<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
December 31, 1998 1-13640
SOUTHFIRST BANCSHARES, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-1121255
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 (Former name, former address and former fiscal year, if changed
since last report)
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
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.01 per share
- -------------------------------------- 902,232 shares
Class Outstanding at February 12, 1999
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SOUTHFIRST BANCSHARES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition (Unaudited) at December 31, 1998
and September 30, 1998 ..................................................................................1
Consolidated Statements of Earnings (Unaudited) for the Three Months Ended
December 31, 1998 and 1997...............................................................................2
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Three Months Ended December 31, 1998.....................................................................3
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended
December 31, 1998 and 1997...............................................................................4
Notes to Consolidated Financial Statements (Unaudited)........................................................6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................................7
PART II - OTHER INFORMATION..................................................................................12
SIGNATURES
</TABLE>
<PAGE> 3
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1998 (Unaudited) and September 30, 1998
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1998 1998
------ ---- ----
(Audited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 5,625,327 9,213,906
Investment securities held to maturity at cost 552,628 971,106
Investment securities available for sale, at fair value 36,945,986 36,823,772
Loans receivable 105,942,633 105,322,213
Less allowance for loan losses (614,953) (732,021)
------------- ------------
Net loans 105,327,680 104,590,192
Loans held for sale at cost (which approximates fair value) 1,714,278 92,750
Premises and equipment, net 5,088,598 3,903,308
Foreclosed real estate, net 331,755 --
Accrued interest receivable 933,784 1,044,978
Other assets 2,515,194 1,733,463
Investment in affiliates 157,749 144,617
------------- ------------
Total assets 159,192,979 158,518,092
============= ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 4,075,755 3,435,519
Interest bearing 120,102,084 120,448,157
------------- ------------
Total deposits 124,177,839 123,883,676
Advances by borrowers for property taxes and insurance 242,068 327,126
Accrued interest payable 840,427 1,071,183
Borrowed funds 16,169,068 16,169,068
Accrued expenses and other liabilities 2,041,620 1,396,424
------------- ------------
Total liabilities 143,471,022 142,847,477
------------- ------------
Stockholders' equity:
Common stock, $.01 par value, 2,000,000 shares authorized; 999,643 shares
issued and 902,232 outstanding shares at December 31, 1998 and 999,643
shares issued and 914,432 outstanding shares at September 30, 1998 9,996 9,996
Additional paid-in capital 9,810,963 9,810,963
Treasury stock (1,067,744) (867,087)
Unearned compensation on common stock employee benefit plans (778,508) (778,508)
Retained earnings, substantially restricted 5,876,458 5,953,346
Accumulated Other Comprehensive Income 1,870,792 1,541,905
------------- ------------
Total stockholders' equity 15,721,957 15,670,615
------------- ------------
Total liabilities and stockholders' equity $ 159,192,979 158,518,092
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited) for the
Three Months Ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $2,080,527 1,876,470
Interest and dividend income on investment securities 572,307 666,728
--------- ---------
Total interest and dividend income 2,652,834 2,543,198
--------- ---------
Interest expense:
Interest on deposits 1,473,014 955,869
Interest on borrowed funds 223,028 290,528
--------- ---------
Total interest expense 1,696,042 1,246,397
--------- ---------
Net interest income 956,792 1,296,801
Provision for loan losses 37,306 7,589
--------- ---------
Net interest income after provision for loan loss losses 919,486 1,289,212
--------- ---------
Other income:
Service charges and other fees 180,583 137,686
Employee benefit consulting fees 213,076 148,399
Gain on sale of loans 117,533 45,353
Gain on sale of investment securities 0 692
Equity in loss of affiliate 13,132 (5,328)
Other 48,108 50,295
