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 March 31, 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: 1,928,749 shares of $.01
par value common stock as of May 7, 1997.
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 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 12
ITEM 2 - CHANGES IN SECURITIES 12
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 12
ITEM 5 - OTHER INFORMATION 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
ii
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FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, March 31,
1996 1997
ASSETS ------ ------
Cash and cash equivalents $4,220 $5,463
Investment securities available for sale, at market 10,948 5,952
Mortgage-backed securities, held to maturity, at cost 1,887 1,824
Loans held for sale, at cost, which approximates market 232 148
Loans receivable, net 159,486 165,755
Foreclosed real estate 198 118
Premises and equipment, net 3,455 3,450
Federal Home Loan Bank stock, at cost 1,357 2,276
Accrued interest receivable 1,728 1,701
Deferred income taxes 93 89
Other assets 880 534
------ ------
TOTAL ASSETS $184,484 $187,310
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $132,800 $136,743
Advances from Federal Home Loan Bank 25,619 28,581
Other notes payable 4,000 0
Income taxes currently payable 3 33
Deferred income taxes 0 0
Other liabilities 1,020 941
------ ------
Total liabilities 163,442 166,298
------ ------
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;
2,076,969 and shares issued 21 21
Additional paid-in capital 11,334 11,357
Retained earnings - Substantially restricted 12,672 12,896
Unearned employee compensation - ESOP (401) (326)
Unearned employee compensation - MRDP (1,119) (1,055)
Net unrealized loss on securities available for sale (40) (48)
Treasury stock, at cost (1,425) (1,833)
------ ------
Total stockholders' equity 21,042 21,012
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $184,484 $187,310
======= =======
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
March 31,
1996 1997
INTEREST INCOME: ------ ------
Loans $3,374 $3,577
Mortgage-backed securities 58 38
Investment securities 118 87
Other 96 78
------ ------
Total interest income 3,646 3,780
INTEREST EXPENSE:
Deposits 1,587 1,557
Advances from Federal Home Loan Bank and other 250 395
------ ------
Total interest expense 1,837 1,952
------ ------
NET INTEREST INCOME 1,809 1,828
PROVISION FOR LOAN LOSSES 189 61
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,620 1,767
NON INTEREST INCOME:
Loan fees and service charges 89 117
Net gains on sale of loans 36 12
Gains on real estate owned 10 2
Loss on sale of other assets 0 (2)
Other 0 12
------ ------
Total non interest income 135 141
NON INTEREST EXPENSES:
Compensation and employee benefits 578 695
Building and occupancy expense 96 116
Data processing expense 96 88
Advertising 22 39
Insurance expense 109 63
Other 165 166
------ ------
Total non interest expenses 1,066 1,167
------ ------
INCOME BEFORE INCOME TAXES 689 741
INCOME TAX EXPENSE 259 283
------ ------
NET INCOME $430 $458
====== ======
EARNINGS PER SHARE $0.23 $0.24
====== ======
DIVIDENDS PER SHARE $0.125 $0.125
====== ======
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
------ ------ ------ ------ ------- ---------- ---- ---- -------- ------
Balances at December
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31, 1995 2,049,875 20 (49,906) (757) 19,586 14,203 (1,531) 0 (26) 31,495
Net income for the year
ended December 31, 1996 0 0 0 0 0 538 0 0 0 538
Cash dividends 0 0 0 0 (9,056) (2,069) 0 0 0 (11,125)
Acquisition of treasury
stock 0 0 (114,400) (1,501) 0 0 0 0 0 (1,501)
ESOP shares committed
for release 0 0 0 0 347 0 1,130 0 0 1,477
Common stock grants
to MRDP 27,094 1 54,906 833 457 0 0 (1,291) 0 0
Amortization of MRDP
unearned compensation 0 0 0 0 0 0 0 172 0 172
Increase in unrealized loss on
securities available for sale,
net of related income taxes 0 0 0 0 0 0 0 0 (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 three
months ended March
31, 1997 0 0 0 0 0 458 0 0 0 458
Cash dividends 0 0 0 0 0 (234) 0 0 0 (234)
Acquisition of treasury
stock 0 0 (31,420) (408) 0 0 0 0 0 (408)
ESOP shares committed
for release 0 0 0 0 23 0 75 0 0 98
Amortization of MRDP
