<PAGE>
FORM 10-Q
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SECURITIES and EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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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, 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
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(2) Yes X No
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Number of shares of common stock outstanding as of May 11, 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
March 31, 1998 and September 30, 1997 1
Consolidated Statement of Income for the Three Months
Ended March 31, 1998 and 1997 and the Six Months Ended
March 31, 1998 and 1997 2
Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 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)
March 31, September 30,
1998 1997
---------- -------------
ASSETS (In thousands)
Cash and due from banks $ 7,241 $ 6,721
Interest-bearing deposits in other banks 23,571 18,085
Certificates of deposit in other banks 99 399
Available-for-sale securities (cost of $422
at September 30, 1997) - 907
Investment securities
(market value of $41,795 and $48,430
at March 31, 1998 and September 30, 1997,
respectively) 41,392 47,918
Mortgage-backed securities held for investment
(market value of $62,217 and $32,693
March 31, 1998 and September 30, 1997,
respectively) 61,498 32,367
Loans, net of allowance for loan losses of
$3,814 and $3,009 at March 31, 1998 and
September 30, 1997, respectively 246,156 252,336
Accrued interest receivable 2,748 2,726
Real estate acquired in settlement of loans 487 332
Stock in Federal Home Loan Bank (FHLB) 2,030 2,030
Premises and equipment 5,893 6,071
Intangible assets 1,073 2,044
Prepaid expenses and other assets 1,278 1,012
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Total assets $ 393,466 $ 372,948
========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 343,859 $ 320,769
FHLB advances 22,033 27,233
Accrued expenses and other liabilities 2,779 2,091
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Total liabilities 368,671 350,093
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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
March 31, 1998 and September 30, 1997 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 18,733 16,488
Unrealized gain on available-for-sale securities - 305
Treasury stock, at cost (40,004 shares at
March 31, 1998 and September 30, 1997) (625) (625)
---------- ----------
Total stockholders' equity 24,795 22,855
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Total liabilities and stockholders' equity $ 393,466 $ 372,948
========== ==========
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,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands, except per share and number of
shares data)
<S> <C> <C> <C> <C>
Interest income
Loans $ 5,621 $ 5,246 $ 11,301 $ 10,426
Investments securities 741 787 1,608 1,588
Mortgage-backed securities 658 540 1,191 1,084
Other 452 198 766 419
---------- ---------- ---------- ----------
Total interest income 7,472 6,771 14,866 13,517
---------- ---------- ---------- ----------
Interest expense
Deposits 3,738 3,231 7,403 6,433
FHLB advances 334 402 725 850
---------- ---------- ---------- ----------
Total interest expense 4,072 3,633 8,128 7,283
---------- ---------- ---------- ----------
Net interest income 3,400 3,138 6,738 6,234
Provision for loan losses 404 365 1,075 490
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,996 2,773 5,663 5,744
---------- ---------- ---------- ----------
Other income
Service charges 301 292 637 579
Loan servicing 108 123 255 239
Gain on sale of loans 142 37 177 70
Gain on sale of
investments 147 254 632 254
Miscellaneous 51 87 922 387
---------- ---------- ---------- ----------
Total other income 749 793 2,623 1,529
---------- ---------- ---------- ----------
Other expense
Compensation and fringe
benefits 1,012 986 2,069 1,954
Net occupancy 315 247 561 502
Data processing fees 178 170 347 399
Amortization of tangible
assets 121 121 243 353
Federal and other
insurance premiums 81 52 160 208
Telephone, postage, and
supplies 157 152 287 277
Miscellaneous 551 510 1,114 911
---------- ---------- ---------- ----------
Total other expense 2,415 2,238 4,781 4,604
---------- ---------- ---------- ----------
Income before income taxes 1,330 1,328 3,505 2,669
Income taxes 476 468 1,259 978
---------- ---------- ---------- ----------
NET INCOME $ 854 $ 860 $ 2,246 $ 1,691
========== ========== ========== ==========
EARNINGS PER SHARE $ 1.20 $ 1.24 $ 3.17 $ 2.44
========== ========== ========== ==========
Weighted average number of
shares 708,010 693,010 708,010 693,010
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
1998 1997
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,246 $ 1,691
Adjustments to reconcile net income to net
cash provided by operating activities
Gain on sale of available-for-sale securities (632) (254)
Accretion and amortization of investments discounts
and premiums, net (87) (128)
Decrease in deferred loan fees, net (36) (11)
Provision for loan losses 1,075 490
Gain on sale of loans (177) (70)
Gain on sale of branch site (784) -
Gain on sale of real estate acquired in settlement of loans (23) (38)
Depreciation 155 204
Amortization of intangible assets 243 353
Proceeds from sale of loans 10,483 4,222
Originations and principal repayments of loans held for sale, net (10,306) (4,152)
(Increase) decrease in accrued interest receivable 102 (228)
(Increase) decrease in prepaid expenses and other assets (35) 235
Increase (decrease) in accrued expenses and other liabilities 743 (760)
