UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-25478
First Southern Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware 63-1133624
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 South Court Street, Florence, Alabama 35630
- - ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 764-7131
--------------
(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer s classes
of common stock, as of the latest practicable date: 1,984,969 shares of $.01
par value common stock as of July 29, 1996.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated statements of financial condition (unaudited)
Consolidated statements of income (unaudited)
Consolidated statement of stockholders equity (unaudited)
Consolidated statements of cash flows (unaudited)
Selected notes to consolidated financial statements (unaudited)
ITEM 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, June 30,
1995 1996
ASSETS ----------- ---------
Cash and cash equivalents $ 8,971 $ 4,525
Investment securities available for sale, at market 8,792 6,918
Mortgage-backed securities, available for sale,
at market 431 354
Mortgage-backed securities, held to maturity, at cost 2,704 2,079
Loans held for sale, at cost, which approximates market 625 123
Loans receivable, net 151,480 162,521
Foreclosed real estate 1,098 949
Premises and equipment, net 3,043 3,343
Federal Home Loan Bank stock, at cost 1,357 1,357
Accrued interest receivable 1,528 1,494
Other assets 826 813
----------- ---------
TOTAL ASSETS $ 180,855 $ 184,476
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 131,867 $ 132,745
Advances from Federal Home Loan Bank 16,770 26,195
Other notes payable 0 250
Income taxes currently payable 92 33
Deferred income taxes 407 195
Other liabilities 224 313
----------- ---------
Total liabilities 149,360 159,731
COMMITMENTS AND CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued and outstanding 0 0
Common stock, $.01 par value; 8,000,000 shares authorized;
2,049,875 and 2,076,969 shares issued in 1995 and 1996,
respectively 20 21
Additional paid-in capital 19,586 15,218
Retained earnings - Substantially restricted 14,203 12,663
Unearned employee compensation - ESOP (1,531) (863)
Unearned employee compensation - MRDP 0 (1,248)
Net unrealized loss on securities available for sale (26) (76)
Treasury stock, at cost (757) (970)
----------- ---------
Total stockholders' equity 31,495 24,745
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 180,855 $ 184,476
See accompanying selected notes to consolidated financial statements.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands, except per share
amounts)
Three months ended Six months ended
June 30, June 30,
1995 1996 1995 1996
------ ------ ------ ------
INTEREST INCOME:
Loans $ 3,048 $ 3,538 $ 5,890 $ 6,912
Mortgage-backed securities 74 51 146 109
Investment securities 141 103 242 221
Other 156 59 229 155
------ ------ ------ ------
Total interest income 3,419 3,751 6,507 7,397
INTEREST EXPENSE:
Deposits 1,384 1,550 2,686 3,137
Advances from Federal Home Loan
Bank and other 213 305 514 555
------ ------ ------ ------
Total interest expense 1,597 1,855 3,200 3,692
------ ------ ------ ------
NET INTEREST INCOME 1,822 1,896 3,307 3,705
PROVISION FOR LOAN LOSSES 109 (39) 259 150
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,713 1,935 3,048 3,555
NON INTEREST INCOME:
Loan fees and service charges 75 95 138 184
Net gain on sale of loans 8 28 12 64
Gains (losses) on real estate owned 0 (197) 15 (187)
Other 25 18 30 18
------ ------ ------ ------
Total non interest income 108 (56) 195 79
NON INTEREST EXPENSES:
Compensation and employee benefits 489 1,393 954 1,971
Building and occupancy expense 97 136 193 232
Data processing expense 72 104 153 200
Advertising 29 39 59 61
Insurance expense 120 123 230 232
Other 136 271 236 436
------ ------ ------ ------
Total non interest expenses 943 2,066 1,825 3,132
INCOME (LOSS) BEFORE INCOME TAXES 878 (187) 1,418 502
INCOME TAX EXPENSE (BENEFIT) 314 (178) 511 81
------ ------ ------ ------
NET INCOME (LOSS) $ 564 ($ 9) $ 907 $ 421
EARNINGS PER SHARE N/A $0.00 N/A $0.22
DIVIDENDS PER SHARE - REGULAR $0.125 $0.125 $0.125 $0.250
DIVIDENDS PER SHARE - SPECIAL $0.000 $3.400 $0.000 $3.400
See accompanying selected notes to consolidated financial statements.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - UNAUDITED (Dollars in thousands)
Net
unrealized
Retained Unearned loss on
Common stock Additional earnings employee securities Total
Issued In treasury paid-in Substantially compensation available net
Shares Amount Shares Amount capital restricted ESOP MRDP for sale equity
------ ------ ------ ------ -------- ---------- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 2,049,875 $ 20 (49,906) ($757) $ 19,586 $ 14,203 ($1,531) $ 0 ($26) $31,495
Net income for the six
months ended June 30, 1996 0 0 0 0 0 421 0 0 0 421
Acquisition of treasury stock 0 0 (78,100) (1,046) 0 0 0 0 0 (1,046)
Common stock grants to MRDP 27,094 1 54,906 833 458 0 0 (1,292) 0 0
ESOP shares committed for release 0 0 0 0 226 0 668 0 0 894
Amortization of MRDP unearned
compensation 0 0 0 0 0 0 0 44 0 44
Cash dividends 0 0 0 0 (5,052) (1,961) 0 0 0 (7,013)
Increase in unrealized loss on
securities available for sale, net
of related income taxes 0 0 0 0 0 0 0 0 (50) (50)
------ ------ ------ ------ -------- ---------- ----- ----- -------- -------
Balances at June 30, 1996 2,076,969 $ 21 (73,100) ($970) $ 15,218 $ 12,663 ($863)($1,248) ($76) $24,745
See accompanying selected notes to consolidated financial statements.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Six months ended
June 30,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ------ ------
Net income $ 907 $ 421
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 89 95
Provision for loan losses 259 150
Provision for deferred income taxes (benefit) (36) (176)
Amortization/accretion of premiums/discounts on investment
and mortgage-backed securities (1) 1
Amortization of deferred loan fees (156) (85)
Fair market value of ESOP shares
committed for release 20 894
Amortization of unearned compensation - MRDP 0 44
Gains (losses) on real estate owned (15) 187
(Increase) decrease in:
Loans held for sale (115) 502
Accrued interest receivable (265) 34
Other assets 114 13
Increase (decrease) in:
Income taxes currently payable 83 (59)
Other liabilities 2 89
------ ------
Net cash provided by operating activities 886 2,110
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (11,520) (11,856)
Proceeds from sale of:
Real estate owned 79 745
Proceeds from maturities of:
Investment securities 1,567 1,820
Mortgage-backed securities 324 669
Acquisition of:
Investment securities available for sale (4,056) 0
Premises and equipment (83) (395)
Mortgage backed securities (505) 0
Capitalized improvements to real estate owned 0 (33)
------ ------
Net cash provided by (used in) investing activities (14,194) (9,050)
