<PAGE>
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
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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
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PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------------ --------------------
Assets (unaudited)
<S> <C> <C>
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
============================================
</TABLE>
See accompanying notes to consolidated interim financial statements
1
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PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------
<S> <C> <C>
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
============================================
</TABLE>
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------
<S> <C> <C>
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
============================================
</TABLE>
See accompanying notes to consolidated interim financial statements.
3
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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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:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,126
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,234
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,890
<INVESTMENTS-CARRYING> 50,500
<INVESTMENTS-MARKET> 50,526
<LOANS> 267,136
<ALLOWANCE> (3,834)
<TOTAL-ASSETS> 405,155
<DEPOSITS> 336,627
<SHORT-TERM> 38,465
<LIABILITIES-OTHER> 1,815
<LONG-TERM> 0
0
0
<COMMON> 5,054
<OTHER-SE> 20,423
<TOTAL-LIABILITIES-AND-EQUITY> 405,155
<INTEREST-LOAN> 5,975
<INTEREST-INVEST> 1,351
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 7,338
<INTEREST-DEPOSIT> 2,902
<INTEREST-EXPENSE> 3,157
<INTEREST-INCOME-NET> 4,181
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,817
<INCOME-PRETAX> 1,193
<INCOME-PRE-EXTRAORDINARY> 895
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.00
<YIELD-ACTUAL> 4.83
<LOANS-NON> 807
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,700
<CHARGE-OFFS> 197
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 3,834
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
