1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
Commission File Number: 1-13640
SOUTHFIRST BANCSHARES, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-1121255
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 North Norton Avenue, Sylacauga, Alabama, 35150
--------------------------------------------------
(Address of principal executive offices)
256-245-4365
------------
(Registrant's telephone number)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
Common Stock, par value $.01 per share 928,568 shares
- -------------------------------------- --------------
(Class) (Outstanding at August 13, 2001)
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
2
SOUTHFIRST BANCSHARES, INC.
TABLE OF CONTENTS
Page
----
PART I -- FINANCIAL INFORMATION
Item 1: Financial Statements ....................................................................... 1
Consolidated Statements of Financial Condition at June 30, 2001 (Unaudited)
and September 30, 2000 ..................................................................... 1
Consolidated Statements of Earnings (Unaudited) for the Nine Months Ended
June 30, 2001 and June 30, 2000 and Three Months Ended June 30, 2001
and June 30, 2000 .......................................................................... 2
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Nine Months Ended June 30, 2001 ............................................................ 3
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
June 30, 2001 and 2000 ..................................................................... 4
Notes to Consolidated Financial Statements (Unaudited) ..................................... 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations .............................................................................. 9
PART II -- OTHER INFORMATION
Item 1: Legal Proceedings .......................................................................... 14
Item 6: Exhibits and Reports on Form 8-K ........................................................... 14
SIGNATURES ......................................................................................... 15
3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2001 (UNAUDITED) AND SEPTEMBER 30, 2000 (AUDITED)
JUNE 30, 2001 SEPTEMBER 30, 2000
------------- ------------------
(UNAUDITED)
ASSETS
Cash and amounts due from depository institutions $ 5,980,243 $ 4,667,295
Interest-bearing deposits in other financial institutions 893,766 1,737,099
Investment securities available for sale, at fair value 36,089,216 38,326,808
Loans receivable 101,785,373 109,054,392
Less allowance for loan losses (667,926) (700,619)
------------- -------------
Net Loans 101,117,447 108,353,773
Loans held for sale at cost (which approximates fair value) 160,000 181,662
Premises and equipment, net 4,874,511 4,992,261
Foreclosed real estate, net 323,229 174,500
Other repossessed assets 9,440 1,000
Accrued interest receivable 912,922 1,183,485
Other assets 1,489,151 1,407,751
------------- -------------
TOTAL ASSETS $ 151,849,925 $ 161,025,634
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,210,943 $ 2,990,806
Interest bearing 99,159,053 102,372,295
------------- -------------
TOTAL DEPOSITS 102,369,996 105,363,101
Advances by borrowers for property taxes and insurance 309,340 297,004
Accrued interest payable 1,480,036 1,403,005
Borrowed funds 31,905,000 38,889,068
Accrued expenses and other liabilities
511,692 147,972
------------- -------------
TOTAL LIABILITIES
136,576,064 146,100,150
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Stockholders' equity:
Common stock, $01 par value, 2,000,000 shares authorized; 999,643
shares issued and 928,568 outstanding shares at June 30, 2001
and at September 30, 2000 9,996 9,996
Additional paid-in capital 9,835,352 9,835,352
Treasury stock (1,140,781) (1,140,781)
Unearned compensation on common stock employee benefit plans (523,116) (482,325)
Retained earnings, substantially restricted 7,198,843 7,186,244
Accumulated comprehensive other income (loss) (106,433) (483,002)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,273,861 14,925,484
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,849,925 $ 161,025,634
