<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) October 31, 1997
--------------------------------
SouthFirst Bancshares, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13640 63-1121255
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
126 North Norton Avenue, Sylacauga, Alabama 35150
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 245-4365
------------------------------
Not applicable
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<CAPTION>
(a) The following financial statements are filed with this Report:
<S> <C> <C> <C>
AUDITED FINANCIAL STATEMENTS
Report of Jones & Kirkpatrick, P.C., Independent Auditors............................. F-1
Statements of Financial Condition as of June 30, 1997 and 1996........................ F-2
Statements of Operations for the years ended June 30, 1997, 1996
and 1995............................................................................. F-4
Statements of Stockholders' Equity for the years ended June 30, 1997,
1996 and 1995........................................................................ F-6
Statements of Cash Flows for the years ended June 30, 1997, 1996
and 1995............................................................................. F-7
Notes to Financial Statements......................................................... F-10
UNAUDITED FINANCIAL STATEMENTS
Statements of Financial Condition as of September 30, 1997 and 1996................... F-34
Statements of Operations for the three months ended
September 30, 1997 and 1996.......................................................... F-36
Statements of Stockholders' Equity for the three months ended
September 30, 1997 and 1996.......................................................... F-38
Statements of Cash Flows for the three months ended
September 30, 1997 and 1996.......................................................... F-39
Notes to Financial Statements (Unaudited)............................................. F-41
(B) Pro Forma Financial Information:
The following unaudited pro forma condensed financial statements are filed with
this Report:
Unaudited Pro Forma Consolidated Statement of Condition -
September 30, 1997................................................................... F-42
Unaudited Pro Forma Consolidated Statement of Operations -
Year ended September 30, 1997........................................................ F-43
(c) Exhibits:
2.1 - Amended and Restated Agreement and Plan of Merger, dated as of September 17,
1997, by and among SouthFirst Bancshares, Inc., First Federal of the South, and
First Federal Savings and Loan Association of Chilton County (incorporated herein
by reference to the exhibit of the same number in SouthFirst's Registration Statement
on Form S-4 dated September 26, 1997; File No. 1-13640).
23.1 - Consent of Jones & Kirkpatrick, P.C.
</TABLE>
<PAGE> 3
[JONES & KIRKPATRICK, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
August 27, 1997, except for Note 16, as
to which the date is September 17, 1997
Board of Directors
First Federal Savings and Loan
Association of Chilton County
Clanton, Alabama
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Chilton County as of June 30, 1997 and
1996, and the related statements of operations, stockholders' equity and cash
flows for the three years ended June 30, 1997. These financial statements are
the responsibility of the Association's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Federal Savings and Loan
Association of Chilton County as of June 30, 1997 and 1996, the results of its
operations and its cash flows for the three years ended June 30, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective July 1, 1994 the
Association changed its method of accounting for investment securities.
/s/ Jones & Kirkpatrick, P.C.
Certified Public Accountants
F-1
<PAGE> 4
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 968,422 $ 1,080,835
Interest-bearing deposits in other banks 227,996 132,891
Federal funds sold 7,500,000 500,000
----------- -----------
Total cash and cash equivalents 8,696,418 1,713,726
Certificate of deposit 100,000 101,311
Investment securities, held-to-maturity (Note 2) 8,731,284 9,312,638
Investment securities, available-for-sale (Note 2) 20,885,335 25,413,850
Loans receivable - net (Note 3) 33,842,696 34,369,238
Accrued interest receivable (Note 4) 502,445 619,997
Federal Home Loan Bank stock, at cost 621,500 621,500
Real estate acquired in settlement of loans (Note 6) 59,925 71,869
Office properties and equipment, at cost, less
accumulated depreciation (Note 5) 1,080,167 1,147,272
Prepaid expenses and other assets 168,770 285,249
Deferred income taxes (Note 12) 64,530 258,536
----------- -----------
TOTAL ASSETS $74,753,070 $73,915,186
=========== ===========
</TABLE>
F-2
See notes to financial statements.
<PAGE> 5
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------------ ------------
<S> <C> <C>
Liabilities:
Deposit accounts (Note 7) $ 68,152,460 $ 69,525,183
Advances from Federal Home Loan Bank (Note 8) 2,000,000 0
Accounts payable and accrued expenses 147,763 193,660
Accrued interest 72,053 68,664
Accrued income taxes - current 4,935 8,687
------------ ------------
Total Liabilities 70,377,211 69,796,194
------------ ------------
Commitments and Contingencies (Note 16)
Stockholders' Equity (Note 10):
Serial preferred stock, 5,000,000 shares
authorized and unissued 0 0
Common stock, $ .01 par value, 15,000,000
shares authorized, 173,822 shares issued
and 169,222 shares outstanding (Note 9) 1,738 1,738
Additional paid-in capital 1,520,870 1,520,870
Retained earnings - substantially restricted 3,490,941 3,558,485
Net unrealized losses of available-for-sale
securities (net of tax benefit of $61,197
and $262,579 in 1997 and 1996, respectively)
(Note 1) (587,090) (911,501)
Treasury stock, 4,600 shares at cost (50,600) (50,600)
------------ ------------
Total Stockholders' Equity 4,375,859 4,118,992
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,753,070 $ 73,915,186
============ ============
</TABLE>
F-3
See notes to financial statements.
<PAGE> 6
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
----------- ---------- ----------
<S> <C> <C> <C>
Interest Income:
Interest on mortgage loans $ 2,160,971 $2,120,921 $2,034,147
Interest and dividends on investments-
taxable 1,639,682 1,583,588 1,553,935
Interest and dividends on investments-
non-taxable 90,162 96,456 87,575
Interest on mortgage-backed securities 744,353 757,972 821,716
Interest on other loans 875,103 680,857 471,238
----------- ---------- ----------
Total Interest Income 5,510,271 5,239,794 4,968,611
----------- ---------- ----------
Interest Expense:
Interest on deposit accounts (Note 7) 3,724,099 3,833,197 3,163,178
Interest on borrowed funds (Note 8) 112,152 34,081 94,482
----------- ---------- ----------
Total Interest Expense 3,836,251 3,867,278 3,257,660
----------- ---------- ----------
Net Interest Income 1,674,020 1,372,516 1,710,951
Loss Provision on Loans 63,767 84,645 52,643
----------- ---------- ----------
Net Interest Income After
Provision for Losses on Loans 1,610,253 1,287,871 1,658,308
----------- ---------- ----------
Other Income:
Gain (loss) on sale of mortgage-backed
securities (10,022) 20,516 3,604
Gain on sale of investment securities 40,621 19,645 1,207
Fees/miscellaneous charges on loans 81,670 93,128 77,094
Returned check charges 64,128 59,047 46,220
Miscellaneous other income 52,024 64,491 67,198
----------- ---------- ----------
Total Other Income 228,421 256,827 195,323
----------- ---------- ----------
</TABLE>
(Continued)
F-4
See notes to financial statements.
