<PAGE>
FORM 10-Q
---------
UNITED STATES 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 Office of Thrift Supervision
June 30, 1996 Docket Number 1509
FIRST PALMETTO FINANCIAL CORPORATION
------------------------------------
(Exact Name of Registrant As Specified In Its Charter)
Delaware 57-0921284
- ---------------------------- ------------------------
(State of Incorporation) (I.R.S. Employer Identification
Number)
407 DeKalb Street
Camden, South Carolina 29020 (803) 432-2265
- ---------------------------- ------------------------
(Address of Principal Executive (Registrant's Telephone Number,
Office Including Zip Code) Including Area Code)
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 requested to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
Number of shares of common stock outstanding as of August 5, 1996 693,010
-------
<PAGE>
INDEX
-----
Part I - Financial Information Page
- ------ ----
Consolidated Statement of Financial Condition as of
June 30, 1996 and September 30, 1995 1
Consolidated Statement of Income for the Three Months
Ended June 30, 1996 and 1995 and the Nine Months Ended
June 30, 1996 and 1995 2-3
Consolidated Statement of Cash Flows for the
Nine Months Ended June 30, 1996 and 1995 4-5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II - Other Information 11
- -------
Signatures 12
- ----------
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,540 $ 10,194
Interest-bearing deposits in other banks 2,484 2,785
Certificates of deposit in other banks 399 399
Available-for-sale securities (cost of $594,893
at June 30, 1996 and September 30, 1995) 962 1,039
Investment securities (market value of $50,054,062
and $58,259,375 at June 30, 1996 and September
30, 1995, respectively) 49,555 57,389
Mortgage-backed securities held for investment (market
value of $33,931,345 and $39,419,874 at June 30, 1996
and September 30, 1995, respectively) 34,457 39,410
Loans, net of allowance for loan losses of $1,982,388
and $1,800,182 at June 30, 1996 and September 30,
1995, respectively 222,315 198,373
Accrued interest receivable 2,751 2,538
Real estate acquired in settlement of loans 505 1,031
Stock in Federal Home Loan Bank ("FHLB") 2,122 2,122
Premises and equipment 5,232 4,083
Intangible assets 2,866 3,393
Prepaid expenses and other assets 666 427
----------- ----------
Total assets $ 334,854 $ 323,183
=========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 279,378 $ 267,313
FHLB advances 32,550 33,367
Accrued expenses and other liabilities 1,311 3,158
----------- ----------
Total liabilities 313,239 303,838
----------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 1,500,000 shares
authorized, 733,014 shares issued at June 30,
1996 and September 30, 1995 7 7
Additional paid-in capital 6,080 6,080
Retained earnings, substantially restricted 15,899 13,570
Unrealized gain on available-for-sale securities 254 309
Treasury stock, at cost (40,004 shares at June 30,
1996 and 39,854 at September 30, 1995,
respectively) (625) (621)
----------- -----------
Total stockholders' equity 21,615 19,345
----------- -----------
Total liabilities and stockholders' equity $ 334,854 $ 323,183
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
(1)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands, except per share and number of shares data)
<S> <C> <C> <C> <C>
Interest income
Loans $ 4,910 $ 4,094 $ 14,406 $ 11,399
Investments
securities 835 930 2,604 2,755
Mortgage-backed
securities 591 706 1,871 1,993
Other 174 127 507 368
----------- ----------- ----------- -----------
Total
interest
income 6,510 5,857 19,388 16,515
----------- ----------- ----------- -----------
Interest expense
Deposits 3,015 2,897 9,231 7,291
FHLB advances 465 419 1,402 1,674
----------- ----------- ----------- -----------
Total
interest
expense 3,480 3,316 10,633 8,965
----------- ----------- ----------- -----------
Net interest
income 3,030 2,541 8,755 7,550
Provision for
loan losses 75 100 295 270
----------- ----------- ----------- -----------
Net interest
income after
provision for
loan losses 2,955 2,441 8,460 7,280
----------- ----------- ----------- -----------
Other income
Service charges 283 279 858 653
Loan servicing 143 160 391 473
Gain on sale
of loans 22 11 82 24
Miscellaneous 32 179 433 335
----------- ----------- ----------- -----------
Total other
income 480 629 1,764 1,485
----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
(2)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands, except per share and number of shares data)
<S> <C> <C> <C> <C>
Other expense
Compensation and
fringe benefits 936 919 2,783 2,600
Net occupancy 254 227 720 654
Data processing
fees 178 181 611 574
Amortization of
tangible assets 242 143 527 299
Federal and
other insurance
premiums 140 155 389 451
Telephone, postage,
and supplies 166 180 408 409
Miscellaneous 366 387 1,136 964
---------- ----------- ----------- -----------
Total other
expense 2,282 2,192 6,574 5,951
---------- ----------- ----------- -----------
Income before
income taxes 1,153 878 3,650 2,814
Income taxes 407 309 1,321 989
