-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A6dFhrDNmfpF/CoQJa6zN9zNUMVatLJWOVWKvDLSfUvYx0GUv8tlBJzP4nGG16ib wA7a5tAIZwqiRcWjPYPD4w== 0000912057-97-027793.txt : 19970815 0000912057-97-027793.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-027793 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALFED INC CENTRAL INDEX KEY: 0000793075 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570821295 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15334 FILM NUMBER: 97660487 BUSINESS ADDRESS: STREET 1: PO BOX 1116 CITY: AIKEN STATE: SC ZIP: 29802 BUSINESS PHONE: 8036421400 MAIL ADDRESS: STREET 1: PO BOX 1116 CITY: AIKEN STATE: SC ZIP: 29802 10-Q 1 FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarter ended SEC Commission File June 30, 1997 Docket Number 0-15334 - ---------------------- --------------------- PALFED, INC. ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) South Carolina 57-0821295 - -------------------------------- ------------- (State or other jurisdiction of (IRS Employer incorporation or organization) identification number) 107 Chesterfield Street South Aiken, South Carolina 29801 - -------------------------------- ------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (803) 642-1400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO ----- ----- There were 5,284,113 shares of Common Stock outstanding on June 30, 1997. PALFED, Inc. Quarterly Report on Form 10-Q For The Quarter Ended June 30, 1997 TABLE OF CONTENTS PART I--FINANCIAL INFORMATION ITEM PAGE - ---- ------- 1. Financial Statements Consolidated Statements of Financial Condition as of June 30, 1997 and December 31, 1996. 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1997 and 1996. 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996. 5 Notes to Consolidated Financial Statements 7 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II--OTHER INFORMATION ITEM - ---- 4. Submission of Matters To a Vote of Security Holders 19 5. Other Information 19 6. (a) Exhibits 19 (b) Reports on Form 8-K 19 Exhibit 10.1 20 Exhibit 11.1 21 SIGNATURES 22 2 Consolidated Statements of Financial Condition (Unaudited)
PALFED, INC. JUNE 30 DECEMBER 31 AND SUBSIDIARIES 1997 1996 ---------- ------------ (in thousands, except share data) ASSETS Cash and due from banks................................................................. $ 12,748 $ 16,942 Interest-bearing deposits with other banks.............................................. 4,345 3,465 Investment and mortgage-backed securities: Available-for-sale................................................................... 25,719 24,007 Held-to-maturity..................................................................... 52,453 58,700 Loans held-for-sale..................................................................... 7,227 11,241 Loans receivable, net................................................................... 534,056 512,879 Investment in real estate, net.......................................................... 11,709 13,501 Investment in Federal Home Loan Bank stock.............................................. 3,479 10,884 Premises and equipment, net............................................................. 5,943 5,958 Accrued interest receivable............................................................. 3,987 3,835 Other assets............................................................................ 3,197 3,845 ---------- ------------ $ 664,863 $ 665,257 ---------- ------------ ---------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing accounts...................................................... $ 33,523 $ 30,577 Savings and NOW accounts.......................................................... 122,759 121,432 Certificates of deposit........................................................... 400,494 384,678 Accrued interest payable.......................................................... 5,456 3,441 ---------- ------------ Total deposits................................................................ 562,232 540,128 Federal Home Loan Bank advances......................................................... 42,600 68,400 Other liabilities....................................................................... 5,258 4,906 ---------- ------------ Total liabilities....................................................................... 610,090 613,434 ---------- ------------ Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value; authorized 10,000,000 shares; 5,284,113 and 5,231,317 shares issued and outstanding, respectively......................................... 5,284 5,231 Additional paid-in capital............................................................ 28,343 28,115 Retained earnings..................................................................... 22,811 20,320 Unearned compensation................................................................. (1,048) (1,128) Net unrealized loss on securities, net of tax benefit of $318 and $369, respectively.. (617) (715) ---------- ------------ Total stockholders' equity.......................................................... 54,773 51,823 ---------- ------------ $ 664,863 $ 665,257 ---------- ------------ ---------- ------------
The accompanying notes are an integral part of these consolidated financial statements. 3 Consolidated Statements of Income (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- -------------------- PALFED, INC. JUNE 30 JUNE 30 JUNE 30 JUNE 30 AND SUBSIDIARIES 1997 1996 1997 1996 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income: Loans receivable.................................................... $ 12,184 $ 10,764 $ 23,911 $ 21,154 Mortgage-backed securities.......................................... 1,034 1,005 2,084 2,163 Investment securities............................................... 355 595 725 1,287 Other............................................................... 52 49 117 124 --------- --------- --------- --------- Total interest income......................................... 13,625 12,413 26,837 24,728 --------- --------- --------- --------- Interest expense: Deposits............................................................ 6,594 6,038 12,981 12,040 Other borrowings.................................................... 642 970 1,433 2,230 --------- --------- --------- --------- Total interest expense........................................ 7,236 7,008 14,414 14,270 --------- --------- --------- --------- Net interest income................................................... 6,389 5,405 12,423 10,458 Provision for estimated losses on loans............................... 287 247 624 586 --------- --------- --------- --------- Net interest income after provision for estimated loan losses......... 6,102 5,158 11,799 9,872 Noninterest income: Checking transaction fees........................................... 523 597 1,075 1,201 Financial services fees............................................. 121 220 370 455 Late charge and other fees.......................................... 109 121 253 276 Net trading account gains and losses................................ 89 (15) 208 132 Gain on sales of available-for-sale securities...................... 15 60 15 174 Gain on sales of loans.............................................. 63 49 116 283 Real estate operations.............................................. (328) (21) (480) (175) Other............................................................... 213 193 370 389 --------- --------- --------- --------- Total noninterest income...................................... 805 1,204 1,927 2,735 --------- --------- --------- --------- Noninterest expenses: Compensation and employee benefits.................................. 2,672 2,456 5,460 4,980 Occupancy and equipment............................................. 785 711 1,585 1,464 Federal insurance premiums and assessments.......................... 162 353 319 707 Professional and outside service fees............................... 388 418 733 700 Data processing..................................................... 229 251 434 418 Advertising and public relations.................................... 212 225 361 423 Other............................................................... 157 222 368 490 --------- --------- --------- --------- Total noninterest expenses.................................... 4,605 4,636 9,260 9,182 --------- --------- --------- --------- Income before provision for income taxes.............................. 2,302 1,726 4,466 3,425 Provision for income taxes............................................ 845 595 1,659 1,202 --------- --------- --------- --------- Net income............................................................ $ 1,457 $ 1,131 $ 2,807 $ 2,223 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share.................................................... $ 0.27 $ 0.22 $ 0.53 $ 0.43 --------- --------- --------- --------- --------- --------- --------- --------- Dividends per share................................................... $ 0.03 $ 0.02 $ 0.06 $ 0.04 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 4 Consolidated Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED JUNE 30, PALFED, INC. -------------------- AND SUBSIDIARIES 1997 1996 --------- --------- (IN THOUSANDS) Operating Activities: Cash flows from operating activities : Net income.............................................................................. $ 2,807 $ 2,223 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization......................................................... 