<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended SEC Commission File
September 30, 1996 Docket Number 0-15334
- --------------------- ---------------------
PALFED, INC.
- ----------------------------------------------------------
(Exact name of registrant as specified in its
charter)
South Carolina 57-0821295
- --------------------- ----------------------
(State or other jurisdiction o (IRS Employer
incorporation or organization) identification
number)
107 Chesterfield Street South
- -----------------------------
Aiken, South Carolina 29801
- --------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (803) 642-1400
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......
There were 5,227,739 shares of Common Stock outstanding on September 30, 1996.
<PAGE>
PALFED, Inc.
----------------------------------------
Quarterly Report on Form 10-Q
For The Quarter Ended SEPTEMBER 30, 1996
Table of Contents
-----------------
PART I - FINANCIAL INFORMATION
- -------------------------------
Item Page
- ---- ----
1. Financial Statements
Consolidated Statements of Financial
Condition as of September 30, 1996
and December 31, 1995. 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1996 and 1995. 4
Consolidated Statements of Cash
Flows for the Three and Nine Months Ended
September 30, 1996 and 1995. 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION
- ---------------------------
Item
- -----
4. Submission of Matters To a Vote of
Security Holders 17
5. Other Information 17
6. (a) Exhibits 17
(b) Reports on Form 8-K 17
Exhibit 11.1 18
SIGNATURES 19
2
<PAGE>
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
PALFED, Inc. and Subsidiaries September 30 December 31
- ----------------------------- 1996 1995
---- ----
(in thousands, except share data)
<S> <C> <C>
ASSETS
Cash and due from banks $11,291 $15,471
Interest-bearing deposits with other banks 4,133 5,854
Investment and mortgage-backed securities:
Available-for-sale 31,805 55,550
Held-to-maturity 61,266 62,293
Loans receivable, net 508,649 464,281
Investment in real estate, net 15,282 14,448
Investment in Federal Home Loan Bank stock 10,884 10,884
Premises and equipment, net 5,902 5,350
Accrued interest, net of allowance of
$512 and $1,052, respectively 3,943 4,256
Other assets 6,747 7,637
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$659,902 $646,024
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing accounts $28,701 $27,333
Savings and NOW accounts 113,220 105,329
Certificates of deposit 373,011 363,193
Accrued interest payable 6,427 891
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Total deposits 521,359 496,746
Federal Home Loan Bank advances 73,700 91,500
Other liabilities 12,039 6,293
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Total liabilities 607,098 594,539
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Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value; authorized
10,000,000 shares; 5,227,739 and 5,142,166
shares issued; 5,227,739 and 5,101,297
shares outstanding, respectively 5,228 5,142
Additional paid-in capital 28,095 26,904
Retained earnings 21,559 20,626
Unamortized deferred compensation relating
to incentive stock grants (1,165)
Unrealized loss on debt securities, net of
income tax benefit of $552 and $456,
respectively (913) (884)
Treasury stock, at cost (40,869 shares) ___ (303)
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Total stockholders' equity 52,804 51,485
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$659,902 $646,024
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------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
PALFED, Inc. Sept 30 Sept 30 Sept 30 Sept 30
and Subsidiaries 1996 1995 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $11,055 $10,407 $32,209 $30,267
Mortgage-backed securities 1,081 1,524 3,244 4,962
Investment securities 570 795 1,857 2,385
Other 58 94 182 278
------ ------ ------ ------
Total interest income 12,764 12,820 37,492 37,892
------ ------ ------ ------
Interest expense:
Deposits 6,159 6,188 18,199 17,578
Other borrowings 870 1,538 3,100 5,391
------ ------ ------ ------
Total interest expense 7,029 7,726 21,299 22,969
------ ------ ------ ------
Net interest income 5,735 5,094 16,193 14,923
Provision for estimated losses
on loans 313 451 899 898
------ ------ ------ ------
Net interest income after provision
for estimated loan losses 5,422 4,643 15,294 14,025
Noninterest income:
Checking transaction fees 611 638 1,812 1,972
Financial services fees 209 217 664 635
Late charge and other fees 77 116 353 396
Gain on sales of investment and
mortgage-backed securities
and loans 177 172 766 253
Real estate operations (288) (342) (463) (863)
Other 288 191 677 608
------ ------ ------ ------
Total noninterest income 1,074 992 3,809 3,001
------ ------ ------ ------
Noninterest expenses:
Compensation and employee benefits 2,449 2,148 7,429 6,531
Occupancy and equipment 764 667 2,228 1,946
Federal insurance premiums and
assessments 3,657 355 4,364 1,039
Professional and outside service
fees 335 260 1,035 859
Data processing 208 222 626 659
Advertising and public relations 139 69 562 567
Other 375 227 864 708
------ ------ ------ ------
Total noninterest expenses 7,927 3,948 17,108 12,309
------ ------ ------ ------
Income (loss) before provision
(benefit) for income taxes (1,431) 1,687 1,995 4,717
Provision (benefit) for income
taxes (453) 619 749 1,663
------ ------ ------ ------
Net income (loss) $ (978) $ 1,068 $ 1,246 $ 3,054
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per share $ (0.19) $ 0.21 $ 0.24 $ 0.59
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
PALFED, Inc. For the nine months ended Sept 30,
and Subsidiaries 1996 1995
(in thousands)
<S> <C> <C>
Operating Activities:
Cash flows from operating activities :
Net income $ 1,246 $ 3,054
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 596 589
Amortization of goodwill and intangibles,
loan fees, deferred income, and
premiums and discounts 46 149
Provision for estimated losses on loans,
real estate and accrued interest receivable 1,648 2,125
(Gain) loss on sales of real estate (230) (297)
Gain on sales of loans (474) (346)
(Gain) loss on sale of assets available for sale (293) 93
Changes in:
Accrued interest receivable, net (259) (1,188)
Accrued interest payable 5,536 6,237
Other assets 424 1,570
Other liabilities (excluding deferred
income) 5,161 1,436
Other, net 1,163 158
------ ------
Net cash provided by operating activities 14,564 13,580
------ ------
Investing activities:
Cash flows from investing activities :
Purchases of investment and mortgage-backed
securities (6,852)
Principal payments and maturities of investment
and mortgage-backed securities 8,005 10,781
Purchases of assets available-for-sale (7,998) (9,754)
Principal collections on assets available-
for-sale 12,641 3,458
Proceeds from sales of assets available-for-sale 57,001 50,023
Loans originated (net of payments received) (85,939) (41,822)
Proceeds from sales of foreclosed real estate 2,419 2,683
Purchase of premises and equipment (1,143) (749)
Other, net (407) (215)
------ ------
Net cash provided (used) by investing
activities (22,273) 14,405
------ ------
Financing activities:
Cash flows from financing activities :
Net increase in deposit accounts 19,077 13,729
Proceeds from FHLB advances and other
borrowed money 84,900 35,000
Repayments of FHLB advances and other
borrowed money (102,700) (82,000)
Payment of cash dividend (313)
Treasury stock issued 108
Other, net 736 1,323
------ ------
Net cash provided (used) by financing
activities
1,808 (31,948)
Net decrease in cash and cash equivalents (5,901) (3,963)
Cash and cash equivalents, beginning of period 21,325 18,331
------ ------
Cash and cash equivalents, end of period $15,424 $14,368
------ ------
------ ------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $15,763 $16,732
Income taxes 1,217 800
Supplemental schedule of noncash investing and
financing activities:
Securitizations of mortgage loans $17,312 $19,931
Real estate acquired through foreclosure 4,471 7,529
Financed sales of foreclosed real estate 1,677 5,430
Issuance of common stock as compensation 81 77
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PALFED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accounting and reporting policies of PALFED, Inc. and Subsidiaries (the
"Company") conform to generally accepted accounting principles and to general
practice within the thrift industry. They reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. These adjustments are of a normal and recurring nature.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements, the related notes, and the report of
independent accountants included in the Company's Annual Report to Shareholders
for the year ended December 31, 1995. The year end consolidated statement of
financial condition data was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. The results of operations for the three and nine months ended
September 30, 1996 are not necessarily indicative of the results to be expected
for a full year.
RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation.
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment and mortgage-backed securities are summarized as follows:
September 30, 1996 December 31, 1995
------------------ -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
(in thousands)
Available-for-sale
- ------------------
Investment securities $ 19,499 $ 19,141 $ 31,230 $ 31,060
Mortgage-backed securities 12,636 12,664 24,383 24,490
-------- -------- -------- --------
$ 32,135 $ 31,805 $ 55,613 $ 55,550
-------- -------- -------- --------
-------- -------- -------- --------
Held-to-maturity
- ----------------
Investment securities $ 6,960 $ 6,897 $ 8,940 $ 8,879
Mortgage-backed securities 54,306 54,375 53,353 54,691
-------- -------- -------- --------
$ 61,266 $ 61,272 $ 62,293 $ 63,570
-------- -------- -------- --------
-------- -------- -------- --------
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE
Loans receivable are summarized as follows at the indicated dates:
September 30 December 31
1996 1995
------------ -----------
(in thousands)
Loan collateralized by real estate:
Permanent residential mortgage $231,868 $207,671
Construction 53,881 38,114
Second mortgage 56,073 52,313
Commercial 137,917 128,051
Loans collateralized by other property:
Consumer 36,882 39,585
Commercial 13,924 16,080
Loans collateralized by savings accounts 4,502 4,769
-------- --------
535,047 486,583
Less:
Loans in process (17,493) (13,141)
Unamortized yield adjustments (1,107) (744)
Allowance for estimated losses (7,798) (8,417)
-------- --------
$508,649 $464,281
-------- --------
-------- --------
Changes in the allowance for estimated loan losses are summarized as follows for
the quarters and nine months ended September 30:
Quarters Nine Months
1996 1995 1996 1995
----------------- ----------------
(in thousands)
Balance, beginning of period $ 7,914 $ 8,077 $ 8,417 $ 8,212
Provisions 313 451 899 898
Charge-offs (521) (432) (1,867) (1,255)
Recoveries 92 124 349 496
Reclassifications 131
------- ------- ------- -------
Balance, end of period $ 7,798 $ 8,351 $ 7,798 $ 8,351
------- ------- ------- -------
------- ------- ------- -------
At September 30, 1996 the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totalled approximately $10.3
million, of which $5.5 million related to loans with a corresponding valuation
allowance of $1.0 million. The impaired loans at September 30. 1996, were
measured for impairment using the fair value of the collateral as substantially
all of these loans were collateral dependent. For the nine months ended
September 30, 1996, the average recorded investment in impaired loans was
approximately $11.5 million. The interest income recognized on impaired loans
during the nine months ended September 30, 1996 was $550,000. Impaired loans
are summarized as follows:
Sept. 30 Dec. 31
1996 1995
--------- ---------
(in thousands)
Construction loans $ 775 $ 844
Commercial real estate loans 9,248 11,300
Residential mortgage 231 899
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$10,254 $13,043
------- -------
------- -------
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAXES
The "Small Business Job Protection Act of 1996" tax bill signed by the President
in August 1996 repealed the bad debt reserve method for thrifts effective
January 1, 1996. Prior to the repeal of the bad debt reserve provision, thrifts
generally received more favorable tax deductions for bad debts. The legislation
forgives recapture of bad debt reserves taken through 1987, but requires thrifts
to recapture or repay bad debt deductions taken after 1987 over 6 years
beginning in 1996. Thrifts meeting certain home mortgage lending tests will be
allowed to defer repayment for an additional 2 years.
As of December 31, 1995, PALFED's bad debt reserves subject to recapture, for
which deferred taxes have previously been provided, totalled $3.0 million. The
Company is obtaining the necessary data to determine whether it will qualify for
the additional 2 year deferral.
5. COMMITMENTS AND CONTINGENCIES
The Company has salary continuation agreements with nine officers which grant
these officers the right to receive up to three times their average annual
compensation for the five years preceding a change of control of the Company and
a change of duties or salary for such officers. The maximum contingent
liability under these agreements is approximately $2.5 million at September 30,
1996.