See accompanying selected notes to consolidated financial statements.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Six months ended
June 30,
1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES: ------ ------
Net increase (decrease) in deposit accounts (2,772) 878
Net proceeds from sale of stock in Initial
Public Offering 17,937 0
Cash dividends paid 0 (7,013)
Proceeds from FHLB advances 16,000 9,500
Proceeds from other borrowing 0 250
Reductions in FHLB advances (16,720) (75)
Acquisition of treasury stock 0 (1,046)
------ ------
Net cash provided by (used in) financing activities 14,445 2,494
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,137 (4,446)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,726 8,971
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,863 $ 4,525
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Loans foreclosed and transferred to real estate owned $ 26 $ 750
Increase (decrease) in net unrealized loss on securities
available for sale ($105) $ 50
Increase (decrease) in provision for additional minimum
pension liability, net of related income tax benefit $ 159 $ 0
Dividends declared but unpaid at period end $ 188 $ 0
Cash paid during the period for:
Income taxes $ 476 $ 409
Interest $ 3,189 $ 3,651
See accompanying selected notes to consolidated financial statements.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated interim financial statements as of June 30, 1996 and for the
period then ended include the accounts of the Registrant, First Southern
Bancshares, Inc. ( Bancshares ), and its wholly-owned subsidiary, First
Southern Bank (the Bank ), formerly First Federal Savings and Loan
Association of Florence (the Association ). All significant intercompany
balances and transactions have been eliminated in consolidation. Bancshares
and the Bank are collectively referred to herein as the "Company".
The Company's consolidated operating results include those of the Bancshares
and the Bank for the full quarter and six-month periods ended June 30, 1996,
those the Bank for the full quarter and six-month periods ended June
30, 1995, and those of Bancshares for the period April 13, 1995, the date of
completion of the Company's initial public stock offering (Note 2, below)
through June 30, 1995.
The June 30, 1995 and 1996 financial statements included in this report have
been prepared by the Registrant without audit. In the opinion of management,
all adjustments (consisting only of normal recurring entries) necessary
for a fair presentation are reflected in the June 30, 1995 and 1996 interim
financial statements. The results of operations for the period ended June 30,
1996 are not necessarily indicative of the operating results for the full
year. The December 31, 1995 Consolidated Statement of Financial Condition
presented with the interim financial statements was audited and received an
unqualified opinion.
NOTE 2 - ORGANIZATION
Bancshares was organized on November 22, 1994 at the direction of the
Association for the purpose of serving as a holding company to acquire all of
the capital stock of the Association upon its conversion from a mutual to a
stock savings and loan and subsequent conversion to a state-chartered
commercial bank. Bancshares did not engage in any significant business
activities from the time of its organization through the completion of the
Association's mutual to stock conversion (April 13, 1995) at which time it
acquired all of the capital stock of the Association.
Bancshares concurrently completed an initial public offering of its common
stock (Note 3, below), the proceeds of which were partially utilized to
acquire all the capital stock issued by the Association in connection with its
mutual to stock conversion.
The conversion of the Association from the mutual to stock form of
organization and subsequent conversion to a state-chartered commercial bank
did not result in any intangible assets, including goodwill. Bancshare's
acquisition of the Association, which was completed on April 13, 1995, was
accounted for at historical cost, in a manner similar to the "pooling-of-
interest" method of accounting for business combinations. The application of
the "pooling-of-interest" accounting method records the assets and liabilities
of the merged companies on a historical cost basis. Therefore, intangible
assets, including goodwill, were not recorded as a result of this transaction.
NOTE 3 - INITIAL PUBLIC OFFERING
On April 13, 1995, Bancshares completed an initial public offering of its $.01
par value common stock wherein a total of 2,049,875 common shares were issued
for net proceeds of $19,577,000 (net of offering costs of $922,000). Of the
net proceeds, approximately $9,789,000 was utilized to acquire all of the
capital stock issued by the Association (upon its conversion from a mutual to
a stock form of organization), approximately $1,640,000 was utilized to
finance the Bank Employee Stock Ownership Plan's (ESOP) purchase of 163,990
common shares, and approximately $8,148,000 was retained for general corporate
purposes.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 4 - UNEARNED EMPLOYEE COMPENSATION
EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors an internally leveraged employee stock ownership plan
(the "ESOP") that covers substantially all full-time Bank employees. The
Bank makes discretionary monthly contributions to the ESOP equal to the ESOP's
debt service requirements, currently $20,774 per month (including interest at
floating Wall Street Journal prime - 8.25% at June 30, 1996) over a maximum
10-year period. All dividends received by the ESOP are used for debt service.
The ESOP's shares initially were pledged as collateral for its debt. As the
debt is repaid, shares are released from collateral and allocated to active
employees, based upon the proportion of debt service paid during the period.
The Company accounts for the ESOP in accordance with Statement of Position
93-6. Accordingly, the Company's loan to the Bank's ESOP is reflected as a
reduction of stockholders' equity as unearned employee compensation. As
shares are released from collateral, the Company reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt and accrued
interest.
1996 MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN
At the annual meeting on April 17, 1996, Bancshares stockholders approved
establishment of the 1996 Management Recognition and Development Plan (the
"MRDP"). The MRDP was established in order to increase the proprietary
and vested interest of certain key Company employees and Directors in the
growth, development and financial success of the Company by granting them
awards of a maximum of 82,000 restricted shares of Bancshares $.01 par
value common stock. Among other provisions of the MRDP, the MRDP shares are
restricted as to transferability prior to vesting, which vesting is to occur
over a five-year period at a rate of 20% per year, commencing one year
after the original date of grant.