--------- ---------
Total other income 572,432 377,097
--------- ---------
Other expenses:
Compensation and benefits 917,809 755,782
Net occupancy expense 73,569 68,416
Furniture and fixtures 103,355 64,781
Data processing 86,697 33,824
Office supplies and expenses 86,510 81,127
Deposit insurance premiums 30,160 17,730
Other 81,997 232,459
--------- ---------
Total other expenses 1,380,097 1,254,119
--------- ---------
Income before taxes 111,821 412,190
Income tax expense 44,626 162,303
--------- ---------
Net income $ 67,195 249,887
========= =========
Primary earnings per common share 0.07 0.28
Fully Diluted earnings per common share 0.07 0.27
Dividends per common share 0.15 0.13
Primary weighted average common shares outstanding 904,180 897,764
Fully Diluted weighted average common shares outstanding 918,145 924,766
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended December 31, 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deferred
Compensation
on Common Retained
Additional Stock Earnings
Common Paid In Treasury Employee Substantially
Stock Capital Stock Benefit Plans Restricted
--------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 9,996 $ 9,810,963 $ (867,087) $(778,508) $ 5,953,346
Comprehensive Income
Net Income 67,195
Other Comprehensive Income, net
of tax:
Change in unrealized gain on
securities available-for-sale, net of
deferred income taxes of $201,576
Total Comprehensive Income
Acquisition of Treasury Stock (200,657)
Cash Dividends Declared (144,083)
--------- ----------- ----------- --------- -----------
Balance at December 31,1998 $ 9,996 $ 9,810,963 $(1,067,744) $(778,508) $ 5,876,458
========= =========== =========== ========= ===========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders
Income Equity
------------- ------------
<S> <C> <C>
Balance at September 30, 1998 $1,541,905 $ 15,670,615
Comprehensive Income
Net Income 67,195
Other Comprehensive Income, net
of tax:
Change in unrealized gain on
securities available-for-sale, net of 328,887 328,887
deferred income taxes of $201,576
Total Comprehensive Income 396,082
------------
Acquisition of Treasury Stock (200,657)
Cash Dividends Declared (144,083)
---------- ------------
Balance at December 31,1998 $1,870,792 $ 15,721,957
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income $ 67,195 $ 249,887
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 83,522 49,385
Provision for loan losses 21,000 12,722
Loss on sale of unconsolidated affiliate -- 6,564
Equity in loss of unconsolidated affiliates (13,132) 5,328
Gain on sale of loans 117,533 (5,448)
(Gain) loss on sale of investment securities -- (692)
Increase (decrease) in deferred loan origination fees (17,469) (22,321)
Net amortization of premium/discount
on investment securities held to maturity (761) --
Net amortization of premium/discount
on investment securities available for sale (24,379) (26,749)
Loans originated for sale (7,407,068) (1,672,150)
Proceeds from sale of loans 5,668,007 1,526,070
(Increase) decrease in accrued interest receivable 111,194 (102,918)
(Increase) in other assets (781,731) 663,927
Decrease in accrued interest payable (230,756) (759,652)
Increase (decrease) in accrued expenses and other liabilities 645,195 (1,336,121)
----------- ------------
Net cash used in operating activities $(1,761,650) $ (1,412,168)
----------- ------------
Investing activities:
Net cash paid in acquisition of subsidiary -- (145,672)
Proceeds from sale of unconsolidated affiliate -- 90,100
Investment in unconsolidated affiliated companies -- (15,000)
Purchases (sale) of interest-bearing deposits (81,734) --
Principal repayments and maturities of investment
securities held to maturity 3,488,521 --
Principal repayments and maturities of investment
securities available for sale -- 925,232
Purchase of investment securities available for sale (2,750,000) (11,803,852)
Purchase of discount of investment securities available for sale 1,563 --
Proceeds from sale of investments -- 15,860,175
Reinvestment of mutual fund dividend (8,058) --
Net (increase) decrease in loans (741,019) 3,728,589
Proceeds from sale of foreclosed real estate -- 23,277
Transfer from loans of real estate owned property (331,755) --
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1997
----------- ------------
<S> <C> <C>
Purchase of premises and equipment (1,268,812) (385,173)
----------- ------------
Net cash provided by (used in) investing activities $(1,691,294) $ 8,277,676
----------- ------------
Financing activities:
Net increase (decrease) in deposits $ 294,163 4,901,429
Proceeds from borrowed funds 3,000,000 3,108,509
Cash dividends paid (144,080) (105,950)
