-----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, MGRXaFI/5mkqae5MOXMb1sLkHepL+vYpy4qr03r0eRR5tHgx9VAc9bRCeZF42PsH ca3S5t04wZc6n3pftbrfLQ== 0000950168-96-000752.txt : 19960513 0000950168-96-000752.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950168-96-000752 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-26016 FILM NUMBER: 96558914 BUSINESS ADDRESS: STREET 1: 301 HILLCREST DRIVE STREET 2: P O BOX 49 CITY: LAURENS STATE: SC ZIP: 29360 BUSINESS PHONE: 8039844551 10-Q 1 PALMETTO BANCSHARES, INC. 10-Q #43369.1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q __X__QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 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 0-26016 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) (864) 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 May 7, 1996 ----------------------------- ------------------------------- Common stock, $5.00 par value 1,001,943 PALMETTO BANCSHARES, INC. Quarterly Report on Form 10-Q For Quarter Ended March 31, 1996 INDEX Page No. PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition at March 31, 1996 and December 31, 1995 1 Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 3 Notes to Consolidated Interim Financial Statements 4 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 13 PART II - OTHER INFORMATION 14-16 SIGNATURES 17 PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition
March 31, December 31, 1996 1995 ------------------------ -------------------- Assets (unaudited) Cash and due from banks $24,126,228 22,921,841 Federal funds sold 1,233,784 2,096,752 Investment securities held to maturity (market values of $50,525,696 and $44,548,986 in 1996 and 1995, respectively) 50,499,686 43,788,656 Investment securities available for sale (amortized cost of $48,235,676 and $38,580,347 in 1996 and 1995, respectively) 48,889,859 39,615,105 Loans 267,135,811 255,186,659 Less allowance for loan losses (3,834,230) (3,700,216) -------------------------------------------- Loans, net 263,301,581 251,486,443 Premises and equipment, net 10,971,951 10,709,912 Goodwill 1,056,246 1,071,575 Other assets 5,075,383 4,550,456 -------------------------------------------- Total assets $405,154,718 376,240,740 ============================================ Liabilities and Shareholders' Equity Liabilities: Deposits: Non-interest-bearing 52,112,505 53,330,131 Interest-bearing 284,514,876 276,329,352 -------------------------------------------- Total deposits 336,627,381 329,659,483 Securities sold under agreements to repurchase 15,203,880 7,545,710 Commercial paper 5,761,085 6,186,855 Federal funds purchased 17,500,000 2,900,000 Other liabilities 1,814,910 2,040,011 -------------------------------------------- Total liabilities 376,907,256 348,332,059 ESOP stock subject to put/call option 2,770,528 2,770,528 Shareholders' Equity: Common stock-$5.00 par value. Authorized 2,000,000 shares; issued 1,010,884; outstanding 1,001,943 in 1996; outstanding 1,004,980 in 1995 5,054,420 5,054,420 Additional paid-in capital 10,442,083 10,442,083 Retained earnings 12,700,372 12,006,058 Treasury Stock,(8,941 and 5,904 shares in 1996 and 1995, respectively) (351,736) (230,256) Net unrealized gain on investment securities available for sale 402,323 636,376 ESOP stock subject to put/call option, 95,371 common shares at $29.05 per share in 1995 (2,770,528) (2,770,528) -------------------------------------------- Total shareholders' equity 25,476,934 25,138,153 -------------------------------------------- Total liabilities and shareholders' equity 405,154,718 376,240,740 ============================================
See accompanying notes to consolidated interim financial statements 1 PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations Three Months Ended March 31, 1996 and 1995 (Unaudited)
1996 1995 -------------------------------------------- Interest income: Interest and fees on loans $5,975,028 $4,846,504 Interest and dividends on investment securities: U.S. Treasury and U.S. Government agencies 793,670 582,629 State and municipal 440,355 356,970 Mortgage backed securities 116,949 0 Interest on Federal funds sold 12,258 89,986 -------------------------------------------- Total interest income 7,338,260 5,876,089 -------------------------------------------- Interest expense: Interest on deposits 2,902,108 2,044,211 Interest on securities sold under agreements to repurchase 99,599 112,079 Interest on Federal funds purchased 82,605 0 Interest on commercial paper 72,795 77,192 Interest on note payable to a bank 0 9,324 -------------------------------------------- Total interest expense 3,157,107 2,242,806 -------------------------------------------- Net interest