<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 Federal Home Loan Bank
June 30, 1997 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 11, 1997 693,010.
-------
<PAGE>
INDEX
-----
Part I - Financial Information Page
- ------- ----
Consolidated Statement of Financial Condition as of
June 30, 1997 and September 30, 1996 1
Consolidated Statement of Income for the Three Months
Ended June 30, 1997 and 1996 and the Nine Months Ended
June 30, 1997 and 1996 2
Consolidated Statement of Cash Flows for the
Nine Months Ended June 30, 1997 and 1996 3-4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Part II- Other Information 10
- -------
Signatures 11
- ----------
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------------- --------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,776 $ 8,867
Interest-bearing deposits in other banks 7,972 13,649
Certificates of deposit in other banks 399 399
Available-for-sale securities (cost of $422 and
$595 at June 30, 1997 and at September 30,
1996, respectively) 780 997
Investment securities (market value of $47,257
and $47,096 at June 30, 1997 and September
30, 1996, respectively) 46,891 46,607
Mortgage-backed securities held for investment (market
value of $30,686 and $32,788 at June 30, 1997
and September 30, 1996, respectively) 30,586 33,010
Loans, net of allowance for loan losses of $2,787
and $2,364 at June 30, 1997 and September 30,
1996, respectively 248,713 227,209
Accrued interest receivable 2,511 2,380
Real estate acquired in settlement of loans 331 480
Stock in Federal Home Loan Bank ("FHLB") 2,030 2,122
Premises and equipment 5,468 5,117
Intangible assets 2,149 2,623
Prepaid expenses and other assets 787 1,087
-------- --------
Total assets $355,393 $344,547
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $309,069 $288,157
FHLB advances 21,233 32,550
Accrued expenses and other liabilities 2,377 3,632
-------- --------
Total liabilities 332,679 324,339
-------- --------
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,
1997 and September 30, 1996 7 7
Additional paid-in capital 6,080 6,080
Retained earnings, substantially restricted 17,022 14,474
Unrealized gain on available-for-sale securities 230 272
Treasury stock, at cost (40,004 shares at June 30,
1997 and September 30, 1996) (625) (625)
-------- --------
Total stockholders' equity 22,714 20,208
-------- --------
Total liabilities and stockholders' equity $355,393 $344,547
======== ========
</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,
1997 1996 1997 1996
-------------- -------------- ------------ ------------
(In thousands, except per share and number of shares data)
<S> <C> <C> <C> <C>
Interest income
Loans $ 5,476 $ 4,910 $ 15,902 $ 14,406
Investments securities 815 835 2,403 2,604
Mortgage-backed securities 531 591 1,615 1,871
Other 229 174 648 507
-------- -------- -------- --------
Total interest income 7,051 6,510 20,568 19,388
-------- -------- -------- --------
Interest expense
Deposits 3,377 3,015 9,810 9,231
FHLB advances 357 465 1,207 1,402
-------- -------- -------- --------
Total interest expense 3,734 3,480 11,017 10,633
-------- -------- -------- --------
Net interest income 3,317 3,030 9,551 8,755
Provision for loan losses 225 75 715 295
-------- -------- -------- --------
Net interest income after
provision for loan losses 3,092 2,955 8,836 8,460
-------- -------- -------- --------
Other income
Service charges 296 283 875 858
Loan servicing 127 143 366 391
Gain on sale of loans 62 22 132 82
Gain on sale of available-for-sale securities - - 254 -
Miscellaneous 42 32 429 433
-------- -------- -------- --------
Total other income 527 480 2,056 1,764
-------- -------- -------- --------
Other expense
Compensation and fringe benefits 1,032 936 2,986 2,783
Net occupancy 406 254 908 720
Data processing fees 195 178 594 611
Amortization of tangible assets 122 242 475 527
Telephone, postage, and supplies 151 166 428 408
Federal and other insurance premiums 76 140 284 389
Miscellaneous 271 366 1,182 1,136
-------- -------- -------- --------
Total other expense 2,253 2,282 6,857 6,574
-------- -------- -------- --------
Income before income taxes 1,366 1,153 4,035 3,650
Income taxes 509 407 1,487 1,321
-------- -------- -------- --------
NET INCOME $ 857 $ 746 $ 2,548 $ 2,329
======== ======== ======== ========
EARNINGS PER SHARE $ 1.24 $ 1.08 $ 3.68 $ 3.36
======== ======== ======== ========
Weighted average number of shares 693,010 693,010 693,010 693,013
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
(2)
<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,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,548 $ 2,329
Adjustments to reconcile net income to net
cash provided by operating activities
Decrease in deferred loan fees (net) (6) 15
