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, 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: 1,885,179 shares of $.01
par value common stock as of August 4, 1998.
i
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 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 14
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 14
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
ii
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
December 31, June 30,
1997 1998
ASSETS ------ ------
Cash and cash equivalents $6,420 $15,904
Investment securities available for sale, at market 7,993 4,006
Mortgage-backed securities, held to maturity, at cost 1,432 1,191
Loans held for sale, at cost, which approximates market 223 -
Loans receivable, net 159,535 160,876
Foreclosed real estate 100 367
Premises and equipment, net 3,509 3,804
Federal Home Loan Bank stock, at cost 1,970 1,770
Accrued interest receivable 1,822 1,794
Deferred income taxes 165 143
Other assets 504 416
-------- --------
TOTAL ASSETS $183,673 $190,271
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $143,731 $133,135
Advances from Federal Home Loan Bank 18,468 35,392
Income taxes currently payable 115 102
Other liabilities 410 529
-------- --------
Total liabilities 162,724 169,158
-------- --------
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 and
outstanding 21 21
Additional paid-in capital 11,375 11,420
Retained earnings - Substantially restricted 13,199 13,098
Unearned employee compensation - ESOP (280) (202)
Unearned employee compensation - MRDP (861) (688)
Net unrealized gain (loss) on securities available
for sale (2) 5
Treasury stock, at cost (2,503) (2,541)
-------- --------
Total stockholders' equity 20,949 21,113
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $183,673 $190,271
======== ========
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)
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
INTEREST INCOME: ------ ------ ------ ------
Loans 3,729 3,624 7,306 7,164
Mortgage-backed securities 36 25 74 53
Investment securities 53 73 140 164
Other 69 101 147 222
------ ------ ------ ------
Total interest income 3,887 3,823 7,667 7,603
INTEREST EXPENSE:
Deposits 1,574 1,564 3,131 3,276
Advances from Federal Home Loan Bank
and other 482 406 877 744
------ ------ ------ ------
Total interest expense 2,056 1,970 4,008 4,020
------ ------ ------ ------
NET INTEREST INCOME 1,831 1,853 3,659 3,583
PROVISION FOR LOAN LOSSES 60 61 121 121
NET INTEREST INCOME AFTER PROVISION ------ ------ ------ ------
FOR LOAN LOSSES 1,771 1,792 3,538 3,462
------ ------ ------ ------
NON INTEREST INCOME:
Loan fees and service charges 124 174 241 320
Net gains on sale of loans 171 70 183 126
Gains on real estate owned - 2 2 2
Loss on sale of other assets - - (2) -
Other 9 7 21 15
------ ------ ------ ------
Total non interest income 304 253 445 463
------ ------ ------ ------
NON INTEREST EXPENSES:
Compensation and employee benefits 1,282 816 1,977 1,552
Building and occupancy expense 130 147 246 280
Data processing expense 77 107 165 209
Advertising 40 33 79 76
Insurance expense 57 58 120 112
Other 159 161 325 321
------ ------ ------ ------
Total non interest expenses 1,745 1,322 2,912 2,550
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 330 723 1,071 1,375
INCOME TAX EXPENSE 114 280 397 526
------ ------ ------ ------
NET INCOME $ 216 $ 443 $ 674 $ 849
====== ====== ====== ======
BASIC EARNINGS PER SHARE $ 0.11 $ 0.24 $ 0.35 $ 0.45
====== ====== ====== ======
DILUTED EARNINGS PER SHARE $ 0.11 $ 0.24 $ 0.34 $ 0.44
====== ====== ====== ======
DIVIDENDS PER SHARE
Regular cash dividends $0.125 $0.125 $ 0.25 $ 0.25
Special cash dividends $ - $ - $ - $ 0.30
------ ------ ------ ------
