<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, 1998 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 July 16, 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
June 30, 1998 and September 30, 1997 1
Consolidated Statement of Income for the Three Months
Ended June 30, 1998 and 1997 and the Nine Months Ended
June 30, 1998 and 1997 2
Consolidated Statement of Cash Flows for the
Nine Months Ended June 30, 1998 and 1997 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
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Signatures 11
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<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
June 30, September 30,
1998 1997
-------- -------------
ASSETS (In Thousands)
Cash and due from banks $ 7,135 $ 6,721
Interest-bearing deposits in other banks 21,170 18,085
Certificates of deposit in other banks 100 399
Available-for-sale securities (cost of $422 at
September 30, 1997) - 907
Investment securities (market value of
$41,685 and $48,430 at June 30, 1998,
and September 30, 1997, respectively) 41,327 47,918
Mortgage-backed securities held for
investment (market value of $95,533
and $36,693 at June 30, 1998 and September 30,
1997 respectively) 94,652 32,367
Loans, net of allowance for loan losses of
$4,353 and $3,009 at June 30, 1998
and September 30, 1997, respectively 255,208 252,336
Accrued interest receivable 2,852 2,726
Real estate acquired in settlement of loans 478 332
Stock in Federal Home Loan Bank ("FHLB") 3,333 2,030
Premises and equipment 6,186 6,071
Intangible assets 952 2,044
Prepaid expenses and other assets 1,540 1,012
-------- -------------
Total assets $434,933 $ 372,948
======== =============
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $339,276 $ 320,769
FHLB advances 66,667 27,233
Accrued expenses and other liabilities 3,368 2,091
-------- -------------
Total liabilities 409,311 350,093
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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
June 30, 1998 and September 30, 1997 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 19,560 16,488
Unrealized gain on available-for-sale
securities - 305
Treasury stock, at cost (40,004 shares at
June 30, 1998 and September 30, 1997) (625) (625)
-------- -------------
Total stockholders' equity 25,622 22,855
-------- -------------
Total liabilities and stockholders'
equity $434,933 $ 372,948
======== =============
See Notes to Consolidated Financial Statements
1
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of INCOME (UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ----------- -----------
(In thousands, except per share and number of
shares data)
Interest income
Loans $ 5,768 $ 5,476 $ 17,069 $ 15,902
Investments securities 719 815 2,327 2,403
Mortgage-backed securities 1,025 531 2,216 1,615
Other 367 229 1,133 648
------------ ------------ ----------- -----------
Total interest income 7,879 7,051 22,745 20,568
------------ ------------ ----------- -----------
Interest expense
Deposits 3,882 3,377 11,285 9,810
FHLB advances 526 357 1,251 1,207
------------ ------------ ----------- -----------
Total interest expense 4,408 3,734 12,536 11,017
------------ ------------ ----------- -----------
Net interest income 3,471 3,317 10,209 9,551
Provision for loan losses 500 225 1,575 715
------------ ------------ ----------- -----------
Net interest income after
provision for loan losses 2,971 3,092 8,634 8,836
------------ ------------ ----------- -----------
Other income
Service charges 334 296 971 875
Loan servicing 103 127 358 366
Gain on sale of loans 175 62 352 132
Gain on sale of
available-for-sale
securities - - 632 254
Miscellaneous 18 42 940 429
------------ ------------ ----------- -----------
Total other income 630 527 3,253 2,056
------------ ------------ ----------- -----------
Other expense
Compensation and fringe
benefits 1,012 1,032 3,081 2,986
Net occupancy 325 406 886 908
Data processing fees 232 195 579 594
Telephone, postage, and
supplies 140 151 427 428
Amortization of tangible
assets 121 122 364 475
Federal and other
insurance premiums 76 76 236 284
Miscellaneous 398 271 1,512 1,182
------------ ------------ ----------- -----------
Total other expense 2,304 2,253 7,085 6,857
------------ ------------ ----------- -----------
Income before income taxes 1,297 1,366 4,802 4,035
Income taxes 471 509 1,730 1,487
------------ ------------ ----------- -----------
NET INCOME $ 826 $ 857 $ 3,072 $ 2,548
============ ============ =========== ===========
EARNINGS PER SHARE $ 1.17 $ 1.24 $ 4.34 $ 3.68
============ ============ =========== ===========
Weighted average number of
shares 708,010 693,010 708,010 693,013
============ ============ =========== ===========
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
Nine Months Nine Months
Ended Ended
June 30, June 30,
1998 1997
----------- ------------
(In thousands)
Cash flows from operating activities:
Net income $ 3,072 $ 2,548
Adjustments to reconcile net income to net
cash provided by operating activities
Decrease in deferred loan fees (net) (20) (6)
