FORM 10-Q
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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 0-18932
June 30, 2000
FIRST PALMETTO FINANCIAL CORPORATION
------------------------------------
(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
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(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 August 1, 2000, 717,010.
<PAGE>
INDEX
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Part I - Financial Information Page
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Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2000 and September 30, 1999 3
Consolidated Statements of Income for the Three Months
Ended June 30, 2000 and 1999 and the Nine Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 11
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
2000 1999
---- ----
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 8,588 $ 11,001
Interest-bearing deposits in other banks 10,276 8,748
Certificates of deposit in other banks 100 100
Investment securities held for investment (market value
of $66,870 and $59,449 at June 30, 2000 and
September 30, 1999, respectively) 68,166 60,174
Mortgage-backed securities held for investment (market value of
$48,325 and $59,453 at June 30, 2000 and September 30, 1999,
respectively) 49,200 59,877
Loans, net of allowance for loan losses of $6,390 and $5,446 at
June 30, 2000 and September 30, 1999, respectively 361,538 317,012
Accrued interest receivable 3,882 3,150
Real estate acquired in settlement of loans 45 88
Stock in Federal Home Loan Bank (FHLB) 5,175 4,150
Premises and equipment 8,962 7,500
Prepaid expenses and other assets 1,936 3,951
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Total assets $ 517,868 $ 475,751
========= =========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 394,101 $ 361,764
FHLB advances 90,000 83,000
Accrued expenses and other liabilities 1,031 2,756
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Total liabilities 485,132 447,520
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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, 757,014 shares and 752,014 shares
issued at June 30, 2000 and September 30, 1999, respectively 8 8
Additional paid-in capital 7,419 6,979
Retained earnings, substantially restricted 25,934 21,869
Treasury stock, at cost (40,004 shares at June 30, 2000
and September 30, 1999) (625) (625)
--------- ---------
Total stockholders' equity 32,736 28,231
--------- ---------
Total liabilities and stockholders' equity $ 517,868 $ 475,751
========= =========
</TABLE>
3
<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,
2000 1999 2000 1999
------------ ------------ ----------- -----------
(In thousands, except per share and number of shares data)
Interest income:
<S> <C> <C> <C> <C>
Loans $ 7,705 $ 6,248 $ 22,047 $ 18,272
Investments securities 1,042 1,069 2,913 3,653
Mortgage-backed securities 852 700 2,568 1,792
Other 181 203 612 991
--------- --------- --------- ---------
Total interest income 9,780 8,220 28,140 24,708
--------- --------- --------- ---------
Interest expense:
Deposits 4,172 3,563 12,011 10,953
FHLB advances 1,389 795 3,649 2,587
--------- --------- --------- ---------
Total interest expense 5,561 4,358 15,660 13,540
--------- --------- --------- ---------
Net interest income 4,219 3,862 12,480 11,168
Provision for loan losses 450 280 1,153 775
--------- --------- --------- ---------
Net interest income after
provision for loan losses 3,769 3,582 11,327 10,393
--------- --------- --------- ---------
Other income:
Service charges 389 346 1,135 1,013
Loan servicing 67 76 205 237
Gain on sale of loans 56 108 171 578
Gain on sale of investments (1) -- 2 --
Miscellaneous 174 62 371 201
--------- --------- --------- ---------
Total other income 685 592 1,884 2,029
--------- --------- --------- ---------
Other expense:
Compensation and fringe benefits 1,243 1,078 3,574 3,275
Net occupancy 284 295 787 782
Data processing fees 172 195 568 570
Telephone, postage, and supplies 204 138 506 461
Amortization of intangible assets 79 121 266 364
Federal and other insurance premiums 63 84 213 257
Miscellaneous 392 434 920 1,395
--------- --------- --------- ---------
Total other expense 2,437 2,345 6,834 7,104
--------- --------- --------- ---------
Income before income taxes 2,017 1,829 6,377 5,318
Income taxes 733 667 2,313 1,913
--------- --------- --------- ---------
NET INCOME $ 1,284 $ 1,162 $ 4,064 $ 3,405
========= ========= ========= =========
EARNINGS PER SHARE $ 1.80 $ 1.64 $ 5.70 $ 4.81
========= ========= ========= =========
Average number of common shares
outstanding - basic 715,197 708,010 713,068 708,010
========= ========= ========= =========
</TABLE>
4
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, June 30,
2000 1999
----------- -----------
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 4,064 $ 3,405
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion and amortization of investments discounts
and premiums, net 8 102
Provision for loan losses 1,153 775
Gain on sale of loans (171) (578)
Gain on sale of real estate acquired in settlement of loans -- (5)
Depreciation 296 268
Amortization of intangible assets 266 364
Proceeds from sale of loans 10,375 38,514
