<PAGE>
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, 2000
--------------
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)
(256) 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: 1,264,126 shares of $.01 par
value common stock as of May 5, 2000.
i
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
March 31, 2000
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
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
</TABLE>
ii
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED (In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,906 $ 7,834
Investment securities available for sale, at market 4,408 4,391
Mortgage-backed securities, held to maturity, at cost 3,527 3,478
Loans held for sale, at cost, which approximates market 80 337
Loans receivable, net 155,738 155,472
Foreclosed real estate and other assets 918 1,329
Premises and equipment, net 3,663 3,593
Federal Home Loan Bank stock, at cost 1,685 1,731
Accrued interest receivable 1,855 1,835
Deferred income taxes 592 453
Other assets 426 205
---------- ----------
TOTAL ASSETS $ 178,798 $ 180,658
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 126,870 $ 129,574
Advances from Federal Home Loan Bank 33,665 34,627
Other notes payable 2,000 500
Securities sold under agreement to repurchase 1,487 1,489
Income taxes currently payable 183 169
Other liabilities 624 694
---------- ----------
Total liabilities 164,829 167,053
---------- ----------
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 11,425 11,428
Retained earnings - Substantially restricted 13,856 13,970
Unearned employee compensation - ESOP (112) (91)
Unearned employee compensation - MRDP (290) (236)
Net unrealized gain (loss) on securities available for sale (104) (115)
Treasury stock, at cost (10,827) (11,372)
---------- ----------
Total stockholders' equity 13,969 13,605
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 178,798 $ 180,658
========== ==========
</TABLE>
See accompanying selected notes to consolidated financial statements.
1
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
1999 2000
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans $ 3,242 $ 3,389
Mortgage-backed securities 16 59
Investment securities 38 71
Other 148 53
---------- ----------
Total interest income 3,444 3,572
INTEREST EXPENSE:
Deposits 1,340 1,392
Federal Home Loan Bank advances and other 439 537
---------- ----------
Total interest expense 1,779 1,929
---------- ----------
NET INTEREST INCOME 1,665 1,643
PROVISION FOR LOAN LOSSES 195 158
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,470 1,485
---------- ----------
NON INTEREST INCOME:
Loan fees and service charges 157 150
Net gains on sale of loans 78 19
Gains(losses) on real estate owned - 5
Loss on sale of investments - -
Other 12 11
---------- ----------
Total non interest income 247 185
---------- ----------
NON INTEREST EXPENSES:
Compensation and employee benefits 712 724
Building and occupancy expense 140 171
Data processing expense 90 108
Advertising 38 40
Insurance expense 42 29
Other 158 154
---------- ----------
Total non interest expenses 1,180 1,226
---------- ----------
INCOME BEFORE INCOME TAXES 537 444
INCOME TAX EXPENSE 213 169
---------- ----------
NET INCOME $ 324 $ 275
========== ==========
BASIC EARNINGS PER SHARE $ 0.20 $ 0.22
========== ==========
DILUTED EARNINGS PER SHARE $ 0.19 $ 0.21
========== ==========
DIVIDENDS PER SHARE
Regular cash dividends $ 0.125 $ 0.125
Special cash dividends $ - $ -
---------- ----------
Total dividends per share $ 0.125 $ 0.125
========== ==========
</TABLE>
See accompanying selected notes to consolidated financial statements.
