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 Commission File Number: 0-18932
March 31, 1999
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 12, 1999 708,010.
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<PAGE>
INDEX
-----
Part I - Financial Information Page
----
Consolidated Statement of Financial Condition as of
March 31, 1999 and September 30, 1998 1
Consolidated Statement of Income for the Three Months
Ended March 31, 1999 and 1998 and the Six Months Ended
March 31, 1999 and 1998 2
Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 1999 and 1998 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
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ----
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 7,955 $ 6,983
Interest-bearing deposits in other banks 10,625 11,892
Certificates of deposit in other banks 5,100 100
Investment securities (market value of $43,521 and $38,521
at March 31, 1999 and September 30, 1998, respectively) 43,451 37,969
Mortgage-backed securities held for investment (market value of
$79,713 and $97,654 March 31, 1999 and September 30, 1998,
respectively) 79,113 95,862
Loans, net of allowance for loan losses of $4,855 and $4,649 at
March 31, 1999 and September 30, 1998, respectively 282,312 263,989
Accrued interest receivable 2,808 3,126
Real estate acquired in settlement of loans 210 500
Stock in Federal Home Loan Bank (FHLB) 3,358 3,333
Premises and equipment 6,933 6,664
Prepaid expenses and other assets 3,324 3,327
--------- ---------
Total assets $ 445,189 $ 433,745
========= =========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 358,128 $ 343,947
FHLB advances 57,167 60,667
Accrued expenses and other liabilities 2,482 3,962
--------- ---------
Total liabilities 417,777 408,576
--------- ---------
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 March 31, 1999
and September 30, 1998 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 21,350 19,107
Treasury stock, at cost (40,004 shares at March 31, 1999
and September 30, 1998) (625) (625)
--------- ---------
Total stockholders' equity 27,412 25,169
--------- ---------
Total liabilities and stockholders' equity $ 445,189 $ 433,745
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share and number of shares data)
Interest income
<S> <C> <C> <C> <C>
Loans $ 6,011 $ 5,621 $ 12,024 $ 11,301
Mortgage-backed securities 1,246 658 2,584 1,191
Investments securities 550 741 1,092 1,608
Other 339 452 788 766
-------- -------- -------- --------
Total interest income 8,146 7,472 16,488 14,866
-------- -------- -------- --------
Interest expense
Deposits 3,629 3,738 7,390 7,403
FHLB advances 821 334 1,792 725
-------- -------- -------- --------
Total interest expense 4,450 4,072 9,182 8,128
-------- -------- -------- --------
Net interest income 3,696 3,400 7,306 6,738
Provision for loan losses 335 404 495 1,075
-------- -------- -------- --------
Net interest income after
provision for loan losses 3,361 2,996 6,811 5,663
-------- -------- -------- --------
Other income
Service charges 318 301 667 637
Loan servicing 71 108 161 255
Gain on sale of loans 190 142 470 177
Gain on sale of investments - 147 - 632
Miscellaneous 63 51 139 922
-------- -------- -------- --------
Total other income 642 749 1,437 2,623
-------- -------- -------- --------
Other expense
Compensation and fringe benefits 1,124 1,012 2,197 2,069
Net occupancy 221 315 487 561
Data processing fees 181 178 375 347
Telephone, postage, and supplies 170 157 323 287
Amortization of tangible assets 121 75 243 197
Federal and other insurance premiums 87 81 173 160
Miscellaneous 520 276 961 839
-------- -------- -------- --------
Total other expense 2,424 2,094 4,759 4,460
-------- -------- -------- --------
Income before income taxes 1,579 1,651 3,489 3,826
Income taxes 566 594 1,246 1,377
-------- -------- -------- --------
NET INCOME $ 1,013 $ 1,057 $ 2,243 $ 2,449
======== ======== ======== ========
EARNINGS PER SHARE $ 1.43 $ 1.49 $ 3.17 $ 3.46
======== ======== ======== ========
Weighted average number of shares 708,010 708,010 708,010 708,010
======== ======== ======== ========
</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,
1999 1998
---- ----
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 2,243 $ 2,449
Adjustments to reconcile net income to net
cash provided by operating activities
Gain on sale of available-for-sale securities - (632)
Accretion and amortization of investments discounts
and premiums, net 56 (87)
Provision for loan losses 495 1,075
Gain on sale of loans (470) (177)
Gain on sale of branch site - (784)
Gain on sale of real estate acquired in settlement of loans 2 (23)
Depreciation 160 155
Amortization of intangible assets 243 197
Proceeds from sale of loans 31,378 10,483
Originations and principal repayments of loans held for sale, net (30,908) (10,306)