-------- --------
Net cash provided by operating activities 2,967 1,554
-------- --------
Cash flows from investing activities:
Net decrease in certificates of deposits 300 -
Proceeds from sale of available-for-sale securities 1,304 426
Purchases of available-for-sale securities (250) -
Proceeds from maturities of investment securities 18,990 6,000
Purchases of investment securities (12,376) (6,124)
Purchases of mortgage-backed securities (32,280) (1,568)
Principal repayments on mortgage-backed securities 3,149 2,204
Net increase in loans (3,709) (12,482)
Decrease in FHLB stock - 93
Proceeds from sale of real estate acquired in settlement of loans 283 428
Proceeds from sale of premises and equipment 83 -
Capital expenditures for premises and equipment (320) (515)
Sale of branch (5,547) -
-------- --------
Net cash used in investing activities (30,373) (11,538)
-------- --------
</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,
1998 1997
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(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 38,612 15,926
Repayment of FHLB advances (5,200) (4,500)
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Net cash provided by financing activities 33,412 11,426
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Net increase in cash and cash equivalents 6,006 1,442
Cash and cash equivalents at beginning of the period 24,806 22,516
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Cash and cash equivalents at end of the period $30,812 $23,958
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 8,249 $ 7,229
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Income taxes $ 1,522 $ 607
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Supplemental schedule of noncash investing and financing activities:
Decrease in unrealized gain on available for sale securities $ 211 $ 73
======= =======
Loans transferred to real estate acquired in settlement of loans $ 438 $ 74
======= =======
</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, 1998 amounted to $393.5 million as compared to $372.9
million at September 30, 1997, a increase of $20.6 million or 5.5%. 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
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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 $6.1 million or 2.4% from $252.3 million to $246.2
million. The decrease in loans is primarily attributable to the branch sale.
The following table sets forth selected data relating to the composition of the
Bank's loan portfolio at the dates indicated.
March 31, September 30,
1998 1997
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(In thousands)
Real Estate
Mortgage $ 204,590 $ 207,391
Construction 4,227 8,462
Consumer 30,710 29,131
Commercial business 14,526 13,525
Less:
Undisbursed loan proceeds 3,846 2,891
Deferred loan fees 237 273
Allowance for loan losses 3,814 3,009
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Total $ 246,156 $ 252,336
========== ==========
As of March 31, 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.
6
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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Loans are placed on non-accrual status when, in the opinion of management, the
collection of interest is doubtful. As of March 31, 1998 and September 30,
1997, the Bank had non-accrual loans in the amount of $666,000 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 $51,993 and $60,274 at March 31, 1998 and September
30, 1997, respectively. Interest income recognized on non-accrual loans
amounted to $12,318 and $37,792 for the periods ended March 31, 1998 and
September 30, 1997, respectively.
There were no loans which were not classified as non-accrual or restructured at
March 31, 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.
Deposits increased by $23.1 million or 7.2% during the six month period to
$343.9 million at March 31, 1998 from $320.8 million at September 30, 1997.
After a decrease in deposits attributable to the branch sale of $15.5 million,
deposits increased by $38.6 million in the six month period. The Bank opened a
new branch in the North Myrtle Beach area which accounts for a portion of the
deposit growth.
Federal Home Loan Bank advances decreased to $22.0 million at March 31, 1998,
from $27.2 million at September 30, 1997.
Stockholders' Equity increased by $1.9 million which equaled net income for the
period of $2.2 million less a decrease in unrealized gain on available for sale
investments of $305,000. Book value per share at March 31, 1998, was $35.02 as
compared to $32.28 at September 30, 1997.
Results of Operations
- ---------------------
Interest income for the six months ended March 31, 1998, amounted to $14.9
million as compared to $13.5 million for the six months ended March 31, 1997.
The increase in interest income equaled $1.4 million or 10.0%. The primary
reason was an increase in interest-earning assets and a change in the mix of the
Bank's interest-earning assets in the higher interest-earning categories.
Interest expense for the six months ended March 31, 1998, amounted to $8.1
million as compared to $7.3 million for the comparative six month period of
1997. The increase in interest expense equaled $845,000 or 11.6%. Interest on
deposits increased by $970,000 or 15.1% due to an increase in interest-bearing
liabilities. Interest on FHLB advances for the 1998 period was $725,000 as
compared to $850,000 for the 1997 period. Net interest income for the 1998
period was $6.7 million as compared to $6.2 million for the 1997 period. The
increase of $504,000 equaled 8.1%.