Originations and principal repayments of loans held for sale, net (10,204) (37,936)
(Increase) decrease in accrued interest receivable (732) 118
(Increase) decrease in prepaid expenses and other assets 16 (85)
Increase (decrease) in accrued expenses and other liabilities 97 (1,830)
-------- --------
Net cash provided by operating activities 5,168 3,112
-------- --------
Cash flows from investing activities:
Proceeds from maturities of investment securities 17,000 25,318
Purchases of investment securities (25,000) (38,127)
Purchases of mortgage-backed securities -- (7,519)
Principal repayments on mortgage-backed securities 10,676 36,332
Net increase in loans (45,741) (31,708)
Improvements and purchases of real estate held for development (90) (231)
Purchase of FHLB stock (1,025) --
Proceeds from redemption of FHLB stock -- 133
Proceeds from sale of real estate acquired in settlement of loans 106 488
Capital expenditures for premises and equipment (1,757) (1,030)
-------- --------
Net cash used in investing activities (45,831) (16,344)
-------- --------
</TABLE>
5
<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,
2000 1999
------------- -------------
(In thousands)
Cash flows from financing activities:
<S> <C> <C>
Net increase in deposits 32,337 9,721
Proceeds from FHLB advances 51,000 15,000
Repayment of FHLB advances (44,000) (13,667)
Sale of common stock 440 -
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Net cash provided by financing activities 39,777 11,054
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Net decrease in cash and cash equivalents (886) (2,178)
Cash and cash equivalents at beginning of the period 19,749 18,875
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Cash and cash equivalents at end of the period $ 18,863 $ 16,697
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 15,366 $ 13,762
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Income taxes $ 1,935 $ 1,700
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Supplemental schedule of noncash investing and financing activities:
Decrease in unrealized gain on available for sale securities $ -0- $ -0-
============= =============
Loans transferred to real estate acquired in settlement of loans $ 62 $ 220
============= =============
</TABLE>
6
<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, 2000
and 1999.
7
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Financial Condition
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Total Assets at June 30, 2000 amounted to $517.9 million as compared to $475.8
million at September 30, 1999, an increase of $42.1 million or 8.8%.
Loans receivable increased by $44.5 million or 14.0% from $317.0 million at
September 30, 1999 to $361.5 million at June 30, 2000.
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,
2000 1999
--------- -------------
(In thousands)
Real Estate:
Mortgage $ 308,298 $ 268,849
Construction 7,436 8,456
Consumer 24,847 24,206
Commercial business 30,073 25,103
Less:
Undisbursed loan proceeds (2,527) (3,938)
Deferred loan fees (199) (218)
Allowance for loan losses (6,390) (5,446)
--------- ---------
Total $ 361,538 $ 317,012
========= =========
As of June 30, 2000 and September 30, 1999, 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, 2000 and September 30, 1999,
the Bank had non-accrual loans in the amount of $1,680,000 and $836,000,
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 $111,000 and $56,000 at June 30, 2000 and September
30, 1999, respectively. Interest income recognized on non-accrual loans amounted
to $43,000 and $36,000 for the periods ended June 30, 2000 and September 30,
1999, respectively.
There were no loans which were not classified as non-accrual or restructured at
June 30, 2000 or September 30, 1999 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 $32.3 million or 8.9% during the nine month period to
$394.1 million at June 30, 2000 from $361.8 million at September 30, 1999.
8
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Federal Home Loan Bank advances increased to $90.0 million at June 30, 2000,
from $83.0 million at September 30, 1999.
Stockholders' Equity increased by $4.5 million which equaled net income for the
period of $4.1 million and sale of common stock of $440,000. Book value per
share at June 30, 2000, was $45.66 as compared to $39.65 at September 30, 1999.
Results of Operations
---------------------
Interest income for the nine months ended June 30, 2000, amounted to $28.1
million as compared to $24.7 million for the nine months ended June 30, 1999.
The increase in interest income equaled $3.4 million or 13.8%. The primary
reason was an increase in interest-earning assets and a slight increase in
interest rates. Interest expense for the nine months ended June 30, 2000,
amounted to $15.7 million as compared to $13.5 million for the comparative nine
month period of 1999. The increase in interest expense equaled $2.2 million or
16.3%. Interest on deposits increased by $1.0 million or 9.0%. Interest on FHLB
advances for the 2000 period was $3.6 million as compared to $2.6 million for
the 1999 period. For the latter period, the bank had an increased amount of
outstanding advances from FHLB. Net interest income for the 2000 period was
$12.5 million as compared to $11.2 million for the 1999 period. The increase of
$1.3 million equaled 11.6%.
