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 Office of Thrift Supervision
December 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 ____
(2) Yes X No ____
Number of shares of common stock outstanding as of February 5, 1999 708,010.
<PAGE>
INDEX
Part I - Financial Information Page
Consolidated Statement of Financial Condition as of
December 31, 1998 and September 30, 1998 1
Consolidated Statement of Income for the Three Months
Ended December 31, 1998 and 1997 2
Consolidated Statement of Cash Flows for the
Three Months Ended December 31, 1998 and 1997 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
Signatures 9
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---- ----
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 7,548 $ 6,983
Interest-bearing deposits in other banks 18,277 11,892
Certificates of deposit in other banks 10,100 100
Investment securities (market value of $33,006 and $38,521 at
December 31, 1998 and September 30, 1998, respectively) 32,652 37,969
Mortgage-backed securities held for investment (market value of
$94,064 and $97,654 at December 31, 1998 and September 30, 1998,
respectively) 93,150 95,862
Loans, net of allowance for loan losses of $4,767 and $4,649 at
December 31, 1998 and September 30, 1998, respectively 268,417 263,989
Accrued interest receivable 2,859 3,126
Real estate acquired in settlement of loans 546 500
Stock in Federal Home Loan Bank (FHLB) 3,533 3,333
Premises and equipment 6,734 6,664
Prepaid expenses and other assets 3,118 3,327
--------------- --------------
Total assets $ 446,934 $ 433,745
=============== ==============
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 346,538 $ 343,947
FHLB advances 70,667 60,667
Accrued expenses and other liabilities 3,330 3,962
--------------- --------------
Total liabilities 420,535 408,576
--------------- --------------
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, 1998 and
September 30, 1998 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 20,337 19,107
Treasury stock, at cost (40,004 shares at
December 31, 1998 and September 30, 1998) (625) (625)
--------------- --------------
Total stockholders' equity 26,399 25,169
--------------- --------------
Commitments
Total liabilities and stockholders' equity $ 446,934 $ 433,745
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of INCOME (UNAUDITED)
Three Months Three Months
Ended Ended
December 31, December 31,
1998 1997
---- ----
(In thousands, except per
share and number of shares data)
Interest income:
Loans $ 6,013 $ 5,680
Investment securities 1,338 867
Mortgage-backed securities 542 533
Other 449 314
---------- ---------
Total interest income 8,342 7,394
---------- ---------
Interest expense:
Deposits 3,761 3,665
FHLB advances 971 391
---------- ---------
Total interest expense 4,732 4,056
---------- ---------
Net interest income 3,610 3,338
Provision for loan losses 160 671
---------- ---------
Net interest income after provision
for loan losses 3,450 2,667
---------- ---------
Other income:
Service charges 349 336
Loan servicing 90 147
Gain on sale of investments - 485
Gain on sales of loans 280 35
Miscellaneous 76 871
---------- ---------
Total other income 795 1,874
---------- ---------
Other expense:
Compensation and fringe benefits 1,073 1,057
Net occupancy 266 246
Data processing fees 194 169
Telephone, postage, and supplies 153 130
Amortization of intangible assets 122 122
Federal and other insurance premiums 86 79
Miscellaneous 441 563
---------- ---------
Total other expense 2,335 2,366
---------- ---------
Income before income taxes 1,910 2,175
Income taxes 680 783
---------- ---------
Net income $ 1,230 $ 1,392
========= =========
Earnings per share $ 1.74 $ 1.97
========= =========
Average number of common shares
outstanding - basic 708,010 708,010
========= =========
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,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities: (In thousands)
Net income $ 1,230 $ 1,392
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Accretion and amortization of investment discounts and premiums, net (18) (51)
Provision for loan losses 160 671
Gain on sale of available-for-sale investments - (485)
Gain from sale of branch site - (784)
Gain (loss) on sale of real estate acquired in loans 3 (19)
Depreciation 91 99
Amortization of intangible assets 121 121
Proceeds from sale of loans 19,458 3,907
Originations and principal repayments of loans held for sale, net (19,178) (3,872)
