<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 September 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.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1996
----- ---------------------------------
<S> <C>
Common Stock, $.01 Par Value 2,263,295
</TABLE>
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
September 30, 1996, September 30, 1995, and
December 31, 1995 3
Consolidated Statements of Income for the
Three Month Periods Ended September 30, 1996
and September 30, 1995 and for the Nine Month
Periods Ended September 30, 1996 and
September 30, 1995 5
Consolidated Statements of Cash Flows for
the Nine Month Periods Ended September 30, 1996
and September 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 11
Signatures 11
</TABLE>
<PAGE> 3
First American Bancorp and Subsidiary
Consolidated Statements of Condition
As of September 30, 1996 and 1995 and December 31, 1995
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995 1995
-------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 9,275,349 $ 8,715,171 $ 9,434,479
Earning assets:
Interest bearing deposits in other banks 124,045 110,113 123,362
Federal funds sold 3,275,000
Securities available for sale
U.S. Treasury securities and obligations of
other U.S. Government agencies and
corporations 6,437,221 10,402,660 13,462,088
Obligations of states and political subdivisions 11,105,349 11,888,105 10,335,454
Mortgage backed securities 11,411,427 18,165,503 16,942,765
Other securities 1,614,574 879,206 823,976
-------------------------------------------------------
Total securities available for sale 30,568,571 41,335,474 41,564,283
Mortgage loans held for sale,
net of discount 976,835 643,713 563,749
Loans, net of unearned income 168,266,712 127,069,152 127,053,081
Less : Allowance for loan losses (1,619,144) (1,304,898) (1,512,454)
-------------------------------------------------------
Net loans 166,647,568 125,764,254 125,540,627
-------------------------------------------------------
Total earning assets 198,317,019 171,128,554 167,792,021
Premises and equipment, net 7,997,684 6,993,732 7,219,571
Other real estate 36,000 36,000
Accrued interest receivable 1,023,924 1,236,187 1,180,255
Deferred Tax Benefit 1,066,825 672,857 852,384
Other assets 1,831,730 717,806 861,750
-------------------------------------------------------
Total Assets $219,512,531 $189,500,307 $187,376,460
=======================================================
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities and Shareholders' Equity 1996 1995 1995
-------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Noninterest-bearing demand $ 24,563,203 $ 19,334,026 $ 18,152,331
Interest-bearing demand 63,369,250 71,094,769 69,491,765
Certificates of Deposit $100,000 and over 24,725,347 21,289,506 19,479,736
Other time and savings 66,573,942 56,482,066 58,238,886
-------------------------------------------------------
Total deposits 179,231,742 168,200,367 165,362,718
Federal funds purchased 4,775,000 825,000
Current portion long term debt 105,000 1,038,889
Long term debt 12,500,000 105,000 105,000
Capital lease obligation 145,114 168,767 163,030
Accrued expenses and other liabilities 981,507 804,154 965,364
-------------------------------------------------------
Total Liabilities $197,738,363 $170,317,177 $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 September 30, 1996 and
2,500,000 shares at September 30,1995 and at December
31, 1995; issued and outstanding 2,263,295 shares,
2,251,791 shares and 2,251,791 shares,
respectively 22,633 20,471 20,471
Surplus 10,914,658 10,728,433 10,734,272
Undivided profits 11,441,780 9,058,021 9,680,344
Unrealized loss on securities, available
for sale, net of tax (604,903) (623,975) (479,739)
-------------------------------------------------------
Total Shareholders' Equity 21,774,168 19,183,130 19,955,348
-------------------------------------------------------
Total Liabilities and Shareholders' Equity $219,512,531 $189,500,307 $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 nine month periods ended September 30,
1996, and September 30, 1995
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue from earning assets:
Interest and fees on loans $4,343,390 $3,230,478 $11,502,213 $ 9,285,457
Interest on investment securities:
Taxable 347,589 395,486 1,205,614 1,158,773
Exempt from Federal income tax 149,010 193,903 437,707 651,561
Interest on Federal funds sold and
interest-bearing deposits in
other banks 2,030 38,735 39,920 68,833
---------- ---------- ----------- -----------
Total revenue from earning assets 4,842,019 3,858,602 13,185,454 11,164,624
Interest expense:
Interest on deposits 1,767,657 1,858,650 5,431,568 5,226,974
Interest on long term debt and
Federal funds purchased 291,746 55,944 366,565 277,368
Interest on obligations under
Capitalized leases 2,983 3,450 9,309 10,682
---------- ---------- ----------- -----------
Total interest expense 2,062,386 1,918,044 5,807,442 5,515,024
---------- ---------- ----------- -----------
Gross interest margin 2,779,633 1,940,558 7,378,012 5,649,600
Provision for loan losses 215,312 143,619 441,525 340,919
---------- ---------- ----------- -----------
Net interest margin 2,564,321 1,796,939 6,936,487 5,308,681
Noninterest revenues:
Service charges on deposits 266,524 220,986 796,275 625,330
Other operating revenues 165,318 134,674 452,024 403,187
Net securities gains (losses) (28,166) 9,457 (41,918) 7,861
---------- ---------- ----------- -----------
Total noninterest revenues 397,676 365,117 1,206,381 1,036,378
Noninterest expenses:
Salaries and employee benefits 1,118,148 822,442 3,084,920 2,421,025