Total dividends per share $0.125 $0.125 $ 0.25 $ 0.55
====== ====== ====== ======
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)
Components of Comprehensive Income
---------------------------------------
Net
unrea1-
ized
Retained loss
earnings on
Addi- Subtan- Unearned avail- Total
Common Stock tional tially employee able Compre- Stock-
Issued In treasury paid-in re- compensation for hensive holders'
Shares Amount Shares Amount capital stricted ESOP MRDP sale income equity
------ ------ ------ ------ ------- -------- ---- ----- ---- ------ ------
<S> <C> <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) $11,112 $21,042
Net income
for the
year ended
December 31,
1997 - - - - - 1,397 - - - 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 - - 162 162
Common stock
grants to
MRDP - - - - - - - - - - -
Amortization
of MRDP
unearned
compensation - - - - - - - 258 - 258 258
Increase in
unrealized
loss on
securities
available
for sale,
net of
related
income
taxes - - - - - - - - 38 38 38
--------- --- --------- ---------- ------- ------- ----- ----- --- ------ -------
Net for the
period - - (79,930) (1,078) 41 527 121 25 38 1,855 (93)
--------- --- --------- ---------- ------- ------- ----- ----- --- ------ -------
Balances at
December
31, 1997 2,076,969 $21 (189,330) $ (2,503) $11,375 $13,199 $(280) $(861) $(2) 1,855 $20,949
Net income
for the
quarter
ended June
30, 1998 - - - - - 849 - - - 849 849
Cash dividends - - - - - (950) - - - - (950)
Acquisition of
treasury stock - - (2,460) (38) - - - - - - (38)
ESOP shares
committed
for release - - - - 45 - 78 - - 123 123
Common stock
grants to MRDP - - - - - - - - - - -
Amortization
of MRDP
unearned
compensation - - - - - - - 173 - 173 173
Increase in
unrealized
loss on
securities
available
for sale,
net of
related
income
taxes - - - - - - - - 7 7 7
--------- --- --------- ---------- ------- ------- ----- ----- --- ------ -------
Net for the
period - - (2,460) (38) 45 (101) 78 173 7 1,152 164
--------- --- --------- ---------- ------- ------- ----- ----- --- ------ -------
Balances at
June 30,
1998 2,076,969 $21 (191,790) $2,076,969 $11,420 $13,098 $(202) $(688) $5 12,213 $21,113
========= === ======== ========== ======= ======= ===== ===== == ====== =======
See accompanying selected notes to consolidated financial statements
3
</TABLE>
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Six months ended
June 30,
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ------ ------
Net income $ 674 $ 849
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 127 72
Provision for loan losses 60 121
Provision for deferred income taxes (benefit) (200) 22
Amortization/accretion of premiums/discounts on
investment and mortgage-backed securities (30) (2)
Amortization of deferred loan fees (51) (26)
Fair market value of ESOP shares committed for release
and charged to employee compensation 120 123
Amortization of unearned compensation - MRDP 129 173
(Gains) losses on real estate owned 2 2
(Increase) decrease in:
Loans held for sale 21 223
Accrued interest receivable 156 28
Other assets 558 88
Increase (decrease) in:
Income taxes currently payable 100 (13)
Other liabilities 132 133
------ ------
Net cash provided by operating activities 1,798 1,793
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in total loans (264) (1,436)
Proceeds from sale of:
Investment and mortgage-backed securities 245 243
Investment securities 4,996 3,980
Real estate owned 21 (269)
Proceeds from maturities of:
Investment and mortgage-backed securities - -
Acquisition of:
Federal Home Loan Bank stock (1,513) 200
Premises and equipment (253) (367)
------ ------
Net cash provided by (used in) investing activities 3,232 2,351
------ ------
See accompanying selected notes to consolidated financial statements.
