-----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, MeuZH9xQVB8Own74WIKJCCXT00+pnniN3zYiBG6A+qwko65x98U1j55sTuIzagmN QPTCCtjE/sOaK9PnzYzovA== 0000950168-96-000417.txt : 19960314 0000950168-96-000417.hdr.sgml : 19960314 ACCESSION NUMBER: 0000950168-96-000417 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19960313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALMETTO BANCSHARES INC CENTRAL INDEX KEY: 0000706874 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 742235055 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26016 FILM NUMBER: 96534436 BUSINESS ADDRESS: STREET 1: 301 HILLCREST DRIVE STREET 2: P O BOX 49 CITY: LAURENS STATE: SC ZIP: 29360 BUSINESS PHONE: 8039844551 10-Q/A 1 PALMETTO BANCSHARES, INC. 10-Q/A #42410.1 FORM 10-Q Amendment #1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _X__QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 OR ------------------ ____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 33-19367 PALMETTO BANCSHARES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) South Carolina 74-2235055 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 101 West Main Street Laurens, South Carolina 29360 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (803) 984-4551 -------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 13, 1995 ----------------------------- ------------------------------- Common stock, $5.00 par value 999,280 PALMETTO BANCSHARES, INC. Quarterly Report on Form 10-Q For Quarter and Nine Months Ended September 30, 1995 INDEX Page No. PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition at September 30, 1995 and December 31, 1994 1 Consolidated Statements of Operations for the Three Months Ended September 30, 1995 and 1994 2 Consolidated Statements of Operations for the Nine Months Ended September 30, 1995 and 1994 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 4 and 1994 Notes to Consolidated Interim Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION 18 SIGNATURES 19 PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition
September 30, December 31, 1995 1994 ------------ ----------- Assets (unaudited) Cash and due from banks $19,062,472 18,377,297 Federal funds sold - 3,218,599 Investments held to maturity(market values of $69,038,625 67,630,741 54,704,675 and $53,906,564 in 1995 and 1994, respectively) Investments available for sale, at market 17,863,157 9,204,219 Loans 243,768,185 215,408,319 Less allowance for loan losses (3,342,841) (3,016,464) ------------ ----------- Loans, net 240,425,344 212,391,855 Premises and equipment, net 10,353,218 9,599,864 Goodwill 1,086,904 1,132,890 Other assets 3,934,125 3,513,164 ------------ ----------- Total assets $360,355,961 312,142,563 ============ =========== Liabilities and Shareholders' Equity Liabilities: Deposits: Non-interest-bearing 46,708,774 46,307,878 Interest-bearing 257,641,240 228,218,905 ------------ ----------- Total deposits 304,350,014 274,526,783 Securities sold under agreements to repurchase 11,679,919 5,251,901 Commercial paper 8,404,977 6,914,000 Federal Funds Purchased 8,000,000 - Note payable to a bank - 478,959 Other liabilities 1,304,498 757,729 ------------ ----------- Total liabilities 333,739,408 287,929,372 Shareholders' equity: Common stock-$5.00 par value. Authorized 2,000,000 shares; issued 1,010,884; outstanding 999,280 in 1995; issued 1,008,384; outstanding 1,003,884 in 1994 5,054,420 5,050,920 Surplus 10,442,083 10,433,133 Retained earnings 11,280,192 9,067,365 Treasury stock, 11,604 and 5,700 shares in 1995 and 1994, respectively (406,956) (176,700) Unrealized gain(loss) on investments available for sale, net 246,814 (161,527) ------------ ----------- Total shareholders' equity 26,616,553 24,213,191 ------------ ----------- Total liabilities and shareholders' equity $360,355,961 312,142,563 ============ ===========
See accompanying notes to consolidated financial statements (1) PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations Three Months Ended September 30, 1995 and 1994 (Unaudited)