2
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - UNAUDITED ( In thousands)
<TABLE>
<CAPTION>
Common stock
-----------------------------------------------------
Issued In treasury Additional
--------------------- ------------------------- paid-in
Shares Amount Shares Amount capital
-------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 2,076,969 $ 21 (408,262) $ (6,056) $ 11,414
Net income for the year
ended December 31, 1999 - - - - -
Change in net unrealized gain
(loss) on securities available
for sale, net of reclassification
adjustments and tax effects - - - - -
Total comprehensive income - - - - -
Cash dividends - - - - -
Options exercised - - 936 11 (1)
Acquisition of treasury stock - - (356,272) (4,782) -
ESOP shares committed
for release - - - - 12
Common stock grants
to MRDP - - - - -
Amortization of MRDP
unearned compensation - - - - -
--------- ------- --------- -------- ---------
Net for the period - - (355,336) (4,771) 11
--------- ------- --------- -------- ---------
Balances at December 31, 1999 2,076,969 $ 21 (763,598) $ (10,827) $ 11,425
Net income for the quarter
ended March 31, 2000 - - - - -
Change in net unrealized gain
(loss) on securities available
for sale, net of reclassification
adjustments and tax effects - - - - -
Total comprehensive income - - - - -
Cash dividends - - - - -
Options exercised - - - - -
Acquisition of treasury stock - - (45,545) (545) -
ESOP shares committed
for release - - - - 3
Common stock grants
to MRDP - - - - -
Amortization of MRDP
unearned compensation - - - - -
--------- ------- ---------- --------- ---------
Net for the period - - (45,545) (545) 3
--------- ------- ---------- --------- ---------
Balances at March 31, 2000 2,076,969 $ 21 $ (809,143) $ (11,372) $ 11,428
========= ======= ========== ========= =========
<CAPTION>
Accumulated
Retained Unearned other Total
earnings employee compre- stock-
Substantially compensation hensive holders'
restricted ESOP MRDP income equity
------------- ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $ 13,340 $ (172) $ (550) $ 11 $ 18,008
Net income for the year
ended December 31, 1999 1,246 - - - 1,246
Change in net unrealized gain
(loss) on securities available
for sale, net of reclassification
adjustments and tax effects - - - (115) (115)
---------
Total comprehensive income - - - 1,131
---------
Cash dividends (730) - - - (730)
Options exercised - - - - 10
Acquisition of treasury stock - - - - (4,782)
ESOP shares committed
for release - 60 - - 72
Common stock grants
to MRDP - - - - -
Amortization of MRDP
unearned compensation - - 260 - 260
-------- ------- -------- ------- --------
Net for the period 516 60 260 (115) (4,039)
-------- ------- -------- ------- --------
Balances at December 31, 1999 $ 13,856 $ (112) $ (290) $ (104) $ 13,969
Net income for the quarter
ended March 31, 2000 275 - - - 275
Change in net unrealized gain
(loss) on securities available
for sale, net of reclassification
adjustments and tax effects - - - (11) (11)
---------
Total comprehensive income - - - 264
---------
Cash dividends (161) - - - (161)
Options exercised - - - - -
Acquisition of treasury stock - - - - (545)
ESOP shares committed
for release - 21 - - 24
Common stock grants
to MRDP - - - - -
Amortization of MRDP
unearned compensation - - 54 - 54
-------- ------- -------- ------- --------
Net for the period 114 21 54 (11) (364)
-------- ------- -------- ------- --------
Balances at March 31, 2000 $ 13,970 $ (91) $ (236) $ (115) $ 13,605
======== ======= ======== ======= ========
</TABLE>
See accompanying selected notes to consolidated financial statements
3
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1999 2000
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 324 $ 275
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 79 83
Provision for loan losses 195 158
Provision for deferred income taxes (benefit) (2) 139
Amortization/accretion of premiums/discounts on investment
and mortgage-backed securities 8 (1)
Amortization of deferred loan fees (26) (10)
Fair market value of ESOP shares
committed for release and charged to
employee compensation 20 24
Amortization of unearned compensation - MRDP 60 54
(Gains) losses on real estate owned - 5
(Increase) decrease in:
Loans held for sale 303 (257)
Accrued interest receivable 190 20
Other assets (12) 222
Increase (decrease) in:
Income taxes currently payable (10) (14)
Other liabilities (617) 71
------- ------
Net cash provided by operating activities 512 769
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Total loans 2,046 118
Proceeds from maturity of:
Mortgage-backed securities 206 50
Investment securities 2 6
Real estate owned (442) (416)
Acquisition of:
Federal Home Loan Bank stock - (46)
Premises and equipment (14) (13)
------- ------
Net cash provided by (used in) investing activities $ 1,798 $ (301)
======= ======
</TABLE>
See accompanying selected notes to consolidated financial statements.