4
<PAGE>
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
Six months ended
June 30,
1997 1998
CASH FLOWS FROM FINANCING ACTIVITIES: ------ ------
Net increase (decrease) in deposit accounts 433 (10,596)
Cash dividends paid (475) (950)
Proceeds from FHLB advances 10,424 16,924
Reductions in other borrowings (3,550) -
Acquisition of treasury stock (582) (38)
------- -------
Net cash provided by (used in) financing activities 6,250 5,340
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,280 9,484
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,220 6,420
------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD $15,500 $15,904
======= =======
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Increase (decrease) in net unrealized loss on
securities available for sale $ 25 $ 7
Loans foreclosed and transferred to real estate owned $ 175 $ 606
Cash paid during the period for:
Interest $ 3,994 $ 3,928
Income taxes $ 275 $ 350
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 June 30, 1998 and for the
quarter and six months 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, 1997 and 1998 interim financial statements included in this
report have been prepared by the Company 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, 1997 and 1998
interim financial statements. The results of operations for the quarter and
for the six months ended June 30, 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 June 30
----------------------
1997 1998
---- ----
Common shares outstanding 2,076,969 2,076,969
Treasury shares (122,813) (189,740)
Unreleased ESOP shares (34,196) (22,278)
Options - uncontingent 983 9,185
--------- ---------
Basic EPS 1,920,943 1,874,136
Options - contingent 21,223 20,547
Unreleased ESOP shares 34,196 22,278
--------- ---------
Diluted EPS 1,976,362 1,916,960
========= =========
NOTE 4 - SUBSEQUENT EVENT
On July 9, 1998, the Company's Board of Directors declared a cash dividend of
$.125 per share, payable July 31, 1998 to stockholders of record as of July
21, 1998.
NOTE 5 - COMMITMENTS
At June 30, 1998, the Company had $1,202,000 of outstanding net loan
commitments, $8.4 million of unused portions on lines of credit, and $35,000
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 and six months ended June 30, 1997 and 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Total assets increased $6,598,000 from $183,673,000 at December 31, 1997, to
$190,271,000 at June 30, 1998. This increase is primarily due to increases in
cash and cash equivalents from increases in borrowings from the FHLB.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company did not increase its investments in mortgage-backed securities
during the six months ended June 30, 1998. The decrease in investment
securities of $4.0 million from $8.0 million at December 31, 1997 to $4.0
million at June 30, 1998 was due to the maturities of investments in U.S.
Government and agency obligations.
LOANS
The principal investing activity of the Bank 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, 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
increased $1.1 million from $159.8 million at December 31, 1997 to $160.9
million at June 30, 1998.
A comparison of the Bank's loan portfolio analysis at December 31, 1997 and
June 30, 1998 follows:
12/31/97 6/30/98
-------------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Mortgage loans:
Residential $ 75,983 47.6% $ 76,980 47.9%
Commercial 39,141 24.5 37,762 23.5
-------- ----- -------- -----
Total mortgage loans 115,124 72.1 114,742 71.4
Commercial business
loans 27,792 17.4 28,509 17.7
Consumer loans 19,978 12.5 20,264 12.6
-------- ----- -------- -----
Total loans 162,894 102.0 163,515 101.7
Less:
Undisbursed loans 1,404 0.9 967 0.6
Unamortized loan fees 148 0.1 92 0.1
Allowance for possible
losses 1,584 1.0 1,580 1.0
-------- ----- -------- -----
Net loans receivable $159,758 100.0% $160,876 100.0%
======== ===== ======== =====
7
<PAGE>
<PAGE>
Non performing assets (comprised solely of loans delinquent 90 days or more
and repossessed assets) of $1.8 million as of June 30, 1998, decreased $1.4
million from $3.2 million at March 31, 1998. Non performing assets at June 30,
1998 include real estate owned ($367,000), residential mortgage loans
($917,000), commercial real estate loans ($25,000), commercial business loans
($438,000), and consumer loans ($95,000). At June 30, 1998, the allowance for
loan losses was $1,580,000 and represented 1.0% of total net loans and 85.8%
of non performing assets. The provision for loan losses was $61,000 for the
second quarter of 1998 and $121,000 for the six months ended June 30, 1998 as
compared to $60,000 and $121,000 for the comparable periods in 1997.
In the opinion of management, at June 30, 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 June 30, 1998, the Company had $1,202,000 of outstanding net loan
commitments, $8.4 million of unused portions on lines of credit, and $35,000
of outstanding letters of credit.