In its April 17, 1996 meeting, the Company s Board of Directors approved the
award of 82,000 restricted shares of Bancshares $.01 par value common stock in
accordance with the terms and conditions of the MRDP. The restricted
shares were obtained from stock held in treasury (54,906 shares) and from
authorized and unissued common stock (27,094 shares) and were recorded to
unearned employee compensation at the then prevailing market price of
Bancshares common stock ($15.75 per share). Unearned compensation related to
the MRDP is being amortized to expense on a ratable basis over the five-year
vesting period.
NOTE 5 - STOCK OPTION PLAN
At the annual meeting on April 17, 1996, Bancshares stockholders approved
establishment of the 1996 Stock Option Plan (the Plan ). The Plan was
established in order to promote the interests of the Company by attracting,
retaining and motivating exceptional executive personnel and other key
employees and Directors of the Company. The Plan sets an exercise price not
less than 100% of the per share fair market value at the date of grant (110%
under certain circumstances), contains various anti-dilution/enlargement
provisions, and generally provides for vesting of awards at a rate of 20% per
year on each of the first through fifth anniversary dates of the grant.
Options are generally exercisable until the tenth anniversary date of the
grant.
The Plan provides that a maximum of 204,988 options to acquire Bancshares $.01
par value common stock may be granted under the Plan. Commensurate with its
April 17, 1996 stockholder approval, the Board of Directors granted awards
aggregating 102,492 share options to the Company s Directors and certain key
Company employees, at an exercise price equal to the fair market value per
share at the date of grant ($15.75).
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 6 - EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
shares outstanding during the period. Shares held by the Company s ESOP are
considered outstanding only at such time as they are committed for release.
MRDP shares are considered outstanding at their date of grant. The Company
completed its initial stock offering in April 1995. Accordingly, earnings per
share for any periods beginning prior to June 30, 1995 are not applicable.
Weighted average shares outstanding for the quarter and six-month periods
ended June 30, 1996 were 1,920,144 shares and 1,882,405 shares, respectively.
NOTE 7 - STOCK REPURCHASE PROGRAM
In October 1995, the Company s Board of Directors approved a Stock Repurchase
Program whereby the Company could repurchase up to 102,493 shares of its
common stock. In June 1996, the Company s Board of Directors approved an
extension of the Stock Repurchase Program whereby the Company, upon completion
of the repurchase of the original 102,493 shares of its common stock, could
then repurchase up to an additional 102,493 shares of its common stock. The
ongoing program has resulted in the inception-to-date acquisition of 128,006
shares of Company common stock, of which 54,906 shares were utilized in
funding of the MRDP.
NOTE 8 - CONTINGENCIES
The Bank is a member of the Savings Association Insurance Fund ( SAIF ).
Legislation has been introduced in the United States Congress that would
require companies that are members of SAIF to pay a one-time premium to
recapitalize the SAIF, which premium is expected to be approximately 80 basis
points applied to deposits. If this legislation is enacted into law, it is
likely that the premium would be immediately charged against current earnings
and, accordingly, would serve to reduce the capital of the Company by the
amount of the premium, net of related income taxes. Management cannot predict
whether the proposed legislation will be enacted or, if enacted, the amount of
the one-time premium.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First Southern Bancshares, Inc. ("Bancshares") is a Delaware corporation
organized on November 22, 1994 and is primarily engaged in the business of
directing and planning the activities of its wholly-owned subsidiary, First
Southern Bank (the "Bank"), formerly First Federal Savings and Loan
Association of Florence (the "Association"). Bancshares' primary assets are
comprised of its investment in the Bank, short-term interest and non-interest-
bearing deposits, certain other investment and mortgage-backed securities, and
a note receivable from the Bank's Employee Stock Ownership Plan. Bancshares
and the Bank are collectively referred to herein as the "Company".
The Company s consolidated operating results include those of the Bank and the
former Association for all periods presented herein and those of Bancshares
only for periods subsequent to April 13, 1995, the date of completion of the
Company s initial public stock offering.
The operating results of the Company depend primarily on net interest income,
which is the difference between interest income on interest-earning assets,
primarily loans and investment securities, and interest expense on
interest-bearing liabilities, primarily deposits and Federal Home Loan Bank
("FHLB") advances.
The discussion and analysis included herein covers those material changes in
financial condition, liquidity and capital resources that have occurred since
December 31, 1995, as well as certain material changes in results of
operations during the three and six-month periods ended June 30, 1995 and
1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Total assets increased $3.6 million during the first six months of 1996,
growing from $180.9 million at December 31, 1995 to $184.5 million at June 30,
1996.
Cash and cash equivalents
Cash and cash equivalent balances decreased to $4.5 million at June 30, 1996,
or $4.5 million less than December 31, 1995 balances of $9.0 million. Cash
balances were primarily utilized to fund loan increases and to pay dividends.
The lower cash balances are primarily reflected in decreased cash balances in
an interest-bearing account at the FHLB, which short-term cash investment
provides both a market rate interest return and the liquidity required to
fund management s ongoing loan expansion activities.
Investment and mortgage-backed securities
The Company did not purchase any investment or mortgage-backed securities
during the quarter ended June 30, 1996. The decrease in investment and
mortgage-backed security balances of $2.6 million from $11.9 million at
December 31, 1995 to $9.3 million at June 30, 1996 was solely comprised of
security maturities and a $67,000 increase in the unrealized loss on
securities classified as available for sale. Proceeds from the maturity of
securities were primarily used to fund increases in loan balances and to pay
dividends.
At June 30, 1996, the Company had $119,000 of net unrealized losses on
investment and mortgage-backed securities classified as available for sale,
which amount represented 1.6% of the amortized cost basis ($7.4 million) of
the related securities. These securities were comprised primarily of U.S.
Government and Agency obligations with maturities of less than five years. If
future market interest rates were to increase, the unrealized losses on these
securities would, for a period of time, become greater. In a decreasing
interest rate environment, the fair value of the investments increases in
relation to the cost of the investment, thereby reducing the net unrealized
loss and/or increasing any unrealized gain on the related securities.
