UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[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
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[_] 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: 000-26033
First Deposit Bancshares, Inc.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2443683
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8458 Campbellton Street, Douglasville, Georgia 30134-1803
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(Address of principal executive offices)
(770) 942-5108
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(Issuer's telephone number
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 1, 2000; 1,389,150; no par value.
Transitional Small Business Disclosure Format Yes ___ No X
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FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARY
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheet - March 31, 2000........................... 3
Condensed Consolidated Statements of Income and Comprehensive
Income - Three Months Ended March 31, 2000 and 1999.......................... 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2000 and 1999.......................................... 5
Notes to Condensed Consolidated Financial Statements............................ 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations................................... 7
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................................... 12
Signatures.......................................................................... 13
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(Unaudited)
(Dollars in Thousands)
Assets
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Cash and due from banks $ 739
Interest bearing deposits in banks 2,889
Federal funds sold 190
Securities available-for-sale, at fair value 17,426
Securities held-to-maturity (fair value $2,366) 2,231
Loans 95,390
Less allowance for loan losses 1,072
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Loans, net 94,318
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Premises and equipment 1,948
Real estate held for development and sale 1,111
Other assets 1,228
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Total assets $ 122,080
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Liabilities and Shareholders' Equity
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Deposits
Demand $ 3,497
Interest-bearing demand 13,482
Savings 16,540
Time deposits 49,946
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Total deposits 83,465
Federal Home Loan Bank advances 14,000
Other liabilities 760
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Total Liabilities 98,225
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Commitments and Contingent Liabilities
Preferred stock, no par, 10,000,000 authorized,
none issued 0
Common stock, no par, 10,000,000 authorized,
1,575,000 issued 15,021
Retained earnings 11,078
Accumulated other comprehensive loss (259)
Unearned ESOP shares (1,134)
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24,706
Less cost of treasury stock (851)
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Total shareholders' equity 23,855
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Total liabilities and shareholders' equity $ 122,080
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
2000 1999
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Interest Income
Loans $ 1,839 $ 1,670
Taxable securities 310 67
Interest-bearing deposits and Federal funds sold 31 77
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Total interest income 2,180 1,814
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Interest Expense
Deposits 938 985
Other borrowings 144 69
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Total interest expense 1,082 1,054
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Net interest income 1,098 760
Provision for Loan Losses 15 15
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Net Interest income after
provision for loan losses 1,083 745
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Other income 296 102
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Other expenses
Salaries and employee benefits 370 309
Occupancy and equipment expenses 86 69
Other operating expenses 297 213
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Total other expenses 753 591
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Income before income taxes 626 256
Income tax expense 243 81
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Net income 383 175
Other comprehensive loss
Unrealized losses on securities
available-for-sale arising during
period, net of tax (42) -
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Comprehensive income $ 341 $ 175
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Basic and diluted earnings
per common share $ 0.26 $ N/A
Weighted average shares outstanding 1,452,979 N/A
Dividends declared per common share $ 0.08 N/A
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
FIRST DEPOSIT BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Dollars in Thousands)
2000 1999
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OPERATING ACTIVITIES
Net income $ 383 $ 175
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 51 45
ESOP compensation expense 17 -
Provision for loan losses 15 15
Decrease in real estate held
for development and sale 227 -
Other operating activities (87) 37
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Net cash provided by operating activities 606 272
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INVESTING ACTIVITIES
Purchases of securities available-for-sale (1,025) (500)
Proceeds from maturities of securities available-for-sale - 854
Proceeds from maturities of securities held-to-maturity 44 44
Net (increase) decrease in Federal funds sold 1,260 (500)
Net decrease in interest-bearing deposits in banks 455 1,526
Net increase in loans (5,519) (1,493)
Decrease in ESOP loan 126 -
Purchase of premises and equipment (118) (57)
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Net cash used in investing activities (4,777) (126)
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FINANCING ACTIVITIES
Net decrease in deposits (378) (115)
Net increase in other borrowings 5,000 -
Purchase of treasury stock (851) -
Dividends paid (116) -
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Net cash provided by financing activities 3,655 (115)
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Net decrease in cash and due from banks (516) 31
Cash and due from banks, beginning of period 1,255 874
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Cash and due from banks, end of period $ 739 $ 905
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the three month period ended March 31,
2000 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt this
statement effective January 1, 2001. SFAS No. 133 requires the Company
to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated
as hedges, the gain or loss must be recognized in earnings in the
period of change. For derivatives that are designated as hedges,
changes in the fair value of the hedged assets, liabilities, or firm
commitments must be recognized in earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings
immediately. Management has not yet determined what effect the
adoption of SFAS No. 133 will have on the Company's earnings or
financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
FIRST DEPOSIT BANCSHARES, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
First Deposit Bancshares, Inc. ("First Deposit") was formed to acquire
the capital stock of Douglas Federal Bank (the "Bank") in connection
with its conversion from a mutual federal savings bank to a stock
federal savings bank. The conversion was approved by the Bank's
depositors on June 25, 1999 and the offering of 1,575,000 shares of
the common stock of First Deposit was closed on July 8, 1999. Until
July 8, 1999, First Deposit had no operations, had not issued any
common stock, and did not own the Bank. Prior to July 8, 1999, there
were no outstanding shares of common stock. The results of operations
for the three months ended March 31, 1999 and the financial condition
as of March 31, 1999 consist of the Bank.