DEPOSITS AND FHLB ADVANCES
Deposit balances decreased $10.7 million from $143.7 million at December 31,
1997 to $133.0 at June 30, 1998. The decrease was primarily in certificates of
deposits as the Company had a large block of short term certificates that
matured in the quarter ended March 31, 1998. The Company changed it strategy
from 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 June 30, 1998, savings certificates amounted to $94.7 million, or 71.1%, of
the Company's total deposits, including $72.9 million which were scheduled to
mature by June 30, 1999. 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 FHLB of Atlanta increased $16.9 million from $18.5 million
at December 31, 1997, to $35.4 million at June 30, 1998. Funds from the
borrowings from the FHLB of Atlanta were utilized to replace the decrease in
deposits, as mentioned above, and increase cash and cash equivalents in
anticipation of loan demand and maturities of savings certificates. At June
30, 1998, the Company had unused credit availability with the FHLB of Atlanta
of $4.6 million.
STOCKHOLDERS' EQUITY
At June 30, 1998, aggregate stockholders' equity was $21,113,000 as compared
$20,949,000 at December 31, 1997. The reduction in stockholders' equity from
the payment of $950,000 in regular and special dividends was offset by net
income of $849,000, and $265,000 of other increases in stockholders' equity
(other comprehensive income) related primarily to the unearned compensation
related to the employee stock benefit 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 June 30, 1998:
FIRST SOUTHERN BANCSHARES, INC. (DOLLARS IN THOUSANDS) PERCENTAGE OF
ADJUSTED TOTAL
AMOUNT ASSETS
Primary capital ratios:
GAAP capital $ 21,113
Adjustments:
Mortgage servicing rights (10)
Net unrealized loss on securities
available for sale (5)
---------
Tier 1 capital 21,098 11.46%
Minimum Tier 1 (leverage) requirement 7,361 4.00
--------- -----
Excess $ 13,737 7.46%
========= =====
8
<PAGE>
<PAGE>
Risk-based capital ratios:
Core (Tier I) capital $ 21,098 14.50%
Minimum core capital 5,822 4.00
--------- -----
Excess $ 15,276 10.50%
========= =====
Risk-based capital $ 22,678 15.58%
Minimum risk-based capital
requirement 11,644 8.00
--------- -----
Excess $ 11,034 7.58%
========= =====
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) $ 22,316 15.34%
To be well capitalized under the
FDICIA prompt corrective action
provisions 14,548 10.0%
--------- -----
Excess $ 7,768 5.34%
========= =====
Tier 1 capital (to risk-weighted
assets) $ 20,736 14.25%
To be well capitalized under the
FDICIA prompt corrective action
provisions $ 8,731 6.0%
--------- -----
Excess $ 12,005 8.25%
========= =====
Tier 1 capital (to average assets) $ 20,736 11.28%
To be well capitalized under the
FDICIA prompt corrective action
provisions $ 9,191 5.0%
--------- -----
Excess $ 11,545 6.28%
========= =====
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 of Atlanta
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 complied with this requirement. At June 30, 1998, the Bank's
qualifying reserves of $1.4 million significantly exceeded the required
reserve of $277,000.
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
9
<PAGE>
<PAGE>
ability to repay loans in accordance with their terms. Until sufficient
information is accumulated from customers of the banks 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. Bancshares contingency plan includes the
use of alternative vendors, another bank's system or manual entry until an
acceptable alternative is established. 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 JUNE 30, 1997 AND 1998
GENERAL
Consolidated net income for the quarter ended June 30, 1998, increased to
$443,000 from $216,000 in the comparable quarter in 1997. Basic earnings per
share for the second quarter of 1998 was $0.24 as compared to $0.11 for the
comparable period in 1997, and diluted earnings per share for the second
quarter of 1998 was $0.24 as compared to $0.12 for the comparable period in
1997.