However, assuming that the securities are held to their individual dates of
maturity, even in periods of changing market interest rates, as the securities
approach their dates of maturity, the unrealized gain/loss will begin to
decrease and eventually be eliminated.
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Loans
The principal investing activity of the Company is the origination of loans in
its primary lending area of Northwest Alabama. During the six months ended
June 30, 1996, net loans (including loans held for sale) increased by 6.9% or
$10.5 million, from $152.1 million at December 31, 1995 to $162.6 million at
June 30, 1996. The increase in net loan balances results from management's
continued efforts to expand and diversify the Company's loan portfolio into
commercial and other lending areas. Commercial lending is generally
considered to involve a greater degree of risk than residential mortgage
lending.
Single family residential loans aggregated $72.4 million, representing 47.6%
of total net loans at December 31, 1995. During the first half of 1996,
aggregate balances of single family residential loans decreased by $1.4
million, or 2.0%, to $71.0 million at June 30, 1996 or 43.6% of total net
loans. This decrease was partially offset by a $513,000 increase in
multi-family loans from $12.0 million or 7.9% of total net loans at December
31, 1995 to $12.5 million or 7.7% of total net loans at June 30, 1996.
Commercial and other loans accounted for the majority of loan growth
experienced during the first half of 1996, increasing by $11.4 million or
16.9%, from $67.7 million at December 31, 1995 (44.5% of total net loans) to
$79.1 million at June 30, 1996 or 48.7% of total net loans. Within the
category of commercial and other loans, commercial mortgage and business loans
increased from $49.9 million or 32.8% of total net loans at December 31, 1995
to $60.7 million or 37.3% of total net loans at June 30, 1996. These
investing activities were funded primarily through existing cash balances, the
maturities of investment and mortgage-backed securities, and increased
borrowings from FHLB-Atlanta. The increase in lending activity was generally
reflected in transactions with borrowers located within the Company's primary
Northwest Alabama lending area.
A decrease in non performing assets (comprised solely of loans delinquent 90
days or more and repossessed assets) at June 30, 1996 to $2.0 million compared
to $2.6 million at December 31, 1995 was primarily attributable to $750,000 in
1996 loan foreclosures (thereby decreasing 90-day and over loan delinquencies)
coupled with the sale of repossessed real estate with aggregate carrying
amounts of $731,000, which sales resulted in an aggregate net gain of $14,000.
Other decreases in 90-day and over loan delinquencies were partially offset
when the Company incurred and capitalized $33,000 in improvements to
foreclosed real estate.
As of June 30, 1996, the Company recorded a $201,000 specific allowance for
decline in market value of certain foreclosed real estate. Recording of the
specific allowance was based primarily upon ongoing negotiations for the
bargain sale/charitable contribution of a single foreclosed property having a
June 30, 1996 carrying value of $1.1 million. The transaction provided for
the simultaneous sale and charitable contribution of the property in
accordance with applicable provisions of the Internal Revenue Code. The
specific allowance was determined based upon the aggregate of the sales price
and the income tax benefit of the charitable contribution in relation to the
carrying value of the property and no additional losses were sustained for
financial reporting purposes upon consummation of the transaction in July
1996.
In the opinion of management, due to the adequacy of collateral in relation to
the past due loan balances, no significant losses are anticipated to be
realized on such past due loans, although no assurances can be given. Non
performing assets to total assets were 1.10% and 1.43% at June 30, 1996 and
December 31, 1995, respectively. At December 31, 1995, the allowance for loan
losses was $1.5 million and represented .99% of total net loans and 58.4%
of non performing assets. At June 30, 1996, the allowance for loan losses was
$1.5 million and represented .95% of total net loans and 76.5% of non-
performing assets. When aggregated with the specific allowance for decline in
market value of foreclosed real estate, the allowances for losses were $1.7
million and represented 86.4% of non-performing assets. While management
believes the allowances for losses at June 30, 1996 were adequate to cover all
losses inherent in the Company s portfolios of loans and foreclosed real
estate at that date, there can be no assurance that in the future the Company
will not be required to increase the allowances.
At June 30, 1996, the Company had loan commitments for variable rate loans
(excluding loans in process) including unused commercial business lines of
credit, of $8.7 million. The Company had no significant commitments for
fixed-rate loans at June 30, 1996.
Deposits, FHLB advances and other notes payable
Deposit balances remained relatively constant during the first half of 1996,
experiencing an $878,000 increase from December 31, 1995 balances of $131.9
million to $132.7 million at June 30, 1996.
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At June 30, 1996, savings certificates amounted to $96.9 million, or 73.0%,
of the Company s total deposits, including $79.5 million which were scheduled
to mature by June 30, 1997. Historically, the Company has been able to retain
a significant amount of its deposits as they mature. Management of the
Company believes it has adequate resources to fund all loan commitments by
savings deposits and FHLB of Atlanta advances and sale of mortgage loans and
that it can adjust the offering rates of savings certificates to retain
deposits in changing interest rate environments.
The Company obtain advances from FHLB during the first half of 1996
aggregating $9.5 million and made scheduled principal payments under the terms
of certain of the advance agreements aggregating $75,000. The advances were
used primarily to fund loan increases and to pay dividends. The Company had
unused credit availability with the FHLB of $3.8 million at June 30, 1996.
As of June 30, 1996, the Company has received $250,000 in advances from a
local financial institution under a $1.0 million line-of-credit agreement.
The advance was used to fund the Company s ongoing Stock Repurchase Program.
Stockholders equity
June 30, 1996 aggregate stockholders' equity of $24.7 million reflects a 21.4%
decrease from December 31, 1995, or a $6.8 million less than December 31,
1995 aggregate stockholders' equity of $31.5 million. The decrease is
primarily attributable to the Company's payment of $7.0 million in cash
dividends ($0.25 per share total regular dividends and a $3.40 per share
special dividend). Payment of the special dividend was made in order to
return to the Company's stockholders an amount which management believed to
represent capital in excess of current Company requirements.