<PAGE> 7
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF OPERATIONS (Continued)
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
<S> <C> <C> <C>
Other Expenses:
Salaries and employee benefits $ 588,428 $ 558,435 $ 527,296
Office building and equipment expense 161,652 159,593 157,332
Deposit insurance expense 113,920 154,320 150,336
Legal and professional fees 168,335 108,001 181,014
Data processing expense 123,815 117,671 108,608
(Income) loss on foreclosed real estate 9,909 35,209 (9,020)
Loss on other foreclosed assets 58,484 0 0
Settlement of lawsuit 0 0 275,000
Special SAIF assessment 430,132 0 0
Other operating expenses 256,041 241,618 227,917
----------- ----------- -----------
Total Other Expenses 1,910,716 1,374,847 1,618,483
----------- ----------- -----------
Income (Loss) Before Income Taxes (72,042) 169,851 235,148
----------- ----------- -----------
Provision for Income Tax Expense
(Benefit) (Note 12):
Current (44,504) 71,589 33,403
Deferred (7,376) (9,076) 47,119
----------- ----------- -----------
Total Income Tax Expense (Benefit) (51,880) 62,513 80,522
----------- ----------- -----------
Net Income (Loss) $ (20,162) $ 107,338 $ 154,626
=========== =========== ===========
Earnings Per Share
- ------------------
Net Earnings (Loss) Per Share (Note 14) $ (.12) $ .63 $ .91
=========== =========== ===========
</TABLE>
F-5
See notes to financial statements.
<PAGE> 8
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Total
Number of $ .01 Paid In Retained Valuation Treasury Stockholders'
Shares Par Value Capital Earnings Reserve Stock Equity
--------- --------- ---------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 173,822 $ 1,738 $1,520,870 $3,392,977 $(506,740) $(50,600) $4,358,245
Adjustment to beginning balance for
change in accounting principle, net of
income tax benefit of $52,535 (Note 1) (78,803) (78,803)
Net income for year ended June 30, 1995 154,626 154,626
Cash dividends, $ .29 per share (49,074) (49,074)
Net change in unrealized gain (loss) of
available-for-sale securities, net of
income tax expense of $76,559 187,581 187,581
-------- --------- ---------- ---------- --------- -------- ----------
Balance at June 30, 1995 173,822 1,738 1,520,870 3,498,529 (397,962) (50,600) 4,572,575
Net income for year ended June 30, 1996 107,338 107,338
Cash dividends, $ .28 per share (47,382) (47,382)
Net change in unrealized gain (loss) of
available-for-sale securities net of
income tax benefit of $286,603 (513,539) (513,539)
-------- --------- ---------- ---------- --------- -------- ----------
Balance at June 30, 1996 173,822 1,738 1,520,870 3,558,485 (911,501) (50,600) 4,118,992
Net income (loss) for year ended June 30, 1997 (20,162) (20,162)
Cash dividends, $ .28 per share (47,382) (47,382)
Net change in unrealized gain (loss) of
available-for-sale securities net of
income tax expense of $201,382 324,411 324,411
-------- --------- ---------- ---------- --------- -------- ----------
Balance at June 30, 1997 173,822 $ 1,738 $1,520,870 $3,490,941 $(587,090) $(50,600) $4,375,859
======== ========= ========== ========== ========= ======== ==========
</TABLE>
F-6
See notes to financial statements.
<PAGE> 9
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (20,162) $ 107,338 $ 154,626
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Accretion (amortization) of:
Discounts and premiums on loans,
mortgage-backed securities and
investment securities 13,853 (6,833) 768
Deferred loan origination fees 6,866 28,214 50,527
Provision for losses on loans and
real estate owned 71,710 90,676 56,197
Net (gain) loss on sales of:
Mortgage-backed securities 10,022 (20,516) (3,604)
Investment securities (40,621) (19,645) (1,207)
Foreclosed real estate 1,964 0 (9,307)
Depreciation 76,906 78,723 76,274
(Increase) decrease in other assets:
Prepaid and other assets 116,479 (97,099) (123,621)
Accrued interest receivable 117,552 (42,074) (22,943)
Increase (decrease) in other liabilities:
Unearned discounts (61,029) 186,292 87,080
Accrued interest payable 3,388 (23,884) 39,291
Accrued income taxes (3,752) 8,687 (278,256)
Deferred income taxes (7,376) (9,076) 47,119
Accounts payable and other
expenses (45,899) (221,763) 282,525
--------- --------- ---------
Net Cash Provided by Operating
Activities 239,901 59,040 355,469
--------- --------- ---------
</TABLE>
(Continued)
F-7
See notes to financial statements.
<PAGE> 10
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C> <C>
(Increase) decrease in certificate
of deposit $ 1,311 $ (1,311) $ 0
Loan originations, net of loan
repayments 555,170 (5,382,611) 442,619
Purchases of mortgage-backed
securities, available-for-sale (4,771,776) (5,989,559) (282,549)
Purchases of mortgage-backed
securities, held-to-maturity 0 0 (2,479,394)
Principal payments on mortgage-backed
securities 1,335,326 1,416,416 1,078,902
Proceeds from sales of mortgage-backed
securities, available-for-sale 4,250,535 5,523,659 0
Proceeds of sales of mortgage-backed
securities, held-to-maturity 0 0 2,762,511
Purchases of investment securities,
available-for-sale (4,304,511) (3,043,660) (2,033,067)
Purchases of investment securities,
held-to-maturity 0 0 (866,522)
Proceeds from sales of investment
securities, available-for-sale 6,304,605 2,362,650 251,406
Proceeds from maturities of investment
securities, available-for-sale 2,500,000 2,850,000 100,000
Proceeds from maturities of investment
securities, held-to-maturity 300,000 750,000 300,000
Proceeds from sales of foreclosed
real estate 74,251 0 49,574
Purchases of properties and equipment (9,801) (23,961) (15,238)
Net expenditures on foreclosed real
estate (72,215) (1,438) 0
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities 6,162,895 (1,539,815) (691,758)
----------- ----------- -----------
</TABLE>
(Continued)
F-8
See notes to financial statements.
<PAGE> 11
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net increase (decrease) in non-interest
bearing demand, savings and NOW
deposit accounts $(1,965,597) $ (911,902) $(6,944,194)
Net increase in time deposits 592,875 3,038,325 7,840,270
Proceeds from FHLB advances and
other borrowings 2,000,000 0 4,000,000
Repayment of borrowings 0 (1,000,000) (3,000,000)
Dividends paid (47,382) (47,382) (49,074)
----------- ----------- -----------
Net Cash Provided by Financing
Activities 579,896 1,079,041 1,847,002
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,982,692 (401,734) 1,510,713
Cash and Cash Equivalents -
Beginning of Year 1,713,726 2,115,460 604,747
----------- ----------- -----------
Cash and Cash Equivalents -
End of Year $ 8,696,418 $ 1,713,726 $ 2,115,460
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES
<TABLE>
<S> <C> <C> <C>
Cash paid during the year for interest $3,832,862 $3,891,162 $3,218,369
Cash paid during the year for income
taxes 8,687 104,966 399,281
Loans transferred to foreclosed real
estate during year 75,361 57,936 48,483
Proceeds from sales of foreclosed real
estate financed through loans 24,000 65,000 0
Total increase in unrealized gain (loss)
on securities available-for-sale 525,793 (800,142) 264,140
</TABLE>
F-9
See notes to financial statements.
<PAGE> 12
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The Association provides a variety of financial
services to individuals and corporate customers through its two branches
in Clanton and Centreville, Alabama. The Association's primary deposit
products are interest-bearing checking accounts and certificates of
deposit. Its primary lending products are single-family residential loans.