378 402 Provision for estimated losses on loans and real estate............................... 849 655 Other gains, net...................................................................... (169) (603) Proceeds from sales of loans held-for-sale............................................ 6,115 12,118 Originations of loans held-for-sale................................................... (18,816) (24,348) Proceeds from sales of trading account securities..................................... 24,016 9,542 Gain on sale of available-for-sale securities......................................... (15) (174) Changes in: Accrued interest receivable, net.................................................. (152) 252 Accrued interest payable.......................................................... 2,015 2,860 Other assets...................................................................... 598 944 Other liabilities (excluding deferred income)..................................... (434) (2,265) Other, net............................................................................ 114 702 --------- --------- Net cash provided by operating activities............................................. 17,306 2,308 --------- --------- Investing activities: Cash flows from investing activities: Proceeds from sale of FHLB stock........................................................ 7,405 Proceeds from sales of available-for-sale securities.................................... 2,708 19,001 Principal collections on available-for-sale securities.................................. 736 11,992 Purchases of available-for-sale securities.............................................. (5,131) (2,572) Net increase in loans receivable........................................................ (28,543) (28,427) Purchases of held-to-maturity securities................................................ (4,068) Principal collections and maturities of held-to-maturity securities..................... 6,350 5,732 Proceeds from sales of foreclosed real estate........................................... 1,182 1,857 Purchase of premises and equipment...................................................... (449) (921) Other, net.............................................................................. 13 1,024 --------- --------- Net cash provided by investing activities............................................. (15,729) 3,618 --------- ---------
5 Consolidated Statements of Cash Flows (Unaudited) SIX MONTHS ENDED JUNE 30, PALFED, INC. 1997 1996 AND SUBSIDIARIES -------- -------- (IN THOUSANDS) Financing activities: Cash flows from financing activities : Net increase in deposit accounts.................... 20,090 18,062 Proceeds from FHLB advances......................... 56,150 50,800 Repayments of FHLB advances......................... (81,950) (79,900) Payment of cash dividend............................ (317) (209) Other, net.......................................... 1,136 427 ------- ------- Net cash used by financing activities................. (4,891) (10,820) ------- ------- Net decrease in cash and cash equivalents............. (3,314) (4,894) Cash and cash equivalents, beginning of period....... 20,407 21,325 ------- ------- Cash and cash equivalents, end of period.............. $ 17,093 $16,431 ------- ------- ------- ------- Supplemental disclosures of cash flow information: Cash paid for: Interest.......................................... $ 12,400 $10,345 Income taxes...................................... 1,200 797 Supplemental schedule of noncash investing and financing activities: Securitizations of mortgage loans.................. $ 23,808 $ 9,411 Conversion of adjustable rate and construction loans receivable to 30 year fixed rate mortgage loans held-for-sale.............................. 6,955 6,125 Real estate acquired through foreclosure........... 1,282 2,677 Financed sales of foreclosed real estate........... 1,498 1,042 Issuance of common stock as compensation........... 36 81 The accompanying notes are an integral part of these financial statements. 6 PALFED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The accounting and reporting policies of PALFED, Inc. and Subsidiaries (the "Company") conform to generally accepted accounting principles and to general practice within the thrift industry. They reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods presented. These adjustments are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements, the related notes, and the report of independent accountants included in the Company's Annual Report to Shareholders for the year ended December 31, 1996. The year end consolidated statement of financial condition data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results of operations for the three and six months ended June 30, 1997 are not necessarily indicative of the results to be expected for a full year. RECENTLY ISSUED ACCOUNTING STANDARDS Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", as amended by SFAS No. 127, "Deferral of Certain Provisions of FASB Statement No. 125". SFAS No. 125 establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities and also provides consistent standards for distinguishing financial asset sales from secured borrowings. Finally, SFAS No. 125 amended certain other standards related to extinguishments of debts, transfers of receivables with recourse, accounting for certain investments, mortgage servicing rights and mortgage banking activities. The adoption of SFAS No. 125 did not have a material impact on the financial condition or results of operations of the Company. The Financial Accounting Standards Board ("FASB") has issued SFAS No. 128, "Earnings Per Share", which simplifies the present standards for computing earnings per share ("EPS"). SFAS No. 128 replaces primary EPS with basic EPS which excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. SFAS No. 128 replaces fully diluted EPS with diluted EPS which reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised. SFAS No. 128 is effective for the Company as of December 31, 1997. The following presents EPS for the three and six months ended June 30, 1997 and 1996 if SFAS No. 128 had been in 7 effect:
THREE MONTHS SIX MONTHS 1997 1996 1997 1996 --------- ----------- --------- --------- Basic earnings per share....................................................... $ 0.28 $ 0.22 $ 0.54 $ 0.43 --------- --------- --------- --------- --------- --------- --------- --------- Diluted earnings per share..................................................... $ 0.27 $ 0.22 $ 0.53 $ 0.43 --------- --------- --------- --------- --------- --------- --------- ---------
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information About Capital Structure", which consolidates the existing requirements to disclose certain information about an entity's capital structure and is not expected to change the Company's current capital structure disclosures. SFAS No. 129 is effective for the Company for the year ending December 31, 1997. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The purpose of reporting comprehensive income is to present a measure of all changes in equity that result from recognized transactions and other economic events of the period other than investments by owners and distributions to owners. The FASB believes that SFAS No. 130 should help investors, creditors and others in assessing a company's activities and the timing and magnitude of its future cash flows. For the Company, the primary difference between net income and comprehensive income is the change in unrealized gains and losses on securities available-for-sale. SFAS No. 130 is not expected to have a materially adverse impact on the consolidated financial position of the Company and is effective for the year ending December 31, 1998. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes new standards for public companies to report information about operating segments in annual financial statements and also requires that those companies report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Management has not yet determined the impact of SFAS No. 131 on the Company's future disclosures. SFAS No. 131 is effective for the Company beginning January 1, 1998. RECLASSIFICATIONS Certain accounts in the 1996 consolidated financial statements have been reclassified to conform to the 1997 presentation. Included in these accounts are net reclassifications between operating and investing activities in the statements of cash flows of $2.4 million, relating to loans held-for-sale and trading securities. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. INVESTMENT AND MORTGAGE-BACKED SECURITIES Investment and mortgage-backed securities are summarized as follows:
JUNE 30, 1997 DECEMBER 31, 1996 -------------------- ---------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE --------- --------- ----------- --------- (IN THOUSANDS) Available-for-sale Investment securities................................................ $ 16,911 $ 16,735 $ 15,964 $ 15,768 Mortgage-backed securities........................................... 8,929 8,984 8,161 8,239 --------- --------- ----------- --------- $ 25,840 $ 25,719 $ 24,125 $ 24,007 --------- --------- ----------- --------- --------- --------- ----------- --------- Held-to-maturity Investment securities................................................ $ 3,966 $ 3,919 $ 6,962 $ 6,947 Mortgage-backed securities........................................... 48,487 49,029 51,738 52,275 --------- --------- ----------- --------- $ 52,453 $ 52,948 $ 58,700 $ 59,222 --------- --------- ----------- --------- --------- --------- ----------- ---------