Accretion and amortization of investment discounts and
premiums (net) (193) (166)
Provision for loan losses 715 295
Gain on sale of loans (133) (82)
Gain on sale of available-for-sale securities (254) -
Gain on sale of real estate acquired in settlement of loans (29) (75)
Depreciation 402 263
Amortization of intangible assets 475 527
Proceeds from sale of loans 7,586 13,582
Originations and principal repayments of loans held for sale (net) (7,453) (13,500)
Increase in accrued interest receivable (131) (213)
(Increase) decrease in prepaid expenses and other assets 295 (275)
Decrease in accrued expenses and other liabilities (1,240) (1,792)
-------- --------
Net cash provided by operating activities 2,582 908
-------- --------
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 426 -
Proceeds from maturities of investment securities 10,000 9,000
Purchases of investment securities (10,105) (1,000)
Purchases of mortgage-backed securities (1,550) -
Principal repayments on mortgage-backed securities 3,974 4,952
Net increase in loans (22,536) (23,969)
Decrease in FHLB stock 93 -
Proceeds from sale of real estate acquired in settlement of loans 501 317
Capital expenditures for premises and equipment (748) (1,408)
-------- --------
Net cash used in investing activities (19,945) (12,108)
-------- --------
</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,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 20,912 12,065
Proceeds from FHLB advances - 11,000
Repayment of FHLB advances (11,317) (11,817)
Purchase of common stock - (4)
-------- --------
Net cash provided by financing activities 9,595 11,244
-------- --------
Net increase (decrease) in cash and cash equivalents (7,768) 44
Cash and cash equivalents at beginning of the period 22,516 12,979
-------- --------
Cash and cash equivalents at end of the period $ 14,748 $ 13,023
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 11,048 $ 10,610
======== ========
Income taxes $ 1,620 $ 1,330
======== ========
Supplemental schedule of noncash operating, investing
and financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 323 $ 283
======== ========
Decrease in unrealized gain on available for
sale securities $ 28 $ 78
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
(4)
<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.
(5)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Management's Discussion and Analysis of Financial Conditions and Results of
- ---------------------------------------------------------------------------
Operations
- ----------
Financial Condition
- -------------------
Total Assets at June 30, 1997 amounted to $355.4 million as compared to $344.5
million at September 30, 1996, a increase of $10.9 million or 3.2%.
Loans receivable increased by $21.5 million or 9.5% from $227.2 million to
$248.7 million. This increase in loans is primarily attributable to increased
real estate mortgage 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,
1997 1996
--------- --------------
(In thousands)
<S> <C> <C>
Real Estate
Mortgage $207,863 $185,198
Construction 6,077 8,695
Consumer 28,417 27,847
Commercial business 13,079 12,578
Less:
Undisbursed loan proceeds (3,658) (4,461)
Deferred loan fees (278) (284)
Allowance for loan losses (2,787) (2,364)
-------- --------
Total $248,713 $227,209
======== ========
</TABLE>
As of June 30, 1997 and September 30, 1996, 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, 1997 and September 30, 1996,
the Bank had non-accrual loans in the amount of $1,312,000 and $984,000,
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 $96,000 and $95,000 at June 30, 1997 and September
30, 1996, respectively. Interest income recognized on non-accrual loans
amounted to $41,000 and $52,000 for the periods ended June 30, 1997 and
September 30, 1996, respectively.
There were no loans which were not classified as non-accrual or restructured at
June 30, 1997 or September 30, 1996 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.
(6)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Deposits increased by $20.9 million or 7.3% during the nine month period to
$309.1 million at June 30, 1997 from $288.2 million at September 30, 1996.
FHLB advances decreased to $21.2 million at June 30, 1997, from $32.5 million at
September 30, 1996.
Stockholders' Equity increased by $2.5 million which equaled net income for the
period of $2.5 million less a decrease in unrealized gain on available for sale
investments of $42,000. Book value per share at June 30, 1997, was $32.76 as
compared to $29.16 at September 30, 1996.
Results of Operations
- ---------------------
Interest income for the nine months ended June 30, 1997, amounted to $20.6
million as compared to $19.4 million for the nine months ended June 30, 1996.
