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, 1998
----------------------------
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 May 14, 1998.
i
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
March 31, 1998
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 AND USE OF PROCEEDS 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
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, March 31,
1997 1998
ASSETS
Cash and cash equivalents $ 6,420 $ 9,050
Investment securities available for sale,
at market 7,993 5,505
Mortgage-backed securities, held to maturity,
at cost 1,432 1,336
Loans held for sale, at cost, which approximates
market 223 338
Loans receivable, net 159,535 158,166
Foreclosed real estate 100 100
Premises and equipment, net 3,509 3,537
Federal Home Loan Bank stock, at cost 1,970 1,423
Accrued interest receivable 1,822 1,849
Deferred income taxes 165 151
Other assets 504 373
--------- ---------
TOTAL ASSETS $ 183,673 $ 181,828
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 143,731 $ 133,959
Advances from Federal Home Loan Bank 18,468 26,430
Income taxes currently payable 115 143
Other liabilities 410 508
Total liabilities 162,724 161,040
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 shares issued and outstanding 21 21
Additional paid-in capital 11,375 11,408
Retained earnings - Substantially restricted 13,199 12,871
Unearned employee compensation - ESOP (280) (217)
Unearned employee compensation - MRDP (861) (796)
Net unrealized loss on securities available for sale (2) (4)
Treasury stock, at cost (2,503) (2,503)
Total stockholders' equity 20,949 20,788
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,673 $ 181,828
See accompanying selected notes to consolidated financial statements.
1
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands, except per share
amounts)
Quarter ended
March 31,
1997 1998
INTEREST INCOME:
Loans 3,577 3,540
Mortgage-backed securities 38 28
Investment securities 87 91
Other 78 121
------- -------
Total interest income 3,780 3,780
INTEREST EXPENSE:
Deposits 1,557 1,712
Advances from Federal Home Loan Bank and other 395 338
------- -------
Total interest expense 1,952 2,050
------- -------
NET INTEREST INCOME 1,828 1,730
PROVISION FOR LOAN LOSSES 61 60
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,767 1,670
------- -------
NON INTEREST INCOME:
Loan fees and service charges 117 146
Net gains on sale of loans 12 56
Gains (losses) on real estate owned 2 0
Loss on sale of other assets (2) 0
Other 12 8
------- -------
Total non interest income 141 210
------- -------
NON INTEREST EXPENSES:
Compensation and employee benefits 695 736
Building and occupancy expense 116 133
Data processing expense 88 102
Advertising 39 43
Insurance expense 63 54
Other 166 160
------- -------
Total non interest expenses 1,167 1,228
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 741 652
INCOME TAX EXPENSE (BENEFIT) 283 246
------- -------
NET INCOME (LOSS) $ 458 406
======= =======
BASIC EARNINGS PER SHARE $ 0.24 0.22
======= =======
DILUTED EARNINGS PER SHARE $ 0.23 0.21
======= =======
DIVIDENDS PER SHARE
Regular cash dividends $ 0.13 0.125
Special cash dividends - return of capital - 0.300
------- -------
Total dividends per share $ 0.125 0.425
======= =======
See accompanying selected notes to consolidated financial statements.