3. LOANS RECEIVABLE Loans receivable are summarized as follows at the indicated dates:
JUNE 30 DECEMBER 31 1997 1996 ---------- ------------ (IN THOUSANDS) Loans collateralized by real estate: Permanent residential mortgage........................................................ $ 230,801 $ 224,955 Construction.......................................................................... 64,520 54,816 Second mortgage....................................................................... 55,025 56,022 Commercial............................................................................ 155,006 145,685 Loans collateralized by other property: Consumer.............................................................................. 33,489 34,903 Commercial............................................................................ 17,522 16,209 Loans collateralized by savings accounts.............................................. 4,504 4,725 ---------- ------------ 560,867 537,315 Less: Loans in process...................................................................... (18,393) (16,263) Unamortized yield adjustments......................................................... (1,203) (1,190) Allowance for estimated losses........................................................ (7,215) (6,983) ---------- ------------ $ 534,056 $ 512,879 ---------- ------------ ---------- ------------
Changes in the allowance for estimated loan losses are summarized as follows for the quarters and six months ended June 30:
QUARTERS SIX MONTHS -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (IN THOUSANDS) Balance, beginning of period............................................... $ 6,961 $ 8,195 $ 6,983 $ 8,417 Provisions................................................................. 287 247 624 586 Charge-offs................................................................ (105) (613) (650) (1,346) Recoveries................................................................. 72 85 258 257 --------- --------- --------- --------- Balance, end of period.................................................... $ 7,215 $ 7,914 $ 7,215 $ 7,914 --------- --------- --------- --------- --------- --------- --------- ---------
At June 30, 1997, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 totalled approximately $2.9 million, of which $190,000 related to loans with a corresponding valuation allowance of $70,000. The 9 impaired loans at June 30, 1997, were measured for impairment using the fair value of the collateral as substantially all such loans were collateral dependent. For the six months ended June 30, 1997, the average recorded investment in impaired loans was approximately $5.1 million. The interest income recognized on impaired loans during the six months ended June 30, 1997 was $89,000. Impaired loans are summarized as follows:
JUNE 30 DECEMBER 31 1997 1996 --------- ------------- (IN THOUSANDS) Construction loans........................................................................ $ 402 $ 557 Commercial real estate loans.............................................................. 2,013 7,150 Residential mortgage...................................................................... 514 515 --------- ------ $ 2,929 $ 8,222 --------- ------ --------- ------
4. COMMITMENTS AND CONTINGENCIES The Company has salary continuation agreements with nine officers which grant these officers the right to receive up to three times their average annual compensation for the five years preceding a change of control of the Company and a change of duties or salary for such officers. The maximum contingent liability for salary continuation under these agreements is approximately $2.9 million at June 30, 1997. Concurrent with the 1990 sale of the Woodside Plantation Country Club ("WPCC"), the Company entered into an agreement with WPCC to purchase club memberships. This obligation to purchase memberships, based on future lot sales, is subject to an annual limitation and depends upon whether full or partial memberships are purchased. The maximum liability under this contingency, assuming the annual limitation is met and partial memberships are purchased, is approximately $1.2 million. In 1993, the Company sold the remaining lots and certain other real estate at Woodside Plantation and the purchaser assumed the Company's obligations under this agreement. The Company remains contingently liable under this agreement. 5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The amounts of financial instruments with off-balance-sheet risk are as follows at the dates indicated:
JUNE 30 DECEMBER 31 1997 1996 --------- ------------ (IN THOUSANDS) Financial instruments whose contract amounts represent credit risk: Commitments to originate loans:....................................................... $ 16,705 $ 32,908 --------- ---------- --------- ---------- Unused lines of credit:............................................................... $ 37,041 $ 35,560 --------- ---------- --------- ---------- Letters of credit..................................................................... $ 611 $ 1,004 --------- ------------ --------- ------------
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's net earnings for the three months ended June 30, 1997 were $1.5 million or $0.27 per common share compared to $1.1 million or $0.22 per common share in 1996, a 29% increase. The net earnings for the six months ended June 30, 1997 were $2.8 million or $0.53 per common share compared to $2.2 million or $0.43 per common share in 1996, an increase of 26%. The increases in earnings for both the three and six month periods resulted primarily from increases in net interest income resulting from a wider net interest spread and increased levels of interest-earning assets. In July, the Company announced that Palmetto Federal Savings Bank will open its fourth banking center in Charleston, South Carolina, in the WalMart center on Rivers Avenue in North Charleston. This will be the Bank's 23rd banking center. COMPARISON OF 1997 AND 1996 OPERATING RESULTS NET INTEREST INCOME Net interest income was $6.4 million for the quarter ended June 30, 1997, an increase of $984,000 or 18.2% compared to the quarter ended June 30, 1996. For the six months ended June 30, 1997, net interest income increased by $2.0 million or 18.8% to $12.4 million compared to the six months ended June 30, 1996. Several balance sheet changes contributed to the improvement. Although total assets remained virtually unchanged, the loan portfolio grew by $21.2 million and deposits grew by $22.1 million, mostly in certificates of deposit. Offsetting these increases were decreases in investments, including Federal Home Loan Bank ("FHLB") stock which shrunk $11.9 million, cash which shrunk $4.2 million, and FHLB advances which declined $25.8 million. The net interest spread resulting from the investments and advances (which were paid off) was very thin, while the loan and deposit growth produced both an increase in earning asset yield and a decline in cost of funds. As a result, the net interest spread and the net yield on average interest-earning assets improved for both the three and six month periods. The following table presents information with respect to interest income from interest-earning assets and interest expense from interest-bearing liabilities, expressed in both dollars (in thousands) and rates, for the periods indicated. Averages are computed using month-end balances for the periods presented. Nonaccruing loans have been included in average loans receivable for purposes of calculating the average yield on loans receivable. 11
1997 1996 ----------------------- ---------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE ---------- ------ ---------- ------ Interest-bearing deposits............................................... $ 4,352 5.39% $ 3,433 5.23% Loans receivable........................................................ 533,894 8.96 476,663 8.88 Mortgage-backed securities.............................................. 60,041 6.94 65,019 6.65 Total investments....................................................... 20,950 5.64 32,512 5.50 FHLB stock.............................................................. 3,748 7.25 10,884 7.20 ---------- ----- ---------- ----- Total interest-earning assets........................................... $ 622,985 8.62% $ 588,511 8.40% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Liabilities: Retail savings deposits................................................. $ 34,235 2.75% $ 31,885 2.55% Retail time deposits.................................................... 398,228 5.76 369,116 5.87 Demand deposits......................................................... 118,773 1.94 102,722 1.68 FHLB advances........................................................... 51,700 5.59 70,357 6.38 ---------- ----- ---------- ----- Total interest-bearing liabilities...................................... $ 602,936 4.82% $ 574,080 5.00% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Net interest spread................................................ 3.80% 3.40% ----- ----- ----- ----- Net yield.......................................................... 3.99% 3.55% ----- ----- ----- -----
The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected Palmetto Federal's net interest income during the periods indicated.