Concurrent with the 1990 sale of the Woodside Plantation Country Club ("WPCC"),
the Company had entered into an agreement with WPCC to purchase club memberships
through December 31, 2000. In 1993, the purchaser of the remaining lots and
certain other real estate at Woodside Plantation assumed the Company's
obligations under this agreement, however, the Company remains contingently
liable under this agreement. The Company's maximum contingent liability over
the remaining term of the agreement, which is directly related to the number of
lot sales at Woodside Plantation, is approximately $1.5 million.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The amounts of financial instruments with off-balance-sheet risk are as follows
at the dates indicated:
September 30 December 31
1996 1995
------------ -----------
(in thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to originate loans: $ 36,943 $ 13,460
--------- ---------
--------- ---------
Unused lines of credit: $ 35,938 $ 31,639
--------- ---------
--------- ---------
Standby letters of credit $ 531 $ 713
--------- ---------
--------- ---------
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As a result of a special $3.3 million charge to recapitalize the Savings
Association Insurance Fund, the Company incurred a net loss of $1.0 million or
$0.19 per common share for the three months ended September 30, 1996 compared to
earnings of $1.1 million or $0.21 per common share for the three months ended
September 30, 1995. The net earnings for the nine months ended September 30,
1996 were $1.2 million or $0.24 per common share compared to $3.1 million or
$0.59 per common share for the comparable period in 1995. The decrease in
quarterly and year-to-date earnings resulted from a special assessment of $3.3
million to recapitalize the SAIF which was enacted by the United States Congress
on September 30, 1996.
In September, Palmetto Federal opened its 20th and 21st branches in Lexington
and Mt. Pleasant, South Carolina. The Mt. Pleasant branch is the Bank's third
in the Charleston, South Carolina area and the Lexington branch is the second in
the Columbia, South Carolina market area.
COMPARISON OF 1996 AND 1995 OPERATING RESULTS
NET INTEREST INCOME
Net interest income was $5.7 million for the quarter ended September 30, 1996,
an increase of $641,000 or 12.6% compared to the quarter ended September 30,
1995. Total interest income decreased $56,000 due to a decrease of $ 7.2
million or 1.2% in the level of average interest-earning assets caused by
increased sales of investment and mortgage-backed securities which occurred
earlier in 1996, partially offset by an increase in the yield on these assets
from 8.43% during the 1995 quarter to 8.49% during the 1996 quarter. Total
interest expense decreased $697,000 due to a decrease in the rate paid on
average interest-earning liabilities from 5.21% during the 1995 quarter to 4.81%
during the 1996 quarter and a decrease of $9.3 million or 1.6% in the level of
interest-bearing liabilities.
For the nine months ended September 30, 1996, net interest income increased by
$1.3 million or 8.5% to $16.2 million compared to the nine months ended
September 30, 1995. Total interest income decreased $400,000 or 1.1%, while
total interest expense decreased $1.7 million or 7.3% from the 1995 period.
The following table presents information with respect to interest income from
interest-earning assets and interest expense from interest-bearing liabilities,
expressed in both dollars (in thousands) and rates, for the periods indicated.
Averages are computed using month-end balances for the periods presented.
9
<PAGE>
Nonaccruing loans have been included in average loans receivable for purposes of
calculating the average yield on loans receivable.
<TABLE>
<CAPTION>
Interest Interest
Income/ Yield/ Income/ Yield/
Nine Months Ended September 30, 1996 Expense Rate 1995 Expense Rate
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Interest-Earning:
Assets:
Interest-bearing deposits $ 3,482 $ 182 5.17% $ 6,534 $ 278 5.68%
Loans receivable 483,393 32,209 8.88 455,520 30,267 8.86
Mortgage-backed securities 64,741 3,244 6.68 99,713 4,962 6.63
Total investments 30,574 1,266 5.52 43,422 1,795 5.51
FHLB stock 10,884 591 7.20 10,884 590 7.23
- ----------------------------------------------------------------------------------------
Total 593,074 37,492 8.43% 616,073 37,892 8.20%
- ----------------------------------------------------------------------------------------
Liabilities:
Retail savings deposits $ 32,103 $ 619 2.58% $ 31,039 $ 629 2.71%
Retail time deposits 372,286 16,233 5.82 364,781 15,668 5.74
Demand deposits 104,621 1,347 1.72 98,785 1,281 1.73
FHLB Advances 68,590 3,100 6.04 108,235 5,391 6.66
- ----------------------------------------------------------------------------------------
Total 577,600 21,299 4.93% 602,840 22,969 5.09%
- ----------------------------------------------------------------------------------------
Net interest income $16,193 $14,923
------- -------
------- -------
Net interest margin 3.50% 3.11%
---- ----
---- ----
Net yield 3.64% 3.23%
---- ----
---- ----
</TABLE>
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected Palmetto Federal's interest income and expense during the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to (1) change in
volume (change in volume multiplied by old rate); (2) change in rates (change in
rate multiplied by old volume); (3) change in rate-volume (change in rate
multiplied by the change in volume).
For The Nine Months Ended
September 1996 vs. September 1995
Increase (Decrease)
----------------------------------
Rate/
Volume Rate Volume Total
------ ------- ------ -----
(in thousands)
Changes in:
Interest income:
Loans receivable............ $ 1,855 $ 82 $ 5 $ 1,942
Mortgage-backed securities.. (1,743) 38 (13) (1,718)
Investments and other....... (696) 96 (24) (624)
------- ------- ----- -------
Total interest income........ (584) 216 (32) (400)
------- ------- ----- -------
Interest expense:
Deposits.................... 522 96 3 621
FHLB advances............... (1,970) (506) 185 (2,291)
------- ------- ----- -------
Total interest expense....... (1,448) (410) 188 (1,670)
------- ------- ----- -------
Net interest income (expense) $ 864 $ 626 $(220) $ 1,270
------- ------- ----- -------
------- ------- ----- -------
10
<PAGE>
PROVISION FOR ESTIMATED LOSSES ON LOANS
The provision for estimated losses on loans was $313,000 for the quarter ended
September 30, 1996, compared to $451,000 for the 1995 quarter. Net charge-offs
for the 1996 quarter were $429,000 compared to $308,000 for the 1995 quarter.
For the comparable nine month periods, the provision for estimated loan losses
remained unchanged at $0.9 million while net charge-offs increased from
$759,000 in 1995 to $1.5 million in 1996. The 1996 net charge-offs include an
increase of $329,000 or 68.5% in consumer loans primarily related to increased
mobile home loan charge-offs and an increase of $185,000 in foreclosed mortgage
loan charge-offs. Additionally, 1995 charge-offs were reduced by $265,000 in
recoveries for in-substance foreclosed loans. Although charge-offs have
increased for the nine month period, the Company has not increased the
provision for estimated loan losses because of the overall decline in its
nonperforming assets and restructured loans, and the decline in the level of
assets classified as substandard during the twelve months ended September 30,
1996. The resulting allowance for estimated losses on loans at September 30,
1996 and 1995 was $7.8 million and $8.4 million, respectively. While
management uses its best judgment in establishing the allowance for loan
losses, there is no assurance that future higher provisions will not be
required. SEE NONPERFORMING ASSETS AND RESTRUCTURED LOANS.
