<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:
March 31, 1999 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
- -------------------------------------- 898,032 shares
Class Outstanding at May 14, 1999
<PAGE> 2
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
March 31, 1999 (Unaudited) and September 30, 1998
<TABLE>
<CAPTION>
March 31, September 30,
Assets 1999 1998
------ ---- ----
(Audited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 6,429,571 9,213,906
Investment securities held to maturity at cost 543,732 971,106
Investment securities available for sale, at fair value 32,055,606 36,823,772
Loans receivable 107,837,788 105,322,213
Less allowance for loan losses (625,119) (732,021)
------------- -------------
Net loans 107,212,669 104,590,192
Loans held for sale at cost (which approximates fair value) 431,900 92,750
Premises and equipment, net 5,241,607 3,903,308
Foreclosed real estate, net 729,407 --
Accrued interest receivable 977,820 1,044,978
Other assets 1,751,013 1,733,463
Investment in affiliates 154,421 144,617
------------- -------------
Total assets $ 155,527,746 158,518,092
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 3,159,142 3,435,519
Interest bearing 117,228,612 120,448,157
------------- -------------
Total deposits 120,387,754 123,883,676
Advances by borrowers for property taxes and insurance 316,249 327,126
Accrued interest payable 919,886 1,071,183
Borrowed funds 16,919,068 16,169,068
Accrued expenses and other liabilities 1,565,149 1,396,424
------------- -------------
Total liabilities 140,108,106 142,847,477
------------- -------------
Stockholders' equity:
Common stock, $.01 par value, 2,000,000 shares authorized; 999,643 shares
issued and 898,032 outstanding shares at March 31, 1999 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 (1,126,099) (867,087)
Unearned compensation on common stock employee benefit plans (768,554) (778,508)
Retained earnings, substantially restricted 5,871,984 5,953,346
Accumulated other comprehensive income 1,621,350 1,541,905
------------- -------------
Total stockholders' equity 15,419,640 15,670,615
------------- -------------
Total liabilities and stockholders' equity $ 155,527,746 158,518,092
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited) for the
Six Months Ended March 31, 1999 and March 31, 1998 and
Three Months Ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
Six Months Ended March 31, Three Months Ended March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans 4,154,932 4,009,485 2,074,405 2,133,015
Interest and dividend income on investment securities 1,073,831 1,439,365 501,525 772,638
--------- --------- --------- ---------
Total interest and dividend income 5,228,763 5,448,850 2,575,930 2,905,653
--------- --------- --------- ---------
Interest expense:
Interest on deposits 2,841,108 2,420,883 1,368,094 1,465,015
Interest on borrowed funds 449,294 583,133 226,265 293,745
--------- --------- --------- ---------
Total interest expense 3,290,402 3,004,016 1,594,359 1,758,760
--------- --------- --------- ---------
Net interest income 1,938,361 2,444,834 981,571 1,146,893
Provision for loan losses 61,932 21,671 28,668 14,081
--------- --------- --------- ---------
Net interest income after provision for loan loss losses 1,876,429 2,423,163 952,903 1,132,812
Other income:
Service charges and other fees 392,016 311,729 211,433 174,044
Employee benefit consulting fees 520,563 336,641 307,486 188,242
Gain on sale of loans 222,776 130,656 105,243 85,303
Gain (Loss) on sale of foreclosed real estate (4,041) -- -- --
Gain (Loss) on maturity of investment security AFS 43,735 -- 22,485 --
Insurance commissions -- (2,105) -- 3,028
Profit (Loss) from sale of equipment -- 2,565 -- 2,803
Equity in net (loss) Income of affiliate 9,804 (21,728) (3,328) (16,400)
Other 101,700 116,843 74,843 61,626
--------- --------- --------- ---------
Total other income 1,286,553 874,601 718,162 498,646
--------- --------- --------- ---------
Other expenses:
Compensation and benefits 1,816,640 1,622,700 898,831 866,916
Net occupancy expense 151,759 133,495 78,190 65,080
Furniture and fixtures 214,032 146,353 110,677 81,571
Data processing 172,536 117,309 85,839 83,486
Office supplies and expenses 179,900 172,197 93,391 91,069
Deposit insurance premiums 59,512 45,147 29,353 27,417
Other 226,512 362,123 144,456 129,769
--------- --------- --------- ---------
Total other expenses 2,820,891 2,599,324 1,440,737 1,345,308
--------- --------- --------- ---------
Income before taxes 342,091 698,440 230,328 286,150
Income tax expense 135,145 274,011 90,520 111,507
--------- --------- --------- ---------
Net income 206,946 424,429 139,808 174,643
========= ========= ========= =========
Primary earnings per common share 0.23 0.46 0.16 0.19
Fully Diluted earnings per common share 0.23 0.45 0.16 0.18
Dividends per common share 0.30 0.30 0.15 0.15
Primary weighted average common shares outstanding 902,605 919,116 900,994 940,943