JUNE 1997 VERSUS JUNE 1996 INCREASE (DECREASE) -------------------------------------------- RATE/ VOLUME RATE VOLUME TOTAL --------- --------- ----------- --------- (IN THOUSANDS) Changes in: Interest income: Loans receivable......................................................... $ 2,551 $ 184 $ 22 $ 2,757 Mortgage-backed securities............................................... (166) 95 (8) (79) Investments.............................................................. (534) (54) 19 (569) --------- --------- --------- --------- Total interest income..................................................... 1,851 225 33 2,109 --------- --------- --------- --------- Interest expense: Deposits................................................................. 1,109 (154) (14) 941 Other borrowed money..................................................... (592) (279) 74 (797) --------- --------- --------- --------- Total interest expense.................................................... 517 (433) 60 144 --------- --------- --------- --------- Net interest income (expense)............................................... $ 1,334 $ 658 $ (27) $ 1,965 --------- --------- --------- --------- --------- --------- --------- ---------
NONINTEREST INCOME Noninterest income was $805,000 for the quarter ended June 30, 1997, a decrease of $399,000 or 33.1% from the 1996 quarter. The decline was primarily attributable to increased real estate operations losses which resulted from an increase of $211,000 in provisions for estimated losses related to unsold property acquired through foreclosure. Additionally, repairs, maintenance, insurance and tax costs on such properties increased by $95,000. Financial services fees decreased by 45.0% due to lower sales and checking transaction fees decreased by 12.4% during the 1997 quarter. Checking fees continued to decline primarily due to decreased nonsufficient funds charges related to a previously discontinued "no minimum balance" product line. The number of such accounts continues to decrease, but this decrease has been offset by increases in higher average balance checking accounts. 12 The Company experienced gains of $167,000 on sales of investment and mortgage-backed securities available-for-sale and loans held-for-sale during the 1997 quarter compared to $94,000 for the 1996 quarter. The increase resulted from an increase of 39.2% in the volume of loans and securities sold. For the comparable six month periods, gains totalled $339,000 for 1997 and $589,000 for 1996. For the six months ended June 30, 1997, noninterest income decreased by $808,000 or 29.5% to $1.9 million from the 1996 period. For the comparable six month periods: losses from real estate operations increased by $305,000 due primarily to an increase in the provision for loss on foreclosed real estate, and; checking transaction fees decreased $126,000 or 10.5%. NONINTEREST EXPENSES Noninterest expenses were $4.6 million for the quarters ended June 30, 1997 and 1996. For the six months ended June 30, 1997, noninterest expenses increased by $78,000 to $9.3 million. The Company has experienced increased costs associated with the expansion of its branch network. Full-time equivalent employees increased from 280 at June 30, 1996 to 304 at June 30, 1997. In addition, occupancy and equipment expense increased over the comparable quarters. These increases were offset by decreases in FDIC deposit insurance premiums and amortization of intangible assets. The primary components of compensation and employee benefits are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 JUNE 30 1997 1996 1997 1996 --------- --------- --------- --------- (IN THOUSANDS) Salaries and commissions................................................... $ 2,293 $ 2,138 $ 4,575 $ 4,228 Incentive programs......................................................... 265 219 520 473 Medical and retirement..................................................... 239 272 486 485 Payroll and other taxes.................................................... 171 157 406 364 Other expenses............................................................. 28 26 56 49 --------- --------- --------- --------- 2,996 2,812 6,043 5,599 Capitalized costs of loan originations..................................... (323) (356) (583) (619) --------- --------- --------- --------- $ 2,673 $ 2,456 $ 5,460 $ 4,980 --------- --------- --------- --------- --------- --------- --------- ---------
Salaries and commissions increased by 7.2% during the quarter ended June 30, 1997, due to average merit wage increases and additional employees at the new Palmetto Federal offices. Medical and retirement costs decreased due to decreased medical claims under the Company's self-funded group insurance plan. Federal insurance premiums and assessments declined by $191,000 in 13 the 1997 quarter, despite the increase in insurable deposits, due to the decreased FDIC premiums following the September 1996 Savings Association Insurance Fund recapitalization. Other noninterest expenses during the 1996 quarter included $62,000 in goodwill and core deposit intangible amortization. These remaining intangible assets were written off in December 1996. For the six months ended June 30, 1997, noninterest expense increased by $78,000 from the 1996 period, despite a $480,000 increase in compensation and employee benefits. This increase was offset by a decrease of $388,000 in federal deposit insurance premiums, a decrease of $62,000 in advertising and public relations and a decrease of $122,000 in other expenses due to the aforementioned intangible asset write-off in December 1996. LENDING ACTIVITIES During the quarter ended June 30, 1997, the Company originated $65.7 million in loans compared to $63.2 million for the quarter ended June 30, 1996. Year-to-date originations were $118.4 million in 1997 compared to $117.6 million in 1996. Loans receivable were $534.1 million at June 30, 1997, compared to $512.9 million at December 31, 1996, an increase of 4.1%. Residential mortgage loan originations were $40.0 million in the 1997 quarter compared to $43.9 million for the quarter ended June 31, 1996. The decline resulted principally from an increase in quoted interest rates for mortgage loans which were higher in 1997 than in the second quarter of 1996. The lower rates in 1996 resulted in $8.2 million of loan refinancings compared to $4.4 million in 1997. Commercial real estate loan originations in 1997 continued to exceed 1996 levels. During the 1997 quarter, $11.0 million of these loans were originated compared to $5.5 million in the second quarter of 1996. The 1997 originations included 3 loans of $1.0 million or more, compared to 2 loans of this size in 1996. Consumer loan originations increased 56% to $9.7 million for the 1997 quarter. Originations of second mortgage loans declined 72% to $1.5 million for the 1997 quarter. During 1996, the Bank promoted the new CashLine II product at an introductory interest rate resulting in origination levels which exceeded both 1995 and 1997 levels. ASSET/LIABILITY MANAGEMENT Asset and liability management is the process by which Palmetto Federal attempts to maximize net interest income while minimizing the adverse effects of potential interest rate changes (interest rate risk). The Company's Asset and Liability Committee makes weekly pricing and marketing decisions on deposit and loan products in conjunction with managing the Company's interest rate risk. The Investment Committee of the Board of Directors reviews the Bank's 14 investment and mortgage-backed securities portfolios, FHLB advances and other borrowings as well as the Company's asset and liability policies. Additionally, the Investment Committee monitors the interest rate risk of the Bank's balance sheet. In January 1997, the FHLB of Atlanta redeemed all stock held by member institutions in excess of their minimum required amount. Palmetto Federal used these funds, approximately $7.0 million, along with increased retail deposits to reduce FHLB advances by $25.8 million. This reduction in FHLB advances contributed to the reduction in the cost of funds for the 1997 period. NONPERFORMING ASSETS AND RESTRUCTURED LOANS The provision for estimated losses on loans was $287,000 for the quarter ended June 30, 1997, compared to $247,000 for the 1996 quarter. Net charge-offs for the 1997 quarter were $33,000 compared to $528,000 for the 1996 quarter. For the comparable six month periods, the provision for estimated loan losses increased from $586,000 in 1996 to $624,000 in 1997 while net charge-offs decreased from $1.1 million in 1996 to $392,000 in 1997. Nonperforming assets (nonaccrual loans and foreclosed real estate ("REO")) and restructured loans, net of specific allowances, decreased from $17.7 million or 2.7% of total assets at December 31, 1996 to $14.1 million or 2.1% of total assets at June 30, 1997. The table below sets forth the amounts and categories of Palmetto Federal's nonperforming assets and restructured loans at the dates indicated.