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,
1999 2000 1999
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 4,649 $ 5,446 $ 4,649
------------- ------------- -------------
Loans charged off:
Real estate 238 233 2
Consumer 101 42 134
Commercial - 68 490
------------- ------------- -------------
Total charge-offs 339 343 626
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Recoveries 23 134 279
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Provision for loan losses 775 1,153 1,144
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Balance at end of period $ 5,108 $ 6,390 $ 5,446
============= ============= =============
Ratio of net charge-offs to average
loans outstanding during the period annualized .11% .08% .12%
============= ============= =============
</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.
9
<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, 2000 decreased, equaling $1.9
million for the 2000 period and $2.0 million for the 1999 period. The primary
reason for the decrease was the gain on the sale of loans decreased in the 2000
period amounting to $171,000 in the 2000 period and $578,000 in the 1999 period.
Other expenses decreased $300,000, amounting to $6.8 million for the nine months
ended June 30, 2000, and $7.1 million for the nine months ended June 30, 1999.
Earnings per share, using the weighted average method, were $5.70 for the 2000
period compared to $4.81 for the 1999 period.
The effective tax rate for the nine months ended June 30, 2000 was 36.3% as
compared to 36.0% for the 1999 period.
Interest income for the three months ended June 30, 2000 amounted to $9.8
million as compared to $8.2 million for the three months ended June 30, 1999.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $5.6 million for
the 2000 period and $4.4 million for the 1999 period. This is primarily
attributable to an increase in interest rates and deposit volume.
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 $450,000
in the 2000 period as compared to $280,000 in the 1999 period.
Other income increased to $685.000 for the 2000 period compared to $592,000 for
the 1999 period.
Other expenses increased during the comparative periods amounting to $2.4
million for the 2000 period as compared to $2.3 million for the 1999 period.
The effective tax rate for the three months ended June 30, 2000 was 36.3% as
compared to 36.5% for the 1999 period.
Liquidity
---------
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was approximately 15% for June 30, 2000, 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.
10
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FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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Regulatory Capital Requirements
-------------------------------
The following table sets forth the Bank's capital position relative to its
various minimum regulatory capital requirements at June 30, 2000.
<TABLE>
<CAPTION>
Percent of
Amount Assets
------ ------
(Dollars in thousands)
<S> <C> <C>
Tier 1 Capital (to total assets) $ 31,622 6.1%
Tier 1 Capital Requirement 20,766 4.0
------------- ------------
Excess $ 10,856 2.1%
============= ============
Tier 1 Capital (to risk-weighted assets) $ 31,622 8.9%
Tier 1 Capital Requirement 14,184 4.0
------------- ------------
Excess $ 17,438 4.9%
============= ============
Total Capital (to risk-weighted assets) $ 36,080 10.2%
Total Capital Requirement 28,368 8.0
------------- ------------
Excess $ 7,712 2.2%
============= ============
</TABLE>
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, 2000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 19, 2000, the Company held its Annual Meeting of Stockholders at which
the following matters were considered and voted on:
Proposal I - Election of Directors:
Nominees For Withheld
-------- --- --------
Pierce W. Cantey, Jr. 654,505 4,481
William R. Clyburn 621,232 37,754
There were no abstentions or broker non-votes.
11
<PAGE>
Proposal II - Approval of a proposal to amend First Palmetto's Restated
Certificate of Incorporation to effect a 1-for-125 reverse stock split of the
Common Stock and to issue shares of Preferred Stock in exchange for shares of
Common Stock held by any First Palmetto stockholder who, following the reverse
stock split, would otherwise hold less than one share of Common Stock of record
in any separate account:
For Against Abstain
--- ------- -------
608,974 19,120 4,077
There were 26,815 broker non-votes.
ITEM 5. OTHER INFORMATION
At the Annual Meeting of Stockholders held on June 29, 2000, First Palmetto's
stockholders approved the reverse stock split proposal described above. It is
expected that the reverse stock split will be effective on August 16, 2000, or
as soon thereafter as practicable. Subsequent to the effective date of the
reverse stock split, First Palmetto will terminate the registration of its
Common Stock under the Securities Exchange Act of 1934, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) None.
12
<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: August 14, 2000 By: /s/ Samuel R. Small
--------------- --------------------
Samuel R. Small
President and Chief Executive Officer
DATED: August 14, 2000 By: /s/ Steve G. Williams, Jr.
--------------- ---------------------------
Steve G. Williams, Jr.
Chief Financial Officer