Treasury stock purchased (200,660) --
Repayment of borrowed funds (3,000,000) (6,014,017)
Decrease in advances by borrowers
for property taxes and insurance (85,058) (134,106)
----------- ------------
Net cash provided by (used in) financing activities (135,635) 1,755,865
----------- ------------
Increase (decrease) in cash and amounts due from
depository institutions (3,588,579) 8,621,373
Cash and amounts due from depository institutions
at beginning of period 9,213,906 2,448,123
----------- ------------
Cash and amounts due from depository institutions
at end of period $ 5,625,327 $ 11,069,496
=========== ============
Supplemental information on cash payments:
Interest paid $ 1,478,114 $ 1,752,477
=========== ============
Income taxes paid $ -- $ --
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 1998 and 1997
(1) BASIS OF PRESENTATION
Information filed on this Form 10-QSB as of and for the quarter ended
December 31, 1998, was derived from the financial records of SouthFirst
Bancshares, Inc. and its wholly-owned subsidiary, First Federal of the
South ("First Federal"), and First Federal's wholly owned subsidiary,
Pension & Benefit Financial Services, Inc., a Montgomery, Alabama-based
employee benefits consulting firm. Collectively, SouthFirst and its
subsidiaries are referred to herein as the "Company."
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain 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 December 31, 1998 and
1997. The results contained in these statements are not necessarily
indicative of the results which may be expected for the entire year.
(2) NEW ACCOUNTING STANDARD
As of October 1, 1998, SouthFirst adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income". SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of SFAS No. 130 had no impact on net income or stockholders
equity. SFAS No. 130 requires unrealized gains and losses from
available for sale securities, which prior to adoption were reported
separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirement of SFAS No. 130.
By September 30, 1999, SouthFirst will adopt Statement of Financial
Accounting Standards No. 131 (SFAS No. 131), "Disclosure About Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual financial statements and requires
those enterprises to report selected information about operating
segments in interim financial reports. The adoption of SFAS No. 131
will have no effect on the results of operations or financial position
of SouthFirst.
(3) SUBSEQUENT EVENTS
On January 20, 1999, the Company declared a regular dividend of $0.15
per share, payable on February 15, 1999 to stockholders of record on
February 1, 1999.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
Net income for the first quarter of fiscal 1999, which ended December 31, 1998,
decreased $182,492, or 73%, when compared to the same period in fiscal 1998. Net
interest income decreased $340,009 in the first fiscal quarter of 1999, compared
to the same period in fiscal 1998. Other income increased $195,335 for the first
fiscal quarter of 1999, compared to the same period in fiscal 1998, while other
expenses increased $125,978.
A significant amount of the above increases or decreases are attributable to the
acquisition of First Federal Savings and Loan Association of Chilton County
("Chilton County") on October 31, 1997. Chilton County was merged with and into
SouthFirst's wholly owned subsidiary, First Federal of the South ("First
Federal"). The acquisition of Chilton County impacts the comparison of the three
month periods ended December 1998 and 1997 in that figures for Chilton County
were incorporated for entire three month period ended December 31, 1998, as
opposed to only two months of the same period in 1997. This resulted in both
other income and other expense increasing from 1997 to 1998. Net interest income
decreased as a result of acquiring a significantly higher cost of funds base, as
well as acquiring a consumer loan base requiring significant charge-offs.
Primary earnings per common share, based on weighted average shares outstanding,
was $0.07 and $0.28 for the three months ended December 31, 1998 and 1997,
respectively.
Those items significantly affecting net earnings are discussed in detail below.
NET INTEREST INCOME
Net interest income is the difference between the interest and fees earned on
loans, securities, and other interest-bearing assets (interest income) and the
interest paid on deposits and borrowed funds (interest expense). Net interest
income is directly related to the interest rate spread, the difference between
the interest rates on interest-earning assets and interest-bearing liabilities.
