UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 29549
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 September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number: 0-19045
COMSOUTH BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0853342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1136 Washington Street, Suite 200
Columbia, South Carolina 29201
(Address of principal executive offices)
(Zip Code)
(803) 343-2144
(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of October 31, 1995:
Common Stock, No Par Value 1,369,301
Class Number of Shares
<PAGE>
COMSOUTH BANKSHARES, INC
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations -
Quarters ended September 30, 1995 and
September 30, 1994 4
Consolidated Statements of Changes in
Stockholders' Equity -
Quarters ended September 30, 1995 and 5
September 30, 1994
Consolidated Statements of Cash Flows -
Quarters ended September 30, 1995 and
September 30, 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information
Item 1. Legal Proceeding 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMSOUTH BANKSHARES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Cash and due from banks $ 8,339,824 $ 5,106,898
Federal funds sold 2,170,000
Investment securities held-to-
maturity, at amortized cost (fair
value: 1995 - $12,281,004; 1994 -
$15,530,301) 12,361,293 16,110,175
Investment securities available-for-
sale, at fair value (amortized
cost: 1995 - $16,396,007; 1994 -
$6,041,455) 16,413,229 5,767,879
Loans
(less allowance for loan losses:
1995 - $1,685,475; 1994 -
$1,593,771) 83,718,090 67,300,821
Premises and equipment 1,311,334 1,260,403
Accrued interest receivable 997,953 800,413
Other assets 419,540 573,064
------------ -----------
Total Assets $125,731,263 $96,919,653
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing demand $ 18,019,204 $13,392,536
NOW, money market and savings 46,828,663 38,835,216
Time deposits of $100,000 or more 6,218,417 3,773,076
Time deposits less than $100,000 36,319,589 25,256,435
Other time 2,117,759 1,651,146
------------ -----------
Total deposits 109,503,632 82,908,409
Short-term borrowings 2,458,268 2,945,749
Note payable 125,000
U.S. Treasury tax and loan accounts 1,434,967 351,558
Other liabilities 1,078,736 484,961
------------ -----------
Total Liabilities 114,475,603 86,815,677
------------ -----------
Stockholders' Equity:
Preferred Stock
(no par value, 50,000,000 shares
authorized; no shares issued or
outstanding)
Special stock
(no par value, 50,000,000 shares
authorized; no shares issued or
outstanding)
Common stock
(no par value, 50,000,000 shares
authorized; 1,369,301 shares 11,716,627 11,711,421
issued and outstanding)
Accumulated deficit (472,333) (1,426,885)
Unrealized gain (loss) on investment
securities available-for-sale, net
of tax
11,366 (180,560)
------------ -----------
Total Stockholders' Equity 11,255,660 10,103,976
------------ -----------
Total Liabilities and Stockholders'
Equity $125,731,263 $96,919,653
============ ===========
</TABLE>
3
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATION
<TABLE>
<CAPTION>
Three Months ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on $2,046,206 $1,428,516 $5,589,103 $3,986,930
loans
Investment 356,277 290,192 956,882 910,561
securities
Federal funds sold 42,067 20,516 116,600 63,906
---------- ---------- ---------- ----------
2,444,550 1,739,224 6,662,585 4,961,397
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 1,100,158 620,664 2,874,679 1,832,317
Securities sold
under agreements
to repurchase 10,797 14,265 65,651 37,711
Notes payable 2,363 233 6,431
U.S. Treasury tax
and loan 10,634 6,362 25,009 14,356
---------- ---------- ---------- ----------
1,121,589 643,654 2,965,572 1,890,815
---------- ---------- ---------- ----------
Net interest income 1,322,961 1,095,570 3,697,013 3,070,582
Provision for loan
losses (65,000) (25,000) (105,000) (25,000)
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 1,257,961 1,070,570 3,592,013 3,045,582
---------- ---------- ---------- ----------
Noninterest Income:
Service charges on
deposit accounts 109,691 93,146 326,548 256,788
Lending operations
and services 199,543 41,814 403,018 146,804
Gain on sale of 8,063 17,551
real estate owned
Other 124,446 70,916 307,372 125,557
---------- ---------- ---------- ----------
433,680 205,876 1,045,001 546,700
---------- ---------- ---------- ----------
Noninterest Expense:
Salaries and
employee benefits 647,257 517,007 1,827,242 1,544,599
Occupancy expenses 107,382 95,933 320,609 285,406
Furniture and
equipment expenses 89,819 70,299 254,034 204,074
Advertising
and marketing 20,509 20,373 62,695 56,246
Other 239,818 266,908 884,005 795,079