---------- ----------- ----------- -----------
NET INCOME $ 746 $ 569 $ 2,329 $ 1,825
========== =========== =========== ===========
EARNINGS PER
SHARE $ 1.08 $ .83 $ 3.36 $ 2.64
========== =========== =========== ===========
Weighted average
number of
shares 693,010 693,405 693,013 693,405
========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
(3)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, June 30,
1996 1995
---------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,329 $ 1,825
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Accretion and amortization of investment
discounts and premiums (net) (166) (159)
Increase (decrease) in deferred loan fees (net) 15 (35)
Provision for loan losses 295 270
Gain on sale of loans (82) (24)
Gain on sale of real estate acquired in
settlement of loans (75) (2)
Depreciation 263 183
Proceeds from sale of premises and equipment - 401
Amortization of intangible assets 527 299
Proceeds from sale of loans 13,582 6,257
Originations and principal repayments of
loans held for sale (net) (13,500) (6,233)
Increase in accrued interest receivable (213) (487)
Increase in prepaid expenses and other assets (275) (62)
Increase (decrease) in accrued expenses
and other liabilities (1,792) 1,514
---------- -----------
Net cash provided by operating activities 908 3,747
---------- -----------
Cash flows from investing activities
Net increase in certificates
of deposit in other banks - 300
Proceeds from maturities of investment securities 9,000 9,016
Purchases of investment securities (1,000) (6,894)
Purchases of mortgage-backed securities - (13,471)
Principal repayments on mortgage-backed
securities 4,952 3,760
Net increase in loans (23,969) (26,254)
Proceeds from sale of real estate acquired in
settlement of loans 317 351
Purchase of FHLB stock - (124)
Capital expenditures for premises and equipment (1,408) (1,162)
Purchase of financial institution - (2,152)
---------- -----------
Net cash used in investing
activities (12,108) (36,630)
---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
(4)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, June 30,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from financing activities
Net increase in deposits 12,065 39,847
Proceeds from FHLB advances 11,000 28,600
Repayment of FHLB advances (11,817) (29,733)
Purchase of common stock (4) -
----------- -----------
Net cash provided by financing
activities 11,244 38,714
----------- -----------
Net increase in cash and cash equivalents 44 5,831
Cash and cash equivalents at beginning of
the period 12,979 12,054
----------- -----------
Cash and cash equivalents at end of
the period $ 13,023 $ 17,885
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of capitalization) $ 10,610 $ 8,627
=========== ===========
Income taxes $ 1,330 $ 938
=========== ===========
Supplemental schedule of noncash operating, investing
and financing activities
Loans transferred to real estate acquired in
settlement of loans $ 283 $ 485
=========== ===========
Decrease in unrealized gain on available-for-sale
securities $ 78 $ 96
=========== ===========
</TABLE>
During February, 1995, First Palmetto Savings Bank ("the Bank") acquired two
branch facilities from First Union National Bank of South Carolina.
See Notes to Consolidated Financial Statements
(5)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to form 10Q and do not include all
disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management of First
Palmetto Financial Corporation ("First Palmetto"), the financial
statements reflect all adjustments necessary to present fairly the
financial position of First Palmetto and subsidiary, First Palmetto
Savings Bank, F.S.B. (the "Bank") and the results of operations and
changes in cash flow for the interim period. All adjustments are of a
normal and recurring nature.
(6)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Financial Condition
- -------------------
Total Assets at June 30, 1996 amounted to $334.9 million as compared to $323.2
million at September 30, 1995, a increase of $11.7 million or 3.6%.
Loans receivable increased by $23.9 million or 12.1% from $198.4 million to
$222.3 million. This increase in loans is primarily attributable to increased
commercial real estate loan demand. The Bank has expanded into several new
markets in it's branching efforts. These markets have resulted in greater
commercial real estate loan demand.
The following table sets forth selected data relating to the composition of the
Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
---------- -----------
(In thousands)
<S> <C> <C>
Real Estate
Mortgage $184,827 $ 162,754
Construction 4,632 5,431
Consumer 26,359 24,376
Commercial business 12,680 10,055
Less:
Undisbursed loan proceeds 3,905 2,240
Deferred loan fees 296 203
Allowance for loan losses 1,982 1,800
---------- -----------
Total $222,315 $ 198,373
========== ===========
</TABLE>
As of June 30, 1996 and September 30, 1995, there were no concentrations of
loans in any types of industry which exceeded 10% of the Bank's total loans that
are not disclosed as a loan category.