income 4,181,153 3,633,283 Provision for loan losses 300,000 195,000 -------------------------------------------- Net interest income after provision for loan losses 3,881,153 3,438,283 Non-interest income: Service charges on deposit accounts 613,490 581,749 Fees for trust services 210,000 185,000 Investment securities losses 0 (110,943) Other income 304,993 331,131 -------------------------------------------- Total non-interest income 1,128,483 986,937 Non-interest expenses: Salaries and other personnel expense 2,029,906 1,779,497 Net occupancy expense 334,223 272,113 Furniture and equipment expense 341,708 257,010 FDIC assessment 1,000 155,123 Postage and supplies expense 226,207 174,731 Advertising expense 199,941 161,274 Telephone expense 98,552 93,183 Other expense 585,397 552,992 -------------------------------------------- Total non-interest expenses 3,816,934 3,445,923 -------------------------------------------- Income before income taxes 1,192,702 979,297 Income tax provision 298,000 275,000 -------------------------------------------- Net income $894,702 $704,297 ============================================ Net income per share $0.89 $0.70 ============================================ Cash dividends declared $0.20 $0.15 ============================================ Weighted average shares outstanding 1,004,279 1,005,005 ============================================
See accompanying notes to consolidated interim financial statements. 2 PALMETTO BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For Three Months Ended March 31, 1996 and 1995 (Unaudited)
1996 1995 -------------------------------------------- Cash flows from operating activities: Net income $894,702 $704,297 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of premium on investment securities 29,033 14,364 Loss on sale of investment securities available for sale 0 110,943 Provision for loan losses 300,000 195,000 Depreciation of premises and equipment 266,698 198,432 Amortization of goodwill 15,329 15,329 Amortization of premium on core deposits 11,750 11,739 Change in other assets (524,927) (40,781) Change in other liabilities, net (78,580) 84,059 -------------------------------------------- Net cash provided by operating activities 914,005 1,293,382 Cash flows from investing activities: Net decrease (increase) in federal funds sold 862,968 (7,166,831) Purchase of investment securities held to maturity (12,119,767) (2,227,130) Purchase of investment securities available for sale (9,986,719) (7,070,332) Proceeds from maturities of investment securities held to maturity 5,000,000 3,255,000 Proceeds from maturities of investment securities available for sale 325,000 0 Proceeds from sale of investment securities available for sale 0 4,885,938 Principal paydowns on mortgage-backed securities 386,095 0 Net increase in loans (12,115,138) (4,110,647) Purchases of premises and equipment (528,737) (781,741) -------------------------------------------- Net cash used in investing activities (28,176,298) (13,215,743) Cash flows from financing activities: Net increase in transaction and savings accounts 5,076,207 497,030 Net increase in certificates of deposit 1,879,941 7,082,678 Net increase in securities sold under agreements to repurchase 7,658,170 5,116,538 Net decrease in commercial paper (425,770) 211,000 Net increase in federal funds purchased 14,600,000 0 Repayments on note payable to a bank 0 (75,625) Proceeds from issuance of common stock 0 12,450 Purchase of Treasury Stock (121,480) 0 Dividends paid (200,388) (150,777) -------------------------------------------- Net cash provided by financing activities 28,466,680 12,693,294 -------------------------------------------- Net increase in cash and cash equivalents 1,204,387 770,933 Cash and cash equivalents at beginning of the period 22,921,841 18,377,297 -------------------------------------------- Cash and cash equivalents at end of the period $24,126,228 $19,148,230 ============================================ Supplemental Information: Cash paid during the quarter for: Interest Expense 3,191,311 2,426,153 ============================================ Income Taxes 240,000 45,414 ============================================ Supplemental schedule of non-cash investing and financing transactions: Unrealized gain on investment securities available for sale 654,183 65,529 ============================================