============= =============
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE
NINE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 AND
THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
NINE MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Interest and dividend income:
Interest and fees on loans 6,520,783 6,951,951 2,032,590 2,397,216
Interest income on deposit in other financial
institutions 246,118 96,093 86,495 36,247
Interest and dividend income on investment securities 1,637,259 1,813,410 485,698 615,992
--------- --------- --------- ---------
Total interest and dividend income 8,404,160 8,861,454 2,604,783 3,049,455
--------- --------- --------- ---------
Interest expense:
Interest on deposits 3,837,258 3,354,016 1,249,221 1,089,182
Interest on borrowed funds 1,598,764 1,882,241 445,505 740,788
--------- --------- --------- ---------
Total interest expense 5,436,022 5,236,257 1,694,726 1,829,970
--------- --------- --------- ---------
Net interest income 2,968,138 3,625,197 910,057 1,219,485
Provision for loan losses (50,000) 5,572 -- 5,572
--------- --------- --------- ---------
Net interest income after provision for loan losses 3,018,138 3,619,625 910,057 1,213,913
Other Income:
Service charges and other fees 318,301 343,986 114,569 108,288
Employee benefit consulting fees 876,356 821,060 301,192 331,389
Gain on sale of loans 285,367 252,298 108,102 78,979
Gain (loss) on sale of foreclosed real estate (5,031) 34,431 (7,167) --
Profit (loss) on sale of other repossessed assets (1,349) -- (1,349) --
Gain on sale of investment securities available for sale 859 1,937 -- --
Equity in net (loss) income of affiliate -- (2,177) -- (2,177)
Other 271,318 155,242 99,806 58,620
--------- --------- --------- ---------
Total non-interest income 1,745,821 1,606,777 615,153 575,099
--------- --------- --------- ---------
Other expenses:
Compensation and benefits 2,334,035 2,251,235 764,200 740,551
Net occupancy expense 259,197 259,617 82,721 85,679
Furniture and fixtures 366,623 327,135 134,806 106,246
Data processing 245,087 233,773 86,256 75,285
Office supplies and expense 324,460 272,602 106,784 88,683
Deposit insurance premiums 48,783 61,015 16,020 16,493
Goodwill expense 40,459 47,346 13,487 15,782
Other 441,040 599,089 160,517 194,407
--------- --------- --------- ---------
Total non-interest expenses 4,059,684 4,051,812 1,364,791 1,323,126
--------- --------- --------- ---------
Income before income taxes 704,275 1,174,590 160,419 465,886
Income tax expense 275,314 455,993 63,513 180,995
--------- --------- --------- ---------
Net income 428,961 718,597 96,906 284,891
========= ========= ========= =========
Primary earnings 0.47 0.79 0.11 0.31
Fully diluted earnings 0.47 0.79 0.11 0.31
Cash dividends declared 0.45 0.45 0.15 0.15
Weighted average shares outstanding
Primary 910,102 904,822 910,102 904,822
Fully Diluted 912,242 904,822 914,540 904,822
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2001
Deferred
Compen- Accumulated
sation on Retained Other
Additional Common Stock Earnings Compre- Total
Common Paid In Treasury Employee Substantially hensive Stockholders'
Stock Capital Stock Benefit Plans Restricted (Loss) Equity
------- ------------ ------------ ------------- ------------- ----------- -------------
Balance at September 30,
2000 $ 9,996 $ 9,835,352 $ (1,140,781) $ (482,325) $ 7,186,244 $ (483,002) $ 14,925,484
Comprehensive Income
Net Income 428,961 428,961
Other Comprehensive Income,
net of tax:
Change in unrealized
gain/loss on securities
available for sale, net
of deferred income
taxes of $230,306 376,569 376,569
------------
Total Comprehensive Income 805,530
------------
Vesting of Deferred
Compensation Shares 74,577 74,577
Addition of Management
Recognition Plan Shares (115,368) (115,368)
Cash Dividends Declared (416,362) (416,362)
------- ------------ ------------ ---------- ----------- ---------- ------------
Balance at June 30, 2001 $ 9,996 $ 9,835,352 $ (1,140,781) $ (523,116) $ 7,198,843 $ (106,433) $ 15,273,861
======= ============ ============ ========== =========== ========== ============
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