Occupancy, furniture and equipment 346,504 225,320 1,047,311 650,798
Other operating expenses 517,576 385,196 1,418,403 1,271,093
---------- ---------- ----------- -----------
Total noninterest expenses 1,982,229 1,432,958 5,550,634 4,342,916
Income before income taxes 979,768 729,098 2,592,234 2,002,143
Provision for income taxes 325,062 214,190 822,901 577,276
---------- ---------- ----------- -----------
Net income $ 654,706 $ 514,908 $ 1,769,333 $ 1,424,867
========== ========== =========== ===========
Net income per share based on weighted average
number of shares outstanding $ 0.29 $ 0.25 $ 0.79 $ 0.71
Weighted average number of shares outstanding 2,282,451 2,047,083 2,254,262 2,015,972
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
First American Bancorp and Subsidiary
Consolidated Statements of Cash Flows
For the nine month periods ended September 30, 1996 and September 30, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 1,205,420 $ 3,275,054
Cash flows from investing activities:
Proceeds from sale of securities available for sale 13,989,412 9,547,252
Proceeds from the maturity of securities available for sale 3,182,401 1,603,647
Purchase of securities available for sale (6,218,019) (10,474,067)
Net loans made to customers (41,641,521) (6,929,716)
Capital expenditures (1,153,557) (674,670)
Proceeds from sale of other real estate 33,767 53,040
------------ ------------
Cash flows used by investing activities (31,807,517) (6,874,514)
Cash flows from financing activities:
Net increase (decrease) in demand deposit accounts 288,357 (4,570,059)
Net increase (decrease) in certificates of deposit
and other time and savings deposits 13,580,668 14,933,517
Net increase (decrease) in Federal funds purchased 3,950,000
Proceeds from issuance of debt 12,500,000
Payment of capital lease obligation (17,916) (16,542)
Repayment of long-term debt (5,425,000)
Proceeds from issuance of common stock 145,867 1,350,722
Distribution for fractional shares (3,326) (1,506)
------------ ------------
Cash flows provided by financing activities 30,443,650 6,271,132
Net increase (decrease) in cash and cash equivalents (158,447) 2,671,672
Cash and cash equivalents at beginning of period 9,557,841 9,428,612
------------ ------------
Cash and cash equivalents at end of period $ 9,399,394 $ 12,100,284
Supplemental disclosure of noncash financing activity:
The Company paid a 10% stock dividend to shareholders of record
on March 27, 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
September 30, 1996 and 1995
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 nine months ended September 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 - Adoption of Statement of Financial Accounting Standards
The Company adopted Statement of Financial Accounting Standards (SFAS)
Number 121, Accounting for the Impairment of Long-Lived Assets to be Disposed
Of on January 1, 1996. SFAS Number 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the assets may not be
recoverable. The adoption of SFAS Number 121 did not result in any adjustments
to the Company's earnings during the nine months ended September 30, 1996.
Statement of Financial Accounting Standards (SFAS) Number 123,
Accounting for Stock-Based Compensation defines a fair value based method of
accounting for an employee stock option or similar equity instrument. However,
SFAS 123 allows an entity to continue to measure compensation costs for those
plans using the intrinsic value based method of accounting prescribed by APB
Opinion Number 25, Accounting for Stock Issued to Employees. The Company has
elected to continue to measure the compensation cost for their stock option
plans under the provisions of APB Opinion 25. The Adoption of SFAS 123 did not
result in any adjustments to the Company's earnings during the nine months
ended September 30, 1996.
<PAGE> 8
Note 6 - 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.
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 third
quarter of 1996.
The Company reported earnings of $655,000 during the third quarter of
1996 compared with $515,000 during the third quarter of 1995. This reflected a
27.2% increase. Net income per share during the third quarter of 1996 was $.29
compared to $.25 the third 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 15.8% to $219.5 million at September 30, 1996
from $189.5 million at September 30, 1995, and 17.1% from $187.4 million at
December 31, 1995. This increase was a result of the 32.4% increase in loans,
net of unearned income, which was partially offset by a 25.9% decrease in
securities.
Securities available for sale decreased to $30.6 million designated at
September 30, 1996 from $41.3 million at September 30, 1995, a 25.9% decrease.
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 September 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 than par.
Loans, net of unearned income, grew to $168.3 million at September 30,
1996 from $127.1 million at September 30, 1995, or 32.4% as a result of strong
loan demand in the first three quarters in 1996. During the first three
quarters of 1996 loans, net of unearned income, increased to $168.3 million
from $127.1 million at December 31, 1995, a 32.4% increase.
Reserve for loan losses increased 23.1% to $1.6 million at September
30, 1996 from $1.3 million at September 30, 1995. Loan loss reserve as a
percent of loans, net of unearned income was 0.96% at September 30, 1996,
compared to 1.03% at September 30, 1995 and 1.19% 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 September 30,
1996 from $7.0 million at September 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 10.8% from December 31, 1995.