See accompanying notes to consolidated interim financial statements. 3 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 increases (decreases) in 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 month period ended March 31, 1996 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 Palmetto Bancshares (the Company) and its wholly-owned subsidiary, The Palmetto Bank (the Bank), and Palmetto Capital, Inc., a wholly-owned subsidiary of The Palmetto Bank, incorporated February 26, 1992. The Bank provides a full-range of banking services, including the taking of deposits and the making of loans. Palmetto Capital, Inc. offers the brokerage of stocks, bonds, mutual funds and unit investment trusts. Palmetto Capital, Inc. 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 held to maturity are summarized as follows: March 31, 1996 Carrying Value Market Value U.S. Government agencies $16,026,456 15,880,193 State and municipal 24,636,759 24,929,150 Mortgage-backed securities 9,836,471 9,716,353 Total $50,499,686 50,525,696 4 December 31, 1995 Carrying Value Market Value U.S. Treasury and other U.S. Government agencies $15,032,602 15,175,600 State and municipal 22,592,824 23,183,380 Mortgage-backed securities 6,163,230 6,190,006 Total $43,788,656 44,548,986 The amortized cost and market values of investment securities available for sale are as follows: March 31, 1996 Cost Basis Market Value U.S. Treasury $39,978,871 40,336,913 State and municipal 8,256,805 8,552,946 Total $48,235,676 48,889,859 December 31, 1995 Cost Basis Market Value U.S. Treasury and U.S. Government Agencies $29,995,691 30,686,225 State and municipal 8,584,656 8,928,880 Total $38,580,347 39,615,105 The Company determines investment securities as held to maturity or available for sale at the purchase date. Investment 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 investments prior to maturity. Valuation losses or recovery of previously recorded valuation losses are recorded in shareholders' equity as net appreciation (depreciation) of investment securities available for 5 sale in the period incurred. Gain or loss on the sale of investment securities available for sale is based on the specific identification method. Investments with an aggregate carrying value of approximately $55,503,543 and $53,694,000 at March 31, 1996, and December 31, 1995, 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: March 31, 1996 December 31,1995 Commercial, financial and agricultural $48,516,812 45,377,386 Real estate - construction 6,142,491 5,452,663 Real estate - mortgage 151,796,036 149,017,139 Installment loans to individuals 60,680,472 55,339,471 Total $267,135,811 255,186,659 The following is a summary of activity affecting the allowance for loan losses for the periods indicated: For the three months ended March 31 1996 1995 Balance at beginning of period $3,700,216 3,016,464 Provision for loan losses 300,000 195,000 Loan recoveries 31,085 25,497 Less loans charged-off (197,071) (168,595) Balance at end of period 3,834,230 3,068,366 6 The Bank had outstanding, unused commitments as of March 31, 1996 as follows: Home equity loans $ 7,967,000 Credit cards 16,183,000 Commercial real estate development 9,067,000 Other unused lines of credit 7,794,000 $41,011,000 Standby letters of credit $ 1,778,000 5. Deposits A summary of deposits follows: March 31, December 31, 1996 1995 Transaction accounts $ 118,465,802 114,380,010 Savings deposits 22,493,333 20,261,624 Insured money market accounts 40,872,387 42,113,681 Time deposits over $100,000 37,687,295 39,629,516 Other time deposits 117,214,314 113,392,152 Premium on deposits acquired (105,750) (117,500) Total $ 336,627,381 329,659,483 7 PALMETTO BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1995 TO MARCH 31, 1996 On April 15, 1996, the Bank acquired three existing branches of First Union National Bank of South Carolina. The Bank assumed deposits of approximately $54 million, but assumed no loans. In anticipation of this acquisition, and under the assumption that interest rates were going to decline, the Bank has been investing the anticipated funds in advance of receiving the funds from the acquisition by purchasing federal funds, and by increasing the amount of securities sold under agreements to repurchase. With these funds, the Bank has been pre- investing in securities. Liquid assets which include cash, federal funds sold, and investments available for sale increased by $9.6 million for the three month period. This represents an increase of 14.88%. Cash and due from banks and federal funds sold increased $300 thousand, and the investment securities available for sale portfolio increased $9.3 million. Investment securities held to maturity increased during the three month period $6.7 million, or 15.33% due to the increased investment in securities in anticipation of funds received from the acquisition of the new branches. Loans, net, increased $11.8 million, or 4.70%, during the three month period as a result of normal growth. The