Accretion and amortization of investment
discounts and premiums (net) (137) (193)
Provision for loan losses 1,575 715
Gain on sale of loans (352) (133)
Gain on sale of branch (784) -
Gain on sale of available-for-sale securities (632) (254)
Gain on sale of real estate acquired in
settlement of loans - (29)
Depreciation 407 402
Amortization of intangible assets 364 475
Proceeds from sale of loans 20,175 7,586
Originations and principal repayments of loans
held for sale (net) (19,823) (7,453)
Increase in accrued interest receivable (126) (131)
(Increase) decrease in prepaid expenses and
other assets (75) 295
Decrease in accrued expenses and other
liabilities 1,281 (1,240)
----------- ------------
Net cash provided by operating activities 4,925 2,582
----------- ------------
Cash flows from investing activities:
Net decrease in certificates of deposits 299 -
Purchases of available-for-sale securities (250) -
Proceeds from sale of available-for-sale
securities 1,304 426
Proceeds from maturities of investment securities 26,074 10,000
Purchases of investment securities (19,346) (10,105)
Purchases of mortgage-backed securities (70,845) (1,550)
Principal repayments on mortgage-backed securities 8,560 3,974
Net increase in loans (13,328) (22,536)
Decrease in FHLB stock (1,304) 93
Proceeds from sale of real estate acquired in
settlement of loans 321 501
Proceeds from sale of premises and equipment 83 -
Purchase of real estate held for development (277) -
Capital expenditures for premises and equipment (630) (748)
Sale of branch (5,547) -
----------- ------------
Net cash used in investing activities (74,886) (19,945)
----------- ------------
See Notes to Consolidated Financial Statements
3
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
Nine Months Nine Months
Ended Ended
June 30, June 30,
1998 1997
----------- -----------
(In thousands)
Cash flows from financing activities:
Net increase in deposits 34,028 20,912
Proceeds from FHLB advances 44,633 -
Repayment of FHLB advances (5,200) (11,317)
----------- -----------
Net cash provided by financing activities 73,461 9,595
----------- -----------
Net increase (decrease) in cash and cash
equivalents 3,500 (7,768)
Cash and cash equivalents at beginning of
the period 24,805 22,516
----------- -----------
Cash and cash equivalents at end of the
period $ 28,305 $ 14,748
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 12,355 $ 11,048
=========== ===========
Income taxes $ 1,102 $ 1,620
=========== ===========
Supplemental schedule of noncash operating,
investing and financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 467 $ 323
=========== ===========
Decrease in unrealized gain on available for
sale securities $ 305 $ 28
=========== ===========
See Notes to Consolidated Financial Statements
4
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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, 1998 amounted to $434.9 million as compared to $372.9
million at September 30, 1997, a increase of $62 million or 17%.
Mortgage-backed securities increased to $94.7 million at June 30, 1998 from
$32.4 million at September 30, 1997. This increase of $62.3 million was funded
by FHLB advances and an increase in deposits.
Loans receivable increased by $2.9 million or 1% from $252.3 million to $255.2
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.
June 30, September 30,
1998 1997
-------- -------------
(In thousands)
Real Estate
Mortgage $212,665 $207,391
Construction 5,313 8,462
Consumer 29,811 29,131
Commercial business 15,388 13,525
Less:
Undisbursed loan proceeds 3,363 2,891
Deferred loan fees 253 273
Allowance for loan losses 4,353 3,009
-------- --------
Total $255,208 $252,336
======== ========
As of June 30, 1998 and September 30, 1997, 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, 1998 and September 30, 1997,
the Bank had non-accrual loans in the amount of $1.0 million 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 $41,000 and $60,000 at June 30, 1998 and September
30, 1997, respectively. Interest income recognized on non-accrual loans
amounted to $15,000 and $38,000 for the periods ended June 30, 1998 and
September 30, 1997, respectively.
There were no loans which were not classified as non-accrual or restructured at
June 30, 1998 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.
6
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Deposits increased by $18.5 million or 5.7% during the nine month period to
$339.3 million at June 30, 1998 from $320.8 million at September 30, 1997.
FHLB advances increased to $66.7 million at June 30, 1998, from $27.2 million at
September 30, 1997.
Stockholders' Equity increased by $2.8 million which equaled net income for the
period of $3.1 million less a decrease in unrealized gain on available for sale
investments of $300,000. Book value per share at June 30, 1998, was $36.19 as
compared to $32.28 at September 30, 1997.
Results of Operations
- ---------------------
Interest income for the nine months ended June 30, 1998, amounted to $22.7
million as compared to $20.6 million for the nine months ended June 30, 1997.
