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 September 30, 1997
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: 1,887,639 shares of $.01 par
value common stock as of November 10, 1997.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
September 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated statements of financial condition (unaudited) 1
Consolidated statements of income (unaudited) 2
Consolidated statement of stockholders' equity (unaudited) 3
Consolidated statements of cash flows (unaudited) 4
Selected notes to consolidated financial statements (unaudited) 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 15
ITEM 2 - CHANGES IN SECURITIES 15
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 15
ITEM 5 - OTHER INFORMATION 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, September 30,
1996 1997
ASSETS ------ ------
Cash and cash equivalents $ 4,220 $ 6,686
Investment securities available for sale, at market 10,948 8,992
Mortgage-backed securities, held to maturity, at cost 1,887 1,574
Loans held for sale, at cost, which approximates market 232 -
Loans receivable, net 159,486 159,860
Foreclosed real estate 198 176
Premises and equipment, net 3,455 3,557
Federal Home Loan Bank stock, at cost 1,357 2,212
Accrued interest receivable 1,728 1,793
Deferred income taxes 93 287
Other assets 880 401
------ ------
TOTAL ASSETS $184,484 $185,538
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $132,800 $142,612
Advances from Federal Home Loan Bank 25,619 21,505
Other notes payable 4,000 -
Income taxes currently payable 3 144
Deferred income taxes - -
Dividends payable - -
Pension plan liability - 40
Other liabilities 1,020 443
------ ------
Total liabilities 163,442 164,744
------ ------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value; 4,000,000 shares
authorized; 2,076,969 and shares issued 21 21
Additional paid-in capital 11,334 11,368
Retained earnings - Substantially restricted 12,672 13,133
Unearned employee compensation - ESOP (401) (295)
Unearned employee compensation - MRDP (1,119) (926)
Net unrealized loss on securities available for sale (40) (4)
Net provision for additional minimum pension liability - -
Treasury stock, at cost (1,425) (2,503)
------ ------
Total stockholders' equity 21,042 20,794
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $184,484 $185,538
======= =======
See accompanying selected notes to consolidated financial statements.
1
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands, except per share
amounts)
Three months ended Nine months ended
September 30, September 30,
1996 1997 1996 1997
INTEREST INCOME: ------ ------ ------ ------
Loans 3,627 3,705 10,539 11,011
Mortgage-backed securities 44 33 153 107
Investment securities 101 104 322 244
Other 71 88 226 235
------ ------ ------ ------
Total interest income 3,843 3,930 11,240 11,597
INTEREST EXPENSE:
Deposits 1,532 1,801 4,669 4,932
Advances from Federal Home Loan
Bank and other 392 379 947 1,256
------ ------ ------ ------
Total interest expense 1,924 2,180 5,616 6,188
NET INTEREST INCOME 1,919 1,750 5,624 5,409
PROVISION FOR LOAN LOSSES 60 61 210 182
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,859 1,689 5,414 5,227
NON INTEREST INCOME:
Loan fees and service charges 102 113 286 354
Net gains on sale of loans 187 48 251 231
Gains on sales of investments - - - -
Gains(losses) on real estate owned (88) - (275) 2
Loss on sale of other assets - - - (2)
Other 5 11 23 32
------ ------ ------ ------
Total non interest income 206 172 285 617
NON INTEREST EXPENSES:
Compensation and employee benefits 632 633 2,603 2,610
Building and occupancy expense 146 162 378 408
Data processing expense 87 40 287 205
Advertising 54 47 115 126
Insurance expense 1,207 72 1,439 192
Other 170 169 606 494
------ ------ ------ ------
Total non interest expenses 2,296 1,123 5,428 4,035
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES (231) 738 271 1,809
INCOME TAX EXPENSE (BENEFIT) (156) 298 (75) 695
------ ------ ------ ------
NET INCOME (LOSS) $ (75) $ 440 $ 346 $1,114
====== ====== ====== ======
EARNINGS (LOSS) PER SHARE $(0.04) $ 0.23 $0.18 $ 0.58
====== ====== ====== ======
DIVIDENDS PER SHARE
Regular cash dividends $ 0.125 $ 0.125 $0.375 $ 0.375
Special cash dividends-return
of capital $ - $ - $3.400 $ -
------ ------ ------ ------
Total dividends per share $0.125 $ 0.125 $3.775 $ 0.375
====== ====== ====== ======
See accompanying selected notes to consolidated financial statements.