Fully Diluted weighted average common shares outstanding 908,629 944,391 901,395 966,218
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deferred
Compensation Retained Accumulated
Additional on Common Earnings Other Total
Common Paid In Treasury Stock Employee Substantially Compensation Stockholders
Stock Capital Stock Benefit Plans Restricted Income Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $9,996 $9,810,963 $ (867,087) $(778,508) $5,953,346 $1,541,905 $ 5,670,615
Comprehensive Income
Net Income 206,946 206,946
Other Comprehensive Income,
net of tax:
Change in unrealized gain on
securities available for sale,
net of deferred income taxes of 79,445 79,445
$49,256 -----------
Total Comprehensive Income 286,391
-----------
Purchase of Treasury Stock (259,012) (259,012)
Vesting of Deferred Compensation 9,954 9,954
Shares
Cash Dividends Declared (288,308) (288,308)
------- ---------- ----------- --------- ---------- ---------- -----------
Balance at March 31,1999 $9,9996 $9,810,963 $(1,126,099) $(768,554) $5,871,984 $1,621,350 $15,419,640
======= ========== =========== ========= ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended March 31, 1999 and1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income $ 206,946 $ 424,429
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 169,276 146,860
Provision for loan losses 21,000 26,824
Loss on sale of unconsolidated affiliate -- 6,564
Loss on Sale of premisis and equipment -- (2,565)
Equity in loss (income) of unconsolidated affiliates (9,804) 21,728
Gain on sale of loans (222,776) 130,656
(Gain) loss on sale of investment securities (43,735) 366
Increase (decrease) in deferred loan origination fees (5,936) (26,573)
Net amortization of premium/discount
on investment securities held to maturity (936) --
Net amortization of premium/discount
on investment securities available for sale (35,959) (262,297)
Gain on sale of foreclosed real estate 4,041 --
Loans originated for sale (11,645,274) (6,024,844)
Proceeds from sale of loans 11,528,900 5,334,597
(Increase) decrease in accrued interest receivable 67,158 (150,870)
(Increase) in other assets (17,550) (880,655)
Increase (decrease) in accrued interest payable (151,297) (548,584)
Deferred compensation expense 9,954
Increase (decrease) in accrued expenses and other liabilities 168,725 1,066,606
------------ ------------
Net cash used in operating activities $ 42,733 $ (737,758)
------------ ------------
Investing activities:
Net cash paid in acquisition of subsidiary -- (145,672)
Proceeds from sale of unconsolidated affiliate -- 90,100
Purchase of Held to Maturity -- (900,846)
Investment in unconsolidated affiliated companies -- (75,000)
Purchases (sale) of interest-bearing deposits in other (185,618) --
Re-Investment of Div.-Int-bearing dep in other (1,557) --
Principal repayments and maturities of investment
securities held to maturity 615,485 --
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Principal repayments and maturities of investment
securities available for sale 4,865,472 4,518,874
Purchase of investment securities available for sale (11,716,968) --
Purchase of discount of investments available for sale 156,085 --
Proceeds from sale of investments available for sale 11,638,566 14,864,820
Reinvestment of mutual fund dividend (15,850) (20,425)
Net (increase) decrease in loans (2,637,541) 1,715,823
Proceeds from sale of foreclosed real estate 36,000 38,866
Transfer from loans of real estate owned property (769,448) --
Purchase of premises and equipment (1,507,575) (698,314)
------------ ------------
Net cash provided by (used in) investing activities $ 477,051 $ 19,388,226
------------ ------------
Financing activities:
Net increase (decrease) in deposits $ (3,495,922) (1,426,572)
Proceeds from borrowed funds 26,351,593 4,088,414
Cash dividends paid (288,308) (155,671)
Treasury stock purchased (259,012) --
Repayment of borrowed funds (25,601,593) (6,800,266)
Decrease in advances by borrowers
for property taxes and insurance (10,877) (109,517)
------------ ------------
Net cash provided by financing activities (3,304,119) (4,403,612)
------------ ------------
Increase (decrease) in cash and amounts due from
depository institutions (2,784,335) 14,246,856
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 $ 6,429,571 $ 16,694,979
============ ============
Supplemental information on cash payments:
Interest paid $ 2,841,108 $ 2,266,021
============ ============
Income taxes paid $ -- $ 274,246
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999 and 1998
(1) BASIS OF PRESENTATION
Information filed on this Form 10-QSB as of and for the quarter ended
March 31, 1999, 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 six-month periods ended March 31, 1999 and 1998. 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 April 21, 1999, the Company declared a regular dividend of
$0.15 per share, payable on May 17, 1999 to stockholders of record on
May 3, 1999.