NET INTEREST INCOME
The second quarter net interest income after provision for loan losses was
$1,792,000, as compared to the $1,771,000 reported for the comparable period
in 1997, primarily as a result of an increase in average loan yield as further
explained below.
INTEREST INCOME
Interest income for the quarter ended June 30, 1998, decreased to $3.8 from
$3.9 in the comparable quarter in 1997. The decrease in earnings was primarily
related to the $6.1 million decrease, or 3.4%, in average interest earning
assets in the second quarter of 1998 to $173.0 million as compared to $179.1
million in 1997. This decrease was partially offset by an increase in the
average yield on interest-earning assets in the first quarter from 8.68% in
1997 to 8.84% in 1998, primarily related to higher yielding loans as explained
below.
Interest on loans for the quarter ended June 30, 1998, decreased to $3.6 from
$3.7 in the comparable quarter in 1997. The decrease in earnings due to a
decrease in second quarter average loan balances of $7.5 million from $168.0
million in 1997 to $160.5 million in 1998, was partially offset by increased
earnings from an increase in the average yield on total loans from 8.88% in
1997 to 9.03% in 1998. The increase in yield is due to the changes in the
composition of the loan portfolio to higher yielding but inherently riskier
commercial mortgage loans, commercial business loans, and consumer loans.
Interest on mortgage-related securities decreased by $11,000 from $36,000
during the three months ended June 30, 1997 to $26,000 during the same period
in 1998 as a result of the average balance of mortgage-related securities
decreasing by $511,000 during the three months ended June 30, 1998 ($1.3
million) as compared to the three months ended June 30, 1997 ($1.8 million).
Income from the investment securities portfolio increased by $20,000 from
$53,000 during the three months ended June 30, 1997 to $73,000 during the same
period in 1998 as the result of the increase in the average yield on
investment securities from 3.6% in the second quarter of 1997 to 5.8% in the
second quarter of 1998 as certain bonds in the portfolio were called in 1997.
Other interest income is comprised of earnings on the overnight account at the
FHLB of Atlanta, FHLB dividends, FHLB time deposits, and earnings on money
market funds. The $32,000 increase in other interest income in the second
quarter of 1998 to $101,000 when compared to the second quarter of 1997 other
interest income of $69,000 is due to an increase in the average balance of the
FHLB overnight account by $3.8 million from $1.0 million in second quarter of
1997 to $4.8 million in the second 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 second quarter.
10
<PAGE>
<PAGE>
INTEREST EXPENSE
Interest expense for the second quarter 1998 was $2.0 million compared with
$2.1 million for the second quarter of 1997, representing an increase of
$86,000 or 4.2%.
Interest on deposits remained consistent at $1.6 million in the second quarter
1998 and 1997. Average deposits in the second quarter of 1998 were $133.7
million as compared to the second quarter of 1997 of $134.8 million. The
interest cost on average deposit balances was 4.68% in the second quarter of
1998 and 4.67% in the second quarter of 1997.
Other interest expense relates to FHLB of Atlanta borrowings which decreased
by $76,000 to $406,000 when compared with the 1997 second quarter total of
$482,000 due to a decrease in average borrowings from $32.3 million in the
second quarter of 1997 to $28.3 million in the second quarter of 1998. In
addition, interest costs on borrowed funds decreased from 5.88% in 1997 to
5.73% in the second quarter of 1998.
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 1998, the Company provided $61,000 for
its anticipated loan losses, as compared to $60,000 for the second 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 decreased by $51,000 in the second quarter of 1998 to
$253,000 as compared to $304,000 reported in the comparable quarter of 1997.
This decrease was principally the result of a decrease in gains on sale of
loans of $101,000 from $171,000 in the second quarter of 1997 to $70,000 in
the second quarter of 1998. Portfolio loan sales were curtailed as the Bank
had excess funds from the additional borrowings from the FHLB of Atlanta. The
decrease in gains on sale of loans was partially offset by an increase in loan
fees and service charges from $124,000 in the second quarter of 1997 to
$174,000 in the second quarter of 1998. This increase is due largely to the
increased activity in refinanced loans resulting from lower mortgage rates.
