percent
of loans and other real estate owned 0.43% 0.63%
</TABLE>
Non-performing assets decreased by $673 thousand from year-end
1999. Of this decrease, $425 thousand resulted from the sale of
property classified as other real estate owned. Accruing loans 90 days
or more past due decreased by $388 thousand. Loans on non-accrual
increased $140 thousand.
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 SECOND QUARTER
The Company recorded net income of $1.9 million, or $0.22 per share,
during the second quarter of 2000, compared to net income in the second
quarter of 1999 of $1.7 million, or $0.19 per share. A shift to loans
from investment securities and federal funds sold and the general
increase in interest rate in the economy enabled the Company to increase
total interest revenue by $869 thousand, or 8.7 percent. Interest
expense increased by $350 thousand. The net interest margin increased to
4.68 percent in the second quarter of 2000 compared to 4.30 percent in
the second quarter of 1999.
Management provided $305 thousand for loan losses during the second
quarter of 2000, compared to a $172 thousand provision for the second
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 in the first six months of 2000 compared to 1999. The allowance
for loan losses at June 30, 2000 and December 31, 1999 as a percent of
loans net of unearned income was 1.19 percent and 1.15 percent
respectively. The allowance for loan losses represented 2.83 times non-
performing loans at June 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 June 30, 2000.
Non-interest revenue was $1.3 million for the second quarter of
2000, compared to $1.1 million for the same period in 1999, an increase
of 18.2 percent, due primarily to the increase in deposit account
service charges of $118 thousand and an increase in Trust Company
revenue of $42 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 $93 thousand, or 3.9
percent, from second quarter of 1999 to the second quarter of 2000,
caused primarily by merit increases. Net occupancy expense was $291
thousand in the second quarter of 2000, an increase of $19 thousand, or
7.0 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 decreased $39 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 first quarter 2000 increased by $145
thousand, or 13.3 percent from first quarter 1999.
Income tax expense was $783 thousand for the second quarter of
2000, compared to $619 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 SIX MONTH PERIOD
The Company recorded net income of $3.7 million, or $0.43 per share,
during the first six months of 2000 compared to net income in the first
six months of 1999 of $3.2 million, or $0.37 per share. Total interest
revenue increased by $1.5 million, or 7.4 percent, due in part to the
increased volume in loans. Interest expense increased $408 thousand, or
4.6 percent. The increases in total interest revenue and total interest
expense were due in part to the general rise in interest rates in the
economy. Management provided $535 thousand for loan losses during the
first six months of 2000 compared to $323 thousand for the first six
months of 1999, with the increase necessitated by loan growth as well as
a higher level of net charge offs.
Non-interest revenue was $2.6 million for the first six months of
2000, compared to $2.2 million for the same period in 1999, an increase
of 19.6 percent.
Non-interest expense in the six month period was $8.8 million in
2000, an increase of $453 thousand, or 5.5 percent from 1999. Salary
and employee benefits increased $194 thousand, or 4.0 percent, a result
of merit increases.
Income tax expense was $1.5 million for the first six months of
2000, compared to $1.2 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
The stockholders approved, during the annual meeting on May 11, 2000,
the Election of the Directors. A total of 7,139,603 shares of Common
Stock, or 83.16 percent of the total outstanding, were represented
either in person or by proxy at the meeting. The Election of the Board
of Directors was approved as to each nominee, as follows:
<TABLE>
<CAPTION>
Votes in Votes Broker
Nominee Favor Against Abstaining Non-Votes
<S> <C> <C> <C> <C>
John B. Barnett, III 7,139,353 0 250 41,294
Stephen G. Crawford 7,139,353 0 250 41,294
Haniel F. Croft 7,139,353 0 250 41,294
David C. DeLaney 7,139,353 0 250 41,294
Broox G. Garrett, Jr. 7,139,353 0 250 41,294
W. Dwight Harrigan 7,139,353 0 250 41,294
James P. Hayes, Jr. 7,139,353 0 250 41,294
Clifton C. Inge 7,139,353 0 250 41,294
W. Bibb Lamar, Jr. 7,139,203 150 250 41,294
Stratton F. Lewis, Jr. 7,139,353 0 250 41,294
Richard S. Manley 7,137,945 1,408 250 41,294
Kenneth R. McCartha 7,139,353 0 250 41,294
Thomas E. McMillan, Jr. 7,139,353 0 250 41,294
J. Richard Miller, III 7,139,353 0 250 41,294
Harris V. Morrissette 7,139,353 0 250 41,294
J. Stephen Nelson 7,139,353 0 250 41,294
Paul D. Owens, Jr. 7,139,353 0 250 41,294
Earl H. Weaver 7,139,353 0 250 41,294
</TABLE>
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 June 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
08/14/2000 /s/W. Bibb Lamar, Jr.
Date W. Bibb Lamar, Jr.
President
08/14/2000 /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
