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 Number 0-18932
December 31, 1999 -------
FIRST PALMETTO FINANCIAL CORPORATION
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(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 February 10, 2000 712,010.
<PAGE>
INDEX
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Part I - Financial Information Page
- ------ ----
Consolidated Statement of Financial Condition as of
December 31, 1999 and September 30, 1999 1
Consolidated Statement of Income for the Three Months
Ended December 31, 1999 and 1998 2
Consolidated Statement of Cash Flows for the
Three Months Ended December 31, 1999 and 1998 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
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Signatures 9
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<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 9,416 $ 11,001
Interest-bearing deposits in other banks 12,328 8,748
Certificates of deposit in other banks 100 100
Investment securities (market value of $58,029 and $59,449 at
December 31, 1999 and September 30, 1999, respectively) 59,169 60,174
Mortgage-backed securities held for investment (market value of
$54,411 and $59,453 at December 31, 1999 and September 30, 1999,
respectively) 55,205 59,877
Loans, net of allowance for loan losses of $5,788 and $5,446 at
December 31, 1999 and September 30, 1999, respectively 333,778 317,012
Accrued interest receivable 3,378 3,150
Real estate acquired in settlement of loans 72 88
Stock in Federal Home Loan Bank (FHLB) 4,250 4,150
Premises and equipment 7,682 7,500
Prepaid expenses and other assets 2,038 3,951
--------- ---------
Total assets $ 487,416 $ 475,751
========= =========
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 371,288 $ 361,764
FHLB advances 85,000 83,000
Accrued expenses and other liabilities 1,513 2,756
--------- ---------
Total liabilities 457,801 447,520
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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,
752,014 shares issued at December 31, 1999 and
September 30, 1999 8 8
Additional paid-in capital 6,979 6,979
Retained earnings, substantially restricted 23,253 21,869
Treasury stock, at cost (40,004 shares at
December 31, 1999 and September 30, 1999) (625) (625)
--------- ---------
Total stockholders' equity 29,615 28,231
--------- ---------
Commitments
Total liabilities and stockholders' equity $ 487,416 $ 475,751
========= =========
</TABLE>
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
Ended Ended
December 31, December 31,
1999 1998
--------------- --------------
(In thousands, except per share
and number of shares data)
Interest income:
<S> <C> <C>
Loans $ 6,986 $ 6,013
Investment securities 897 1,338
Mortgage-backed securities 827 542
Other 238 449
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Total interest income 8,948 8,342
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Interest expense:
Deposits 3,836 3,761
FHLB advances 1,062 971
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Total interest expense 4,898 4,732
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Net interest income 4,050 3,610
Provision for loan losses 352 160
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Net interest income after provision for loan losses 3,698 3,450
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Other income:
Service charges 386 349
Loan servicing 72 90
Gain on sales of loans 69 280
Miscellaneous 110 76
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Total other income 637 795
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Other expense:
Compensation and fringe benefits 1,152 1,073
Net occupancy 246 266
Data processing fees 175 194
Telephone, postage, and supplies 128 153
Amortization of intangible assets 107 122
Federal and other insurance premiums 84 86
Miscellaneous 273 441
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Total other expense 2,165 2,335
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Income before income taxes 2,170 1,910
Income taxes 786 680
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Net income $ 1,384 $ 1,230
============== ==============
Earnings per share $ 1.94 $ 1.74
============== ==============
Average number of common shares outstanding - basic 712,010 708,010
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, December 31,
1999 1998
--------------- --------------
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 1,384 $ 1,230
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Accretion and amortization of investment discounts and premiums, net 5 (18)
Provision for loan losses 352 160
Gain (loss) on sale of real estate acquired in loans - 3
Depreciation 112 91
Amortization of intangible assets 107 121