4
<PAGE>
FIRST SOUTHERN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1999 2000
-------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 1,020 2,704
Cash dividends paid (189) (161)
Proceeds from (reduction in) FHLB advances (38) 962
Proceeds from other borrowings 300 (1,500)
Proceeds from securities sold under agreement to repurchase - -
Acquisition of treasury stock, net (267) (545)
-------- -------
Net cash provided by (used in) financing activities 826 1,460
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,136 1,928
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 13,188 5,906
-------- -------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 16,324 $ 7,834
======== ========
SUPPLEMENTAL INFORMATION FOR CASH FLOW:
Noncash transactions:
Increase (decrease) in net unrealized loss on securities
available for sale $ (2) $ 11
Loans foreclosed and transferred to real estate owned $ 127 $ 443
Cash paid during the period for:
Interest $ 1,791 $ 1,934
Income taxes $ - $ -
</TABLE>
See accompanying selected notes to consolidated financial statements.
5
<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, 2000 and for the
three 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 March 31, 1999 and 2000 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 March 31, 1999 and 2000 interim financial
statements. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the operating results for the full year. The
December 31, 1999 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, 1999. Such Consolidated Statement of
Financial Condition included therein was audited and received an unqualified
opinion.
NOTE 2 - 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:
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 2000
--------- ---------
<S> <C> <C>
Common shares outstanding 2,076,969 2,076,969
Treasury shares (419,929) (798,413)
Unreleased ESOP shares (17,163) (12,576)
Options-uncontingent 4,537 -
--------- ---------
Basic EPS 1,644,414 1,265,980
Options-contingent 2,935 -
Unreleased ESOP shares 17,163 12,576
--------- ---------
Diluted EPS 1,644,512 1,278,556
--------- ---------
</TABLE>
NOTE 3 - SUBSEQUENT EVENT
On April 19, 2000, the Company's Board of Directors declared a cash dividend of
$.125 per share, payable May 11, 2000 to stockholders of record as of May 1,
2000.
NOTE 4 - COMMITMENTS
At March 31, 2000, the Company had $ 1.3 million of outstanding net loan
commitments, $10.9 million of unused portions on lines of credit, and $10,000 of
outstanding letters of credit.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First Southern Bancshares, Inc. ("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 consolidated operating results of the Company include those of the Bank and
Bancshares. All significant intercompany transactions and balances have been
eliminated in consolidation. The operating results of the Company depend
primarily on net interest income, which is the difference between interest
income on interest-earning assets, primarily loans and investment securities,
and interest expense on interest-bearing liabilities, primarily deposits and
advances from Federal Home Loan Bank ("FHLB") and other financial institutions.
Net earnings are also effected by non-interest income and non-interest expenses,
such as compensation and benefits, building and occupancy expense, and
provisions for federal and state taxes.
The discussion and analysis included herein covers those material changes in
financial condition, liquidity and capital resources that have occurred since
December 31, 1999, as well as certain material changes in results of operations
during the three months ended March 31, 1999 and 2000.