unearned compensation 0 0 0 0 0 0 0 64 0 64
Increase in unrealized loss on
securities available for sale,
net of related income taxes 0 0 0 0 0 0 0 0 (8) (8)
------ ------ ------ ------ ------- ---------- ---- ---- ------- ------
Balances at March
31, 1997 2,076,969 $21 (140,820)($1,833)$11,357 $12,896 ($326)($1,055) ($48)$21,012
========= ====== ======= ====== ======= ======= ===== ====== ======= ======
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)
Three months ended
March 31,
1996 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $430 $458
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 44 63
Provision for loan losses 189 61
Provision for deferred income taxes (benefit) (79) 4
Amortization/accretion of premiums/discounts on
investment and mortgage-backed securities (1) 1
Amortization of deferred loan fees (46)
Fair market value of ESOP shares committed for
release and charged to employee compensation 69 98
Amortization of unearned compensation - MRDP 64
(Gains) losses on real estate owned (10) (5)
Loss on disposal of premises and equipment 0 0
(Increase) decrease in:
Loans held for sale 625 84
Accrued interest receivable (79) 27
Other assets 421 346
Increase (decrease) in:
Income taxes currently payable 94 30
Other liabilities 7 (79)
------ ------
Net cash provided by operating activities 1,664 1,152
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (6,090) (6,330)
Proceeds from sale of:
Real estate owned 666 85
Premises and equipment 0 0
Proceeds from maturities of:
Investment and mortgage-backed securities 1,320 5,050
Mortgage-backed securities 480
Acquisition of:
Investment and mortgage-backed securities 0
Federal Home Loan Bank stock 0 (919)
Premises and equipment (35) (58)
Capitalized improvements to real estate owned (34) 0
------ ------
Net cash provided by (used in) investing activities (3,693) (2,172)
------ ------
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)
March 31,
1996 1997
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts (251) $3,943
Cash dividends paid (230) (234)
Proceeds from FHLB advances 0 2,962
Proceeds from other borrowings 0 0
Reductions in FHLB advances (38) 0
Reductions in other borrowings (4,000)
Acquisition of treasury stock (76) (408)
------ ------
Net cash provided by (used in) financing activities (595) 2,263
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,624) 1,243
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,971 4,220
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $6,347 $5,463
====== ======
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Loans foreclosed and transferred to real estate owned $723 $0
====== ======
Increase (decrease) in net unrealized loss on
securities available for sale $20 $8
====== ======
Cash paid during the period for:
Income taxes $92 $0
====== ======
Interest $1,829 $1,948
====== ======
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 March 31, 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 March 31, 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 March 31, 1996 and 1997
interim financial statements. The results of operations for the period ended
March 31, 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 - 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 March 31, 1996 and
1997 were 1,844,666 and 1,920,761 shares, respectively.
NOTE 3 - SUBSEQUENT EVENT
On April 16, 1997, the Board of Directors approved a cash dividend of $.125
per share, payable May 8, 1997 to stockholders of record as of April 28, 1997.
NOTE 4 - COMMITMENTS
At March 31, 1997, the Company had commitments to originate variable rate
loans, excluding loans in process but including unused commercial business
lines of credit, of $11.2 million. The Company had no significant commitments
to originate fixed-rate loans at March 31, 1997.
6
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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 three months ended March 31, 1996 and 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Total assets increased $2,826,000 during the first quarter of 1997 from
$184,484,000 at December 31, 1996 to $187,310,000 at March 31, 1997. The
increase was primarily due to the growth in net loans of $6,269,000 from
$159,486,000 at December 31, 1996 to $165,755,000 at March 31, 1997.