2
<PAGE>
<PAGE>
<TABLE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - UNAUDITED (Dollars in thousands)
Net
unrealized
loss on
secur-
ities
Addi- Retained Unearned avail- Total
Common stock tional earnings employee able stock
Issued In treasury paid-in Substantially compensation for holders'
Shares Amount Shares Amount capital restricted ESOP MRDP sale equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance 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
year ended December
31, 1997 - - - - - 1,397 - - - 1,397
Cash dividends - - - - - (870) - - - (870)
Acquisition of
treasury stock - - (79,930) (1,078) - - - - - (1,078)
ESOP shares committed
for release - - - - 41 - 121 - - 162
Common stock grants
to MRDP - - - - - - - - - -
Amortization of
MRDP unearned
compensation - - - - - - - 258 - 258
Increase in un-
realized loss on
securities avail-
able for sale,
net of related
income taxes - - - - - - - - 38 38
--------- ----- -------- ------- ------- ------- ----- ----- --- -------
Balances at December
31, 1997 2,076,969 $ 21 (189,330) $(2,503) $11,375 $13,199 $(280) $(861) $(2) $20,949
Net income for the
quarter ended
March 31, 1998 - - - - - 406 - - - 406
Cash dividends - - - - - (734) - - - (734)
Acquisition of
treasury stock - - - - - - - - - -
ESOP shares committed
for release - - - - 33 - 63 - - 96
Common stock grants
to MRDP - - - - - - - - - -
Amortization of MRDP
unearned compensation - - - - - - - 65 - 65
Increase in unrealized
loss securities
available for sale,
net of related
income taxes - - - - - - - - 6 6
--------- ----- -------- ------- ------- ------- ----- ----- --- -------
Balances at March 31,
1998 2,076,969 $ 210 (189,330) $(2,503) $11,408 $12,871 $(217) $(796) $ 4 $20,788
========= ===== ======== ======= ======= ======= ===== ===== === =======
See accompanying selected notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Quarter ended
March 31,
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 458 $ 406
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 63 72
Provision for loan losses 61 60
Provision for deferred income taxes (benefit) 4 14
Amortization/accretion of premiums/discounts on
investment and mortgage-backed securities 1 (2)
Amortization of deferred loan fees - (26)
Fair market value of ESOP shares committed for release
and charged to employee compensation 98 96
Amortization of unearned compensation - MRDP 64 65
(Gains) losses on real estate owned (5) -
(Increase) decrease in:
Loans held for sale 84 (115)
Accrued interest receivable 27 (27)
Other assets 346 131
Increase (decrease) in:
Income taxes currently payable 30 28
Other liabilities (79) 110
-------- --------
Net cash provided by operating activities 1,152 812
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (6,330) 1,335
Proceeds from sale of:
Investment and mortgage-backed securities - 98
Investment securities - 2,482
Real estate owned 85 -
Proceeds from maturities of:
Investment and mortgage-backed securities 5,050 -
Acquisition of:
Federal Home Loan Bank stock (919) 547
Premises and equipment (58) (100)
-------- --------
Net cash provided by (used in) investing activities (2,172) 4,362
-------- --------
See accompanying selected notes to consolidated financial statements.
4
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Quarter ended
March 31,
1997 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 3,943 (9,772)
Cash dividends paid (234) (734)
Proceeds from FHLB advances 2,962 7,962
Reductions in other borrowings (4,000) -
Acquisition of treasury stock (408) -
------ -------
Net cash provided by (used in) financing activities 2,263 (2,544)
------ -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,243 2,630
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 4,220 6,420
------ -------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $5,463 $ 9,050
====== =======
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Increase (decrease) in net unrealized loss on
securities available for sale $ 8 $ 6
Cash paid during the period for:
Interest $1,948 $ 1,981
See accompanying selected notes to consolidated financial statements.
5
<PAGE>
<PAGE>
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, 1998 and for the
quarter 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, 1997 and 1998 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, 1997 and 1998
interim financial statements. The results of operations for the quarter ended
March 31, 1998 are not necessarily indicative of the operating results for the
full year. The December 31, 1997 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, 1997. Such
Consolidated Statement of Financial condition included therein was audited and
received an unqualified opinion.
NOTE 3 - EARNINGS PER SHARE
Basic and diluted earnings per share are computed based upon the weighted
average common shares outstanding during the period. A reconciliation of the
weighted average of common shares outstanding used in the earnings per share
computation to total shares outstanding follows:
Quarter ended March 31,
----------------------------
1997 1998
---- ----
Common shares outstanding 2,076,969 2,076,969
Treasury shares (107,873) (189,330)
Unreleased ESOP shares (36,336) (23,838)
Options - uncontingent - 5,234
--------- -----------
Basic EPS 1,932,760 1,869,035
Options contingent 22,207 21,056
Unreleased ESOP shares 36,336 23,838
---------- -----------
Diluted EPS 1,991,303 1,913,929
---------- -----------
NOTE 4 - SUBSEQUENT EVENT
On April 15, 1998, the Board of Directors declared a cash dividend of $.125 per
share, payable May 7, 1998 to stockholders of record as of April 27, 1998.
NOTE 5 - COMMITMENTS
At March 31, 1998, the Company had $866,000 of outstanding net loan
commitments, $8.9 million of unused portions on lines of credit, and $182,000
of outstanding letters of credit.
6
<PAGE>
<PAGE>
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, 1997, as well as material changes in results of operations during
the three months ended March 31, 1997 and 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Total assets decreased $1,845,000 from $183,673,000 at December 31, 1997, to
$181,828,000 at March 31, 1998. This decrease is primarily due to loan payoffs.