Loans are placed on non-accrual status when, in the opinion of management, the
collection of interest is doubtful. As of June 30, 1996 and September 30, 1995,
the Bank had non-accrual loans in the amount of $1,019,000 and $823,000,
respectively. Interest income that was foregone on the non-accrual loans that
would have been recorded if the loans had been current in accordance with their
original terms amounted to $112,614 and $58,622 at June 30, 1996 and September
30, 1995, respectively. Interest income recognized on non-accrual loans
amounted to $24,369 and $45,747 for the periods ended June 30, 1996 and
September 30, 1995, respectively.
There were no loans which were not classified as non-accrual or restructured at
June 30, 1996 or September 30, 1995 which may be so classified in the near
future because of management concerns as to the ability of the borrowers to
comply with repayment terms.
(7)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Deposits increased by $12.1 million or 4.5% during the nine month period to
$279.4 million at June 30, 1996 from $267.3 million at September 30, 1995.
FHLB advances decreased to $32.6 million at June 30, 1996, from $33.4 million at
September 30, 1995.
Stockholders' Equity increased by $2,270,000 which equaled net income for the
period of $2,329,000 less a decrease in unrealized gain on available-for-sale
investments of $55,000 and the purchase of treasury stock of $4,000. Book value
per share at June 30, 1996, was $31.19 as compared to $27.90 at September 30,
1995.
Results of Operations
- ---------------------
Interest income for the nine months ended June 30, 1995, amounted to $16.5
million as compared to $19.4 million for the nine months ended June 30, 1996.
The increase in interest income equaled $2.9 million or 17.4%. The primary
reason was an increase in yield on interest-earning assets and an overall
increase in interest-earning assets. In the 1996 period, the Bank's mix changed
so that more of the Bank's assets were in higher interest-earning categories.
During the period, mortgage-backed securities of the Bank amortized and
investment securities matured and the proceeds were invested in commercial real
estate loans. Interest expense for the nine months ended June 30, 1996,
amounted to $10.6 million as compared to $9.0 million for the comparative nine
month period of 1995. The increase in interest expense equaled $1.7 million or
18.6%. Interest on deposits increased by $1.9 million or 26.6% due to an
increase in the weighted average interest rate paid for deposits and an increase
in interest-bearing liabilities. Interest on FHLB advances for the 1996 period
was $1.4 million as compared to $1.7 million for the 1995 period. Net
interest income for the 1996 period was $8.8 million as compared to $7.6 million
for the 1995 period. The increase of $1.2 million equaled 16.0%.
<TABLE>
<CAPTION>
The following table sets forth an analysis of the Bank's allowance for loan losses for the
period indicated.
Nine Months Nine Months
Ended Ended Year Ended
June 30, June 30, September 30,
1995 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of (In thousands)
period $ 1,655 $ 1,800 $ 1,655
----------- ----------- -----------
Loans charged off:
Real estate 16 27 16
Consumer 82 123 200
Commercial 16 19 180
----------- ----------- -----------
Total charge-offs 114 169 396
----------- ----------- -----------
Recoveries 13 56 59
----------- ----------- -----------
Provision for loan losses 270 295 482
----------- ----------- -----------
Balance at end of period $ 1,824 $ 1,982 $ 1,800
=========== =========== ===========
Ratio of net charge-offs to
average loans outstanding
during the period .06% .05% .19%
=========== =========== ===========
</TABLE>
(8)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Management of the Bank continually reviews the adequacy of the allowance for
loan losses. Factors considered in evaluating the adequacy of the allowance for
loan losses include specific reviews of delinquent loans and other loans with
known problems, composition of First Palmetto's loan portfolio, general economic
conditions which may affect the borrower's ability to repay and the value of the
collateral and other factors affecting the loan portfolio.
Other income for the two comparative periods increased by $279,000, equaling
$1,764,000 for the 1996 period and $1,485,000 for the 1995 period. The primary
reason for the increase was a deposit premium received on the sale of a branch
in the amount of $239,000 and the increase in service charges on deposit
accounts from $653,000 for the 1995 period as compared to $858,000 for the 1996
period which resulted from a change in fee structure on deposit accounts.
Other expenses increased $623,000, amounting to $6.6 million for the nine months
ended June 30, 1996, and $6.0 million for the nine months ended June 30, 1995.
Increases in operating expenses were primarily related to compensation and other
fringe benefits due to increased salaries accounted for by the addition of
several employees with branch purchases and to normal salary increases. Other
categories increased due to increased operating expenses from branch purchases
in 1995.