2
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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 Total
Common stock Additional earnings employee securities stock-
Issued In treasury paid-in Substantially compensation available holders'
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) - (26) 31,495
Net income for the year ended
December 31, 1996 - - - - - 538 - - - 538
Cash dividends - - - - (9,056) (2,069) - - - (11,125)
Acquisition of treasury stock - - (114,400) (1,501) - - - - - (1,501)
ESOP shares committed for release - - - - 347 - 1,130 - - 1,477
Common stock grants to MRDP 27,094 1 54,906 833 457 - - (1,291) - -
Amortization of MRDP
unearned compensation - - - - - - - 172 - 172
Increase in unrealized loss on
securities available for sale, net
of related income taxes - - - - - - - - (14) (14)
-------- ------ ------ ------ ------- -------- ------ ------ -------- ---------
Balances at December 31, 1996 2,076,969 $ 21 (109,400) $(1,425) $11,334 $12,672 $(401)$(1,119) $(40) $21,042
Net income for the nine months
ended September 30, 1997 - - - - - 1,114 - - - 1,114
Cash dividends - - - - - (653) - - - (653)
Acquisition of treasury stock - - (79,930) (1,078) - - - - - (1,078)
ESOP shares committed for release - - - - 34 - 106 - - 140
Common stock grants to MRDP - - - - - - - - - -
Amortization of MRDP unearned
compensation - - - - - - - 193 - 193
Increase in unrealized loss on
securities available for sale, net
of related income taxes - - - - - - - - 36 36
-------- ------ ------ ------ ------- -------- ------ ------ -------- ---------
Balances at September 30, 1997 2,076,969 $ 21 (189,330) $(2,503) $11,368 $13,133 $(295) $(926) $ (4) $20,794
See accompanying selected notes to consolidated financial statements
3
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Nine months ended
September 30,
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------ ------
Net income $346 $1,114
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 160 199
Provision for loan losses 210 182
Provision for deferred income taxes (benefit) (403) (194)
Amortization/accretion of premiums/discounts on
investment and mortgage-backed securities 1 (31)
Amortization of deferred loan fees (149) (74)
Fair market value of ESOP shares
committed for release and charged to
employee compensation 973 140
(Gain) on sale of investment securities 0 0
Amortization of unearned compensation - MRDP 108 193
(Gains) losses on real estate owned 275 2
(Gain) on sale of premises and equipment 0 0
Loss on disposal of premises and equipment 0 0
(Increase) decrease in:
Loans held for sale 388 232
Accrued interest receivable (11) (65)
Other assets (132) 480
Increase (decrease) in:
Income taxes currently payable (86) 141
Pension plan liability 0 40
Other liabilities 1,185 (576)
------ ------
Net cash provided by operating activities 2,865 1,782
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (5,120) (482)
Proceeds from sale of:
Investment and mortgage-backed securities 331 344
Investment securities 0 1,992
Real estate owned 1,605 20
Premises and equipment 0 0
Proceeds from maturities of:
Investment and mortgage-backed securities 2,640 0
Mortgage-backed securities 0 0
Acquisition of:
Investment and mortgage-backed securities 0 0
Federal Home Loan Bank stock 0 (855)
Premises and equipment (555) (301)
Capitalized improvements to real estate owned (33) 0
------ ------
Net cash provided by (used in) investing activities (1,132) 718
------ ------
See accompanying selected notes to consolidated financial statements.