1995 1994 Interest income: --------- --------- Interest and fees on loans $5,482,254 4,487,011 Interest and dividends on investment securities: U.S. Treasury and U.S. Government agencies 819,799 601,851 State and municipal 403,033 352,383 Interest on federal funds sold 76,633 40,791 --------- --------- Total interest income 6,781,719 5,482,036 Interest expense: Interest on deposits 2,694,566 1,705,122 Interest on federal funds purchased and securities sold under agreements to repurchase 121,107 82,900 Interest on commercial paper 91,644 47,788 Interest on note payable to a bank 0 10,627 --------- --------- Total interest expense 2,907,317 1,846,437 --------- --------- Net interest income 3,874,402 3,635,599 Provision for loan losses 300,000 105,000 Net interest income after provision for --------- --------- loan losses 3,574,402 3,530,599 Non-interest income: --------- --------- Service charges on deposit accounts 629,593 595,657 Fees for trust services 185,000 165,000 Investment securities losses (10,711) - Other income 319,022 240,986 --------- --------- Total non-interest income 1,122,904 1,001,643 Non-interest expenses: Salaries and other personnel expense 1,787,022 1,803,160 Net occupancy expense 319,159 307,327 Furniture and equipment expense 290,134 293,514 FDIC assessment 29,529 150,919 Postage and supplies expense 169,440 153,477 Advertising expense 97,983 155,968 Telephone expense 101,064 94,353 Other expense 517,017 462,094 --------- --------- Total non-interest expenses 3,311,348 3,420,812 --------- --------- Income before income taxes 1,385,958 1,111,430 Income tax provision 340,000 333,000 --------- --------- Net income $1,045,958 778,430 ========== ==========
See accompanying notes to consolidated financial statements (2) PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations Nine Months Ended September 30, 1995 and 1994 (Unaudited)
1995 1994 Interest income: ----------- ----------- Interest and fees on loans $15,480,150 $12,716,868 Interest and dividends on investment securities: U.S. Treasury and U.S. Government agencies 2,060,621 1,794,668 State and municipal 1,126,414 1,008,241 Interest on federal funds sold 335,618 151,894 ----------- ----------- Total interest income 19,002,803 15,671,671 Interest expense: Interest on deposits 7,153,948 4,910,907 Interest on federal funds purchased and securities sold under agreements to repurchase 350,790 173,913 Interest on commercial paper 251,627 101,157 Interest on note payable to a bank 13,389 31,275 ----------- ----------- Total interest expense 7,769,754 5,217,252 ----------- ----------- Net interest income 11,233,049 10,454,419 Provision for loan losses 690,000 660,000 Net interest income after provision for ----------- ----------- loan losses 10,543,049 9,794,419 Non-interest income: Service charges on deposit accounts 1,810,949 1,673,009 Fees for trust services 551,389 476,384 Investment securities losses (122,206) - Other income 937,077 899,619 ----------- ----------- Total non-interest income 3,177,209 3,049,012 Non-interest expenses: Salaries and other personnel expense 5,308,385 5,469,222 Net occupancy expense 882,324 812,978 Furniture and equipment expense 806,905 777,812 FDIC assessment 337,152 433,484 Postage and supplies expense 525,745 445,008 Advertising expense 373,367 424,165 Telephone expense 300,738 292,268 Other expense 1,600,483 1,464,728 ----------- ----------- Total non-interest expenses 10,135,099 10,119,665 ----------- ----------- Income before income taxes 3,585,159 2,723,766 Provision for income taxes 920,000 736,000 ----------- ----------- Net Income $2,665,159 $1,987,766 =========== ===========
See accompanying notes to consolidated financial statements. (3) PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1994 (Unaudited)
1995 1994 Cash flows from operating activities: ----------- ----------- Net income $2,665,159 $1,987,766 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of premium on investment securities 72,654 53,248 Losses from sales of investments 122,206 - Provision for loan losses 690,000 660,000 Depreciation of premises and equipment 655,637 590,794 Loss on sale of premises and equipment 2,018 Amortization of goodwill 45,986 45,986 Amortization of premium on core deposits 35,250 35,250 Change in other assets (420,960) (441,385) Change in other liabilities, net 291,140 (106,542) ----------- ----------- Net cash provided by operating activities 4,157,072 2,827,135 Cash flows from investing activities: Purchase of investments held to maturity (23,410,903) (8,533,575) Purchase of investments available for sale (14,050,760) (1,704,453) Proceeds from maturities of investments 8,228,721 7,370,572 Proceeds from sale of investments held to maturity 2,238,668 - Proceeds from maturities of invesments available for sale - 1,353,963 Proceeds from sale of investments available for sale 5,878,380 - Net increase in loans outstanding (28,723,489) (20,877,876) Purchases of premises and equipment, net (1,408,991) (3,093,306) Proceeds for sale of premises and equipment - 10,000 ----------- ----------- Net cash used in investing activities (51,248,374) (25,474,675) Cash flows from financing activities: Net increase in transaction and savings accounts 2,430,061 11,817,357 Net increase