The increase in interest income equaled $2.1 million or 10.5%. The primary
reason was an increase in interest-earning assets. Interest expense for the
nine months ended June 30, 1998, amounted to $12.5 million as compared to $11.0
million for the comparative nine month period of 1997. The increase in interest
expense equaled $1.5 million or 13.7%. Interest on deposits increased by $1.5
million or 15% due to an increase in interest-bearing liabilities. Interest on
FHLB advances for the 1998 period was $1.3 million as compared to $1.2 million
for the 1997 period. Net interest income for the 1998 period was $10.2
million as compared to $9.6 million for the 1997 period. The increase of
$658,000 equaled 6.8%.
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,
1997 1998 1997
------------ ------------ ---------------
(In thousands)
Balance at beginning of period $ 2,364 $ 3,009 $ 2,364
------------ ------------ ---------------
Loans charged off:
Real estate 273 25 272
Consumer 128 152 182
Commercial 12 355 463
------------ ------------ ---------------
Total charge-offs 413 532 917
------------ ------------ ---------------
Recoveries 121 301 134
------------ ------------ ---------------
Provision for loan losses 715 1,575 1,428
------------ ------------ ---------------
Balance at end of period $ 2,787 $ 4,353 $ 3,009
============ ============ ===============
Ratio of net charge-offs to
average loans outstanding
during the period .12% .12% .33%
============ ============ ===============
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 $1.2 million, equaling
$3.3 million for the 1998 period and $2.1 million for the 1997 period. The
primary reason for the increase was a gain on the sale of a branch amounting to
$784,000 and a gain of $623,000 on the sale of available-for-sale securities.
Other expenses increased $228,000, amounting to $7.1 million for the nine months
ended June 30, 1998, and $6.9 million for the nine months ended June 30, 1997.
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.
Earnings per share, using the weighted average method, were $4.34 for the 1998
period compared to $3.68 for the 1997 period.
The effective tax rate for the 1998 period was 36% as compared to 36.8% for the
1997 period.
Interest income for the three months ended June 30, 1998 amounted to $7.9
million as compared to $7.1 million for the three months ended June 30, 1997.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets primarily mortgage-backed securities for the
1998 period. Interest expense amounted to $4.4 million for the 1998 period as
compared to $3.7 million for the 1997 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 $500,000
in the 1998 period as compared to $225,000 in the 1997 period. During the 1998
period, the Bank experienced several large loan losses which were provided for
in this period.
Other income increased to $630,000 for the 1998 period compared to $527,000 for
the 1997 period.
Other expenses remained stable during the comparative periods amounting to $2.3
million for the 1998 period as compared to $2.3 million for the 1997 period.
The effective tax rate for the 1998 period was 36.3% as compared to 37.3% for
the 1997 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 13.50% for June 30, 1998, 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, 1998.
Percent of
Amount Assets (a)
------- -----------
(Dollars in thousands)
Tangible Capital $24,081 5.3%
Tangible Capital Requirement 8,704 2.0
------- -----------
Excess $15,377 3.3%
======= ===========
Core Capital $23,478 5.4%
Core Capital Requirement 17,383 4.0
------- -----------
Excess $ 6,095 1.4%
======= ===========
Total Capital (i.e., Core and
Supplementary Capital) $26,435 11.2%
Risk-Based Capital Requirement 18,815 8.0
------- -----------
Excess $ 7,620 3.2%
======= ===========
(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. Quantitative and Quantitative Disclosures about Market Risk
------------------------------------------------------------
First Palmetto monitors whether material changes in market risk have
occurred since year-end. First Palmetto does not believe that material
changes in market risk exposures occurred during the three months ended
June 30, 1998.
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
10
<PAGE>
Signatures
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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: 8/11/98 By: /s/ Samuel R. Small
-------------------- -------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 8/11/98 By: /s/ Steve G. Williams, Jr.
-------------------- -------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,135
<INT-BEARING-DEPOSITS> 21,170
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 41,327
<INVESTMENTS-MARKET> 41,685
<LOANS> 255,208
<ALLOWANCE> 4,353
<TOTAL-ASSETS> 434,933
<DEPOSITS> 339,276
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,368
<LONG-TERM> 66,667
0
0
<COMMON> 7
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<INTEREST-TOTAL> 22,745
<INTEREST-DEPOSIT> 11,285
<INTEREST-EXPENSE> 12,536
<INTEREST-INCOME-NET> 10,209
<LOAN-LOSSES> 1,575
<SECURITIES-GAINS> 632
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<INCOME-PRETAX> 4,802
<INCOME-PRE-EXTRAORDINARY> 4,802
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,072
<EPS-PRIMARY> 4.34
<EPS-DILUTED> 4.34
<YIELD-ACTUAL> 3.28
<LOANS-NON> 1,000
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 3,009
<CHARGE-OFFS> 532
<RECOVERIES> 301
<ALLOWANCE-CLOSE> 4,353
<ALLOWANCE-DOMESTIC> 4,353
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