<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
December 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
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(2) Yes X No
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Number of shares of common stock outstanding as of February 8, 1998 708,010.
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<PAGE>
INDEX
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Part I - Financial Information Page
- ------ ----
Consolidated Statement of Financial Condition as of
December 31, 1997 and September 30, 1997 1
Consolidated Statement of Income for the Three Months
Ended December 31, 1997 and 1996 2
Consolidated Statement of Cash Flows for the
Three Months Ended December 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
Part II - Other Information 8
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Signatures 9
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<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- -------------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 6,259 $ 6,721
Interest-bearing deposits in other banks 18,268 18,085
Certificates of deposit in other banks 199 399
Available-for-sale securities (cost of $250 and $422 at
December 31, 1997 and September 30, 1997, respectively) 400 907
Investment securities (market value of $53,445 and $48,430 at
December 31, 1997 and September 30, 1997, respectively) 52,966 47,918
Mortgage-backed securities held for investment (market value of
$31,275 and $32,693 at December 31, 1997 and September 30, 1997,
respectively) 30,848 32,367
Loans, net of allowance for loan losses of $3,441 and $3,009 at
December 31, 1997 and September 30, 1997, respectively 244,939 252,336
Accrued interest receivable 2,898 2,726
Real estate acquired in settlement of loans 533 332
Stock in Federal Home Loan Bank (FHLB) 2,030 2,030
Premises and equipment 5,971 6,071
Intangible assets 1,195 2,044
Prepaid expenses and other assets 1,143 1,012
------------- -------------
Total assets $ 367,649 $ 372,948
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 316,229 $ 320,769
FHLB advances 24,733 27,233
Accrued expenses and other liabilities 2,650 2,091
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Total liabilities 343,612 350,093
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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,
748,014 shares issued at December 31, 1997 and
September 30, 1997 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 17,880 16,488
Unrealized gain on available-for-sale securities 95 305
Treasury stock, at cost (40,004 shares at
December 31, 1997 and September 30, 1997) (625) (625)
------------- -------------
Total stockholders' equity 24,037 22,855
------------- -------------
Commitments
Total liabilities and stockholders' equity $367,649 $372,948
============= =============
</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
Ended Ended
December 31, December 31,
1997 1996
------------ ------------
(In thousands, except per share
and number of shares data)
<S> <C> <C>
Interest income:
Loans $ 5,680 $ 5,180
Investment securities 867 801
Mortgage-backed securities 533 544
Other 314 221
------------ ------------
Total interest income 7,394 6,746
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Interest expense:
Deposits 3,665 3,202
FHLB advances 391 448
------------ ------------
Total interest expense 4,056 3,650
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Net interest income 3,338 3,096
Provision for loan losses 671 125
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Net interest income after provision for loan losses 2,667 2,971
------------ ------------
Other income:
Service charges 336 287
Loan servicing 147 116
Gain on sale of investments 485 -
Gain on sales of loans 35 33
Miscellaneous 871 300
------------ ------------
Total other income 1,874 736
------------ ------------
Other expense:
Compensation and fringe benefits 1,057 968
Net occupancy 246 255
Data processing fees 169 229
Amortization of intangible assets 122 232
Federal and other insurance premiums 79 156
Telephone, postage, and supplies 130 125
Miscellaneous 563 401
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Total other expense 2,366 2,366
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Income before income taxes 2,175 1,341
Income taxes 783 510
------------ ------------
Net income $ 1,392 $ 831
============ ============
Earnings per share $ 1.97 $ 1.20
============ ============
Weighted average number of shares 708,010 693,010
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
------------ ------------
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 1,392 $ 831
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Decrease (increase) in deferred loan fees, net 12 (15)
Accretion and amortization of investment discounts and
premiums, net (51) (64)
Provision for loan losses 671 125
Gain on sale of available-for-sale investments (485) -
Gain on sale of loans - (33)
Gain from sale of branch site (784) -
Gain on sale of real estate acquired in loans (19) -
Depreciation 99 126
Amortization of intangible assets 121 232
Proceeds from sale of loans 3,907 2,053
Originations and principal repayments of loans held for sale,
net (3,872) (2,020)
Increase in accrued interest receivable (172) (181)
Decrease in prepaid expenses and other assets 17 261
Decrease in accrued expenses and other liabilities 683 (1,047)
------------ ------------
Net cash provided by operating activities 1,519 268
