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, 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
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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: 1,922,749 shares of $.01 par
value common stock as of August 11, 1997.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 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 16
ITEM 2 - CHANGES IN SECURITIES 16
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 16
ITEM 5 - OTHER INFORMATION 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, June 30,
1996 1997
ASSETS ------ ------
Cash and cash equivalents $ 4,220 $ 15,500
Investment securities available for sale, at market 10,948 5,977
Mortgage-backed securities, held to maturity, at cost 1,887 1,672
Loans held for sale, at cost, which approximates market 232 211
Loans receivable, net 159,486 159,741
Foreclosed real estate 198 175
Premises and equipment, net 3,455 3,581
Federal Home Loan Bank stock, at cost 1,357 2,870
Accrued interest receivable 1,728 1,572
Deferred income taxes 93 293
Other assets 880 322
------- -------
TOTAL ASSETS $184,484 $191,914
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 132,800 $133,233
Advances from Federal Home Loan Bank 25,619 36,043
Other notes payable 4,000 450
Income taxes currently payable 3 103
Deferred income taxes - -
Dividends payable - -
Pension plan liability - 228
Other liabilities 1,020 924
------- -------
Total liabilities 163,442 170,981
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 11,362
Retained earnings - Substantially restricted 12,672 12,871
Unearned employee compensation - ESOP (401) (309)
Unearned employee compensation - MRDP (1,119) (990)
Net unrealized loss on securities available for sale (40) (15)
Net provision for additional minimum pension liability - -
Treasury stock, at cost (1,425) (2,007)
------- -------
Total stockholders' equity 21,042 20,933
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $184,484 $191,914
======= =======
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,
1996 1997 1996 1997
INTEREST INCOME: ------ ------ ------ ------
Loans 3,538 3,729 6,912 7,306
Mortgage-backed securities 51 36 109 74
Investment securities 103 53 221 140
Other 59 69 155 147
------ ------ ------ ------
Total interest income 3,751 3,887 7,397 7,667
INTEREST EXPENSE:
Deposits 1,550 1,574 3,137 3,131
Advances from Federal Home Loan
Bank and other 305 482 555 877
------ ------ ------ ------
Total interest expense 1,855 2,056 3,692 4,008
------ ------ ------ ------
NET INTEREST INCOME 1,896 1,831 3,705 3,659
PROVISION FOR LOAN LOSSES (39) 60 150 121
NET INTEREST INCOME AFTER ------ ------ ------ ------
PROVISION FOR LOAN LOSSES 1,935 1,771 3,555 3,538
NON INTEREST INCOME:
Loan fees and service charges 95 124 184 241
Net gains on sale of loans 28 171 64 183
Gains on sales of investments - - - -
Gains(losses) on real estate owned (197) - (187) 2
Loss on sale of other assets - - - (2)
Other 18 9 18 21
------ ------ ------ ------
Total non interest income (56) 304 79 445
NON INTEREST EXPENSES:
Compensation and employee benefits 1,393 1,282 1,971 1,977
Building and occupancy expense 136 130 232 246
Data processing expense 104 77 200 165
Advertising 39 40 61 79
Insurance expense 123 57 232 120
Other 271 159 436 325
------ ------ ------ ------
Total non interest expenses 2,066 1,745 3,132 2,912
------ ------ ------ ------
INCOME BEFORE INCOME TAXES (187) 330 502 1,071
INCOME TAX EXPENSE (178) 114 81 397
------ ------ ------ ------
NET INCOME $ (9) $ 216 $ 421 $ 674
====== ====== ====== ======
EARNINGS PER SHARE $ - $ 0.11 $ 0.22 $ 0.35
====== ====== ====== ======
DIVIDENDS PER SHARE
Regular cash dividends $0.125 $0.125 $0.250 $0.250
Special cash dividends-
return of capital $3.400 $ - $3.400 $ -
------ ------ ------ ------
Total dividends per share $3.525 $0.125 $3.650 $0.250
====== ====== ====== ======
See accompanying selected notes to consolidated financial statements.