Forward-looking Statements Safe-harbor Statement
This report may contain forward-looking statements that are subject to numerous
assumptions, risks and uncertainties. Statements pertaining to future periods
are subject to uncertainty because of the possibility of changes in underlying
factors and assumptions. Actual results could differ materially from those
contained in or implied by such forward-looking statements for a variety of
factors including: sharp and rapid changes in interest rates; significant
changes in the economic scenario from the current anticipated scenario which
could materially change anticipated credit quality trends and the ability to
generate loans; significant delay in or inability to execute strategic
initiatives designed to grow revenues and/or control expenses; and significant
changes in accounting, tax or regulatory practices or requirements. Because of
the risks and uncertainties inherent in forward-looking statements, readers are
cautioned not to place undue reliance on them, whether included in this report
or made elsewhere from time to time by the Company or on its behalf. The
company assumes no obligation to update any forward-looking statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Management's current strategy is to continue with its stock repurchase program
and maintain its current market share of loans and deposits within its lending
area. This strategy was prompted by the lack of growth in the Company's primary
lending area and the increased competition with other banks. Due to the lack of
economic growth, many competitor banks have offered low rates to the Company's
loan customers that the Company was unwilling to match due to the low interest
yield commitment over the long term. The same holds true for deposits as
competitor banks are offering aggressive rates that are higher than the interest
cost to the Company of borrowing from the FHLB. Therefore management decided to
retain loans or originate and retain new loans that have a satisfactory long
term yield, and to offer competitive rates for deposits while maintaining an
acceptable interest spread. As a result of this strategy, average interest
earning assets have been constant at $166.1 million at March 31, 1999 and $166.3
million at March 31, 2000. Average interest bearing liabilities have increased
from $152.6 million at March 31, 1999 to $159.1 million at March 31, 2000, due
to an increase in deposits and borrowings from the Federal Home Loan Bank of
Atlanta. As planned, the interest spread between the average yield on the
average interest earning assets and the average cost on average interest bearing
liabilities has increased from 3.64% in the first quarter of 1999 to 3.74% in
the first quarter of 2000, as the average yield on interest earning assets is
increasing faster than the average cost of debt. This is due to the fact that a
large portion of our interest bearing liabilities have interest rates that are
fixed for a period of time, and therefore, do not change as rapidly as the
market. Increases in the average yield on interest earning assets are related to
increases in the Federal funds rate set by the Federal Reserve Bank. The Federal
Reserve has increased its Federal funds rate by a quarter point, five times for
a total of 125 basis points since June 1999.
The interest margin has decreased from 4.01% for the first quarter of 1999 to
3.95% for the first quarter of 2000. This decrease is primarily related to the
decrease in the ratio of average interest earning assets over interest bearing
liabilities from
7
<PAGE>
108.8% in the first quarter of 1999 to 104.6% in the first quarter of 2000. The
decrease in this ratio is attributable to the additional debt incurred in
connection with the stock repurchase program.
Cash and cash equivalents
Cash and cash equivalents at March 31, 2000 of $7.8 million had increased $1.9
million from $5.9 million at December 31, 1999. A discussed below, the primary
source of this increase in the first quarter of 2000 was the increase in
deposits of $2.7 million. The changes in the sources and uses of cash related
to operating, investing and financing activities are disclosed in the Company's
"Consolidated Statements of Cash Flows".
Investments and mortgage-backed securities
The Company did not increase its investments in mortgage-backed securities
during the first quarter 2000. The decrease in mortgage-backed securities held
to maturity of $50,000 from December 31, 1999 to March 31, 2000 was primarily
due to the maturity of investment securities.
Loans
The primary investing activity of the Company is the origination of residential
mortgage loans, commercial business and 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. The balance of
net loans at March 31, 2000 was consistent with the balance of $155.8 million at
December 31, 1999.
The loan portfolio composition is changing as the result of management's
continued efforts to expand and diversify the Company's loan portfolio into
higher yielding commercial mortgage loans, commercial business loans, and
consumer loans. These types of loans are inherently riskier than residential
mortgage loans. A comparison of the Bank's loan portfolio analysis at December
31, 1999 and March 31, 2000 follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- -----------------
Amount Percent Amount Percent
-------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential $ 64,057 41.1% $ 63,450 40.7%
Commercial 34,259 22.0 34.417 22.0
-------- ------- -------- -------
Total mortgage loans 98,316 63.1 97,867 62.7
Commercial business loans 36,332 23.3 37,145 23.9
Consumer loans 23,317 15.0 23,263 15.0
-------- ------- -------- -------
Total loans 157,965 101.4 158,275 101.6
Less:
Undisbursed loans 675 0.4 925 .6
Unamortized loan fees 72 0.1 71 .1
Allowance for possible losses 1,400 0.9 1,470 .9
-------- ------- -------- -------
Net loans receivable $155,818 100.0% $155,809 100.0%
======== ===== ======== =====
</TABLE>
The composition of the Company's loan portfolio continues to reflect the market
served by the Bank's primary lending area. Mortgage loans decreased in volume
and percentage of the portfolio as the Company has not been inclined to invest
in low yielding loans for the long term.