------------- -------------
OPERATING ACTIVITIES:
NET INCOME $ 428,961 $ 718,597
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses (50,000) 5,572
Depreciation and amortization 280,523 268,005
Equity in loss of unconsolidated affiliate -- 2,177
(Gain) Loss on sale of securities (859) --
(Gain) Loss on sale of loans (285,367) (252,298)
Increase (decrease) in deferred loan origination fees (2,896) 15,729
Net amortization of premium on investment securities available
for sale (84,272) 12,241
(Gain) Loss on sale of foreclosed real estate 5,031 (34,431)
Loans originated for sale (14,889,283) (11,705,162)
Proceeds from sale of loans 15,196,312 12,694,120
(Increase) decrease in accrued interest receivable 270,563 8,814
Increase (decrease) in other assets (81,400) (138,459)
Deferred compensation expense 74,577 14,926
Increase (decrease) in accrued interest payable 77,031 (153,468)
Increase (decrease) in accrued expenses and other liabilities 133,414 (400,058)
------------- -------------
Net Cash provided by (used in) operating activities 1,072,335 1,056,305
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
------------- -------------
INVESTING ACTIVITIES
Net change in interest bearing deposits in other financial 843,334 (217,443)
institutions
Proceeds from maturity/repayment of investments held to maturity -- 28,783
Proceeds from maturity/repayment of investments available for
sale 6,851,586 1,500,750
Purchase of investment securities available for sale (6,834,375) (1,562,500)
Proceeds from sale of investments available for sale 2,912,387 --
Reinvestment of mutual fund dividend -- (5,670)
Net (increase) decrease in loans 7,289,222 (5,019,293)
Purchase of premises & equipment (162,774) (89,981)
Proceeds from sale of foreclosed real estate 529,976 743,692
Proceeds from sale of other assets 15,639 --
Transfer from loans of real estate owned property (683,736) (382,665)
Transfer from loans to other repossessed assets (24,079) (32,146)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,737,180 (5,036,473)
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
------------- -------------
FINANCING ACTIVITIES
Increase (decrease) in deposits (2,993,105) (8,421,536)
Proceeds from borrowed funds 17,450,000 30,150,000
Repayment of borrowed funds (24,434,068) (16,565,000)
Cash dividends paid (416,362) (418,086)
Acquisition of management recognition plan shares (115,368) --
Decrease in advances by borrowers for property taxes and
insurance 12,336 (90,522)
------------- -------------
Net cash provided by (used in) financing activities (10,496,567) 4,654,856
------------- -------------
(Decrease) in cash and cash equivalents 1,312,948 674,688
Cash and cash equivalents at beginning of period 4,667,295 4,969,578
------------- -------------
Cash and cash equivalents at end of period 5,980,243 5,644,266
============= =============
Supplemental information on cash payments:
Interest paid 3,837,258 5,389,725
============= =============
Income taxes paid
254,170 1,222,260
============= =============
Supplemental information on noncash transactions
Change in net unrealized gain (loss) on investment securities
available for sale 376,569 (246,426)
============= =============
Real Estate obtained through foreclosure 683,736 382,665
============= =============
See accompanying notes to consolidated financial statements.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2001 AND 2000
(1) BASIS OF PRESENTATION
Information filed on this Form 10-QSB as of and for the quarter ended
June 30, 2001, was derived from the financial records of SouthFirst
Bancshares, Inc. ("SouthFirst") and its wholly-owned subsidiaries,
First Federal of the South ("First Federal"), and SouthFirst Financial
Services, Inc. ("SouthFirst Financial") and First Federal's wholly
owned subsidiaries, Pension and Benefit Trust Company ("Pension &
Benefit"), a Montgomery, Alabama-based employee benefits consulting
firm, and SouthFirst Mortgage, Inc., a Birmingham, Alabama based
residential construction loan and mortgage loan origination office.
Collectively, SouthFirst Bancshares, Inc. and its subsidiaries are
referred to herein as the "Company" and as "SouthFirst."