The Association is subject to competition from other financial
institutions. The Association is also subject to the regulations of
certain federal agencies and undergoes period examinations by those
regulatory authorities.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
A majority of the Association's loan portfolio consists of single-family
residential loans in the Clanton, Alabama area. Accordingly, the ultimate
collectibility of a substantial portion of the Association's loan
portfolio and the recovery of a substantial portion of the carrying amount
of foreclosed real estate are susceptible to changes in local market
conditions.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowances for losses on loans on
foreclosed real estate. Such agencies may require the Association to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. Because of
these factors, it is reasonably possible that the allowances for losses on
loans and foreclosed real estate may change materially in the near term.
However, the amount of the change that is reasonably possible cannot be
estimated.
(Continued)
F-10
<PAGE> 13
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities - On July 1, 1994, the Association adopted the
provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS
No. 115). In accordance with SFAS No. 115, prior period financial
statements have not been restated to reflect the change in accounting
principle. For purposes of adopting SFAS No. 115, the Association has
classified all of its investments as either held-to-maturity, trading, or
available-for-sale securities, based on the following criteria:
Trading Securities - Securities that are held for short-term resale are
classified as trading account securities and recorded at their fair
values. Realized and unrealized gains and losses on trading account
securities are included in other income. The Association had no
securities classified as trading account securities at June 30, 1997 or
1996.
Securities Held-to-Maturity - Government, Federal agency, and corporate
debt securities that management has the positive intent and ability to
hold to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts that are recognized in interest
income using methods approximating the interest method over the period
to maturity. Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and
serviced by issuers of the securities. Mortgage-backed securities are
carried at unpaid principal balances, adjusted for unamortized premiums
and unearned discounts. Premiums and discounts are amortized using
methods approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Securities Available-for-Sale - Available-for-sale securities consist
of investment securities not classified as trading securities nor as
held-to-maturity securities. Unrealized holding gains and losses, net
of tax, on available-for-sale securities are reported as a net amount
in a separate component of stockholders' equity until realized. Gains
and losses on the sale of available-for-sale securities are determined
using the specific-identification method. The amortization of premiums
and the accretion of discounts are recognized in interest income using
methods approximating the interest method over the period of maturity.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary result in write-downs of the individual securities to their
fair value. The related write-downs are included in earnings as
realized losses.
(Continued)
F-11
<PAGE> 14
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans - Loans are stated at unpaid principal balances, less the allowance
for loan losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the
term of the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield adjustment over
the lives of the related loans using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on nonaccrual
status.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance. Interest income on other impaired loans is recognized only to the
extent of interest payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, economic conditions and other risks
inherent in the portfolio. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense, and reduced by charge-offs, net of
recoveries.
Foreclosed Real Estate - Foreclosed real estate includes both formally
foreclosed property and in-substance foreclosed property. In-substance
foreclosed properties are those properties for which the institution has
taken physical possession, regardless of whether formal foreclosure
proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the
lower of the Association's cost or the asset's fair value, less estimated
costs to sell, which becomes the property's new basis. Any write-downs
based on the asset's fair value at date of acquisition are charged to the
allowance for loan losses. After foreclosure, these assets are carried at
the lower of their new cost basis or fair value less cost to sell. Costs
incurred in maintaining foreclosed real estate and subsequent write-downs
to reflect declines in the fair value of the property are included in
income (loss) on foreclosed real estate.
(Continued)
F-12
<PAGE> 15
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment - Land is carried at cost. Other premises and
equipment are recorded at cost and are depreciated on the straight-line
method. Depreciation and amortization are provided over the estimated
useful lives of the respective assets.
Income Taxes - Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of available-for-sale securities, allowance for loan losses,
stock dividends received, certain loan fees, and accumulated depreciation
for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Statements of Cash Flows - The Association considers all cash and amounts
due from depository institutions, interest-bearing deposits in other
banks, and federal funds sold to be cash equivalents for purposes of the
statements of cash flows.
Fair Values of Financial Instruments - Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. In
cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Association.
The following methods and assumptions were used by the Association in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statement of financial condition for cash and cash equivalents
approximate those assets' fair values.
Certificate of deposits: Fair values for time deposits are estimated
using a discounted cash flow analysis that applies interest rates
currently being offered on certificates to a schedule of aggregated
contractual maturities on such time deposits.
(Continued)
F-13
<PAGE> 16
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments (Continued)
Investment securities (including mortgage-backed securities): Fair
values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and
commercial and industrial loans) are estimated using discounted cash
flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan
fair value estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits.
The carrying amount of accrued interest payable approximates fair
value.
Short-term borrowings and notes payable: The carrying amounts of
short-term borrowings and notes payable approximate their fair values.
Advance payments by borrowers for taxes and insurance (escrows): The
carrying amount of escrow accounts approximate fair value.
Loan commitments: Commitments to extend credit were evaluated and fair
value was estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
Reclassifications - Certain amounts in the financial statements presented
have been reclassified from amounts previously reported in order to be
comparable between years. These reclassifications have no effect on
previously reported shareholders' equity or net income during the period
involved.
F-14
<PAGE> 17
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. INVESTMENT SECURITIES
Investment securities have been classified according to management's
intent. The amortized cost of securities and their approximate fair values
are as follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investment securities, held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
Government Corporations
and agencies $ 5,956,464 $ 0 $ (165,139) $ 5,791,325
Mortgage-backed
securities 133,994 0 (1,805) 132,189
Corporate securities 2,640,826 13,740 (21,212) 2,633,354
----------- -------- ----------- -----------
$ 8,731,284 $ 13,740 $ (188,156) $ 8,556,868
=========== ======== =========== ===========
Investment securities, available-for-sale:
U.S. Treasury securities
and obligations of U.S.
Government Corporations
and agencies $ 5,350,339 $ 2,651 $ (135,336) $ 5,217,654
Obligations of state and
political subdivisions 55,182 0 (378) 54,804
Mortgage-backed
securities 10,169,518 112,556 (65,542) 10,216,532
Corporate securities 1,441,887 0 (37,359) 1,404,528
Collateralized
mortgage obligations 1,000,605 0 (29,583) 971,022
Equity securities 3,387,962 0 (495,295) 2,892,667
Other investments 128,128 0 0 128,128
----------- --------- ----------- -----------
$21,533,621 $ 115,207 $ (763,493) $20,885,335
=========== ========= =========== ===========
</TABLE>
(Continued)
F-15
<PAGE> 18
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investment securities, held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
Government Corporations
and agencies $ 5,960,132 $ 0 $ (347,167) $ 5,612,965
Mortgage-backed
securities 402,363 45 (7,915) 394,493
Corporate securities 2,950,143 8,304 (57,017) 2,901,430
----------- ---------- ----------- -----------
$ 9,312,638 $ 8,349 $ (412,099) $ 8,908,888
=========== ========== ============ ===========
Investment securities, available-for-sale:
U.S. Treasury securities
and obligations of U.S.