8
<PAGE>
At March 31, 2000, the Company had no significant commitments to originate
fixed-rate loans. At March 31, 2000, the Company had commitments to originate
variable rate loans, including unused commercial business lines of credit, and
standby letters of credit as follows (in thousands):
Commitments to extend credit $ 1,259
Unused lines of credit $10,891
Standby letters of credit $ 10
Non performing Assets
Non performing assets of $3.3 million as of March 31, 2000, increased slightly
from $3.2 million at December 31, 1999. Non performing assets at March 31,
2000, include $1.3 million of real estate owned and other foreclosed assets, and
$2.0 million of loans on nonaccrual or 90 days delinquent. At March 31, 2000,
the allowance for loan losses was $1.5 million and represented 0.9% of total net
loans and 44.3% of non performing assets.
Deposits, FHLB advances and other notes payable
Deposit balances increased $2.7 million from $126.9 million at December 31, 1999
to $129.6 at March 31, 2000. The increase was primarily in certificates of
deposits. Due to the increase in deposits and the increases in the Federal
funds rate mentioned above, the interest rate paid on the average balance of
deposits increased from 4.42% in the first quarter of 1999 to 4.53% in the first
quarter of 2000. There was also an increase in the effective rate paid on the
average outstanding balance of FHLB advances from 5.58% in the first quarter of
1999 to 5.81% in the first quarter of 2000.
At March 31, 2000, savings certificates amounted to $90.3 million, or 69.7%, of
the Company's total deposits, including $68.2 million that were scheduled to
mature by March 31, 2001. Management of the Company believes it has adequate
resources to fund all loan commitments with savings deposits and FHLB of Atlanta
advances and with proceeds from the 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 increased its borrowings from the FHLB by $962,000 to $34.6 million
in the three months ended March 31, 2000, from $33.6 million on December 31,
1999. These funds were primarily used to reduce debt with other banks.
Stockholders' equity
Total stockholders' equity decreased $364,000 to $13.6 million for the first
quarter of 2000, from $14.0 million as of December 31, 1999. The reduction in
stockholders' equity from the payment of $161,000 in dividends, was offset by
net income of $275,000. The Company continued with its Stock Repurchase
Program which was started in 1995. During the first quarter the Company
acquired 45,545 shares at a cost of $545,000 or at an average price per share of
$11.96.
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. Overall, the Company's capital
position remains strong as the ratio of average shareholders' equity to average
assets was 9.63% for 1999 as compared to 7.75% in the first quarter of 2000.
The decrease is primarily related to the acquisition of the Company's stock
through its stock repurchase program.
9
<PAGE>
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,
2000:
<TABLE>
<CAPTION>
Percentage of
adjusted total
Amount assets
-------- --------------
(Dollars in thousands)
<S> <C> <C>
First Southern Bancshares, Inc:
Primary capital ratios:
GAAP capital $13,605
Adjustments:
Mortgage servicing rights 115
Net unrealized loss on securities
available for sale (5)
--------
Tier 1 capital 13,715 7.64%
Minimum Tier 1 (leverage) requirement 7,182 4.00%
-------- -----
Excess $ 6,533 3.64%
======== =====
Risk-based capital ratios:
Core (Tier 1) Capital 13,715 9.50%
Minimum core capital 5,775 4.00%
-------- -----
Excess $ 7,940 5.50%
======== =====
Risk-based capital $15,185 10.52%
Minimum risked-based capital
requirement 11,549 8.00%
-------- -----
Excess $ 3,636 2.52%
======== =====
</TABLE>
Under the FDICIA prompt corrective action provisions applicable to banks, the
most recent notification from the FDIC categorized the Bank as 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.
<TABLE>
<CAPTION>
Percentage of
adjusted total
Amount assets
-------- --------------
(Dollars in thousands)
<S> <C> <C>
First Southern Bank:
Total capital (to risk-weighted assets) $15,380 10.65%
To be well capitalized under the FDICIA
promt corrective action provisions 14,435 10.00%
------- -----
Excess $ 945 0.65%
======= =====
Tier 1 capital (to risk-weighted assets) $13,910 9.64%
To be well capitalized under the FDICIA
prompt corrective action provisions 8,661 6.00%
------- -----
Excess $ 5,249 3.64%
======= =====
Tier 1 capital (to average assets) $13,910 7.75%
To be well capitalized under the FDICIA
prompt corrective action provisions 8,970 5.00%
------- -----
Excess $ 4,940 2.75%
======= =====
</TABLE>
10
<PAGE>
Liquidity
The Bank 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
Bank'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 that 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. At March 31, 2000, the Bank's qualifying reserves of $1.9 million
significantly exceeded the required reserve of $ 286,000.