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (none of
which are other than normal recurring accruals) necessary for a fair
statement of the financial position of the Company and the results of
operations for the nine-month periods ended June 30, 2001 and 2000. The
results contained in these statements are not necessarily indicative of
the results which may be expected for the entire year.
(2) NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
Statement establishes accounting and reporting standards for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company adopted the provision of SFAS No. 133 on October 1,
2000. However, based on the Company's current operating activities, the
adoption of this statement did not have a material impact on the
Company's financial condition or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. The statement revises the standards for accounting for
securitization and other transfers of financial assets and collateral,
and requires certain disclosures. This statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. This statement is effective
for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years
ending after December 15, 2000. The statement is to be applied
prospectively with certain exceptions. Other than those exceptions,
earlier or retroactive application of its accounting provisions is not
permitted. Based on the Company's current operating activities, the
adoption of this statement will not have a material impact on the
presentation of the Company's financial condition or results of
operations.
(3) BUSINESS SEGMENT INFORMATION
The Company organized its business units into two reportable segments:
traditional banking activities and employee-benefit-plan trust and
consulting activities. The banking segment provides a full range of
banking services within its primary market areas of central Alabama.
The employee benefit trust and consulting firm operates primarily in
the Montgomery, Alabama area. The Company's reportable business
segments are strategic business units that offer different products and
services. Each segment is managed separately, because each unit is
subject to different marketing and regulatory environments.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
The accounting policies used by each reportable segment are the same as
those discussed in Note 1 to the Consolidated Financial Statements
included under Item 7 of the Annual Report on Form 10-KSB. The
following table presents financial information for each reportable
segment:
Nine Months Ended Nine Months Ended
June 30, 2001 June 30, 2000
--------------------------------------- -----------------------------------------
Employee Employee
Banking Benefits Banking Benefits
Activities Consulting Total Activities Consulting Total
----------- ----------- ----------- ----------- ----------- -----------
Interest dividend income $ 8,378,575 $ 25,585 $ 8,404,160 $ 8,833,327 $ 28,127 $ 8,861,454
Interest expenses 5,436,022 -- 5,436,022 5,236,257 -- 5,236,257
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 2,942,553 25,585 2,968,138 3,597,070 28,127 3,625,197
Provision for loan losses (50,000) -- (50,000) 5,572 -- 5,572
----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,992,553 25,585 3,018,138 3,591,498 28,127 3,619,625
Other Income 860,465 885,356 1,745,821 776,588 830,189 1,606,777
Other Expenses 3,315,946 743,738 4,059,684 3,384,470 667,342 4,051,812
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 537,072 167,203 704,275 983,616 190,974 1,174,590
Income Taxes 211,605 63,709 275,314 383,304 72,689 455,993
----------- ----------- ----------- ----------- ----------- -----------
Net Income $ 325,467 $ 103,494 $ 428,961 $ 600,312 $ 118,285 $ 718,597
=========== =========== =========== =========== =========== ===========
There have been no differences from the last annual report in the basis
of measuring segment profit or loss. There have been no material
changes in the amount of assets for any operating segment since the
last annual report.
(4) SUBSEQUENT EVENTS
On July 18, 2001, the Company declared a regular dividend of $0.15 per
share, payable on August 15, 2001 to stockholders of record on August 1, 2001.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
Net income for the three months and nine months ended June 30, 2001 decreased
$187,985, or 66.0%, and $289,636, or 40.3%, respectively, compared to the same
periods in fiscal 2000. Net interest income for the three months and nine months
ended June 30, 2001 decreased $303,856, or 25.0%, and $601,487, or 16.6%,
respectively, compared to the same periods in fiscal 2000. Non-interest income
increased $40,054 or 7.0%, for the three month period ended June 30, 2001, and
increased 139,044 or 8.7% for the nine-month period ended June 30, 2001, when
compared to the same periods in fiscal 2000, while non-interest expense
increased $41,665 or 3.1%, and $7,872, or .2%, for the three month and nine
month periods, respectively, ended June 30, 2001 compared to the same periods in
fiscal 2000.