Investment and Mortgage-backed Securities
The Company did not increase its investments in mortgage-backed securities
during the quarter ended March 31, 1998. The decrease in investment securities
of $2.5 million from $8.0 million at December 31, 1997 to $5.5 million at March
31, 1998 was due to the maturities of investments in U.S. Government and agency
obligations.
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, 1998, increases from loan originations, particularly in
residential mortgages, was offset by the payoff of commercial loans primarily
associated with one borrower; therefore, the balance of net loans has decreased
$1.3 million from $159.8 million at December 31, 1997 to $158.5 million at
March 31, 1998.
A comparison of the Bank's loan portfolio analysis at December 31, 1997 and
March 31, 1998 follows:
12/31/97 3/31/98
----------------- -----------------
Type of Loan Amount Percent Amount Percent
Mortgage loans: ------ ------- ------ -------
Residential $ 75,983 47.6% $ 77,998 49.1%
Commercial 39,141 24.5 36,381 23.0
-------- ----- -------- -----
Total mortgage loans 115,124 72.1 114,379 72.1
Commercial business loans 27,792 17.4 27,388 17.3
Consumer loans 19,978 12.5 19,175 12.1
-------- ----- -------- -----
Total loans 162,894 102.0 160,942 101.5
Less:
Undisbursed loans 1,404 0.9 701 0.4
Unamortized loan fees 148 0.1 113 0.1
Allowance for possible losses 1,584 1.0 1,624 1.0
-------- ----- -------- -----
Net loans receivable $159,758 100.0% $158,504 100.0%
======== ===== ======== =====
7
<PAGE>
<PAGE>
Non performing assets (comprised solely of loans delinquent 90 days or more and
repossessed assets) of $3.2 million as of March 31, 1998, increased $2.0
million from $1.2 million at December 31, 1997. Non performing assets (% of
total nonperforming) at March 31, 1998 include real estate owned (3.1%),
residential mortgage loans (16.5%), commercial real estate loans (64.2%),
commercial business loans (9.5%), and consumer loans (6.7%). At March 31, 1998,
the allowance for loan losses was $1,624,000 and represented 1.02% of total net
loans and 51.1% of non performing assets. The provision for loan losses was
$60,000 for the first quarter 1998 as compared to $61,000 for the comparable
period in 1997.
In the opinion of management, at March 31, 1998, 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 March 31, 1998, the Company had $866,000 of outstanding net loan
commitments, $8.9 million of unused portions on lines of credit, and $182,000
of outstanding letters of credit.
Deposits and FHLB Advances
Deposit balances decreased $9.7 million from $143.7 million at December 31,
1997 to $134.0 at March 31, 1998. The decrease was primarily in certificates of
deposits as the Company had a large block of short term certificates to mature
in the quarter ended March 31, 1998. The Company changed it strategy of paying
aggressive market rates to retain these certificates of deposits to borrowing
long term from the FHLB at a lower interest rate than the market rate for the
certificates of deposits.
At March 31, 1998, savings certificates amounted to $96.6 million, or 72.1%, of
the Company's total deposits, including $68.3 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.
Borrowings from the Federal Home Loan Bank increased $7.9 million from $18.5
million at December 31, 1997, to $26.4 million at March 31, 1998. Funds from
the borrowings from the Federal Home Loan Bank were utilized to replace the
decrease in deposits as mentioned above. At March 31, 1998, the Company had
unused credit availability with the FHLB of $13.6 million.