Additionally, Bancshares requires cash for various operating needs including
dividends to shareholders and the general corporate expenses. The primary
source of liquidity for the parent holding company is dividends from the Bank.
At March 31, 2000, the Bank could have paid additional dividends for Bancshares
of $ 945,000 while continuing to meet the capital requirements for "well-
capitalized" banks. Bancshares does not anticipate any liquidity requirements
in the near future that it will not be able to meet.
Recent Legislation
Legislation recently enacted by Congress eliminates many Federal and State law
barriers to affiliations among banks and other financial services providers.
The legislation establishes a statutory framework pursuant to which full
affiliations can occur between banks and securities firms. Insurance companies,
and other financial companies. The legislation provides some degree of
flexibility in structuring these new affiliations, although certain activities
may only be conducted through a holding company structure. The legislation,
preserves the role of the Board of Governors of the Federal Reserve System as
the umbrella supervisor for holding companies, but incorporates a system of
functional regulation pursuant to which the various Federal and state financial
supervisors will continue to regulate the activities traditionally within their
jurisdictions. The legislation specifies that banks may not participate in the
new affiliations unless the banks are well-capitalized and well-managed or if
any bank affiliate had received a less than "satisfactory" Community
Reinvestment Act of 1977 rating as of its most recent examination.
COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
General
Earnings per share for the first quarter of 2000 were up 10% over the first
quarter of 1999. Basic earnings per share increased to $0.22 as compared to
$0.20 for the first quarter of 1999, and diluted earnings per share increased to
$0.21 as compared to $0.19 for the first quarter of 1999. Consolidated net
income for the quarter ended March 31, 2000, was $275,000 as compared to
$324,000 in the first quarter of 1999.
Net Interest Income
Net interest income after provision for loan losses was constant at $1.5 million
for the three months ended March 31, 1999 and the three months ended March 31,
2000.
Interest Income
Interest income for the first quarter of 2000 was $3.6 million compared with
$3.4 million for the first quarter of 1999, representing an increase of $128,000
or 3.7%. The increase was primarily attributable to an increase in the average
yield on interest-earning assets from 8.30% for the first quarter of 1999 to
8.59% for 2000, as a result of higher market interest rates. The yield on the
average balance of loans increased from 8.51% in the first quarter of 1999 to
8.70% in the first quarter of
11
<PAGE>
2000. The annual yield is expected to continue to increase in 2000 as the effect
of interest rate increases by the Federal Reserve impacts commercial loans
related to the prime interest rate and adjustable mortgages.
Interest on loans receivable increased $147,000 to $3.4 million during the first
quarter of 2000 as compared to $3.2 million in the first quarter of 1999. The
increase was primarily attributable to an increase in average net loans of $3.4
million in the first quarter of 2000 ($155.8 million) from the comparable period
in 1999 ($152.4 million). Additionally, the average yield on total loans
increased as previously mentioned.
Interest on mortgage-backed securities increased by $43,000 from $16,000 during
the first quarter of 1999 to $59,000 in 2000 as a result of the average balance
of mortgage-backed securities increasing by $2.7 million during the first
quarter of 2000 ($3.5 million) as compared to the first quarter of 1999
($819,000). In addition, the average yields from such securities decreased
from 7.95% in the first quarter of 1999 to 6.77% in the first quarter of 2000 as
a result of lower yielding mortgage-backed securities remaining in the
portfolio.