CASH AND CASH EQUIVALENTS
Cash and cash equivalent balances increased to $5.5 million at March 31, 1997,
or $1.3 million more than December 31, 1996 balances of $4.2 million. The
increase reflects the net result from the growth in deposits and decrease in
investment securities reduced by the increase in loans.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company did not purchase any investment or mortgage-backed securities
during the quarter ended March 31, 1997. The decrease in investment securities
of $5.0 million from $11.0 million at December 31, 1996 to $6.0 million at
March 31, 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 quarter ended March 31, 1997, net loans increased by 3.9% or $6.3
million, from $159.5 million at December 31, 1996 to $165.8 million at March
31, 1997. The increase in net loan balances results from 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.
Non performing assets (comprised solely of loans delinquent 90 days or more
and repossessed assets) increased as of March 31, 1997 to $2.1 million
compared to $1.6 million at December 31, 1996. The increase is primarily
attributable to one-four family mortgage loans over 90 days past due. At
December 31, 1996, the allowance for loan losses was $1,659,000 and
represented 1.04% of total net loans and 96.4% of non performing assets. At
March 31, 1997, the allowance for loan losses was $1,697,000 and represented
1.02% of total net loans and 80.8% of non performing assets. The provision for
loan losses was $61,000 for the three months ended March 31, 1997 as compared
to $189,000 for the first quarter of 1996. The decrease of $128,000 is a
result of less than estimated loan charge-offs during the quarter ended
December 31, 1997.
In the opinion of management, at March 31, 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.
7
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At March 31, 1997, the Company had loan commitments for variable rate loans
(excluding loans in process) including unused commercial business lines of
credit, of $11.2 million. The Company had no significant commitments for
fixed-rate loans at March 31, 1997.
DEPOSITS AND FHLB ADVANCES
Deposit balances increased $3.9 million from $132.8 million at December 31,
1996 to $136.7 at March 31, 1997. The increase was primarily in certificates
of deposits as the Company continues to be aggressive in its marketing for
deposits through increased rates and advertising.
At March 31, 1997, savings certificates amounted to $99.2 million, or 72.6%,
of the Company's total deposits, including $78.0 million which were scheduled
to mature by March 31, 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.
The Company obtained additional advances from the FHLB during the first
quarter of 1997. At March 31, 1997, the Company had unused credit availability
with the FHLB of $1.4 million. These advances and the increase in deposits
were primarily used to fund the increase in net loans.
STOCKHOLDERS' EQUITY
At March 31, 1997 aggregate stockholders' equity was $21,012,000 as compared
$21,042,000 at December 31, 1996. The increase in stockholders' equity from
net income of $458,000 was offset by the payment of $236,000 in dividends and
the repurchase in the open market of an aggregate of $408,000 of the Company's
common stock and held in treasury acquired under the provisions of the Stock
Repurchase Program. Other net increases of $156,000 in stockholders' equity
related primarily to the unearned employee stock benefit compensation plans.