Stockholders' Equity
At March 31, 1998, aggregate stockholders' equity was $20,788,000 as compared
$20,949,000 at December 31, 1997. The decrease in stockholders' equity from the
payment of $734,000 in regular ($216,000) and special dividends ($518,000) were
partially offset by net income of $406,000. Other net increases of $167,000 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, 1998:
First Southern Percentage of
Bancshares, Inc. (dollars in thousands) adjusted total
Amount assets
Primary capital ratios:
GAAP capital $ 20,788
Adjustments:
Mortgage servicing rights (12)
Net unrealized loss on securities
available for sale (4)
---------
Tier 1 capital 20,772 11.12%
Minimum Tier 1 (leverage) requirement 7,472 4.00
--------- ------
Excess $ 13,300 7.12%
========= ======
8
<PAGE>
<PAGE>
Risk-based capital ratios:
Core (Tier I) capital $ 20,772 14.49%
Minimum core capital 5,733 4.00
--------- ------
Excess $ 15,039 10.49%
========= ======
Risk-based capital $ 22,396 15.63%
Minimum risk-based capital requirement 11,467 8.00
--------- ------
Excess $ 10,929 7.63%
========= ======
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) $ 21,753 15.19%
To be well capitalized under the FDICIA
prompt corrective action provisions 14,320 10.0%
--------- ------
Excess $ 7,433 5.19%
========= ======
Tier 1 capital (to risk-weighted assets) $ 20,129 14.06%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 8,592 6.0%
--------- ------
Excess $ 11,537 8.06%
========= ======
Tier 1 capital (to average assets) $ 20,129 10.80%
To be well capitalized under the FDICIA
prompt corrective action provisions $ 9,320 5.0%
--------- ------
Excess $ 10,809 5.80%
========= ======
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, 1998, the Bank's qualifying
reserves of $1.4 million significantly exceeded the required reserve of
$249,000.
Year 2000 Issue
The Company and Bank are subject to risks associated with the "Year 2000"
software problem, a term which refers to uncertainties about the ability of
various software systems to interpret dates correctly after the beginning of
the Year 2000. The Company has completed an initial study of its computerized
systems and programs including third party servicers, and prepared a plan to
address the Year 2000 problem. The expense to modify and test its computer
programs and systems are estimated to be $50,000 through 1999. The Company's
process of evaluating potential effects of Year 2000 issues on customers of the
Bank is in its early stages, and it is therefore impossible to quantify the
potential adverse effects of incompatible software systems on loan customers.
The failure of a commercial bank to prepare adequately for Year 2000
compatibility could have a significant adverse effect on such customer's
operations and profitability, in turn inhibiting its ability to repay loans in
accordance with their terms. Until sufficient information is accumulated from
customers of the banks
9
<PAGE>
<PAGE>
to enable the Company to assess the degree to which customers' operations are
susceptible to potential problems, the Company will be unable to quantify the
potential losses from loans to commercial customers. 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 2000. 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 MARCH 31, 1997 AND 1998
General
Consolidated net income for the quarter ended March 31, 1998, decreased to
$406,000 from $458,000 in the comparable quarter in 1997. Basic earnings per
share for the first quarter of 1998 were $0.22 as compared to $0.24 for the
comparable period in 1997, and diluted earnings per share for the first quarter
of 1998 were $0.21 as compared to $0.23 for the comparable period in 1997.
Net Interest Income
The first quarter net interest income after provision for loan losses was
$1,670,000, or 5.5% less than the $1,767,000 reported for the comparable period
in 1997, primarily as a result of market increases in interest rates for
certificates of deposits as further explained below.
Interest Income
Interest income for the three months ended March 31, 1998 and 1997 was
consistent at $3.8 million. Increased earnings from a $1.2 million increase, or
0.7% in average interest earning assets in the first quarter of 1998 to $175.7
million over those in the comparable period of 1997 of $174.5 million, were
offset by a decrease in the average yield on interest-earning assets in the
first quarter from 8.66% in 1997 to 8.61% in 1998, primarily related to lower
yields on investment securities and the FHLB overnight account.
Interest on loans receivable remained consistent at $3.5 million between the
first quarter of 1997 and 1998. A decrease in earnings due to a decrease in
first quarter average loan balances of $2.0 million from $162.2 million in 1997
to $160.2 million in 1998, was offset by increased earnings from an increase in
the average yield on total loans from 8.82% in 1997 to 8.84% in 1998. The
increase in yield is due to the changes within the loan portfolio to higher
yielding but inherently riskier commercial mortgage and commercial business
loans.
Interest on mortgage-related securities decreased by $10,000 from $38,000
during the three months ended March 31, 1997 to $28,000 during the same period
in 1998 as a result of the average balance of mortgage-related securities
decreasing by $478,000 during the three months ended March 31, 1998 ($1.4
million) as compared to the three months ended March 31, 1997 ($1.9 million).
Income from the investment securities portfolio increased by $4,000 from
$87,000 during the three months ended March 31, 1997 to $91,000 during the same
period in 1998 as the result of a $446,000 increase in the average balance from
$6.0 million at March 31, 1997 to $6.4 million at March 31, 1998. Additionally,
the average yield on investment securities decreased slightly from 5.80% in the
first quarter of 1997 to 5.67% in the first quarter of 1998 as a result of 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
$43,000 increase in other interest income in the first quarter of 1998 to
$121,000 when compared to the first quarter of 1997 other interest income of
$78,000 is due to an increase in the average balance of the FHLB overnight
account by $3.2 million from $2.9 million in first quarter of 1997 to $6.1
million in the first quarter of 1998, partially offset by a decrease in yields
from 6.82% in the first quarter of 1997 to 6.14% in the first quarter of 1998.