Primary earnings per common share, based on weighted average shares outstanding,
was $.11 and $.31 for the three months ended June 30, 2001 and 2000, and $.47
and $.79 for the nine months ended June 30, 2001 and 2000, respectively.
Those items significantly affecting net earnings are discussed in detail below.
NET-INTEREST INCOME
Net-interest income is the difference between the interest and fees earned on
loans, securities, and other interest-bearing assets (interest income) and the
interest paid on deposits and borrowed funds (interest expense). Net-interest
income is directly related to the interest-rate spread, the difference between
the interest rates on interest-earning assets and interest-bearing liabilities.
As of June 30, 2001, the interest-rate spread decreased 48 basis points, as the
weighted-average rates earned on interest-earning assets decreased 44 basis
points, to 7.58%, while the weighted-average cost of funds increased 4 basis
points, to 5.12%, when compared to the same period in fiscal year 2000. The
recent rapid decline in interest rates has created a temporary disparity in
net-interest income by causing an immediate reduction in interest income,
especially on prime-rate-based assets, with an offsetting decline in the overall
cost of funds occurring at a slower pace. The average balance of
interest-earning assets decreased $14.6 million, or 9.6%, from $152.0 million to
$137.4 million, while the average balance of interest-bearing liabilities
decreased $11.7 million, or 8.1%, from $144.1 million to $132.4 million. The
combined effect of the changes in average balances and the changes in interest
rates discussed resulted in a decrease in the interest-rate spread, from 2.94%
to 2.46%, and a decrease in net-interest income of $303,856, or 25.0%, and
$601,487, or 16.6%, for the three months and nine months, respectively, ended
June 30, 2001, as compared to the same periods in fiscal year 2000.
NON-INTEREST INCOME
Total non-interest income for the nine months ended June 30, 2001, increased
$139,000, to approximately $1,746,000, as compared to the nine months ended June
30, 2000. Employee-benefit-plan trust and consulting fees increased
approximately $55,000 as a result of increased activities at Pension and Benefit
Trust Company. Gain on sale of loans increased approximately $33,000 and other
non-interest income increased approximately $116,000 as compared to the same
period in fiscal 2000. These increases were offset by a decline in service
charges and other fees of approximately $26,000.
For the three-month period ended June 30, 2001, total non-interest income
increased by approximately $40,000 to $615,000, as compared to the same period
in fiscal year 2000. This increase was primarily the result of an increase of
$7,000 from service charges and other fees, an increase of $29,000 from gain on
sales of loans, an increase of $41,000 from other non-interest income, partially
offset by a decrease of $30,000 in employee benefit consulting fees as compared
to the same period in fiscal year 2000.
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12
NON-INTEREST EXPENSE
Total non-interest expense for the nine months ended June 30, 2001, increased by
approximately $8,000, to $4,060,000, compared to $4,052,000 for the nine months
ended June 30, 2000. The increase is primarily due to increases in compensation
and benefits of approximately $83,000.
For the three-month period ended June 30, 2001, total non-interest expense
increased approximately $42,000, to $1,365,000, from $1,323,000 for the
three-month period ended June 30, 2000. Other non-interest expense decreased
approximately $34,000. Compensation and benefit expense increased approximately
$24,000, while office supplies increased approximately $18,000, with furniture
and fixtures increasing by approximately $29,000.
INCOME TAX EXPENSE
SouthFirst's effective tax rate for the nine-month periods ended June 30, 2001
and 2000 was 39.1% and 38.8%, respectively, compared to the federal statutory
rate of 34.0%. SouthFirst's effective tax rate was higher than the statutory
rate due primarily to state income taxes. Income tax expense decreased
approximately $181,000, or 39.6%, to $275,000 for the nine months ended June 30,
2001, as compared to $456,000 for the nine months ended June 30, 2000, due to
the decrease in pre-tax earnings.