4
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Nine months ended
September 30,
1996 1997
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 169 9,812
Cash dividends paid (7,253) (653)
Proceeds from FHLB advances 12,000 (4,115)
Proceeds from other borrowings 500 0
Reductions in FHLB advances (5,113) 0
Reductions in other borrowings (500) (4,000)
Acquisition of treasury stock (1,280) (1,078)
------ ------
Net cash provided by (used in) financing activities (1,477) (34)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 256 2,466
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,971 4,220
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $9,227 $6,686
====== ======
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Loans foreclosed and transferred to real estate owned $947 $294
Increase (decrease) in net unrealized loss on securities
available for sale $28 $36
Dividends declared but unpaid at period end $0
Cash paid during the period for:
Income taxes $661 $540
Interest $5,578 $6,222
See accompanying selected notes to consolidated financial statements.
5
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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 September 30, 1997 and for
the periods then ended include the accounts of the Registrant, First Southern
Bancshares, Inc. (the "Bancshares"), and its wholly-owned subsidiary, First
Southern Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated in consolidation. Bancshares and the Bank are
collectively referred to herein as the "Company".
The September 30, 1996 and 1997 interim 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 September 30, 1996 and
1997 interim financial statements. The results of operations for the periods
ended September 30, 1997 are not necessarily indicative of the operating results
for the full year. The December 31, 1996 Consolidated Statement of Financial
Condition presented with the interim financial statements is derived from the
Consolidated Statement of Financial Condition filed as part of the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1996. Such
Consolidated Statement of Financial condition included therein was audited and
received an unqualified opinion.
NOTE 2 - DEFINED BENEFIT PLAN TERMINATION
The Company froze the benefits of its defined benefit noncontributory retirement
plan in May 1997 with the intention of terminating the plan and recognized an
expense of $588,000 for the unfunded projected liability. The impact of this on
earnings per share was approximately $0.20 for the nine months ended September
30, 1997.
NOTE 3 - 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. Weighted
average shares outstanding for the nine months ended September 30, 1996 and 1997
were 1,889,331 and 1,911,448 shares, respectively.
NOTE 4 - SUBSEQUENT EVENT
On October 9, 1997, the Board of Directors declared a cash dividend of $.125 per
share, payable October 30, 1997 to stockholders of record as of October 20,
1997.
NOTE 5 - COMMITMENTS
At September 30, 1997, the Company had commitments to originate variable rate
loans, excluding loans in process but including unused commercial business lines
of credit, of $8.2 million. The Company had no significant commitments to
originate fixed-rate loans at September 30, 1997.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
First Southern Bancshares, Inc. ("Bancshares"), a Delaware corporation, was
organized on November 22, 1994. Bancshares is primarily engaged in the business
of directing and planning the activities of its wholly-owned subsidiary, First
Southern Bank (the "Bank). Bancshares' primary assets are comprised of its
investment in the Bank and a note receivable from the Bank's Employee Stock
Ownership Plan ("ESOP"). Bancshares and the Bank are collectively referred to
herein as the "Company".
The discussion and analysis included herein covers those material changes in
financial condition, liquidity and capital resources that have occurred since
December 31, 1996, as well as material changes in results of operations during
the nine months ended September 30, 1996 and 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Total assets increased $1.0 million from $184.5 million at December 31, 1996, to
$185.5 million at September 30, 1997. This increase is primarily reflected in
cash that increased $2.5 million from $4.2 million at December 31, 1996, to $6.7
million at September 30, 1997, primarily as a result of growth in deposits.
The growth in deposits is primarily in certificates of deposit as the Company
continues to offer competitive rates in its marketing efforts.
Investment and mortgage-backed securities
The Company did not increase its investments in mortgage-backed securities
during the nine months ended September 30, 1997. The decrease in investment
securities of $2.0 million from $11.0 million at December 31, 1996 to $9.0
million at September 30, 1997 was due to the maturities of a certificate of
deposits with the FHLB.
Loans
The principal investing activity of the Company is the origination of
residential mortgage loans, commercial real estate loans, multi-family mortgage
loans and consumer loans in its primary lending area of Lauderdale and Colbert
Counties, and surrounding counties located in Northwest Alabama. During the
nine months ended September 30, 1997, the Company had originated a net $9.0
million in loans and sold $9.0 million of loans; therefore, the balance of net
loans has remained at approximately $159.5 million and $159.9 million at
December 31, 1996 and September 30, 1997, respectively.
