<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: June 30, 2000 Commission File Number: 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)
256-245-4365
------------
(Registrant's telephone number)
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
-------------------------------------- -------------------------------
(Class) (Outstanding at August 14, 2000)
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE> 2
SOUTHFIRST BANCSHARES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements........................................................................1
Consolidated Statements of Financial Condition at June 30, 2000 (Unaudited)
and September 30, 1999 .....................................................................1
Consolidated Statements of Earnings (Unaudited) for the Nine-Months ended June 30, 2000
and June 30, 1999 and Three-Months ended June 30, 2000 and June 30, 1999....................2
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Nine-Months ended June 30, 2000.............................................................3
Consolidated Statements of Cash Flows (Unaudited) for the Nine-Months ended
June 30, 2000 and June 30, 1999.............................................................4
Notes to Consolidated Financial Statements (Unaudited)......................................7
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................................8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings..........................................................................13
Item 6: Exhibits and Reports on Form 8-K...........................................................13
SIGNATURES...........................................................................................14
INDEX TO EXHIBITS....................................................................................15
</TABLE>
i
<PAGE> 3
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
June 30, 2000 (Unaudited) and September 30, 1999
<TABLE>
<CAPTION>
June 30, September 30,
Assets 2000 1999
-------------- --------------
(Audited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 5,644,266 4,969,578
Interest-bearing deposits in banks 1,211,151 993,708
Investment securities held to maturity at cost -- 28,783
Investment securities available for sale, at fair value 38,970,506 39,312,785
Loans receivable 112,007,536 107,164,396
Less allowance for loan losses (697,063) (851,915)
-------------- --------------
Net loans 111,310,473 106,312,481
Loans held for sale at cost (which approximates fair value) 0 710,134
Premises and equipment, net 5,000,210 5,178,234
Foreclosed real estate, net 241,762 568,358
Other Repossessed Assets 5,620 --
Accrued interest receivable 1,009,215 1,018,029
Investment in affiliates 14,287 16,464
Other assets 1,536,271 1,397,811
-------------- --------------
Total assets $ 164,943,761 160,506,365
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 3,052,412 3,838,290
Interest bearing 103,247,927 110,883,586
-------------- --------------
Total deposits 106,300,339 114,721,876
Advances by borrowers for property taxes and insurance 350,658 441,180
Accrued interest payable 980,548 1,134,016
Borrowed funds 42,389,068 28,804,068
Accrued expenses and other liabilities 501,948 1,053,036
-------------- --------------
Total liabilities 150,522,561 146,154,176
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value, 2,000,000 shares authorized; 999,643 shares
issued and 904,823 shares outstanding at June 30, 2000 and
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)
Unearned compensation on common stock employee benefit plans (608,298) (623,224)
Retained earnings, substantially restricted 7,040,562 6,740,051
Accumulated other comprehensive other income (loss) (743,303) (496,877)
-------------- --------------
Total stockholders' equity 14,421,200 14,352,189
-------------- --------------
Total liabilities and stockholders' equity $ 164,943,761 160,506,365
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited) for the
Nine Months Ended June 30, 2000 and June 30, 1999 and
Three Months Ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
Nine Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans 6,951,951 6,119,062 2,397,216 2,068,263
Int. Income on deposit in other financial institutions 96,093 180,072 36,247 75,939
Interest and dividend income on investment securities 1,813,410 1,510,106 615,992 444,148
---------- ---------- ---------- ----------