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit 200 -
Proceeds from sale of available-for-sale securities 907 -
Purchase of available-for-sale securities (250) -
Proceeds from maturities of investment securities 4,000 3,000
Purchases of investment securities (8,997) (4,086)
Principal repayments on mortgage-backed securities 1,519 1,135
Net increase in loans (2,163) (7,491)
Proceeds from sale of real estate acquired in settlement of
loans 226 190
Purchases of real estate held for sale (152) -
Proceeds from sale of premises and equipment 83 -
Capital expenditures for premises and equipment (106) (176)
Sale of branch (5,547) -
------------ ------------
Net cash used in investing activities (10,280) (7,428)
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Cash flows from financing activities:
Net increase in deposits 10,982 508
Repayments of FHLB advances (2,500) (2,500)
------------ ------------
Net cash provided by (used in) financing activities 8,482 (1,992)
------------ ------------
Net decrease in cash and cash equivalents (279) (9,152)
Cash and cash equivalents at beginning of year 24,806 22,516
------------ ------------
Cash and cash equivalents at end of year $ 24,527 $ 13,364
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,115 $ 3,564
============ ============
Income taxes $ 533 $ 36
============ ============
Supplemental schedule of noncash investing and financing activities:
Decrease in unrealized gain on available-for-sale securities $ 211 $ -
============ ============
Loans transferred to real estate acquired in settlement of loans $ 408 $ -
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<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.
4
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
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Financial Condition
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Total assets decreased to $367.6 million at December 31, 1997 as compared to
$372.9 million at September 30, 1997. During the quarter ended December 31,
1997, the Bank sold its Beaufort branch. The following summarizes the fair value
of assets sold, liabilities transferred and cash paid in the transaction:
(In thousands)
Liabilities Transferred
Deposits $ 15,510
Other 11
-------------
15,521
Assets Sold
Loans 8,435
Other 27
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8,462
Deposit Base Premium 1,512
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Net Cash Paid $ 5,547
=============
Loans receivable decreased by $7.4 million from $252.3 million to $244.9
million. This decrease in loans is primarily attributable to the branch sale.
The following table sets forth selected data relating to the composition of
First Palmetto's loan portfolio at the dates indicated.
December 31, September 30,
1997 1997
------------ -------------
(In thousands)
Real Estate
Mortgage $ 206,624 $ 207,391
Construction 4,834 8,462
Consumer 27,414 29,131
Commercial business 12,987 13,525
Less:
Undisbursed loan proceeds 3,194 2,891
Deferred loan fees 285 273
Allowance for loan losses 3,441 3,009
------------ -------------
Total $ 244,939 $ 252,336
============ =============
As of December 31, 1997, and September 30, 1997, there were no concentrations of
loans in any types of industry which exceeded 10% of First Palmetto'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 December 31, 1997 and September 30,
1997, the Bank had non-accrual loans in the amount of $843,000 and $981,000,
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 $60,000 and $60,274 at December 31, 1997 and
September 30, 1997, respectively. Interest income recognized on non-accrual
loans amounted to $4,000 and $37,792 for the periods ended December 31, 1997 and
September 30, 1997, respectively.
5
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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There were no loans which were not classified as non-accrual or restructured at
December 31, 1997 or September 30, 1997 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.
Deposits decreased to $316.2 million at December 31, 1997 from $320.8 million at
September 30, 1997. The decrease was primarily as a result of the sale of
branch deposits in the amount of approximately $15.5 million. Excluding the
sale of branch deposits, the Bank's deposits increased $10.9 million.
Federal Home Loan Bank advances decreased to $24.7 million at December 31, 1997,
from $27.2 million at September 30, 1997.
Stockholders' Equity increased by $1.2 million which equaled net income for the
period of $1.4 million plus a decrease in unrealized gain on available-for-sale
investments of $210,000. Book value per share at December 31, 1997, was $33.95
as compared to $32.28 at September 30, 1997.
Results of Operations
- ---------------------
Interest income for the three months ended December 31, 1997, amounted to $7.4
million as compared to $6.7 million for the three months ended December 31,
1996. The increase in interest income equaled $648,000 or 9.61%. The primary
reason for the increase was the Bank's interest-earning portfolio changed in the
comparative periods so that more of the Bank's assets were in the higher
interest-earning categories. Interest expense for the three months ended
December 31, 1997, amounted to $4.1 million as compared to $3.6 million for the
comparative three month period of 1996. Net interest income for the 1997 period
was $3.3 million as compared to $3.1 million for the 1996 period. The increase
of $242,000 equaled 7.8%.
