<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
March 31, 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 May 9, 1997 693,010.
-------
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------- ----
<S> <C>
Consolidated Statement of Financial Condition as of
March 31, 1997 and September 30, 1996 1
Consolidated Statement of Income for the Three Months
Ended March 31, 1997 and 1996 and the Six Months Ended
March 31, 1997 and 1996 2
Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 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
- ----------
</TABLE>
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ -----------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 7,216 $ 8,867
Interest-bearing deposits in other banks 16,742 13,649
Certificates of deposit in other banks 399 399
Available-for-sale securities (cost of $422 and
$595 at March 31, 1997 and at September
30, 1996, respectively) 663 997
Investment securities (market value of $47,014
and $47,096 at March 31, 1997 and September
30, 1996, respectively) 46,850 46,607
Mortgage-backed securities held for investment (market
value of $32,068 and $32,788 at March 31, 1997
and September 30, 1996, respectively) 32,374 33,010
Loans, net of allowance for loan losses of $2,606
and $2,364 at March 31, 1997 and September 30,
1996, respectively 239,138 227,209
Accrued interest receivable 2,607 2,380
Real estate acquired in settlement of loans 164 480
Stock in Federal Home Loan Bank ("FHLB") 2,030 2,122
Premises and equipment 5,431 5,117
Intangible assets 2,270 2,623
Prepaid expenses and other assets 910 1,087
-------- --------
Total assets $356,794 $344,547
======== ========
<CAPTION>
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $304,084 $288,157
FHLB advances 28,050 32,550
Accrued expenses and other liabilities 2,872 3,632
-------- --------
Total liabilities 335,006 324,339
-------- --------
<CAPTION>
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 March 31,
1997 and September 30, 1996 7 7
Additional paid-in capital 6,080 6,080
Retained earnings, substantially restricted 16,165 14,474
Unrealized gain on available-for-sale securities 161 272
Treasury stock, at cost (40,004 shares at March 31,
1997 and September 30, 1996) (625) (625)
-------- --------
Total stockholders' equity 21,788 20,208
-------- --------
Total liabilities and stockholders' equity $356,794 $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 Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1997 1997 1997
----------- ----------- ---------- ----------
(In thousands, except per share and number of shares data)
<S> <C> <C> <C> <C>
Interest income $ 5,246 $ 4,832 $ 10,426 $ 9,496
Loans 787 871 1,588 1,769
Investments securities 540 627 1,084 1,280
Mortgage-backed securities 198 191 419 333
Other
-------- -------- -------- --------
Total interest income 6,771 6,521 13,517 12,878
-------- -------- -------- --------
Interest expense
Deposits 3,231 3,097 6,433 6,216
FHLB advances 402 488 850 937
-------- -------- -------- --------
Total interest expense 3,633 3,585 7,283 7,153
-------- -------- -------- --------
Net interest income 3,138 2,936 6,234 5,725
Provision for loan losses 365 145 490 220
-------- -------- -------- --------
Net interest income after
provision for loan losses 2,773 2,791 5,744 5,505
-------- -------- -------- --------
Other income
Service charges 292 284 579 575
Loan servicing 123 121 239 248
Gain on sale of loans 37 28 70 60
Gain on sale of
available-for-sale securities 254 - 254 -
Miscellaneous 87 343 387 401
-------- -------- -------- --------
793 776 1,529 1,284
Total other income -------- -------- -------- --------
Other expense
Compensation and fringe benefits 986 933 1,954 1,847
Net occupancy 247 241 502 466
Data processing fees 170 204 399 433
Amortization of tangible assets 121 143 353 285
Federal and other insurance premiums 52 136 208 249
Telephone, postage, and supplies 152 112 277 242
Miscellaneous 510 338 911 670
-------- -------- -------- --------
Total other expense 2,238 2,107 4,604 4,192
-------- -------- -------- --------
Income before income taxes 1,328 1,460 2,669 2,597
Income taxes 468 514 978 914
-------- -------- -------- --------
NET INCOME $ 860 $ 946 $ 1,691 $ 1,683
======== ======== ======== ========
EARNINGS PER SHARE $ 1.24 $ 1.37 $ 2.44 $ 2.43
======== ======== ======== ========
Weighted average number of shares 693,010 693,014 693,010 693,014
======== ======== ======== ========
</TABLE>
See notes to Consolidated Financial Statements
(2)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,691 $ 1,683
Adjustments to reconcile net income to net
cash provided by operating activities
Gain on sale of available-for-sale securities (254) -
