UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2002
[ ] 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: 000-23924
FIRST CENTRAL BANCSHARES, INC.
(Exact name of small business issue as specified in its charter)
Tennessee
(State or other jurisdiction of incorporation or organization)
725 Highway 321 North, Lenoir City, Tennessee 37771-0230
(Address of principal executive office)
62-1482501
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (865) 986-1300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock (par
value $5.00 per share)
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 [ ]
The number of outstanding shares of the registrant's Common Stock, par
value $5.00 per share, was 544,738 on October 31, 2002.
FORM 10-QSB
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001... .......................... 3
Consolidated Statements of Income for the three
months and nine months ended September 30, 2002
and 2001(Unaudited).............................................4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001(Unaudited)........5
Consolidated Statements of Comprehensive Income for
the three months and nine months ended September 30,
2002 and 2001(Unaudited)........................................6
Notes to Consolidated Financial Statements
for the nine month periods ended September 30,
2002 and 2001(Unaudited)......................................7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................9-14
Item 3. Controls and Procedures........................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................15
Item 2. Changes in Securities..........................................15
Item 3. Defaults upon Senior Securities................................15
Item 4. Submission of Matters to a Vote
of Securities Holders..........................................15
Item 5. Other Information..............................................15
Item 6. Exhibits and Reports on Form 8-K...............................15
Signatures...................................................................16
Certifications............................................................17-19
Page 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
- -ASSETS-
Cash and Due From Banks $ 5,770 $ 5,698
Federal Funds Sold 3,771 11,758
------- -------
Total Cash and Cash Equivalents 9,541 17,456
Investment Securities Available for Sale 36,929 31,559
Loans, Net 97,519 89,509
Premises and Equipment, Net 4,518 4,484
Accrued Interest Receivable 699 714
Other Assets 720 306
------- -------
TOTAL ASSETS $149,926 $144,028
======= =======
- -LIABILITIES AND SHAREHOLDERS' EQUITY-
Liabilities:
Deposits
Noninterest-Bearing $ 32,937 $ 22,184
Interest-Bearing 102,762 108,846
------- -------
Total Deposits 135,699 131,030
Securities Sold Under Agreement to Repurchase 522 820
Accrued Interest Payable 344 467
Other Liabilities 597 230
------- -------
Total Liabilities 137,162 132,547
------- -------
Shareholders' Equity:
Common Stock - Par Value $5.00, Authorized
2,000,000 Shares; Issued 564,361 Shares 2,822 2,822
Additional Paid-in Capital 5,430 5,430
Treasury Stock, at Cost; 19,623 Shares
(17,333 Shares at December 31, 2001) (485) (431)
Retained Earnings 4,422 3,641
Accumulated Other Comprehensive Income 575 19
------- --------
Total Shareholders' Equity 12,764 11,481
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $149,926 $144,028
======== =========
See accompanying notes to financial statements.
Page 3
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(In Thousands Except
Per Share Information)
----------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Loans $1,692 $1,784 $4,943 $5,373
Investment Securities 461 429 1,413 1,447
Federal Funds Sold 29 107 104 320
------ ------ ------ ------
Total Interest Income 2,182 2,320 6,460 7,140
------ ------ ------ ------
INTEREST EXPENSE
Deposits 816 1,214 2,613 3,720
Securities Sold Under
Agreement to Repurchase 2 4 10 17
------ ------ ------ ------
Total Interest Expense 818 1,218 2,623 3,737
------ ------ ------ ------
Net Interest Income 1,364 1,102 3,837 3,403
PROVISION FOR LOAN LOSSES 69 46 254 163
------ ------ ------ ------
Net Interest Income After
Provision for Loan Losses 1,295 1,056 3,583 3,240
------ ------ ------ ------
NONINTEREST INCOME
Service Charges on
Demand Deposits 234 252 718 765
Loan Fees and Other
Service Charges 101 129 286 376
Net Gain on Sales of Loans 133 68 299 194
Gain on Sales of Securities 0 0 21 0
Other 8 8 28 25
------ ------ ------ ------
Total Noninterest Income 476 457 1,352 1,360
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries and Employee
Benefits 742 635 2,124 1,865
Occupancy 115 110 346 323
Data Processing Fees 101 128 353 387
Furniture and Equipment 82 85 237 260
Federal Insurance Premiums 14 12 43 36
Advertising and Promotion 30 24 93 67
Office Supplies and Postage 65 66 201 197
Other 98 85 290 255
------ ------ ------ ------
Total Noninterest Expense 1,247 1,145 3,687 3,390
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 524 368 1,248 1,210
INCOME TAXES 203 134 467 456
------ ------ ------ ------
NET INCOME $ 321 $ 234 $ 781 $ 754
====== ====== ====== ======
BASIC EARNINGS PER COMMON
SHARE $ 0.59 $ 0.42 $ 1.43 $ 1.35
====== ====== ====== ======
See accompanying notes to financial statements.