(Increase) decrease in accrued interest receivable 267 (172)
Decrease in prepaid expenses and other assets 92 17
(Increase) decrease in accrued expenses and other liabilities (631) 683
--------------- --------------
Net cash provided by operating activities 1,595 1,507
--------------- --------------
Cash flows from investing activities:
Purchase of certificates of deposit (10,000) -
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 11,000 4,000
Purchases of investment securities (5,665) (8,997)
Purchase of mortgage-backed securities (7,519) -
Principal repayments on mortgage-backed securities 10,230 1,519
Net increase in loans (4,978) (2,151)
Proceeds from sale of real estate acquired in settlement of loans 90 226
Purchases of real estate held for sale (33) (152)
Purchase of FHLB stock (200) -
Proceeds from sale of premises and equipment - 83
Capital expenditures for premises and equipment (161) (106)
Sale of branch - (5,547)
--------------- --------------
Net cash used in investing activities (7,236) (10,268)
--------------- --------------
Cash flows from financing activities:
Net increase in deposits 2,591 10,982
Proceeds from FHLB advances 10,000 -
Repayments of FHLB advances - (2,500)
--------------- --------------
Net cash provided by financing activities 12,591 8,482
--------------- --------------
Net increase (decrease) in cash and cash equivalents 6,950 (279)
Cash and cash equivalents at beginning of year 18,875 24,806
--------------- --------------
Cash and cash equivalents at end of year $ 25,825 $ 24,527
=============== ==============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 4,830 $ 4,115
=============== ==============
Income taxes $ 1,090 $ 533
=============== ==============
Supplemental schedule of noncash investing and financing activities:
Decrease in unrealized gain on available-for-sale securities $ -0- $ 211
=============== ==============
Loans transferred to real estate acquired in settlement of loans $ 110 $ 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.
Note 2 Comprehensive Income
In June, 1997, the FASB issue SFAS No. 130, "Reporting Comprehensive
Income." The purpose of SFAS 130 is to address concerns over the
practice of reporting elements of comprehensive income directly in
equity. First Palmetto had no comprehensive income items for the
quarter ended December 31, 1998. The statement of comprehensive income
for the quarter ended December 31, 1997 is as follows:
Net income $ 1,392
Other comprehensive income, net of tax
Unrealized gains on securities available-for-sale 94
Less, reclassification adjustment for gains included
in net income (305)
--------
Total comprehensive income $ 1,181
========
4
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets increased to $446.9 million at December 31, 1998 as compared to
$433.7 million at September 30, 1998.
Loans receivable increased by $4.4 million from $264.0 million to $268.4
million.
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,
1998 1998
---- ----
(In thousands)
Real Estate
Mortgage $ 224,049 $ 217,504
Construction 5,023 9,127
Consumer 31,455 29,847
Commercial business 16,537 15,724
Less:
Undisbursed loan proceeds (3,646) (3,325)
Deferred loan fees (234) (239)
Allowance for loan losses (4,767) (4,649)
--------------- --------------
Total $ 268,417 $ 263,989
=============== ==============
As of December 31, 1998, and September 30, 1998, 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, 1998 and September 30,
1998, the Bank had non-accrual loans in the amount of $2.2 million and $636,000,
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 $61,707 and $36,216 at December 31, 1998 and
September 30, 1998, respectively. Interest income recognized on non-accrual
loans amounted to $8,439 and $25,025 for the periods ended December 31, 1998 and
September 30, 1998, respectively.
There were no loans which were not classified as non-accrual or restructured at
December 31, 1998 or September 30, 1998 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 to $346.5 million at December 31, 1998 from $343.9 million at
September 30, 1998. The Bank's deposits increased $2.6 million or .76%.
Federal Home Loan Bank advances increased to $70.7 million at December 31, 1998,
from $60.7 million at September 30, 1998.
Stockholders' equity increased by $1.2 million which equaled net income for the
period. Book value per share at December 31, 1998, was $37.29 as compared to
$35.55 at September 30, 1998.