The following table sets forth an analysis of First Palmetto's allowance for
loan losses for the period indicated.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended
December 31, December 31, September 30,
1996 1997 1997
------------ ------------ -------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 2,364 $ 3,009 $ 2,364
------------ ------------ -------------
Loans charged off:
Real estate - - 272
Consumer 42 99 182
Commercial - 355 463
------------ ------------ -------------
Total charge-offs 42 454 917
------------ ------------ -------------
Recoveries 19 215 134
------------ ------------ -------------
Provision for loan losses 125 671 1,428
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Balance at end of period $ 2,466 $ 3,441 $ 3,009
============ ============ =============
Ratio of net charge-offs to average
loans outstanding during the period .010% .38% .33%
============ ============ =============
</TABLE>
Management of First Palmetto 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, history of
charge-offs, 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.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Other income for the two comparative periods increased by $1.1 million totaling
$1.9 million for the 1997 period and $736,000 for the 1996 period. The primary
reason for the increase was the gain on a sale of a branch office in the three
month period ended December 31, 1997 in the amount of $784,000 and the gain on
the sale of an available-for-sale investments in the amount of $485,000.
Other expenses remained stable amounting to $2.4 million for the three months
ended December 31, 1997 and December 31, 1996.
Earnings per share, using the weighted average method, were $1.97 for the 1997
period compared to $1.20 for the 1996 period.
The effective tax rate for the 1997 period was 36% as compared to 38% for the
1996 period.
Liquidity
- ---------
First Palmetto's liquidity ratio as defined by the Federal Home Loan Bank
Regulations was 14% for December 31, 1997 which exceeded the 4% regulatory
requirements. First Palmetto 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 First Palmetto's liquidity, and it is
anticipated that these will be adequate to meet First Palmetto's needs.
Capital Resources
- -----------------
First Palmetto 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 December 31, 1997.
<TABLE>
<CAPTION>
Percent of
Amount Assets (a)
--------- ----------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital $ 21,007 5.7%
Tangible Capital Requirement 5,498 1.5
--------- ----------
Excess $ 15,509 4.2%
========= ==========
Core Capital $ 21,632 5.9%
Core Capital Requirement 11,015 3.0
--------- ----------
Excess $ 10,617 2.9%
========= ==========
Total Capital (i.e., Core and Supplementary Capital) $ 24,207 11.7%
Risk-Based Capital Requirement 16,482 8.0
--------- ----------
Excess $ 7,725 3.7%
========= ==========
</TABLE>
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.
7
<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
---------------------------------------------------
None
Item 5. Other Materially Important Events
---------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
8
<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: 2/12/98 By: /s/ Samuel R. Small
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Samuel R. Small
President and Chief Executive Officer
DATED: 2/12/98 By: /s/ Steve G. Williams, Jr.
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Steve G. Williams, Jr.
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,259
<INT-BEARING-DEPOSITS> 18,467
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 400
<INVESTMENTS-CARRYING> 83,814
<INVESTMENTS-MARKET> 84,720
<LOANS> 248,380
<ALLOWANCE> 3,441
<TOTAL-ASSETS> 367,649
<DEPOSITS> 316,229
<SHORT-TERM> 24,733
<LIABILITIES-OTHER> 2,650
<LONG-TERM> 7
0
0
<COMMON> 0
<OTHER-SE> 24,030
<TOTAL-LIABILITIES-AND-EQUITY> 367,649
<INTEREST-LOAN> 5,680
<INTEREST-INVEST> 1,400
<INTEREST-OTHER> 314
<INTEREST-TOTAL> 7,394
<INTEREST-DEPOSIT> 3,665
<INTEREST-EXPENSE> 4,056
<INTEREST-INCOME-NET> 3,338
<LOAN-LOSSES> 671
<SECURITIES-GAINS> 485
<EXPENSE-OTHER> 2,366
<INCOME-PRETAX> 2,175
<INCOME-PRE-EXTRAORDINARY> 2,175
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,392
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
<YIELD-ACTUAL> 3.8
<LOANS-NON> 843
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,009
<CHARGE-OFFS> 454
<RECOVERIES> 215
<ALLOWANCE-CLOSE> 3,441
<ALLOWANCE-DOMESTIC> 3,441
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