Total interest and dividend income 8,861,454 7,809,240 3,049,455 2,588,350
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 3,354,016 4,142,750 1,089,182 1,301,642
Interest on borrowed funds 1,882,241 675,735 740,788 226,442
---------- ---------- ---------- ----------
Total interest expense 5,236,257 4,818,485 1,829,970 1,528,084
---------- ---------- ---------- ----------
Net interest income 3,625,197 2,990,755 1,219,485 1,060,266
Provision for loan losses 5,572 108,847 5,572 70,123
---------- ---------- ---------- ----------
Net interest income after provision for loan loss losses 3,619,625 2,881,908 1,213,913 990,143
---------- ---------- ---------- ----------
Non-interest income:
Service charges and other fees 630,539 610,793 188,038 218,777
Employee benefit trust and consulting fees 821,060 821,557 331,389 302,511
Gain on sale of loans 252,298 313,559 78,979 90,783
Gain (Loss) on sale of foreclosed real estate 34,431 (4,041) -- --
Gain (Loss) on maturity of investment security AFS 1,937 137,586 -- 85,978
Profit (Loss) from sale of equipment -- (378) -- (378)
Equity in net (loss) Income of affiliate (2,177) (9,634) (2,177) (19,437)
Other 155,242 160,019 58,620 56,803
---------- ---------- ---------- ----------
Total non-interest income 1,893,330 2,029,461 654,849 735,037
---------- ---------- ---------- ----------
Non-interest expenses:
Compensation and benefits 2,537,788 2,701,335 820,301 884,695
Net occupancy expense 259,617 229,954 85,679 78,196
Furniture and fixtures 327,135 329,417 106,246 115,382
Data processing 233,773 255,048 75,285 82,511
Office supplies and expenses 272,602 282,802 88,683 102,902
Deposit insurance premiums 61,015 88,354 16,493 28,840
Goodwill Expense 47,346 38,990 15,782 15,782
Other 599,089 383,597 194,407 157,092
---------- ---------- ---------- ----------
Total non-interest expenses 4,338,365 4,309,497 1,402,876 1,465,400
---------- ---------- ---------- ----------
Income before taxes 1,174,590 601,872 465,886 259,780
Income tax expense 455,993 236,376 180,995 101,231
---------- ---------- ---------- ----------
Net income 718,597 365,496 284,891 158,549
========== ========== ========== ==========
Primary earnings per common share 0.79 0.41 0.31 0.18
Fully Diluted earnings per common share 0.79 0.41 0.31 0.18
Dividends per common share 0.45 0.45 0.15 0.15
Primary weighted average common shares outstanding 904,822 901,080 904,822 898,032
Fully Diluted weighted average common shares outstanding 904,822 901,381 904,822 898,032
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the Nine Months Ended June 30, 2000
<TABLE>
<CAPTION>
Deferred
Compensation Retained Accumulated
Additional on Common Earnings Other Total
Common Paid In Treasury Stock Employee Substantially Comprehensive Stockholders
Stock Capital Stock Benefit Plans Restricted Income (Loss) Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $9,996 $9,851,981 $ (1,129,738) $ (623,224) $6,740,051 $ (496,877) $ 14,352,189
Comprehensive Income
Net Income 718,597 718,597
Other Comprehensive Income,
net of tax:
Change in unrealized gain on
securities available-for-sale,
net of deferred income taxes of
$151,033 (246,426) (246,426)
------------
Total Comprehensive Income 472,171
------------
Vesting of Deferred Compensation 14,926 14,926
Shares
Cash Dividends Declared (418,086) (418,086)
------ ---------- ------------ ---------- ---------- ---------- ------------
Balance at June 30, 2000 $9,996 $9,851,981 $ (1,129,738) $ (608,298) $7,040,562 $ (743,303) $ 14,421,200
====== ========== ============ ========== ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Operating Activities:
Net Income $ 718,597 $ 365,496
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Provision for loan losses 5,572 108,847
Depreciation and amortization 268,005 224,143
Equity in loss of unconsolidated affiliate 2,177 9,634
Loss on sale of premises & equipment -- 378
(Gain) loss on sale of securities -- (137,586)
(Gain) loss on sale of loans (252,298) (313,559)
Increase (decrease) in deferred loan origination fees 15,729 13,755
Net amortization of premium on investment securities held to maturity -- (1,066)
Net amortization of premium on investment securities available for sale 12,241 (166,877)
Gain on sale of foreclosed real estate (34,431) 4,041
Loans originated for sale (11,705,162) (17,089,411)
Proceeds from sale of loans 12,694,120 17,163,750
(Increase) decrease in accrued interest receivable 8,814 143,070
