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, 1997
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.)
301 Hillcrest Drive
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 April 25, 1997
----------------------------- -------------------------------
Common stock, $5.00 par value 3,050,952
<PAGE>
PALMETTO BANCSHARES, INC.
Quarterly Report on Form 10-Q
For Quarter Ended March 31, 1997
INDEX Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 1
Consolidated Income Statements for the Three Months
Ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Interim Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 11
PART II - OTHER INFORMATION 12 - 13
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SIGNATURES 14
- ----------
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996
-------------------------------------
Assets (unaudited)
<S> <C> <C>
Cash and due from banks $16,606 $28,373
Federal funds sold 12,497 1,951
Investment securities held to maturity (market values of $72,645
and $66,770 in 1997 and 1996, respectively) 73,232 66,207
Investment securities available for sale (amortized cost of $22,494
and $15,970, in 1997 and 1996, respectively) 22,582 16,240
Loans held for sale 5,273 4,075
Loans 334,837 332,986
Less allowance for loan losses (4,819) (4,729)
-------------------------------------
Loans, net 330,018 328,257
Premises and equipment, net 12,301 12,323
Accrued interest 3,357 3,437
Other assets 7,925 7,514
-------------------------------------
Total assets $483,791 $468,377
=====================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing 65,679 71,349
Interest-bearing 362,694 341,037
-------------------------------------
Total deposits 428,373 412,386
Securities sold under agreements to repurchase 13,772 11,636
Commercial paper (Master note) 6,552 7,435
Federal funds purchased -- 3,000
Other liabilities 2,454 2,483
-------------------------------------
Total liabilities 451,151 436,940
-------------------------------------
ESOP stock subject to put/call option 4,030 3,313
Shareholders' Equity:
Common stock-$5.00 par value. Authorized 10,000,000 shares;
3,050,952 issued and outstanding in 1997;
3,032,951 issued and 3,023,841 outstanding in 1996 15,255 15,165
Additional paid-in capital 325 334
Retained earnings 17,006 15,894
Treasury Stock (9,111 shares in 1996) -- (122)
Net unrealized gain on investment securities available for sale,
net of income taxes 54 166
ESOP stock subject to put/call option, 293,118 common
shares at $13.75 per share in 1997 and 284,007 common
shares at $11.67 per share in 1996 (4,030) (3,313)
-------------------------------------
Total shareholders' equity 28,610 28,124
-------------------------------------
Total liabilities and shareholders' equity $483,791 $468,377
=====================================
</TABLE>
See accompanying notes to consolidated interim financial statements.
1
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Income Statements (Unaudited)
Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $7,541 5,975
Interest and dividends on investment securities:
U.S. Treasury and U.S. Government agencies 450 794
State and municipal 452 440
Mortgage-backed securities 386 117
Interest on federal funds sold 54 12
----------------------------
Total interest income 8,883 7,338
----------------------------
Interest expense:
Interest on deposits 3,518 2,902
Interest on securities sold under agreements to repurchase 134 99
Interest on federal funds purchased 43 83
Interest on commercial paper 62 73
----------------------------
Total interest expense 3,757 3,157
----------------------------
Net interest income 5,126 4,181
Provision for loan losses 300 300
----------------------------
Net interest income after provision for
loan losses 4,826 3,881
Non-interest income:
Service charges on deposit accounts 760 614
Fees for trust services 236 210
Other income 396 305
----------------------------
Total non-interest income 1,392 1,129
Non-interest expenses:
Salaries and other personnel 2,244 2,030
Net occupancy 342 334
Furniture and equipment 399 342
Postage and supplies 224 226
Marketing and advertising 174 200
Telephone 134 99
Other 841 586
----------------------------
Total non-interest expenses 4,358 3,817
----------------------------
Income before income taxes 1,860 1,193
Income tax provision 508 298
----------------------------
Net income $1,352 895
============================
Increase in fair value of ESOP stock (717) --
============================
Net income on common shares not subject to put/call $635 895
============================
Net income per common share not subject to put/call $0.23 0.30
==============================
Cash dividends declared per share $0.08 0.07
===============================
Weighted average shares outstanding 3,035,680 3,012,837
===============================
Weighted average shares outstanding not subject to put/call 2,748,434 3,012,837
===============================