Page 4
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended
September 30,
--------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 781 $ 754
----- -----
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 254 163
Depreciation 189 218
(Gain) on Sales of Investment Securitie (21) -0-
Loss on Sale of Fixed Assets -0- 14
Net (Gain) on Sales of Loans (299) (194)
Decrease (Increase) in Interest Receiva 15 293
(Decrease) in Interest Payable (123) 9
Amortization of Premiums (Discounts) on
Investment Securities, Net 94 (96)
FHLB Stock Dividends (15) (21)
(Increase) in Other Assets (414) (150)
(Decrease) in Other Liabilities 27 121
------ ------
Total Adjustments (293) 357
------ ------
Net Cash Provided by Operating Activities 488 1,111
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Maturities, Principal Paydowns and
Redemption of Investment Securities Available
for Sale 15,611 19,937
Proceeds From Sales of Investment Securities
Available for Sale 2,771 -0-
Purchase of Investment Securities Available
for Sale (22,914) (15,562)
Net (Increase) in Loans (43,802) (37,600)
Proceeds From Sales of Loans 35,837 29,017
Purchase of Premises and Equipment (223) (34)
Sales of Premises and Equipment -0- 19
------ ------
Net Cash Used in Investing Activities (12,720) (4,223)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Deposits 4,669 11,221
Decrease in Securities Sold Under
Agreement to Repurchase (298) 615
Purchases of Common Stock (59) (191)
Sale of Treasury Stock 5 130
------ ------
Net Cash Provided by Financing Activities 4,317 11,775
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,915) 8,663
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,456 10,769
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,541 $ 19,432
====== ======
Supplementary Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 2,746 $ 3,728
Income Taxes $ 441 $ 511
Supplementary Disclosures of Noncash Investing Activities:
Change in Unrealized Gain(Loss) on Investment Securities $ 896 $ 766
Change in Deferred Income Tax Benefit Associated with
Unrealized Gain(Loss) on Investment Securities $ 340 $ 291
Change in Net Unrealized Gain(Loss) on
Investment Securities $ 556 $ 475
See accompanying notes to financial statements.
Page 5
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Net Income $ 321 $234 $ 781 $ 754
---- ---- ---- ----
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gains/Losses on
Investment Securities 332 253 917 766
Reclassification Adjustment
for Gains Included in
Net Income -0- -0- (21) -0-
Income Taxes Related to
Unrealized Gains/Losses
on Investment Securities (126) (96) (340) (291)
----- ---- ---- ----
Other Comprehensive Income
(Loss), Net of Tax 206 157 556 475
----- ---- ---- ----
Comprehensive Income $ 527 $ 391 $1,337 $1,229
===== ==== ===== =====
See accompanying notes to financial statements.
Page 6
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2002 and 2001
NOTE 1 - ORGANIZATION AND BUSINESS
First Central Bancshares, Inc. (the "Company") was incorporated in 1993 for the
purpose of becoming a one bank holding company. On April 3, 1993, the Company
acquired 100% of First Central Bank (the "Bank") through a share exchange
agreement approved by the shareholders of the Bank. The investment in First
Central Bank represents virtually all of the assets of First Central Bancshares,
Inc.
The consolidated financial statements include the accounts of First Central
Bancshares, Inc., its wholly owned subsidiary, First Central Bank, and the
Bank's subsidiary, FCB Financial Services, Inc. All significant intercompany
transactions and balances have been eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the
Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. In the
opinion of the Company's management, the disclosures made are adequate to make
the information presented not misleading, and the consolidated financial
statements contain all adjustments necessary to present fairly the financial
position as of September 30, 2002, results of operations and comprehensive
income for the three months and nine months ended September 30, 2002 and 2001,
and cash flows for the nine months ended September 30, 2002 and 2001.