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<TABLE>
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 six
months ended June 30, 1997 - - - - - 674 - - - 674
Cash dividends - - - - - (475) - - - (475)
Acquisition of treasury stock - - (44,820) (582) - - - - - (582)
ESOP shares committed for release - - - - 28 - 92 - - 120
Common stock grants to MRDP - - - - - - - - - -
Amortization of MRDP
unearned compensation - - - - - - - 129 - 129
Increase in unrealized loss on
securities available for sale,
net of related income taxes - - - - - - - - 25 25
-------- ------ ------ ------ ------- ---------- ----- ----- -------- -------
Balances at June 30, 1997 2,076,969 $ 21 (154,220) $(2,007) $11,362 $ 12,871 $(309) $ (990) $ (15) $20,933
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,
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------ ------
Net income $ 421 $ 674
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 95 127
Provision for loan losses 150 60
Provision for deferred income taxes (benefit) (176) (200)
Amortization/accretion of premiums/discounts on
investment and mortgage-backed securities 1 (30)
Amortization of deferred loan fees (85) (51)
Fair market value of ESOP shares committed for
release and charged to employee compensation 894 120
Amortization of unearned compensation - MRDP 44 129
(Gains) losses on real estate owned 187 2
(Increase) decrease in:
Loans held for sale 502 21
Accrued interest receivable 34 156
Other assets 13 558
Increase (decrease) in:
Income taxes currently payable (59) 100
Pension plan liability - 228
Other liabilities 89 (96)
------ ------
Net cash provided by operating activities 2,110 1,798
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (11,856) (264)
Proceeds from sale of:
Investment and mortgage-backed securities - 245
Investment securities - 4,996
Real estate owned 745 21
Proceeds from maturities of:
Investment securities 1,820 -
Mortgage-backed securities 669 -
Acquisition of:
Federal Home Loan Bank stock - (1,513)
Premises and equipment (395) (253)
Capitalized improvements to real estate owned (33) -
------ ------
Net cash provided by (used in) investing activities (9,050) 3,232
------ ------
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,
1996 1997
CASH FLOWS FROM FINANCING ACTIVITIES: ------ ------
Net increase (decrease) in deposit accounts 878 433
Cash dividends paid (7,013) (475)
Proceeds from FHLB advances 9,500 10,424
Proceeds from other borrowings 250 450
Reductions in FHLB advances (75) -
Reductions in other borrowings - (4,000)
Acquisition of treasury stock (1,046) (582)
------ ------
Net cash provided by (used in) financing activities 2,494 6,250
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,446) 11,280
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,971 4,220
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $4,525 $15,500
====== ======
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Loans foreclosed and transferred to real estate owned $ 750 $ 175
Increase (decrease) in net unrealized loss on
securities available for sale $ 50 $ 25
Cash paid during the period for:
Income taxes $ 409 $ 275
Interest $3,651 $ 3,994
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, 1997 and for the
period 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 June 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 June 30, 1996 and 1997
interim financial statements. The results of operations for the period ended
June 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 second quarter and six months
ended June 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 quarter ended June 30, 1996 and 1997 were
1,844,666 and 1,916,880 shares, respectively.
NOTE 4 - SUBSEQUENT EVENT
On July 10, 1997, the Board of Directors approved a cash dividend of $.125 per
share, payable July 31, 1997 to stockholders of record as of July 21, 1997.
NOTE 5 - COMMITMENTS
At June 30, 1997, the Company had commitments to originate variable rate loans,
excluding loans in process but including unused commercial business lines of
credit, of $11.3 million. The Company had no significant commitments to
originate fixed-rate loans at June 30, 1997.
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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). 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 certain material changes in results of operations
during the six months ended June 30, 1996 and 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Total assets increased $7,430,000 from $184,484,000 at December 31, 1996, to
$191,914,000 at June 30, 1997. This increase is primarily reflected in cash that
increased $11,280,000 from $4,220,000 at December 31, 1996, to $15,500,000 at
June 30, 1997, primarily as a result of the sale of $9 million of loans on June
30, 1997.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company did not increase its investments or mortgage-backed securities
during the six months ended June 30, 1997. The decrease in investment securities
of $5.0 million from $11.0 million at December 31, 1996 to $6.0 million at June
30, 1997 was due to the maturity of a certificate of deposit 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 six
months ended June 30, 1997, the Company had originated an additional $9.0
million in loans and sold $9.0 million of loans on June 30, 1997; therefore, the
balance of net loans has remained at approximately $159 million at December 31,
1996 and June 30, 1997.