in certificates of deposit 27,357,920 3,117,778 Net increase in securities sold under agreements to repurchase 6,428,018 447,190 Net increase in commercial paper 1,490,977 1,803,000 Change in federal funds purchased 8,000,000 5,850,000 Repayments on note payable to a bank (478,959) (226,875) Proceeds from issuance of common stock 12,450 24,300 Purchase of treasury stock (230,256) (176,700) Dividends paid (452,333) (389,786) ----------- ----------- Net cash provided by financing activities 44,557,878 22,266,264 ----------- ----------- Net increase(decrease) in cash and cash equivalents (2,533,424) (381,276) Cash and cash equivalents at beginning of the period 21,595,896 19,893,367 ----------- ----------- Cash and cash equivalents at end of the period $19,062,472 $19,512,091 =========== ===========
See accompanying notes to consolidated financial statements. (4) PALMETTO BANCSHARES, INC. AND SUBSIDIARY Notes To Consolidated Interim Financial Statements 1. Basis of Presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments which, in the opinion of management, are necessary for fair presentation of the financial statements have been included, and were of a normal recurring nature. The results of operations for the three and nine month periods ended September 30, 1995 are not necessarily indicative of the results which may be expected for the entire year. 2. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, The Palmetto Bank (the Bank), and Palmetto Capital, Inc., a wholly-owned subsidiary of The Palmetto Bank, (the "corporation") incorporated February 26, 1992. Palmetto Capital, Inc. offers the brokerage of stocks, bonds, mutual funds and unit investment trusts. The corporation also offers advisory services and variable rate annuities. In consolidation, all significant intercompany accounts and transactions have been eliminated. 3. Investment Securities The carrying and market values of investment securities are summarized as follows: September 30, 1995 Carrying Market Value Value U.S. Treasury and other U.S. Government agencies $35,312,448 35,638,271 State and municipal 28,578,477 29,656,973 Mortgage-backed securities 3,739,816 3,743,381 ---------- ---------- Total $67,630,741 69,038,625 ========== ========== December 31, 1994 Carrying Market Value Value U.S. Treasury and other U.S. Government agencies $30,536,734 29,908,053 State and municipal 24,167,941 23,998,511 ---------- ---------- Total $54,704,675 53,906,564 ========== ========== (5) The amortized costs and market values of securities available for sale at September 30, 1995 and December 31, 1994 are as follows: September 30, 1995 Amortized Market Cost Value ---------- ---------- U. S. Treasury securities $17,461,834 17,863,157 ========== ========== December 31, 1994 Amortized Market Cost Value --------- ---------- U. S. Treasury securities $ 9,466,865 9,204,219 ========== ========== The Company determines investments as held to maturity or available for sale at the purchase date. Securities available for sale are recorded at market value. Although management does not intend to sell such investments in the immediate future, if certain market conditions exist, the Company may sell these securities prior to maturity. Valuation losses or recovery of previously recorded valuation losses are recorded in shareholders' equity, net of taxes as net appreciation (depreciation) of investments available for sale in the period incurred. Gain or loss on the sale of investments available for sale is based on the specific identification method. Investments with an aggregate carrying value of approximately $45,008,000 and $40,144,000 at September 30, 1995, and December 31, 1994, respectively, are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. 4. Loans A summary of loans, by classification, follows: September 30, December 31, 1995 1994 ------------- ----------- Commercial, financial and agricultural $ 38,877,196 32,672,103 Real estate - const. 3,347,636 1,940,631 Real estate - mortgage 149,607,474 134,788,527 Installment loans to individuals 51,935,879 46,007,058 ----------- ----------- Total $ 243,768,185 215,408,319 =========== =========== (6) The following is a summary of activity affecting the allowance for loan losses for the periods indicated: For the three months ended September 30 ----------------------------- 1994 1993 Balance at beginning of period $3,154,100 2,840,205 Provision for loan losses 300,000 105,000 Loan recoveries 41,865 118,408 Less loans charged-off (153,124) (94,611) --------- --------- Balance at end of period $3,342,841 2,969,002 ========= ========= For the nine months ended September 30 ---------------------------- 