allowance for loan losses increased 3.62% as a result of the increase in loan volume. Goodwill reflects the excess purchase price over the Bank of Hodges net assets acquired. The original amount of goodwill, $1,532,873, is being amortized on a straight line basis over a 25 year period. Other assets increased $525,000, or 11.54%, during the period primarily due to the increase in interest earned not collected on earning assets. Interest earning assets have increased significantly since year end. Investment securities held to maturity and investment securities available for sale combined have increased over 19% since the beginning of the year. Deposits increased by 2.11% during the period, from $329.7 million to $336.6 million. The increase was due to normal growth. Securities sold under agreements to repurchase have increased by $7.7 million or 101.49%,due to the Bank's strategy for pre-investing funds to be received from the acquisition of the new branches. Approximately $4.9 million of the repurchase agreements 8 were entered into in the last two weeks of the quarter. Commercial paper associated with the alternative commercial sweep accounts decreased by $426,000 or 6.9%, as a result of normal fluctuations in the accounts. Other liabilities decreased by $225,000, or 11.03%, due primarily to decreased accruals for expenses for taxes and other operating expenses. Total shareholders equity increased $338,781, for the three month period as a result of net income of $894,702, less dividends paid of $200,388, a decrease in unrealized gain on investment securities available for sale of $234,053, and the purchase of treasury stock for $121,480. Liquidity The Company's liquidity position is dependent upon its debt servicing needs and dividends declared. 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 March 31, 1996, The Palmetto Bank had total primary capital of $30.7 million and total assets of $407.9 million. The resulting primary capital to assets ratio is 7.54%. The South Carolina Board of Financial Institutions' guideline suggests a primary capital to asset ratio of at least 7%. Therefore, as of March 31, 1996, the subsidiary had approximately $2.2 million excess retained earnings available to pay as dividends to Bancshares if additional liquidity were required. Capital Resources Under the capital guidelines of the Federal Reserve Board and the FDIC, Bancshares and the Bank are currently required to maintain 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. 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 March 31, 1996, the Company had a total risk-based capital ratio of 10.48%, a Tier 1 risked-based capital ratio of 9.16% and a leverage ratio of 6.49%. Accordingly, the 9 Company is deemed to be a "well-capitalized" institution under currently applicable regulator guidelines. Also, at March 31, 1996, the Company had a primary capital ratio (total shareholders' equity plus the allowance for loan losses to total assets) of 7.84%, compared to a ratio of 8.52% at March 31, 1995. On March 11, 1996, the Company purchased 3,037 shares of Treasury Stock for $40 per share, totaling $121,480. Accounting and Reporting Matters In March, 1995, The Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which is effective for financial statements issued for fiscal years beginning after December 15, 1995. SFAS No. 121 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 adoption of this statement did not have a material effect on the Company. In May, 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, an Amendment of SFAS No. 65, which is effective prospectively for years beginning after December 15, 1995. The statement requires the recognition of an asset for the right to service mortgage loans for others, regardless of how those rights were acquired (either purchased or originated). Further, it amends SFAS No. 65 to require assessment of impairment based on fair value. The Company recently commenced the origination and sale of mortgage loans. To the extent the Company retains in-house originated loans, the Company anticipates having to record mortgage servicing rights related to these loans. Based on budgeted amounts, the immediate effect on the Company is not anticipated to be material; however, as the mortgage lending operation grows, the Company will adhere to the standard. In October, 1995, the FASB issued 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 No. 123 provides guidance on the valuation of compensation costs arising from both fixed and performance stock compensation plans. The adoption of this statement did not have a material effect on the Company. 