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 June 30, 1997 follows:
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12/31/96 6/30/97
Type of Loan Amount Percent Amount Percent
Mortgage loans:
Residential $ 85,205 53.3% $ 81,224 50.8%
Commercial 33,434 20.9 35,966 22.5
----------- ------ ----------- ------
Total mortgage loans 118,639 74.2 117,190 73.3
Commercial business loans 27,157 17.0 26,942 16.8
Consumer loans 17,701 11.1 19,837 12.4
----------- ------ ----------- ------
Total loans 163,497 102.3 163,969 102.5
Less:
Undisbursed loans 1,928 1.2 2,154 1.2
Unamortized loan fees 192 0.1 199 0.1
Allowance for possible losses 1,659 1.0 1,664 1.0
Net loans receivable $ 159,718 100.0% $ 159,952 100.0%
========= ===== ========== =====
Non performing assets (comprised solely of loans delinquent 90 days or more and
repossessed assets) as of June 30, 1997 increased $500,000 to $2.1 million
compared to $1.6 million at December 31, 1996. The increase was primarily
attributable to commercial mortgage loans over 90 days past due. At December 31,
1996, the allowance for loan losses was $1,659,000 and represented 1.0% of total
net loans and 100% of non performing assets. At June 30, 1997, the allowance for
loan losses was $1,664,000 and represented 1.0% of total net loans and 79.2% of
non performing assets. The provision (credit) for loan losses was $60,000 for
the second quarter and $121,000 for the six months ended June 30, 1997, as
compared to ($39,000) and $150,000, respectively for the comparable periods in
1996.
In the opinion of management, at June 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 June 30, 1997, the Company had loan commitments for variable rate loans
(excluding loans in process) including unused commercial business lines of
credit, of $11.3 million. The Company had no significant commitments for
fixed-rate loans at June 30, 1997.
DEPOSITS AND FHLB ADVANCES
Deposit balances increased $433,000 from $132.8 million at December 31, 1996 to
$133.2 at June 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 June 30, 1997, savings certificates amounted to $97.0 million, or 72.8%, of
the Company's total deposits, including $76.7 million which were scheduled to
mature by June 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 increased $10.4 million from $25.6
million at December 31, 1996, to $36.0 million at June 30, 1997. The additional
borrowings were used primarily to originate new loans. The Company repaid $8.0
million on July 1, 1997, from the funds received in the sale of loans on June
30, 1997. At June 30, 1997, the Company had unused credit availability with the
FHLB of $4.0 million.
STOCKHOLDERS' EQUITY
At June 30, 1997, aggregate stockholders' equity was $20,933,000 as compared
$21,042,000 at December 31, 1996. The increase in stockholders' equity from net
income of $674,000 was offset by the payment of $475,000 in dividends and the
repurchase in the open market of an aggregate of $582,000 of the Company's
common stock and held in treasury. Other net increases of $274,000 in
stockholders' equity related primarily to the unearned employee stock benefit
compensation plans.
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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 June 30,
1997:
PERCENTAGE OF
FIRST SOUTHERN BANCSHARES, INC. (DOLLARS IN THOUSANDS) ADJUSTED TOTAL
AMOUNT ASSETS
Primary capital ratios:
GAAP capital $ 20,933
Adjustments:
Mortgage servicing rights (16)
Net unrealized loss on securities available for sale 15
---------
Tier 1 capital 20,932 14.70%
Minimum Tier 1 (leverage) requirement 7,677 4.00
--------- ------
Excess $ 13,255 10.91%
========= ======
Risk-based capital ratios:
Core (Tier I) capital $ 20,932 14.70%
Minimum core capital 5,694 4.00
--------- ------
Excess $ 15,238 10.70%
========= ======
Risk-based capital $ 22,596 15.87%
Minimum risk-based capital requirement 11,388 8.00
--------- ------
Excess $ 11,208 7.87%
========= ======
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) $ 22,720 15.96%
To be well capitalized under the FDICIA
prompt corrective action provisions 14,234 10.0%
--------- ------
Excess $ 8,486 5.96%
========= ======
Tier 1 capital (to risk-weighted assets) $ 21,056 14.79%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 8,541 6.0%
--------- ------
Excess $ 12,515 8.79%
========= ======
Tier 1 capital (to average assets) $ 21,056 11.11%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 9,477 5.0%
--------- ------
Excess $ 11,579 6.11%
========= ======
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.
