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 Commission File 0-18932
June 30, 1999
FIRST PALMETTO FINANCIAL CORPORATION
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(Exact Name of Registrant As Specified In Its Charter)
Delaware 57-0921284
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(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 August 9, 1999 708,010.
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<PAGE>
INDEX
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Part I - Financial Information Page
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Consolidated Statements of Financial Condition as of
June 30, 1999 and September 30, 1998 1
Consolidated Statements of Income for the Three Months
Ended June 30, 1999 and 1998 and the Nine Months Ended
June 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 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 STATEMENTS of FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
1999 1998
---------- -------------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 6,322 $ 6,983
Interest-bearing deposits in other banks 10,375 11,892
Certificates of deposit in other banks 100 100
Investment securities held for investment (market value
of $50,299 and $38,521 at June 30, 1999 and
September 30, 1998, respectively) 50,798 37,969
Mortgage-backed securities held for investment (market value of
$66,494 and $97,654 at June 30, 1999 and September 30, 1998,
respectively) 66,927 95,862
Loans, net of allowance for loan losses of $5,108 and $4,649 at
June 30, 1999 and September 30, 1998, respectively 294,707 263,989
Accrued interest receivable 3,008 3,126
Real estate acquired in settlement of loans 232 500
Stock in Federal Home Loan Bank (FHLB) 3,200 3,333
Premises and equipment 7,426 6,664
Prepaid expenses and other assets 3,278 3,327
------------- -------------
Total assets $ 446,373 $ 433,745
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 353,667 $ 343,947
FHLB advances 62,000 60,667
Accrued expenses and other liabilities 2,132 3,962
------------- -------------
Total liabilities 417,799 408,576
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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, 1999
and September 30, 1998 7 7
Additional paid-in capital 6,680 6,680
Retained earnings, substantially restricted 22,512 19,107
Treasury stock, at cost (40,004 shares at June 30, 1999
and September 30, 1998) (625) (625)
------------- -------------
Total stockholders' equity 28,574 25,169
------------- -------------
Total liabilities and stockholders' equity $ 446,373 $ 433,745
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share and number of shares data)
Interest income:
<S> <C> <C> <C> <C>
Loans $ 6,248 $ 5,768 $ 18,272 $ 17,069
Mortgage-backed securities 700 719 1,792 2,327
Investments securities 1,069 1,025 3,653 2,216
Other 203 367 991 1,133
------------- ------------- ------------- -------------
Total interest income 8,220 7,879 24,708 22,745
------------- ------------- ------------- -------------
Interest expense:
Deposits 3,563 3,882 10,953 11,285
FHLB advances 795 526 2,587 1,251
------------- ------------- ------------- -------------
Total interest expense 4,358 4,408 13,540 12,536
------------- ------------- ------------- -------------
Net interest income 3,862 3,471 11,168 10,209
Provision for loan losses 280 500 775 1,575
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 3,582 2,971 10,393 8,634
------------- ------------- ------------- -------------
Other income:
Service charges 346 334 1,013 971
Loan servicing 76 103 237 358
Gain on sale of loans 108 175 578 352
Gain on sale of investments - - - 632
Miscellaneous 62 18 201 940
------------- ------------- ------------- -------------
Total other income 592 630 2,029 3,253
------------- ------------- ------------- -------------
Other expense:
Compensation and fringe benefits 1,078 1,012 3,275 3,081
Net occupancy 295 325 782 886
Data processing fees 195 232 570 579
Telephone, postage, and supplies 138 140 461 427
Amortization of intangible assets 121 75 364 272
Federal and other insurance premiums 84 76 257 236
Miscellaneous 434 325 1,395 1,164
------------- ------------- ------------- -------------
Total other expense 2,345 2,185 7,104 6,645
------------- ------------- ------------- -------------
Income before income taxes 1,829 1,416 5,318 5,242
Income taxes 667 515 1,913 1,892
------------- ------------- ------------- -------------
NET INCOME $ 1,162 $ 901 $ 3,405 $ 3,350
============= ============= ============= =============
EARNINGS PER SHARE $ 1.64 $ 1.27 $ 4.81 $ 4.73
============= ============= ============= =============
Average number of common shares
outstanding - basic 708,010 708,010 708,010 708,010
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, June 30,
1999 1998
---- ----
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 3,405 $ 3,350
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 102 (137)
Provision for loan losses 775 1,575
Gain on sale of loans (578) (352)
Gain on sale of branch site - (784)
Gain on sale of real estate acquired in settlement of loans (5) -
Depreciation 268 407
Amortization of intangible assets 364 272
Proceeds from sale of loans 38,514 20,175
Originations and principal repayments of loans held for sale, net (37,936) (19,823)
(Increase) decrease in accrued interest receivable 118 (126)
Increase in prepaid expenses and other assets (85) (75)
Increase (decrease) in accrued expenses and other liabilities (1,830) 1,443
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Net cash provided by operating activities 3,112 5,293
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Cash flows from investing activities:
Net decrease in certificates of deposits - 299
Proceeds from sale of available-for-sale securities - 1,304
Purchases of available-for-sale securities - (250)
Proceeds from maturities of investment securities 25,318 26,074
Purchases of investment securities (38,127) (19,346)
Purchases of mortgage-backed securities (7,519) (70,845)
Principal repayments on mortgage-backed securities 36,332 8,560
Net increase in loans (31,708) (13,696)
Improvements and purchases of real estate held for development (231) (277)