1994 1993 Balance at beginning of period $3,016,464 2,393,638 Provision for loan losses 690,000 660,000 Loan recoveries 136,060 219,897 Less loans charged-off (499,683) (304,533) --------- --------- Balance at end of period $3,342,841 2,969,002 ========= ========= The Company had outstanding, unused loan commitments at September 30, 1995 as follows: Home equity loans $ 7,374,000 Credit cards 15,335,000 Commercial real estate development: Secured 6,426,000 Unsecured 250,000 Other unused lines of credit 11,916,000 ---------- $ 41,301,000 ========== Standby letters of credit $ 1,880,000 ========== (7) The following table sets forth each category of nonperforming loans, total loans outstanding and the percentage of each type of nonperforming loans having that status for more than 90 days as of September 30, 1995: Percentage 90 Days Total 90 Days or More Loans or More ----------- ---------- ---------- Commercial, financial and agricultural $205,000 38,877,000 .53% Real estate-construction - 3,348,000 _ Real estate-mortgage 191,000 149,607,000 .13% Installment loans to individuals 177,000 51,936,000 .34% ----------- ----------- Total $573,000 243,768,000 .24% =========== =========== 5. Deposits A summary of deposits follows: September 30, December 31, 1995 1994 ------------ ------------ Transaction accounts $103,591,430 106,367,423 Savings deposits 21,941,751 20,931,228 Insured money market accts. 44,264,519 40,669,164 Time deposits over $100,000 31,804,990 23,570,814 Other time deposits 102,876,574 83,152,654 Premium on deposits acquired (129,250) (164,500) ------------ ------------ Total $304,350,014 274,526,783 ============ ============ (8) PALMETTO BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1994 TO SEPTEMBER 30, 1995 Liquid assets which include cash, federal funds sold, and investments available for sale increased by $6.1 million for the nine month period. This increase of 19.9% consisted of an increase in investments of $8.6 million. Federal funds sold decreased $3.2 million. Investments held to maturity increased during the nine month period $12.9 million, or 23.6%. Deposit growth during the period that was not consumed by loan demand was used to purchase investments. Investments for the portfolio are based on the balance between higher yield short term maturities and longer term tax exempt obligations of state and municipalities. Loans, net, increased $28.0 million, or 13.2%, during the nine month period as a result of growth in loan demand. The allowance for loan losses increased by 10.8% during the period as management adjusts the allowance to approximate 1.40% of total loans. Premises and equipment increased $753,300, or 7.8% due primarily to capitalized expenditures associated with the conversion of the Bank's central computer software systems. This conversion with an anticipated five-year total cost of $1.0 million was completed in September 1995. Goodwill is being amortized over 25 years using the straight-line method. The Company periodically assesses the recoverability of this goodwill by evaluating whether the amortization of the remaining balance can be recovered through projected undiscounted future cash flows which are based on historical trends. Other assets increased $421,000, or 12.0%, during the period primarily due to an increase in interest earned not collected on loans and securities, resulting from increases in the loan and investment portfolios. Deposits increased by 10.9% during the period, from $274.5 million to $304.4 million. The increase was due to normal growth and new deposit customers from the new North Anderson office which opened in July 1995. Retail repurchase agreements increased by $6.4 million or 122.4%. These account balances fluctuate based on the deposit customers' daily qualifying funds. (9) Commercial paper associated with the alternative commercial sweep accounts increased $1.5 million or 21.6%. These changes are the result of normal fluctuations in the accounts. Federal funds purchased increased $8.0 million. Funds are sold or purchased based on available funds on an overnight basis. Long-term debt consisted of one loan which totalled $479,000 on December 31, 1994 which was paid off in June 1995. This loan was used to fund the purchase of Bank of Hodges. Other liabilities decreased by $546,800, or 72.2%, due primarily to increased accruals for expenses for property taxes and other operation expenses.. Retained earnings increased $2.2 million for the nine month period as a result of net income of $2.7 million, less dividends paid of $453,300. Liquidity The Company's liquidity position is dependent upon its debt servicing