As of December 31, 1998, the interest rate spread decreased 124 basis points as
rates earned on interest-earning assets decreased 29 basis points to 7.39% while
the cost of funds increased 95 basis points to 5.00%. The increase in rates paid
and the decline in rates received during this three month interval reflects the
significantly higher interest rates that had been paid in the Chilton County
market area, as well as the continuing downward trend of the overall interest
rate environment. While the cost of funds has been steadily declining over the
past several months, interest rates on consumer loans, construction loans and
mortgages have declined as well. The average balance of interest-earning assets
increased $11.20 million, or 8.5%, from $132.4 million to $143.6 million while
the average balance of interest-bearing liabilities increased $5.7 million, or
4.4%, from $130 million to $135.7 million. The combined effect of the increases
in average balances and the changes in rates discussed was to cause a decrease
in the interest rate spread from 3.63% to 2.39% and a decrease in net interest
income of $340,000, or 26.2%, and for the three months ended December 31, 1998,
as compared to the same period in 1997.
7
<PAGE> 10
OTHER INCOME
Total other income for the three months ended December 31, 1998 increased
$195,000, to $572,000, as compared to the three months ended December 31, 1997.
A significant portion of the increase in total other income was attributable to
an increase of $65,000 in employee benefit consulting fees earned by Pension &
Benefit Financial Services Inc. ("Pension & Benefit"), First Federal's wholly
owned operating subsidiary, during the first three months of fiscal 1998. In
addition, gains on sales of loans increased $72,000 and service charges and
other fees increased $43,000 compared to the same period in fiscal 1998. The
acquisition of Chilton County accounted for a substantial amount of the service
charge and other fees increase while increased mortgage loan volumes accounted
for the gain on sale of loans.
OTHER EXPENSE
Total other expense for the three months ended December 31, 1998, increased by
approximately $126,000 to $1,380,000 as compared to $1,254,000 for the three
months ended December 31, 1997. Most of the increase is due to increases in
compensation expense of $162,000, data processing of $53,000, and furniture and
fixtures in the amount of $39,000. These expense increases are primarily
attributable to increased costs associated with the Chilton County acquisition,
as well as additional personnel and other costs associated with the opening of
the loan production office in Dothan, Alabama. The increase in data processing
expense is primarily attributable to the increased data processing activity as a
result of the acquisition of Chilton County and the upgrading of its information
technology systems, which was undertaken as a result of SouthFirst's recent
acquisitions, and to ensure that the systems would by Year 200 compliant. (See
discussion of Year 2000 below).
INCOME TAX EXPENSE
SouthFirst's effective tax rate for the three-month periods ended December 31,
1998 and 1997 was 39.9% and 39.3%, respectively, compared to the federal
statutory rate of 34.0%. SouthFirst's effective tax rate was higher than the
statutory rate due primarily to state income taxes. Income tax expense decreased
approximately $118,000, or 72.5%, to $45,000 for the three months ended December
31, 1998, as compared to $162,000 for the three months ended December 31, 1997,
due to the decrease in pre-tax earnings.
YEAR 2000
Many companies may face a potentially serious information systems problem
because their computer software applications and operational programs may not
properly recognize calendar dates beginning in the year 2000. This problem could
force computers to either shut down or provide incorrect data or information.
First Federal began the process of identifying the changes required to its
computer programs and hardware in early 1997. Software upgrades designed to
correct the year 2000 problem were completed during the early part of calendar
year 1998. SouthFirst has also recently upgraded certain of it information
technology systems due to the recent acquisitions of Chilton County and Pension
& Benefit. Presently, First Federal is in the process of testing all of its
operating systems in order to be ready for year 2000. SouthFirst does not
anticipate the cost of any future software and hardware changes (if necessary)
to have a material adverse impact on its business, financial condition, or
results of operation. However, there can be no assurance that unforeseen
difficulties or costs will not arise. First Federal has issued certification
requests to the data processing and software companies on which its computer
programs rely and to all major vendors and
8
<PAGE> 11
customers seeking assurance that they will be year 2000 compliant. Approximately
60% of the questionnaires have been returned. All of the respondents have
indicated that they are year 2000 compliant now or will be well in advance of
the year 2000.