---------- ---------- ---------- ----------
1,104,785 970,520 3,348,585 2,885,404
---------- ---------- ---------- ----------
Income before
provision for
income taxes 586,856 305,926 1,288,429 706,878
Income tax (expense)
benefit (271,670) 40,964 (332,787) 16,142
---------- ---------- ---------- ----------
Net income $ 315,186 $ 346,890 $ 955,642 $ 723,020
========== ========== ========== ==========
Earnings per common
share:
Net income per
common share $ .23 $ .25 $ .70 $ .53
========== ========== ========== ==========
</TABLE>
4
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain(Loss)
Common Stock on Total
Accumulated Investment Stockholders'
Shares Amount Deficit Securities Equity
<S> <C> <C> <C> <C> <C>
Balance at 1,368,456 $11,711,421 $(2,473,633) $ 9,237,788
December 31, 1993
Change in accounting
for investment $(163,727) (163,727)
securities
Net income 723,020 723,020
---------- ----------- ----------- --------- -----------
Balance at
September 30, 1994 1,368,456 $11,711,421 $(1,750,613) $(163,727) $ 9,797,081
========== =========== =========== ========= ===========
Balance at
December 31, 1994 1,368,456 $11,711,421 $(1,426,885) $(180,560) $10,103,976
Rounding Adjustment 145 1,090 (1,090)
Change in unrealized
gain on investment
securities
available-for-
sale, net of tax 191,926 191,926
Issuance of common 700 4,116 4,116
stock
Net income 955,642 955,642
---------- ----------- ----------- --------- -----------
1,369,301 $11,716,627 $ (472,333) $ 11,366 $11,255,660
========== =========== =========== ========= ===========
</TABLE>
5
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended
September 30,
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net income $ 955,642 $ 723,020
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 213,536 171,954
Provision for loan losses 105,000 25,000
Amortization of premium and accretion
of discount on investment securities 16,436 28,083
Gain on sales of mortgage loans (24,309)
Gross amount of loans originated for resale (1,749,050)
Proceeds from loans sold 1,773,359
(Increase) decrease in interest receivable (197,540) 39,413
Decrease in other assets 52,979 128,842
Increase in interest payable 293,334 31,953
Increase (decrease) in other liabilities 294,585 (19,436)
----------- ----------
Cash provided by operating activities 1,733,972 1,128,829
----------- ----------
Cash flows from investing activities:
Purchases of investment securities,
available-for-sale (10,380,950) (4,287,819)
Maturities of investment securities, 3,739,743 704,647
held-to-maturity
Maturities of investment securities,
available-for-sale 19,100 4,703,800
Net increase in loans (16,522,268) (3,011,676)
Purchases of premises and equipment (256,938) (211,222)
Proceeds from sale of other real estate owned 17,551
----------- ----------
Cash used for investing activities (23,401,313) (2,084,719)
----------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits 26,595,223 (5,404,252)
(Maturities of) increase in short-term (487,481) 3,457,957
borrowings
Payments of note payable (125,000)
Increase (decrease) in U.S. treasury, tax and
loan accounts 1,083,409 (269,415)
Proceeds from issuance of common stock 4,116
----------- ----------
Cash provided by (used for) financial 27,070,267 (2,215,710)
activities ----------- ----------
Increase (decrease) in cash
and cash equivalents 5,402,926 (3,171,600)
Cash and cash equivalents
at beginning of period 5,106,898 9,202,144
----------- ----------
Cash and cash equivalents at end of period $10,509,824 $6,030,544
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,672,238 $1,858,862
Cash paid for taxes $ 78,624 $ 30,500
Noncash adjustments to report investment
securities available-for-sale at fair value:
Investment securities, available-for-sale $ 17,222
Other liabilities (5,856)
Unrealized gain on available-for-sale
securities, net of tax $ 11,366
</TABLE>
6
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim financial statements reflect all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
consolidated balance sheet and the consolidated statements of operations and of
cash flows for the interim periods presented. Such adjustments are of a normal
recurring nature. The interim financial statements, including related notes,
should be read in conjunction with the financial statements for the year ended
December 31, 1994, appearing in the Corporation's 1994 Annual Report and
included in the Corporation's Form 10-K Annual Report for the year ended
December 31, 1994. The unaudited results of operations for the nine month period
ended September 30, 1995 may not necessarily be indicative of the results for
the year that will end December 31, 1995.