Additionally contributing to the reduction in aggregate stockholders equity
was the $1.0 million acquisition of 78,100 shares of treasury stock during the
first six months of 1996. The treasury stock was acquired under the
provisions of a Stock Repurchase Program (as discussed in Note 7 of Selected
Notes to Financial Statements). The ongoing program has resulted in the
acquisition of an aggregate 128,006 shares of Company common stock for
treasury, of which, 54,906 shares were utilized in funding of the MRDP (as
discussed in Note 4 of Selected Notes to Financial Statements) and 73,100
remain in treasury at June 30, 1996.
The above described primary causes of the decrease in stockholders equity
were in part offset by net income for the six months ended June 30, 1996
($421,000) and the recording of the fair value of ESOP shares committed for
release during the first half of 1996 ($1.0 million). The significant impact
of the ESOP shares committed for release is directly related to the Company s
payment of the special dividend during the second quarter of 1996. As set
forth in Note 4 of Selected Notes to Financial Statements, the Company records
shares committed for release from collateral in accordance with the provisions
of SOP 93-6. In accordance with the terms of the ESOP, 1996 dividends
received by the ESOP during the first half of 1996 were used for debt service,
thereby releasing an additional 59,856 shares from collateral. As shares are
released from collateral they are recorded at fair market value at the date of
release to unearned employee compensation (a contra-equity account) and
additional paid in capital.
<PAGE>
<PAGE>
The Company is required to maintain specific amounts of capital pursuant to
FDIC requirements. As summarized below, the Company is in compliance with all
such requirements at June 30, 1996:
Percentage of
adjusted total
Amount assets
Primary capital ratios: -------- --------------
GAAP capital $ 24,745
Adjustments:
Net unrealized loss on securities available for sale 76
--------
Tier 1 capital 24,821 13.45 %
Minimum Tier 1 (leverage) requirement 7,379 4.00
-------- -------
Excess $ 17,442 9.45 %
Risk-based capital ratios:
Core (Tier I) capital $ 24,821 17.42 %
Minimum core capital 5,700 4.00
-------- -------
Excess $ 19,121 13.42 %
Risk-based capital $ 26,369 18.50 %
Minimum risk-based capital requirement 11,401 8.00
-------- -------
Excess $ 14,968 10.50 %
Liquidity
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. The Company's primary sources of funds are deposits
and proceeds from principal and interest payments on loans, mortgage-backed
securities and investment securities and borrowings from the FHLB and local
financial institutions. While maturities and scheduled amortization of loans
and mortgage-backed securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
As an Alabama state-chartered bank which is not a member of the Federal
Reserve System, the Bank is required by the Alabama State Banking Board to
maintain at all times a reserve (comprised of cash on hand and deposits due
from other banks) based upon average daily deposits of the Bank. Since
becoming subject to this regulation, the Bank has fully complied with its
requirements. At June 30, 1996, the Bank s qualifying reserves of $4.2
million significantly exceeded the required reserve of $193,000.
COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
General
The Company incurred a net loss for the three months ended June 30, 1996 of
$9,000 as compared with $564,000 in net income for the three months ended June
30, 1995. The 1996 decrease of $573,000 was primarily attributable to
increases in 1996 non-interest expenses of $1.1 million and a decrease in
non-interest income of $164,000, offset by increased net interest income after
provision for loan losses of $222,000 and a decrease in income taxes of
$492,000.
<PAGE>
<PAGE>
Net Interest Income
Net interest income for the three-month period ended June 30, 1996 was $1.9
million, representing a $74,000 or 4.1% increase from the three-month period
ended June 30, 1995. The modest improvement in net interest income primarily
results from the effects of the Company's interest rate spread applied to a
$15.0 million increase in 1996 average interest-earning assets, offset by a 20
basis point decrease in the 1996 interest rate spread to 3.73% from 1995's
interest rate spread of 3.93%.
Interest Income
Interest income for the three months ended June 30, 1996 was $3.8 million
compared with $3.4 million for the three months ended June 30, 1995,
representing an increase of $332,000 or 9.7%. The increase was primarily
attributable to an increase of $15.0 million, or 9.5%, in average interest
earning assets in the second quarter of 1996 to $172.9 million over those in
the comparable period of 1995 of $157.9 million. This increase was primarily
attributable to management's ongoing efforts to expand and diversify the
Company's lending activities. Funding of the increase in average interest-
earning assets was provided by a $14.9 million increase in average interest-
bearing liabilities. The average yield on interest-earning assets remained
relatively constant, reflecting a modest increase from 8.67% for the three
months ended June 30, 1995 to 8.68% for the three months ended June 30, 1996.
Interest on loans receivable increased $490,000 to $3.5 million during the
three months ended June 30, 1996 as compared to the same period in 1995. The
increase was primarily attributable to an increase of $22.1 million in average
loan balances in the second quarter of 1996 ($159.7 million) from the
comparable period in 1995 ($137.6 million). The increase in average loan
balances was comprised of a $29.8 million increase in the average balances of
non-mortgage loans from $41.7 million in 1995 to $71.5 million in 1996, offset
by a $7.7 million decrease in average mortgage loan balances from $95.8
million in 1995 to $88.2 million in 1996. The average yield on total loans
remained constant as between the second quarters of 1995 an 1996 at 8.86% .
Interest on mortgage-related securities decreased by $23,000 from $74,000
during the three months ended June 30, 1995 to $51,000 during the same period
in 1996. The effect on interest income of the average balance of mortgage-
related securities decreasing by $921,000 during the three months ended June
30, 1996 as compared to the three months ended June 30, 1995 was further
enhanced by a decrease in 1996 average yields from such securities from
8.48% in the second quarter of 1995 to 7.90% in the second quarter of 1996.
Income from the investment securities portfolio decreased by $38,000 from
$141,000 during the three months ended June 30, 1995 to $103,000 during the
same period in 1996 as the result of a $2.7 million decrease in the average
size of the portfolio in the three months ended June 30, 1996 ($7.1 million)
compared to the three months ended June 30, 1995 ($9.8 million). The proceeds
from the maturities of investment securities was primarily utilized in the
funding of new loans and the payment of 1996 dividends. The average yield on
investment securities remained relatively constant, reflecting a modest
increase from 5.76% for the three months ended June 30, 1995 to 5.78% for the
three months ended June 30, 1996.