7
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
The following table sets forth an analysis of the Bank's allowance for loan
losses for the period indicated.
Six Months Six Months
Ended Ended Year Ended
March 31, March 31, September 30,
1997 1998 1997
----------- ----------- -----------
(In thousands)
Balance at beginning of period $ 2,364 $ 3,009 $ 2,364
----------- ----------- -----------
Loans charged off:
Real estate 260 21 272
Consumer 83 120 182
Commercial 12 355 463
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Total charge-offs 355 496 917
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Recoveries 107 226 134
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Provision for loan losses 490 1,075 1,428
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Balance at end of period $ 2,606 $ 3,814 $ 3,009
=========== =========== ===========
Ratio of net charge-offs to
average loans outstanding
during the period .11% .11% .33%
=========== =========== ===========
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. The Bank provided
for several large loan losses in the 1998 period.
Other income for the two comparative periods increased by $1.1 million, equaling
$2.6 million for the 1998 period and $1.5 million for the 1997 period. The
primary reason for the increase was the gain on the sale of a branch in the 1998
period amounting to $784,000 and the gain on sale of investments for the 1998
period of $632,000.
Other expenses increased $177,000, amounting to $4.8 million for the six months
ended March 31, 1998, and $4.6 million for the six months ended March 31, 1997.
Earnings per share, using the weighted average method, were $3.17 for the 1998
period compared to $2.44 for the 1997 period.
The effective tax rate for the 1998 period was 35.9% as compared to 36.6% for
the 1997 period.
Interest income for the three months ended March 31, 1998 amounted to $7.5
million as compared to $6.8 million for the three months ended March 31, 1997.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $4.1 million
for the 1998 period as compared to $3.6 million for the 1997 period.
8
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
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 $404,000
in the 1998 period as compared to $365,000 in the 1997 period.
Other income increased to $749,000 for the 1998 period compared to $793,000 for
the 1997 period.
Other expenses remained stable during the comparative periods amounting to $2.4
million for the 1998 period as compared to $2.2 million for the 1997 period.
The effective tax rate for the 1998 period was 35.8% as compared to 35.2% for
the 1997 period.
Liquidity
- ---------
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was 14% for March 31, 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 March 31, 1998.
Percent of
Amount Assets (a)
--------- ------------
(Dollars in thousands)
Tangible Capital $ 21,985 5.59%
Tangible Capital Requirement 5,899 1.50
--------- ---------
Excess $ 16,086 4.09%
========= =========
Core Capital $ 22,565 5.73%
Core Capital Requirement 11,814 3.00
--------- ---------
Excess $ 10,751 2.73%
========= =========
Total Capital (i.e., Core and
Supplementary Capital) $ 25,316 11.56%
Risk-Based Capital Requirement 17,523 8.00
--------- ---------
Excess $ 7,793 3.56%
========= =========
(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 Qualitative 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
March 31, 1998.
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 February 23, 1998
were passed as recommended by the Board of Directors of the
Corporation. These items concerned the election of directors.
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: 5/13/98 By: /s/ Samuel R. Small
------------------- -------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 5/13/98 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-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 7,241
<INT-BEARING-DEPOSITS> 23,571
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 102,890
<INVESTMENTS-MARKET> 104,012
<LOANS> 246,156
<ALLOWANCE> 3,814
<TOTAL-ASSETS> 393,466
<DEPOSITS> 343,859
<SHORT-TERM> 22,033
<LIABILITIES-OTHER> 2,779
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 25,413
<TOTAL-LIABILITIES-AND-EQUITY> 393,466
<INTEREST-LOAN> 11,301
<INTEREST-INVEST> 2,799
<INTEREST-OTHER> 766
<INTEREST-TOTAL> 14,866
<INTEREST-DEPOSIT> 7,403
<INTEREST-EXPENSE> 8,128
<INTEREST-INCOME-NET> 6,738
<LOAN-LOSSES> 1,075
<SECURITIES-GAINS> 632
<EXPENSE-OTHER> 4,781
<INCOME-PRETAX> 3,505
<INCOME-PRE-EXTRAORDINARY> 3,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,246
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 3.17
<YIELD-ACTUAL> 3.60
<LOANS-NON> 666
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,009
<CHARGE-OFFS> 496
<RECOVERIES> 226
<ALLOWANCE-CLOSE> 3,814
<ALLOWANCE-DOMESTIC> 3,814
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