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 March 31, 1997:
PERCENTAGE OF
FIRST SOUTHERN BANCSHARES, INC. (DOLLARS IN THOUSANDS) ADJUSTED TOTAL
AMOUNT ASSETS
Primary capital ratios:
GAAP capital $ 21,012
Adjustments:
Mortgage servicing rights (8)
Net unrealized loss on securities available
for sale 48
-------
Tier 1 capital 21,052 11.24%
Minimum Tier 1 (leverage) requirement 7,492 4.00
------- -----
Excess $ 13,560 7.24%
======= =====
Risk-based capital ratios:
Core (Tier I) capital $ 21,052 14.35%
Minimum core capital 5,866 4.00
------- -----
Excess $ 15,186 10.35%
======= =====
Risk-based capital $ 22,749 15.51%
Minimum risk-based capital requirement 11,733 8.00
------- -----
Excess $ 11,016 7.51%
======= =====
8
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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) $ 22,417 15.3%
To be well capitalized under the FDICIA
prompt corrective action provisions 14,666 10.0%
-------- -----
Excess $ 7,751 5.3%
======== =====
Tier 1 capital (to risk-weighted assets) $ 20,720 14.1%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 8,800 6.0%
-------- -----
Excess $ 11,920 8.1%
======== =====
Tier 1 capital (to average assets) $ 20,720 11.2%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 9,246 5.0%
-------- -----
Excess $ 11,474 6.2%
======== =====
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) based upon average
daily deposits of the Bank. Since becoming subject to this regulation, the
Bank has fully complied with its requirements. At March 31, 1997, the Bank's
qualifying reserves of $1.1 million significantly exceeded the required
reserve of $227,000.
COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
GENERAL
Consolidated net income for the quarter ended March 31, 1997 increased 6.5% to
$458,000 from $430,000 of net income reported by the Company for the
comparable quarter in 1996. Earnings per share for the first quarter of 1997
were $0.24 as compared to $0.23 for the first quarter of 1996. The 1997
increase of $28,000 was primarily attributable to increases in 1997 net
interest income after provision for loan losses of $147,000 and non-interest
income of $6,000, offset by 1997 increases in non-interest expenses of
$101,000 and increased 1997 income taxes of $24,000.
9
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NET INTEREST INCOME
Net interest income after provision for loan losses for the three months ended
March 31, 1997 was $1,767,000, or 9% greater ($147,000) than the $1,620,000
reported for the comparable period in 1996, primarily as a result of a small
increase in net interest income and a reduction in the provision for loan
losses. The improvement in net interest income was due primarily to an
increase in the net interest spread from 3.49% for the three months ended
March 31, 1996 to 3.68% for the three months ended March 31, 1997, as a result
of the increase within the loan portfolio to higher yielding commercial
mortgage and business loans.
INTEREST INCOME
Interest income for the three months ended March 31, 1997 was $3.8 million
compared with $3.6 million for the three months ended March 31, 1996,
representing an increase of $147,000 or 4.0%. The increase was primarily
attributable to an increase of $4.4 million, or 2.6% in average interest
earning assets in the first quarter of 1997 to $175.4 million over those in
the comparable period of 1996 of $171.0 million as a result of the growth
loans. Also contributing to the increase in interest income was an increase
in the average yield on interest-earning assets from 8.53% for the three
months ended March 31, 1996 to 8.62% for the three months ended March 31,
1997, as a result of the increase within the loan portfolio to higher yielding
commercial mortgage and business loans.
Interest on loans receivable increased $203,000 to $3.6 million during the
three months ended March 31, 1997 as compared to the same period in 1996. The
increase was primarily attributable to an increase of $9.0 million in average
loan balances in the first quarter of 1997 ($162.6 million) from the
comparable period in 1996 ($153.6 million). The increase in average loan
balances was comprised of a $8.6 million increase in the average balances of
non mortgage loans from $65.3 million in 1996 to $73.9 million in 1997, and an
increase in average mortgage loan balances from $88.3 million in 1996 to $88.7
million in 1997. Additionally, the average yield on total loans increased from
8.78% in the first quarter of 1996 to 8.80% during the first quarter of 1997,
as a result of the increase within the loan portfolio to higher yielding
commercial mortgage and business loans.
Interest on mortgage-related securities decreased by $20,000 from $58,000
during the three months ended March 31, 1996 to $38,000 during the same period
in 1997 as a result of the average balance of mortgage-related securities
decreasing by $1.1 million during the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996. The effect of this decrease
in the average balance was partially offset by an increase in 1997 average
yields from such securities from 7.77% in the first quarter of 1996 to 8.19%
in the first quarter of 1997 as a result of investment in higher yielding
mortgage-related securities.