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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 June 30, 1997, the Bank's qualifying
reserves of $991,000 significantly exceeded the required reserve of $199,000. .
COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
GENERAL
Consolidated net income for the quarter ended June 30, 1997 increased to
$216,000 from a loss of $9,000 for the comparable quarter in 1996. Earnings per
share for the second quarter of 1997 were $0.11. Operating results were
significantly impacted by the non interest expense for the planned termination
of the Company's defined benefit retirement plan. To reduce compensation expense
in future periods, the Company froze the benefits of the 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 second quarter ended June 30, 1997.
NET INTEREST INCOME
Net interest income after provision for loan losses for the three months ended
June 30, 1997 was $1.8 million, or 8.5% less($164,000) than the $1.9 million
reported for the comparable period in 1996, primarily as a result of an increase
in the provision for loan losses. The additional provision for loan losses for
the second quarter of 1997 was incurred as a result of loan charge offs in
excess of recoveries.
INTEREST INCOME
Interest income for the three months ended June 30, 1997 was $3.9 million
compared with $3.8 million for the three months ended June 30, 1996,
representing an increase of $136,000 or 3.6%. The increase was primarily
attributable to an increase of $6.1 million, or 3.5% in average interest earning
assets in the second quarter of 1997 to $178.7 million over those in the
comparable period of 1996 of $172.6 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 six months ended
June 30, 1996 to 8.71% for the six months ended June 30, 1997, as a result of
the increase within the loan portfolio to higher yielding commercial mortgage
and commercial business loans.
Interest on loans receivable increased $191,000 to $3.7 million during the three
months ended June 30, 1997 as compared to $3.5 million the same period in 1996.
The increase was primarily attributable to an increase of $3.2 million in
average loan balances in the second quarter of 1997 ($162.9 million) from the
comparable period in 1996 ($159.7 million). Additionally, the average yield on
total loans increased from 8.86% in the second quarter of 1996 to 9.16% during
the second quarter of 1997, as a result of the increase within the loan
portfolio to higher yielding commercial mortgage and commercial business loans.
Interest on mortgage-related securities decreased by $15,000 from $51,000 during
the three months ended June 30, 1996 to $36,000 during the same period in 1997
as a result of the average balance of mortgage-related securities decreasing by
$819,000 during the three months ended June 30, 1997 as compared to the three
months ended June 30, 1996. The effect of this decrease in the average balance
was partially offset by an increase in 1997 average yields from such securities
from 7.9% in the second quarter of 1996 to 8.24% in the second quarter of 1997
as a result of investment in higher yielding mortgage-related securities.
Income from the investment securities portfolio decreased by $50,000 from
$103,000 during the three months ended June 30, 1996 to $50,000 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 million at June 30, 1996 to $6 million at
June 30, 1997. Additionally, the average yield on investment securities
decreased slightly from 5.78% in the second quarter of 1996 to 4.63% in the
second quarter of 1997 as a result the changes in the investment securities
portfolio.
10
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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 $10,000
increase in other interest income in the second quarter of 1997 to $69,000 when
compared to the second quarter of 1996 other interest income of $59,000 is due
to the increased interest earnings on the FHLB overnight and money market funds
due to an increase in average invested balances from $3.5 million in the second
quarter of 1996 to $5.4 million in the comparable 1997 period. FHLB dividends
were $25,000 during the second quarter of 1996 as compared to $47,000 in the
second quarter of 1997.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1997 was $2.1 million
compared with $1.9 million for the three months ended June 30, 1996,
representing an increase of $201,000 or 10.8%.
Interest on deposits increased $24,000 or 1.5% from $1,550,000 in the second
quarter 1996 to $1,574,000 in the second quarter of 1997. The increase reflects
a $5.8 million increase in average deposits in the second quarter of 1997
($135.0 million) as compared to the second quarter of 1996 ($129.2 million),
offset by a decrease of 13 basis points or 2.7% in the interest cost on average
deposit balances from 4.80% in the second quarter of 1996 to 4.67% in the second
quarter of 1997. The 1997 decrease in average interest cost was primarily due to
decreases in prevailing market interest rates between the two periods.