NONINTEREST INCOME
Noninterest income was $1.1 million for the quarter ended September 30, 1996, an
increase of $82,000 or 8.3% over the 1995 quarter. Other noninterest income
increased by $97,000 or 50.8% during the comparable quarters primarily due to
the collection of $100,000 in interest from the Internal Revenue Service related
to an income tax refund. Real estate operations losses decreased by $54,000
during the comparable quarters primarily as a result of a decrease of $142,000
in foreclosed real estate expenses, a decrease of $109,000 in the provision for
estimated losses on foreclosed real estate and an increase of $50,000 in profits
from partnerships, partially offset by a decrease of $235,000 in net gains on
sales of foreclosed real estate. These improvements were offset by a decrease
of $39,000 in late charge and other fees.
For the nine months ended September 30, 1996, noninterest income increased by
$808,000 or 26.9% to $3.8 million from the 1995 period. For the comparable nine
month periods: gains on sales of investment and mortgage-backed securities and
loans increased from $253,000 in 1995 to $766,000 in 1996 due to increased
levels of sales and gains of $260,000 resulting from the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 122; losses from real estate
operations decreased by $400,000 or 46.3% due primarily to decreases in
foreclosed real estate expenses and provisions for estimated losses on
foreclosed real estate, and; checking transaction fees decreased $160,000 or
8.1% due to decreases in fee generating accounts. Management currently
anticipates that new branches opened in 1996 will generate additional fee
income.
11
<PAGE>
NONINTEREST EXPENSES
Noninterest expenses were $7.9 million (or $4.6 million without the SAIF
assessment) and $3.9 million for the quarters ended September 30, 1996 and 1995,
respectively. For the nine months ended September 30, 1996, noninterest
expenses increased by $4.8 million or 39.0% to $17.1 million (or increased by
$1.6 million to $13.8 million without the SAIF assessment).
Compensation and employee benefits expense increased by $301,000 or 14.0% and
$898,000 or 13.7% during the three and nine month periods, respectively. The
primary components of compensation and employee benefits are comprised as
follows:
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
Salaries and commissions $ 2,127 $ 1,967 $ 6,355 $ 5,791
Incentive programs 218 127 691 339
Medical and retirement 217 170 702 620
Payroll and other taxes 142 132 506 466
Other expenses 29 25 78 77
-------- -------- -------- --------
2,733 2,421 8,332 7,293
Capitalized costs of loan
originations (284) (273) (903) (762)
-------- -------- -------- --------
$ 2,449 $ 2,148 $ 7,429 $ 6,531
-------- -------- -------- --------
-------- -------- -------- --------
Salaries and benefits increased 14.0% during the quarter ended September 30,
1996, due to: an 8.1% increase in salaries and commissions arising from an
increase in number of employees due to the new branches, a 71.6% increase in
incentive program costs and a 27.6% increase in medical and retirement costs due
to increased medical claims under the Company's self-funded group insurance
plan.
During the quarter ended September 30, 1996, professional and outside service
fees increased by $75,000 or 28.8% primarily due to an increase of $31,000 or
35.6% in legal expenses. Occupancy and equipment expenses increased by $97,000
or 14.5% primarily due to expenses of $74,000 associated with the 4 new Palmetto
Federal branches opened in the past 12 months. During the third quarter of
1996, advertising and public relations expenses increased by $70,000 or 101.4%
compared to the third quarter of 1995, which included a reversal of a $50,000
marketing expense which had been previously accrued in the second quarter of
1995. Finally, other noninterest expense increased by $148,000 or 65.2% due
primarily to an estimated loss of $145,000 on a commercial checking account.
During the comparable nine month periods, occupancy and equipment expenses
increased by $282,000 to $2.2 million primarily as a result of costs related to
operating the new branches and offices opened in the last 12 months.
Professional and outside service fees increased by $176,000 or 20.5% during the
comparable nine month periods due to increased legal and consulting expenses and
other noninterest expenses increased $156,000 or 22.0% due
12
<PAGE>
primarily to the aforementioned loss on a commercial checking account.
INCOME TAXES
The "Small Business Job Protection Act of 1996" tax bill signed by the President
in August 1996 repealed the bad debt reserve method for thrifts effective
January 1, 1996. Prior to the repeal of the bad debt reserve provision, thrifts
generally received more favorable tax deductions for bad debts. The legislation
forgives recapture of bad debt reserves taken through 1987, but requires thrifts
to recapture or repay bad debt deductions taken after 1987 over 6 years
beginning in 1996. Thrifts meeting certain home mortgage lending tests will be
allowed to defer repayment for an additional 2 years.
As of December 31, 1995, PALFED's bad debt reserves subject to recapture,
totalled $3.0 million. Because deferred taxes have previously been provided on
these reserves, this recapture will not impact the Company's earnings. The
Company is obtaining the necessary data to determine whether it will qualify
for the additional 2 year deferral.
LENDING ACTIVITIES
During the quarter ended September 30, 1996, the Company originated $56.3
million in loans compared to $43.2 million during the 1995 quarter.
Year-to-date originations were $173.9 million in 1996 compared to $116.1 million
in 1995, an increase of 49.8%. Quarterly originations in the Central Savannah
River Area and Lowcountry markets improved by 18% from 1995 to 1996 and
originations in the Lexington/Columbia market improved by 84%.
Loan originations by loan type for the quarterly and nine month periods follow:
Quarters Nine Months
1996 1995 1996 1995
----------------- ------------------
(in thousands)
Residential mortgage $20,551 $21,882 $ 68,899 $ 43,561
Construction 14,623 8,086 46,963 29,019
Second mortgage 4,078 642 14,716 2,150
Consumer 6,627 7,044 18,490 22,961
Commercial 10,420 5,570 24,882 18,429
------- ------- -------- --------
Totals $56,299 $43,224 $173,950 $116,120
------- ------- -------- --------
------- ------- -------- --------
REAL ESTATE DEVELOPMENT ACTIVITY
The Company continues to have a significant concentration of risk related to
Woodside Plantation, exclusive of loans to individual homeowners, consisting of
real estate held for development, acquisition and development loans, foreclosed
real estate and a 50% interest in a partnership. During the quarter ended
September 30, 1996, the total carrying value of these components decreased from
$13.5 million to $13.2 million due primarily to repayment of loans resulting
from lot sales.
