<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
-----------
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
Commission File No.: 0-17703
-----------
First American Bancorp
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0879472
------------------ ------------------------------------
(State of Alabama) (I.R.S. Employer Identification No.)
251 Johnston Street, S.E.
Decatur, Alabama 35601
----------------------------------------
(Address of principal executive offices)
(205) 340-7000
-------------------------------
(Registrant's telephone number)
-----------
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
--- ---
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the last practicable date.
Class Outstanding at June 30, 1996
----- ----------------------------
Common Stock, $.01 Par Value 2,253,396
The total number of pages in this report is 11.
<PAGE> 2
First American Bancorp and Subsidiary
Form 10-Q
Index
<TABLE>
<CAPTION>
Part I Financial Information Page No.
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Item 1 Consolidated Statements of Condition as of
June 30, 1996, June 30, 1995, and December
31, 1995 3
Consolidated Statements of Income for the
Three Month Periods Ended June 30, 1996
and June 30, 1995 and for the Six Month
Periods Ended June 30, 1996 and June 30, 1995 5
Consolidated Statements of Cash Flows for
the Six Month Periods Ended June 30, 1996
and June 30, 1995 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information
- - -----------------------------------------------------------------------------
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE> 3
First American Bancorp and Subsidiary
Consolidated Statements of Condition
As of June 30, 1996 and 1995 and December 31, 1995
<TABLE>
<CAPTION>
As of
June 30, December 31,
Assets 1996 1995 1995
------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 9,066,717 $ 9,174,702 $ 9,434,479
Earning assets:
Interest bearing deposits in other banks 109,641 113,500 123,362
Federal funds sold 4,550,000
Securities available for sale
U.S. Treasury securities and obligations of
other U.S. Government agencies and
corporations 9,970,725 6,616,188 13,462,088
Obligations of states and political subdivisions 11,064,715 10,335,454
Mortgage backed securities 12,573,193 9,694,041 16,942,765
Other securities 1,613,975 1,002,604 823,976
------------------------------------------------
Total securities available for sale 35,222,608 17,312,833 41,564,283
Investment securities (estimated market values of
$0, $23,367,000 and $0, respectively)
U.S. Treasury securities and obligations of
other U.S. Government Agencies (estimated
market values of $0, $2,989,000 and $0
respectively) 3,040,103
Obligations of states and political subdivisions
(estimated market values of $0, $16,231,000,
and $0 respectively) 16,626,368
Mortgage backed securities (estimated market
values of $0, $4,147,000 and $0, respectively) 4,256,239
respectively)
------------------------------------------------
Total investment securities 0 23,922,710 0
Mortgage loans held for sale,
net of discount 946,330 1,677,995 563,749
Loans, net of unearned income 156,990,715 126,901,069 127,053,081
Less: Allowance for loan losses (1,504,005) (1,302,453) (1,512,454)
------------------------------------------------
Net loans 155,486,710 125,598,616 125,540,627
------------------------------------------------
Total earning assets 191,765,289 173,175,654 167,792,021
Premises and equipment, net 8,037,976 6,761,507 7,219,571
Other real estate 36,000 36,000
Accrued interest receivable 1,349,495 1,187,484 1,180,255
Deferred Tax Benefit 1,043,419 626,949 852,384
Other assets 957,139 693,850 861,750
------------------------------------------------
Total Assets $212,220,035 $191,656,146 $187,376,460
================================================
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
Liabilities and Shareholders' Equity 1996 1995 1995
-----------------------------------------------
<S> <C> <C> <C>
Deposits:
Noninterest-bearing demand $ 19,956,731 $ 22,019,318 $ 18,152,331
Interest-bearing demand 64,680,299 65,606,347 69,491,765
Certificates of Deposit $100,000 and over 22,247,014 22,257,860 19,479,736
Other time and savings 64,612,501 55,913,555 58,238,886
-----------------------------------------------
Total deposits 171,496,545 165,797,080 165,362,718
Federal funds purchased 6,000,000 825,000
Current portion long term debt 51,133 5,000,000
Long term debt 12,605,000 1,285,556 105,000
Capital lease obligation 151,205 174,392 163,030