Cautionary Statement about Forward-Looking Statements
This quarterly report contains "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates,"
"estimates," and similar words and expressions are generally intended
to identify forward-looking statements. Statements that describe the
Company's future strategic plans, goals, or objectives are also
forward-looking statements, including those regarding the intent,
belief, or current expectations of management and are not guarantees
of future performance, results, or events and involve risks and
uncertainties, and that actual results and events may differ
materially from those in the forward-looking statements as a result of
various factors including, but not limited to, (i) general economic
conditions in the markets in which the Company operates, (ii)
competitive pressures in the markets in which the Company operates,
(iii) the effect of future legislation or regulatory changes on the
Company's operations, and (iv) other factors described from time to
time in the Company's filings with the Securities and Exchange
Commission. The forward-looking statements included in this report are
made only as of the date hereof. The Company undertakes no obligation
to update such forward-looking statements to reflect subsequent events
or circumstances.
7
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company to meet those needs. The Company seeks to
meet liquidity requirements primarily through management of short-term
investments, monthly amortizing loans, maturing single payment loans, and
maturities of securities and prepayments. Also, the Company maintains
relationships with correspondent banks which could provide funds on short
notice.
The liquidity and capital resources of the Company and Bank are monitored on a
periodic basis by management and Federal regulatory authorities. Management
reviews liquidity on a periodic basis to monitor and adjust liquidity as
necessary. Management has the ability to adjust liquidity by selling securities
available for sale, selling participations in loans generated by the Company and
accessing available funds through various borrowing arrangements. The Company's
short-term investments and available borrowing arrangements are adequate to
cover any reasonably anticipated immediate need for funds.
As of March 31, 2000, the liquidity ratio of the Bank was 20.11% and, as
determined under guidelines established by regulatory authorities, was
considered satisfactory and within management's target ratio.
At March 31, 2000, the capital ratios of the Company and the Bank were adequate
based on regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Company and Bank are as
follows:
Actual
First Deposit Douglas Regulatory
Bancshares, Inc. Federal Bank Requirement
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Leverage capital ratios 19.50 % 13.55 % 4.00 %
Risk-based capital ratios:
Core capital 35.21 24.11 4.00
Total capital 36.47 25.37 8.00
Financial Condition
The Company's total assets increased by $4,170,000, or 3.54% for the three
months ended March 31, 2000. Total loans increased $5,520,000, or 6.14% for the
same period. The loan to deposit ratio as of March 31, 2000 was 114% as compared
to 107% at December 31, 1999, reflecting continued strong loan demand. In order
to satisfy this growing demand, the Company has continued to obtain Federal Home
Loan Bank advances to fund loan growth and maintain adequate liquidity. At March
31, 2000, deposits were $83,465,000, down $377,000 from $83,842,000 at December
31, 1999. The decrease in total deposits is due to increased competition for
deposits in the Company's market area combined with increased competition from
other financial investments such as mutual funds, stocks, etc. Total
shareholders' equity decreased to $23,855,000 at March 31, 2000 from $24,337,000
at December 31, 1999. The decrease of $482,000 is primarily the net of treasury
stock purchased of $851,000, dividends paid of $116,000, reduction of unearned
ESOP shares of $126,000 and net income of $383,000. The purchase of treasury
stock is the result of the stock repurchase plan announced on March 15, 2000.
8
Results of Operations For The Three Months Ended March 31, 2000 and 1999
The Company's net interest income increased by $338,000 for the three month
period in 2000 as compared to the same period in 1999. The Company's net
interest margin increased to 3.91% during the first three months of 2000 as
compared to 3.34% for the previous year. The increase in the net interest margin
is due primarily to an increase in average interest-earning assets which is
directly related to the stock offering in 1999. Interest-earning assets
increased from $96.6 million at March 31, 1999 to $118.1 million at March 31,
2000. The net interest margin is expected to gradually increase as available
funds are invested in loans versus securities and interest-bearing deposits in
banks.