13
<PAGE>
ASSET/LIABILITY MANAGEMENT
During the quarter ended September 30, 1996, management increased the level of
Federal Home Loan Bank ("FHLB") advances by 15% to $73.7 million in order to
help fund loan originations. However, for 1996, management has reduced FHLB
advances by 19.5% through increased deposits and sales of lower yielding
mortgage-backed and investment securities. Additionally, the weighted average
interest rate on advances has declined from 6.56% at December 31, 1995 to 5.75%
at September 30, 1996. Palmetto Federal has $6.8 million of advances maturing
in the next three months with a weighted average interest rate of 6.05%.
NONPERFORMING ASSETS AND RESTRUCTURED LOANS
Nonperforming assets (nonaccrual loans and foreclosed real estate ("REO")) and
restructured loans, net of specific allowances, decreased from $27.4 million or
4.2% of total assets at December 31, 1995 to $22.7 million or 3.4% of total
assets at September 30, 1996. The decrease was attributable to a decrease in
nonaccrual loans offset by an increase in REO. The table below sets forth the
amounts and categories of Palmetto Federal's nonperforming assets and
restructured loans at the dates indicated.
Sept. 30 June 30 December 31 Sept. 30
1996 1996 1995 1995
-------- -------- ----------- --------
(dollars in thousands)
Nonaccrual loans $ 3,309 $ 5,342 $ 7,856 $ 8,136
Foreclosed real estate 8,884 8,310 8,015 7,937
Restructured loans 10,532 10,409 11,553 13,011
------- ------- -------- -------
$22,725 $24,061 $27,424 $29,084
------- ------- -------- -------
------- ------- -------- -------
General loan loss allowance
as a percentage of the total 29.6% 28.4% 26.3% 24.5%
------- ------- -------- -------
------- ------- -------- -------
Total as a percentage of loans
receivable, net 4.5% 4.9% 5.9% 6.4%
------- ------- -------- -------
------- ------- -------- -------
Total as a percentage of total assets 3.4% 3.8% 4.2% 4.5%
------- ------- -------- -------
------- ------- -------- -------
Changes in the components of nonperforming assets and restructured loans during
the three months ended September 30, 1996 were as follows:
Nonaccrual REO Restructured Total
Loans Loans
---------- -------- ------------ -------
(in thousands)
June 30, 1996 $ 5,342 $ 8,310 $ 10,409 $24,061
Performing loans which
became nonperforming 1,330 356 379 2,065
Upgrades due to performance (1,381) (1,381)
Sales (1,115) (1,115)
Net principal collections (223) (256) (479)
Charge-offs and write downs (219) (219)
Net changes in allowances (60) (147) (207)
Nonaccrual loans which became REO (1,480) 1,480 0
--------- -------- -------- -------
September 30, 1996 $ 3,309 $ 8,884 $ 10,532 $22,725
--------- -------- -------- -------
--------- -------- -------- -------
14
<PAGE>
The $1.3 million in new nonaccrual loans comprises several loans, none of which
individually exceeds $298,000. The nonaccrual loans which became REO consists
primarily of a $714,000 commercial loan to a local asphalt company and a single
family mortgage loan of $557,000.
The $1.1 million of REO sold consisted of several properties, primarily single
family homes, none of which had a carrying value greater than $142,000.
The Bank's total criticized assets include its nonperforming assets and
restructured loans of $22.7 million as well as its potential problem loans of
$15.4 million. The following table summarizes the Bank's criticized assets as
of the dates indicated:
Sept. 30 June 30 Dec. 31 Sept. 30
1996 1996 1995 1995
-------- ------- -------- --------
(in thousands)
Special mention $14,523 $15,173 $ 9,867 $ 8,194
Substandard 22,181 23,912 25,450 29,903
Doubtful 0 29 0 15
Loss 1,438 1,331 1,462 1,366
------- ------- ------- -------
$38,142 $40,445 $36,779 $39,478
------- ------- ------- -------
------- ------- ------- -------
LIQUIDITY
Palmetto Federal's principal sources of funds are deposits, loan repayments,
proceeds from sales and principal payments of investment and mortgage-backed
securities and loans, FHLB advances, other borrowings, and retained earnings.
The liquidity of Palmetto Federal's operations is measured by the ratio of cash
and short-term investments as defined by the OTS regulations to the sum of
savings and borrowings payable in one year, less loans on savings. The Bank's
average liquidity level for September 1996 was 6.1% which was in excess of the
required amount of 5.0%.
REGULATORY MATTERS
ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996
On September 30, 1996, the President signed legislation to recapitalize the SAIF
through a special assessment to bring it up to the same reserve level as the
Bank Insurance Fund ("BIF"). This assessment is 65.7 basis points per $100 of
deposits as of March 31, 1995 which equates to $3.3 million for Palmetto
Federal. The special assessment is tax deductible. Once the SAIF is
recapitalized, the FDIC is expected to reduce deposit insurance premiums
placing thrifts on an equal basis with BIF members.
15
<PAGE>
In addition, the costs of the Financing Corporation ("FICO") bonds will be
shared by the bank and thrift industries. Previously, the thrifts paid the
entire cost of these bond payments. It is currently estimated that banks and
thrifts will pay 1.29 cents and 6.44 cents, respectively, per $100 of deposits.
After January 1, 2000, both banks and thrifts will pay 2.43 cents per $100 of
deposits. These rates are only for FICO interest and further premiums could be
assessed. Finally, the legislation contained regulatory provisions benefiting
both banks and thrifts, including expanding the authority of federal thrifts to
make consumer and commercial loans and liberalizing the qualified thrift lender
test.
At September 30, 1996, the intangible value of branch network which resulted
from the 1982 acquisition of First Federal Savings and Loan of Beaufort
totalled $2.4 million and had an estimated remaining life of approximately 11
years. Management periodically reviews the carrying value and the estimated
life of this asset. As a result of the SAIF assessment and its impact on
earnings of the acquired branches, management is reassessing the carrying value
of this intangible asset and the impact of the SAIF assessment on the branches
and deposits acquired from First Federal. Management expects to complete this
reassessment by December 31, 1996.
REGULATORY CAPITAL
As of September 30, 1996 Palmetto Federal's regulatory capital was 6.5% tangible
capital, 6.5% core capital and 10.5% risk-based capital, exceeding both the
regulatory minimum levels and the well capitalized standards. On July 1, 1996,
the deduction to regulatory capital for the investment in nonincludable
subsidiaries increased from 60% to 100% resulting in a decrease of $2.6 million
in each of the regulatory capital measures.