10 COMPARISON OF OPERATION RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995 Net income for the three months ended March 31, 1996 was $894,700, an increase of 27% from the $704,300 reported for the same period in 1995. Net income per share was $0.89 for the 1996 period as compared with $0.70 for the comparable period in 1995. 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 March 31, 1996, net interest income was $4.2 million, which represented a 15% increase from the same period in 1995. This increase was the result of increases in the volume of earning assets and deposits. The increases in volume were due to normal growth, and planned investment in securities in anticipation of the branch acquisitions. Average net interest margin for the 1996 period was 4.83%, compared to 5.14% for the same period in 1995. The decrease in the net interest margin is due to the fact that the Bank has been utilizing more federal funds purchased and securities sold under agreements to repurchase in preparation of the acquisition of the new deposits. Federal funds purchased and securities sold under agreements to repurchase typically cost more than deposits as a source of funds. Interest income on loans increased 23.29% due to increased volume and increased rates. Interest income on investments increased 43.78% during the 1996 period compared to the corresponding period in 1995 due to portfolio volumes which increased 52.28% during the 1996 period compared to the same period in 1995. These increases were partially offset by a decrease in interest income on federal funds sold due to decreased volume of federal funds sold compared to the same period last year. The yield on average earning assets, which includes loans and investment securities, increased from 8.18% at March 31, 1995 to 8.47% at March 31, 1996. Total interest expense increased by 40.77% during the 1996 period mostly due to an increased volume of deposits from March 31,1995 compared to March 31,1996. Some of the increase in interest expense is also due to the increased volume of federal funds purchased. Average total interest bearing liabilities (including deposits, securities sold under agreements to repurchase, commercial paper, and federal funds purchased), increased by 21.64% from March 31, 1995 to March 31, 1996. The average rate paid on interest bearing liabilities increased from 3.69% during the three month period in 1995, to 4.18% during the 1996 period. The overall increase in interest expense was partly offset by the decrease in 11 interest expense on securities sold under agreements to repurchase and commercial paper due to decreased volumes compared to the same period last year. The overall increase was also slightly offset by the decrease in interest expense on the note payable to a bank as the note was paid in full in June 1995. The profitability of the Bank is influenced significantly by management's ability to control the relationship between rate sensitive assets and liabilities, and the current interest rate environment. Provision For Loan Losses The provision for loan losses was $300,000 for the 1996 period, compared to $195,000 in 1995. The provision 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 a level adequate to cover inherent losses in the portfolio. Additions to the allowance for loan losses are based on management's evaluation of the loan portfolio under current economic conditions, past loan loss experience, and such other factors which, in management's judgment, deserve recognition in estimating loan losses. Loans are charged off when, in the opinion of management, they are deemed to be uncollectible. Recognized losses are charged against the allowance, and subsequent recoveries are added to the allowance. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. The allowance for loan losses is subject to periodic evaluation by various regulatory authorities and may be subject to adjustment, based upon information that is available to them at the time of their examination. Other Operating Income Other operating income increased by 14.34% in 1996 as compared to the same period in 1995. Service charges on deposit accounts increased $32,000 or 5.46% during the 1996 period compared to the same period in 1995 due primarily to increased deposit volumes. Fiduciary service fees increased 13.51% due to an increase in account volumes. Additionally, realized losses on the sales of investment securities totaling $111,000 in the first quarter of 1995 did not recur in 1996. Other income decreased $26,000, or 7.89%, due primarily to a decrease of $40,000 in merchant income associated with the Company's credit card department, and a decrease of $59,000 in miscellaneous income due to isolated items being recorded in miscellaneous income in