5
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Results of Operations
Interest income for the three months ended December 31, 1998, amounted to $8.3
million as compared to $7.4 million for the three months ended December 31,
1997. The increase in interest income equaled $948,000 or 12.8%. The primary
reason for the increase was an increase in the volume of interest-earning assets
and an effort to push more of the Bank's assets into the higher interest-earning
categories. Interest expense for the three months ended December 31, 1998,
amounted to $4.7 million as compared to $4.1 million for the comparative three
month period of 1997. Net interest income for the 1998 period was $3.6 million
as compared to $3.3 million for the 1997 period. The increase of $272,000
equaled 8.1%.
The following table sets forth an analysis of First Palmetto's allowance for
loan losses for the period indicated.
Three Months Three Months
Ended Ended Year Ended
December 31, December 31, September 30,
1997 1998 1998
---- ---- ----
(In thousands)
Balance at beginning of period $ 3,009 $ 4,649 $ 3,009
-------- -------- --------
Loans charged off:
Real estate - - 148
Consumer 99 44 394
Commercial 355 - 395
-------- -------- --------
Total charge-offs 454 44 937
-------- -------- --------
Recoveries 215 2 315
-------- -------- --------
Provision for loan losses 671 160 2,262
-------- -------- --------
Balance at end of period $ 3,441 $ 4,767 $ 4,649
======== ======== ========
Ratio of net charge-offs to average
loans outstanding during the period .38% .02% .25%
======== ======== ========
The increased allowance for loan losses is the result of a higher level of loans
outstanding and the continuing shift in the loan mix from lower risk residential
lending to higher risk consumer and commercial lending. Management also has
emphasized increasing loans with large balances. The provision for loan losses
for the quarter ended December 31, 1998 was $160,000. This increased the
allowance for loan losses to $4.8 million at December 31, 1998 which compared to
a balance of $3.4 million as of December 31, 1997.
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.
Other income for the two comparative periods decreased by $1.1 million totaling
$795,000 for the 1998 period and $1.9 million for the 1997 period. The primary
reason for the decrease was the gain on a sale of a branch office in the amount
of $784,000 and the gain on the sale of available-for-sale investments in the
amount of $485,000 in the 1997 quarter.
Other expenses remained stable amounting to $2.3 million for the three months
ended December 31, 1998 and $2.4 million for the three months ended December 31,
1997.
Earnings per share, using the weighted average method, were $1.74 for the 1998
period compared to $1.97 for the 1997 period.
The effective tax rate was 36% for both the 1998 and 1997 period.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Liquidity
First Palmetto's liquidity ratio as defined by the Federal Home Loan Bank
Regulations was 13% for December 31, 1998 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, 1998.
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tier 1 Capital (to total assets) $ 25,397 5.7%
Tier 1 Capital Requirement 17,866 4.0
--------------- -------------
Excess $ 7,531 1.7%
=============== =============
Tier 1 Capital (to risk-weighted assets) $ 25,397 9.8%
Tier 1 Capital Requirement 10,339 4.0
--------------- -------------
Excess $ 15,058 5.8%
=============== =============
Total Capital (to risk-weighted assets) $ 28,647 11.1%
Total Capital Requirement 20,678 8.0
--------------- -------------
Excess $ 7,969 3.1%
=============== =============
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. Quantitative and Qualitative Disclosures about Market Risks
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 December 31, 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
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: 2/11/99 By: /s/ Samuel R. Small
-------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 2/11/99 By: /s/ Steve G. Williams, Jr.
-------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000864927
<NAME> FIRST PALMETTO FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
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<CASH> 7,548
<INT-BEARING-DEPOSITS> 18,277
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<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 125,802
<INVESTMENTS-MARKET> 127,070
<LOANS> 268,417
<ALLOWANCE> 4,767
<TOTAL-ASSETS> 446,934
<DEPOSITS> 346,538
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<LIABILITIES-OTHER> 3,330
<LONG-TERM> 70,667
0
0
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<INTEREST-INVEST> 1,880
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<INTEREST-TOTAL> 8,342
<INTEREST-DEPOSIT> 3,761
<INTEREST-EXPENSE> 4,732
<INTEREST-INCOME-NET> 3,610
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<INCOME-PRE-EXTRAORDINARY> 1,910
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<EPS-DILUTED> 1.74
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</TABLE>