needs and dividends declared. Bancshares' long-term debt to equity ratio was 0.0% and .7% as of September 30, 1995, and December 31, 1994, respectively. Liquidity is provided from its subsidiary, The Palmetto Bank. The only restrictions on the amount of dividends available for payment to Bancshares are guidelines established by regulatory authorities for capital-to -asset ratios. As of September 30, 1995, The Palmetto Bank had total primary capital of $28.6 million and total assets of $362.7 million. The resulting primary capital to assets ratio is 7.9%. The South Carolina Board of Financial Institutions' guideline suggests a primary capital to asset ratio of at least 7%. Therefore, as of September 30, 1995, the subsidiary had approximately $3.2 million excess retained earnings available to pay as dividends to Bancshares. Capital Resources Under the capital guidelines of the Federal Reserve Board and the FDIC, Bancshares, and the Bank are currently required to maintain a minimum risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital. Tier 1 capital consists of common shareholders' equity, qualifying perpetual preferred stock ( which can constitute up to 25% of total Tier 1 capital) and minority interest in equity accounts of consolidated subsidiaries, less goodwill. In addition, Bancshares and the Bank must maintain a minimum Tier 1 leverage ratio ( Tier 1 capital to total assets) of at least 3%, but this minimum ratio is increased by 1% to 2% for other than the highest rated institutions. (10) The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profile among financial institutions, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Management believes the risk-based capital guidelines will not have a material effect on the Company's operations or the operations of its subsidiaries. At September 30, 1995, The Company had a total risk-based capital ratio of 10.87%, a Tier 1 risk-based capital ratio of 9.60% and a leverage ratio of 6.94%. Accordingly, the Company is deemed to be a "well-capitalized" institution under currently applicable regulatory guidelines. Also, at September 30, 1995, the Company had a primary capital ratio (total shareholders' equity plus the allowance for loan losses to total assets) of 8.23%, compared to a ratio of 8.46% at September 30, 1994. On February 25, 1994 the Company purchased 5,700 shares of treasury stock for $31 per share totalling $176,700. On September 18, 1995 the Company purchased 5,904 shares of treasury stock for $39 per share totalling $230,256. Effect in Inflation and Changing Prices The consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and results of operations in terms of historical dollars, without consideration of changes in the relative purchasing power over time due to inflation. Unlike most other industries, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect in a financial institution's performance than does the effect of inflation. The yield on a majority of the Company's earning assets adjusts simultaneously with changes in the general level of interest rates. Most of the Company's liabilities are issued with fixed terms and can be repriced only at maturity. The degree of interest rate sensitivity of the Company's assets and liabilities and the differences in timing of repricing assets and liabilities provides an indication of the extent to which the Company's net interest income may be affected by interest rate movements. (11) Accounting and Reporting Matters On December 30, 1994, the AICPA issued Statement of Position 94-6, "Disclosure of Certain Significant Risks and Uncertainties" (SOP 94-6). The disclosure requirements of SOP 94-6 are similar to or overlap disclosure requirements in Financial Accounting Standards Board(FASB) Statement No. 5, "Accounting for Contingencies", and for public companies, Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," and certain pronouncements of the Securities and Exchange Commission (SEC). This SOP does not alter the requirements of any FASB or SEC pronouncement. The Disclosures required under SOP 94-6 focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term, and stem from (a) the nature of the entity's operations, (b) the necessary use of estimates in the preparation of financial statements, and (c) significant concentrations on certain aspects of the entity's operations. SOP 94-6 is effective for financial statements issued for fiscal years ending after December 15, 1995, and for financial statements for interim periods in fiscal years subsequent to the year for which this SOP is to be first applied. Based on the its operations and preparation of its financial statements, management does not believe this statement will have a material adverse effect on the Company. On March 31, 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" (the Statement). This Statement provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. The Statement requires long-lived assets and certain identifiable intangibles to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by the provisions of APB Opinion No. 30. Statement No. 