-10-
13
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Management continuously monitors the financial condition of the Company in order
to protect depositors, increase retained earnings, and protect current and
future earnings.
Return on average stockholders' equity is one way of assessing the return
SouthFirst has generated for its stockholders. The table below sets forth the
return on average stockholders' equity and other performance ratios of
SouthFirst for the periods indicated.
At or for the
three months ended
June 30,
---------------------------------
2001 2000
-------- -------
Return on assets 0.36% 0.59%
Return on equity 3.82% 6.72%
Equity-to-assets ratio 9.50% 8.75%
Interest rate spread 2.61% 2.95%
Net interest margin 2.78% 3.19%
Total risk-based capital ratio 16.59% 14.78%
Nonperforming loans to loans .56% .39%
Allowance for loan losses to loans .64% 0.63%
Allowance for loan losses to nonperforming loans 113.55% 159.75%
Ratio of net charge-offs to average loans outstanding (0.02)% 0.14%
Book value per common share outstanding $ 16.44 $ 15.94
Significant factors affecting SouthFirst's financial condition during the six
months ended June 30, 2001 are detailed below:
ASSETS
Total assets decreased $9,176,000, or 5.7%, from $161,026,000 at September 30,
2000 to 151,850,000 at June 30, 2001. Net loans decreased $7,236,000, or 6.7%,
compared to September 30, 2000, primarily due to seasonal changes in mortgage
loan demand and the number of loans purchased. Investment securities available
for sale decreased $2,238,000, or 5.8% from $38,327,000 to $36,089,000.
LIABILITIES
Total liabilities decreased approximately $9,524,000, or 6.5%, from $146,100,000
at September 30, 2000 to $136,576,000 at June 30, 2001. Deposits decreased
approximately $2,993,000 during the period, borrowed funds decreased $6,984,000,
while accrued expenses and other liabilities increased approximately $364,000,
compared to September 30, 2000. The decrease in deposits was primarily
attributable to the relatively low interest rate environment. Many customers
with savings deposits have removed these accounts in search of higher yielding
alternatives. The decrease in borrowed funds is the result of the repayment of
FHLB advances. The increase in accrued expenses is primarily the result of
fluctuations in accounts payable balances.
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LOAN QUALITY
A major key to long-term earnings growth is maintenance of a high-quality loan
portfolio. SouthFirst maintains a high-quality loan portfolio by implementing
and carrying out its policies and procedures for review of loans. The goal and
result of these policies and procedures is to provide a sound basis for new
credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely disposition.
At June 30, 2001, the allowance for loan losses was $667,926 as compared to
$700,619 at September 30, 2000. The decrease is primarily due to the charge-off
of consumer loans. SouthFirst recorded provisions for loan losses of ($50,000)
and $5,572 in the first nine months of fiscal 2001 and 2000, respectively.
Nonperforming loans at June 30, 2001 were approximately $588,000 as compared to
approximately $1,258,000 at September 30, 2000. The reduction of non-performing
loans is due to charge-offs and loans transferred to repossessed assets. At June
30, 2001 and September 30, 2000, the allowance for loan losses represented 0.64%
and 0.64% of loans outstanding, respectively. The allowances for loan losses is
based upon management's continuing evaluation of the collectibility of the loan
portfolio under current economic conditions and includes analyses of underlying
collateral value and other factors which could affect collectibility. Management
considers the allowance for loan losses to be adequate based upon the
evaluations of specific loans, internal loan rating systems and guidelines
provided by the banking regulatory authorities governing First Federal. While
loans have decreased, management believes loan loss reserves are adequate due to
the fact significant loan charge-offs have not been experienced.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity is the ability of an organization to meet its financial commitments
and obligations on a timely basis. These commitments and obligations include
credit needs of customers, withdrawals by depositors, and payment of operating
expenses and dividends.