Income from the investment securities portfolio increased by $33,000 from
$38,000 during the first quarter of 1999 to $71,000 in the first quarter of 2000
as the result of an increase in the portfolio from $2.0 million at March 31,
1999 to $4.4 million at March 31, 2000. There was a decrease in the average
yield on investment securities from 7.63% in the first quarter of 1999 to 6.47%
in the first quarter of 2000 due to the changes in the composition of the
investment securities portfolio.
Other interest income is comprised of earnings on the overnight account and time
deposits at the FHLB of Atlanta, FHLB stock dividends, and earnings on money
market funds. The $95,000 decrease in other interest income in 2000 to $53,000
when compared to the first quarter of 1999 other interest income of $148,000 is
due primarily to the decreased interest earnings on the FHLB overnight and on
money market funds because of a decrease in average invested balances from $8.9
million in the first quarter of 1999 to $ 945,000 in the first quarter of 2000.
FHLB dividends were $35,000 during the first quarter of 1999 as compared to
$33,000 in the first quarter of 2000 due to a decrease in the average balance of
FHLB stock from $1.9 million at March 31, 1999 to $1.7 million at March 31,
2000.
Interest Expense
Interest expense for the first quarter of 2000 was $1.9 million compared with
$1.8 million the first quarter of 1999, representing an increase of $150,000 or
8.4%.
Interest on deposits the first quarter of 2000 was $1.4 million compared with
$1.3 million the first quarter of 1999, representing an increase of $52,000 or
3.9%. The increase is due to a $1.6 million increase in average deposits in the
first quarter of 2000 ($122.8 million) as compared to the first quarter of 1999
($121.2 million). In addition, the first quarter of 2000 average interest cost
related to deposits increased to 4.53% in the first quarter of 2000 as compared
to 4.42% in the first quarter of 1999 as a result of the increases in the
Federal funds rate previously mentioned.
There was also an increase in interest paid on FHLB advances of $47,000 from
$437,000 in the first quarter of 1999 to $484,000 in the first quarter of 2000.
In addition, the effective rate paid on the average outstanding balance of FHLB
advances increased from 5.58% in the first quarter of 1999 to 5.81% in the first
quarter of 2000. The increase in interest paid on FHLB advances was related to
new borrowings from the FHLB in the first quarter of 2000.
Other interest expense relates to short term notes payable to banks or
securities sold under repurchase agreements. Other interest expense increased
$51,000 due to such borrowings utilized in the Company stock repurchase program
including a tender offer concluded in the third quarter of 1999.
Provision for Loan Losses.
The provision for loan losses is the cost of providing an allowance for
anticipated future losses on loans. The amount depends upon many factors
including loan growth, net charge-offs, changes in the composition of the loan
portfolio, delinquencies, management's assessment of loan portfolio quality, the
value of collateral and general economic factors. The loan portfolio is
changing as of the result of management's continued effort to expand and
diversify into commercial mortgage loans, commercial business loans, and
consumer loans. These types of loans are inherently riskier than residential
mortgage loans.
The economic outlook for the Bank's primary lending area is guardedly optimistic
as the local economy is assisted by the improvement in the overall economy.
However, there is very little growth in the Bank's primary lending area and
there is aggressive competition for existing loan and deposit customers. A
slowdown in the economy could further impact asset growth
12
<PAGE>
and have a negative impact on real estate lending as well as the level of net
charge-offs and delinquencies. Since such a slowdown in the economy could have
an adverse effect on property values and for commercial development projects,
and could cause an increase in vacancy rates, the possibilities exist for write-
downs, charge-offs and transfer of currently performing loans to a nonaccrual
status in the real estate and commercial loan categories.
The Company utilizes loan reviews procedures, including techniques such as loan
grading and monitoring of financial information, in order to identify early
potential problem loans in order for management to take steps to lessen any
potential losses. Reports are prepared and used in conjunction with
identification and monitoring of such loans on a monthly basis. Management's
involvement continues throughout the process and includes participation in the
work-out process and recovery activity. These procedures are monitored by the
loan and audit committees whose work is supplemented periodically by regulatory
agencies. A determination of a potential loss will result in a charge to the
provision for loan losses, thereby increasing the allowance for loan losses.