Government Corporations
and agencies $ 7,653,613 $ 0 $ (358,850) $ 7,294,763
Obligations of state and
political subdivisions 1,680,294 58,713 (5,028) 1,733,979
Mortgage-backed
securities 10,752,277 64,970 (297,851) 10,519,396
Corporate securities 1,520,535 0 (76,589) 1,443,946
Collateralized
mortgage obligations 1,001,180 0 (41,812) 959,368
Equity securities 3,886,712 0 (517,633) 3,369,079
Other investments 93,319 0 0 93,319
----------- --------- ----------- -----------
$26,587,930 $ 123,683 $(1,297,763) $25,413,850
=========== ========= =========== ===========
</TABLE>
(Continued)
F-16
<PAGE> 19
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities
held-to-maturity and available-for-sale at June 30, 1997, by contractual
maturity, are shown below. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
Held-to-Maturity Available-for-Sale
---------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $3,651,776 $ 3,558,515 $ 0 $ 0
Due after one year
through five years 5,079,508 4,998,353 1,550,821 1,524,613
Due after five years
through ten years 0 0 5,296,587 5,152,373
Due after ten years 0 0 11,170,123 11,187,554
---------- ----------- ----------- -----------
Total debt securities 8,731,284 8,556,868 18,017,531 17,864,540
Equity securities and
other investments
having no specified
due date 0 0 3,516,090 3,020,795
---------- ----------- ----------- -----------
$8,731,284 $ 8,556,868 $21,533,621 $20,885,335
========== =========== =========== ===========
</TABLE>
During 1997 the Association sold securities available-for-sale for total
proceeds of $10,555,140, resulting in gross realized gains of $82,477
and gross realized losses of $51,878. During 1996 the Association sold
securities available-for-sale for total proceeds of $7,886,309,
resulting in gross realized gains of $62,249 and gross realized losses
of $22,088. During 1995 the Association sold securities
available-for-sale for total proceeds of $251,406, resulting in gross
realized gains of $4,811.
During 1996 the Association transferred securities from the
held-to-maturity category to the available-for-sale category. The
amortized costs of the transferred securities was $17,252,348, and the
related unrealized gain was $14,205. During 1996 the Association also
transferred securities from the available-for-sale category to the
held-to-maturity category. The market value of the transferred
securities was $771,758 and the related unrealized gain was $1,987. The
decision to transfer the securities was based on guidance provided under
A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities as issued by the Financial
Accounting Standards Board.
(Continued)
F-17
<PAGE> 20
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. INVESTMENT SECURITIES (Continued)
At June 30, 1997, investment securities with an amortized cost of $63,895
were pledged as security for various demand deposits.
At June 30, 1997, the Association had entered into a commitment to purchase
certain investment securities for a total price of approximately
$4,800,000. The investments are mortgage backed securities scheduled to be
issued and settled in July 1997.
3. LOANS RECEIVABLE
A summary of loans receivable is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Mortgage Loans:
Conventional loans:
1-4 family dwellings $ 20,925,017 $ 22,409,017
Commercial real estate 4,179,813 1,381,148
Construction loans 1,090,106 3,967,463
Participation investment in loans purchased 27,697 57,644
------------ ------------
26,222,633 27,815,272
Deduct:
Undisbursed portion of construction loans (192,627) (1,640,414)
Allowance for losses (132,125) (135,696)
Unearned loan origination fees (99,646) (131,012)
------------ ------------
25,798,235 25,908,150
------------ ------------
Other Loans:
Consumer loans 6,905,863 7,335,889
Loans to depositors, secured by savings 1,712,388 1,758,364
------------ ------------
8,618,251 9,094,253
Deduct:
Unearned discounts (440,934) (501,964)
Allowance for losses (132,856) (131,201)
------------ ------------
8,044,461 8,461,088
------------ ------------
Total Loans $ 33,842,696 $ 34,369,238
============ ============
</TABLE>
At June 30, 1997 and 1996, the total recorded investment in impaired
loans, all of which had allowances determined in accordance with SFAS
No. 114 and No. 118, amounted to approximately $521,000 and $16,500,
respectively. The average recorded investment in impaired loans
amounted to approximately $80,000 and $23,000 for the years ended June
30, 1997 and 1996, respectively. The allowance for loan losses related
to impaired loans amounted to approximately $59,000 and $14,500 at June
30, 1997 and 1996, respectively. Interest income of approximately
$5,800 and $600 on impaired loans was recognized for cash payments
received in 1997 and 1996, respectively.
(Continued)
F-18
<PAGE> 21
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
3. LOANS RECEIVABLE (Continued)
Also, at June 30, 1997 and 1996, the Association had other non-accrual
loans of approximately $223,000 and $219,000, respectively, for which
impairment had not been recognized. If interest on these loans had been
recognized at the original interest rates, interest income would have
increased approximately $13,000 and $9,600, respectively.
The Association has no commitments to loan additional funds to the
borrowers of impaired or non-accrual loans.
The weighted average interest rate on all loans was 8.78% and 8.67% at
June 30, 1997 and 1996, respectively.
In the ordinary course of business, the Association makes loans to
directors, officers and employees of the Association. In the opinion of
management, related party loans are made on substantially the same
terms, including interest rates and collateral, as comparable
transactions with unrelated parties, and do not include more than the
normal risks of collectability. The amount of such related party loans
was $344,996 and $260,008 at June 30, 1997 and 1996, respectively.
Activity in related party loans is summarized below:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Balance at beginning of year $ 260,008 $ 103,683
New loans 140,241 232,565
Repayments (55,253) (76,240)
--------- ---------
Balance at end of year $ 344,996 $ 260,008
========= =========
</TABLE>
During the years ended June 30, 1997 and 1996 the Association
renegotiated certain past due loans in the approximate amounts of
$221,510 and $482,500, respectively. The effect of the transaction was
to capitalize accrued interest on the various loans and to continue
payments under the same interest rates and maturities. The monthly
installment payments are normally increased to cover the capitalized
interest.
(Continued)
F-19
<PAGE> 22
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
3. LOANS RECEIVABLE (Continued)
The following is a reconciliation of the allowance for loan losses:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Mortgage Loans:
Balance at beginning of period $ 135,696 $ 173,060 $ 238,500
Provision for losses 58,508 8,803 8,842
Loans charged off and
recoveries, net (5,434) 5,574 (65,423)
Transfers to REO reserves 0 2,574 (8,859)
Transfers to other reserves (56,645) (54,315) 0
--------- --------- ---------
Balance at End of Period $ 132,125 $ 135,696 $ 173,060
========= ========= =========
Other Loans:
Balance at beginning of period $ 131,201 $ 54,904 $ 39,214
Provision for losses 5,259 75,842 43,801
Loans charged off and
recoveries, net (60,249) (53,860) (28,111)
Transfers from other
reserves 56,645 54,315 0
--------- --------- ---------
Balance at End of Period $ 132,856 $ 131,201 $ 54,904
========= ========= =========
</TABLE>
4. INTEREST RECEIVABLE
A summary of interest receivable is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Accrued interest receivable on loans $266,290 $284,270
Accrued interest receivable on
mortgage-backed securities 51,518 70,625
Accrued interest on investments 184,637 265,102
-------- --------
$502,445 $619,997
======== ========
</TABLE>
F-20
<PAGE> 23
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
5. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Office buildings - land $ 140,559 $ 140,559
Buildings 1,376,548 1,376,548
Furniture and equipment 447,405 437,604
---------- ----------
1,964,512 1,954,711
Less: Accumulated depreciation 884,345 807,439
---------- ----------
Net Office Properties and Equipment $1,080,167 $1,147,272
========== ==========
</TABLE>
Depreciation in the amount of $76,906, $78,723 and $76,274 is included
in the statements of operations for the years ended June 30, 1997, 1996
and 1995, respectively.