Other interest income is comprised of earnings on the overnight account at the
FHLB of Atlanta, FHLB dividends, and earnings on money market funds. The
$97,000 decrease in other interest income in the second quarter of 1996 to
$59,000 when compared to the second quarter of 1995 other interest income of
$156,000 resulted primarily from a decrease of $3.6 million in average
invested balances from $7.1 million during the second quarter of 1995 to $3.5
million during the comparable 1996 period, coupled with a decrease in interest
yields from 8.80% in 1995 to 6.76% in 1996. The decrease in average balances
was primarily attributable to the non-recurring nature of the Company's 1995
maintenance of stockholder subscriptions related to its initial public stock
offering in balances on deposit in the FHLB overnight account.
Interest Expense
Interest expense for the three months ended June 30, 1996 was $1.9 million
compared with $1.6 million for the three months ended June 30, 1995,
representing an increase of $258,000 or 16.2%.
<PAGE>
<PAGE>
Interest on deposits rose $166,000 or 12.0% from $1.4 million in the second
quarter 1995 to $1.6 million in the second quarter 1996. The increase was
primarily attributable to a $7.5 million increase in average deposits in the
second quarter of 1996 ($129.2 million) as compared to the second quarter of
1995 ($121.7 million) and due to an increase of 25 basis points or 5.5% in the
interest cost on average deposit balances from 4.55% in the second quarter
of 1995 to 4.80% in the second quarter of 1996.
The 1996 increase in average interest cost was due to increases in the
prevailing local market interest rates between the two periods coupled with a
change in the composition of the deposit balances. The average balance in
passbook accounts during the second quarter of 1995 ($22.6 million) was $2.7
million greater than the comparable 1996 period ($19.9 million) due primarily
to the Company s 1995 receipt of subscriptions in connection with its initial
pubic stock offering, which subscriptions were maintained in passbook
accounts. In both 1995 and 1996, passbook accounts carried interest rates of
2.75%. The second quarter 1996 decrease in passbook accounts was more than
offset by a $10.0 million increase in the average balance of certificates of
deposit from $86.7 million in the second quarter of 1995 to $96.7 million in
the second quarter of 1996. The increase in certificate of deposit balances
was due primarily to the Company raising the rates paid on its certificates in
relation to local market rates being offered by other financial institutions.
Certificates of deposit carried interest costs of 5.21% and 5.53% during the
second quarters of 1995 and 1996, respectively.
Other interest expense is comprised primarily of FHLB of Atlanta borrowings
and increased by $92,000 to $305,000 when compared with the 1995 quarterly
total of $213,000, due primarily to an increase in average borrowings of $7.4
million during the three months ended June 30, 1996 ($20.7 million) from 1995
average levels of $13.3 million. The increase caused by larger average
advance balances was partially offset by decreased interest costs on borrowed
funds of .52%, from 6.42% in 1995 to 5.90% in 1996 as a consequence of the
adjustable rate nature of the majority of the FHLB of Atlanta borrowings.
Provision for Loan Losses.
Provisions for loan losses are charged to earnings to bring the total
allowance to a level considered adequate by management to provide for losses
based on prior loss experience, volume and type of lending conducted by the
Company, industry standards and past due loans in the Company's portfolio.
Management also considers general economic conditions and other factors
relating to the collectibility of the Company's loan portfolio.
For the second quarter of fiscal year 1995, the Company provided $109,000 for
its anticipated loan losses. During 1996, the Company, as in prior years,
reevaluated the adequacy of its allowance for probable loan losses, giving
special consideration to the changing components of its loan portfolio and the
increased level of risk associated with its increasing non single-family
mortgage loan portfolio. As a result of this review, and after giving
consideration to the Company's write-off history and an analysis of the
Company's allowance for losses as compared with industry and peer averages,
among other things, it was determined that a reduction in the total
year-to-date 1996 provision of $39,000 was necessary to adjust the allowance
for loan losses balance to an amount considered adequate to provide for
losses.
Non-interest Income.
Non-interest income for the quarter ended June 30, 1996 reflected a net charge
against income of $56,000. The resulting $164,000 unfavorable variance from
1995 second quarter non-interest income of $108,000 was primarily attributable
to the 1996 recognition of a $201,000 specific allowance for decline in fair
value of certain foreclosed real estate, net of $4,000 in gains on foreclosed
real estate, and was offset by second quarter 1996 increases in loan fees and
service charges and gains from loan sales aggregating $40,000.
Non-interest Expense.
Non-interest expenses increased $1.1 million to $2.1 million for the second
quarter of 1996 compared to $943,000 for the comparable period in 1995. This
increase primarily resulted from an increase in expenses relating to aggregate
employee compensation of $904,000 (from $489,000 during the second quarter of
1995 to $1.4 million in the comparable 1996 period).
<PAGE>
<PAGE>
The significant increase in employee compensation was caused by the second
quarter 1996 recognition of $778,000 in ESOP related compensation expense
necessitated when the ESOP significantly reduced its debt to Bancshares
(primarily through use of dividends received), thereby committing for release
a substantial portion of the collateralized ESOP shares and the corresponding
recognition of employee compensation expense for the fair market value of
shares committed for release, net of the amounts representing dividends paid
on allocated shares. Additionally contributing to the increase in employee
compensation were the second quarter 1996 compensation expense charges
aggregating $44,000 related to the Company's amortization of its deferred MRDP
expense, which expense was not incurred in 1995, and overall salary rate
increases experienced in 1996.
Other classifications of non-interest expenses increased an aggregate of
$219,000 in the second quarter of 1996 when compared to the same period in
1995 due primarily to the incurrance of $55,000 in net current period expenses
on the Company's largest foreclosed asset (on which property the Company
recognized a $201,000 specific allowance for decline in fair value and which
property was sold in July 1996), certain general overhead expenses being
incurred in 1996 related to the Company's public company status, which
expenses were not incurred to the same degree in 1995, and general cost
increases incurred in 1996 over those experienced in 1995.
Income Taxes
Income tax expense for the three months ended June 30, 1996 reflected a
benefit of $178,000 related to the Company's pretax operating loss of $187,000
for the second quarter of 1996 and due to the differing income tax treatment
afforded certain of the Company's transactions with and dividend payments to
its ESOP and MRDP during the second quarter of 1996.