Income from the investment securities portfolio decreased by $31,000 from
$118,000 during the three months ended March 31, 1996 to $87,000 during the
same period in 1997 as the result of a $1.4 million decrease in the portfolio
as a result of sales and maturities from $7.4 million at March 31, 1996 to
$5.9 million at March 31, 1997. Additionally, the average yield on investment
securities decreased slightly from 5.76% in the first quarter of 1996 to 5.73%
in the first 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
$18,000 decrease in other interest income in the first quarter of 1997 to
$78,000 when compared to the first quarter of 1996 other interest income of
$96,000 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 $4.8
million in the first quarter of 1996 to $1.0 million in the comparable 1997
period. FHLB dividends were $24,000 during the first quarter of 1996 as
compared to $28,000 in the first quarter of 1997.
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INTEREST EXPENSE
Interest expense for the three months ended March 31, 1997 was $2.0 million
compared with $1.8 million for the three months ended March 31, 1996,
representing an increase of $115,000 or 6.3%.
Interest on deposits decreased $30,000 or 2.0% from $1.6 million in the first
quarter 1996. The decrease was primarily attributable to a decrease of 15
basis points or 1.9% in the interest cost on average deposit balances from
4.92% in the first quarter of 1996 to 4.77% in the first quarter of 1997,
offset by a $1.6 million increase in average deposits in the first quarter of
1997 ($130.5 million) as compared to the first quarter of 1996 ($129.0
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
$145,000 to $395,000 when compared with the 1996 quarterly total of $250,000
due to an increase in average borrowings of $10.3 million during the three
months ended March 31, 1997 ($27.1 million) from 1996 average levels of $16.8
million. The increase caused by higher average balance was partially offset by
decreased interest costs on borrowed funds of 4.4%, from 5.97% in 1996 to
5.71% 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 quarter of 1997, the Company provided $61,000 for
its anticipated loan losses, as compared to $189,000 for the first 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
decrease of $128,000 in the first quarter 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 March 31,
1997.
NON-INTEREST INCOME.
Non-interest income increased by $6,000 in the first quarter of 1997 to
$141,000 as compared to $135,000 reported in the comparable quarter of 1996.
This increase was principally the result of increases in loan fees and service
charges resulting from a larger growth in loans in the first quarter of 1997
compared to 1996.
NON-INTEREST EXPENSE.
Non-interest expenses increased $101,000, or 9.5% to $1.2 million for the
first quarter of 1997 compared to $1.1 million for the comparable period in
1996. This increase primarily resulted from an increase in expenses relating
to compensation and employee benefits of $117,000 due to salary increases and
compensation expense for the Management Recognition and Development Plan in
1997, which expense was not incurred in the first quarter of 1996.
INCOME TAXES
Income tax expense for the three months ended March 31, 1996 and 1997 was
$259,000 and $283,000, respectively, or 37.6% and 38.2%, respectively, of
income before income taxes. The increase in the 1997 effective income tax rate
over that of 1996 was primarily attributable to the increase in the excess of
the fair value of ESOP shares committed for release over their related cost
basis, which amount is included in total compensation expense for financial
reporting purposes but which may not be deducted from income in determining
taxable income for federal or state income tax purposes.
11
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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 March 31, 1997.
12
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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 May 13, 1997 /s/ Charles L. Frederick, Jr.