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
The following is a reconciliation of allowances for losses on real
estate acquired in settlement of loans:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Balance at beginning of period $ 7,985 $ 8,859 $ 0
Provision for losses and
transfers from loan reserves 7,944 3,457 12,413
Charge-offs 0 0 0
Offset against asset basis (9,271) (4,331) (3,554)
------- ------- --------
Balance at end of period $ 6,658 $ 7,985 $ 8,859
======= ======= ========
</TABLE>
F-21
<PAGE> 24
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
7. DEPOSIT ACCOUNTS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
Type of Account Stated Rate 1997 1996
--------------- ----------- ---------- ----------
<S> <C> <C> <C>
Transaction Accounts:
NOW and Super NOW with
weighted average rates of
2.91% and 2.90% at June 30,
1997 and 1996, respectively $ 5,195,083 $ 5,374,617
----------- -----------
Passbook Accounts, with rate
of 3.25% at June 30, 1997
and 1996 6,376,662 6,316,575
----------- -----------
Certificate Accounts:
Fixed rates 7.75 0 1,272
Variable rate with weighted
average rates of 5.90% and
6.10% at June 30, 1997 and
1996, respectively 51,629,023 51,034,876
Money market with weighted
average rates of 4.96% and
5.01% at June 30, 1997 and
1996, respectively 4,951,692 6,797,843
----------- -----------
Total Certificate Accounts 56,580,715 57,833,991
----------- -----------
$68,152,460 $69,525,183
=========== ===========
Weighted average cost of deposit accounts 5.35% 5.48%
=========== ===========
</TABLE>
The aggregate amount of deposit accounts over $100,000 was approximately
$13,827,000 and $13,155,000 at June 30, 1997 and 1996, respectively.
NOW accounts include non-interest bearing deposits of $139,325 and
$88,565 at June 30, 1997 and 1996, respectively.
(Continued)
F-22
<PAGE> 25
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
7. DEPOSIT ACCOUNTS (Continued)
Certificate accounts by maturities are as follows:
<TABLE>
<CAPTION>
Type of Account 1997 1996
--------------- ----------- ----------
<S> <C> <C>
12 months or less $39,730,290 $37,307,875
12 months to 24 months 11,274,727 16,684,544
24 months to 36 months 5,438,964 3,239,616
36 months to 48 months 136,734 601,956
----------- -----------
$56,580,715 $57,833,991
=========== ===========
</TABLE>
Interest expense on deposit accounts consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NOW accounts $ 154,413 $ 154,388 $ 186,598
Certificates of deposit 3,362,366 3,464,621 2,675,926
Passbook accounts 207,320 214,188 300,654
---------- ---------- ----------
$3,724,099 $3,833,197 $3,163,178
========== ========== ==========
</TABLE>
Deposit accounts of officers, directors and employees of the Association
were $3,443,480 and $3,244,205 at June 30, 1997 and 1996, respectively.
In the opinion of management, such deposits are taken on substantially
the same terms as comparable transactions with unrelated parties.
Income of $6,883, $10,657 and $12,453 from early withdrawal penalties is
included in other income for the years ended June 30, 1997, 1996 and
1995, respectively.
8. ADVANCES FROM THE FEDERAL HOME LOAN BANK
At June 30, 1997, the Association had outstanding advances of $2,000,000
from the Federal Home Loan Bank. The advances bear a fixed interest rate
of 6.21%, payable monthly and maturing August 5, 1998. The advances are
secured by a blanket lien on all qualifying first mortgage loans.
F-23
<PAGE> 26
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
9. STOCK OPTION AND STOCK PURCHASE PLANS
The Association has adopted a stock option plan which, under its terms,
options to purchase shares of the Association's stock were granted to
certain directors and employees at a price equal to the market price of
the stock at the date of grant ($10.00). As of June 30, 1997, none of the
options had been exercised; 7,215 of the options expire in 1998, and
5,716 of the options expire in 1999.
The Association also has approved an employees' stock ownership plan,
which may purchase up to 1% of the common stock issued during the
conversion from a mutual association to a stock association in 1988. In
April 1997, the plan was no longer authorized to purchase stock by the
Board of Directors.
10. REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision (OTS). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators that, if undertaken, could have a
direct material affect on the Association and the financial statements.
Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Association must meet
specific capital guidelines involving quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's
capital amounts and classification under the prompt corrective action
guidelines are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and ratios
of: total risk-based capital and Tier I capital to risk-weighted assets
(as defined in the regulations), Tier I capital to adjusted total assets
(as defined), and tangible capital to adjusted total assets (as defined).
As discussed in greater detail below, as of June 30, 1997, the
Association meets all of the capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the OTS, the
Association was categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized, the Association must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as disclosed in the table below.
There are no conditions or events since the most recent notification that
management believes have changed the Association's prompt corrective
action category.
(Continued)
F-24
<PAGE> 27
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
10. REGULATORY MATTERS (Continued)
The Association's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provision
------ ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1997:
Total Risk-based capital (to $ 4,684,074 14.13% $ 2,651,280 >= 8.00% $ 3,314,100 >= 10.00%
risk-weighted assets)
Tier I capital (to risk- 4,467,654 13.48% 1,325,640 >= 4.00% 1,988,460 >= 6.00%
weighted assets)
Tier I capital (to adjusted 4,467,654 5.98% 2,990,123 >= 4.00% 3,737,654 >= 5.00%
total assets)
Tangible capital (to 4,467,654 5.98% 1,121,296 >= 1.50% 1,121,296 >= 1.50%
adjusted total assets)
At June 30, 1996:
Total risk-based capital (to 4,767,329 13.90% 2,743,280 >= 8.00% 3,429,100 >= 10.00%
risk-weighted assets)
Tier I capital (to risk- 4,512,861 13.16% 1,371,640 >= 4.00% 2,057,460 >= 6.00%
weighted assets)
Tier I capital (to adjusted 4,512,861 6.11% 2,956,607 >= 4.00% 3,695,759 >= 5.00%
total assets)
Tangible capital (to 4,512,861 6.11% 1,108,728 >= 1.50% 1,108,728 >= 1.50%
adjusted total assets)
</TABLE>
F-25
<PAGE> 28
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
11. PROFIT-SHARING PLAN
The Association has a profit-sharing plan that covers all employees with
six months of service, and who are twenty-one years of age. Contributions
to the plan are at the discretion of the Board of Directors, within
maximum limits prescribed by the Internal Revenue Code. Expense charged
to operations was $38,729, $34,778 and $43,387 for the years ended June
30, 1997, 1996 and 1995, respectively.