Management monitors the entire loan portfolio in an attempt to identify problem
loans so that risks in the portfolio can be timely identified and an appropriate
allowance or charge-off recognized. 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 2000, the provision for loan losses was $158,000 as
compared to $195,000 in the first quarter of 1999. These provisions were made
based on management's analysis of the various factors that effect the loan
portfolio and management's desire to maintain the allowance at a level
considered adequate to provide for losses. The decrease in the provision in
2000 was due to less loan charge offs incurred than in the first quarter of
1999. The level of net charge-off in 1999 was related primarily to loans to one
customer whose loans had been classified as impaired. Impaired loans as of
March 31, 2000, aggregate $878,000 and have specific reserves of $170,000.
When determining the adequacy of the allowance for loan losses, management
considers changes in the size and character of the loan portfolio, changes in
non performing and past due loans, historical loan loss experience, the existing
risk of individual loans, concentrations of loans to specific borrowers or
industries and existing and prospective economic conditions. The allowance for
loan losses at March 31, 2000 is $1.5 million, or 0.9% of net loans, which
represents an increase of $70,000 from $1.4 million at December 31, 1999.
In the opinion of management at March 31, 2000, the allowance for loan losses
was adequate at that date. There can be no assurance that the Company will not
be required to increase the allowance in the future.
Non-interest Income.
Non-interest income decreased by $62,000 in the first quarter of 2000 to
$185,000 as compared to $247,000 in the first quarter of 1999. This decrease
was primarily the result of a decrease in gains on loans sold of $59,000 from
$78,000 in 1999 to $19,000 in 2000. The decrease was also the result of a
decrease in loan and service fees of $7,000 from $157,000 in the first quarter
of 1999 to $150,000 in the first quarter of 2000. This decrease is due largely
to the decreased activity in refinanced loans resulting from higher mortgage
rates.
Non-interest Expense.
Non-interest expense increased by $46,000 to $1.22 million in the first quarter
of 2000 as compared to $1.18 million for the first quarter of 1999. This is
primarily a result of the increase in building and occupancy expense which
increased $31,000 from $140,000 for the three months ended March 31, 1999 to
$171,000 for the three months ended March 31, 2000, as a result of increased
repair and maintenance costs.
Income Taxes
Income tax expense in the first quarter of 2000 and 1999 was $169,000 and
$213,000, respectively, representing expected federal and state tax rates of 38%
to 40%.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Neither Bancshares 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*
(3b)(i) Amendment to Bylaws dated September 10, 1998*****
(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.
***** Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1998.
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended March 31, 2000.
14
<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 15, 2000 /s/ Charles L. Frederick, Jr.
------------ -----------------------------
Mr. Charles L. Frederick, Jr.
President and Chief Executive Officer
Date May 15, 2000 /s/ Ms. Glenda Young
------------ --------------------
Ms. Glenda Young
Senior Vice President and Chief
Accounting Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of First Southern Bancshares, Inc. and subsidiary for the
three months ended March 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,455
<INT-BEARING-DEPOSITS> 1,379
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,391
<INVESTMENTS-CARRYING> 3,478
<INVESTMENTS-MARKET> 3,246
<LOANS> 155,809
<ALLOWANCE> 1,470
<TOTAL-ASSETS> 180,658
<DEPOSITS> 129,574
<SHORT-TERM> 16,989
<LIABILITIES-OTHER> 863
<LONG-TERM> 19,627
0
0
<COMMON> 21
<OTHER-SE> 13,584
<TOTAL-LIABILITIES-AND-EQUITY> 180,658
<INTEREST-LOAN> 3,484
<INTEREST-INVEST> 130
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 3,572
<INTEREST-DEPOSIT> 1,392
<INTEREST-EXPENSE> 1,929
<INTEREST-INCOME-NET> 1,643
<LOAN-LOSSES> 158
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,226
<INCOME-PRETAX> 444
<INCOME-PRE-EXTRAORDINARY> 275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 3.95
<LOANS-NON> 878
<LOANS-PAST> 1,113
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 878
<ALLOWANCE-OPEN> 1,400
<CHARGE-OFFS> 98
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,470
<ALLOWANCE-DOMESTIC> 1,161
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 309
</TABLE>