Purchase of FHLB stock - (1,304)
Proceeds from redemption of FHLB stock 133 -
Proceeds from sale of real estate acquired in settlement of loans 488 321
Proceeds from sale of premises and equipment - 83
Capital expenditures for premises and equipment (1,030) (630)
Sale of branch - (5,547)
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Net cash used in investing activities (16,344) (75,254)
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</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, June 30,
1999 1998
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(In thousands)
Cash flows from financing activities:
<S> <C> <C>
Net increase in deposits 9,721 34,028
Proceeds from FHLB advances 15,000 44,633
Repayment of FHLB advances (13,667) (5,200)
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Net cash provided by financing activities 11,054 73,461
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Net increase (decrease) in cash and cash equivalents (2,178) 3,500
Cash and cash equivalents at beginning of the period 18,875 24,805
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Cash and cash equivalents at end of the period $ 16,697 $ 28,305
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 13,762 $ 12,355
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Income taxes $ 1,700 $ 1,102
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Supplemental schedule of noncash investing and financing activities:
Decrease in unrealized gain on available for sale securities $ - $ 305
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Loans transferred to real estate acquired in settlement of loans $ 220 $ 467
============= =============
</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 10-Q 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 Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("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 other
comprehensive income items for the nine months ended June 30, 1999.
The statement of comprehensive income for the nine months ended June
30, 1998 is as follows:
Net income $ 3,350
Other comprehensive income, net of tax:
Unrealized gains on securities
available-for-sale, net of tax 94
Less, reclassification adjustment for
gains included in net income, net of tax (305)
-------------
Total comprehensive income $ 3,139
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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, 1999 amounted to $446.4 million as compared to $433.7
million at September 30, 1998, an increase of $12.7 million or 2.9%.
Loans receivable increased by $30.7 million or 11.6% from $264.0 million at
September 30, 1998 to $294.7 million at June 30, 1999.
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,
1999 1998
---- ----
(In thousands)
Real Estate:
Mortgage $ 248,058 $ 217,504
Construction 5,119 9,127
Consumer 25,908 29,847
Commercial business 23,713 15,724
Less:
Undisbursed loan proceeds (2,766) (3,325)
Deferred loan fees (217) (239)
Allowance for loan losses (5,108) (4,649)
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Total $ 294,707 $ 263,989
============= =============
As of June 30, 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 June 30, 1999 and September 30, 1998,
the Bank had non-accrual loans in the amount of $1.6 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 $48,000 and $36,000 at June 30, 1999 and September
30, 1998, respectively. Interest income recognized on non-accrual loans amounted
to $32,000 and $25,000 for the periods ended June 30, 1999 and September 30,
1998, respectively.
There were no loans which were not classified as non-accrual or restructured at
June 30, 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 $9.7 million or 2.8% during the nine month period to
$353.7 million at June 30, 1999 from $343.9 million at September 30, 1998.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
Federal Home Loan Bank advances increased to $62.0 million at June 30, 1999,
from $60.7 million at September 30, 1998.
Stockholders' Equity increased by $3.4 million which equaled net income for the
period. Book value per share at June 30, 1999, was $40.36 as compared to $35.55
at September 30, 1998.
Results of Operations
Interest income for the nine months ended June 30, 1999, amounted to $24.7
million as compared to $22.7 million for the nine months ended June 30, 1998.
The increase in interest income equaled $2.0 million or 8.6%. 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 nine months ended June 30, 1999, amounted to $13.5 million as
compared to $12.5 million for the comparative nine month period of 1998. The
increase in interest expense equaled $1.0 million or 8.0%. Interest on deposits
decreased by $332,000 or 2.9%. Interest on FHLB advances for the 1999 period was
$2.6 million as compared to $1.3 million for the 1998 period. For the latter
period, the bank had an increased amount of outstanding advances from FHLB. Net
interest income for the 1999 period was $11.2 million as compared to $10.2
million for the 1998 period. The increase of $1.0 million equaled 9.4%.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended Year Ended
June, June, 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 25 238 148
Consumer 152 101 394
Commercial 355 - 395
------------- ------------- -------------
Total charge-offs 532 339 937
------------- ------------- -------------
Recoveries 301 23 315
------------- ------------- -------------
Provision for loan losses 1,575 775 2,262
------------- ------------- -------------
Balance at end of period $ 4,353 $ 5,108 $ 4,649
============= ============= =============
Ratio of net charge-offs to average
loans outstanding during the period annualized .11% .11% .25%
============= ============= =============
</TABLE>
The allowance for loan losses is the amount considered adequate to absorb
inherent losses in the loan portfolio. Management's evaluation of the adequacy
of the allowance is based on a review of such factors which include the market
value of the underlying collateral, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, delinquency trends, history of charge-offs and economic conditions.