COMPARISON OF OPERATING RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
General
The Company's net income for the six months ended June 30, 1996 was $421,000
compared with $907,000 for the six months ended June 30, 1995. The 1996
decrease of $486,000 was primarily attributable to increases in 1996
non-interest expenses of $1.3 million and a decrease in non-interest income of
$116,000, and was partially offset by increased net interest income after
provision for loan losses of $507,000 and a decrease in income taxes of
$430,000.
Net Interest Income
Net interest income for the six-month period ended June 30, 1996 was $3.7
million, representing a $398,000 or 12.0% increase from the six-month period
ended June 30, 1995. The improvement in net interest income was due
primarily to an $18.7 million increase in interest-earning assets coupled with
a $9.3 million increase in the 1996 excess average interest-earning assets
over interest-bearing liabilities, which increases were partially offset by a
26 basis point reduction in the 1996 interest rate spread (3.61%) from that
obtained in the first half of 1995 (3.87%). The increases in 1996
interest-earning assets and excess average interest-earning assets over
interest-bearing liabilities were due primarily to the 1995 timing of the
Company s receipt and investment of the net cash proceeds of its initial
public stock offering.
Interest Income
Interest income for the six months ended June 30, 1996 was $7.4 million
compared with $6.5 million for the six months ended June 30, 1995,
representing an increase of $890,000 or 13.7%. The increase was primarily
attributable to an increase of $18.7 million, or 12.2%, in average
interest-earning assets in the first half of 1996 to $171.9 million over those
in the comparable period of 1995 of $153.2 million. This increase was
primarily attributable to the timing of the April 1995 infusion of $17.9
million capital into the Company as a result of the Company s completion of
its initial public stock offering and management's ongoing efforts to expand
and diversify the Company's lending activities. Additional funding of the
increase in average interest earning assets was provided by a $9.4 million
increase in average interest-bearing liabilities. The average yield on
interest-earning assets remained relatively constant, reflecting a modest
increase from 8.49% for the six months ended June 30, 1995 to 8.60% for the
six months ended June 30, 1996.
<PAGE>
<PAGE>
Interest on loans receivable increased $1.0 million to $6.9 million during the
six months ended June 30, 1996 as compared to the same period in 1995. The
increase was primarily attributable to an increase of $21.2 million in average
loan balances in the first half of 1996 ($156.7 million) from the comparable
period in 1995 ($135.5 million). The increase in average loan balances was
comprised of a $28.2 million increase in the average balances of non-mortgage
loans from $40.3 million in 1995 to $68.5 million in 1996, offset by a $7.0
million decrease in average mortgage loan balances from $95.2 million in 1995
to $88.2 million in 1996. Additionally, the average yield on total loans
increased from 8.70% in the first half of 1995 to 8.82% during the first half
of 1996.
Interest on mortgage-related securities decreased by $37,000 from $146,000
during the six months ended June 30, 1995 to $109,000 during the same period
in 1996. The effect on interest income of the average balance of mortgage-
related securities decreasing by $617,000 during the six months ended June 30,
1996 as compared to the six months ended June 30, 1995 was enhanced by a
decrease in 1996 average yields from such securities from 8.61% in the first
half of 1995 to 7.83% in the first half of 1996.
Income from the investment securities portfolio decreased by $21,000 from
$242,000 during the six months ended June 30, 1995 to $221,000 during the same
period in 1996 as the result of a $798,000 million decrease in the average
size of the portfolio in the six months ended June 30, 1996 ($7.7 million)
compared to the six months ended June 30, 1995 ($8.5 million). The average
yield on investment securities remained relatively constant between the
periods, reflecting an increase from 5.71% in the first half of 1995 to 5.76%
in the first half of 1996.
Other interest income is comprised of earnings on the overnight account at the
FHLB of Atlanta, FHLB dividends, and earnings on money market funds. The
$74,000 decrease in other interest income in the first half of 1996 to
$155,000 when compared to the first half of 1995 other interest income of
$229,000 is due primarily by a $1.1 million decrease in average interest-
earning assets during the first half of 1996 ($4.8 million) as compared to the
first half of 1995 ($5.9 million) and due to a decrease in average yields from
7.80% during the first half of 1995 to 6.41% during the first half of 1996.
Interest Expense
Interest expense for the six months ended June 30, 1996 was $3.7 million
compared with $3.2 million for the six months ended June 30, 1995,
representing an increase of $492,000 or 15.4%.
Interest on deposits rose $451,000 or 16.8% from $2.7 million in the first
half 1995 to $3.1 million in the first half 1996. The increase was primarily
attributable to an increase of 45 basis points or 10.3% in the interest cost
on average deposit balances from 4.41% in the first half of 1995 to 4.86% in
the first half of 1996 and, to a lesser extent, a $7.2 million increase in
average deposits in the first half of 1996 ($129.1 million) as compared to the
first half of 1995 ($121.9 million).
The 1996 increase in average interest cost was due to increases in prevailing
local market interest rates between the two periods coupled with a change in
the composition of the deposit balances. The average balance in passbook
accounts during the first half of 1995 ($28.3 million) was $8.4 million, or
29.5% greater than the comparable 1996 period ($19.9 million) due primarily to
the Company s 1995 receipt of subscriptions in connection with its initial
pubic stock offering, which subscriptions were maintained in passbook
accounts. In both 1995 and 1996, passbook accounts carried interest rates of
2.75. The first half 1996 decrease in passbook accounts was more than offset
by a $15.1 million increase in the average balance of certificates of deposit
from $81.7 million in the first half of 1995 to $96.8 million in the first
half of 1996. The increase in certificate of deposit balances was due
primarily to the Company raising the rates paid on its certificates in
relation to local market rates being offered by other financial institutions
in order to attract additional deposits. Certificates of deposit carried
interest costs of 5.33% and 5.60% during the first six months of 1995 and
1996, respectively.
Other interest expense is comprised primarily of FHLB of Atlanta borrowings
and increased by $41,000 to $555,000 when compared with the 1995 six-month
total of $514,000 due to an increase in average borrowings of $2.2 million
during the six months ended June 30, 1996 ($18.7 million) from 1995 average
levels of $16.5 million. The increase caused by higher average advance
balances was lessened by decreased interest rates on borrowed funds of .29%,
from 6.22% in 1995 to 5.93% in 1996 as a consequence of the adjustable rate
nature of the majority of the FHLB of Atlanta borrowings.