The results of operations for the three months and nine months ended September
30, 2002 are not necessarily indicative of the results to be expected for the
full year.
NOTE 3 - STOCK OPTION PLAN
On April 20, 2000, the shareholders of the Company approved a stock option plan
which reserves 25,000 shares of the Company's common stock for present and
future employees as an incentive for long-term employment. As of September 30,
2002, the plan has not been implemented and no options have been awarded.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares
outstanding during the period. For the nine months ended September 30, 2002 and
2001 the weighted average number of shares outstanding was 546,943 and 560,035,
respectively. For the three months ended September 30, 2002 and 2001, the
weighted average number of shares outstanding was 546,503 and 560,467,
respectively. During both the three and nine month periods ended September 30,
2002 and 2001 the Company did not have any dilutive securities.
NOTE 5 - RECENT REGULATORY AND ACCOUNTING PRONOUNCEMENTS
The Bank is state chartered and federally insured, and is subject to the rules
and regulations of the Tennessee Department of Financial Institutions (the
"TDFI") and the Federal Deposit Insurance Corporation (the "FDIC"). The holding
company is also subject to the rules and regulations of the Federal Reserve Bank
(the "FRB") and the Securities and Exchange Commission (the "SEC").
Page 7
NOTE 5 - RECENT REGULATORY AND ACCOUNTING PRONOUNCEMENTS, continued
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No.
142 Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Since the Company has not purchased any other banks or
entities, this statement is not expected to have any impact on the Company's
consolidated financial statements. SFAS 142 requires that goodwill and other
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment annually. SFAS 142 is effective January 1,
2002. Since the Company does not have any goodwill or other intangible assets,
this statement is not expected to have any impact on its consolidated financial
position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard, No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset except for certain
obligations of lessees. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. Since the Company does
not have any legal obligations as described above, this statement is not
expected to have any impact on the Company's consolidated financial position or
results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. This statement is not expected to have a significant impact on the
Company's consolidated financial position or results of operations.
In October 2002, the Financial Accounting Standards Board issued Statement of
Financial Standard No. 147, Accounting for Certain Financial Institutions. This
statement removes acquisitions of financial institutions from the scope of FASB
Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17
When a Savings and Loan Association or a Similar Institution Is Acquired in a
Business Combination Accounted for by the Purchase Method. In addition, this
statement amends FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, to include in its scope long-term customer
relationship intangible assets of financial institutions such as depositor - and
borrower-relationship intangible assets and credit cardholder intangible assets.
This statement intends to improve the comparability of financial reporting by
requiring institutions to follow FASB Statement No. 141, Business Combinations.
SFAS No. 147 is effective for acquisitions for which the date of acquisition is
on or after October 1, 2002. Management does not expect this statement to have a
significant impact on the Company's financial position or results of operations.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
BALANCE SHEET ANALYSIS - COMPARISON AT SEPTEMBER 30, 2002 TO DECEMBER 31, 2001
Assets totaled $149.9 million as of September 30, 2002, as compared to $144.0
million as of December 31, 2001, an increase of 4.10%.
INVESTMENT SECURITIES
Investment securities were $36.9 million or 24.6% of total assets, as of
September 30, 2002, which is an increase of $5.3 million from $31.6 million as
of December 31, 2001. During the nine month period ended September 30, 2002,
there were $15.6 million in calls, maturities, and principal paydowns and $2.8
million in sales of investment securities offset primarily by the purchase of
$22.9 million in investment securities and an increase in the market value of
the investment portfolio of $896,000.
The investment portfolio is comprised of U.S. Government and federal agency
obligations and mortgage-backed securities issued by various federal agencies.
Mortgage-backed issues comprised 43.45% of the portfolio as of September 30,
2002 and 57.13% as of December 31, 2001.
As of September 30, 2002 and December 31, 2001, the Bank's entire investment
portfolio was classified as available for sale and reflected on the consolidated
balance sheets at fair value with unrealized gains and losses reported in the
consolidated statements of comprehensive income, net of any deferred tax effect.
The net unrealized gain on securities available for sale, net of tax, was
approximately $575,000 as of September 30, 2002, a change of approximately
$556,000 from December 31, 2001, a result of a fairly strong bond market. The
fair value of securities fluctuates with the movement of interest rates.