The increase in interest income equaled $1.2 million or 6.1%. The primary
reason was an increase in interest-earning assets. Interest expense for the
nine months ended June 30, 1997, amounted to $11.0 million as compared to $10.6
million for the comparative nine month period of 1996. The increase in interest
expense equaled $384,000 or 3.6%. Interest on deposits increased by $579,000 or
6.3% due to an increase in interest-bearing liabilities. Interest on FHLB
advances for the 1997 period was $1.2 million as compared to $1.4 million for
the 1996 period. Net interest income for the 1997 period was $9.6 million as
compared to $8.8 million for the 1996 period. The increase of $796,000 equaled
9.1%.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended Year Ended
June 30, June 30, September 30,
1996 1997 1996
----------- ----------- -------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $1,800 $2,364 $1,800
------ ------ ------
Loans charged off:
Real estate 27 273 63
Consumer 123 128 220
Commercial 19 12 284
------ ------ ------
Total charge-offs 169 413 567
------ ------ ------
Recoveries 56 121 246
------ ------ ------
Provision for loan losses 295 715 885
------ ------ ------
Balance at end of period $1,982 $2,787 $2,364
====== ====== ======
Ratio of net charge-offs to
average loans outstanding
during the period .05% .12% .15%
====== ====== ======
</TABLE>
(7)
<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 $292,000, equaling
$2.1 million for the 1997 period and $1.8 million for the 1996 period. The
primary reason for the increase was a gain of $254,000 in the 1997 period as a
result of the sale of available-for-sale securities.
Other expenses increased $283,000, amounting to $6.9 million for the nine months
ended June 30, 1997, and $6.6 million for the nine months ended June 30, 1996.
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 openings and to normal salary increases. Other
categories increased due to increased operating expenses from branch openings in
1996 and 1997.
Earnings per share, using the weighted average method, were $3.68 for the 1997
period compared to $3.36 for the 1996 period.
The effective tax rate for the 1997 period was 36.8% as compared to 36.2% for
the 1996 period.
Interest income for the three months ended June 30, 1997 amounted to $7.1
million as compared to $6.5 million for the three months ended June 30, 1996.
The increase in interest income is primarily attributable to a increase in the
volume of interest-earning assets for the 1997 period. Interest expense
amounted to $3.7 million for the 1997 period as compared to $3.5 million for the
1996 period.
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 $225,000
in the 1997 period as compared to $75,000 in the 1996 period. During the 1997
period, the Bank experienced several large loan losses which were provided for
in this period.
Other income increased to $527,000 for the 1997 period compared to $480,000 for
the 1996 period.
Other expenses remained stable during the comparative periods amounting to $2.3
million for the 1997 period as compared to $2.3 million for the 1996 period.
The effective tax rate for the 1997 period was 37.3% as compared to 35.3% for
the 1996 period.
(8)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Liquidity
- ---------
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was 13.6% for June 30, 1997, 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, 1997.
<TABLE>
<CAPTION>
Percent of
Amount Assets (a)
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital $19,088 5.4%
Tangible Capital Requirement 5,292 1.5
------- ----
Excess $13,796 3.9%
======= ====
Core Capital $19,802 5.6%
Core Capital Requirement 10,611 3.0
------- ----
Excess $ 9,191 2.6%
======= ====
Total Capital (i.e., Core and
Supplementary Capital) $22,494 10.4%
Risk-Based Capital Requirement 17,222 8.0
------- ----
Excess $ 5,272 2.4%
======= ====
</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.
(9)
<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
---------------------------------------------------
Items as described in First Palmetto Financial Corporation's Proxy Statement
pertaining to the annual meeting held on April 14, 1997 were passed as
recommended by the Board of Directors of the Corporation. These items
concerned election of directors.
Item 5. Other Materially Important Events
---------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
(10)
<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: 8/12/97 By: /s/ Samuel R. Small
---------------------- -------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 8/12/97 By: /s/ Steve G. Williams, Jr.
---------------------- -------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 6,776
<INT-BEARING-DEPOSITS> 7,972
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 780
<INVESTMENTS-CARRYING> 46,891
<INVESTMENTS-MARKET> 47,257
<LOANS> 248,713
<ALLOWANCE> 2,787
<TOTAL-ASSETS> 355,393
<DEPOSITS> 309,069
<SHORT-TERM> 21,233
<LIABILITIES-OTHER> 2,377
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 22,707
<TOTAL-LIABILITIES-AND-EQUITY> 355,393
<INTEREST-LOAN> 15,902
<INTEREST-INVEST> 4,018
<INTEREST-OTHER> 648
<INTEREST-TOTAL> 20,568
<INTEREST-DEPOSIT> 9,810
<INTEREST-EXPENSE> 11,017
<INTEREST-INCOME-NET> 9,551
<LOAN-LOSSES> 715
<SECURITIES-GAINS> 254
<EXPENSE-OTHER> 6,857
<INCOME-PRETAX> 4,035
<INCOME-PRE-EXTRAORDINARY> 2,548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,548
<EPS-PRIMARY> 3.68
<EPS-DILUTED> 3.68
<YIELD-ACTUAL> 3.7
<LOANS-NON> 1,312
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,364
<CHARGE-OFFS> 413
<RECOVERIES> 121
<ALLOWANCE-CLOSE> 2,787
<ALLOWANCE-DOMESTIC> 2,787
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