JUNE 30 MARCH 31 DECEMBER 31 JUNE 30 1997 1997 1996 1996 --------- ----------- ------------ --------- (DOLLARS IN THOUSANDS) Nonaccrual loans.................................................. $ 2,867 $ 3,308 $ 3,971 $ 5,342 Foreclosed real estate............................................ 6,155 7,006 7,187 8,310 Restructured loans................................................ 5,065 6,211 6,533 10,409 --------- ----------- ------------ --------- $ 14,087 $ 16,525 $ 17,691 $ 24,061 --------- ----------- ------------ --------- --------- ----------- ------------ --------- General loan loss allowance as a percentage of the total.......... 50.1% 40.9% 36.2% 28.4% --------- ----------- ------------ --------- --------- ----------- ------------ --------- Total as a percentage of loans receivable, net.................... 2.6% 3.1% 3.4% 4.9% --------- ----------- ------------ --------- --------- ----------- ------------ --------- Total as a percentage of total assets............................. 2.1% 2.5% 2.7% 3.8% --------- ----------- ------------ --------- --------- ----------- ------------ ---------
Although the allowance for estimated loan losses of $7.2 million at June 30, 1997 had declined from the June 30, 1996 level of $7.9 million, the coverage ratio in the table above increased from 28.4% at June 30, 1996 to 50.1% at June 30, 1997. 15 Changes in the components of nonperforming assets and restructured loans during the three months ended June 30, 1997 were as follows:
NONACCRUAL RESTRUCTURED LOANS REO LOANS TOTAL ----------- --------- ------------- --------- (IN THOUSANDS) March 31, 1997.................................................... $ 3,308 $ 7,006 $ 6,211 $ 16,525 Performing loans which became nonperforming....................... 1,206 243 1,449 Upgrades due to performance....................................... (925) (1,171) (2,096) Sales............................................................. (1,137) (1,137) Net principal collections......................................... (380) (24) (404) Charge-offs, provisions and write downs........................... (1) (248) (249) Net changes in allowances......................................... (50) 49 (1) Nonaccrual loans which became REO................................. (291) 291 0 ----------- --------- --------- --------- June 30, 1997..................................................... $ 2,867 $ 6,155 $ 5,065 $ 14,087 ----------- --------- --------- --------- ----------- --------- --------- ---------
The $1.2 million of new nonaccrual loans is comprised of several loans, none of which individually exceed $300,000. The nonaccrual loans which became REO consists primarily of several loans collateralized by single family houses, none exceeding $150,000. Although total nonaccrual loans have decreased 27.8% since December 31, 1996, the consumer loan segment of the total has increased by approximately 93% to $726,000. This increase parallels trends seen throughout the banking industry and management continues to analyze this trend. The Company sold $1.1 million of foreclosed real estate which consisted of one commercial parcel of 13.9 acres in Aiken, South Carolina, adjacent to the Woodside Plantation project, with a carrying value of $417,000, and several other properties, none of which had a carrying value greater than $135,000. Palmeto Federal did not provide financing for the sale of the commercial parcel. Potential problem loans represent loans that are current as to payment of principal and interest, but where management has doubts about the borrower's ability to comply with present repayment terms. These loans are not included in the above table of nonperforming assets and restructured loans. These loans, primarily commercial real estate loans, totalled approximately $14.0 million and $14.5 million at June 30, 1997 and December 31, 1996, respectively. The Bank's total criticized assets include its nonperforming assets and restructured loans of $14.1 million as well as its potential problem loans of $14.0 million. The following table summarizes the Bank's criticized assets as of the dates indicated:
JUNE 30 MARCH 31 DECEMBER 31 JUNE 30 1997 1997 1996 1996 --------- ----------- ------------ --------- (IN THOUSANDS) Special mention................................................... $ 13,392 $ 14,813 $ 13,278 $ 15,173 Substandard....................................................... 14,198 15,113 17,702 23,912 Doubtful.......................................................... 364 364 29 Loss.............................................................. 479 913 1,220 1,331 --------- ----------- ------------ --------- $ 28,069 $ 31,203 $ 32,564 $ 40,445 --------- ----------- ------------ --------- --------- ----------- ------------ ---------
16 REAL ESTATE DEVELOPMENT ACTIVITY The Company continues to have a significant concentration of risk related to Woodside Plantation, exclusive of loans to individual homeowners, consisting of real estate held for development, acquisition and development loans, foreclosed real estate and a 50% interest in a partnership. During the six months ended June 30, 1997, the total carrying value of these components decreased from $12.5 million to $11.7 million, primarily due to loan payments resulting from lot sales and the sale of houses on the lots received in the 1995 restructuring. LIQUIDITY Palmetto Federal's principal sources of funds are deposits, loan repayments, proceeds from sales and principal payments of invest- ment and mortgage-backed securities and loans, FHLB advances, other borrowings, and retained earnings. The liquidity of Palmetto Federal's operations is measured by the ratio of cash and short-term investments as defined by the Office of Thrift Supervision ("OTS") regulations to the sum of savings and borrowings payable in one year, less loans on savings. The Bank's average liquidity level for June 1997 of 5.9% was in excess of the required amount of 5.0%. REGULATORY MATTERS Under current OTS regulations, savings associations must satisfy three minimum capital requirements: tangible, core and risk-based. At June 30, 1997, Palmetto Federal's regulatory capital was 7.1% for both tangible and core capital and 11.1% for risk-based capital, exceeding both the regulatory minimum levels and the well capitalized standards under the Prompt Corrective Action regulations adopted by the OTS under the FDIC Improvement Act of 1991. As of December 31, 1996, the most recent notification from the OTS categorized the Bank as well capitalized. There are no conditions or events since that notification that management believes have changed the Bank's category. OTS is scheduled to begin their regular examination of Palmetto Federal and PALFED, Inc. on September 1, 1997. RECENT ACCOUNTING AND REPORTING CHANGES Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", as amended by SFAS No. 127, "Deferral of Certain Provisions of FASB Statement No. 125". SFAS No. 125 establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities and also provides consistent standards for distinguishing financial asset sales from secured borrowings. Finally, SFAS No. 125 amended certain other standards related to extinguishments of debts, transfers of receivables with recourse, accounting for certain investments, mortgage servicing rights and mortgage banking activities. The adoption of SFAS No. 125 did not have a material impact on the financial condition or results of operations of the Company. 17 The FASB has issued SFAS No. 128, "Earnings Per Share", which simplifies the present standards for computing earnings per share ("EPS"). SFAS No. 128 replaces primary EPS with basic EPS which excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. SFAS No. 128 also replaces fully diluted EPS with diluted EPS which reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised. SFAS No. 128 is effective for the Company as of December 31, 1997. In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information About Capital Structure", which consolidates the existing requirements to disclose certain information about an entity's capital structure and is not expected to change the Company's current capital structure disclosures. SFAS No. 129 is effective for the Company for the year ending December 31, 1997. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The purpose of reporting comprehensive income is to present a measure of all changes in equity that result from recognized transactions and other economic events of the period other than investments by owners and distributions to owners. The FASB believes that SFAS No. 130 should help investors, creditors and others in assessing a company's activities and the timing and magnitude of its future cash flows. For the Company, the primary difference between net income and comprehensive income is the change in unrealized gains and losses on securities available-for-sale. SFAS No. 130 is not expected to have a materially adverse impact on the consolidated financial position of the Company and is effective for the year ending December 31, 1998. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes new standards for public companies to report information about operating segments in annual financial statements and also requires that those companies report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Management has not yet determined the impact of SFAS No. 131 on the Company's future disclosures. SFAS No. 131 is effective for the Company beginning January 1, 1998. 