See accompanying notes to consolidated financial statements.
6
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
Net income for the three months and six months ended March 31, 1999
decreased $34,835, or 19.9%, and $217,483, or 51.2%, respectively,
compared to the same periods in fiscal 1998. Net interest income for
the three months and six months ended March 31, 1999 decreased
$179,909, or 15.8%, and $546,734, or 22.5%, respectively, compared to
the same periods in fiscal 1998. Other income increased $219,516, or
44%, for the three month period ended March 31, 1999, and $411,952 or
47.1% for the six-month period ended March 31, 1999, when compared to
the same periods in fiscal 1998, while other expenses increased
$95,429, or 7%, and $221,567, or 8.5%, for the three months and six
months periods, respectively, ended March 31, 1999 compared to the same
periods in fiscal 1998.
Primary earnings per common share, based on weighted average shares
outstanding, was $0.16 and $0.19 for the three months ended March 31,
1999 and 1998, and $0.23 and $0.46 for the six months ended March 31,
1999 and 1998, 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.
During the six-month period ended March 31, 1999, the interest rate
spread decreased 103 basis points as rates earned on interest-earning
assets decreased 88 basis points to 7.11% while the cost of funds
increased 15 basis points to 4.77%. The average balance of
interest-earning assets increased $6.8 million, or 5.0%, from $136.4
million to $143.2 million while the average balance of interest-bearing
liabilities increased $3.1 million, or 2.4%, from $131 million to
$134.1 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 3.37% to 2.34% and a decrease in net
interest income of $546,734, or 22.5%, for the six months ended March
31, 1999 compared to the same period in 1998.
OTHER INCOME
Total other income for the six months ended March 31, 1999, increased
$412,000, to $1,286,000, as compared to the six months ended March 31,
1998. A significant portion of the increase in total other income was
attributable to an approximately $185,000 increase (to $520,000) in
employee benefit consulting fees earned by Pension & Benefit Financial
Services Inc. ("Pension & Benefit"), First Federal's wholly-owned
operating subsidiary, during the first six months of fiscal 1999. In
addition, gains on sales of loans increased approximately $92,000, gain
on sales of investments increased $43,000, and service charges and
other fees increased $80,000 compared to the same period in fiscal
1998.
See accompanying notes to consolidated financial statements.
7
<PAGE> 9
For the three-month period ended March 31, 1999, total other income
increased by approximately $220,000 to $718,000 compared to the same
period in fiscal 1998. This increase was primarily the result of
increases of $20,000 from gains on sales of loans, an increase of
$37,000 on income from service charges and fees, an increase of
$119,000 in employee benefit consulting fees, and an increase of
$13,000 in other income.
OTHER EXPENSE
Total other expense for the six months ended March 31, 1999 increased
by approximately $221,000, to $2,820,000, compared to the same period
in fiscal 1998. The increase is primarily due to increases in
compensation expense of $194,000, data processing increases of $55,000
and furniture and fixtures in the amount of $67,000. The increase in
furniture and fixture expense is primarily attributable to the opening
and operation of the loan production office in Dothan, Alabama. The
increase in data processing expense is primarily attributable to the
upgrading of information technology systems, which was undertaken as a
result of SouthFirst's acquisition of First Federal of Chilton County
in October of 1997 and to ensure that the systems would be Year 2000
compliant. (See discussion of Year 2000 below).