Decrease in accrued interest receivable 318 102
Increase in prepaid expenses and other assets (32) (35)
Increase (decrease) in accrued expenses and other liabilities (1,480) 861
-------- --------
Net cash provided by operating activities 2,005 3,278
-------- --------
Cash flows from investing activities:
Net (increase) decrease in certificates of deposits (5,000) 300
Proceeds from sale of available-for-sale securities - 1,304
Purchases of available-for-sale securities - (250)
Proceeds from maturities of investment securities 19,665 18,990
Purchases of investment securities (25,111) (12,376)
Purchases of mortgage-backed securities (7,519) (32,555)
Principal repayments on mortgage-backed securities 24,174 3,149
Net increase in loans (18,692) (3,745)
Improvements and purchases on real estate held for development (209) -
Proceeds from redemption of FHLB stock (25) -
Proceeds from sale of real estate acquired in settlement of loans 165 283
Proceeds from sale of premises and equipment - 83
Capital expenditures for premises and equipment (429) (320)
Sale of branch - (5,547)
-------- --------
Net cash used in investing activities (12,981) (30,684)
-------- --------
</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,
1999 1998
---- ----
(In thousands)
Cash flows from financing activities:
<S> <C> <C>
Net increase in deposits 14,181 38,612
Proceeds from FHLB advances 10,000 -
Repayment of FHLB advances (13,500) (5,200)
-------- --------
Net cash provided by financing activities 10,681 33,412
-------- --------
Net increase (decrease) in cash and cash equivalents (295) 6,006
Cash and cash equivalents at beginning of the period 18,875 24,806
-------- --------
Cash and cash equivalents at end of the period $ 18,580 $ 30,812
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 9,014 $ 8,249
======== ========
Income taxes $ 1,924 $ 1,522
======== ========
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 $ 126 $ 438
======== ========
</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.
Note 2 Comprehensive Income
In June, 1997, the FASB issued 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 six
months ended March 31, 1999. The statement of comprehensive income
for the six months ended March 31, 1998 is as follows:
Net income $ 2,449
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 $ 2,238
=========
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, 1999 amounted to $445.2 million as compared to $433.7
million at September 30, 1998, a increase of $11.5 million or 2.7%.
Loans receivable increased by $18.3 million or 6.9% from $264.0 million to
$282.3 million.
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,
1999 1998
---- ----
(In thousands)
Real Estate
Mortgage $ 236,248 $ 217,504
Construction 5,697 9,127
Consumer 30,789 29,847
Commercial business 17,466 15,724
Less:
Undisbursed loan proceeds (2,814) (3,325)
Deferred loan fees (219) (239)
Allowance for loan losses (4,855) (4,649)
------------- -------------
Total $ 282,312 $ 263,989
============= =============
As of March 31, 1999 and September 30, 1998, 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, 1999 and September 30, 1998,
the Bank had non-accrual loans in the amount of $1,583,000 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 $58,000 and $36,216 at March 31, 1999 and September
30, 1998, respectively. Interest income recognized on non-accrual loans amounted
to $23,000 and $25,025 for the periods ended March 31, 1999 and September 30,
1998, respectively.
There were no loans which were not classified as non-accrual or restructured at
March 31, 1999 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 by $14.2 million or 4.1% during the six month period to
$358.1 million at March 31, 1999 from $343.9 million at September 30, 1998.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Federal Home Loan Bank advances decreased to $57.2 million at March 31, 1999,
from $60.7 million at September 30, 1998.
Stockholders' Equity increased by $2.2 million which equaled net income for the
period. Book value per share at March 31, 1999, was $38.72 as compared to $35.55
at September 30, 1998.
Results of Operations
Interest income for the six months ended March 31, 1999, amounted to $16.5
million as compared to $14.9 million for the six months ended March 31, 1998.
The increase in interest income equaled $1.6 million or 10.9%. 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, 1999, amounted to $9.2
million as compared to $8.1 million for the comparative six month period of
1998. The increase in interest expense equaled $1.1 million or 13.0%. Interest
on deposits decreased by $13,000 or .2%. Interest on FHLB advances for the 1998
period was $1.8 million as compared to $725,000 for the 1998 period. For the
latter period, the bank had an increased amount of outstanding advances to FHLB.