prior year. These items included a $21,000 D&O insurance refund, a $6,000 property tax refund, and a $5,000 gain on disposal of fixed assets. These items were not recurring in the period ending March 31, 1996. Also recorded in miscellaneous income is a decrease in commission income of $12,000 from the Bank's official checks processor. These decreases were partially offset by an increase of $49,000 in origination and processing fees from the mortgage loan department. This increase is due primarily to an 12 increase in the volume of originations due to lower mortgage loan rates as compared to this period last year. Commission fees from the Bank's subsidiary, Palmetto Capital, Inc., increased $28,000 during the three month period as compared to the same period in 1995 due to the acquisition of a significant new customer. Other Operating Expenses Other operating expenses increased by $371,000, or 10.77% during the 1996 three month period over the same period in 1995. A general increase in all other operating expense categories was due to normal operating growth. Income Taxes The Company incurred an income tax liability of $298,000 for the 1996 three month period compared to $275,000 for the same period in 1995 due to the increase in taxable income. This liability is based on a historical effective tax rate of 25%. 13 PALMETTO BANCSHARES, INC. AND SUBSIDIARY Part II - Other Information Item 1. Legal Proceedings Palmetto Bancshares, Inc. (the Company) is not engaged in any legal proceedings. From time to time The Palmetto Bank (the Bank) is involved in legal proceedings incidental to its normal course of business as a bank. Management believes none of these proceedings is likely to have a materially adverse effect on the business of the Company or the Bank. Item 2. Changes in Securities None. Please refer to the three months Management's Discussion and Analysis in Part I above 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 At the Annual Meeting of Shareholders held April 9, 1996, the following persons were elected as directors with the votes indicated:
For Against Russell B. Emerson 816,368 shares 0 shares John T. Gramling, II 816,368 shares 0 shares James M. Shoemaker, Jr. 816,368 shares 0 shares Paul W. Stringer 816,368 shares 0 shares
James A. Cannon, L. Leon Patterson, J. David Wasson, Jr., W. Fred Davis, Jr., David P. George, Jr. and Michael D. Glenn continued in their present terms as directors. The Company is saddened to report the death of Mr. Francis L. Willis, a director of the Company, who was previously elected to serve until the 1997 Annual Meeting. As of this date, no successor has been selected to serve for the remainder of Mr. Willis' term. 14 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K): Exhibit No. Description 3.1.1 Articles of Incorporation filed on May 13, 1982 in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 3 to the Company's Registration Statement on Form S-4, No. 33-19367, filed with the Securities and Exchange Commission on December 30, 1987 3.1.2 Articles of Amendment filed on May 5, 1988 in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.1.2 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 20, 1992 3.1.3 Articles of Amendment filed on January 26, 1989 in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.1.3 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 20, 1992 3.1.4 Articles of Amendment filed on April 23, 1990 in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.1.4 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 20, 1992 3.2 By-Laws: Incorporated by reference to Exhibit 3 to the Company's Registration Statement on Form S-4, No. 33-19367, filed with the Securities and Exchange Commission on December 30, 1987 15 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended March 31, 1996. 16 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. PALMETTO BANCSHARES, INC. By: /s/L. Leon Patterson L. Leon Patterson Chairman and Chief Executive Officer /s/Paul W. Stringer Paul W. Stringer President and Chief Accounting Officer Date: May 7, 1996 17 EXHIBIT INDEX Exhibit No. Description 27.1 Financial Data Schedule EX-27 2 EXHIBIT 27
9 The schedule contains summary financial information extracted from Palmetto Bancshares, Inc. and subsidiary consolidated statements of operations and consolidated statements of financial condition and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 MAR-31-1996 24,126 0 1,234 0 48,890 50,500 50,526 267,136 (3,834) 405,155 336,627 38,465 1,815 0 0 0 5,054 20,423 405,155 5,975 1,351 12 7,338 2,902 3,157 4,181 300 0 3,817 1,193 895 0 0 895 0.89 0.00 4.83 807 0 0 0 3,700 197 31 3,834 0 0 0
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