Earnings per share, using the weighted average method, were $3.36 for the 1996
period compared to $2.64 for the 1995 period.
The effective tax rate for the 1996 period was 36.2% as compared to 35% for the
1995 period.
Interest income for the three months ended June 30, 1996 amounted to $6.5
million as compared to $5.9 million for the three months ended June 30, 1995.
The increase in interest income is primarily attributable to an increase in the
yield on interest-earning assets. Interest expense amounted to $3.5 million for
the 1996 period as compared to $3.3 million for the 1995 period. The increase
was due to increasing interest rates.
Management makes provisions for loan losses in amounts sufficient to maintain
the Bank's allowance for loan losses at adequate amounts to provide for
estimated potential losses in the loan portfolio. Management provided $75,000
in the 1996 period as compared to $100,000 in the 1995 period.
Other income decreased to $480,000 for the 1996 period compared to $629,000 for
the 1995 period. In the 1995 period, the Bank had gains on the sale of several
vacant branch sites.
Other expenses remained stable during the comparative periods amounting to $2.3
million for the 1996 period as compared to $2.2 million for the 1995 period.
The effective tax rate for the 1996 period was 35.3% as compared to 35% for the
1995 period.
(9)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Liquidity
- ---------
The Bank's liquidity ratio as defined by the Office of Thrift Supervision
Regulations was 15% for June 30, 1996, which exceeded the 5% regulatory
requirements. The Bank does not know of any demands, commitments, events or
uncertainties that would have a materially adverse effect on its liquidity.
Customer deposits, loan principal repayments, loan sales and Federal Home Loan
Bank advances are the primary sources of the Bank's liquidity, and it is
anticipated that these will be adequate to meet the Bank's needs.
Capital Resources
- -----------------
The Bank does not presently have any material commitments for capital
expenditures.
Regulatory Capital Requirements
- -------------------------------
The following table sets forth the Bank's capital position relative to its
various minimum regulatory capital requirements at June 30, 1996.
<TABLE>
<CAPTION>
Percent of
Amount Assets (a)
----------- ------------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital $ 17,406 5.2%
Tangible Capital Requirement 4,985 1.5
----------- ------------
Excess $ 12,421 3.7%
=========== ============
Core Capital $ 18,299 5.5%
Core Capital Requirement 10,000 3.0
----------- ------------
Excess $ 8,299 2.5%
=========== ============
Total Capital (i.e., Core and
Supplementary Capital) $ 20,204 10.8%
Risk-Based Capital
Requirement 14,998 8.0
----------- ------------
Excess $ 5,206 2.8%
=========== ============
</TABLE>
(a) Percent of adjusted total assets for the purposes of the tangible and
core capital requirements and risk-weighted assets for the purpose of the risk-
based capital requirement.
(10)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
First Palmetto is not engaged in any legal proceedings of a material nature at
this time. From time to time it is party to legal proceedings in the ordinary
course of business wherein it enforces its security interest.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 4. Other Materially Important Events
---------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
(11)
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
First Palmetto Financial Corporation
------------------------------------
DATED: By:
--------------------- ---------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: By:
--------------------- ---------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
(12)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 10,540,000
<INT-BEARING-DEPOSITS> 2,484,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 962,000
<INVESTMENTS-CARRYING> 84,012,000
<INVESTMENTS-MARKET> 83,985,407
<LOANS> 222,315,000
<ALLOWANCE> 1,982,388
<TOTAL-ASSETS> 334,854,000
<DEPOSITS> 279,378,000
<SHORT-TERM> 32,550,000
<LIABILITIES-OTHER> 1,311,000
<LONG-TERM> 0
0
0
<COMMON> 7,000
<OTHER-SE> 21,608,000
<TOTAL-LIABILITIES-AND-EQUITY> 334,854,000
<INTEREST-LOAN> 14,406,000
<INTEREST-INVEST> 2,604,000
<INTEREST-OTHER> 2,378,000
<INTEREST-TOTAL> 19,388,000
<INTEREST-DEPOSIT> 9,231,000
<INTEREST-EXPENSE> 10,633,000
<INTEREST-INCOME-NET> 8,755,000
<LOAN-LOSSES> 295,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,574,000
<INCOME-PRETAX> 3,650,000
<INCOME-PRE-EXTRAORDINARY> 2,329,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,329,000
<EPS-PRIMARY> 3.36
<EPS-DILUTED> 3.36
<YIELD-ACTUAL> 3.83
<LOANS-NON> 1,019,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,800,000
<CHARGE-OFFS> 169,000
<RECOVERIES> 56,000
<ALLOWANCE-CLOSE> 1,982,000
<ALLOWANCE-DOMESTIC> 1,982,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