Generally, during periods of decreasing interest rates, the fair values increase
whereas the opposite may hold true during a rising interest rate environment.
LOANS
During the first nine months of 2002, total gross loans outstanding increased by
approximately $7.8 million to $98.4 million as of September 30, 2002 from $90.6
million as of December 31, 2001. The Bank originated and sold approximately
$35.5 million of loans during the first nine months of the year. As of September
30, 2002 and December 31, 2001, net loans outstanding represented 65.0% and
62.1% of total assets, respectively. Table 1 summarizes the Bank's loan
portfolio by major category as of September 30, 2002 and December 31, 2001.
Table 1 - Loan Portfolio by Category
(In Thousands)
---------------------------------
September 30, December 31,
2002 2001
------------- ------------
Loans secured by real estate:
Commercial properties $38,068 $30,472
Construction and land development 12,661 14,341
Residential and other properties 27,495 26,058
--------- ----------
Total loans secured by real estate 78,224 70,871
Commercial and industrial loans 11,417 10,092
Consumer loans 8,615 9,311
Other loans 176 347
--------- ----------
98,432 90,621
Less: Allowance for loan losses (886) (967)
Unearned interest (38) (101)
Net unearned/deferred loan (fees) costs 11 (44)
--------- ----------
Loans, Net $97,519 $89,509
========= ==========
Page 9
Table 1 - Loan Portfolio by Category, continued
As of September 30, 2002, there were outstanding commitments to advance
construction funds and to originate loans in the amount of $6.7 million and
commitments to advance existing home equity, letters of credit and other credit
lines in the amount of $18.7 million.
Loans are carried net of the allowance for loan losses. The allowance is
maintained at a level to absorb possible losses within the loan portfolio. As of
September 30, 2002 and December 31, 2001, the allowance had a balance of
approximately $886,000 and $967,000, respectively. There were approximately
$359,000 and $305,000 of loans on which the accrual of interest had been
discontinued as of September 30, 2002 and December 31, 2001, respectively. There
were approximately $1,917,000 in loans specifically classified as impaired as of
September 30, 2002 as defined by SFAS No. 114 compared to $1,472,000 as of
December 31, 2001. Table 2 summarizes the allocation of the loan loss reserve by
major categories and Table 3 summarizes the activity in the loan loss reserve
for the nine month period.
Table 2 - Allocation of the Loan Loss Reserve (Dollars in Thousands)
September 30, 2002 December 31, 2001
% to % of % to % of
Balance applicable to: $ Amount Total Portfolio $ Amount Total Portfolio
-------- ----- --------- -------- ----- ---------
Commercial properties $245 27.65% 38.67% $221 22.85% 33.63%
Construction and land
development 100 11.29 12.86 104 10.75 15.83
Residential and other
properties 146 16.48 27.93 150 15.51 28.75
Commercial and industrial
loans 140 15.80 11.60 189 19.54 11.14
Consumer loans 213 24.04 8.75 269 27.82 10.27
Other loans 42 4.74 0.19 34 3.53 0.38
---- ------- ------- ---- ------- -------
Total $886 100.00% 100.00% $967 100.00% 100.00%
==== ======= ======= ==== ======= =======
Table 3 - Analysis of Loan Loss Reserve (Dollars in Thousands)
Sept. 30, Sept.30,
2002 2001
------ ------
Balance, beginning of period $967 $739
---- ----
Charge-offs:
Commercial, financial,
and agricultural 84 10
Real estate, construction -0- -0-
Real estate, mortgages 20 -0-
Installment, customers 290 143
Other -0- -0-
Recoveries:
Commercial, financial,
and agricultural -0- -0-
Real estate, construction -0- -0-
Real estate, mortgages -0- -0-
Installment, consumers 59 40
Other -0- -0-
---- ----
Net charge-offs 335 113
Additions to loan loss reserve 254 163
---- ----
Balance, end of period $886 $789
==== ====
Ratio of net charge-offs to average loans outstanding .37% .14%
Page 10
DEPOSITS
Deposits increased by $4.7 million to $135.7 million as of September 30, 2002
from $131.0 million as of December 31, 2001, an increase of 3.59%. Demand
deposits, which include regular, money market, NOW and demand deposits, were
$72.0 million, or 53.1% of total deposits, at September 30, 2002. Core deposits
were 28.8% of total deposits at September 30, 2002. During the nine month
period, the Bank had increases in the balances in the demand deposit category of
$11.7 million to $72.0 million as of September 30, 2002. Term deposit accounts
were $63.7 million at September 30, 2002, a decrease of $7.0 million compared to
$70.7 million as of December 31, 2001. Table 4 summarizes the Bank's deposits by
major category as of September 30, 2002 and December 31, 2001.