Increase (decrease) in other assets (138,459) 166,287
Deferred compensation expense 14,926 14,926
Increase (decrease) in accrued interest payable (153,468) (21,242)
Increase (decrease) in accrued expenses and other liabilities (400,058) 129,016
------------ ------------
Net cash provided by (used in) operating activities 1,056,305 613,602
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
Nine Months Ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Investing Activities:
Net change in interest bearing deposits in banks (270,000) (1,193,618)
Purchase of interest-bearing deposits in other financial institutions 53,000 --
Re-investment of dividend-interest-bearing deposits in other financial (443) (6,716)
institutions
Proceeds from maturity/repayment of principal held to maturity 28,783 1,753,231
Proceeds from maturity/repayment of principal available for sale 1,500,750 6,136,952
Purchase of investment securities available for sale (1,552,500) (18,716,968)
Purchase of discount of investments available for sale (10,000) 306,172
Proceeds from sale of investments available for sale -- 18,812,444
Reinvestment of mutual fund dividend (5,670) (23,722)
Net increase in loans (5,019,293) (1,763,178)
Purchase of premises & equipment (89,981) (1,558,626)
Proceeds from sale of foreclosed real estate 743,692 36,000
Proceeds from sale of other assets -- 12,000
Transfer from loans of real estate owned property (382,665) (769,448)
Transfer from loans to other repossessed assets (32,146) --
------------ ------------
Net cash (used in) provided by investing activities (5,036,473) 3,024,523
Financing Activities:
Increase (Decrease) in Deposits (8,421,536) (7,740,978)
Proceeds from borrowed funds 30,150,000 34,626,593
Repayment of borrowed funds (16,565,000) (33,641,593)
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
Nine Months Ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Cash dividends paid (418,086) (432,483)
Treasury stock purchased -- (259,012)
Decrease in advances by borrowers for property taxes and insurance (90,522) 40,589
---------- ----------
Net cash provided by (used in) financing activities 4,654,856 (7,406,884)
---------- ----------
(Decrease) in Cash and Cash Equivalents 674,688 (3,768,759)
Cash and Cash Equivalents at Beginning of Period 4,969,578 9,213,906
---------- ----------
Cash and Cash Equivalents at End of Period 5,644,266 5,445,147
========== ==========
Supplemental Information on Cash Payments:
Interest Paid 5,389,725 4,826,248
========== ==========
Income Taxes Paid 1,222,260 4,950
========== ==========
Supplemental Information on Non-cash Transactions:
Change in Net Unrealized Gain on Investment Securities Available for Sale (246,426) (302,685)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) BASIS OF PRESENTATION
Information filed on this Form 10-QSB as of and for the quarter ended
June 30, 2000, 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 subsidiaries,
Pension & Benefit Financial Services, Inc., a Montgomery, Alabama-based
employee benefits trust and consulting company, and SouthFirst
Mortgage, Inc., a Birmingham, Alabama based residential construction
loan and mortgage loan origination office. Collectively, SouthFirst
Bancshares, Inc. and its subsidiaries are referred to herein as the
"Company" and as "SouthFirst."
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 nine-month periods ended June 30, 2000 and 1999. 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 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (the "Statement"). This Statement
establishes accounting and reporting standards for derivative
instruments embedded in other contracts (collectively referred to as
the "Derivatives") and for hedging activities. The Statement requires
that an entity recognize the Derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133 (the "Deferral
Statement"). The Deferral Statement encourages earlier application, but
delays the effective date of the Statement from fiscal quarters of all
fiscal years beginning after June 15, 1999 to fiscal quarters of all
fiscal years beginning after June 15, 2000. In accordance with the
Deferral Statement, the Company will continue to evaluate the impact
and defer implementation as the Deferral Statement allows.
(3) SUBSEQUENT EVENTS
On July 19, 2000, the Company declared a regular dividend of $0.15 per
share, payable on August 15, 2000 to stockholders of record on August
1, 2000.
