<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, 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 928,568 shares
- -------------------------------------- Outstanding at February 14, 2000
Class
<PAGE> 2
SOUTHFIRST BANCSHARES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited).......................................................1
Consolidated Statements of Financial Condition (Unaudited) at December 31, 1999
and September 30, 1999 .................................................................1
Consolidated Statements of Earnings (Unaudited) for the Three Months Ended
December 31, 1999 and 1998..............................................................2
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Three Months Ended December 31, 1999....................................................3
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended
December 31, 1999 and 1998..............................................................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
Item 1: Legal Proceedings.....................................................................12
Item 2: Changes in Securities.................................................................12
Item 3: Defaults upon Senior Securities.......................................................12
Item 4: Submission of Matters to a Vote of Security Holders...................................12
Item 5: Other Information.....................................................................12
Item 6: Exhibits and Reports on Form 8-K......................................................12
SIGNATURES....................................................................................13
Index to Exhibits.............................................................................14
</TABLE>
<PAGE> 3
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Financial Condition
December 31, 1999 (Unaudited) and September 30, 1999 (Audited)
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1999 1999
------------- ------------
(Audited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 5,826,531 4,969,578
Interest earning assets in other financial institutions 1,073,828 993,708
Investment securities held to maturity at cost -- 28,783
Investment securities available for sale, at fair value 39,220,995 39,312,785
Loans receivable 109,906,704 107,164,396
Less allowance for loan losses (747,256) (851,915)
------------- ------------
Net loans 109,159,448 106,312,481
Loans held for sale at cost (which approximates fair value) 154,452 710,134
Premises and equipment, net 5,106,344 5,178,234
Foreclosed real estate, net 795,273 568,358
Accrued interest receivable 975,393 1,018,029
Other assets 343,596 1,397,811
Investment in affiliates 16,464 16,464
------------- ------------
Total assets $ 162,672,324 160,506,365
============= ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 2,997,664 3,838,290
Interest bearing 107,298,431 110,883,586
------------- ------------
Total deposits 110,296,095 114,721,876
Advances by borrowers for property taxes and insurance 254,158 441,180
Accrued interest payable 1,134,565 1,134,016
Borrowed funds 37,029,068 28,804,068
Accrued expenses and other liabilities (394,302) 1,053,036
------------- ------------
Total liabilities 148,319,584 146,154,176
------------- ------------
Stockholders' equity:
Common stock, $.01 par value, 2,000,000 shares authorized; 999,643 shares
issued and 904,823 outstanding shares at December 31, 1999 and 999,643
shares issued and 904,823 outstanding shares at September 30, 1999 9,996 9,996
Additional paid-in capital 9,851,981 9,851,981
Treasury stock (1,129,738) (1,129,738)
Deferred compensation on common stock employee benefit plans (618,249) (623,224)
Retained earnings, substantially restricted 6,766,450 6,740,051
Accumulated Other Comprehensive Income (loss) (527,700) (496,877)
------------- ------------
Total stockholders' equity 14,352,740 14,352,189
------------- ------------
Total liabilities and stockholders' equity $ 162,672,324 160,506,365
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
Consolidated Statements of Earnings (Unaudited) for the
Three Months Ended December 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans 2,222,349 2,080,527
Interest and dividend income on investment securities 620,450 572,307
---------
Total interest and dividend income 2,842,799 2,652,834
--------- ---------
Interest expense:
Interest on deposits 1,149,681 1,473,014
Interest on borrowed funds 517,956 223,028
--------- ---------
Total interest expense 1,667,637 1,696,042
--------- ---------
Net interest income 1,175,162 956,792
Provision for loan losses 0 37,306
--------- ---------
Net interest income after provision for loan loss losses 1,175,162 919,486
--------- ---------
Non-interest income:
Service charges and other fees 208,315 180,583
Employee benefit trust and consulting fees 204,849 213,076
Gain on sale of loans 100,377 117,533