Table 4 - Deposits by Category
(In Thousands)
----------------------------------
September 30, December 31,
2002 2001
------------- ------------
Demand Deposits:
Noninterest-bearing accounts $ 32,937 $ 22,184
NOW and MMDA accounts 31,254 31,715
Savings accounts 7,848 6,417
-------- ---------
Total Demand Deposits 72,039 60,316
-------- ---------
Term Deposits:
Less than $100,000 45,862 51,722
$100,000 or more 17,798 18,992
-------- ---------
Total Deposits 63,660 70,714
-------- ---------
$135,699 $131,030
======== =========
CAPITAL
During the nine month period ended September 30, 2002, shareholders' equity
increased by $1.3 million to $12.8 million, due to net income for the period of
$781,000, the net increase in value of securities available for sale of
$556,000, $59,000 of treasury stock purchases and the sale of $5,000 of treasury
stock.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of liquidity are deposit balances, available-for-sale
securities, principal and interest payments on loans and investment securities
and FHLB advances.
As of September 30, 2002, the Bank held $36.9 million in available-for-sale
securities and during the first nine months of 2002 the Bank received $18.4
million in proceeds from sales, maturities, and principal payments on its
investment portfolio. Deposits increased by $4.7 million during the same nine
month period.
The Bank is a member of the Federal Home Loan Bank of Cincinnati (the "FHLB")
and is eligible to obtain both short and long term credit advances. Borrowing
capacity is limited to the Bank's available qualified collateral which consists
primarily of certain 1-4 family residential mortgages and certain investment
securities. The Bank had no advances outstanding from the FHLB at September 30,
2002.
The Bank can also enter into repurchase agreement transactions should the need
for additional liquidity arise. At September 30, 2002, the Bank had $522,000 of
repurchase agreements outstanding.
As of September 30, 2002, the Bank had capital of $12.8 million, or 8.5% of
total assets, as compared to $11.5 million, or 8.0%, at December 31, 2001.
Tennessee chartered banks that are insured by the FDIC are subject to minimum
capital requirements. Regulatory guidelines define the minimum amount of
qualifying capital an institution must maintain as a percentage of risk-weighted
assets and total assets.
Page 11
Table 5 - Regulatory Capital
(Dollars in Thousands)
--------------------------------------------------
Minimum
September 30, December 31, Regulatory
2002 2001 Ratios
-------------- -------------- -------------
Tier 1 Capital as a Percentage
of Risk-Weighted Assets 11.4% 11.7% 4.00%
Total Capital as a Percentage
of Risk-Weighted Assets 12.2% 12.7% 8.00%
Leverage Ratio 8.4% 8.1% Up to 5.00%
Total Risk-Weighted Assets $107,303 $97,627
As of September 30, 2002 and December 31, 2001, the Bank exceeded all of the
minimum regulatory capital ratio requirements.
RESULTS OF OPERATIONS - NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
GENERAL
The Bank reported net income of $781,000, or $1.43 per share for the nine month
period ended September 30, 2002 as compared with $754,000 or $1.35 per share for
the same period in 2001, an increase of 3.58%.
NET INTEREST INCOME
Net interest income increased $434,000 to $3.8 million for the nine month period
in 2002 from the comparable period in 2001. Contributing to this increase was an
increase in average interest earning assets. Average interest earning assets at
a yield of 6.45% totaled $134.0 million as of September 30, 2002. In comparison
to 2001, average interest earning assets, at a yield of 7.78%, totaled $122.8
million.