12. INCOME TAXES
The provision for income taxes for each of the three years in the period
ended June 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $(48,762) $ 62,832 $ 33,403
State 4,258 8,757 0
-------- -------- --------
(44,504) 71,589 33,403
-------- -------- --------
Deferred:
Federal (3,649) (11,848) 41,176
State (3,727) 2,772 5,943
-------- -------- --------
(7,376) (9,076) 47,119
-------- -------- --------
Total $(51,880) $ 62,513 $ 80,522
======== ======== ========
</TABLE>
(Continued)
F-26
<PAGE> 29
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
12. INCOME TAXES (Continued)
A summary of deferred tax assets and liabilities at June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------------
Deferred Deferred Tax
Tax Assets Liabilities Net
----------- ------------ --------------
<S> <C> <C> <C>
Federal $ 162,151 $ (108,213) $ 53,938
State 32,789 (22,197) 10,592
----------- ---------- ----------
194,940 (130,410) 64,530
Valuation allowance 0 0 0
----------- ---------- -----------
Net $ 194,940 $ (130,410) $ 64,530
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------
Deferred Deferred Tax
Tax Assets Liabilities Net
----------- ------------ -----------
<S> <C> <C> <C>
Federal $ 340,283 $ (118,819) $ 221,464
State 60,211 (23,139) 37,072
----------- ----------- -----------
400,494 (141,958) 258,536
Valuation allowance 0 0 0
----------- ---------- -----------
Net $ 400,494 $ (141,958) $ 258,536
=========== =========== ===========
</TABLE>
(Continued)
F-27
<PAGE> 30
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
12. INCOME TAXES (Continued)
Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities that gave rise to significant
portions of the deferred tax asset (liability) at June 30, 1997 and 1996
relate to the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment securities recorded for financial
reporting purposes in excess of amount allowed
for income tax purposes $ 61,197 $ 262,579
Loan loss reserves recorded for financial
reporting purposes in excess of such
amounts allowed for income tax purposes 108,655 109,953
Stock dividends from FHLB recognized for
financial reporting purposes and not for
income tax purposes (104,920) (104,920)
Loan fees recognized for income tax purposes
and deferred for financial reporting purposes 17,042 23,360
Accrued interest on certain loans recognized
on cash basis for income tax purposes (4,955) (7,972)
Depreciation for income tax purposes
recognized in excess of amounts for
financial reporting purposes (17,610) (26,538)
Others, net 5,121 2,074
----------- -----------
$ 64,530 $ 258,536
=========== ===========
</TABLE>
Retained earnings at June 30, 1997 include earnings of approximately
$814,000 representing bad debt deductions for which no provision for
income taxes has been made. If, in the future, the portion of retained
earnings is used for purposes other than to absorb bad debt losses,
income taxes will be imposed at the then applicable rate. As provided
under FASB Statement No. 109, no deferred tax liability has been
recognized on the amount of the reserve which arose in tax years
beginning prior to December 31, 1987. The amount of such liability would
be approximately $326,000 if recorded.
(Continued)
F-28
<PAGE> 31
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
12. INCOME TAXES (Continued)
The provision for income taxes differs from the amounts computed by
applying the federal statutory rate to income before income taxes and
extraordinary items as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax provision at statutory rate $ (24,494) $ 57,727 $ 79,950
Increase (decrease) resulting from:
Surtax exemption 0 10,996 (9,169)
Non-deductible expenses 3,221 3,624 3,158
Tax exempt interest (25,319) (23,769) (21,444)
State income taxes (net of
related federal tax benefit) (917) 8,575 5,943
Other - net (4,371) 5,360 22,084
----------- ----------- -----------
$ (51,880) $ 62,513 $ 80,522
=========== =========== ===========
</TABLE>
13. LEASES
The Association leases part of its office facilities under an operating
lease which expired in 1994. The lease is now on a month-to-month basis.
Lease expense under this arrangement charged to operations was $7,200
for each of the years ended June 30, 1997, 1996 and 1995.
14. EARNINGS PER SHARE
Earnings per share for the current period is computed by dividing
earnings by the weighted average number of shares outstanding during the
period.
Fully diluted earnings per share amounts are not presented for 1997,
1996 or 1995 because they are not materially dilutive.
15. EMPLOYMENT CONTRACT
The Association has entered into an employment contract with its
President through 1998 that provides for a minimum annual salary,
adjusted annually by the Board of Directors. The current annual
compensation under the contract is $66,000. The agreement also provides
for certain payments to be made to the President in the event of
involuntary termination in connection with certain changes in control of
the Association. Such required payments approximate three times the
annual salary of the employee.
F-29
<PAGE> 32
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
16. COMMITMENTS AND CONTINGENCIES
The Association has entered into an Amended and Restated Agreement and
Plan of Merger, dated as of September 17, 1997 (the "Merger Agreement"),
by and among the Association, SouthFirst Bancshares, Inc., a Delaware
corporation ("SouthFirst"), and First Federal of the South, a federal
stock savings bank and a wholly-owned subsidiary of SouthFirst ("First
Federal"). The Merger Agreement supersedes an Agreement and Plan of
Merger by and among the parties dated as of April 14, 1997. Pursuant to
the Merger Agreement, the Association will be merged with and into First
Federal, which will be the surviving savings association. Consummation
of the merger is subject to, among other things, approval of the
shareholders of both the Association and SouthFirst, and to required
regulatory filings and approvals. The merger is expected to be completed
in the fourth quarter of 1997 and will be accounted for as a purchase
transaction. Under the terms of the Merger Agreement, each share of the
Association's issued and outstanding common stock (excluding shares held
by shareholders who perfect dissenters' rights, if any) shall cease to
be outstanding and shall be converted at the option of the shareholder
into the right to receive either (i) $31.50 per share (the "Cash Price
Per Share"), (ii) the "Stock Price Per Share" (as defined below), or
(iii) any combination of the Cash Price Per Share and the Stock Price
Per Share. The Stock Price Per Share shall be determined by multiplying
the "Average Closing Price", which is defined as the average closing
price per share of SouthFirst common stock on the American Stock
Exchange, by the "Exchange Ratio", which is defined for each share of
the Association's common stock as the number of shares of SouthFirst
common stock equal to the quotient obtained by dividing $31.50 by the
Average Closing Price. Notwithstanding the foregoing, the total
consideration to be paid to the Association's shareholders shall consist
of 50% cash and 50% shares of SouthFirst common stock. The transaction
is expected to have an aggregate value of approximately $5.6 million, or
approximately $31.50 per share of the Association's common stock, which
is approximately 124% of the Association's fully diluted book value at
June 30, 1997.
The Association is involved in various legal actions arising in the
normal course of business. In the opinion of management, based upon
consultation with legal counsel, the ultimate resolution of the
proceedings will not have a material adverse effect upon the financial
position of the Association.
F-30
<PAGE> 33
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, letters of credit, interest rate caps and floors written.
Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement
of financial position. The contract or notional amounts of those
instruments reflect the extent of involvement the Association has in
particular classes of financial instruments.
The Association's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit and letters of credit is represented by the contractual notional
amount of those instruments. The Association uses the same credit
policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments. For interest rate caps and floors, the
contract or notional amounts do not represent exposure to credit loss.
A summary of such instruments at June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Contract of Notional Amount
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk:
Commitments to extend credit $ 192,627 $ 1,640,414
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Association evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained
if deemed necessary by the Association upon extension of credit is
based on management's credit evaluation of the counter-party.
Collateral held varies but may include residential property,
automobiles and income-producing commercial properties.
Letters of credit and financial guarantees written are conditional
commitments issued by the Association to guarantee the performance of
a customer to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
F-31
<PAGE> 34
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Association's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 8,696 $ 8,696 $ 1,714 $ 1,714
Certificate of deposit 100 100 101 101
Investment securities 29,617 29,442 34,726 34,323
Loans, net of allowance 33,843 33,950 34,369 34,147
Accrued interest receivable 502 502 620 620
Financial liabilities:
Deposits (68,152) (68,042) (69,525) (69,999)
Advances from Federal Home
Loan Bank (2,000) (1,996) 0 0
</TABLE>
The carrying amounts in the preceding table are included in the
statement of financial condition under the applicable captions.
19. FINANCIAL ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (SFAS No. 125). SFAS No. 125 establishes, among other
things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted
for as a sale or as a pledge of collateral in a secured borrowing. It
also establishes new accounting requirements for pledged collateral.
Generally those criteria are based on a consistent application of a
financial components approach, that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS No.