The Office of Thrift Supervision is conducting its regularly scheduled
examination of the Company and Palmetto Federal. Management expects to receive
the confidential Report of Examination during the quarter ending December 31,
1996.
16
<PAGE>
Part II. Other Information
Item 4. Submission of Matters To a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Form of PALFED, Inc./Palmetto Federal Executive Salary
Continuation Agreement between PALFED, Inc./Palmetto Federal
and certain officers.
Exhibit 11.1 Statement regarding computation of per share data.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated October 21, 1996, reporting
the Board of Directors approval and adoption of amendments to the Bylaws of
the Company at their meeting on October 21, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALFED, Inc.
------------
(Registrant)
Date: November 12, 1996 /s/ John C. Troutman
------------------- -----------------------
John C. Troutman
President and Chief
Executive Officer
Date: November 12, 1996 /s/ Darrell R. Rains
------------------- -----------------------
Darrell R. Rains
Executive Vice President
and Chief Financial Officer
Date: November 12, 1996 /s/ Michael B. Smith
------------------- -----------------------
Michael B. Smith
Senior Vice President
and Controller
<PAGE>
Form of PALFED, Inc./Palmetto Federal
Executive Salary Continuation Agreement
<PAGE>
PALFED/PALMETTO FEDERAL
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS IS AN EXECUTIVE SALARY CONTINUATION AGREEMENT (this "Agreement")
dated as of November 1, 1996, by and among PALFED, Inc., a South Carolina
corporation (the "Company"), Palmetto Federal Savings Bank of South Carolina, a
wholly-owned subsidiary of the Company (the "Bank"), and ____________________
(the "Officer").
BACKGROUND STATEMENT
The Company considers the establishment and maintenance of a sound and
vital group of management personnel for the Company and its subsidiaries to be
essential to protecting and enhancing the best interests of the Company and its
shareholders. In this connection, the Company recognizes that, as is the case
with many publicly-held corporations, the possibility of a change in control of
the Company may exist and that such possibility, and the uncertainty and
concerns which it may raise among management personnel, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders. Accordingly, the Company's and the Bank's Boards of
Directors have determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of key management members
of the Company and its subsidiaries, including the Officer, to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company, and to assure fair treatment of management of the Company and the Bank
in the event of a change of control.
In connection therewith and to induce the Officer to remain in his
present employment with the Bank and the Company and possible future employment
with other subsidiaries of the Company, and to retain the Officer's services
during any actual or threatened change of control, and in consideration of the
Officer's agreement to continue such employment subject to the terms and
conditions of this Agreement, this Agreement sets forth the severance and other
benefits which the Company and the Bank agree will be provided to the Officer in
the event of a "Change in Control" as defined in Section 3 and a termination of
employment or a "Change in Duties or Salary" of the Officer as defined in
Section 4 .
AGREEMENT
1. TERM. This Agreement shall commence as of November 1, 1996, and shall
continue for a three (3) year term unless extended as provided herein. On each
monthly anniversary date beginning with the first month following the date of
this Agreement, the term of this Agreement shall automatically be extended for
one additional month, unless prior to any monthly anniversary date, the Company
or the Bank shall give notice to the Officer to fix the term of this Agreement
to a definite three (3) year term from the date of such notice and no further
automatic monthly extensions shall occur. This Agreement shall not be extended
beyond the first
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 3
_______________________________________
month on which the Officer attains age sixty-five (65). Notwithstanding any
notice by the Bank or the Company not to extend this Agreement or the expiration
of the term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months beyond the expiration of this Agreement if a
Change in Control of the Company or the Bank shall have occurred during such
term. If the Officer voluntarily terminates his employment with the Company or
the Bank prior to a Change of Control, then this Agreement shall terminate.
2. PAYMENTS. No salary continuation payments or benefits shall be paid
to or provided for the Officer pursuant to this Agreement unless the following
shall have occurred during the term of this Agreement: (a) a "Change in
Control" of the Company or the Bank, and (b) a termination of employment or a
"Change in Duties or Salary" of the Officer. Any payments made to the Officer
pursuant to this Agreement are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
3. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean a change in control of either the Company or the Bank, or
the execution of a definitive agreement or the acceptance of an offer by the
Company contemplating a change in control of either the Company or the Bank
(other than the acquisition of the Bank by the Company), (i) within the meaning
of Office of Thrift Supervision ("OTS") Regulations Part 574, or any successor
regulations, or (ii) of a nature that would be required to be reported in
response to Item 6(e) of Schedule l4A of Regulation l4A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that,
without limitation, such a change in control shall be deemed to have occurred
if: (a) any person, entity or group of persons (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) together with any affiliates, is
or becomes the "beneficial owner" (as defined in Rule l3d-3 under the Exchange
Act), directly or indirectly, of securities of the Company or the Bank
representing 15 percent or more of the combined voting power of the Company's or
the Bank's then outstanding voting securities; or (b) during the term of this
Agreement as a result of a tender or exchange offer, proxy contest, merger or
consolidation, or as a result of any combination of the foregoing, individuals
who at the beginning of any two-year period constitute the Board of Directors of
the Company (the "Incumbent Directors") cease for any reason during such
two-year period to constitute at least two-thirds of the members of the Board of
Directors, unless the election or the nomination for election by the Company's
shareholders of each new director is approved by vote of at least two-thirds of
the Incumbent Directors then still in office other than in connection with an
actual or threatened proxy contest; or (c) the shareholders of the Company
approve a plan of complete liquidation or winding-up of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of its assets; or (d) any other event not specified above which the Company's
Board of Directors determines should constitute a Change of Control.
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 4
_______________________________________
4. CHANGE IN DUTIES OR SALARY. For purposes of this Agreement, "Change
in Duties or Salary" of the Officer shall mean any one of the following: (a) a
change in the nature or scope of the duties, authority, supervision, status,
title or responsibilities of the Officer, which change results in the diminution
in any respect of the Officer's then current duties, authority, status or
responsibilities to those duties, authority, status and responsibilities of the
Officer immediately prior to the time such Change in Control occurs; (b) a
reduction in the overall level of the Officer's current compensation and
benefits, including bonuses, or exclusion from participation in the Company's or
the Bank's employee benefit plans, or the Company's or the Bank's failure to
increase (within 12 months of the Officer's last increase in base salary) the
Officer's base salary in an amount which at least equals, on a percentage basis,
the average percentage increase in base salary for all executives entitled to
participate in the Bank's or the Company's executive incentive plans for which
the Officer was eligible during the preceding 12 months; (c) a change in the
place of the Officer assignment of the Officer from Aiken, South Carolina, to
any other city or geographical location that is located further than 25 miles
from the principal office of the Company in Aiken, South Carolina; (d) any
purported termination of the employment of the Officer by the Company or the
Bank which is not effected in accordance with this Agreement; or (e) the failure
of the Company to comply with and satisfy Section 6 of this Agreement.