Net interest income for the 1999 period was $7.3 million as compared to $6.7
million for the 1998 period. The increase of $568,000 equaled 8.4%.
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,
1998 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 3,009 $ 4,649 $ 3,009
------------- ------------- -------------
Loans charged off:
Real estate 21 238 148
Consumer 120 68 394
Commercial 355 - 395
------------- ------------- -------------
Total charge-offs 496 306 937
------------- ------------- -------------
Recoveries 226 17 315
------------- ------------- -------------
Provision for loan losses 1,075 495 2,262
------------- ------------- -------------
Balance at end of period $ 3,814 $ 4,855 $ 4,649
============= ============= =============
Ratio of net charge-offs to average
loans outstanding during the period .11% .11% .25%
============= ============= =============
</TABLE>
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.
7
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Other income for the two comparative periods decreased by $1.2 million, equaling
$1.4 million for the 1999 period and $2.6 million for the 1998 period. The
primary reason for the decrease 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 decreased $299,000, amounting to $4.8 million for the six months
ended March 31, 1999, and $4.5 million for the six months ended March 31, 1998.
Earnings per share, using the weighted average method, were $3.17 for the 1999
period compared to $3.46 for the 1998 period.
The effective tax rate for the 1999 period was 35.7% as compared to 35.9% for
the 1998 period.
Interest income for the three months ended March 31, 1999 amounted to $8.1
million as compared to $7.5 million for the three months ended March 31, 1998.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $4.5 million for
the 1999 period as compared to $4.1 million for the 1998 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 $335,000
in the 1999 period as compared to $404,000 in the 1998 period.
Other income decreased to $642,000 for the 1999 period compared to $749,000 for
the 1998 period.
Other expenses increased during the comparative periods amounting to $2.4
million for the 1999 period as compared to $2.1 million for the 1998 period.
The effective tax rate for the 1999 period was 35.8% as compared to 35.8% for
the 1998 period.
Liquidity
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was 14% for March 31, 1999, which exceeded the 4% 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.
8
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Regulatory Capital Requirements
The following table sets forth the Bank's capital position relative to its
various minimum regulatory capital requirements at March 31, 1999.
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tier 1 Capital (to total assets) $ 26,195 5.8%
Tier 1 Capital Requirement 17,792 4.0
------------- ------------
Excess $ 8,403 1.8%
============= ============
Tier 1 Capital (to risk-weighted assets) $ 26,195 9.7%
Tier 1 Capital Requirement 10,761 4.0
------------- ------------
Excess $ 15,434 5.7%
============= ============
Total Capital (to risk-weighted assets) $ 29,576 10.9%
Total Capital Requirement 21,522 8.0
------------- ------------
Excess $ 8,054 2.9%
============= ============
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 six
months ended March 31, 1999.
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 22, 1999
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
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: 5/13/99 By: /s/ Samuel R. Small
------------------------- ----------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 5/13/99 By: /s/ Steve G. Williams, Jr.
------------------------- ----------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000864927
<NAME> First Palmetto Financial Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,955
<INT-BEARING-DEPOSITS> 10,625
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 122,564
<INVESTMENTS-MARKET> 123,234
<LOANS> 282,312
<ALLOWANCE> 4,855
<TOTAL-ASSETS> 445,189
<DEPOSITS> 358,128
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,482
<LONG-TERM> 57,167
7
0
<COMMON> 0
<OTHER-SE> 27,405
<TOTAL-LIABILITIES-AND-EQUITY> 445,189
<INTEREST-LOAN> 12,024
<INTEREST-INVEST> 3,676
<INTEREST-OTHER> 788
<INTEREST-TOTAL> 16,488
<INTEREST-DEPOSIT> 7,390
<INTEREST-EXPENSE> 9,182
<INTEREST-INCOME-NET> 7,306
<LOAN-LOSSES> 495
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,759
<INCOME-PRETAX> 3,489
<INCOME-PRE-EXTRAORDINARY> 3,489
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,243
<EPS-BASIC> 3.17
<EPS-DILUTED> 3.17
<YIELD-ACTUAL> 3.43
<LOANS-NON> 1,583
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,649
<CHARGE-OFFS> 306
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 4,855
<ALLOWANCE-DOMESTIC> 4,855
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