7
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
While management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ from the
assumptions used in making the evaluations.
Other income for the nine months ended June 30, 1999 decreased, equaling $2.0
million for the 1999 period and $3.3 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 increased $459,000, amounting to $7.1 million for the nine months
ended June 30, 1999, and $6.6 million for the nine months ended June 30, 1998.
Earnings per share, using the weighted average method, were $4.81 for the 1999
period compared to $4.73 for the 1998 period.
The effective tax rate for the nine months ended June 30, 1999 was 36.0% as
compared to 36.1% for the 1998 period.
Interest income for the three months ended June 30, 1999 amounted to $8.2
million as compared to $7.9 million for the three months ended June 30, 1998.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $4.4 million for
the 1999 and 1998 periods.
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 $280,000
in the 1999 period as compared to $500,000 in the 1998 period.
Other income decreased to $592,000 for the 1999 period compared to $630,000 for
the 1998 period.
Other expenses increased during the comparative periods amounting to $2.3
million for the 1999 period as compared to $2.2 million for the 1998 period.
The effective tax rate for the three months ended June 30, 1999 was 36.5% as
compared to 36.3% for the 1998 period.
Liquidity
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was 14.71% for June 30, 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 June 30, 1999.
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tier 1 Capital (to total assets) $ 27,428 6.15%
Tier 1 Capital Requirement 17,830 4.00
------------- --------
Excess $ 9,598 2.15%
============= ========
Tier 1 Capital (to risk-weighted assets) $ 27,428 9.80%
Tier 1 Capital Requirement 11,162 4.00
------------- --------
Excess $ 16,266 5.80%
============= ========
Total Capital (to risk-weighted assets) $ 30,929 11.10%
Total Capital Requirement 22,324 8.00
------------- --------
Excess $ 8,605 3.10%
============= ========
Year 2000 Considerations
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If uncorrected, many computer
programs could fail or create erroneous results by or at the Year 2000. The Year
2000 issue affects virtually all companies and organizations.
The business risks associated with Year 2000 are considerable. Some of the risks
include errors in accruing interest for loans and deposits, communication
devices may become inoperable, and basic utilities may cease to be provided.
Recognizing the risks of computer errors as the result of Year 2000, the Federal
Financial Institutions Examination Council ("FFIEC") issued an interagency
statement on May 5, 1997, providing an outline for institutions to effectively
manage the Year 2000 challenges. The guidance identified the following five
stages for Year 2000 management: awareness, assessment, renovation, testing and
implementation stages. First Palmetto has completed all five stages of its
mission critical systems and is confident the Bank will be prepared for a smooth
transition to the Year 2000.
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 nine
months ended June 30, 1999.
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
Pursuant to the requirements of the Securities 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: 8/12/99 By: /s/ Samuel R. Small
------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: 8/12/99 By: /s/ Steve G. Williams, Jr.
------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000864927
<NAME> FIRST PALMETTO FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,322
<INT-BEARING-DEPOSITS> 10,475
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 117,725
<INVESTMENTS-MARKET> 116,793
<LOANS> 294,707
<ALLOWANCE> 5,108
<TOTAL-ASSETS> 446,373
<DEPOSITS> 353,667
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,132
<LONG-TERM> 62,000
0
0
<COMMON> 7
<OTHER-SE> 28,567
<TOTAL-LIABILITIES-AND-EQUITY> 446,373
<INTEREST-LOAN> 18,272
<INTEREST-INVEST> 5,445
<INTEREST-OTHER> 991
<INTEREST-TOTAL> 24,708
<INTEREST-DEPOSIT> 10,953
<INTEREST-EXPENSE> 13,540
<INTEREST-INCOME-NET> 11,168
<LOAN-LOSSES> 775
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,104
<INCOME-PRETAX> 5,318
<INCOME-PRE-EXTRAORDINARY> 5,318
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,405
<EPS-BASIC> 4.81
<EPS-DILUTED> 4.81
<YIELD-ACTUAL> 3.33
<LOANS-NON> 1,600
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,649
<CHARGE-OFFS> 339
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 5,108
<ALLOWANCE-DOMESTIC> 5,108
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