Gain on sale of investment securities 0 0
Equity in loss of affiliate 0 13,132
Other 42,871 48,108
--------- ---------
Total non-interest income 556,412 572,432
--------- ---------
Non-interest expenses:
Compensation and benefits 864,348 917,809
Net occupancy expense 87,877 73,569
Furniture and fixtures 115,988 103,355
Data processing 81,190 86,697
Office supplies and expenses 95,977 86,510
Deposit insurance premiums 27,686 30,160
Goodwill Expense 15,782 8,668
Other 173,369 73,329
--------- ---------
Total non-interest expenses 1,462,217 1,380,097
--------- ---------
Income before taxes 269,357 111,821
Income tax expense 103,595 44,626
--------- ---------
Net income 165,762 67,195
========= =========
Primary earnings per common share 0.18 0.07
Fully Diluted earnings per common share 0.18 0.07
Dividends per common share 0.15 0.15
Primary weighted average common shares outstanding 904,823 904,180
Fully Diluted weighted average common shares 904,823 918,145
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended December 31, 1999
- --------------------------------------------------------------------------------
<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, 1999 $ 9,996 $ 9,851,981 $(1,129,738) $(623,224) $6,740,051
Comprehensive Income
Net Income 165,762
Other Comprehensive Income
(loss), net of tax:
Change in unrealized gain on
securities available-for-sale, net of
deferred income taxes of $18,893
Total Comprehensive Income
Acquisition of Treasury Stock
Vesting of Deferred Comp Shares 4,975
Cash Dividends Declared (139,363)
--------- ----------- ----------- --------- ----------
Balance at December 31, 1999 $ 9,996 $ 9,851,981 $(1,129,738) $(618,249) $6,766,450
========= =========== =========== ========= ==========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders
Income (Loss) Equity
<S> <C> <C>
Balance at September 30, 1999 $(496,877) $14,352,189
Comprehensive Income
Net Income 165,762
Other Comprehensive Income
(loss), net of tax:
Change in unrealized gain on
securities available-for-sale, net of (30,823) (30,823)
deferred income taxes of $18,893 -----------
Total Comprehensive Income 134,939
-----------
Acquisition of Treasury Stock
Vesting of Deferred Comp Shares 4,975
Cash Dividends Declared (139,363)
--------- -----------
Balance at December 31, 1999 $(527,700) $14,352,740
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 165,762 $ 67,195
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 88,413 83,522
Provision for loan losses -- 21,000
Equity in loss of unconsolidated affiliate -- (13,132)
(Gain) Loss on Sale of Loans (100,377) 117,533
Increase (decrease) in deferred loan origination fees 15,729 (17,469)
Net amortization of premium on investment securities
held to maturity -- (761)
Net amortization of premium on investment securities
available for sale 6,380 (24,379)
Loans originated for sale (4,378,613) (7,407,068)
Proceeds from sale of loans 5,034,672 5,668,007
(Increase) decrease in accrued interest receivable 42,636 111,194
(Increase) (decrease) in other assets 1,054,215 (781,731)
Deferred Compensation Expense 4,975 --
Increase (Decrease) in accrued interest payable 549 (230,756)
Increase (decrease) in accrued expenses and other liabilities (1,428,445) 645,195
----------- -----------
Net cash provided by (used in) operating activities $ 505,896 $(1,761,650)
----------- -----------
Investing activities:
Net change in interest bearing deposits in banks (80,120) (81,734)
Proceeds from maturity/repay of princ HTM 28,783 3,488,521
Proceeds from maturity/repay of Princ AFS 491,364 --
Purchase of Investment securities AFS (450,000) (2,750,000)
Purchase of Discount of Inv AFS -- 1,563
Reinvestment of Mutual Fund Dividend (5,670) (8,058)
Net increase in loans (2,862,696) (741,019)
Purchase of Premises and Equipment (16,523) (1,268,812)
Transfer from loans of REO property (226,916) (331,755)
Net cash (used in) provided by investing activities (3,121,778) (1,691,294)
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Financing activities:
Increase (decrease) in deposits $(4,425,780) $ 294,163
Proceeds from borrowed funds 9,500,000 3,000,000
Repayment of borrowed funds (1,275,000) (3,000,000)
Cash dividends paid (139,363) (144,080)
Treasury Stock Purchased -- (200,660)
Decrease in advances by borrowers
for property taxes and insurance (187,022) (85,058)
Net cash provided by (used in) financing activities 3,472,835 (135,635)
----------- -----------
(Decrease) in cash and cash equivalents 856,953 (3,588,579)
Cash and cash equivalents at beginning of year 4,969,578 9,213,906
----------- -----------
Cash and cash equivalents at end of year $ 5,826,531 5,625,327
=========== ===========
Supplemental information on cash payments:
Interest paid $ 1,667,088 $ 1,478,114
=========== ===========
Income taxes paid $ 600,000 $ -0-
=========== ===========
Supplemental information on noncash transactions:
Real Estate owned, obtained through foreclosure $ 222,915 $ 331,755