18 PART II. Other Information ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The results of the 1997 PALFED Annual Meeting of Shareholders held on April 22, 1997, were previously reported in the Form 10-Q for the quarter ended March 31, 1997. ITEM 5. OTHER INFORMATION (a) Pursuant to the Amended and Restated Directors Stock Plan, on April 23, 1997, PALFED granted an award for 1,000 restricted shares of common stock to Edwin S. Pearlstine, Jr., a newly elected director. The restricted shares vest on April 23, 1998 and are contingent upon and subject to Mr. Pearlstine's continued directorship. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Form of PALFED, Inc./Palmetto Federal Executive Salary Continuation Agreement between PALFED, Inc./Palmetto Federal and certain officers, dated as of May 1, 1997. Exhibit 11.1 Statement regarding computation of per share data. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended June 30, 1997. 19 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. PALFED, INC. -------------- (REGISTRANT) DATE: AUGUST 12, 1997 /S/ JOHN C. TROUTMAN --------------- --------------------- JOHN C. TROUTMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: AUGUST 12, 1997 /S/ DARRELL R. RAINS --------------- --------------------- DARRELL R. RAINS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER DATE: AUGUST 12, 1997 /S/ MICHAEL B. SMITH --------------- --------------------- MICHAEL B. SMITH SENIOR VICE PRESIDENT AND CONTROLLER 20 EX-10.1 2 EXHIBIT 10.1 Form of PALFED, Inc./Palmetto Federal Salary Continuation and Noncompetition Agreement (Amended and Restated Effective as of May 1, 1997) PALFED/PALMETTO FEDERAL SALARY CONTINUATION AND NONCOMPETITION AGREEMENT THIS IS A SALARY CONTINUATION AND NONCOMPETITION AGREEMENT (this "Agreement") effective as of May 1, 1997, by and among PALFED, Inc., a South Carolina corporation (the "Company"), Palmetto Federal Savings Bank of South Carolina, a wholly-owned subsidiary of the Company ("Palmetto Federal" or the "Bank"), and ___________________ (the "Officer"). Background Statement The Company considers the establishment and maintenance of a sound and effective group of management personnel for the Company and its subsidiaries to be essential to protecting and enhancing the best interests of the Company and its shareholders. In this connection, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company may exist and that such possibility, and the uncertainty and concerns which it may raise among management personnel, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Company's and the Bank's Boards of Directors have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key management members of the Company and its subsidiaries, including the Officer, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of the Company, and to assure fair treatment of management of the Company and the Bank in the event of a change in control. The Company further considers that certain restrictions on the Officer's ability to solicit employees and customers of the Company and its subsidiaries (including the Bank) following the Officer's termination of employment with the Company are reasonable, appropriate and advisable, would be beneficial to the Company and the Bank, could increase the potential franchise value of the Company to a future acquiror of the Company and are in the best interests of the Company and its shareholders. In connection therewith and to induce the Officer to remain in his present employment with the Bank and the Company and possible future employment with other subsidiaries of the Company, to retain the Officer's services during any actual or threatened change in control, and in consideration of the Officer's agreement to continue such employment and to certain restrictions on the Officer's activities following termination of employment, this Agreement sets forth the severance and other benefits which the Company and the Bank agree shall be provided to the Officer in the event of a "Change in Control" as defined in Section 3 and a termination of employment or a "Change in Duties or Salary" of the Officer as defined in Section 4 . PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 2 Agreement 1. Term. This Agreement shall commence as of May 1, 1997 and shall continue for a three (3) year term unless extended as provided herein. On each monthly anniversary date beginning with the first month following the date of this Agreement, the term of this Agreement shall automatically be extended for one additional month, unless prior to any monthly anniversary date, the Company shall give written notice to the Officer to fix the term of this Agreement to a definite three (3) year term from the date of such notice and no further automatic monthly extensions shall occur. This Agreement shall not be extended beyond the first month on which the Officer attains age sixty-five (65). Notwithstanding any notice by the Company not to extend this Agreement or the expiration of the term of this Agreement, this Agreement shall continue in effect for a period of twenty-four (24) months beyond the expiration of this Agreement if a Change in Control of the Company or the Bank shall have occurred during the term of this Agreement. If the Officer voluntarily terminates his employment with the Company or the Bank prior to a Change in Control, then this Agreement shall terminate. 2. Payments. No salary continuation payments or noncompetition payments (as hereinafter defined) shall be paid to or provided for the Officer pursuant to this Agreement unless the following shall have occurred during the term of this Agreement: (a) a "Change in Control" of the Company or the Bank, and (b) a termination of employment or a "Change in Duties or Salary" of the Officer. Any payments made to the Officer pursuant to this Agreement are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder. 3. Change in Control. For purposes of this Agreement, a "Change in Control" shall mean a change in control of either the Company or the Bank, or the execution of a definitive agreement or the acceptance of an offer by the Company contemplating a change in control of either the Company or the Bank (other than the acquisition of the Bank by the Company), (i) within the meaning of Office of Thrift Supervision ("OTS") Regulations Part 574, or any successor regulations, or (ii) of a nature that would be required to be reported in response to Item 6(e) of Schedule l4A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if any of the following events occur: (a) any person, entity or group of persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) together with any affiliates, is or becomes the "beneficial owner" (as defined in Rule l3d-3 under the Exchange Act), directly or indirectly, of securities of the Company or the Bank representing 15 percent or more of the combined voting power of the Company's or the Bank's then outstanding voting securities; or (b) during the term of this Agreement as a result of a tender or exchange offer, proxy contest, merger or consolidation, or as a result of any combination of the foregoing, PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 3 individuals who at the beginning of any two-year period constitute the Board of Directors of the Company (the "Incumbent Directors") cease for any reason during such two-year period to constitute at least two-thirds of the members of the Board of Directors, unless the election or the nomination for election by the Company's shareholders of each new director is approved by vote of at least two-thirds of the Incumbent Directors then still in office other than in connection with an actual or threatened proxy contest; or (c) the shareholders of the Company approve a plan of complete liquidation or winding-up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets; or (d) any other event not specified above which the Company's Board of Directors determines in its sole discretion should constitute a Change in Control. 4. Change in Duties or Salary. For purposes of this Agreement, "Change in Duties or Salary" of the Officer shall mean any one of the following: (a) a change in the nature or scope of the duties, authority, supervision, status, title or responsibilities of the Officer, which change results in the diminution in any respect of the Officer's then current duties, authority, status or responsibilities to those duties, authority, status and responsibilities of the Officer immediately prior to the time such Change in Control occurs; (b) a reduction in the overall level of the Officer's current compensation and benefits, including bonuses, or exclusion from participation in the Company's or the Bank's employee benefit plans, or the Company's or the Bank's failure to increase (within 12 months of the Officer's last increase in base salary) the Officer's base salary in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all executives entitled to participate in the Bank's or the Company's executive incentive plans for which the Officer was eligible during the preceding 12 months; (c) a change in the place of the Officer assignment of the Officer from Aiken, South Carolina, to any other city or geographical location that is located further than 25 miles from the principal office of the Company in Aiken, South Carolina; (d) any purported termination of the employment of the Officer by the Company or the Bank which is not effected in accordance with this