Accretion and amortization of investment
discounts and premiums (net) (128) (111)
Decrease in deferred loan fees (net) (11) (16)
Provision for loan losses 490 220
Gain on sale of loans (70) (60)
Gain on sale of real estate
acquired in settlement of loans (38) (75)
Depreciation 204 169
Amortization of intangible assets 353 285
Proceeds from sale of loans 4,222 10,107
Originations and principal repayments of
loans held for sale (net) (4,152) (10,047)
Increase in accrued interest receivable (228) (188)
(Increase) decrease in prepaid expenses and other
assets 235 (10)
Decrease in accrued expenses and other liabilities (760) (957)
---------- ----------
Net cash provided by operating activities 1,554 1,000
---------- ----------
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 426 -
Proceeds from maturities of investment securities 6,000 6,000
Purchases of investment securities (6,124) -
Purchases of mortgage-backed securities (1,568) -
Principal repayments on mortgage-backed
securities 2,204 3,408
Net increase in loans (12,482) (15,905)
Decrease in FHLB stock 93 -
Proceeds from sale of real estate acquired
in settlement of loans 428 883
Capital expenditures for premises and equipment (515) (1,121)
---------- ----------
Net cash used in investing activities (11,538) (6,735)
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
(3)
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 15,926 13,078
Proceeds from FHLB advances - 11,000
Repayment of FHLB advances (4,500) (9,200)
Purchase of common stock - (4)
---------- ----------
Net cash provided by financing activities 11,426 14,874
---------- ----------
Net increase in cash and cash equivalents 1,442 9,139
Cash and cash equivalents at beginning of the
period 22,516 12,979
---------- ----------
Cash and cash equivalents at end of the period $ 23,958 $ 22,118
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 7,229 $ 7,158
========== ==========
Income taxes $ 607 $ 832
========== ==========
Supplemental schedule of noncash operating, investing
and financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 74 $ -0-
========== ==========
Decrease in unrealized gain on available for
sale securities $ 73 $ 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 March 31, 1997 amounted to $356.8 million as compared to $344.5
million at September 30, 1996, a increase of $12.3 million or 3.6%.
Loans receivable increased by $11.9 million or 5.2% from $227.2 million to
$239.1 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>
March 31, September 30,
1997 1996
--------- -------------
(In thousands)
<S> <C> <C>
Real Estate
Mortgage $199,810 $185,198
Construction 5,275 8,695
Consumer 27,892 27,847
Commercial business 13,149 12,578
Less:
Undisbursed loan proceeds 4,109 4,461
Deferred loan fees 273 284
Allowance for loan losses 2,606 2,364
-------- --------
Total $239,138 $227,209
======== ========
</TABLE>
As of March 31, 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 March 31, 1997 and September 30,
1996, the Bank had non-accrual loans in the amount of $1,664,000 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 $111,000 and $95,000 at March 31, 1997 and September
30, 1996, respectively. Interest income recognized on non-accrual loans
amounted to $35,000 and $52,000 for the periods ended March 31, 1997 and
September 30, 1996, respectively.
There were no loans which were not classified as non-accrual or restructured at
March 31, 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 $15.9 million or 5.5% during the six month period to
$304.1 million at March 31, 1997 from $288.2 million at September 30, 1996.
FHLB advances decreased to $28.0 million at March 31, 1997, from $32.5 million
at September 30, 1996.
Stockholders' Equity increased by $1.6 million which equaled net income for the
period of $1.7 million less a decrease in unrealized gain on available for sale
investments of $111,000. Book value per share at March 31, 1997, was $31.44 as
compared to $29.16 at September 30, 1996.
Results of Operations
- ---------------------
Interest income for the six months ended March 31, 1997, amounted to $13.5
million as compared to $12.9 million for the six months ended March 31, 1996.
The increase in interest income equaled $639,000 or 5.0%. The primary reason
was an increase in interest-earning assets. Interest expense for the six months
ended March 31, 1997, amounted to $7.3 million as compared to $7.2 million for
the comparative six month period of 1996. The increase in interest expense
equaled $130,000 or 1.8%. Interest on deposits increased by $217,000 or 3.5%
due to an increase in interest-bearing liabilities. Interest on FHLB advances
for the 1997 period was $850,000 as compared to $937,000 for the 1996 period.