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995 although earlier application is encouraged. Thus, for calendar year entities, Statement No. 121 is effective for 1996 financial statements. Based on the condition of assets held by the Company, management believes this statement will have no material adverse effect on the Company. In May 1995, the FASB issued a SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of SFAS No. 65" which is (12) effective prospectively for years beginning after December 15, 1995. The statement requires the recognition of an asset for the rights to service mortgage loans for others, regardless of how these rights were acquired (either purchased or originated). Further, it amends SFAS 65 to require assessment of impairment based on fair value. The Company recently commenced the origination and sale of mortgage loans. Currently, the Company is pre-selling all mortgages and based upon the Company's present mortgage lending operation does not anticipate that this statement will have a material adverse effect on the Company. In October 1995, the FASB issued a SFAS No. 123, "Accounting for Stock Based Compensation." This statement is effective for financial statements issued for fiscal years beginning after December 15, 1995. SFAS 123 provides guidance on the valuation of compensation costs arising from both fixed and performance stock compensation plans. (13) COMPARISON OF OPERATION RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995, AND 1994 Net income for the three months ended September 30, 1995 was $1.0 million, an increase of 34.4% from the $778,400 reported for the same period in 1994. Net income per share was $1.04 for the 1995 period as compared with $0.78 for the comparable period in 1994. Net Interest Income The Bank's earnings are dependent to a large degree on net interest income, defined as the difference between gross interest and fees on earnings assets, primarily loans and investment securities, and interest paid on deposits and borrowed funds. Net interest income is affected by the interest rates earned or paid and by volume changes in loans, securities, deposits, and borrowed funds. For the three month period ended September 30, 1995, net interest income was $3.9 million, which represented a 6.6% increase from the same period in 1994. This increase was the result of increases in the volume of earning assets and deposits combined with a consistent net interest margin, defined as net interest income as a percent of average earning assets. Net interest margin for the 1995 period was 4.8%, compared to 5.2% for the same period in 1994. The increase in volume was due to normal growth, and the opening of another full service office in Anderson. Interest income on investments and fed funds sold increased 30.6% during the 1995 period compared to the corresponding period in 1994. Portfolio volumes and average yields have increased during the 1995 period compared to the same period in 1994. Total interest expense increased by 57.5%, or $1.1 million during the 1995 period, due to an increase in interest-bearing deposit liabilities of $35.5 million, or 16.1% over the 1994 period. The average rate paid on interest bearing liabilities increased from 3.0% during the three month period in 1994, to 4.2% during the same period in 1995. The profitability of the Company is influenced significantly by management's ability to control the relationship between rate sensitive assets and liabilities, and the current interest rate environment. (14) Provision For Loan Losses The provision for loan losses was $105,000 for the 1994 period, compared to $300,000 in 1993. The provision expense is adjusted each month to reflect loan volume growth and allow for loan charge-offs and recoveries. Management's objective is to maintain the allowance for loan losses at an adequate level as it related to the loan portfolio. Other Operating Income Other operating income increased by $121,300 or 12.1% in 1995 as compared to the same period in 1994. Service charges on deposit accounts increased 5.7% primarily due to deposit growth and increased customer base. Fiduciary service fees increased 12.1% due to an increase in account