Accrued expenses and other liabilities 968,022 658,320 965,364
-----------------------------------------------
Total Liabilities $191,271,905 $172,915,348 $167,421,112
Shareholders' equity:
Preferred stock, par value $.01 per share
Authorized - 400,000 shares; none issued
Common stock, par value $.01 per share
Authorized - 10,000,000 shares at June 30, 1996 and
2,500,000 shares at June 30,1995 and at December
31, 1995; issued and outstanding 2,253,396 shares,
2,251,791 shares and 2,251,791 shares,
respectively 20,488 13,648 20,471
Surplus 10,758,431 10,735,257 10,734,272
Undivided profits 10,792,898 8,543,097 9,680,344
Unrealized loss on securities (623,687) (551,204) (479,739)
-----------------------------------------------
Total Shareholders' Equity 20,948,130 18,740,798 19,955,348
-----------------------------------------------
Total Liabilities and Shareholders' Equity $212,220,035 $191,656,146 $187,376,460
===============================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
First American Bancorp and Subsidiary
Unaudited Consolidated Statements of Income
For the three month periods and the six month periods ended June 30, 1996, and
June 30, 1995
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from earning assets:
Interest and fees on loans $3,872,441 $3,126,393 $7,158,825 $6,054,979
Interest on investment securities:
Taxable 413,971 376,754 858,025 763,287
Exempt from Federal income tax 148,424 228,889 288,697 457,658
Interest on Federal funds sold and
interest-bearing deposits in
other banks 12,655 25,316 37,888 30,098
---------- ---------- ---------- ----------
Total revenue from earning assets 4,447,491 3,757,352 8,343,435 7,306,022
Interest expense:
Interest on deposits 1,822,441 1,796,627 3,663,911 3,368,324
Interest on long term debt and
Federal funds purchased 65,216 72,858 74,819 221,424
Interest on obligations under
Capitalized leases 3,104 3,562 6,326 7,232
---------- ---------- ---------- ----------
Total interest expense 1,890,761 1,873,047 3,745,056 3,596,980
---------- ---------- ---------- ----------
Gross interest margin 2,556,730 1,884,305 4,598,379 3,709,042
Provision for loan losses 181,285 90,000 226,213 197,300
---------- ---------- ---------- ----------
Net interest margin 2,375,445 1,794,305 4,372,166 3,511,742
Noninterest revenues:
Service charges on deposits 264,506 202,240 529,751 404,344
Other operating revenues 163,110 148,492 292,706 268,513
Net securities gains (losses) (13,752) (1,596) (13,752) (1,596)
---------- ---------- ---------- ----------
Total noninterest revenues 407,864 349,136 808,705 671,261
Noninterest expenses:
Salaries and employee benefits 1,025,260 806,492 1,966,772 1,598,583
Occupancy, furniture and equipment 346,727 218,640 700,807 425,478
Other operating expenses 472,058 449,482 900,826 885,897
---------- ---------- ---------- ----------
Total noninterest expenses 1,844,045 1,474,614 3,568,405 2,909,958
Income before income taxes 939,264 668,827 1,612,466 1,273,045
Provision for income taxes 327,638 181,275 497,839 363,086
---------- ---------- ---------- ----------
Net income $ 611,626 $ 487,552 $1,114,627 $ 909,959
========== ========== ========== ==========
Net income per share based on weighted average
number of shares outstanding $ 0.27 $ 0.22 $ 0.50 $ 0.41
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
First American Bancorp and Subsidiary
Consolidated Statements of Cash Flows
For the six month periods ended June 30, 1996 and June 30, 1995
<TABLE>
<CAPTION>
1996 1995
-------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 775,965 $ 1,171,003
Cash flows from investing activities:
Proceeds from sale of securities available for sale 9,126,083 723,581
Proceeds from the maturity of securities available for 3,182,001 46,099
Purchase of securities available for sale (5,836,213)
Proceeds from the maturity of investment securities 488,260
Purchase of investment securities (103,900)
Net loans made to customers (30,455,613) (6,616,263)
Capitial expenditures (1,073,132) (326,866)
Proceeds from sale of bank premises and equipment
Proceeds from sale of other real estate 33,767 52,540
-------------------------------
Cash flows used by investing activities (25,023,107) (5,736,549)
Cash flows from financing activities:
Net increase (decrease) in demand deposit accounts (3,007,066) (7,373,189)
Net increase (decrease) in certificates of deposit
and other time and savings deposits 3,182,001 15,333,360
Net increase (decrease) in Federal funds purchased 5,175,000
Proceeds from issuance of debt 12,551,133