The loan portfolio composition is changing as the result of management's
continued efforts to expand and diversify the Company's loan portfolio into
commercial mortgage loans, commercial business loans, and consumer loans. These
types of loans are generally considered to involve a greater degree of risk
than residential mortgage lending. A comparison of the Bank's loan portfolio
analysis at December 31, 1996 and September 30, 1997 follows:
7
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12/31/96 9/30/97
Type of Loan Amount Percent Amount Percent
Mortgage loans: ------- ------- ------- -------
Residential $ 85,205 53.3% $ 80,517 50.4%
Commercial 33,434 20.9 34,725 21.7
Total mortgage loans 118,639 74.2 115,242 72.1
Commercial business loans 27,157 17.0 27,201 17.0
Consumer loans 17,701 11.1 20,407 12.8
------- ------- ------- -------
Total loans 163,497 102.3 162,850 101.9
Less:
Undisbursed loans 1,928 1.2 1,219 0.8
Unamortized loan fees 192 0.1 162 0.1
Allowance for possible losses 1,659 1.0 1,609 1.0
------- ------- ------- -------
Net loans receivable $ 159,718 100.0% $ 159,860 100.0%
Non performing assets (comprised solely of loans delinquent 90 days or more and
repossessed assets) were $1.5 million as of September 30, 1997, and decreased
$600,000 from $2.1 million at June 30, 1997. Non performing assets (% of total
non performing) at September 30, 1997 include real estate owned (12%),
residential mortgage loans (25%), commercial real estate loans (23%),
multi-family mortgage loans (22%), commercial business loans (9%), and consumer
loans (9%). At September 30, 1997, the allowance for loan losses was $1.6
million and represented 1.0% of total net loans and 106.0% of non performing
assets. The provision for loan losses was $61,000 for the third quarter and
$182,000 for the nine months ended September 30, 1997, as compared to $60,000
and $210,000, respectively for the comparable periods in 1996.
In the opinion of management, at September 30, 1997, the allowance for loan
losses was adequate at that date, however, there can be no assurance that the
Company will not be required to increase the allowance in the future.
At September 30, 1997, the Company had loan commitments for variable rate loans
(excluding loans in process) including unused commercial business lines of
credit, of $8.2 million. The Company had no significant commitments for
fixed-rate loans at September 30, 1997.
Deposits and FHLB advances
Deposit balances increased $9.8 million from $132.8 million at December 31, 1996
to $142.6 at September 30, 1997. The increase was primarily in certificates of
deposits as the Company continues to be aggressive in its marketing for deposits
through competitive rates and advertising.
At September 30, 1997, savings certificates amounted to $107.3 million, or
75.5%, of the Company's total deposits, including $15.5 million which were
scheduled to mature by September 30, 1998. 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.
Borrowings from the Federal Home Loan Bank decreased $4.1 million from $25.6
million at December 31, 1996, to $21.5 million at September 30, 1997. Funds
from sale of loans and growth in deposits were used to reduce the borrowings
from the Federal Home Loan Bank. At September 30, 1997, the Company had unused
credit availability with the FHLB of $18.5 million.
Stockholders' equity
At September 30, 1997, aggregate stockholders' equity was $20.8 million as
compared $21.0 million at December 31, 1996. The increase in stockholders'
equity from net income of $1.1 million was offset by the payment of $715,000 in
dividends and the repurchase in the open market of an aggregate of $1.1 million
of the Company's common stock and held in treasury. Other net increases of
$431,000 in stockholders' equity related to the unearned employee stock benefit
compensation plans and unrealized losses on securities.
8
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The Bank is required to maintain specific amounts of capital pursuant to FDIC
requirements and the Company is required to maintain specific amounts of capital
pursuant to the regulations of the Federal Reserve Board. As summarized below,
the Company and Bank are in compliance with all such requirements at September
30, 1997:
Percentage of
First Southern Bancshares, Inc. (dollars in thousands) adjusted total
Amount assets
Primary capital ratios:
GAAP capital $ 20,794
Adjustments:
Mortgage servicing rights (15)
Net unrealized loss on securities available for sale 4
-------
Tier 1 capital 20,783 11.20%
Minimum Tier 1 (leverage) requirement 7,422 4.00
------- -------
Excess $ 13,361 7.20 %
======= =======
Risk-based capital ratios:
Core (Tier I) capital $ 20,783 14.69%
Minimum core capital 5,661 4.00
------- -------
Excess $ 15,122 10.69%
======= =======
Risk-based capital $ 22,392 15.82%
Minimum risk-based capital requirement 11,321 8.00
------- -------
Excess $ 11,071 7.82%
======= =======
Under the FDICIA prompt corrective action provisions applicable to banks, the
most recent notification from the FDIC categorized the Bank a well capitalized.