First Federal also recognizes the importance of determining that its borrowers
are facing the Year 2000 problem in a timely manner to avoid deterioration of
its loan portfolio solely due to this issue. All material relations have been
identified to assess the inherent risks. First Federal plans to work on a
one-on-one basis with any borrower who has been identified as having high Year
2000 risk exposure.
First Federal's contingency plans relative to Year 2000 issues have not been
finalized. Management will develop and modify a "worst case scenario"
contingency plan which will, among other things, anticipate that the First
Federal's deposit customers will have increased demands for cash in the latter
part of 1999.
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Management continuously monitors the financial condition of SouthFirst in order
to protect depositors, increase retained earnings, and protect current and
future earnings.
Return on average stockholders' equity is one way of assessing the return
SouthFirst has generated for its stockholders. The table below sets forth the
return on average stockholders' equity and other performance ratios of
SouthFirst for the periods indicated.
<TABLE>
<CAPTION>
At or for the
three months ended
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Return on assets 0.17% 0.59%
Return on equity 1.71% 4.90%
Equity-to-assets ratio 9.92% 9.67%
Interest rate spread 2.39% 3.63%
Net interest margin 2.66% 3.92%
Total risk-based capital ratio 19.68% 20.24%
Nonperforming loans to loans 2.04% 1.98%
Allowance for loan losses to loans 0.59% 0.78%
Allowance for loan losses to nonperforming loans 28.83% 39.60%
Ratio of net charge-offs to average loans outstanding 0.13% 0.00%
Book value per common share outstanding $17.39 $17.82
</TABLE>
Significant factors affecting the SouthFirst's financial condition during the
three months ended December 31, 1998 are detailed below:
ASSETS
Total assets increased $675,000, or .43%, from $158,518,000 at September 30,
1998 to $159,192,000 at December 31, 1998. Net loans increased $737,000 compared
to September 30, 1998, primarily due to
9
<PAGE> 12
seasonal changes in mortgage loan demand. Investment securities held to maturity
decreased $418,000 while investment securities available for sale increased
$122,000 for a net decrease of $296,000.
LIABILITIES
Total liabilities increased $624,000, or .44%, from $142,847,000 at September
30, 1998 to $143,471,000 at December 31, 1998. Deposits increased approximately
$294,000 during the period, borrowed funds remained the same at $16,169,000, and
accrued expenses and other liabilities increased approximately $646,000. Deposit
increases were primarily attributable to annual compound interest being added
back to customer accounts on December 31, 1998. The increase in accrued expenses
is primarily the result of fluctuations in accounts payable balances.
LOAN QUALITY
A major key to long-term earnings growth is maintenance of a high-quality loan
portfolio. SouthFirst's directive in this regard is carried out through its
policies and procedures for review of loans. The goal and result of these
policies and procedures is to provide a sound basis for new credit extensions
and an early recognition of problem assets to allow the most flexibility in
their timely disposition.
At December 31, 1998, the allowance for loan losses was $614,953, as compared to
$732,021 at September 30, 1998. The decrease is primarily due to charging off
loans which were acquired in the acquisition of Chilton County. SouthFirst
recorded allowances for loan losses of $37,306 and $7,589 in the first three
months of fiscal 1998 and 1997, respectively. Nonperforming loans at December
31, 1998 were approximately $2,182,000 as compared to approximately $2,128,000
at September 30, 1998. At December 31, 1998 and September 30, 1998, the
allowance for loan losses represented 0.59% and 0.70% of loans outstanding,
respectively. The allowances for loan losses is based upon management's
continuing evaluation of the collectibility of the loan portfolio under current
economic conditions and includes analyses of underlying collateral value and
other factors which could affect collectibility. Management considers the
allowance for loan losses to be adequate based upon the evaluations of specific
loans, internal loan rating systems and guidelines provided by the banking
regulatory authorities governing First Federal. Although loans have increased,
management believes loan loss reserves are adequate due to the fact significant
loan charge-offs have not been experienced.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity is the ability of an organization to meet its financial commitments
and obligations on a timely basis. These commitments and obligations include
credit needs of customers, withdrawals by depositors, and payment of operating
expenses and dividends.