Payment of capital lease obligation (11,825) (10,918)
Repayment of long-term debt (283,333)
Proceeds from issuance of common stock 20,850 1,350,722
Distribution for fractional shares (3,326) (1,506)
-------------------------------
Cash flows provided by financing activities 23,865,659 9,015,136
Net increase (decrease) in cash and cash equivalents (381,483) (2,566,650)
Cash and cash equivalents at beginning of period 9,557,841 9,428,612
-------------------------------
Cash and cash equivalents at end of period $ 9,176,358 $ 6,861,962
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,682,722 $ 3,478,056
Income taxes 405,551 391,621
Supplemental disclosure of noncash financing activity:
The Company paid a 10% stock dividend on April 2, 1996.
The Company also effected a stock split in the
form of a 50% stock dividend on June 30, 1995.
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
First American Bancorp and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1995 and 1994
Note 1 - Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation.
The accounting policies followed by the Company are set forth in Note
1 of the Company's financial statements contained in the Annual Report to
Shareholders for the year ended December 31, 1995.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q, and do not contain certain information
included in the Company's audited financial statements and notes for the year
ended December 31, 1995.
Note 2 - Results of Operations
The results of operations for the six months ended June 30, 1996 and
1995 are not necessarily indicative of the results to be expected for the full
year.
Note 3 - Stock Dividend
Earnings per weighted average number of shares outstanding in 1996
reflect a 10% stock split effected in the form of a stock dividend paid to
shareholders on April 2, 1996. Earnings per weighted average number of shares
outstanding in 1995 reflect a 50% stock dividend paid to shareholders on June
30, 1995 and a 10% stock split effected in the form of a stock dividend to
shareholders on April 2, 1996.
Note 4 - Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Note 5 - Investment Securities Classifications
The Company transferred securities with an amortized cost of $ 23.6
million from the held-to-maturity classification to the available-for-sale
classification effective August 1, 1995. The transferred securities had an
estimated fair value of $23.2 million at the date of transfer, resulting in an
increase in the unrealized loss on securities available for sale, net of
deferred tax benefit of $197,000. The Company transferred the securities from
the held-to-maturity classification to the available-for-sale classification to
provide additional flexibility in managing the Company's liquidity and interest
rate risk. Currently the Company has no securities classified as held to
maturity.
<PAGE> 8
ITEMS 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is presented to aid in an understanding of
the Company's financial condition and results of operations for the second
quarter of 1996.
The Company reported earnings of $612,000 during the second quarter of
1996 compared with $488,000 during the second quarter of 1995. This reflected
a 25.4% increase. Net income per share during the second quarter of 1996
was $.27 compared to $.22 the second quarter of 1995. The earnings per share
in 1995 have been restated to reflect a 10% stock split effected in the form of
a stock dividend paid in 1996.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER'S EQUITY
Total assets increased 10.7% to $212.2 million at June 30, 1996 from
$191.7 million at June 30, 1995, and 13.2% from $187.4 million at December 31,
1995. This increase was a result of the 23.7% increase in loans, net of
unearned income, which was partially offset by an 14.6% decrease in securities.
Securities available for sale increased to $35.2 million designated at
June 30, 1996 from $17.3 million at June 30, 1995, a 103.5% increase.
Securities designated as held to maturity decreased to $0 million at June 30,
1996 from $23.9 million at June 30, 1995, a 100% decrease as a result of the
transfer of securities from the held to maturity classification to the
available for sale classification as discussed in Note 5 above. Total
securities decreased to $35.2 million at June 30, 1996 from $41.2 million at
June 30, 1995 or 14.6%. The decrease in the portfolio was primarily to fund the
Company's loan growth and the departure of higher cost public deposits as
discussed below.