For the three-month period ended March 31, 1999, total other expense
increased approximately $95,000, to $1,441,000, from $1,345,000 for the
three-month period ended March 31, 1998. Compensation expense increased
$32,000, furniture and fixtures increased $29,000, net occupancy
increased $13,000, and other expense increased $14,000 as compared to
fiscal 1998.
INCOME TAX EXPENSE
SouthFirst's effective tax rate for the six-month periods ended March
31, 1999 and 1998 was 39.5% and 39.2%, 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 $139,000, or 50.7%, to
$135,000 for the six months ended March 31, 1999, as compared to
$274,000 for the six months ended March 31, 1998, 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 customers seeking assurance that they will
be year 2000 compliant. The majority of the major vendors have
See accompanying notes to consolidated financial statements.
8
<PAGE> 10
responded. 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
six months ended
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Return on assets 0.36% 0.55%
Return on equity 3.60% 5.30%
Equity-to-assets ratio 9.99% 10.39%
Interest rate spread 2.34% 3.37%
Net interest margin 2.65% 3.55%
Total risk-based capital ratio 19.68% 21.18%
Nonperforming loans to loans .87% 1.60%
Allowance for loan losses to loans 0.58% 0.79%
Allowance for loan losses to nonperforming loans 66.66% 49.50%
Ratio of net charge-offs to average loans outstanding 0.01% 0.01%
Book value per common share outstanding $17.32 $17.79
</TABLE>
Significant factors affecting the SouthFirst's financial condition
during the six months ended March 31, 1999 are detailed below:
ASSETS
See accompanying notes to consolidated financial statements.
9
<PAGE> 11
Total assets decreased $2,990,000, or 1.9%, from $158,518,000 at
September 30, 1998 to $155,527,000 at March 31, 1999. Net loans
increased $2,622,000, or 2.5%, compared to September 30, 1998,
primarily due to seasonal changes in mortgage loan demand. Investment
securities held to maturity decreased $427,000 while investment
securities available for sale decreased $4,768,000 for a total decrease
of $5,195,000.
LIABILITIES
Total liabilities decreased $2,739,000, or 1.9%, from $142,847,000 at
September 30, 1998 to $140,108,000 at March 31, 1999. Deposits
decreased approximately $3,495,000 during the period, borrowed funds
increased $750,000 to $16,919,068 and accrued expenses and other
liabilities increased approximately $168,000. Deposit decreases were
primarily attributable to the relatively low interest rate environment
with savings deposits leaving in search of higher yields. 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 March 31, 1999, the allowance for loan losses was $625,119, 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 provisions for loan losses of
$61,932 and $21,671 in the first six months of fiscal 1999 and 1998,
respectively. Nonperforming loans at March 31, 1999 were approximately
$937,000 as compared to approximately $2,128,000 at September 30, 1998.
The reduction of non-performing loans is due to charge-offs and
foreclosures. At March 31, 1999 and September 30, 1998, the allowance
for loan losses represented 0.58% 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
See accompanying notes to consolidated financial statements.
10
<PAGE> 12
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.
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 March 31, 1999, 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 $14,380,000 9.19%
Core Capital 14,380,000 9.19%
Risk-Based Capital 13,860,000 18.52%
</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
See accompanying notes to consolidated financial statements.
11
<PAGE> 13
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.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed with this report.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No report on form 8-K was filed during the
quarter ended March 31, 1999.
See accompanying notes to consolidated financial statements.
12
<PAGE> 14
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.
Date: May 14, 1999 By: /s/ Donald C. Stroup
--------------------------------------------
Donald C. Stroup, President and
Chief Executive Officer
(principal executive officer)
Date: May 14, 1999 By: /s/ Joe K. McArthur
--------------------------------------------
Joe K. McArthur, Executive Vice President
and Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHFIRST BANCSHARES, INC. FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,430
<INT-BEARING-DEPOSITS> 117,229
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<INVESTMENTS-HELD-FOR-SALE> 32,056
<INVESTMENTS-CARRYING> 544
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<LOANS> 107,213
<ALLOWANCE> 625
<TOTAL-ASSETS> 155,528
<DEPOSITS> 120,388
<SHORT-TERM> 12,319
<LIABILITIES-OTHER> 1,565
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0
0
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