SouthFirst is required under applicable federal regulations to maintain
specified levels of cash and "liquid" investments in qualifying types of United
States Treasury and Federal Agency securities, and other investments generally
having maturities of five years or less. Such investments serve as a source of
funds upon which the Company may rely to meet deposit withdrawals and other
short-term needs. The Company closely monitors its cash flow position to assure
necessary liquidity and to take advantage of market opportunities. Management
believes that the Company's liquidity is adequate to fund all outstanding
commitments and other cash needs.
Changes in interest rates may lead to changes in the net interest margin. It is
the Company's goal to minimize volatility in the net interest margin by taking
an active role in managing the level, mix and maturities of assets and
liabilities.
To reduce the adverse effect of changes in interest rates on its net interest
margin, the Company is pursuing various strategies to improve the rate
sensitivity of its assets and stabilize net interest income.
CAPITAL ADEQUACY AND RESOURCES
Management is committed to maintaining First Federal's capital at a level
sufficient to protect depositors, provide for reasonable growth, and comply
fully with all regulatory requirements. Management's strategy to achieve this
goal is to retain sufficient earnings while providing a reasonable return on
equity.
The Office of Thrift Supervision has issued guidelines identifying minimum
regulatory "tangible" capital equal to 1.50% of adjusted total assets, a minimum
4.0% core capital ratio, and a minimum risk-based capital of 8.0% of
risk-weighted assets. First Federal has satisfied the majority of its capital
requirements through the retention of earnings.
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As of June 30, 2001, First Federal has satisfied all regulatory capital
requirements. First Federal's compliance with the current standards is as
follows:
Percent of
Amount asset base
------------ ----------
(Dollars in thousands)
Tangible Capital $ 14,618,000 9.66%
Core Capital 14,618,000 9.66%
Risk-Based Capital 15,214,000 16.59%
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-QSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, and
are made on the basis of management's plans and current analyses of the Company,
its business and the industry as a whole. These forward-looking statements are
subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and in
the future could affect, the Company's financial performance and could cause
actual results to differ materially from those expressed or implied in such
forward-looking statements. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
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SOUTHFIRST BANCSHARES, INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In the normal course of business, SouthFirst and First Federal from time to time
are involved in legal proceedings. Management believes that there are no pending
or threatened legal proceedings which, upon resolution, are expected to have a
material effect upon SouthFirst's or First Federal's financial condition.
Further, on January 19, 2000, Bobby R. Cook, President of the Western Division
of First Federal and a member of the Board of Directors of SouthFirst and First
Federal, filed a lawsuit, in Chilton County, Alabama, against First Federal,
SouthFirst and Donald C. Stroup, alleging wrongful termination of his
employment, as President of the Western Division, and other claims. On
January 24, 2000, the employment of Mr. Cook, was terminated for cause by the
Board of Directors of First Federal, pursuant to the provisions of Mr. Cook's
employment agreement with First Federal. Further, Mr. Cook, on January 25, 2000,
following the approval of the Board of Directors of SouthFirst, was removed for
cause as a member of the Board of Directors of First Federal, upon the unanimous
written consent of SouthFirst, the sole shareholder of First Federal. Management
believes Mr. Cook's lawsuit to be without merit and is vigorously defending the
case. Mr. Cook failed to receive a nomination to stand for election as a member
of the Board of Directors of SouthFirst, and, therefore, was not re-elected by
the shareholders of SouthFirst at the annual meeting of stockholders held on
April 11, 2001.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No Exhibits are filed with this report.
(b) Reports on Form 8-K. No report on form 8-K was filed during the quarter
ended June 30, 2001.
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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.
SOUTHFIRST BANCSHARES, INC.
Date: August 14, 2001 By: /s/ Donald C. Stroup
-------------------------------------------
Donald C. Stroup, President and
Chief Executive Officer
(principal executive officer)
Date: August 14, 2001 By: /s/ Joe K. McArthur
------------------------------------------
Joe K. McArthur, Executive Vice President
and Chief Financial Officer
(principal financial and accounting officer)
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