Other interest expense relates to FHLB of Atlanta borrowings and increased by
$177,000 to $482,000 when compared with the 1996 second quarter total of
$305,000 due to an increase in average borrowings of $11.8 million during the
three months ended June 30, 1997 ($32.5 million) from 1996 average levels of
$20.7 million. Interest costs on borrowed funds was consistent at 5.92% for both
the second 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 second quarter of 1997, the Company provided $60,000 for its
anticipated loan losses, as compared to a credit of $39,000 for the second
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
hold the allowance at a level considered adequate to provide for losses. The
increase of $96,000 in the second quarter of 1997 compared to 1996 is a result
of the Bank incurring more loan charge-offs in excess of recoveries than
estimated, and therefore, more provision was required to maintain an adequate
allowance at June 30, 1997.
NON-INTEREST INCOME.
Non-interest income increased by $360,000 in the second quarter of 1997 to
$304,000 as compared to a loss of $56,000 reported in the comparable quarter of
1996. This increase was principally the result of an increase in gains on sale
of loans of $143,000 principally from the $9 million sale on June 30, 1997, and
the decrease of $197,000 in the losses on sale of real estate owned in the
comparable quarter of 1996.
NON-INTEREST EXPENSE.
Non-interest expenses decreased $321,000, or 15.5% to $1.7 million for the
second quarter of 1997 compared to $2.1 million for the comparable period in
1996. This decrease resulted from a $111,000 decrease in expenses relating to
compensation and employee benefits, $66,000 decrease in insurance expense, and
$112,000 decrease in other expenses. The decrease in compensation and employee
benefits is primarily due to a decrease in ESOP related compensation of $680,000
from that incurred in 1996 offset by an increase of $588,000 in pension plan
expense due to benefits being frozen with the intent to terminate the plan. The
decrease in insurance expense is due to 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 of $774,000 in the real estate owned balance at
June 30, 1996 of $949,000 to $175,000 at June 30, 1997.
11
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INCOME TAXES
Income tax expense/(benefit) for the three months ended June 30, 1996 and 1997
was $(178,000) and $114,000, respectively. Such amounts represent the net change
between the first and second quarter in the income tax provisions recorded for
the six months ended June 30, 1996 and 1997 more fully discussed below.
COMPARISON OF OPERATING RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
GENERAL
Consolidated net income for the six months ended June 30, 1997, increased 60% to
$674,000 from $421,000 for the comparable six months in 1996. Earnings per share
for the six months ended June 30, 1997, were $0.35 as compared to $0.22 for the
comparable period in 1996. Operating results were significantly impacted by the
non interest expense for the planned termination of the Company's defined
benefit retirement plan. To reduce compensation expense in future periods, the
Company froze the benefits of the 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 six months ended June 30, 1997.
NET INTEREST INCOME
Net interest income after provision for loan losses for the six months ended
June 30, 1997 was consistent with the $3.5 million reported for the comparable
period in 1996. The increase in the net interest spread of 3.6% for the six
months ended June 30, 1996 to 3.75% for the six months ended June 30, 1997, was
a result of the increase within the loan portfolio to higher yielding commercial
mortgage and business loans. This increase in the net interest spread 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 six months ended June 30, 1997 was $7.7 million compared
with $7.4 million for the six months ended June 30, 1996, representing an
increase of $270,000 or 3.7%. The increase was primarily attributable to an
increase of $5.2 million, or 3.0% in average interest earning assets in the
first six months of 1997 to $177.1 million over those in the comparable period
of 1996 of $171.9 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 8.60% for the six months ended June 30, 1996 to
8.61% for the six months ended June 30, 1997, as a result of the increase within
the loan portfolio to higher yielding commercial mortgage and commercial
business loans.
Interest on loans receivable increased $394,000 to $7.3 million during the six
months ended June 30, 1997 as compared to the same period in 1996. The increase
was primarily attributable to an increase of $5.2 million in average loan
balances in the first six months of 1997 ($161.9 million) from the comparable
period in 1996 ($156.7 million). Additionally, the average yield on total loans
increased from 8.82% in the first six months of 1996 to 9.03% during the fist
six months of 1997, as a result of the increase within the loan portfolio to
higher yielding commercial mortgage and commercial business loans.