</TABLE>
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
For Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,352 895
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 539 323
Provision for loan losses 300 300
Origination or acquisition of loans held for sale (25,077) --
Sale of loans held for sale 23,879 --
Change in accrued interest receivable 80 (965)
Change in other assets (547) 440
Change in other liabilities, net 41 (79)
-------------------------------
Net cash provided by operating activities 567 914
Cash flows from investing activities:
Purchase of investment securities held to maturity (10,428) (12,120)
Purchase of investment securities available for sale (6,929) (9,987)
Proceeds from maturities of investment securities held to maturity 3,000 5,000
Proceeds from maturities of investment securities available for sale 400 325
Principal paydowns on mortgage-backed securities 381 386
Net increase in loans (2,061) (12,115)
Purchases of premises and equipment (284) (528)
-------------------------------
Net cash used in investing activities (15,921) (29,039)
Cash flows from financing activities:
Net increase in deposit accounts 15,917 6,956
Net increase in securities sold under agreements to repurchase 2,136 7,658
Net decrease in commercial paper (883) (426)
Net increase (decrease) in federal funds purchased (3,000) 14,600
Proceeds from issuance of common stock 81 --
Purchase of treasury stock -- (122)
Proceeds from sale of treasury stock 126 --
Dividends paid (244) (200)
-------------------------------
Net cash provided by financing activities 14,133 28,466
-------------------------------
Net increase (decrease) in cash and cash equivalents (1,221) 341
Cash and cash equivalents at beginning of the period 30,324 25,019
-------------------------------
Cash and cash equivalents at end of the period $29,103 25,360
===============================
Supplemental Information:
Cash paid during the period for:
Interest expense 3,661 3,191
===============================
Income taxes 175 240
===============================
Supplemental schedule of non-cash investing and financing transactions:
Change in unrealized gain on investment securities available for sale (112) 654
===============================
</TABLE>
See accompanying notes to consolidated interim financial statements.
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Notes To Consolidated Interim Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in Palmetto Bancshares, Inc.'s (the
Company's) Annual Report on Form 10-K for the year ended December 31, 1996.
In the Company's opinion, all adjustments necessary for a fair presentation
of these interim statements have been included and are of a normal and recurring
nature. The results of operations for the three-month period ended March 31,
1997 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. 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.
4
<PAGE>
PALMETTO BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1996
TO MARCH 31, 1997
Assets
Liquid assets which include cash, federal funds sold, and investments
available for sale increased by $5.1 million for the three-month period. This
represents an increase of 11%. This increase was largely due to the $10.5
million increase in the amount of federal funds sold and the purchase of $6.9
million in available for sale securities. These increases were partially offset
by a decrease in cash and due from banks of $11.8 million due to better cash
management and a reduction in the amount of required reserves. This reduction in
reserves is due to the reclassification of certain deposit accounts from
reservable to non-reservable categories.
Investment securities held to maturity increased during the three-month
period by $7.0 million, or 11%. This increase was due to purchases of $10.4
million with the funds received from the implementation of certain new cash
management strategies and the reduction in the amount of required reserves.
These purchases were offset with maturities of $3.0 million.
Loans, net, increased by $1.9 million, or 1%, during the three-month period
as a result of normal growth. The allowance for loan losses was maintained at
1.44% at both March 31, 1997 and 1996.
The Company has $5.3 million in Loans Held for Sale at March 31, 1997, with
commitments to sell these loans in April 1997. These loans are held at the lower
of cost or market with no adjustments for market value in the current period.
The Bank began recognizing originated mortgage servicing rights (OMSR's) and
purchased mortgage servicing rights (PMSR's) in the second quarter of 1996 for
loans sold with servicing retained with the startup of its mortgage servicing
operations. The mortgage servicing rights related to the mortgage servicing
department's activities are approximately $2.0 million at March 31, 1997. Loans
serviced for the benefit of others amounted to approximately $157.7 million at
March 31, 1997.