Proceeds from sale of loans 4,104 19,458
Originations and principal repayments of loans held for sale, net (4,038) (19,178)
(Increase) decrease in accrued interest receivable (862) 267
Decrease in prepaid expenses and other assets 57 92
Increase (decrease) in accrued expenses and other liabilities 1,212 (631)
--------------- --------------
Net cash provided by operating activities 2,433 1,595
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Cash flows from investing activities:
Purchase of certificates of deposit - (10,000)
Proceeds from maturities of investment securities 7,000 11,000
Purchases of investment securities (6,000) (5,665)
Purchase of mortgage-backed securities - (7,519)
Principal repayments on mortgage-backed securities 4,672 10,230
Net increase in loans (17,246) (4,978)
Proceeds from sale of real estate acquired in settlement of loans 78 90
Purchases of real estate held for sale (74) (33)
Purchase of FHLB stock (100) (200)
Capital expenditures for premises and equipment (294) (161)
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Net cash used in investing activities (11,964) (7,236)
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Cash flows from financing activities:
Net increase in deposits 9,526 2,591
Proceeds from FHLB advances 5,000 10,000
Repayments of FHLB advances (3,000) -
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Net cash provided by financing activities 11,526 12,591
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Net increase (decrease) in cash and cash equivalents 1,995 6,950
Cash and cash equivalents at beginning of year 19,749 18,875
--------------- --------------
Cash and cash equivalents at end of year $ 21,744 $ 25,825
=============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,421 $ 4,830
=============== ==============
Income taxes $ 59 $ 1,090
=============== ==============
Supplemental schedule of noncash investing and financing activities:
Loans transferred to real estate acquired in settlement of loans $ 62 $ 110
=============== ==============
</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
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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
quarters ended December 31, 1999 and 1998.
4
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
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Financial Condition
- -------------------
Total assets increased to $487.4 million at December 31, 1998 as compared to
$475.8 million at September 30, 1999.
Loans receivable increased by $16.8 million from $317.0 million to $333.8
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,
1999 1999
--------------- --------------
(In thousands)
Real Estate
Mortgage $ 286,407 $ 268,849
Construction 4,867 8,456
Consumer 25,328 24,206
Commercial business 26,313 25,103
Less:
Undisbursed loan proceeds (3,140) (3,938)
Deferred loan fees (209) (218)
Allowance for loan losses (5,788) (5,446)
--------------- --------------
Total $ 333,778 $ 317,012
=============== ==============
As of December 31, 1999, and September 30, 1999, 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, 1999 and September 30,
1999, the Bank had non-accrual loans in the amount of $1.3 million 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 $85,000 and $56,000 at December 31, 1999 and
September 30, 1999, respectively. Interest income recognized on non-accrual
loans amounted to $4,000 and $36,000 for the periods ended December 31, 1999 and
September 30, 1999, respectively.
There were no loans which were not classified as non-accrual or restructured at
December 31, 1999 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 to $371.3 million at December 31, 1999 from $361.8 million at
September 30, 1999. The Bank's deposits increased $9.5 million or 2.6%.
Federal Home Loan Bank advances increased to $85.0 million at December 31, 1999,
from $83.0 million at September 30, 1999.
Stockholders' equity increased by $1.4 million which equaled net income for the
period. Book value per share at December 31, 1999, was $41.59 as compared to
$39.65 at September 30, 1999.
5
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Results of Operations
- ---------------------
Interest income for the three months ended December 31, 1999, amounted to $8.9
million as compared to $8.3 million for the three months ended December 31,
1998. The increase in interest income equaled $606,000 or 7.3%. 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, 1999,
amounted to $4.9 million as compared to $4.7 million for the comparative three
month period of 1998. Net interest income for the 1999 period was $4.0 million
as compared to $3.6 million for the 1998 period. The increase of $440,000
equaled 12.2%.