Interest on mortgage-related securities decreased by $35,000 from $109,000
during the six months ended June 30, 1996 to $74,000 during the same period in
1997 as a result of the average balance of mortgage-related securities
decreasing by $1.0 million during the six months ended June 30, 1997 as compared
to the six months ended June 30, 1996. The effect of this decrease in the
average balance was partially offset by an increase in 1997 average yields from
such securities from 7.83% in the first six months of 1996 to 8.22% in the first
six months of 1997 as a result of investment in higher yielding mortgage-related
securities.
12
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<PAGE>
Income from the investment securities portfolio decreased by $81,000 from
$221,000 during the six months ended June 30, 1996 to $140,000 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 $6.9 million at June 30, 1996 to $5.9
million at June 30, 1997. Additionally, the average yield on investment
securities decreased slightly from 5.76% in the first six months of 1996 to
4.93% in the first six 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 $8,000
decrease in other interest income in the first six months of 1997 to $147,000
when compared to the first six months of 1996 other interest income of $155,000
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 $3.5 million in
the first six months of 1996 to $2.4 million in the comparable 1997 period. FHLB
dividends were $49,000 during the first six months of 1996 as compared to
$75,000 in the first six months of 1997.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1997 was $4.0 million
compared with $3.7 million for the six months ended June 30, 1996, representing
an increase of $316,000 or 8.6%.
Interest on deposits of $3.1 million was consistent with the first six months
1996. A decrease of 16 basis points or 3.3% in the interest cost on average
deposit balances from 4.86% in the first six months of 1996 to 4.70% in the
first six months of 1997, offset by a $4.1 million increase in average deposits
in the first six months of 1997 ($133.2 million) as compared to the first six
months of 1996 ($129.1 million). The 1997 decrease in average interest cost was
primarily due to decreases in prevailing market interest rates between the two
periods.
Other interest expense relates to FHLB of Atlanta borrowings and increased by
$322,000 to $877,000 when compared with the 1996 first six months total of
$555,000 due to an increase in average borrowings of $13 million during the six
months ended June 30, 1997 ($31.6 million) from 1996 average levels of $18.6
million. The increase caused by higher average balance was partially offset by
decreased interest costs on borrowed funds from 5.93% in 1996 to 5.56% 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 six months of 1997, the Company provided $121,000 for
its anticipated loan losses, as compared to $150,000 for the first six 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 hold the
allowance at a level considered adequate to provide for losses. The decrease of
$29,000 in the first six 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 June 30, 1997.
NON-INTEREST INCOME.
Non-interest income increased by $366,000 in the second quarter of 1997 to
$445,000 as compared to $79,000 reported in the comparable quarter of 1996. This
increase was principally the result of an increase in gains on sale of loans of
$119,000 principally from the $9 million sale on June 30, 1997, and the decrease
of $187,000 in the losses on sale of real estate owned in the comparable quarter
of 1996.
13
<PAGE>
<PAGE>
NON-INTEREST EXPENSE.
Non-interest expenses decreased $220,000, or 7.0% to $2.9 million for the second
quarter of 1997 compared to $3.1 million for the comparable period in 1996. This
decrease resulted from a $112,000 decrease in insurance expense, and $111,000
decrease in other expenses. The decrease in insurance expense is due to 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 of $$774,000 in
the real estate owned balance at June 30, 1996 of $949,000 to $175,000 at June
30, 1997.
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 for the six months ended June 30, 1996 and 1997 was $81,000
and $397,000, respectively, or 16.1% and 37.1%, respectively, of income before
income taxes. The increase in the 1997 effective income tax rate over that of
1996 was primarily due a charitable contribution recognized for tax purposes but
not for financial reporting in the first six months of 1996.
14
<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
Not applicable.
ITEM 5 - OTHER INFORMATION
Effective April 18, 1997, the Company filed an amendment to its Certificate of
Incorporation with the Delaware Secretary of State reducing the number of shares
of its authorized common stock, $.01 par value per share, from 8,000,000 shares
to 4,000,000 shares.
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.
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended June 30, 1997.
15
<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 August 15, 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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<PERIOD-END> JUN-30-1997
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