Other assets increased by $411,000, or 5% due to normal growth and activity
in inventory supplies, prepaid expenses, and mortgage servicing rights. These
increases were slightly offset with amortization of various prepaids.
Liabilities and Shareholders' Equity
Deposit balances increased by 4% during the period, from $412.4 million to
$428.4 million. The increase was due to normal growth.
Securities sold under agreements to repurchase have increased by $2.1
million or 18%, and commercial paper associated with the alternative commercial
sweep accounts (master note program) decreased by $900,000 or 12%. These changes
are the result of normal fluctuations in the accounts. Federal funds purchased
decreased by $3 million due to normal fluctuations.
5
<PAGE>
Total shareholders equity increased by $485,000, for the three-month period
as a result of net income of $1.4 million; less dividends paid of $244,000; a
decrease in the unrealized gain on investment securities available for sale of
$113,000; proceeds from the issuance of common stock for $81,000; proceeds from
the sale of treasury stock of $125,000; and reduced by the increase in the
reclassification of the Employee Stock Ownership Plan (ESOP) shares subject to
put/call of $717,000.
The stock in the ESOP has a put and a call feature if the stock is not
"readily tradable on an established market." A 1995 private letter ruling by the
IRS clarified that such term means listed on a national securities exchange.
Since the Company's stock is not listed on a national securities exchange, the
shares in the ESOP Plan and shares distributed in 1996 are subject to the
put/call feature. Accordingly, 293,118 shares are recorded outside of
shareholders' equity at their fair value, which is determined annually by an
independent valuation. The most recent valuation dated March 4, 1997, values the
stock at $13.75 per share. The Company's Board of Directors voted to terminate
the ESOP effective February 28, 1997. The shares distributed in 1997 due to the
termination of the ESOP will be subject to the put/call until June 29, 1998.
Liquidity
The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. The Company's policy is to maintain a liquidity
ratio between 15% - 25%. At March 31, 1997, the Company's liquidity ratio was
17.49%.
The Company has certain cash needs, including general operating expenses
and the payment of dividends and interest on borrowing. The Company currently
has no debt outstanding and has declared $0.08 per share in dividends so far in
1997. There can be no guarantee, however, that any additional dividends will be
paid. Liquidity is provided from the Company's subsidiary, the 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.
The South Carolina Board of Financial Institutions' guideline suggests a primary
capital to asset ratio of at least 7%. The Banks' current primary capital ratio
is 7.33%; therefore, at March 31, 1997, the Bank had $1.6 million of excess
retained earnings available for the payment of dividends. The Bank plans to
continue its quarterly dividend payouts.
6
<PAGE>
Capital Resources
As of March 31, 1997, the Company and the Bank were in compliance with each
of the applicable regulatory capital requirements and met or exceeded the
"adequately capitalized" regulatory guidelines. The table below sets forth
various capital ratios for the Company and the Bank:
<TABLE>
<CAPTION>
ADEQUATELY
AS OF CAPITALIZED WELL CAPITALIZED
3/31/97 REQUIREMENT REQUIREMENT
- ---------------------------------------- ---------------- ---------------------------- -----------------------
<S> <C> <C> <C>
Company:
Total Risk-based Capital 9.12% 8.00% 10.00%
Tier 1 Risk-based Capital 7.87 4.00 6.00
Leverage Ratio 5.67 4.00 5.00
Bank:
Total Risk-based Capital 8.91 8.00 10.00
Tier 1 Risk-based Capital 7.66 4.00 6.00
Leverage Ratio 5.52 4.00 5.00
Primary Capital to Assets 7.33 7.00 7.00
- ---------------------------------------- ---------------- ---------------------------- -----------------------
</TABLE>
Because the Company's total risk-based capital ratio is 9.12%, the Company
is defined to be "adequately-capitalized" under currently applicable regulatory
guidelines. The Company's strategic plan for controlled growth and profit
improvement reflects sufficient internally generated capital to return the
risk-weighted ratios to the "well-capitalized" guidelines.