125 was originally intended to be effective for transactions occurring
after December 31, 1996. SFAS No. 127 defers the effective date of SFAS
No. 125 for one year as it relates to secured borrowings and collateral
and to repurchase agreements, dollar-role, securities lending and
similar transactions of SFAS No. 125. The Association has not yet
determined the impact, if any, the adoption of SFAS No. 125, as amended
by SFAS No. 127, will have on the financial statements.
(Continued)
F-32
<PAGE> 35
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
19. FINANCIAL ACCOUNTING DEVELOPMENTS (Continued)
In February 1997, FASB issued SFAS No. 128, Earnings per Share, and
SFAS No. 129, Disclosure of Information About Capital Structure. The
Statements change the methods for calculating and disclosing earnings
per share and are effective for financial statements issued ending
after December 15, 1997.
In June 1997, FASB issued SFAS 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. The Statement is effective for fiscal
years beginning after December 15, 1997.
In June 1997, FASB also issued SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information. The Statement requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments. The Statement is effective for
financial statements for periods beginning after December 15, 1997.
F-33
<PAGE> 36
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
September 30, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
<S> <C> <C>
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 876,971 $ 1,158,496
Interest-bearing deposits in other banks 175,300 80,373
Federal funds sold 1,500,000 500,000
--------- -------
Total cash and cash equivalents 2,552,271 1,738,869
Certificate of deposit 100,000 102,639
Investment securities, held-to-maturity 8,727,604 9,254,813
Investment securities, available-for-sale 26,732,379 28,216,293
Loans receivable - net 32,423,145 34,200,103
Accrued interest receivable 553,261 683,638
Federal Home Loan Bank stock, at cost 621,500 621,500
Real estate acquired in settlement of loans 139,084 71,869
Office properties and equipment, at cost, less
accumulated depreciation 1,064,391 1,127,110
Prepaid expenses and other assets 126,687 473,381
Deferred income taxes - 203,051
----------- -----------
TOTAL ASSETS $73,040,313 $76,693,266
=========== ===========
</TABLE>
F-34
<PAGE> 37
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
September 30, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
<S> <C> <C>
Liabilities:
Deposit accounts $ 66,178,998 $ 69,963,175
Advances from Federal Home Loan Bank 2,000,000 2,000,000
Accounts payable and accrued expenses 141,275 620,113
Accrued interest 68,299 85,119
Accrued income taxes 33,940 10,437
------------ ------------
Total Liabilities $ 68,422,512 $ 72,678,844
------------ ------------
Stockholders' Equity:
Serial preferred stock, 5,000,000 shares authorized and unissued $ -- $ --
Common stock, $.01 par value, 15,000,000 shares authorized,
173,822 shares issued, and 169,222 shares outstanding 1,738 1,738
Additional paid-in capital 1,520,870 1,520,870
Retained earnings - substantially restricted 3,560,390 3,357,254
Net unrealized losses of available-for-sale securities (414,597) (814,840)
Treasury stock, 4,600 shares at cost (50,600) (50,600)
------------ ------------
Total Stockholders' Equity 4,617,801 4,014,422
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,040,313 $ 76,693,266
============ ============
</TABLE>
F-35
<PAGE> 38
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months Ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest Income:
Interest on mortgage loans $ 498,547 $ 566,026
Interest and dividends on investments - taxable 338,017 395,895
Interest and dividends on investments - non-taxable 591 24,019
Interest on mortgage-backed securities 262,282 194,924
Interest on other loans 239,888 197,926
---------- ----------
Total Interest Income $1,339,325 $1,378,790
---------- ----------
Interest Expense:
Interest on deposit accounts 893,938 951,118
Interest on borrowed funds 31,305 19,343
---------- ----------
Total Interest Expense 925,243 970,461
---------- ----------
Net Interest Income 414,082 408,329
Loss Provision on Loans 28,702 8,904
---------- ----------
Net Interest Income after Provision for Losses on Loans 385,380 399,425
---------- ----------
Other Income:
Fees/miscellaneous charges on loans 14,369 21,463
Miscellaneous other income 25,687 32,964
---------- ----------
Total Other Income 40,056 54,427
---------- ----------
</TABLE>
(Continued)
F-36
<PAGE> 39
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF OPERATIONS - UNAUDITED (Continued)
For the Three Months Ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Other Expenses:
Salaries and employee benefits $149,522 $ 156,613
Office building and equipment expense 36,326 43,479
Deposit insurance expense 16,025 44,942
Legal and professional fees 14,254 22,164
Data processing expenses 29,888 33,874
(Income) loss on foreclosed real estate 1,998 (63)
Loss on other foreclosed assets -- 367
Special SAIF assessment -- 430,000
Other operating expenses 64,974 68,257
-------- ---------
Total Other Expenses $312,987 $ 799,633
-------- ---------
Income (Loss) Before Income Taxes 112,449 (345,781)
Provision for Income Tax Expense (Benefit) 43,000 (144,550)
-------- ---------
Net Income (Loss) $ 69,449 $(201,231)
======== =========
Earnings Per Share
Net Earnings (Loss) Per Share $ 0.41 $ (1.19)
======== =========
</TABLE>
F-37
<PAGE> 40
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
CLANTON, ALABAMA
STATEMENTS OF STOCKHOLDERS' EQUITY - UNAUDITED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------
Additional Total
Number of $0.01 Paid-In Retained Valuation Treasury Stockholders'
Shares Par Value Capital Earnings Reserve Stock Equity
-------- --------- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 173,822 $ 1,738 $1,520,870 $3,558,485 $(911,501) $(50,600) $4,118,992
Net income (loss) for the
three months ended
September 30, 1996 (201,231) (201,231)
Net change in unrealized
gain (loss) of available-
for-sale securities, net
of income tax expense 96,661 96,661
-------- --------- ---------- ---------- --------- -------- ----------
Balance at
September 30, 1996 173,822 $ 1,738 $1,520,870 $3,357,254 $(814,840) $(50,600) $4,014,422
======== ========= ========== ========== ========= ======== ==========
Balance at June 30, 1997 173,822 $ 1,738 $1,520,870 $3,490,941 $(587,090) $(50,600) $4,375,859
Net income for the three
months ended
September 30, 1997 69,449 69,449
Net change in unrealized
gain (loss) of available-
for-sale securities net of
income tax expense 172,493 172,493
-------- --------- ---------- ---------- --------- -------- ----------
Balance at
September 30, 1997 173,822 $ 1,738 $1,520,870 $3,560,390 $(414,597) $(50,600) $4,617,801
======== ========= ========== ========== ========= ======== ==========
</TABLE>
F-38
<PAGE> 41
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
CLANTON, ALABAMA
STATEMENTS OF CASH FLOWS - UNAUDITED
For the Three Months Ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 69,449 $(201,231)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Accretion (amortization) of:
Discounts and premiums on loans, mortgage-backed securities
securities and investment securities (4,056) 8,762
Deferred loan origination fees 2,740 1,652
Provision for losses on loans and real estate owned 28,702 8,904
Depreciation 16,950 20,162
(Increase) decrease in other assets:
Prepaid and other assets 42,092 (188,134)
Accrued interest receivable (50,816) (63,641)
Increase (decrease) in other liabilities:
Unearned discounts (42,542) (14,203)
Accrued interest payable (3,753) 16,455
Accrued income taxes (4,962) 1,750
Accounts payable and other expenses (6,486) 426,453
-------- ---------
Net Cash Provided by Operating Activities $ 47,318 $ 16,929
======== =========
</TABLE>
(Continued)
F-39
<PAGE> 42
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
STATEMENTS OF CASH FLOWS - UNAUDITED (Continued)
For the Three Months Ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in certificate of deposit $ -- $ (1,328)
Loan originations, net of loan repayments 1,440,026 180,181
Purchases of mortgage-backed securities, available-for-sale (5,938,478) --
Principal payments on mortgage-backed securities 220,649 299,672
Purchases of investment securities, available-for-sale (159,867) (2,908,305)
Proceeds from maturities of investment securities, available-for-sale 300,000 --
Proceeds from sales of foreclosed real estate 12,968 --
Purchases of properties and equipment (1,174) --
Net expenditures on foreclosed real estate (92,128) --
----------- -----------
Net Cash used by Investing Activities (4,218,004) (2,429,780)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts (1,973,461) 437,994
Proceeds from FHLB advances and other borrowings -- 2,000,000
----------- -----------
Net Cash Provided (Used) by Financing Activities (1,973,461) 2,437,994
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (6,144,147) 25,143
Cash and Cash Equivalents - Beginning of Period 8,696,418 1,713,726
----------- -----------
Cash and Cash Equivalents - End of Period $ 2,552,271 $ 1,738,869
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period of interest $ 928,996 $ 954,006
Cash paid during the period for income taxes 4,962 --
Loans transferred to foreclosed real estate during period 88,178 --
Total increase (decrease) in unrealized gain (loss) on securities (271,079) 152,146
available-for-sale
</TABLE>
F-40
<PAGE> 43
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHILTON COUNTY
Clanton, Alabama
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION
Information in the accompanying financial statements as of and for the three
months ended September 30, 1997 and 1996 was derived from the financial records
of First Federal Savings and Loan Association of Chilton County (the
"Company").
