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
March 31, 2000
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 May 11, 2000 712,010.
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<PAGE>
INDEX
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Part I - Financial Information Page
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Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
March 31, 2000 and September 30, 1999 1
Consolidated Statement of Income for the Three Months
Ended March 31, 2000 and 1999 and the Six Months Ended
March 31, 2000 and 1999 2
Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 2000 and 1999 3-4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Signatures 10
<PAGE>
Item 1. Financial Statements
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------- -------------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 8,329 $ 11,001
Interest-bearing deposits in other banks 6,501 8,748
Certificates of deposit in other banks 100 100
Investment securities held to maturity (market value of $67,232 and
$59,449 at March 31, 2000 and September 30, 1999, respectively) 68,667 60,174
Mortgage-backed securities held for maturity (market value of
$51,049 and $59,453 at March 31, 2000 and September 30, 1999,
respectively) 52,096 59,877
Loans, net of allowance for loan losses of $6,044 and $5,446 at
March 31, 2000 and September 30, 1999, respectively 348,313 317,012
Accrued interest receivable 3,515 3,150
Real estate acquired in settlement of loans 45 88
Stock in Federal Home Loan Bank (FHLB) 4,450 4,150
Premises and equipment 8,644 7,500
Prepaid expenses and other assets 1,944 3,951
------------- -------------
Total assets $ 502,604 $ 475,751
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $ 382,232 $ 361,764
FHLB advances 89,000 83,000
Accrued expenses and other liabilities 361 2,756
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Total liabilities 471,593 447,520
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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 March 31, 2000
and September 30, 1999 8 8
Additional paid-in capital 6,979 6,979
Retained earnings, substantially restricted 24,649 21,869
Treasury stock, at cost (40,004 shares at March 31, 2000
and September 30, 1999) (625) (625)
------------- -------------
Total stockholders' equity 31,011 28,231
------------- -------------
Total liabilities and stockholders' equity $ 502,604 $ 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 Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share and number of shares data)
Interest income:
<S> <C> <C> <C> <C>
Loans $ 7,356 $ 6,011 $ 14,342 $ 12,024
Investments securities 974 550 1,871 1,092
Mortgage-backed securities 889 1,246 1,716 2,584
Other 193 339 431 788
-------- -------- -------- --------
Total interest income 9,412 8,146 18,360 16,488
-------- -------- -------- --------
Interest expense:
Deposits 4,003 3,629 7,839 7,390
FHLB advances 1,198 821 2,260 1,792
-------- -------- -------- --------
Total interest expense 5,201 4,450 10,099 9,182
-------- -------- -------- --------
Net interest income 4,211 3,696 8,261 7,306
Provision for loan losses 351 335 703 495
-------- -------- -------- --------
Net interest income after
provision for loan losses 3,860 3,361 7,558 6,811
-------- -------- -------- --------
Other income:
Service charges 360 318 746 667
Loan servicing 66 71 138 161
Gain on sale of loans 46 190 115 470
Gain on sale of investments 3 -- 3 --
Miscellaneous 87 63 197 139
-------- -------- -------- --------
Total other income 562 642 1,199 1,437
-------- -------- -------- --------
Other expense:
Compensation and fringe benefits 1,179 1,124 2,331 2,197
Net occupancy 257 221 503 487
Data processing fees 221 181 396 375
Telephone, postage, and supplies 174 170 302 323
Amortization of tangible assets 80 121 187 243
Federal and other insurance premiums 66 87 150 173
Miscellaneous 255 520 528 961
-------- -------- -------- --------
Total other expense 2,232 2,424 4,397 4,759
-------- -------- -------- --------
Income before income taxes 2,190 1,579 4,360 3,489
Income taxes 794 566 1,580 1,246
-------- -------- -------- --------
NET INCOME $ 1,396 $ 1,013 $ 2,780 $ 2,243
======== ======== ======== ========
EARNINGS PER SHARE $ 1.96 $ 1.43 $ 3.90 $ 3.17
======== ======== ======== ========
Weighted average number of shares 712,010 708,010 712,010 708,010
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
2000 1999
-------- --------
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 2,780 $ 2,243
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion and amortization of investments discounts
and premiums, net 7 56
Provision for loan losses 703 495
Gain on sale of loans (115) (470)
Gain on sale of real estate acquired in settlement of loans -- 2
Depreciation 179 160
Amortization of intangible assets 187 243
Proceeds from sale of loans 7,191 31,378
Originations and principal repayments of loans held for sale, net (7,076) (30,908)
(Increase) decrease in accrued interest receivable (365) 318