7
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
Net income for SouthFirst Bancshares, Inc. and its subsidiaries
(referred to collectively herein as "SouthFirst" and as the "Company")
for the three months and nine months ended June 30, 2000, increased
$126,342 or 79.7% and increased $353,101 or 96.6%, respectively, when
compared to the same periods in fiscal 1999. Net interest income for
the three months and nine months ended June 30, 2000, increased
$159,219 or 15% and increased $634,442 or 21.2%, respectively, as
compared to the same periods in fiscal 1999. Other income decreased
$80,180 or 10.9% for the three month period ended June 30, 2000, and
$136,131 or 6.7%for the nine-month period ended June 30, 2000, when
compared to the same periods in fiscal 1999, while other expenses
decreased $62,524 or4.3% and increased $28,868 or .7% for the three
months and nine months periods, respectively, ended June 30, 2000
compared to the same periods in fiscal 1999.
Primary earnings per common share, based on weighted average shares
outstanding, was $0.31 and $0.18 for the three months ended June 30,
2000 and 1999, and $0.79 and $0.41 for the nine months ended June 30,
2000 and 1999, 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.
For the three-month period ended June 30, 2000, the interest rate
spread increased 38 basis points as rates earned on interest-earning
assets increased 42 basis points to 7.80% while the cost of funds
increased 4 basis points to 4.85%. The increase in rates paid and the
increase in rates charged during this three month interval reflects the
recent increases in the overall interest rate environment. The average
balance of interest-earning assets increased $9.8 million, or 6.9%,
from $141.5 million to $151.3 million while the average balance of
interest-bearing liabilities increased $9.9 million, or 7.4%, from
$133.7 million to $143.6 million. The combined effect of the increases
in average balances and the changes in rates discussed was to cause an
increase in the interest rate spread from 2.57% to 2.95% and an
increase in net interest income of $634,442, or 21.2%, for the nine
months ended June 30, 2000, as compared to the same period in 1999.
For the three-month period ended June 30, 2000, net interest income
increased $159,219 or 15%, as compared to the same period in 1999.
NON-INTEREST INCOME
Total non-interest income for the nine months ended June 30, 2000,
decreased $136,000, to $1,893,000, as compared to the nine months ended
June 30, 1999. A significant portion of the decrease in total
non-interest income was attributable to a decrease of approximately
$61,000 in gain on sale of loans and a decrease of approximately
$136,000 in gain on sale of investment securities, partially offset by
an increase of
8
<PAGE> 11
approximately $20,000 in service charges and other fees, and an
increase of approximately $38,000 in gain on sale of foreclosed real
estate.
For the three-month period ended June 30, 2000, total non-interest
income decreased by approximately $80,000 to $655,000 compared to the
same period in fiscal 1999. This decrease was primarily the result of a
decrease of $12,000 from gain on sale of loans, a decrease of
approximately $86,000 from gain on sale of investments, a decrease of
$31,000 on income from service charges and fees, partially offset by an
increase of $28,000 in employee benefit trust and consulting fees, and
a decrease of $17,000 in equity in net losses of affiliates.
NON-INTEREST EXPENSE
Total non-interest expense for the nine months ended June 30, 2000,
increased by approximately $29,000 to $4,338,000, as compared to
$4,309,000 for the nine months ended June 30, 1999. This increase in
non-interest expense is primarily due to increases in net occupancy
expense of $30,000, and increase in litigation and other legal expenses
of $214,000, partially offset by decreases in compensation and benefit
expenses of $163,000, decreases in data processing expense of $21,000,
decreases in office supply expenses of $10,000, and decreases in
deposit insurance premiums of approximately $27,000.
For the three-month period ended June 30, 2000, total non-interest
expense decreased approximately $63,000 to $1,403,000, as compared to
$1,465,000 for the three-month period ended June 30, 1999. This
decrease in non-interest expense is primarily due to decreases in
compensation and benefit expenses of $65,000, furniture and fixture
expenses of $9,000, office supply expenses of $14,000, deposit
insurance premium expenses of $13,000, offset by increases in other
non-interest expenses of $37,000. The decrease in compensation expense
has been the result of efforts to consolidate job duties of employees
who have resigned or who have been terminated.