The following table sets forth an analysis of First Palmetto's allowance for
loan losses for the period indicated.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended
December 31, December 31, September 30,
1998 1999 1999
-------------- --------------- --------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 4,649 $ 5,446 $ 4,649
-------------- --------------- --------------
Loans charged off:
Real estate - - 2
Consumer 44 11 134
Commercial - 2 490
-------------- --------------- --------------
Total charge-offs 44 13 626
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Recoveries 2 3 279
-------------- --------------- --------------
Provision for loan losses 160 352 1,144
-------------- --------------- --------------
Balance at end of period $ 4,767 $ 5,788 $ 5,446
============== =============== ==============
Ratio of net charge-offs to average
loans outstanding during the period .02% .00% .12%
==========-=== =============== ==============
</TABLE>
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, 1999 was $352,000. This increased the
allowance for loan losses to $5.8 million at December 31, 1999 which compared to
a balance of $4.8 million as of December 31, 1998.
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 $158,000 totaling
$637,000 for the 1999 period and $795,000 for the 1998 period. The primary
reason for the decrease was a decrease on the gain on sales of loans in the 1999
quarter due to the sale of fewer loans.
Other expenses remained stable amounting to $2.2 million for the three months
ended December 31, 1999 and $2.3 million for the three months ended December 31,
1998.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Earnings per share, using the weighted average method, were $1.94 for the 1999
period compared to $1.74 for the 1998 period.
The effective tax rate was 36% for the 1999 and 1998 periods.
Liquidity
- ---------
First Palmetto's liquidity ratio as defined by the Federal Home Loan Bank
Regulations was 18% for December 31, 1999 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, 1999.
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tier 1 Capital (to total assets) $ 28,416 5.8%
Tier 1 Capital Requirement 19,508 4.0
--------------- -------------
Excess $ 8,908 1.8%
=============== =============
Tier 1 Capital (to risk-weighted assets) $ 28,416 9.4%
Tier 1 Capital Requirement 12,127 4.0
--------------- -------------
Excess $ 16,289 5.4%
=============== =============
Total Capital (to risk-weighted assets) $ 32,230 10.6%
Total Capital Requirement 24,254 8.0
--------------- -------------
Excess $ 7,976 2.6%
=============== =============
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, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Materially Important Events
---------------------------------
The Board of Directors of First Palmetto has proposed that
stockholders approve an amendment of 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. Approval of
the proposal would, among other things, allow First Palmetto to
terminate its obligation to file periodic reports and other documents
with the Securities and Exchange Commission ("SEC") and achieve a
savings of out-of-pocket and internal costs of compliance with such
reporting obligations.
Preliminary proxy solicitation materials relating to a stockholder
vote on such proposal at the 2000 Annual Meeting of Stockholders have
been filed with the SEC. Management currently anticipates that the
2000 Annual Meeting will be held in April.
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: February 11, 2000 By: /s/ Samuel R. Small
-------------------------- --------------------
Samuel R. Small
President and Chief Executive Officer
DATED: February 11, 2000 By: /s/ Steve G. Williams, Jr.
-------------------------- ---------------------------
Steve G. Williams, Jr.
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,416
<INT-BEARING-DEPOSITS> 12,328
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 59,169
<INVESTMENTS-MARKET> 58,029
<LOANS> 333,778
<ALLOWANCE> 5,788
<TOTAL-ASSETS> 487,416
<DEPOSITS> 371,288
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,513
<LONG-TERM> 85,000
0
0
<COMMON> 8
<OTHER-SE> 29,607
<TOTAL-LIABILITIES-AND-EQUITY> 487,416
<INTEREST-LOAN> 6,986
<INTEREST-INVEST> 1,724
<INTEREST-OTHER> 238
<INTEREST-TOTAL> 8,948
<INTEREST-DEPOSIT> 3,836
<INTEREST-EXPENSE> 4,898
<INTEREST-INCOME-NET> 4,050
<LOAN-LOSSES> 352
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 273
<INCOME-PRETAX> 2,170
<INCOME-PRE-EXTRAORDINARY> 2,170
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,384
<EPS-BASIC> 1.94
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 3.49
<LOANS-NON> 1,300
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,446
<CHARGE-OFFS> 13
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 5,788
<ALLOWANCE-DOMESTIC> 5,788
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