=========== ===========
Change in net unrealized gain on investment securities
available for sale $ (30,823) $ 393,522
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 8
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 1999 and 1998
(1) BASIS OF PRESENTATION
Information filed on this Form 10-QSB as of and for the quarter ended
December 31, 1999, was derived from the financial records of SouthFirst
Bancshares, Inc. ("SouthFirst")and its wholly-owned subsidiary, First
Federal of the South ("First Federal"), and First Federal's wholly
owned subsidiary, Pension & Benefit Financial Services, Inc. ("Pension
& Benefit"), 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, 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
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. This Statement establishes standards for the way that
public business enterprises report information about certain operating
segments in annual financial statements and require that those
enterprises report selected information about certain operating
segments in interim financial reports to stockholders. This Statement
was effective for fiscal year 1999. The corporation's principal
activities did not constitute separate reportable segments of its
business as defined in SFAS No. 131, but encompassed traditional
banking activities which offered similar products and services within
the same primary geographic area and regulatory and economic
environment. Therefore, the Statement had no impact on the financial
presentation of the corporation.
(3) SUBSEQUENT EVENTS
On January 19, 2000, the Company declared a regular dividend of $0.15
per share, payable on February 15, 2000 to stockholders of record on
February 1, 2000.
-6-
<PAGE> 9
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Overview
Net income for the first quarter of fiscal 2000, which ended December 31, 1999,
increased $98,567 or147% to $165,762 when compared to the same period in fiscal
1999. Net interest income increased $218,370 for the three-month period ended
December 31, 1999, compared to the same period in fiscal 1999. Other income
decreased $16,020 for the three-month period ended December 31, 1999, compared
to the same period in fiscal 1999, while other expenses increased $82,120.
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, 1999, the interest rate spread increased 52 basis points as
rates earned on interest-earning assets increased 19 basis points to 7.58% while
the cost of funds decreased 33 basis points to 4.67%. The decrease in rates paid
and the increase in rates received during this three month interval reflects the
downward trend in the repricing of higher yielding certificates of deposit,
primarily in the Chilton County market area, as well as a continued upward 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 increased. The average balance of
interest-earning assets increased $6.5 million, or 4.5%, from $143.6 million to
$150.1 million while the average balance of interest-bearing liabilities
increased $7.0 million, or 5.2%, from $135.7 million to $142.7 million. The
combined effect of the increases in average balances and the changes in rates
discussed above resulted in an increase in net interest income of approximately
$218,000, or 22.8%, and an increase in the interest rate spread from 2.39% to
2.91% for the three months ended December 31, 1999, as compared to the three
months ended December 31, 1998.
Non-interest Income
Total non-interest income for the three months ended December 31, 1999,
decreased approximately $16,000 to $556,000 compared to $572,000 for the three
months ended December 31, 1998. A portion of the decrease in total non-interest
income was attributable to a decease of approximately $8,200 in employee benefit
trust and consulting fees and a decrease of $17,000 in gains on sales of loans
during the first three months of fiscal 1999. Service charges and other fees
increased approximately $28,000, while equity in affiliates decreased $13,000
compared to the three months ended December 31, 1998.
Non-interest Expense
Total non-interest expense for the three months ended December 31, 1999,
increased by approximately $82,000 to $1,462,000 as compared to $1,380,000 for
the three months ended December 31, 1998. Most of
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<PAGE> 10
the increase is due to increases in net occupancy of approximately $14,300,
office supplies of $9,500, furniture and fixtures in the amount of $12,600, and
other non-interest expenses in the amount of $100,040. The increase in other
non-interest expenses is comprised primarily of increases in legal, accounting,
and a reduction of expense credits from mortgage origination fees as a result of
a reduction of mortgage portfolio loans. Compensation and benefits decreased by
approximately 54,000 for the three month period ended December 31, 1999 as
compared to the three month period ended December 31, 1998.