Agreement; or (e) the failure of the Company to comply with and satisfy Section 7 of this Agreement. Notwithstanding any provision of this Agreement to the contrary, a Change in Duties or Salary shall be deemed to have occurred in the event of: a merger or combination of the Company with any other corporation or entity (regardless of which entity is the survivor) or the acquisition by any other corporation or entity of more than eighty percent (80%) of the outstanding voting securities of the Bank or the Company; except that the preceding provision shall not apply in the event of a merger, combination or acquisition of voting securities of the Company or the Bank pursuant to which, immediately following such transaction, the Company's voting securities outstanding immediately prior to such transaction continue to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least fifty-one percent (51%) of the combined voting power of the voting securities of the Company or surviving entity. PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 4 5. Salary Continuation Payment. In the event that: (i) a Change in Control and Change in Duties or Salary occur during the term of this Agreement, but before the Officer reaches the age of 65, or (ii) the Officer's employment is terminated except for cause at any time within twenty-four (24) months following a Change in Control, but before the Officer reaches the age of 65, then the Officer shall be entitled to receive, in addition to any other benefits payable to the Officer under any other agreements or arrangements (or any other provisions of this Agreement), an aggregate amount equal to two (2) times the Officer's average annual taxable compensation from the Company and the Bank (and their affiliates determined pursuant to Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code")) for the most recent five taxable years ending before the Change in Duties or Salary or the termination of the Officer's employment (or for the period during which the Employee was employed by the Bank if the Officer has been employed by the Bank for less than five (5) years) less one dollar ($1.00) (such amount is hereinafter referred to as the "Salary Continuation Payment"). The Salary Continuation Payment shall be payable either in a lump sum or, at the Officer's written election filed with the Company on or before 30 days following the effective date of this Agreement (the "Election") in monthly or quarterly installments, the aggregate amount of which has a total present value (determined by using a discount rate equal to 120% of the "applicable federal rate" determined under section 1274(d) of the Code, compounded semi-annually) equal to the aggregate amount calculated for determining a lump sum payment. The Officer may modify the Election at any time prior to the Salary Continuation Payment becoming due and payable, provided that any such modification is consistent with the terms of this Agreement and provided further that any such modification shall not become effective and binding on the Company until the calendar year following the year in which such modified Election is delivered to the Company. Some or all of the Salary Continuation Payment may, at the Officer's election, be applied to the cost of group-term life insurance and long-term disability benefits for the Officer on the basis that such benefits are being provided by the Bank and the Company for the Officer immediately prior to any Change in Control, and any balance of the Salary Continuation Payment shall be paid to the Officer in cash in accordance with the Election. 6. Noncompetition. In the event that: (a) a Change in Control and Change in Duties or Salary occur during the term of this Agreement, but before the Officer reaches the age of 65, or (b) the Officer's employment is terminated except for cause at any time within twenty-four (24) months following a Change in Control, but before the Officer reaches the age of 65, then the Officer shall not for a period of eighteen (18) months following his resignation or termination of employment (i) solicit, attempt to solicit, divert or take away the banking customers of the Bank, or encourage or solicit the Bank's customers to discontinue their banking relationships with Bank and its affiliates, or attempt or seek to cause any of the Bank's customers to refrain from doing business with the Bank and its affiliates, or (ii) request, induce or solicit any employee of PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 5 Company and its subsidiaries to terminate his or her employment with the Company and its subsidiaries. Nothing in this Section shall be construed as preventing the Officer from accepting employment with a competitor of the Company and the Bank, provided that the Officer does not breach the covenants set forth in this Section 6 not to solicit customers or employees of the Company and the Bank to terminate their business or employment relationships with the Company or the Bank. In consideration of the foregoing covenants and agreements not to solicit the employees and customers of the Company following the Officer's resignation or termination of employment, if the events specified in subsections 6(a) or 6(b) occur, the Officer shall be entitled to receive an aggregate payment equal to one (1) times the Officer's average annual taxable compensation from the Company and the Bank (and their affiliates determined pursuant to Section 280G(d)(5) of the Code) for the most recent five taxable years ending before the Change in Duties or Salary or the termination of the Officer's employment (or for the period during which the Employee was employed by the Bank if the Officer has been employed by the Bank for less than five (5) years) (such amount is hereinafter referred to as the "Noncompetition Payment"). The Noncompetition Payment shall be payable in addition to and in the same time and manner as the Salary Continuation Payment, and shall be due and payable whether or not the Officer's employment is terminated or the officers resigns following a Change in Control and a Change in Duties or Salary. 7. Transfer of Employment to Other Subsidiaries. The Company hereby agrees that in the event that the Officer should, at any time or from time to time, hereafter become an Officer of any subsidiary of the Company, the Company will cause such subsidiary to promptly become an obligor of the Agreement with respect to such employment. In addition, as agent of its subsidiaries, the Company, on behalf of its subsidiaries, hereby obligates such subsidiaries with respect to the terms hereof as to any such employment of the Officer. Further, the Company hereby unconditionally guarantees the performance by any of its subsidiaries of such subsidiary's obligations under this Agreement. Any business entity succeeding to substantially all of the business of the Company or the Bank by purchase, merger, consolidation, sale or assets or otherwise, shall be bound by and shall adopt and assume this Agreement and the Company and the Bank shall obtain the assumption of this Agreement by such successor. 8. No Obligation of Continued Employment. While it is the intent of this Agreement to induce the Officer to continue employment with the Bank and the Company at the pleasure of the Company during the term of this Agreement, this Agreement does not in any way obligate either the Company or the Bank to continue the Officer's employment or any specific level of salary or benefits in connection therewith except as specifically provided herein, and the Officer shall not be entitled to any benefits hereunder in the event of termination of his employment prior to a Change in Control. The Officer agrees, however, in the event of exercise of his right to resign following a Change in Control and a Change in Duties or Salary, that, at the request of the PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 6 Company or the Bank made within five (5) days of notice of resignation, the Officer will enter into an employment contract to continue employment for a specified period, up to six months, at the then existing compensation and benefits and in accordance with historical working conditions, for the purpose of maintaining the continuity of his job function during such period for the benefit of the Company and its subsidiaries; it being acknowledged and agreed that the Salary Continuation Payment and Noncompetition Payment and benefits set forth in this Agreement shall be paid in the time and manner provided above and without regard to the Officer's continued employment at the request of the Company. 9. Termination for Cause. Notwithstanding any other provision of this Agreement: (a) The Bank's Board of Directors may terminate the Officer's employment at any time, but any termination by the Bank's Board of Directors other than termination for "cause", shall not prejudice the Officer's right to compensation or other benefits under this Agreement. The Officer shall have no right to receive compensation or other benefits for any period after termination for "cause". Termination for "cause" shall include termination because of the Officer's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. (b) If the Officer is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under section 8(e)(3) or (g)(1) of Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Bank's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (c) If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Bank is in default (as defined in section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this paragraph (b)(4) shall not affect any vested rights of the contracting parties. PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 7 (e) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the OTS or his or her designee, at the time the Federal Deposit Insurance Corporation or Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the association under the authority contained in 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the OTS or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the association or when the association is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. 