INCOME TAX EXPENSE
SouthFirst's effective tax rate for the nine-month periods ended June
30, 2000 and 1999 was 38.8%, 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 $220,000, or 92.9%, to $456,000 for the nine months ended
June 30, 2000, as compared to $236,000 for the nine months ended June
30, 1999, due to the increase in pre-tax earnings.
9
<PAGE> 12
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
nine months ended
June 30,
-----------------
2000 1999
------- -------
<S> <C> <C>
Return on assets 0.59% 0.31%
Return on equity 6.72% 3.14%
Equity-to-assets ratio 8.75% 9.98%
Interest rate spread 2.95% 2.57%
Net interest margin 3.19% 2.83%
Total risk-based capital ratio 14.78% 18.41%
Nonperforming loans to loans .39% 1.28%
Allowance for loan losses to loans 0.63% 0.59%
Allowance for loan losses to nonperforming loans 159.75% 46.19%
Ratio of net charge-offs to average loans outstanding 0.14% 0.16%
Book value per common share outstanding $ 15.94 $ 16.71
</TABLE>
Significant factors affecting the SouthFirst's financial condition during the
nine months ended June 30, 2000 are detailed below:
ASSETS
Total assets increased $4,438,000, or 2.8%, from $160,506,000 at September 30,
1999 to $164,944,000 at June 30, 2000. Net loans increased $4,998,000 or 4.7%,
compared to September 30, 1999, primarily due to increases in residential
construction loans originated and purchased. Investment securities held to
maturity decreased $29,000 while investment securities available for sale
decreased $342,000 for a total decrease of $371,000.
LIABILITIES
Total liabilities increased $4,369,000, or 3.0%, from $146,154,000 at September
30, 1999 to $150,523,000 at June 30, 2000. Deposits decreased approximately
$8,422,000 during the period, borrowed funds increased $13,585,000 to
$42,389,000, and accrued expenses and other liabilities decreased approximately
$591,000. Deposit decreases were primarily attributable to the relatively low
interest rate environment with savings deposits leaving in search of higher
yields. The increase in borrowed funds was the result of funding deposit
outflows, as well as for funding loan growth. The decrease in accrued expenses
is primarily the result of fluctuations in accounts payable balances.
10
<PAGE> 13
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 June 30, 2000, the allowance for loan losses was $697,063, 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 provisions for loan losses of $5,572 and $108,847 in the first nine
months of fiscal 2000 and 1999, respectively. Nonperforming loans at June 30,
2000 were approximately $436,000 as compared to approximately $1,378,000 at
September 30, 1999. The reduction of non-performing loans is due to charge-offs
and the write down of real estate loans. At June 30, 2000 and September 30,
1999, the allowance for loan losses represented 0.62% and 0.79% of loans
outstanding, respectively. The allowances for loan losses is based upon
management's continuing evaluation of the collectability of the loan portfolio
under current economic conditions and includes analyses of underlying collateral
value and other factors which could affect collectability. 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.
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.
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.
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<PAGE> 14
As of June 30, 2000, 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 $14,418,000 8.52%
Core Capital 14,418,000 8.52%
Risk-Based Capital 15,043,000 14.78%
</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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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On January 19, 2000, Bobby R. Cook 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 has asserted appropriate counterclaims for
damages to First Federal and SouthFirst, against Mr. Cook in this litigation.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No exhibits are required to be filed with this report.
(b) Reports on Form 8-K. No report on form 8-K was filed during the quarter
ended June 30, 2000.
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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: August 14, 2000 By: /s/ Donald C. Stroup
-------------------------------
Donald C. Stroup, President and
Chief Executive Officer
(principal executive officer)
Date: August 14, 2000 By: /s/ Joe K. McArthur
------------------------------
Joe K. McArthur, Executive
Vice President and Chief
Financial Officer (principal
financial and accounting
officer)
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INDEX TO EXHIBITS
Exhibit 27.1 Financial Data Schedule (for SEC use, only)
15