To be categorized as well capitalized, the Bank must maintain a total risk-based
capital ratio as set forth in the following table and not be subject to a
capital order. There are no conditions or events since that notification
that management believes have changed the Bank's risk-based capital category.
First Southern Bank (dollars in thousands)
Total capital (to risk-weighted assets) $ 21,719 15.41%
To be well capitalized under the FDICIA
prompt corrective action provisions 14,097 10.0%
------- -------
Excess $ 7,622 5.41%
======= =======
Tier 1 capital (to risk-weighted assets) $ 20,110 14.27%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 8,458 6.0%
------- -------
Excess $ 11,652 8.27%
======= =======
Tier 1 capital (to average assets) $ 20,110 10.79%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 9,320 5.0%
------- -------
Excess $ 10,790 5.79%
======= =======
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.
9
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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) based upon average daily
deposits of the Bank. Since becoming subject to this regulation, the Bank has
fully complied with its requirements. At September 30, 1997, the Bank's
qualifying reserves of $1.4 million significantly exceeded the required reserve
of $198,000.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in the
data field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, computer
applications could fail or create erroneous results in the year 20000. The Year
2000 Issue affects virtually all companies. Bancshares does not estimate that
the costs associated with the Year 2000 Issue will materially impact future
operating results. Such costs will be recognized as incurred.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997
General
Consolidated net income for the quarter ended September 30, 1997, increased to
$440,000 from a loss of $75,000 in the comparable quarter in 1996. Earnings per
share for the third quarter of 1997 were $0.11 as compared to a loss of $.04 per
share in the third quarter of 1996.
Net Interest Income
The third quarter net interest income after provision for loan losses was $1.7
million, or 9.1% less than the $1.9 million reported for the comparable period
in 1996, primarily as a result of increases in interest expense for certificates
of deposits as the Company continues to be aggressive in its marketing.
Interest Income
Interest income for the three months ended September 30, 1997 was $3.9 million
compared with $3.8 million for the three months ended September 30, 1997,
representing an increase of $136,000 or 3.6%. The increase was primarily
attributable to an increase of $1.2 million, or 0.7% in average interest earning
assets in the third quarter of 1997 to $175.4 million over those in the
comparable period of 1996 of $174.2 million as a result of the growth in
loans. Also contributing to the increase in interest income was an increase in
the average yield on interest-earning assets from 8.82% for the three months
ended September 30, 1996 to 8.96% for the nine months ended September 30, 1997,
as a result of the increase within the loan portfolio to higher yielding but
inherently riskier commercial mortgage and commercial business loans.
Interest on loans receivable increased $78,000 to $3.7 million during the three
months ended September 30, 1997 as compared to $3.6 million the same period in
1996. The increase was primarily attributable to an increase of $0.5 million in
average loan balances in the third quarter of 1997 ($161.2 million) from the
comparable period in 1996 ($160.7 million). Additionally, the average yield on
total loans increased from 9.03% in the third quarter of 1996 to 9.19% during
the third quarter of 1997, as a result of the increase within the loan portfolio
to higher yielding but inherently riskier commercial mortgage and commercial
business loans.
Interest on mortgage-related securities decreased by $11,000 from $44,000 during
the three months ended September 30, 1996 to $33,000 during the same period in
1997 as a result of the average balance of mortgage-related securities
decreasing by $572,000 during the three months ended September 30, 1997 ($1.6
million) as compared to the three months ended September 30, 1996 ($2.2
million). The effect of this decrease in the average balance was partially
offset by an increase in 1997 average yields from such securities from 8.09% in
the third quarter of 1996 to 8.12% in the third quarter of 1997 as a result of
investment in higher yielding mortgage-related securities.