<PAGE> 9
Total deposits at September 30, 1996 were $179.2 million compared with
$168.2 million a year earlier, reflecting a 6.5% increase. Total deposits
increased 8.3% from $165.4 million at December 31, 1995 to $179.2 million at
September 30, 1996. Interest bearing demand deposits decreased $6.1 million at
September 30, 1996 from December 31, 1995 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 September 30, 1996, Federal Funds purchased were $4.8
million compared to Federal Funds sold of $3.3 million at September 30, 1995.
At September 30, 1996, the Company had $12.5 million in borrowings from the
Federal Home Loan Bank (FHLB) compared with $1.0 million due at September 30,
1995. The $12.5 million FHLB debt has an interest rate of one month LIBOR
(London Interbank offered rate) minus three basis points, 5.4505% at September
30, 1996 and matures June 5, 1998. The increase in Federal Funds purchased and
Federal Home Loan Bank borrowings is due primarily Company's strong loan
demand.
Shareholders' equity increased to $21.8 million at September 30, 1996,
an 13.5% increase from $19.2 million September 30, 1995. Shareholders' equity
increased 9.0% from $20.0 million at December 31, 1995. The increase from
December 31, 1995 was due to the Company's net income of $1.8 million in the
nine months ended September 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 $605,000 at September 30, 1996, a
decrease of $125,000 from $480,000 at December 31, 1995. The mark-to-market
adjustment decreased $19,000 from September 30, 1995.
At September 30, 1996, the equity capital to asset ratio was 9.9%. At
September 30, 1995, this ratio was 10.1%; 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 September 30, 1996 Requirements
--------------------- ------------------
<S> <C> <C>
Risk-based capital:
Tier I capital ratio 12.51% 4.00%
Total capital ratio 13.43% 8.00%
Leverage Ratio 9.86% 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 third quarter of 1996 earnings were $655,000, compared with
third quarter earnings during 1995 of $515,000, a 27.2% increase, which
resulted primarily from an improved interest margin offset by increased
noninterest expenses.
For the three month period ending September 30, 1996 gross interest
margin improved $0.9 million or 47.4% to $2.8 million compared to $1.9
million at September 30, 1995. When compared with the three month period ended
September 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 third quarter of 1996.
Interest and fees on loans increased $1,113,000 or 34.5%, due to
growth in loan volume during the third quarter. Interest on investment
securities decreased 15.7% or $93,000 as a result of decreased volume.
<PAGE> 10
The decrease in volume of interest bearing deposits resulted
in a decrease in deposit interest expense of $91,000 or 4.9%.
The provision for loan losses increased by $72,000 during the third
quarter of 1996 when compared with the third quarter of 1995. With the ratio
of the reserve for loan losses to loans net of unearned income at September
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.
Total noninterest revenues during the third quarter of 1996 increased
$33,000, or 9.0% primarily as a result of increased service charges on deposit
accounts.
Total noninterest expenses during the third quarter of 1996 increased
$549,000, or 38.3% due to increases in salaries and employee benefits, other
operating expenses, and occupancy, furniture and equipment expenses.
Income before income taxes increased 34.4% or $251,000 primarily due
to improved gross interest margin. Income tax expense for the third quarter of
1996 compared to 1995 increased $111,000, or 51.9% 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.
<PAGE> 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
On August 28, 1996, the Company filed a Form 8-K reporting a change in
the Company's independent auditors by the Company's board of Directors
effective August 27, 1996.
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: November 13, 1996 By /s/ Dan M. David
-------------------------------------
Dan M. David
Chairman and Chief Executive Officer
Date: November 13, 1996 By /s/ Alfred E. Cheatham, Jr.
-------------------------------------
Alfred E. Cheatham, Jr.
Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 9,275,349
<INT-BEARING-DEPOSITS> 124,045
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,568,571
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 169,243,547
<ALLOWANCE> 1,619,144
<TOTAL-ASSETS> 219,512,531
<DEPOSITS> 179,231,742
<SHORT-TERM> 4,880,000
<LIABILITIES-OTHER> 1,126,621
<LONG-TERM> 12,500,000
0
0
<COMMON> 22,633
<OTHER-SE> 21,751,535
<TOTAL-LIABILITIES-AND-EQUITY> 219,512,531
<INTEREST-LOAN> 11,502,213
<INTEREST-INVEST> 1,643,321
<INTEREST-OTHER> 39,920
<INTEREST-TOTAL> 13,185,454
<INTEREST-DEPOSIT> 5,431,568
<INTEREST-EXPENSE> 5,807,442
<INTEREST-INCOME-NET> 7,378,012
<LOAN-LOSSES> 441,525
<SECURITIES-GAINS> (41,918)
<EXPENSE-OTHER> 5,550,634
<INCOME-PRETAX> 2,592,234
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,769,333
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.54
<LOANS-NON> 1,400,000
<LOANS-PAST> 257,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 257,000
<ALLOWANCE-OPEN> 1,512,000
<CHARGE-OFFS> 389,000
<RECOVERIES> 54,000
<ALLOWANCE-CLOSE> 1,619,000
<ALLOWANCE-DOMESTIC> 1,619,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