7
<PAGE>
Accounting and Reporting Matters
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
The statement became effective for transactions occurring after December 31,
1996. The Statement uses a "financial components" approach that focuses on
control to determine the proper accounting for financial asset transfers. Under
that approach, after financial assets are transferred, an entity would recognize
on the balance sheet all assets it controls and liabilities it has incurred. It
would remove from the balance sheet those assets it no longer controls and
liabilities it has satisfied. This statement contains special provisions that
deal with servicing assets and liabilities, which supersede SFAS No. 122, but
this statement retains the impairment and amortization approaches contained in
SFAS No. 122. The adoption of this standard did not have a material effect on
the Company.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of SFAS No. 125, an amendment of SFAS No. 125, which
was effective December 31, 1996. This statement delays the effective date of
certain provisions of SFAS No. 125 until after December 31, 1997. The amended
provisions include those related to the transfers of financial assets and
secured borrowings. The provisions in SFAS No. 125 related to servicing assets
and liabilities are not delayed by this amendment. The adoption of this
statement did not have a material effect on the Company.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which
is effective for both interim and annual periods ending after December 15, 1997.
This statement supersedes Accounting Principles Board Opinion No. 15, Earnings
per Share. The purpose of this statement is to simplify current reporting and
make U.S. reporting comparable to international standards. The statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures (as defined by the statement). The Company anticipates that
adoption of this standard will not have a material affect on EPS.
Also, in February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure, which is effective for financial statements
for periods ending after December 15, 1997. This statement applies to both
public and nonpublic entities. The new statement requires no change for entities
subject to the existing requirements. The Company anticipates that adoption of
this standard will not have a material affect on the Company.
8
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
Net income for the three months ended March 31, 1997 was $1,352,000, an
increase of 51% from the $895,000 reported for the same period in 1996. Net
income per common share not subject to put/call was $0.23 for the 1997 period as
compared with $0.30 for the comparable period in 1996. The decrease in net
income per common share not subject to put/call is due to the $717,000 increase
in fair value of the ESOP stock. See further discussion under "Liabilities and
Shareholders' Equity" in the "Discussion of Financial Condition Changes from
December 31, 1996 to March 31, 1997" section above.
Net Interest Income
The largest component of the Company's net income is the Bank's 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, 1997, net interest income was
$5.1 million, which represented a 23% increase from the same period in 1996.
This increase was the result of increases in the volume of earning assets.
Earning assets averaged $433.2 million and $348.5 million during the first
quarters of 1997 and 1996, respectively. The increases in volume were due to the
growth of investments compared to year-end 1996. The average net interest margin
for the 1997 period was 4.80%, compared to 4.83% for the same period in 1996.
Interest income on loans increased 26% due to increased volume. Interest
income on investments remained fairly constant at $1.3 million during the 1997
period compared to the corresponding period in 1996 due to the investment
portfolio remaining about the same size. Interest income on federal funds sold
increased due to increased volume of federal funds sold compared to the same
period last year. The yield on average earning assets, which includes loans and
investment securities, decreased from 8.47% for the three months ended March 31,
1996 to 8.32% for the three months ended March 31, 1997. The prime interest rate
remained constant at 8.25% for the quarter; the rate increased to 8.50% on April
1, 1997.
Total interest expense increased by 19% during the 1997 period mostly due
to an increased volume of deposits at March 31, 1997, compared to March 31,
1996. This increase is mostly due to the acquisition of the First Union branches
in the second quarter of 1996. Since then deposit growth has been relatively
flat. Many financial institutions in the upstate market have been offering
deposit promotions above the market rates. The Company expects the competitive
deposit rate environment to continue. Average total interest-bearing
liabilities, increased by 25% from March 31, 1996 to March 31, 1997. The average
rate paid on interest bearing liabilities decreased from 4.18% during the
three-month period in 1996, to 4.02% during the 1997 period. 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.
The Bank's goal is to minimize interest rate risk between interest bearing
assets and liabilities at various maturities through its Asset-Liability
Management (ALM). ALM involves managing the mix and pricing of assets and
liabilities in the face of uncertain interest rates and an uncertain economic
outlook. It seeks to achieve steady growth of net interest income with an
acceptable amount of interest rate risk and sufficient
9
<PAGE>
liquidity. The process provides a framework for determining, in conjunction with
the profit planning process, which elements of the Company's profitability
factors can be controlled by management. Understanding the current position and
implications of past decisions is necessary in providing direction for the
future financial management of the Company. The Company uses an asset-liability
model to determine the appropriate strategy for current conditions.