Income Taxes
The Company's effective tax rate for the three-month periods ended December 31,
1999 and 1998, was 38.5% and 39.9%, 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 increased
approximately $50,900, or 132.1%, to $103,600 for the three months ended
December 31, 1999, as compared to $44,600 for the three months ended December
31, 1998, due to the increase in pre-tax earnings.
The Year 2000 Issue
As of February 14, 2000, neither SouthFirst nor First Federal has experienced
any operational problems related to the Year 2000 issue.
Communications and information systems, including systems that monitor deposit
and lending accounts, are critical to the business of First Federal. First
Federal uses a third-party vendor for processing its primary banking
applications. During the period between 1997 and 1999, SouthFirst developed
plans to address the Year 2000 issue, conducted comprehensive reviews of First
Federal's systems and ensured that First Federal took all necessary measures to
assure adequate Year 2000 compliance. SouthFirst's systems, those of First
Federal and its data processing vendor were Year 2000 compliant and no material
expenditures will be necessary to implement any further modifications. The
Company's data processing vendor did not experience any problems as a result of
the Year 2000 issue. However, there can be no assurance that unforeseen
difficulties or costs will not arise. In addition, there can be no assurance
that the systems of other companies on which First Federal's systems rely have
been modified on a timely basis, or that the failure by another company to
properly modify its systems will not negatively impact First Federal's systems
or operations in the future.
An area of concern to SouthFirst and First Federal is the effect of Year 2000
problems on First Federal's loan customers. Failure to address Year 2000
problems could have significant impact on the ability of certain customers to
continue operations. First Federal's loan portfolio could be negatively impacted
if customers are unable to honor loan agreements and defaults occur as a result
of failure to address Year 2000 problems. These customer relationships continue
to be monitored to ensure that the necessary systems modifications will continue
to be made on a timely basis. As of February 14, 2000, none of the Bank's
customers have reported operational problems related to the Year 2000 issue.
Nevertheless, there can be no assurance that all of First Federal's customers
will maintain Year 2000 compliance. Failure of certain customers to adequately
address these issues could result in loan defaults which would negatively impact
First Federal's earnings.
-8-
<PAGE> 11
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,
------------
1999 1998
---- ----
<S> <C> <C>
Return on assets 0.41% 0.17%
Return on equity 4.63% 1.71%
Equity-to-assets ratio 8.84% 9.92%
Interest rate spread 2.90% 2.39%
Net interest margin 3.13% 2.66%
Total risk-based capital ratio 17.62% 19.68%
Nonperforming loans to loans 0.95% 2.04%
Allowance for loan losses to loans 0.75% 0.59%
Allowance for loan losses to average nonperforming loans 78.26% 28.83%
Ratio of net charge-offs to average loans outstanding 0.10% 0.13%
Book value per common share outstanding $15.89 $17.39
</TABLE>
Significant factors affecting the SouthFirst's financial condition during the
three months ended December 31, 1999 are detailed below:
Assets
Total assets increased approximately $2,166,000, or 1.35%, from $160,506,000 at
September 30, 1999, to $162,672,000 at December 31, 1999. Net loans increased
approximately $2,847,000 compared to September 30, 1999, primarily due to loans
purchased. Investment securities held to maturity decreased $29,000 while
investment securities available for sale decreased $92,000 for a net decrease of
$121,000.
Liabilities
Total liabilities increased approximately $2,166,000, or 1.48%, from
$146,154,000 at September 30, 1999, to $148,320,000 at December 31, 1999.
Deposits decreased approximately $4,426,000 during the period, borrowed funds
increased $8,225,000, while accrued expenses and other liabilities decreased
approximately $1,447,000 compared to September 30, 1999. The decrease in
deposits was primarily attributable to a decline in checking account balances of
approximately $2.4 million and a decline in certificates of deposit of
approximately $1.5 million. While the decline in checking account balances is
reflective of monthly fluctuations and seasonal trends, the decline in
certificates of deposit reflects a continued trend of funds going into higher
yielding investments. The decrease in accrued expenses is primarily due to
fluctuations
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<PAGE> 12
in accounts payable balances as a result of annual interest on certificates of
deposit being paid on December 31, 1999.