The provision for loan losses remained the same for the three month period in
2000 as compared to the same period in 1999. The Company's allowance for loan
losses to total loans amounted to 1.12% and 1.18% at March 31, 2000 and December
31, 1999, respectively. Nonaccrual loans and net charge-offs have decreased by
$710,000 and $3,000, respectively, as of March 31, 2000 compared to the same
period in 1999. The allowance for loan losses is maintained at a level that is
deemed appropriate by management to adequately cover all known and inherent
risks in the loan portfolio. Management's evaluation of the loan portfolio
includes a continuing review of loan loss experience, current economic
conditions which may affect the borrower's ability to repay and the underlying
collateral value.
Information with respect to nonaccrual, past due, and restructured loans at
March 31, 2000 and 1999 is as follows:
March 31,
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2000 1999
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(Dollars in Thousands)
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Nonaccrual loans $ 169 $ 879
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing - -
Restructured loans - -
Loans, now current about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms - -
and restructured loans under original terms
Interest income that was recorded on nonaccrual and restructured loans - -
It is the policy of the Company to discontinue the accrual of interest income
when, in the opinion of management, collection of such interest becomes
doubtful. This status is accorded such interest when (1) there is a significant
deterioration in the financial condition of the borrower and full repayment of
principal and interest is not expected and (2) the principal or interest is more
than ninety days past due, unless the loan is both well-secured and in the
process of collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
9
Information regarding certain loans and the allowance for loan loss for the
three months ended March 31, 2000 and 1999 is as follows:
2000 1999
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(Dollars in Thousands)
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Average amount of loans outstanding $ 91,666 $ 85,720
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Balance of allowance for loan losses at beginning of period $ 1,057 $ 1,000
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Loans charged off
Commercial and financial $ - $ -
Real estate mortgage (5)
Instalment - -
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- (5)
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Loans recovered
Commercial and financial - 2
Real estate mortgage - -
Instalment - -
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- 2
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Net charge-offs - (3)
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Additions to allowance charged to operating expense during period 15 15
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Balance of allowance for loan losses at end of period $ 1,072 $ 1,012
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Ratio of net loans charged off during the period to
average loans outstanding - % - %
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Other income increased by $194,000 for the three month period ended March 31,
2000 as compared to the same period in 1999. The single most significant
increase was an increase of $146,000 in gains on sale of real estate held for
development and sale for the three month period ended March 31, 2000 as compared
to 1999.
Other expenses increased for the three month period in 2000 as compared to the
same period in 1999 by $162,000. For the three month period ended March 31,
2000, salaries and employee benefits increased $61,000, occupancy and equipment
expenses increased $17,000, and other operating expenses increased $84,000, as
compared to the same period in 1999. The increase in salaries and employee
benefits represents normal increases in officer and employee compensation, the
addition of two management employees and ESOP contributions. The number of
full-time equivalent employees was 46 and 37 at March 31, 2000 and 1999,
respectively. The increase in occupancy and equipment expenses is primarily due
to increases in depreciation expense of $6,000 and maintenance expenses of
$9,000 for the three month period ending March 31, 2000 as compared to 1999. The
increase in other operating expenses is primarily attributable to $33,000 in
holding company operating expenses as compared to 1999.
10
The Company's provision for income taxes increased by $162,000 for the three
month period in 2000 as compared to the same period in 1999 due to increased
taxable income. The Company's effective tax rate increased to 39% for the first
three months of 2000 as compared to 32% for the first three months of 1999. The
increase in the effective tax rate is attributable to the increase in state
income taxes combined with a reduction in tax deferred and non-taxable income.
Net income increased by $208,000 for the three months ended March 31, 2000 as
compared to the same period in 1999. This increase is a combination of the
increase in net interest income and the gains on sale of real estate held for
development and sale.
The Company is not aware of any other known trends, events or uncertainties,
other than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
On March 15, 2000, the Company filed an 8-K announcing the
implementation of a stock repurchase plan to purchase up to 5% of
its outstanding common stock held by persons other than First
Deposit Bancshares, Inc. The Company will purchase up to 72,450
shares to be utilized for general corporate and other purposes.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST DEPOSIT BANCSHARES, INC.
DATE: May 15, 2000 BY: /s/ J. David Higgins
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President, Chief Executive Officer
and Treasurer
DATE: May 15, 2000 BY: /s/ John L. King
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Executive Vice President and Chief
Financial Officer
13