NON-INTEREST EXPENSE
The second quarter non interest expenses for 1998 decreased $423,000 to
$1,322,000 from $1,745,000 in the second quarter 1997. The decrease is
primarily related to the decrease in employee compensation and benefit
expense, as in the second quarter of 1997 the Company recognized the expense
for the planned termination of the defined benefit retirement plan.
INCOME TAXES
Income tax expense for the second quarter of 1997 and 1998 was $114,000 and
$280,000, respectively. Such amounts represent an estimated effective tax rate
of approximately 38% for 1998 and 34.5% for 1997.
COMPARISON OF OPERATING RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
GENERAL
Consolidated net income for the six months ended June 30, 1998, increased 26%
to $849,000 from $674,000 for the comparable six months in 1997. Basic
earnings per share for the six months ended June 30, 1998, was $0.45 as
compared to $0.35 for the comparable period in 1997, and diluted earnings per
share for the six months ended June 30, 1998 was $0.44 as compared to $0.34
for the comparable period in 1997.
11
<PAGE>
<PAGE>
NET INTEREST INCOME
For the six months ending June 30, 1998, net interest income after provision
for loan losses decreased to $3,462,000 from $3,538,000 reported for the
comparable period in 1997. Increases in the average yield on loans of 0.09%
from 8.85% for the six months ended June 30, 1997 to 8.94% for the six months
ended June 30, 1998, as a result of the increase within the loan portfolio to
higher yielding commercial mortgage and business loans, was offset by the
decrease in average net loans and an increase in interest expense, as further
discussed below.
INTEREST INCOME
Interest income for the six months ended June 30, 1998 was $7.6 million
compared with $7.7 million for the six months ended June 30, 1997,
representing an decrease of $64,000 or 0.8%. The decrease was primarily
attributable to an decrease of $2.5 million, or 1.4%, in average interest
earning assets in the first six months of 1998 to $174.3 million as compared
to $176.8 in 1997, primarily due to a reduction in average net loans.
Partially offsetting this decrease was an increase in the average yield on
interest-earning assets from 8.67% for the six months ended June 30, 1997 to
8.72% for the six months ended June 30, 1998, as a result of the increase
within the loan portfolio to higher yielding but inherently riskier commercial
mortgage loans, commercial business loans, and consumer loans.
Interest on loans decreased $142,000 to $7.2 million during the six months
ended June 30, 1998 as compared to the same period in 1997 ($7.3 million). The
decrease was primarily attributable to an decrease of $4.8 million in average
loan balances in the first six months of 1998 ($160.3 million) from the
comparable period in 1997 ($165.1 million). The decrease was partially offset
as the average yield on total loans increased from 8.85% in the first six
months of 1997 to 8.94% during the first six months of 1998, 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 $21,000 from $74,000
during the six months ended June 30, 1997 to $53,000 during the same period in
1998 as a result of the average balance of mortgage-related securities
decreasing by $494,000 during the six months ended June 30, 1998 ($1.3
million) as compared to the six months ended June 30, 1997 ($1.8 million).
Additionally, the average yield from such securities decreased from 8.13% in
the first six months of 1997 to 8.06% in the first six months of 1998 as a
result of payoffs in the mortgage-related securities.
Income from the investment securities portfolio increased by $24,000 from
$140,000 during the six months ended June 30, 1997 to $164,000 during the same
period in 1998 as the result of the average yield on investment securities
increasing from 4.70% in the first six months of 1997 to 5.73% in the first
six months of 1998 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, FHLB time deposits, and earnings on money
market funds. The $75,000 increase in other interest income in the first six
months of 1998 to $222,000 when compared to the first six months of 1997 other
interest income of $147,000 is due to the increased interest earnings on the
FHLB overnight and on money market funds due to a increase in average invested
balances from $1.9 million in the first six months of 1997 to $5.4 million in
the comparable 1998 period. The increase was partially offset by a decrease in
FHLB dividends from $75,000 during the first six months of 1997 to $53,000 in
the first six months of 1997.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1998 of $4.0 million was
consistent with the comparable period in 1997. Interest on deposits for the
six months ended June 30, 1998 was $3.3 million compared with $3.1 million for
the six months ended June 30, 1997, representing an increase of $145,000 or
4.6%. The increase is due to a $2.4 million increase in average deposits in
the first six months of 1998 ($137.7 million) as compared to the first six
months of 1997 ($135.3 million). In addition, the 1998 average interest cost
increased to 4.76% from 4.63% in the comparable period of 1997.