Interest sensitivity management is part of the asset-liability management
process. Interest sensitivity gap (GAP) is the difference between total rate
sensitive assets and rate sensitive liabilities in a given time period. The
Company's current GAP analysis reflects that in periods of increasing interest
rates, rate sensitive assets will reprice slower than rate sensitive
liabilities. The Company's GAP analysis also shows that at the interest
repricing of one year, the Company's net interest margin would be adversely
impacted. This analysis, however, does not take into account the dynamics of the
marketplace. GAP is a static measurement that assumes if the prime rate
increases by 100 basis points, all assets and liabilities that are due to
reprice will increase by 100 basis points at the next opportunity. However, the
Company is actually able to experience a benefit from rising rates in the short
term because deposit rates do not follow the national money market. They are
controlled by the local market. Loans do follow the money market; so when rates
increase they reprice immediately, but the Company is able to manage the deposit
side. The Company generally does not raise deposit rates as fast or as much. The
Company also has the ability to manage its funding costs by choosing alternative
sources of funds.
The Company's current GAP position would also be interpreted to mean that in
periods of declining interest rates, the Company's net interest margin would
benefit. However, competitive pressures in the local market may not allow the
Company to lower rates on deposits, but force the Company to lower rates on
loans. Furthermore, the Company can only lower rates on deposits to the extent
that the floors will allow.
Because the Company's management feels that GAP analysis is a static
measurement, it manages its interest income through its asset/liability
strategies which focus on a net interest income model based on management's
projections. The Company has a targeted net interest income range of plus or
minus twenty percent based on a 300 basis point shock over twelve months. The
asset/liability committee meets weekly to address interest pricing issues, and
this model is reviewed monthly. Management will continue to monitor its
liability sensitive position in times of higher interest rates which might
adversely affect its net interest margin.
Provision for Loan Losses
The provision for loan losses was $300,000 for both the 1997 and 1996
periods. 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 an adequate level 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. Loans over 90 days delinquent, and on non-accrual
amounted to approximately $1,395,000 and $807,000 at March 31, 1997 and 1996,
respectively. 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.
10
<PAGE>
Other Operating Income
Total non-interest income increased by $264,000 or 23% for the three
months ended March 31, 1997, as compared to the same period in 1996. The largest
portion of this increase can be attributed to service charges on deposit
accounts, which increased by $147,000 or 24% during the 1997 period compared to
the same period in 1996 due primarily to increased deposit accounts and
increased transactions.
The second largest contributor to non-interest income is fees for trust
services, which increased $26,000 or 13% due to new business and increased
assets under management. Assets under management were $129.0 million and $108.2
million at March 31, 1997 and 1996, respectively.
Another component of non-interest income is other income, which increased
$92,000. Included in this category are insurance commissions, which increased
$23,000 due to the increased volume of loans; debit card income, which increased
$25,000 due to the increased number of accounts and account activity; and
miscellaneous income, which increased $31,000 due to normal growth and activity.
Other Operating Expenses
Total non-interest expenses increased by $541,000, or 14% during the 1997
three-month period over the same period in 1996. The largest contributor to
non-interest expense was salaries and other personnel expense which increased
$214,000 or 11% due to normal salary increases, and increased personnel needed
to maintain the branches acquired in the second quarter of 1996 and the
telephone banking center started in November 1996. The second largest
contributor was other expense, which increased $214,000 or 37%. Other expense
consists of many items, including personalized deposit supplies, professional
services, sundry losses, armored car courier expense, correspondent bank
charges, credit insurance premiums, core deposit premium amortization and
goodwill amortization. The foregoing expenses have increased due to the branches
acquired in the second quarter of 1996, increased accounts, and increased
account activity.
Income Taxes
The Company incurred an income tax liability of $508,000 for the 1997
three-month period compared to $298,000 for the same period in 1996 due to the
increase in taxable income. This liability is based on an expected effective tax
rate of approximately 27%.