10. Tax Equalization Payment. It is intended that the payments to be made to the Officer hereunder shall not constitute "parachute payments" within the meaning of Section 280G(b)(2)(A) of the Code and this Agreement shall be construed to effect such intent. Payments to the Officer pursuant to this Agreement shall be in addition to any compensation due but not paid through the date of the Officer's termination or resignation and all other benefits or compensation to which the Officer is entitled under the Company's stock option, restricted stock and other employee benefit plans. Notwithstanding the foregoing, if Sections 280G or 4999 of the Code apply to any of the payments to be made pursuant to this Agreement or to any compensation received by the Officer under the Company's stock option, restricted stock or other employee benefit plans as a result of a Change in Control of the Company or the Bank, then in addition to any amounts payable to the Officer in accordance with Sections 5 and 6 of this Agreement, the Company also shall pay the Officer a tax equalization payment in an amount which, when added together with any other amounts payable to the Officer, will place the Officer in the same after-tax position as if the excise taxes imposed by Section 4999 of the Code, or any successor statute of similar import, had never been enacted and, therefore, did not apply. This Agreement shall apply and, if necessary, the tax equalization payment shall be made regardless of whether or not the Officer's employment is terminated by the Company. The amount of this tax equalization payment shall be determined by the Company's independent accountants and shall be payable to the Officer at the same time and in the same manner as amounts to which the payment relates are paid to the Officer. PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 8 11. Notices. (a) Notice of Termination. Any termination of the Officer's employment by the Bank or the Company or by resignation of the Officer shall be communicated by a written notice of termination or resignation to the other party, and shall specify the provision of this Agreement relied upon and shall set forth in reasonable detail the circumstances claimed to provide a basis for termination. The date of termination shall be the date on which the notice of termination is delivered if by the Officer or thirty (30) days after the date of the notice of termination if given by the Bank or the Company. If the Officer's employment is terminated by death, disability or retirement, the date of termination shall be the date provided in any other written contract or, in the absence of any such contractual provision, by the policy of the Company or the Bank at the time of the occurrence of such event. (b) General. All notices and other communications, including notice of resignation or dismissal, shall be in writing and shall be deemed to have been duly given when mailed by the United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth hereafter, provided that all notices to the Bank or the Company shall be directed to the attention of the Boards of Directors of such corporate entities with copies to both the Secretary of the Company and the Bank, or to such other addresses as either party may have furnished the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. If to the Company or the Bank: PALFED, Inc. 107 Chesterfield Street South Aiken, SC 29801 Attn: Chairman If to the Officer: _____________________________ _____________________________ _____________________________ 12. Miscellaneous. (a) Reimbursement of Expenses; Interest. The Company shall pay all legal fees and expenses incurred by the Officer as a result of any contest following any Change in Control (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, including any legal fees and expenses and other out-of-pocket expenses incurred by the Officer relating to or as a result of the enforcement or contest by the Officer of any provision of this PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 9 Agreement. Such reimbursement shall be paid within thirty (30) days of the Officer furnishing to the Company or the Bank written evidence of any costs or expenses incurred by the Officer. In addition, the Company or the Bank shall pay the Officer interest on any payments pursuant to this Agreement that are not paid when due at a rate equal to the prime rate as announced by the Bank or its successors from time to time. (b) No Duty to Mitigate. The Officer shall not be required to mitigate the amount of any payments provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any Salary Continuation Payment or Noncompetition Payment be reduced by any compensation earned by the Officer as the result of employment by the Company and its subsidiaries or by another employer after the date of the Officer's termination or resignation, or otherwise. (c) Other Benefits and Accrued Compensation. Payments to the Officer pursuant to this Agreement shall be in addition to any compensation due but not yet paid through the date of the Officer's termination or resignation and all other benefits or compensation to which the Officer is entitled under the Company's stock option, restricted stock or other employee benefit plans. (d) Successors; Severability. All benefits of this Agreement shall accrue to, and be payable to, the Officer's heirs, executors, administrators or assigns. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid, but if any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions of this Agreement shall not be in any way impaired. (e) Entire Agreement; Prior Agreements. This Agreement constitutes the entire understanding and agreement among the Company, the Bank and the Officer with regard to all matters herein. There are no other agreements, conditions or representations, oral or written, express or implied, with regard thereto. This Agreement may be amended, modified or renewed only in writing signed by both parties hereto. Any and all executive salary continuation or severance agreements or change of control agreements previously entered into between the Officer and the Company or the Bank are hereby terminated and canceled as of the date of this Agreement. (f) Governing Law; Joint and Several. This Agreement shall be construed and enforced in accordance with the laws of the State of South Carolina. To the extent permitted by applicable law, all obligations of the Company and the Bank shall be joint and several. PALFED/Palmetto Federal Salary Continuation Agmt (May 1997) page 10 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. PALFED, INC. Attest: By:______________________________ Title:___________________________ _______________________ Title:_________________ PALMETTO FEDERAL SAVINGS BANK OF SOUTH CAROLINA Attest: By:_____________________________ Title:__________________________ ________________________ Title:__________________ _________________________________ Officer Address:_________________________ _________________________ * * * EX-11.1 3 EXHIBIT 11.1 Exhibit 11.1 PALFED, Inc. STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 --------------- ------------- (IN THOUSANDS) 1997 - ---- Weighted average shares outstanding.......................................... 5,205 5,193 Stock options outstanding.................................................... 304 324 Shares assumed repurchased................................................... (191) (201) ----- ----- Average common and common equivalent shares (1).............................. 5,318 5,316 ----- ----- ----- -----
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 --------------- ------------- (IN THOUSANDS) 1996 - ---- Weighted average shares outstanding.......................................... 5,136 5,126 Stock options outstanding.................................................... 230 230 Shares assumed repurchased................................................... (135) (136) ----- ----- Average common and common equivalent shares (1).............................. 5,231 5,220 ----- ----- ----- -----
- ------------------------ (1) Stock options outstanding less shares assumed repurchased are common stock equivalents. EX-27 4 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATINO EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR PALFED, INC. AND SUBSIDIARIES AS OF JUNE 30, 1997 AND THE RELATED CONSOLIDATED STATE OF INCOME FOR THE THREE MONTHS THEN ENDED. 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 12,748 4,345 0 0 25,719 52,453 52,948 548,498 7,215 664,863 562,232 40,100 5,258 2,500 0 0 54,773 0 664,863 12,184 1,389 52 13,625 6,594 7,236 6,389 287 104 4,605 2,302 1,457 0 0 1,457 $.270 $.270 3.99 2,867 0 5,065 13,982 6,961 105 72 7,215 7,215 0 7,056
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