(Increase) decrease in prepaid expenses and other assets 90 (32)
Decrease in accrued expenses and other liabilities (576) (1,480)
-------- --------
Net cash provided by operating activities 3,005 2,005
-------- --------
Cash flows from investing activities:
Net increase in certificates of deposits -- (5,000)
Proceeds from maturities of investment securities 5,000 19,665
Purchases of investment securities (13,500) (25,111)
Purchases of mortgage-backed securities -- (7,519)
Principal repayments on mortgage-backed securities 7,781 24,174
Net increase in loans (32,065) (18,692)
Improvements and purchases on real estate held for development (92) (209)
Purchase of FHLB stock (300) --
Proceeds from redemption of FHLB stock -- (25)
Proceeds from sale of real estate acquired in settlement of loans 106 165
Proceeds from sale of premises and equipment (1,322) --
Capital expenditures for premises and equipment -- (429)
-------- --------
Net cash used in investing activities (34,392) (12,981)
-------- --------
</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,
2000 1999
------------- -------------
(In thousands)
Cash flows from financing activities:
<S> <C> <C>
Net increase in deposits 20,468 14,181
Proceeds from FHLB advances 11,000 10,000
Repayment of FHLB advances (5,000) (13,500)
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Net cash provided by financing activities 26,468 10,681
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Net decrease in cash and cash equivalents (4,919) (295)
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 $ 14,830 $ 18,580
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of capitalization) $ 9,936 $ 9,014
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Income taxes $ 1,933 $ 1,924
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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 $ 126
============= =============
</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
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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
--------------------
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," addresses 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, 2000 and 1999.
5
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
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Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Financial Condition
- -------------------
Total Assets at March 31, 2000 amounted to $502.6 million as compared to $475.8
million at September 30, 1999, a increase of $26.8 million or 5.6%.
Loans receivable increased by $31.3 million or 9.9% from $317.0 million to
$348.3 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,
2000 1999
------------- -------------
(In thousands)
Real Estate:
Mortgage $ 298,984 $ 268,849
Construction 4,696 8,456
Consumer 25,386 24,206
Commercial business 28,696 25,103
Less:
Undisbursed loan proceeds (3,201) (3,938)
Deferred loan fees (204) (218)
Allowance for loan losses (6,044) (5,446)
------------- -------------
Total $ 348,313 $ 317,012
============= =============
As of March 31, 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 March 31, 2000 and September 30, 1999,
the Bank had non-accrual loans in the amount of $915,000 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 $74,000 and $56,000 at March 31, 2000 and September
30, 1999, respectively. Interest income recognized on non-accrual loans amounted
to $6,000 and $36,000 for the periods ended March 31, 2000 and September 30,
1999, respectively.
There were no loans which were not classified as non-accrual or restructured at
March 31, 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 $20.4 million or 5.6% during the six month period to
$382.2 million at March 31, 2000 from $361.8 million at September 30, 1999.
6
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Federal Home Loan Bank advances increased to $89.0 million at March 31, 2000,
from $83.0 million at September 30, 1999.
Stockholders' Equity increased by $2.8 million which equaled net income for the
period. Book value per share at March 31, 2000, was $43.55 as compared to $39.65
at September 30, 1999.
Results of Operations
- ---------------------
Interest income for the six months ended March 31, 2000, amounted to $18.4
million as compared to $16.5 million for the six months ended March 31, 1999.
The increase in interest income equaled $1.9 million or 11.5%. 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, 2000, amounted to $10.1
million as compared to $9.2 million for the comparative six month period of
1999. The increase in interest expense equaled $900,000 or 9.8%. Interest on
deposits increased by $449,000 or 6.1%. Interest on FHLB advances for the 2000
period was $2.3 million as compared to $1.8 million for the 1999 period. For the
latter period, the bank had an increased amount of outstanding advances to FHLB.
Net interest income for the 2000 period was $8.3 million as compared to $7.3
million for the 1999 period. The increase of $955,000 equaled 13.1%.