SouthFirst is required under applicable federal regulations to maintain
specified levels of cash and "liquid" investments in qualifying types of United
States Treasury and Federal Agency securities, and other investments generally
having maturities of five years or less. Such investments serve as a source of
funds upon which the Company may rely to meet deposit withdrawals and other
short-term needs. The Company closely monitors its cash flow position to assure
necessary liquidity and to take advantage of market opportunities. Management
believes that the Company's liquidity is adequate to fund all outstanding
commitments and other cash needs.
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<PAGE> 13
Changes in interest rates will necessarily lead to changes in the net interest
margin. It is the Company's goal to minimize volatility in the net interest
margin by taking an active role in managing the level, mix and maturities of
assets and liabilities.
To reduce the adverse effect of changes in interest rates on its net interest
margin, the Company is pursuing various strategies to improve the rate
sensitivity of its assets and stabilize net interest income.
CAPITAL ADEQUACY AND RESOURCES
Management is committed to maintaining First Federal's capital at a level
sufficient to protect depositors, provide for reasonable growth, and fully
comply with all regulatory requirements. Management's strategy to achieve this
goal is to retain sufficient earnings while providing a reasonable return on
equity.
The Office of Thrift Supervision has issued guidelines identifying minimum
regulatory "tangible" capital equal to 1.50% of adjusted total assets, a minimum
4.0% core capital ratio, and a minimum risk-based capital of 8.0% of
risk-weighted assets. First Federal has satisfied the majority of its capital
requirements through the retention of earnings.
As of December 31, 1998, First Federal has satisfied all regulatory capital
requirements. First Federal's compliance with the current standards is as
follows:
<TABLE>
<CAPTION>
Percent of
Amount asset base
------ ----------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital $ 14,421,000 9.04%
Core Capital 14,421,000 9.04%
Risk-Based Capital 13,792,000 18.69%
</TABLE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-QSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, and
are made on the basis of management's plans and current analyses of the Company,
its business and the industry as a whole. These forward-looking statements are
subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and in
the future could affect, the Company's financial performance and could cause
actual results to differ materially from those expressed or implied in such
forward-looking statements. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27. Financial Date Schedule (for SEC use only).
(b) Reports on Form 8-K. No report on form 8-K was filed during
the quarter ended December 31, 1998.
12
<PAGE> 15
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 thereunto duly authorized.
SOUTHFIRST BANCSHARES, INC.
<TABLE>
<S> <C>
Date: February 12, 1999 By: /s/ Donald C. Stroup
----------------------------------------------
Donald C. Stroup, President and
Chief Executive Officer
(principal executive officer)
Date: February 12, 1999 By: /s/ Joe K. McArthur
---------------------------------------------
Joe K. McArthur, Executive Vice President
and Chief Financial Officer
(principal financial and accounting officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHFIRST BANCSHARES, INC. FOR THE THREE MONTHS
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,625
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,946
<INVESTMENTS-CARRYING> 553
<INVESTMENTS-MARKET> 553
<LOANS> 105,943
<ALLOWANCE> 615
<TOTAL-ASSETS> 159,193
<DEPOSITS> 124,178
<SHORT-TERM> 10,755
<LIABILITIES-OTHER> 3,124
<LONG-TERM> 5,414
0
0
<COMMON> 0
<OTHER-SE> 15,722
<TOTAL-LIABILITIES-AND-EQUITY> 159,193
<INTEREST-LOAN> 2,081
<INTEREST-INVEST> 572
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,653
<INTEREST-DEPOSIT> 1,473
<INTEREST-EXPENSE> 1,696
<INTEREST-INCOME-NET> 957
<LOAN-LOSSES> 37
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,380
<INCOME-PRETAX> 112
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<YIELD-ACTUAL> 7.39
<LOANS-NON> 2,182
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 732
<CHARGE-OFFS> 146
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 615
<ALLOWANCE-DOMESTIC> 615
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