At June 30, 1996, the Bank holds the following types of structured
notes and derivatives in its investment portfolio: Step-up bonds, dual index
notes, and collateralized mortgage obligations. Liquidity, interest rate risk,
yield, and extension risk are all considerations in holding these types of
securities. The Bank periodically evaluates these securities to determine the
effect that various interest rate changes has on the market value of these
securities. The Bank understands that changing interest rates impact the
market value of the security and its average life. The duration of these
securities are monitored in relation to the overall portfolio. This evaluation
also addresses the possible impact on the Bank's earnings and capital resulting
form rate changes. The potential carrying amount recoverability is also
reviewed on a regular basis. The Bank holds no securities whose ultimate
principal redemption would be less that par.
Loans, net of unearned income, grew to $157.0 million at June 30, 1996
from $126.9 million at June 30, 1995, or 23.7% as a result of strong loan
demand in the first two quarters in 1996. During the first two quarters of
1996 loans, net of unearned income, increased to $157.0 million from $127.1
million at December 31, 1995, a 23.6% increase.
Reserve for loan losses increased 15.5% to $1.5 million at June 30,
1996 from $1.3 million at June 30, 1995. Loan loss reserve as a percent of
loans, net of unearned income was 0.96% at June 30, 1996, compared to 1.03% at
June 30, 1995 and 1.20% at December 31, 1995. The loss reserve appears to be
adequate at this time when the Bank's historical low loan loss ratio is
considered.
Bank premises and equipment increased to $8.0 million at June 30, 1996
from $6.8 million at June 30, 1995 primarily as a result of the opening of the
Madison, Alabama branch in December 1995 and the acquisition of the Ardmore,
Alabama branch March 15, 1996. Bank premises and equipment increased 11.3% from
December 31, 1995.
Total deposits at June 30, 1996 were $171.5 million compared with
$165.8 million a year earlier, reflecting a 3.4% increase. Total deposits
increased 3.7% from $165.4 million at December 31, 1996 to $171.5
<PAGE> 9
million at June 30, 1996. Interest bearing demand deposits decreased $6.7
million at June 30, 1996 from March 31, 1996 due to the planned departure of
competitively bid public funds bearing a high interest rate. The departure of
these higher cost public funds has contributed to the improvement in the banks
net interest margin. At June 30, 1996, Federal Funds purchased were $6.0
million compared to Federal Funds sold of $4.5 million at June 30, 1996. At
June 30, 1996, the Company had $12.5 million in borrowings from the Federal
Home Loan Bank compared with $6,180,556 due to the Federal Home Loan Bank at
June 30, 1995. The increase in Federal Funds purchased and Federal Home Loan
Bank borrowings is due primarily Company's strong loan demand.
Shareholders' equity increased to $20.9 million at June 30, 1996, an
11.8% increase from 1996. Shareholders' equity increased from $20.0 million at
December 31, 1995. The increase from December 31, 1995 was due to the
Company's net income of $1.1 million in the six months ended June 30, 1996.
Partially offsetting the net income was the mark-to-market adjustment for
specific securities designated as available for sale in accordance with FASB
115 of $624,000 at June 30, 1996, a decrease of $144,000 from $480,000 at
December 31, 1995. The mark-to-market adjustment decreased $72,000 from June
30, 1995.
At June 30, 1996, the equity capital to asset ratio was 9.87%. At
June 30, 1995, this ratio was 9.78%; and at December 31, 1995, it was 10.6%.
The current risk based capital ratios well exceed the risk based capital
guidelines established by banking regulators as illustrated below:
<TABLE>
<CAPTION>
Minimum Regulatory
At June 30, 1996 Requirements
---------------- ------------------
<S> <C> <C>
Risk-based capital:
Tier I capital ratio 11.68% 4.00%
Total capital ratio 12.51% 8.00%
Leverage Ratio 9.99% 3.00 to 5.00%
</TABLE>
ASSET AND LIABILITY MANAGEMENT, LIQUIDITY AND CAPITAL RESOURCES
Through its asset liability management plan, management maintains
adequate liquidity to satisfy the Company's day to day cash flow requirements
and has available adequate liquidity sources to satisfy seasonal fluctuations.