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,
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 33 2
Consumer 68 31 134
Commercial - 68 490
------------- ------------- -------------
Total charge-offs 306 132 626
------------- ------------- -------------
Recoveries 17 27 279
------------- ------------- -------------
Provision for loan losses 495 703 1,144
------------- ------------- -------------
Balance at end of period $ 4,855 $ 6,044 $ 5,446
============= ============= =============
Ratio of net charge-offs to average
loans outstanding during the period .11% .00% .12%
============= ============= =============
</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.
7
<PAGE>
FIRST PALMETTO FINANCIAL CORPORATION and SUBSIDIARY
---------------------------------------------------
Other income for the two comparative periods decreased by $238,000, equaling
$1.2 million for the 2000 period and $1.4 million for the 1999 period. The
primary reason for the decrease was the gain on the sale of loans decreased in
the 2000 period.
Other expenses decreased $362,000, amounting to $4.4 million for the six months
ended March 31, 2000, and $4.8 million for the six months ended March 31, 1999.
Earnings per share, using the weighted average method, were $3.90 for the 2000
period compared to $3.17 for the 1999 period.
The effective tax rate for the 2000 period was 36.2% as compared to 35.7% for
the 1999 period.
Interest income for the three months ended March 31, 2000 amounted to $9.4
million as compared to $8.1 million for the three months ended March 31, 1999.
The increase in interest income is primarily attributable to an increase in the
volume of interest-earning assets. Interest expense amounted to $5.2 million for
the 2000 period as compared to $4.5 million for the 1999 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 $351,000
in the 2000 period as compared to $335,000 in the 1999 period.
Other income decreased to $562,000 for the 2000 period compared to $642,000 for
the 1999 period.
Other expenses decreased during the comparative periods amounting to $2.2
million for the 2000 period as compared to $2.4 million for the 1999 period.
The effective tax rate for the 2000 period was 36.2% as compared to 35.8% for
the 1999 period.
Liquidity
- ---------
The Bank's liquidity ratio as defined by the Federal Home Loan Bank Regulations
was 16.1% for March 31, 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.
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, 2000.
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tier 1 Capital (to total assets) $ 29,837 5.9%
Tier 1 Capital Requirement 20,152 4.0
------------- -----------
Excess $ 9,685 1.9%
============= ===========
Tier 1 Capital (to risk-weighted assets) $ 29,837 8.8%
Tier 1 Capital Requirement 13,577 4.0
------------- -----------
Excess $ 16,260 4.8%
============= ===========
Total Capital (to risk-weighted assets) $ 34,102 10.0%
Total Capital Requirement 27,153 8.0
------------- -----------
Excess $ 6,949 2.0%
============= ===========
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, 2000.
9
<PAGE>
Signatures
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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: May 15, 2000 By: /s/ Samuel R. Small
---------------------------------------
Samuel R. Small
President and Chief Executive Officer
DATED: May 15, 2000 By: /s/ Steve G. Williams, Jr.
---------------------------------------
Steve G. Williams, Jr.
Chief Financial Officer
10
<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> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 8,329
<INT-BEARING-DEPOSITS> 6,501
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 120,763
<INVESTMENTS-MARKET> 118,251
<LOANS> 348,313
<ALLOWANCE> 6,044
<TOTAL-ASSETS> 502,604
<DEPOSITS> 382,232
<SHORT-TERM> 0
<LIABILITIES-OTHER> 361
<LONG-TERM> 89,000
0
0
<COMMON> 8
<OTHER-SE> 31,003
<TOTAL-LIABILITIES-AND-EQUITY> 502,604
<INTEREST-LOAN> 14,342
<INTEREST-INVEST> 3,587
<INTEREST-OTHER> 431
<INTEREST-TOTAL> 18,360
<INTEREST-DEPOSIT> 7,839
<INTEREST-EXPENSE> 10,099
<INTEREST-INCOME-NET> 8,261
<LOAN-LOSSES> 703
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 4,397
<INCOME-PRETAX> 4,360
<INCOME-PRE-EXTRAORDINARY> 4,360
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,780
<EPS-BASIC> 3.90
<EPS-DILUTED> 3.90
<YIELD-ACTUAL> 3.44
<LOANS-NON> 915
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,446
<CHARGE-OFFS> 132
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 6,044
<ALLOWANCE-DOMESTIC> 6,044
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