Other interest expense relates to FHLB of Atlanta borrowings that decreased by
$133,000 to $744,000 when compared with the 1997 first six months total of
$877,000 due to an decrease in average borrowings to $25.9 million during the
six months ended June 30, 1998 from $29.6 million in the six months ended June
30, 1997. In addition, interest costs on average FHLB advances decreased from
5.82% in 1997 to 5.75% in 1998 as a consequence of the adjustable rate nature
of the majority of the FHLB of Atlanta borrowings.
12
<PAGE>
<PAGE>
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 1998 and 1997, the Company provided
$121,000 for its anticipated loan losses. 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 $18,000 in the first six months of 1998 to
$463,000 as compared to $445,000 reported in the comparable six months of
1997. This increase was the result of an increase in loan and service fees of
$79,000 from $241,000 in the first six months of 1997 as compared to $320,000
for the comparable period in 1998, and the reduction of $57,000 in net gains
on sale of loans in the first six months of 1998 as compared to the comparable
period of 1997. The increase in loan and service fees are due largely to the
increased activity in refinanced loans resulting from lower mortgage rates.
Gain on sale of loans has decresed as portfolio sales of loans were curtailed
as the Bank had excess funds from the additional borrowings from the FHLB of
Atlanta.
NON-INTEREST EXPENSE.
Non-interest expenses decreased $362,000 or 12.4% to $2.6 million for the
first six months of 1998 compared to $2.9 million for the comparable period in
1997. The decrease is primarily related to the decrease in employee
compensation and benefit expense, as in the first six months of 1997, the
Company recognized the expense for the planned termination of the defined
benefit retirement plan.
INCOME TAXES
Income tax expense for the second quarter of 1997 and 1998 was $397,000 and
$526,000, respectively. Such amounts represent an estimated effective tax rate
of approximately 38% for both 1998 and 1997.
13
<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 June 30, 1998.
14
<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 14, 1998 /s/ Charles L. Frederick, Jr.
--------------- --------------------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive Officer
Date August 14, 1998 /s/ Ms. Glenda Young
--------------- --------------------------------------
Ms. Glenda Young
Senior Vice President and
Chief Accounting Officer
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 6014
<INT-BEARING-DEPOSITS> 9890
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4006
<INVESTMENTS-CARRYING> 1191
<INVESTMENTS-MARKET> 1242
<LOANS> 160876
<ALLOWANCE> 1580
<TOTAL-ASSETS> 190271
<DEPOSITS> 133135
<SHORT-TERM> 4000
<LIABILITIES-OTHER> 631
<LONG-TERM> 31392
0
0
<COMMON> 21
<OTHER-SE> 21092
<TOTAL-LIABILITIES-AND-EQUITY> 190271
<INTEREST-LOAN> 7484
<INTEREST-INVEST> 217
<INTEREST-OTHER> 222
<INTEREST-TOTAL> 7603
<INTEREST-DEPOSIT> 3276
<INTEREST-EXPENSE> 4020
<INTEREST-INCOME-NET> 3583
<LOAN-LOSSES> 121
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2550
<INCOME-PRETAX> 1375
<INCOME-PRE-EXTRAORDINARY> 849
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 3.80
<LOANS-NON> 12
<LOANS-PAST> 1463
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1584
<CHARGE-OFFS> 129
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1580
<ALLOWANCE-DOMESTIC> 1063
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 517
</TABLE>