volumes. Other Operating Expenses Other operating expenses decreased by $109,500, or 3.2% during the 1995 three month period over the same period in 1994 due primarily to the refund and reduction in FDIC insurance assessments. Income Taxes The Company incurred an income tax expense of $340,000 for the 1995 three month period compared to $333,000 for the same period in 1994. This increase was related directly to the increase in taxable income. (15) COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, AND 1994 Net income for the nine months ended September 30, 1995 was $2.7 million compared to $2.0 million for the 1994 period. Net income per share was $2.65 for the 1995 period as compared to $1.99 for 1994. Return on average assets for 1995 was 1.08% (annualized), compared to .88% in 1994. Net Interest Income For the nine month period in 1995, net interest income was $11.2 million, which represented a 7.4% increase over the same period in 1994. This increase was due to increases in volume of both loans and deposits and a consistent net interest margin. Average earning assets increased by 9.6%. Net interest margin, defined as net interest income as a percent of average earning assets, was 4.97% (annualized) for the 1995 period compared to 5.08% for the 1994 period. Provision For Loan Losses The provision for loan losses was $690,000 and $660,000 for the nine months ended September 30, 1995, and 1994, respectively. The amount charged to the provision for loan losses by the Bank is based on management's judgement as to the amounts required to maintain an allowance adequate to provide for potential losses in the loan portfolio. The level in this allowance is dependent upon the total amount of past due loans, nonperforming loans, general economic conditions and management's assessment of potential losses based upon internal credit grading on the loans and periodic reviews and assessments of credit risk associated with particular loans. Other Operating Income and Expenses Other operating income during the 1995 nine month period increased by $128,200, or 4.2% over the same nine month period in 1994. Service charges on deposit accounts increased $137,900 due to an increased number of deposit account transactions which was offset by the losses on sales of investments. Six million dollars of investments available for sale and $2.2 million in investments held to maturity with maturities of less than 90 days, were sold during the 1995 nine month period in order to capitalize on the rising bond market. The proceeds of the sales were used to purchase investments with a approximate yield increase of 360 basis points over the investments sold. The losses have been more than compensated for (16) by the income from the higher yielding investments. Non-interest expenses increased $15,400 during the 1995 period due to normal growth which was offset by the refund and reduction in FDIC insurance assessments. Income Taxes The Company incurred an income tax expense of $920,000 for the 1995 nine month period compared to $736,000 for the same period in 1994. This increase is due to and increase in taxable income. (17) PALMETTO BANCSHARES, INC. AND SUBSIDIARY Part II - Other Information Item 1. Legal Proceedings Palmetto Bancshares, Inc. is not engaged in any legal proceedings. From time to time The Palmetto Bank (subsidiary) is involved in legal proceedings involving its normal course of business as a bank. Item 2. Changes in Securities There have been no changes in securities during the reporting period. Please refer to the three months Management Discussion and Analysis for an explanation of working capital restrictions and any limitations upon the payment of dividends. 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 (a) Exhibit 27 (b) Bancshares did not file any reports on Form 8-K during the quarter ended September 30, 1995. (18) PALMETTO BANCSHARES, INC. 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. Palmetto Bancshares, Inc. Laurens, South Carolina Date: March 7, 1996 (Signature of L. Leon Patterson) -------------------------------- L. Leon Patterson Chairman and Chief Executive Officer Date: March 7, 1996 (Signature of Paul W. Stringer) ------------------------------- Paul W. Stringer President and Chief Operating Officer (19) EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1995 SEP-30-1995 19,062 0 0 0 17,863 67,631 69,039 243,768 3,343 360,356 304,350 28,085 1,305 0 0 0 5,054 21,562 360,356 15,480 3,187 336 19,003 7,154 7,770 11,233 690 (122) 10,135 3,585 2,665 0 0 2,665 1.04 0.00 4.97 573 0 0 0 3,016 500 136 3,343 0 0 0
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