Net interest income for the 1997 period was $6.2 million as compared to $5.7
million for the 1996 period. The increase of $509,000 equaled 8.9%.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended Year Ended
March 31, March 31, 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 27 260 63
Consumer 68 83 220
Commercial 19 12 284
---------- ---------- -------------
Total charge-offs 114 355 567
---------- ---------- -------------
Recoveries 40 107 246
---------- ---------- -------------
Provision for loan losses 220 490 885
---------- ---------- -------------
Balance at end of period $ 1,946 $ 2,606 $ 2,364
========== ========== =============
Ratio of net charge-offs to
average loans outstanding
during the period .04% .11% .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 $245,000, equaling
$1.5 million for the 1997 period and $1.3 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 $412,000, amounting to $4.6 million for the six months
ended March 31, 1997, and $4.2 million for the six months ended March 31, 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.
Earnings per share, using the weighted average method, were $2.44 for the 1997
period compared to $2.43 for the 1996 period.
The effective tax rate for the 1997 period was 36.6% as compared to 35.2% for
the 1996 period.
Interest income for the three months ended March 31, 1997 amounted to $6.8
million as compared to $6.5 million for the three months ended March 31, 1996.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $3.6 million
for the 1997 period as compared to $3.6 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 $365,000
in the 1997 period as compared to $145,000 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 $793,000 for the 1997 period compared to $776,000 for
the 1996 period. In the 1997 period, the Bank realized a gain on the sale of
available-for-sale securities in the amount of $254,000. The 1996 increase was
attributable to the deposit premium received from the sale of a branch in the
1996 period.
Other expenses remained stable during the comparative periods amounting to $2.2
million for the 1997 period as compared to $2.1 million for the 1996 period.
The effective tax rate for the 1997 period was 35.2% as compared to 35.2% 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% for March 31, 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 March 31, 1997.
<TABLE>
<CAPTION>
Percent of
Amount Assets (a)
--------- ----------
<S> <C> <C>
(Dollars in thousands)
Tangible Capital $18,105 5.1%
Tangible Capital Requirement 5,309 1.5
--------- ----------
Excess $12,796 3.6%
========= ==========
Core Capital $18,864 5.3%
Core Capital Requirement 10,646 3.0
--------- ----------
Excess $ 8,218 2.3%
========= ==========
Total Capital (i.e., Core and
Supplementary Capital) $21,424 10.5%
Risk-Based Capital Requirement 16,376 8.0
--------- ----------
Excess $ 5,048 2.5%
========= ==========
</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
---------------------------------------------------
Not applicable
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: 5/12/97 By: /s/ Samuel R. Small
------------------- ----------------------
Samuel R. Small
President and Chief Executive
Officer
DATED: 5/12/97 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,216
<INT-BEARING-DEPOSITS> 16,742
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 663
<INVESTMENTS-CARRYING> 79,224
<INVESTMENTS-MARKET> 79,082
<LOANS> 239,138
<ALLOWANCE> 2,606
<TOTAL-ASSETS> 356,794
<DEPOSITS> 304,084
<SHORT-TERM> 28,050
<LIABILITIES-OTHER> 2,872
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 21,781
<TOTAL-LIABILITIES-AND-EQUITY> 356,794
<INTEREST-LOAN> 10,426
<INTEREST-INVEST> 2,672
<INTEREST-OTHER> 419
<INTEREST-TOTAL> 13,517
<INTEREST-DEPOSIT> 6,433
<INTEREST-EXPENSE> 7,283
<INTEREST-INCOME-NET> 6,234
<LOAN-LOSSES> 490
<SECURITIES-GAINS> 254
<EXPENSE-OTHER> 4,604
<INCOME-PRETAX> 2,669
<INCOME-PRE-EXTRAORDINARY> 2,669
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,691
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.44
<YIELD-ACTUAL> 3.69
<LOANS-NON> 1,664
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,364
<CHARGE-OFFS> 355
<RECOVERIES> 107
<ALLOWANCE-CLOSE> 2,606
<ALLOWANCE-DOMESTIC> 2,606
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