Notwithstanding any provision of this Agreement to the contrary, a Change in
Duties or Salary shall be deemed to have occurred in the event of: (i) a merger
or combination of the Company with any other corporation or entity (regardless
of which entity is the survivor), or (ii) the acquisition of more than eighty
percent (80%) of the outstanding voting securities of the Bank or the Company,
other than a merger, combination or acquisition of voting securities pursuant to
which, immediately following such transaction, the Company's voting securities
outstanding immediately prior to such transaction continue to represent (either
by remaining outstanding or being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power of
the voting securities of the Company or surviving entity.
5. SALARY CONTINUATION PAYMENTS. In the event that: (i) a Change in
Control and Change in Duties or Salary occurs during the term hereof, but before
the Officer reaches the age of 65, or (ii) the Officer's employment is
terminated except for cause at any time within twenty-four (24) months following
a Change in Control, but before the Officer reaches the age of 65, then the
Officer shall be entitled to receive, in a lump sum in cash, immediately
following the Officer's resignation or termination, an aggregate amount equal to
three times the Employee's average annual taxable compensation from the Company
and the Bank (and its affiliates determined pursuant to Section 280G(d)(5) of
the Internal Revenue Code) for the most recent five taxable years ending before
the Change of Control (or for the period during which the Employee was employed
by the Bank if the Officer has been employed by Bank for less than five (5)
years) less one dollar ($1.00). Alternately, the Officer may choose to be paid
in monthly or quarterly installments the aggregate amount that has a total
present value (determined by using a discount
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 5
_______________________________________
rate equal to 120% of the "applicable federal rate" determined under section
1274(d) of the Internal Revenue Code in effect on such date, compounded
semi-annually) equal to the aggregate amount calculated for determining a lump
sum payment. Such payment may, at the Officer's option, be applied to the cost
of group-term life insurance and long-term disability benefits for the Officer
on the basis that such benefits are being provided by the Bank and the Company
for the Officer immediately prior to such resignation or termination, and any
balance of such monthly amount shall be paid to the Officer in cash. It is
intended that the aggregate payment to be made hereunder shall not constitute a
"parachute payment" within the meaning of Section 280G(b)(2)(A) of the Internal
Revenue Code, and this Agreement shall be construed (and the payment to be made
pursuant to this Agreement may be adjusted) to effect such intent. Payments to
the Officer pursuant to Section 5 of this Agreement shall be in addition to any
compensation due but not yet paid through the date of the Officer's termination
or resignation and all other benefits or compensation to which the Officer is
entitled under the Company's employee benefit plans.
6. TRANSFER OF EMPLOYMENT TO OTHER SUBSIDIARIES. The Company hereby
agrees that in the event that the Officer should, at any time or from time to
time, hereafter become an Officer of any subsidiary of the Company, the Company
will cause such subsidiary to promptly become an obligor of the Agreement with
respect to such employment. In addition, as agent of its subsidiaries, the
Company, on behalf of its subsidiaries, hereby obligates such subsidiaries with
respect to the terms hereof as to any such employment of the Officer. Further,
the Company hereby unconditionally guarantees the performance by any of its
subsidiaries of such subsidiary's obligations under this Agreement. Any
business entity succeeding to substantially all of the business of the Company
or the Bank by purchase, merger, consolidation, sale or assets or otherwise,
shall be bound by and shall adopt and assume this Agreement and the Company and
the Bank shall obtain the assumption of this Agreement by such successor.
7. NO OBLIGATION OF CONTINUED EMPLOYMENT. While it is the intent of this
Agreement to induce the Officer to continue employment with the Bank and the
Company at the pleasure of the Company during the term of this Agreement, this
Agreement does not in any way obligate either the Company or the Bank to
continue the Officer's employment or any specific level of salary or benefits in
connection therewith except as specifically provided herein, and the Officer
shall not be entitled to any benefits hereunder in the event of termination of
his employment prior to a Change in Control. The Officer agrees, however, in
the event of exercise of his right to resign following a Change in Control,
that, at the request of the Company made within five (5) days of notice of
resignation, he will enter into an employment contract to continue employment
for a specified period, up to six months, at the then existing compensation and
benefits and in accordance with historical working conditions, for the purpose
of maintaining the continuity of his job function during such period for the
benefit of the Company; it being acknowledged and agreed that the salary
continuation and benefits set forth above shall be paid in the time and
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 6
_______________________________________
manner provided above and without regard to the Officer's continued employment
at the request of the Company.
8. TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement:
(a) The Bank's Board of Directors may terminate the Officer's
employment at any time, but any termination by the Bank's Board of Directors
other than termination for "cause", shall not prejudice the Officer's right to
compensation or other benefits under this Agreement. The Officer shall have no
right to receive compensation or other benefits for any period after termination
for "cause". Termination for "cause" shall include termination because of the
Officer's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement.
(b) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
section 8(e)(3) or (g)(1) of Federal Deposit Insurance Act (12 U.S.C. Section
1818(e)(3) and (g)(1)), the Bank's obligations under this Agreement shall be
suspended as of the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Officer all or part of the compensation withheld while its contract
obligations were suspended, and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(c) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default (as defined in section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this paragraph (b)(4) shall not affect
any vested rights of the contracting parties.
(e) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary for
the continued operation of the Bank:
(i) by the Director of the OTS or his or her designee, at the
time the Federal Deposit Insurance Corporation or Resolution Trust
Corporation enters into
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 7
_______________________________________
an agreement to provide assistance to or on behalf of the association
under the authority contained in 13(c) of the Federal Deposit
Insurance Act; or
(ii) by the Director of the OTS or his or her designee, at the
time the Director or his or her designee approves a supervisory merger
to resolve problems related to operation of the association or when
the association is determined by the Director to be in an unsafe or
unsound condition.
Any rights of the parties that have already vested, however, shall not
be affected by such action.