The increase in the average balance of the FHLB overnight account was due to
the temporary investment of borrowings from the FHLB in the first quarter.
10
<PAGE>
<PAGE>
Interest Expense
Interest expense for the first quarter 1998 was $2.1 million compared with $2.0
million for the first quarter of 1997, representing an increase of $98,000 or
5.0%.
Interest on deposits increased $155,000 or 10.0% from $1.6 million in the first
quarter 1997 to $1.7 million in the first quarter of 1998. The increase
reflects a $5.8 million increase in average deposits in the first quarter of
1998 ($141.7 million) as compared to the first quarter of 1997 ($135.9
million), and an increase of 25 basis points or 4.5% in the interest cost on
average deposit balances from 4.58% in the first quarter of 1997 to 4.83% in
the first quarter of 1998. The 1997 increase in average interest cost was
primarily due to increases in prevailing market interest rates between the two
periods, and the Company's then competitive marketing and promotions in
attracting certificates of deposits. The Company changed it strategy of paying
aggressive market rates to retain these certificates of deposits to borrowing
long term from the FHLB at a lower interest rate than the market rate for the
certificates of deposits.
Other interest expense relates to FHLB of Atlanta borrowings which decreased by
$57,000 to $338,000 when compared with the 1997 first quarter total of $395,000
due to a decrease in average borrowings of $3.4 million during the first
quarter of 1998 ($23.4 million) from 1997 average levels of $26.8 million.
Interest costs on borrowed funds was consistent at 5.8% for both of the first
quarters of 1998 and 1997.
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 1998, the Company provided $60,000 for its
anticipated loan losses, as compared to $61,000 for the first quarter in 1997.
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 increased by $69,000 in the first quarter of 1998 to
$210,000 as compared to $141,000 reported in the comparable quarter of 1997.
This decrease was principally the result of a decrease in gains on sale of
loans of $44,000 from $12,000 in the first quarter of 1997 to $56,000 in the
first of 1998, and the increase in loan fees and service charges from $117,000
in the first quarter of 1997 to $146,000 in the first quarter of 1998.
Non-interest Expense.
The first quarter non interest expenses for 1998 were $1,228,000 as compared to
$1,167,000 in 1997, primarily due to increases in employee compensation and
benefits from $695,000 in 1997 to $736,000 in 1998. This increase is primarily
related to the recognition of the ESOP and MRDP plan compensation due to
special dividends in the first quarter of 1998.
Income Taxes
Income tax expense for the first quarter of 1997 and 1998 was $283,000 and
$246,000, respectively. Such amounts represent an estimated effective tax rate
of approximately 38% for 1998 and 1997.
11
<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 AND USE OF PROCEEDS
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 March 31, 1998.
12
<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 May 14, 1998 /s/ Charles L. Frederick, Jr.
------------------ -----------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive
Officer
Date May 14, 1998 /s/ Ms. Glenda Young
------------------ -----------------------------
Ms. Glenda Young
Vice President/Treasurer and Chief
Accounting Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9050
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5505
<INVESTMENTS-CARRYING> 1336
<INVESTMENTS-MARKET> 0
<LOANS> 158166
<ALLOWANCE> 0
<TOTAL-ASSETS> 181828
<DEPOSITS> 133959
<SHORT-TERM> 26430
<LIABILITIES-OTHER> 651
<LONG-TERM> 0
0
0
<COMMON> 21
<OTHER-SE> 20767
<TOTAL-LIABILITIES-AND-EQUITY> 181828
<INTEREST-LOAN> 3540
<INTEREST-INVEST> 119
<INTEREST-OTHER> 121
<INTEREST-TOTAL> 3780
<INTEREST-DEPOSIT> 1712
<INTEREST-EXPENSE> 2050
<INTEREST-INCOME-NET> 1730
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1228
<INCOME-PRETAX> 652
<INCOME-PRE-EXTRAORDINARY> 406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 406
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 0
<LOANS-NON> 3200
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1584
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1624
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1624
</TABLE>