10
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Income from the investment securities portfolio increased by $3,000 from
$101,000 during the three months ended September 30, 1996 to $104,000 during the
same period in 1997 as the result of a $800,000 increase in the average balance
from 6.9 million at September 30, 1996 to $7.7 million at September 30, 1997.
Additionally, the average yield on investment securities decreased slightly from
5.85% in the third quarter of 1996 to 5.35% in the third quarter of 1997 as a
result the changes in the investment securities portfolio.
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
$17,000 increase in other interest income in the third quarter of 1997 to
$88,000 when compared to the third quarter of 1996 other interest income of
$71,000 is due to an increase in FHLB dividends from $26,000 during the third
quarter of 1996 as compared to $47,000 in the third quarter of 1997. In
addition, yields on the average balance of the FHLB overnight account increased
from 6.16% in the third quarter of 1996 to 7.5% in the third quarter of 1997.
The increase in yield was offset by the decrease in average of the FHLB
overnight account balances from $4.4 million in the third quarter of 1996 as
compared to $2.2 million in the third of 1997.
Interest Expense
Interest expense for the three months ended September 30, 1997 was $2.2 million
compared with $1.9 million for the three months ended September 30, 1996,
representing an increase of $256,000 or 13.3%.
Interest on deposits increased $269,000 or 17.6% from $1.5 million in the third
quarter 1996 to $1.8 million in the third quarter of 1997. The increase
reflects a $10.3 million increase in average deposits in the third quarter of
1997 ($138.6 million) as compared to the third quarter of 1996 ($128.3 million),
and an increase of 42 basis points or 8.7% in the interest cost on average
deposit balances from 4.78% in the third quarter of 1996 to 5.20% in the
third quarter of 1997. The 1997 increase in average interest cost was primarily
due to increases in prevailing market interest rates between the two periods,
and Bancshares competitive marketing and promotions in attracting certificates
of deposits.
Other interest expense relates to FHLB of Atlanta borrowings and decreased by
$13,000 to $379,000 when compared with the 1996 third quarter total of $392,000
due to an increase in average borrowings of $0.8 million during the three months
ended September 30, 1997 ($25.7 million) from 1996 average levels of $26.5
million. Interest costs on borrowed funds was consistent at 5.9% for both
the third quarter of 1997 and 1996.
Provision for Loan Losses.
Management's periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may effect the borrower's ability to repay
the estimated value of any underlying collateral, and current economic
conditions. For the third quarter of 1997, the Company provided $61,000 for its
anticipated loan losses, as compared to $60,000 for the third quarter in 1996.
These provisions were made based on management's analysis of the various factors
which effect the loan portfolio and management's desire to maintain the
allowance at a level considered adequate to provide for losses.
Non-interest Income.
Non-interest income decreased by $34,000 in the third quarter of 1997 to
$172,000 as compared to $206,000 reported in the comparable quarter of 1996.
This decrease was principally the result of a decrease of in gains on sale of
loans of $139,000 from $187,000 in the third quarter of 1996 to $48,000 in the
third of 1997, and the decrease in losses on real estate owned from $88,000
in the third of 1996 to none in the third quarter of 1997.
11
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<PAGE>
Non-interest Expense.
Non-interest expenses decreased $1.2 million, or 51.1% to $1.1 million for the
third quarter of 1997 compared to $2.3 million for the comparable period in
1996. This decrease resulted primarily from a $1.1 million decrease in
insurance expenses relating to the one-time Savings Association Insurance Fund
("SAIF") premium assessment recognized in the third quarter of 1996.
Income Taxes
Income tax expense/(benefit) for the three months ended September 30, 1996 and
1997 was $(156,000) and $298,000, respectively. Such amounts represent the net
change between the second and third quarter in the income tax provisions
recorded for the nine months ended September 30, 1996 and 1997 more fully
discussed below.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
1997
General
Consolidated net income for the nine months ended September 30, 1997, increased
to $1.1 million from $346,000 for the comparable nine months in 1996. Earnings
per share for the nine months ended September 30, 1997, were $0.58 as compared
to $0.18 for the comparable period in 1996. The increase in earnings over that
of the previous year is primarily due to the $1,093,000 one-time Savings
Association Insurance Fund ("SAIF") premium assessment recognized in the third
quarter of 1996.