RESULTS OF OPERATIONS
During the second quarter of 1996 earnings were $612,000, compared
with second quarter earnings during 1995 of $488,000, a 25.4% increase, which
resulted primarily from an improved interest margin offset by increased
noninterest expenses.
For the three month period ending June 30, 1996 gross interest margin
improved $673,000 or 35.7% to $2,557,000 compared to $1,884,000 at June 30,
1995. When compared with the three month period ended June 30, 1995, the
changes in the volume and mix of earning assets and interest-bearing
liabilities as well as the current rate environment helped improve the gross
interest margin during the second quarter of 1996.
Interest and fees on loans increased $746,000 or 23.9%, due to growth
in loan volume during the second quarter. Interest on investment securities
decreased 7.1% or $43,000 as a result of decreased volume.
The increase in volume of deposits resulted in an increase in deposit
interest expense of $26,000 or 1.4%.
The provision for loan losses increased by $91,000 during the second
quarter of 1996 when compared with the second quarter of 1995. With the ratio
of the reserve for loan losses to loans net of unearned income at June 30,
1996 of 0.96%, management feels that this allocation to loan loss reserve
provides an adequate reserve to support the Bank's continued loan growth as
well as the risk of future losses.
<PAGE> 10
Total noninterest revenues during the second quarter of 1996 increased
$59,000, or 16.8% primarily as a result of increased service charges on deposit
accounts.
Total noninterest expenses during the second quarter of 1996 increased
$369,000, or 25.1% due to increases in salaries and employee benefits, other
operating expenses, and occupancy, furniture and equipment expenses.
Income before income taxes increased 40.4% or $270,000 primarily due
to improved gross interest margin. Income tax expense for the second quarter
of 1996 compared to 1995 increased $146,000, or 80.7% as a result of increased
before tax income.
PART II
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
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
27 Financial Data Schedule (for SEC use only)
<PAGE> 11
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 thereto duly authorized.
First American Bancorp
Date: August 12, 1996 by /s/ Dan M. David
----------------------------------
Dan M. David
Chairman and Chief Executive Officer
Date: August 12, 1996 by /s/ Alfred E. Cheatham, Jr.
----------------------------------
Alfred E. Cheatham, Jr.
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST AMERICAN BANCORP FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,918,635
<INT-BEARING-DEPOSITS> 151,539,814
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 35,222,608
<LOANS> 156,990,715
<ALLOWANCE> 1,504,005
<TOTAL-ASSETS> 212,220,035
<DEPOSITS> 171,496,545
<SHORT-TERM> 51,133
<LIABILITIES-OTHER> 968,022
<LONG-TERM> 12,605,000
0
0
<COMMON> 20,488
<OTHER-SE> 20,927,642
<TOTAL-LIABILITIES-AND-EQUITY> 212,220,035
<INTEREST-LOAN> 7,158,825
<INTEREST-INVEST> 1,146,722
<INTEREST-OTHER> 37,888
<INTEREST-TOTAL> 8,343,435
<INTEREST-DEPOSIT> 3,663,911
<INTEREST-EXPENSE> 3,745,056
<INTEREST-INCOME-NET> 4,598,379
<LOAN-LOSSES> 226,213
<SECURITIES-GAINS> (13,752)
<EXPENSE-OTHER> 3,568,405
<INCOME-PRETAX> 1,612,466
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,114,627
<EPS-PRIMARY> $0.50
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.87
<LOANS-NON> 1,110,000
<LOANS-PAST> 73,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 73,000
<ALLOWANCE-OPEN> 1,512,454
<CHARGE-OFFS> 265,463
<RECOVERIES> 30,800
<ALLOWANCE-CLOSE> 1,504,005
<ALLOWANCE-DOMESTIC> 1,504,005
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