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, 1999, the allowance for loan losses was $747,256, as compared to
$851,915 at September 30, 1999. 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 $-0- and $37,306 in the three month
periods ended December 31, 1999 and 1998, respectively. Nonperforming loans at
December 31, 1999 were approximately $1,046,000 as compared to approximately
$1,214,000 at September 30, 1999. At December 31, 1999 and September 30, 1999,
the allowance for loan losses represented 0.75% and 0.80% of average loan
balances, 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 the
averages 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.
Liquidity
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.
Interest Rate Sensitivity
Changes in interest rates will not 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.
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<PAGE> 13
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, 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 $ 13,540,000 8.30%
Core Capital 13,540,000 8.30%
Risk-Based Capital 14,426,000 17.62%
</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.
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<PAGE> 14
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
On January 19, 2000, Bobby R. Cook, President of the Western Division of First
Federal and a member of the Board of Directors of SouthFirst and First Federal,
filed a lawsuit, in Chilton County, Alabama, against First Federal, SouthFirst
and Donald C. Stroup, alleging wrongful termination of his employment, as
President of the Western Division, and other claims. On January 24, 2000, the
employment of Mr. Cook, was terminated for cause by the Board of Directors of
First Federal, pursuant to the provisions of Mr. Cook's employment agreement
with First Federal. Further, Mr. Cook, on January 25, 2000, was removed for
cause as a member of the Board of Directors of First Federal, upon the unanimous
written consent of SouthFirst, the sole shareholder of First Federal. Management
believes Mr. Cook's lawsuit to be without merit and intends to vigorously defend
the case. Furthermore, Management is reviewing appropriate counterclaims for
damages to First Federal and SouthFirst, which may be asserted against Mr. Cook
in this litigation.
Item 2: Changes in Securities
No response is required by SouthFirst to this Item.
Item 3: Defaults upon Senior Securities
No response is required by SouthFirst to this Item.
Item 4: Submission of Matters to a Vote of Security Holders
No matter was submitted during the first quarter, ended December 31, 1999, to a
vote of security holders of SouthFirst.
Item 5: Other Information
No response is required by SouthFirst to this Item.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits. The Following Exhibit is filed with this report.
<TABLE>
<CAPTION>
Exhibit Number 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 December 31, 1999.
-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.
Date: February 11, 2000 By: /s/ Donald C. Stroup
---------------------------------------------
Donald C. Stroup, President and
Chief Executive Officer
(principal executive officer)
Date: February 11, 2000 By: /s/ Joe K. McArthur
---------------------------------------------
Joe K. McArthur, Executive Vice
President and Chief Financial Officer
(principal financial and accounting officer)
-13-
<PAGE> 16
INDEX TO EXHIBITS
Exhibit 27 Financial Data Schedule (for SEC use, only)
-14-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SOUTHFIRST BANCSHARES, INC. FOR
THE THREE MONTH PERIOD FROM OCTOBER 1, 1999 THROUGH DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,826,531
<INT-BEARING-DEPOSITS> 1,073,828
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 39,320,995
<LOANS> 109,906,704
<ALLOWANCE> (747,256)
<TOTAL-ASSETS> 162,672,324
<DEPOSITS> 110,296,095
<SHORT-TERM> 0
<LIABILITIES-OTHER> 38,023,489
<LONG-TERM> 0
0
0
<COMMON> 9,996
<OTHER-SE> 14,342,744
<TOTAL-LIABILITIES-AND-EQUITY> 162,672,324
<INTEREST-LOAN> 2,222,349
<INTEREST-INVEST> 620,450
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,842,799
<INTEREST-DEPOSIT> 1,149,681
<INTEREST-EXPENSE> 517,956
<INTEREST-INCOME-NET> 1,175,162
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 173,369
<INCOME-PRETAX> 269,357
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165,762
<EPS-BASIC> .18
<EPS-DILUTED> .18
<YIELD-ACTUAL> 0
<LOANS-NON> 1,045,520
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,865,638
<ALLOWANCE-OPEN> (747,256)
<CHARGE-OFFS> 107,850
<RECOVERIES> (3,191)
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