Net Interest Income
Net interest income after provision for loan losses of 5.2 million for the nine
months of ended September 30, 1997 was $187,000 lower or 3.5% less than the $5.4
million reported for the comparable period in 1996. Increases in the net
interest spread of 3.69% for the nine months ended September 30, 1996 to 3.77%
for the nine months ended September 30, 1997, as a result of the increase
within the loan portfolio to higher yielding commercial mortgage and business
loans, was offset by the increase in interest expense, in particular the
interest on advances from the FHLB as further discussed below.
Interest Income
Interest income for the nine months ended September 30, 1997 was $11.6 million
compared with $11.2 million for the nine months ended September 30, 1996,
representing an increase of $357,000 or 3.2%. The increase was primarily
attributable to an increase of $3.6 million, or 2.1% in average interest earning
assets in the first nine months of 1997 to $176.3 million over those in the
comparable period of 1996 of $172.7 million as a result of the growth in loans.
Also contributing to the increase in interest income was an increase in the
average yield on interest-earning assets from 8.68% for the nine months ended
September 30, 1996 to 8.77% for the nine months ended September 30, 1997, as a
result of the increase within the loan portfolio to higher yielding but
inherently riskier commercial mortgage and commercial business loans.
Interest on loans receivable increased $472,000 to $11.0 million during the nine
months ended September 30, 1997 as compared to the same period in 1996 ($10.5
million). The increase was primarily attributable to an increase of $5.8
million in average loan balances in the first nine months of 1997 ($163.8
million) from the comparable period in 1996 ($158.0 million). Additionally, the
average yield on total loans increased from 8.89% in the first nine months of
1996 to 8.96% during the first nine months of 1997, as a result of the increase
within the loan portfolio to higher yielding commercial mortgage and commercial
business loans.
12
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<PAGE>
Interest on mortgage-related securities decreased by $43,000 from $153,000
during the nine months ended September 30, 1996 to $107,000 during the same
period in 1997 as a result of the average balance of mortgage-related securities
decreasing by $0.5 million during the nine months ended September 30, 1997
($1.7 million) as compared to the nine months ended September 30, 1996 ($2.2
million). The effect of this decrease in the average balance was partially
offset by an increase in 1997 average yields from such securities from 7.91% in
the first nine months of 1996 to 8.13% in the first nine months of 1997 as a
result of investment in higher yielding mortgage-related securities.
Income from the investment securities portfolio decreased by $78,000 from
$322,000 during the nine months ended September 30, 1996 to $244,000 during the
same period in 1997 as the result of a $1.0 million decrease in the portfolio as
a result of sales and maturities from $7.4 million at September 30, 1996 to $6.6
million at September 30, 1997. Additionally, the average yield on investment
securities decreased slightly from 5.79% in the first nine months of 1996 to
4.95% in the first nine months of 1997 as a result the changes in the investment
securities portfolio.
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 $9,000
decrease in other interest income in the first nine months of 1997 to $235,000
when compared to the first nine months of 1996 other interest income of $226,000
is due to the decreased interest earnings on the FHLB overnight and on money
market funds due to a decrease in average invested balances from $3.0 million in
the first nine months of 1996 to $2.0 million in the comparable 1997 period.
FHLB dividends were $75,000 during the first nine months of 1996 as compared to
$121,000 in the first nine months of 1997.
Interest Expense
Interest expense for the nine months ended September 30, 1997 was $6.2 million
compared with $5.6 million for the nine months ended September 30, 1996,
representing an increase of $572,000 or 10.2%.
Interest on deposits for the nine months ended September 30, 1997 was $4.9
million compared with $4.7 million for the nine months ended September 30, 1996,
representing an increase of $263,000 or 5.6%. The increase is due to a $7.6
million increase in average deposits in the first nine months of 1997 ($136.4
million) as compared to the first nine months of 1996 ($128.8 million). The
1997 average interest cost of 4.82% was consistent with 1996 for the same
period.