INDUSTRY DEVELOPMENTS
Certain proposed industry-related legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institution industry. Because of the uncertainty of the final terms
and likelihood of passage of the proposed legislation, the Company is unable to
assess the impact of any proposed legislation on its financial condition or
operations at this time.
11
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held April 15, 1997, the following
persons were elected as directors with the votes indicated:
FOR AGAINST
James A. Cannon 2,635,883 shares 0 shares
L. Leon Patterson 2,635,883 shares 0 shares
J. David Wasson, Jr. 2,635,883 shares 0 shares
John T. Gramling, II; James M. Shoemaker, Jr.; Paul W. Stringer; W. Fred
Davis, Jr.; David P. George, Jr. and Michael D. Glenn continued in their
present terms as directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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
12
<PAGE>
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
3.1.5 Articles of Amendment filed on October 16,
1996 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3.1.5 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
3.2.1 By-Laws adopted April 10, 1990: Incorporated
by reference to Exhibit 3.2.1 to the
Company's 10-K, filed with the Securities
and Exchange Commission on March 31, 1997.
3.2.2 Amendment to By-Laws dated April 12, 1994:
Incorporated by reference to Exhibit 3.2.2
to the Company's 10-K, filed with the
Securities and Exchange Commission on March
31, 1997.
4.1.1 Articles of Incorporation of the Registrant:
Included in Exhibits 3.1.1 -- .5
4.2 Bylaws of the Registrant: Included in
Exhibits 3.2.1 -- .2.
4.3 Specimen Certificate for Common Stock:
Incorporated by reference to
Exhibit 4.3 to the Company's
Registration Statement on Form S-8,
Commission File No. 33-51212, filed
with the Securities and
Exchange Commission on August 20, 1992
27.1* Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
13
<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 Operating Officer
(Chief Accounting Officer)
Date: April 28, 1997
14
<PAGE>
EXHIBIT INDEX
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
3.1.5 Articles of Amendment filed on October 16,
1996 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3.1.5 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
3.2.1 By-Laws adopted Arpil 10, 1990: Incorporated
by reference to Exhibit 3.2.1 to the
Company's 10-K, filed with the Securities
and Exchange Commission on March 31, 1997.
3.2.2 Amendment to By-Laws dated April 12, 1994:
Incorporated by reference to Exhibit 3.2.2
to the Company's 10-K, filed with the
Securities and Exchange Commission on March
31, 1997.
4.1.1 Articles of Incorporation of the Registrant:
Included in Exhibits 3.1.1 -- .5
4.2 Bylaws of the Registrant: Included in
Exhibits 3.2.1 -- .2.
4.3 Specimen Certificate for Common Stock:
Incorporated by reference to
15
<PAGE>
Exhibit 4.3 to the Company's Registration
Statement on Form S-8, Commission File
No. 33-51212, filed with the Securities and
Exchange Commission on August 20, 1992
27.1* Financial Data Schedule
* Filed herewith.
16
<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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,606
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,497
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,582
<INVESTMENTS-CARRYING> 73,232
<INVESTMENTS-MARKET> 72,645
<LOANS> 334,837
<ALLOWANCE> (4,819)
<TOTAL-ASSETS> 483,791
<DEPOSITS> 428,373
<SHORT-TERM> 20,324
<LIABILITIES-OTHER> 2,454
<LONG-TERM> 0
0
0
<COMMON> 15,255
<OTHER-SE> 13,355
<TOTAL-LIABILITIES-AND-EQUITY> 483,791
<INTEREST-LOAN> 7,541
<INTEREST-INVEST> 1,288
<INTEREST-OTHER> 54
<INTEREST-TOTAL> 8,883
<INTEREST-DEPOSIT> 3,518
<INTEREST-EXPENSE> 3,757
<INTEREST-INCOME-NET> 5,126
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,358
<INCOME-PRETAX> 1,860
<INCOME-PRE-EXTRAORDINARY> 1,352
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,352
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.00
<YIELD-ACTUAL> 4.80
<LOANS-NON> 1,395
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,729
<CHARGE-OFFS> (225)
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 4,819
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