<PAGE>
<PAGE>
Provision for Loan Losses.
Provisions for loan losses are charged to earnings to bring the total
allowance to a level considered adequate by management to provide for losses
based on prior loss experience, volume and type of lending conducted by the
Company, industry standards and past due loans in the Company s portfolio.
Management also considers general economic conditions and other factors
relating to the collectibility of the Company's loan portfolio.
For the first half of fiscal year 1995, the Company provided $259,000 for its
anticipated loan losses. During 1996, the Company, as in prior years,
reevaluated the adequacy of its allowance for probable loan losses, giving
special consideration to the changing components of its loan portfolio and the
increased level of risk associated with its increasing non single-family
mortgage loan portfolio. As a result of this review, and after giving
consideration to the Company's write-off history and an analysis of the
Company's allowance for losses as compared with industry and peer averages,
among other things, it was determined that a total provision of $150,000 for
the six months ended June 30, 1996 was necessary to provide an adequate
allowance for possible loan losses. These provisions were made based
on management s analysis of the various factors which affect the loan
portfolio and management's desire to hold the allowance at a level considered
adequate to provide for losses.
Non-interest Income.
Non-interest income decreased by $116,000 in the first half of 1996 to $79,000
as compared to $195,000 reported in the comparable period of 1995. This
decrease was primarily attributable to the 1996 recognition of a $201,000
specific allowance for decline in fair value of certain foreclosed real
estate, net of $14,000 in gains on foreclosed real estate, as compared to
$15,000 in gains recognized during the first half of 1995. This 1996 decrease
was enhanced by a $12,000 decrease in other non-interest income but was
partially offset by 1996 increases in loan fees and service charges and gains
from loan sales aggregating $98,000.
Non-interest Expense.
Non-interest expenses increased $1.3 million to $3.1 million for the first
half of 1996 compared to $1.8 for the comparable period in 1995. This
increase primarily resulted from an increase in expenses relating to aggregate
employee compensation of $1.0 million (from $1.0 million during the first half
of 1995 to $2.0 million in the comparable 1996 period).
The significant increase in employee compensation was caused by the 1996
recognition of $854,000 in ESOP related compensation expense necessitated when
the ESOP significantly reduced its debt to Bancshares (primarily through
use of dividends received), thereby committing for release a substantial
portion of the collateralized ESOP shares and the corresponding recognition of
employee compensation expense for the fair market value of shares committed
for release, net of the amounts representing dividends paid on allocated
shares. Additionally contributing to the increase in employee compensation
were the 1996 compensation expense charges aggregating $44,000 related to the
Company s amortization of its deferred MRDP expense, which expense was not
incurred in 1995, and overall salary rate increases experienced in 1996.
Other classifications of non-interest expenses increased an aggregate of
$290,000 in the first half of 1996 when compared to the same period in 1995
due primarily to the incurrance of $55,000 in current period expenses on the
Company's largest foreclosed asset (on which property the Company recognized a
$201,000 specific allowance for decline in fair value and which property was
sold in July 1996), certain general overhead expenses being incurred in 1996
related to the Company's public company status, which expenses were not
incurred to the same degree in 1995, and general cost increases incurred in
1996 over those experienced in 1995.
Income Taxes
Income tax expense for the six months ended June 30, 1995 and 1996 was
$511,000 and $81,000, respectively, or 36% and 16%, respectively, of income
before income taxes. The decrease in the 1996 effective income tax rate
over that of 1995 was primarily attributable to the differing income tax
treatment afforded certain of the Company's transactions with and dividend
payments to its ESOP and MRDP during the first half of 1996, which
transactions and/or payments did not occur in 1995 or were far less
significant.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Neither the Registrant nor the Bank is a party to any material legal
proceedings at this time. From time to time, the Bank is involved in various
claims and legal actions arising in the ordinary course of business.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held its Annual Meeting of Stockholders of the Company (the
"Meeting") on April 17, 1996. The results of the votes on the matters
presented at the Meeting were as follows:
a. The following individuals were elected as directors, each with a
three-year term:
Votes for Votes withheld
--------- --------------
Thomas N. Ward 1,760,973 825
Kenneth A. Williams 1,759,008 2,790
Broker non-votes totaled 303,200.
b. The Company's 1996 Stock Option Plan was approved by stockholders by the
following vote:
For 1,327,475; Against 56,390; Abstaining 10,865.
Broker non-votes totaled 372,997.
c. The Company's Management Recognition and Development Plan was approved by
stockholders by the following vote:
For 1,334,286; Against 57,007; Abstaining 12,115.
Broker non-votes totaled 365,515.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
None
<PAGE>
<PAGE>
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.
FIRST SOUTHERN BANCSHARES, INC.
Date July 31, 1996 /s/ Charles L. Frederick, Jr.
------------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive Officer
Date July 31, 1996 /s/ Thomas N. Ward
--------------------
Mr. Thomas N. Ward
Executive Vice President and Chief
Operating Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4206
<INT-BEARING-DEPOSITS> 319
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7272
<INVESTMENTS-CARRYING> 2079
<INVESTMENTS-MARKET> 2142
<LOANS> 162644
<ALLOWANCE> 1548
<TOTAL-ASSETS> 184476
<DEPOSITS> 132745
<SHORT-TERM> 24750
<LIABILITIES-OTHER> 541
<LONG-TERM> 1695
0
0
<COMMON> 21
<OTHER-SE> 24724
<TOTAL-LIABILITIES-AND-EQUITY> 184476
<INTEREST-LOAN> 6912
<INTEREST-INVEST> 330
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 7397
<INTEREST-DEPOSIT> 3137
<INTEREST-EXPENSE> 3692
<INTEREST-INCOME-NET> 3705
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3132
<INCOME-PRETAX> 502
<INCOME-PRE-EXTRAORDINARY> 421
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 4.31
<LOANS-NON> 318
<LOANS-PAST> 556
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1509
<CHARGE-OFFS> 162
<RECOVERIES> 51
<ALLOWANCE-CLOSE> 1548
<ALLOWANCE-DOMESTIC> 1548
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