Total interest income decreased $680,000 for the nine month period ended
September 30, 2002 compared to the same period in 2001, while the average
balance in interest earning assets increased approximately $11.2 million, or
9.1%, compared to the nine month period ended September 30, 2001. Interest
income on loans decreased $430,000 over the same two periods due to a lower
interest rate environment, while average loans outstanding increased
approximately $7.6 million. The average yield on loans decreased from 8.73% for
the nine month period ended September 30, 2001 to 7.35% for the nine month
period ended September 30, 2002. Over the same two periods, interest on
investments decreased $34,000 due to a decrease in the yield on investments. The
yield on taxable investments decreased from 6.62% to 5.39% and the yield for
nontaxable investments decreased from 3.78% to 3.63% for the nine month period
ended September 30, 2002 compared to the same period in 2001. The average
balance of investments increased approximately $5.5 million or 18.0% for the
nine month period ended September 30, 2002, compared to the same period in 2001.
Interest income on Federal Funds Sold decreased by $216,000 due to a decrease in
the yield on Federal Funds Sold from 4.27% during the nine months ended
September 30, 2001 to 1.70% for the same period in 2002, and a decrease in
average balance outstanding of $1.8 million over the same period in 2001.
Total interest expense decreased $1,114,000 for the nine month period ended
September 30, 2002 compared to the same period in 2001. Interest on deposits
decreased as a result of a decrease in the yield on deposits over the same
period in 2001. The average rate on interest-bearing liabilities decreased to
3.31% for the nine month period in 2002 from 4.96% in the comparable period of
2001, while the average balance on interest-bearing liabilities increased by
approximately $5.2 million from $100.8 million to $106.0 million.
Page 12
Table 6 - Average Balances, Interest and Average Rates
September 30
------------------------------------------------------------------------
2002 (Dollars in thousands) 2001
------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
Assets:
Federal Funds Sold $ 8,198 $ 104 1.70% $ 10,014 $ 320 4.27%
Investments:
Taxable Securities 33,202 1,339 5.39% 27,588 1,366 6.62%
Tax-Free Securities 2,725 74 3.63% 2,863 81 3.78%
Total Loans, Including
Amortized Fees 89,859 4,943 7.35% 82,301 5,373 8.73%
-------- -------- ------- --------- -------- -------
Total Interest Earning
Assets 133,984 6,460 6.45% 122,766 7,140 7.78%
Cash and Due From Banks 4,549 4,364
All Other Assets 5,477 5,645
Loan Loss Reserve/
Unearned Fees (988) (1,010)
--------- ---------
TOTAL ASSETS $143,022 $131,765
========= =========
Liabilities and Shareholders' Equity:
Interest-Bearing Deposits:
Term Deposits $ 67,073 2,196 4.38% $ 70,351 3,111 5.91%
Other Deposits 38,225 417 1.46% 29,886 609 2.72%
Repurchase Agreements 687 10 1.95% 541 17 4.20%
--------- ------ ----- --------- ----- -----
Total Interest-Bearing
Liabilities 105,985 2,623 3.31% 100,778 3,737 4.96%
------ ----- ----- -----
Net Interest Income $3,837 $3,403
====== ======
Noninterest-Bearing
Deposits 24,441 19,154
Total Cost of Funds 2.69% 4.17%
All Other Liabilities 559 669
Shareholders' Equity 11,822 11,109
Unrealized Gain/Loss on
Securities 215 55
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $143,022 $131,765
========= =========
Net Interest Yield 3.14% 2.82%
Net Interest Margin 3.83% 3.71%
Table 7 - Interest Rate Sensitivity
(In Thousands)
September 30, 2002
-------------------------------------------------------------
Less One Year Greater Non-
Than Through Than Interest
1 Year 5 Years 5 Years Bearing Total
------- -------- ------- -------- --------
Assets:
Federal Funds Sold $ 3,771 $ 3,771
Investments 11,415 $10,159 $15,355 36,929
Loans 69,817 27,193 509 97,519
Noninterest-Earning Assets $ 11,707 11,707
-------- -------- ------- --------- --------
85,003 37,352 15,864 11,707 149,926
-------- -------- ------- --------- --------
Liabilities and Shareholders'
Equity:
Interest-Bearing Deposits 85,317 17,445 102,762
Noninterest-Bearing Deposits 32,937 32,937
Repurchase Agreements 522 522
Noninterest-Bearing Liabilities
and Shareholders' Equity 13,705 13,705
-------- ------- ------- --------- --------
Total 85,839 17,445 -0- 46,642 149,926
-------- ------- ------- --------- --------
Interest Rate Sensitivity Gap (836) 19,907 15,864 (34,935) -0-
-------- ------- ------- --------- --------
Cumulative Interest Rate
Sensitivity Gap $ (836) $19,071 $34,935 $ -0- $ -0-
======== ======= ======= ========= ========
Page 13
NONINTEREST INCOME
Total noninterest income was $1,352,000 for the nine month period ended
September 30, 2002 as compared to $1,360,000 for the same period in 2001, a
decrease of $8,000. Noninterest income is comprised primarily of customer
service fees, loan fees, gain on sales of loans, and other items. The decrease
in noninterest income is due primarily to a decrease in service charges on
demand deposits of $47,000, and a decrease in loan fees and other service
charges of $90,000, offset by an increase of the gains on the sales of loans of
$105,000 and an increase in the gain on sales of investment securities of
$21,000.