--------------- -----------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive Officer
Date May 13, 1997 /s/ Thomas N. Ward
--------------- ------------------
Ms. Glenda Young
Vice President/Treasurer and
Chief Accounting Officer
13
<PAGE>
<PAGE>
EXHIBIT (3a)(i)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
First Southern Bancshares, Inc. ("Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware, does hereby certify:
FIRST: That the board of directors of said Corporation, at a meeting
duly convened and held, adopted a resolution proposing and declaring advisable
the following amendment to the Certificate of Incorporation of said
Corporation:
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by changing Article VII thereof so that, as amended, said Article
shall be and read as follows (amendatory language underlined):
'ARTICLE VII
Capital Stock
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 4,500,000, of which 4,000,000 are
to be shares of common stock, $.01 par value per share, and of which
500,000 are to be shares of serial preferred stock, $.01 par value per
share. The shares may be issued by the Corporation from time to time as
approved by the board of directors of the Corporation without the
approval of stockholders except as otherwise provided in this Article VII
or the rules of a national securities exchange, if applicable. The
consideration for the issuance of the shares shall be paid to or received
by the Corporation in full before their issuance and shall not be less
than the par value per share. The consideration for the issuance of the
shares shall be cash, services rendered, personal property (tangible or
intangible), real property, leases of real property or any combination of
the foregoing. In the absence of actual fraud in the transaction, the
judgment of the board of directors as to the value of such consideration
shall be conclusive. Upon payment of such consideration such shares
shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and
series (if any) of capital stock, and the qualifications, limitations or
restrictions thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders
of the common stock shall exclusively possess all voting power. Each
holder of shares of common stock shall be entitled to one vote for each
share held by such holders.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and sinking fund or
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<PAGE>
retirement fund or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock, then
dividends may be paid on the common stock, and on any class or series of
stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when as
declared by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class having
preference over the common stock in any such event, the full preferential
amounts to which they are respectively entitled, the holders of the
common stock and of any class or series of stock entitled to participate
therewith, in whole or in part, as to distribution of assets shall be
entitled, after payment or provision for payment of all debts and
liabilities of the Corporation, to receive the remaining assets of the
Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with,
all the other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of
serial preferred stock in series and to fix and state the powers,
designations, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof, including, but not limited to
determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series;
2. the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if
so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any,
with respect to dividends;
3. the voting powers, full or limited, if any, of the shares of such
series;
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon
which such shares may be redeemed;
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
6. whether the shares of such series shall be entitled to the benefits
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such
fund and the manner of its application, including the price or
prices at which such shares may be redeemed or purchased through the
application of such funds;
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange
may be made, and any other terms and conditions of such
conversion or exchange;
8. the subscription or purchase price and form of consideration for
which the shares
<PAGE>
<PAGE>
of such series shall be issued; and
9. whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same
series.'"
SECOND: That thereafter, pursuant to a resolution of its board of
directors, at the annual meeting of the stockholders of said corporation a
majority of the outstanding shares of common stock (there being no other class
of capital stock outstanding) was voted in favor of the amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 of the General Corporation Law of
the State of Delaware.
* * *
<PAGE>
<PAGE>
IN WITNESS WHEREOF, said First Southern Bancshares, Inc. has caused this
certificate to be signed by Charles L. Frederick, Jr., its President and Chief
Executive Officer, and M. Kaye Townsend, its Secretary, its authorized
officers, this 16th day of April 1997.
By: /s/Charles L. Frederick, Jr.
----------------------------
Charles L. Frederick, Jr.
President
By: /s/M. Kaye Townsend
-------------------
M. Kaye Townsend
Secretary
[SEAL]
<PAGE>
<PAGE>
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<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3121
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<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5952
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<INVESTMENTS-MARKET> 1875
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<ALLOWANCE> 1697
<TOTAL-ASSETS> 187310
<DEPOSITS> 136743
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<LIABILITIES-OTHER> 941
<LONG-TERM> 28581
0
0
<COMMON> 21
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<TOTAL-LIABILITIES-AND-EQUITY> 187310
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<EXPENSE-OTHER> 1167
<INCOME-PRETAX> 741
<INCOME-PRE-EXTRAORDINARY> 458
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<NET-INCOME> 458
<EPS-PRIMARY> 0.24
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<YIELD-ACTUAL> 4.18
<LOANS-NON> 504
<LOANS-PAST> 1451
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 1659
<CHARGE-OFFS> 23
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