9. REIMBURSEMENT OF EXPENSES; INTEREST; NO DUTY TO MITIGATE.
(a) The Company shall pay all legal fees and expenses reasonably
incurred by the Officer as a result of any contest following any Change in
Control (regardless of the outcome thereof) by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof, including any legal fees and
expenses and other out-of-pocket expenses incurred by the Officer relating to or
as a result of the enforcement or contest by the Officer of any provision of
this Agreement. Such reimbursement shall be paid within 30 days of the Officer
furnishing to the Company or the Bank written evidence of any costs or expenses
incurred by the Officer. In addition, the Company or the Bank shall pay the
Officer interest on any salary continuation payments pursuant to Section 5 of
this Agreement that are not paid when due at a rate equal to the prime rate as
announced by the Bank or its successors from time to time.
(b) The Officer shall not be required to mitigate the amount of any
payment provided for in Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in Section 5 be reduced by any
compensation earned by the Officer as the result of employment by another
employer after the date of his termination or resignation, or otherwise.
10. SUCCESSORS; SEVERABILITY. All benefits of this Agreement shall accrue
to, and be payable to, the Officer's heirs, executors, administrators or
assigns. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid, but if any one or more
of the provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions of this Agreement shall not be in any way impaired.
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 8
_______________________________________
11. NOTICES.
(a) NOTICE OF TERMINATION. Any termination of the Officer's
employment by the Bank or the Company or by resignation of the Officer shall be
communicated by a written notice of termination or resignation to the other
party, and shall specify the provision of this Agreement relied upon and shall
set forth in reasonable detail the circumstances claimed to provide a basis for
termination. The date of termination shall be the date on which the notice of
termination is delivered if by the Officer or thirty (30) days after the date of
the notice of termination if given by the Bank or the Company. If the Officer's
employment is terminated by death, disability or retirement, the date of
termination shall be the date provided in any other written contract or, in the
absence of any such contractual provision, by the policy of the Company or the
Bank at the time of the occurrence of such event.
(b) GENERAL. All notices and other communications, including notice
of resignation or dismissal, shall be in writing and shall be deemed to have
been duly given when mailed by the United States certified or registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth hereafter, provided that all notices to the Bank or the Company shall
be directed to the attention of the Boards of Directors of such corporate
entities with copies to both the Secretary of the Company and the Bank, or to
such other addresses as either party may have furnished the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
If to the Company or the Bank: PALFED, Inc.
107 Chesterfield Street South
Aiken, SC 29801
Attn: Chairman
If to the Officer:
-----------------------------------
-----------------------------------
-----------------------------------
12. ENTIRE AGREEMENT; PRIOR AGREEMENTS. This Agreement constitutes the
entire understanding and agreement among the Company, the Bank and the Officer
with regard to all matters herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto. This
Agreement may be amended, modified or renewed only in writing signed by both
parties hereto. Any and all executive salary continuation
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 9
_______________________________________
agreements or change of control agreements previously entered into between the
Officer and the Company or the Bank are hereby terminated and canceled as of the
date of this Agreement.
13. GOVERNING LAW; JOINT AND SEVERAL. This Agreement shall be construed
and enforced in accordance with the laws of the State of South Carolina. To the
extent permitted by applicable law, all obligations of the Company and the Bank
shall be joint and several.
<PAGE>
PALFED/Palmetto Federal
Executive Salary Continuation Agreement
page 10
_______________________________________
IN WITNESS WHEREOF, the parties hereto have executed and Delivered
this Agreement as of the date first above written.
PALFED, INC.
Attest: By:
-------------------------------
Title:
------------------------
- --------------------------------
Title:
--------------------------
PALMETTO FEDERAL SAVINGS BANK
OF SOUTH CAROLINA
Attest: By:
-------------------------------
Title:
-----------------------
- -------------------------------
Title:
-------------------------
----------------------------------
Officer
* * *
<PAGE>
Exhibit 11.1
PALFED, Inc.
Statement Regarding Computation of Per Share Data
Quarter Nine Months
Ended Ended
Sept. 30 Sept. 30
--------- -----------
(in thousands)
1996
- -----
Weighted average shares outstanding 5,138 5,130
Stock options outstanding 345 345
Shares assumed repurchased (255) (259)
----- -----
Average common and common
equivalent shares (1) 5,228 5,216
----- -----
----- -----
Quarter Nine Months
Ended Ended
Sept. 30 Sept. 30
--------- -----------
(in thousands)
1995
- -----
Weighted average shares outstanding 5,101 5,094
Stock options outstanding 184 184
Shares assumed repurchased (107) (124)
----- -----
Average common and common
equivalent shares (1) 5,178 5,154
----- -----
----- -----
(1) Stock options outstanding less shares assumed repurchased are common stock
equivalents.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of PALFED, Inc. and Subsidiaries as of
September 30, 1996 and the related consolidated state of income for the
three months then ended, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,291
<INT-BEARING-DEPOSITS> 4,133
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,805
<INVESTMENTS-CARRYING> 61,266
<INVESTMENTS-MARKET> 61,272
<LOANS> 508,649
<ALLOWANCE> 7,798
<TOTAL-ASSETS> 659,902
<DEPOSITS> 521,359
<SHORT-TERM> 67,650
<LIABILITIES-OTHER> 12,039
<LONG-TERM> 6,050
0
0
<COMMON> 52,804
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 659,902
<INTEREST-LOAN> 11,055
<INTEREST-INVEST> 1,651
<INTEREST-OTHER> 58
<INTEREST-TOTAL> 12,764
<INTEREST-DEPOSIT> 6,159
<INTEREST-EXPENSE> 7,029
<INTEREST-INCOME-NET> 5,735
<LOAN-LOSSES> 313
<SECURITIES-GAINS> 177
<EXPENSE-OTHER> 7,927
<INCOME-PRETAX> (1,431)
<INCOME-PRE-EXTRAORDINARY> (978)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (978)
<EPS-PRIMARY> (0.187)
<EPS-DILUTED> (0.187)
<YIELD-ACTUAL> 3.816
<LOANS-NON> 3,309
<LOANS-PAST> 0
<LOANS-TROUBLED> 10,532
<LOANS-PROBLEM> 15,417
<ALLOWANCE-OPEN> 7,914
<CHARGE-OFFS> 521
<RECOVERIES> 92
<ALLOWANCE-CLOSE> 7,798
<ALLOWANCE-DOMESTIC> 7,798
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,724
</TABLE>