Other interest expense relates to FHLB of Atlanta borrowings and increased by
$309,000 to $1.3 million when compared with the 1996 first nine months total of
$947,000 due to an increase in average borrowings of $7.0 million during the
nine months ended September 30, 1997 ($28.3 million) from 1996 average levels of
$21.3 million. The increase caused by the higher average balance was partially
offset by decreased interest costs on borrowed funds from 5.92% in 1996 to 5.84%
in 1997 as a consequence of the adjustable rate nature of the majority of the
FHLB of Atlanta borrowings.
Provision for Loan Losses.
Management's periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may effect the borrower's ability to repay
the estimated value of any underlying collateral, and current economic
conditions. For the first nine months of 1997, the Company provided $182,000
for its anticipated loan losses, as compared to $210,000 for the first
nine months in 1996. These provisions were made based on management's analysis
of the various factors which effect the loan portfolio and management's desire
to maintain the allowance at a level considered adequate to provide for losses.
The decrease of $28,000 in the first nine months of 1997 compared to 1996 is a
result of the Bank incurring fewer loan charge-offs than estimated, and
therefore, less provision was required to maintain an adequate allowance at
September 30, 1997.
13
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<PAGE>
Non-interest Income.
Non-interest income increased by $332,000 in the first nine months of 1997 to
$617,000 as compared to $285,000 reported in the comparable nine months of 1996.
This increase was the result of an increase in loan and service fees of $68,000
from $354,000 in the first nine months of 1997 as compared to $286,000 for the
comparable period in 1996, and the reduction of $273,000 in losses on real
estate owned in the first nine months of 1997 as compared to the comparable
period of 1996.
Non-interest Expense.
Non-interest expenses decreased $1.4 million or 25.9% to $4.0 million for the
first nine months of 1997 compared to $5.4 million for the comparable period in
1996. This decrease resulted from a $1.2 million decrease in insurance expense
and $112,000 decrease in other expenses. The decrease in insurance expense is
due to the $1.1 million decrease in insurance expenses relating to the
one-time Savings Association Insurance Fund ("SAIF") premium assessment
recognized in the third quarter of 1996 and the decrease in the SAIF premium
rate as a result of the SAIF special assessment paid in 1996. Decreases in
other expenses were primarily related to the decrease in real estate owned
operating expenses reflecting the decrease in the average balance of
foreclosed real estate at September 30, 1997 as compared to the comparable
period of 1996.
Compensation and employee benefits remained consistent in 1997 and 1996 as the
decrease in ESOP related compensation of $734,000 from that incurred in 1996 was
offset by an increase of $588,000 in pension plan expense due to benefits being
frozen with the intent to terminate the plan. In addition, compensation and
benefits related to the amortization of the deferred MRDP expense increased
$86,000 over the same period in 1996.
Income Taxes
Income tax expense (benefit) for the nine months ended September 30, 1997 was
$695,000 or 38.4% of income before income taxes representing expected federal
and state tax rates. The income tax benefit of $75,000 for the nine months
ended September 30, 1996 was primarily due to a charitable contribution
recognized for tax purposes but not for financial reporting.
14
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<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
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
(3a) Certificate of Incorporation of the Company*
(3a) (i) Certificate of Amendment of Certificate of Incorporation ****
(3b) Bylaws of the Company*
(10a) 1996 Stock Option Plan of the Company**
(10b) 1996 Management Recognition and Development Plan of the Company**
(10c) Employment Agreement with Charles L. Frederick, Jr.***
(10d) Employment Agreement with Thomas N. Ward***
(27) Financial Data Schedule
_____________________
* Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended.
** Incorporated by reference to the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders.
*** Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
**** Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1997.
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended September 30, 1997.
15
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<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 November 14, 1997 /s/ Charles L. Frederick, Jr.
----------------- -----------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive Officer
Date August 14, 1997 /s/ Ms. Glenda Young
--------------- --------------------
Ms. Glenda Young
Vice President/Treasurer and
Chief Accounting Officer
16
<PAGE>
<PAGE>
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