In the opinion of management of the Company, the accompanying unaudited
financial statements contained all adjustments (none of which are other than
normal recurring accruals) necessary for a fair statement of the financial
position of the Company and the results of operations for the three month
periods ended September 30, 1997 and 1996. The results contained in these
statements are not necessarily indicative of the results which may be expected
for the entire year.
SUBSEQUENT EVENTS
On October 31, 1997 the Company merged with First Federal of the South ("First
Federal"), a wholly-owned subsidiary of SouthFirst Bancshares, Inc. First
Federal was the surviving entity in the merger. The transaction had an
aggregate value of approximately $5.6 million, or approximately $31.50 per
share of the Company's common stock.
F-41
<PAGE> 44
SOUTHFIRST BANCSHARES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma adjustments
---------------------
Chilton Pro forma
SouthFirst County Debit Credit Amounts
---------- ------ ----- ------ -------
Assets:
<S> <C> <C> <C> <C> <C>
Cash and amounts due from depository institutions $ 2,448 877 3,325
Federal funds sold 1,500 1,500
Investment securities held to maturity 162 6,766 180 (2) 6,748
Investment securities available for sale 16,666 28,969 3,174 (1) 42,461
Loans receivable 71,682 32,433 626 (2) 104,741
Loans held for sale 334 334
Premises and equipment 1,780 1,064 2,844
Accrued interest receivable 530 554 1,084
Investments in affiliates 193 193
Other assets 1,994 947 2,941
Goodwill 607 (1) 446 (2) 161
-------- ------ -------
Total assets $ 95,789 73,110 166,332
======== ====== =======
Liabilities:
Deposits:
Non-interest bearing $ 1,256 645 1,901
Interest bearing 59,297 65,545 124,842
-------- ------ -------
Total deposits 60,553 66,190 126,743
Advances by borrowers for property taxes and
insurance 389 66 455
Accrued interest payable 859 68 927
Borrowed funds 18,653 2,000 20,653
Accrued expenses and other liabilities 1,711 137 1,848
-------- ------ -------
Total liabilities 82,165 68,461 150,626
Stockholders' equity:
Common stock 9 2 2 (1) 1 (1) 10
Additional paid-in capital 7,793 1,521 1,521 (1) 2,081 (1) 9,874
Treasury stock (198) (198)
Deferred compensation (915) (915)
Retained earnings 5,815 3,592 3,592 (1) 5,815
Unrealized gain (loss) on investment securities 1,120 (466) 466 (1) 1,120
-------- ------ -------
Total stockholders' equity 13,624 4,649 15,706
-------- ------ -------
Total liabilities and stockholders' equity $ 95,789 73,110 166,332
======== ====== =======
</TABLE>
- -----------------------
(1) To reflect issuance of 128,144 shares of SouthFirst common stock and
liquidation of 3,174,000 of SouthFirst investments to acquire Chilton
County common stock.
(2) To adjust assets and liabilities acquired to fair value.
F-42
<PAGE> 45
SOUTHFIRST BANCSHARES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma adjustments
---------------------
Chilton Pro forma
SouthFirst County(1) Debit Credit Amounts
---------- --------- ----- ------ -------
Interest and dividend income:
<S> <C> <C> <C>
Interest and fees on loans $ 5,761 3,780 9,541
Interest and dividend income on investment
securities held to maturity 8 327 335
Interest and dividend income on investment
securities available for sale 1,324 1,403 222 (2) 2,505
------- ------ ------
Total interest and dividend income 7,093 5,510 12,381
Interest expense:
Interest on deposits 2,819 3,724 6,543
Interest on borrowed funds 982 112 1,094
------ ------ -----
Total interest expense 3,801 3,836 7,637
Net interest income before provision for loan losses 3,292 1,674 4,744
Provision for loan losses 36 64 100
------ ------ ------
Net interest income 3,256 1,610 4,644
Other income 1,101 229 1,330
Other expense 3,558 1,911 11 (2) 5,480
------ ----- -----
Income (loss) before income taxes 799 (72) 494
Income taxes 303 (52) 80 171
------ ------ -----
Net income $ 496 (20) 323
======= ====== =====
Net income per common share $ 0.62 (0.12) 0.35
Weighted average shares outstanding 795,479 169,222 923,623
</TABLE>
- --------------------------
(1) Chilton County amounts reflect operations for the year ended June 30,
1997.
(2) To reflect the loss of investment earnings on securities liquidated to
fund the acquisition and to record goodwill amortization.
F-43
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
SOUTHFIRST BANCSHARES, INC.
By: /s/ Donald C. Stroup
-------------------------------------
Donald C. Stroup
President and Chief Executive Officer
Dated: January 15, 1998
<PAGE> 47
SOUTHFIRST BANCSHARES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of
Merger, dated as of September 17, 1997, by and
among SouthFirst Bancshares, Inc., First Federal
of the South, and First Federal Savings and Loan
Association of Chilton County (incorporated
herein by reference to the exhibit of the same
number in SouthFirst's Registration Statement on
Form S-4 dated September 26, 1997; File No.
1-13640).
23.1 Consent of Jones & Kirkpatrick, P.C.
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation in this Amendment No. 1 on Form 8-K/A (the "Form
8-K/A") to the Current Report on Form 8-K of SouthFirst Bancshares, Inc. dated
November 17, 1997, in connection with the acquisition of First Federal Savings
and Loan Association of Chilton County by SouthFirst Bancshares, Inc., of our
report dated August 27, 1997, except for Note 16, as to which the date is
September 17, 1997, relating to the financial statements of First Federal
Savings and Loan Association of Chilton County for the years ended June 30,
1997, 1996 and 1995, which are included in the Form 8-K/A.
Jones & Kirkpatrick, P.C.
Birmingham, Alabama
January 15, 1997