NONINTEREST EXPENSE
Total noninterest expense was $3.69 million, or 2.58% of average total assets,
for the nine month period ended September 30, 2002 as compared to $3.39 million,
or 2.57%, for the same period in 2001. Noninterest expenses increased in part
due to the opening of a loan production office in Madisonville, Tennessee during
the first quarter of 2002 and the subsequent conversion of this office to a full
service branch in September 2002. Salaries and employee benefits, occupancy,
advertising and promotion, office supplies, postage, and other noninterest
expense are categories of expenses which increased when comparing the two
periods. The percentage of operating expenses remained level as average total
assets increased approximately $11.3 million for the year ended September 30,
2002.
INCOME TAXES
The Bank recognizes income taxes using the Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are established for the temporary differences between the
accounting basis and the tax basis of the Bank's assets and liabilities at
enacted tax rates expected to be in effect when the amounts related to such
temporary differences are realized or settled. The Bank's deferred tax asset is
reviewed quarterly and adjustments to such asset are recognized as deferred
income tax expense or benefit based on management's judgment relating to the
realizability of such asset.
During the nine month period ending September 30, 2002, the Bank recorded
$467,000 in tax expense which resulted in an approximate effective rate of
37.4%. Comparably, in 2001, the Bank recorded $456,000 in tax expense, resulting
in an approximate effective rate of 37.7%.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer, its President and its acting Chief Financial Officer have
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c))
as of a date within 90 days of the filing date of this quarterly report. Based
on that evaluation, the Chief Executive Officer, the President and the acting
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective to ensure that material information relating to the
Company and the Company's consolidated subsidiaries is made known to such
officers by others within these entities, particularly during the period this
quarterly report was prepared, in order to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Controls. There have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Page 14
FIRST CENTRAL BANCSHARES, INC. AND SUBSIDIARY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed as a part of this report:
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed
by Ed F. Bell, Chairman and Chief Executive Officer of First
Central Bancshares, Inc. on November 12, 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed
by Joseph Hamdi, President on November 12, 2002
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed
by Ralph Micalizzi, Vice President, Cashier and Controller
(acting Chief Financial Officer) on November 12, 2002
(b) Reports on Form 8-K
None
Page 15
FORM 10-QSB
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 CENTRAL BANCSHARES, INC.
/s/ Ed F. Bell
Date: November 12, 2002 By:--------------------------------------------
Ed F. Bell, Chairman and Chief Executive
Officer
/s/ Joseph Hamdi
Date: November 12, 2002 By:--------------------------------------------
Joseph Hamdi, President
/s/ Ralph Micalizzi
Date: November 12, 2002 By:--------------------------------------------
Ralph Micalizzi, Vice President,
Cashier and Controller, First Central
Bank (Acting Chief Financial Officer)
Page 16
Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Ed F. Bell, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First Central
Bancshares, Inc. ("First Central");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of First Central as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Ed F. Bell
Date: November 12, 2002 -----------------------------------------
Ed F. Bell
Chairman of the Board and Chief
Executive Officer
Page 17
Certification of President
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Joseph Hamdi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First Central
Bancshares, Inc. ("First Central");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of First Central as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Joseph Hamdi
Date: November 12, 2002 --------------------------------------
Joseph Hamdi
President
Page 18
Certification of Acting Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Ralph Micalizzi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First Central
Bancshares, Inc. ("First Central");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of First Central as of, and for, the periods presented in this
quarterly report. 4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Ralph Micalizzi
Date: November 12, 2002 ---------------------------------------
Ralph Micalizzi
Vice President, Cashier
and Controller, First Central Bank
(Acting Chief Financial Officer)
Page 19