NOTE 1 - LOAN COMMITMENTS
At September 30, 1995, standby letters of credit of $2,276,000 and
undisbursed amounts of lines of credit of $18,254,000 were outstanding.
NOTE 2 - NOTES PAYABLE
At September 30, 1995, BOCL had available approximately $3.9 million and
BOC had available approximately $8.0 million in standby credit from other banks
for short-term borrowing.
NOTE 3 - STOCK OPTIONS
The Corporation has reserved 46,000 shares of common stock for issuance to
key employees under an Incentive Stock Option Plan (the "Qualified Option Plan")
and an additional 46,000 shares of common stock for issuance to key employees,
officers, and directors under a nonqualified stock option plan (the "Non-
Qualified Plan"). Options granted will be for a period of not more than 10 years
from the date of the grant; the option price will be at least the fair market
value on the date of the grant.
The following table summarizes activity of each plan:
<TABLE>
<CAPTION>
Option
Price Per Expiration
Options Share Date
Qualified Plan
<S> <C> <C> <C>
January 1, 1991 43,325 $5.88 - $8.70 12/31/95 - 07/23/00
Exercised during 1992 (2,000) $6.50
------ ------------- -------------------
December 31, 1994 41,325 $5.88 - $8.70 12/31/95 - 07/23/00
====== ============= ===================
Non-Qualified Plan
January 1, 1991 18,875 $5.88 - $8.70 12/31/95 - 12/31/00
Granted during 1991 23,525 $6.95 12/31/00
Exercised during 1992 (800) $5.88
Exercised during 1992 (1,300) $6.95
------ ------------- -------------------
December 31, 1994 40,300 $5.88 - $8.70 12/31/95 - 12/31/00
Exercised during 1995 (700) $5.88
------ ------------- -------------------
September 30, 1995 39,600 $5.88 - $8.70 12/31/95 - 12/31/00
====== ============= ===================
</TABLE>
During the notification process of expiring options for 1995, management
became aware of a discrepancy concerning the expiration dates of certain stock
options. The discrepancy existed between the expiration dates recorded in the
7
<PAGE>
Corporate Board Minutes and formally executed stock option agreements between
the option holders and representatives of the Corporation. At the September 1995
Corporate Board Meeting, the directors agreed that the discrepancy probably
existed due to an oversight in recording the Corporate Minutes. As a result, the
directors approved the expiration dates recorded on the executed stock option
agreements.
No options were granted during 1993, 1994, or 1995. Since all options
granted during 1991, in management's opinion, were issued at exercise prices
equal to or greater than the market value of the common stock at the time of
grant, compensation expense related to the grant of these options was not
recognized.
At the April 1995 Annual Stockholders meeting, the Stockholders approved
the adoption of a 1995 Non-Qualified Stock Option Plan pursuant to which options
for up to 100,000 shares of common stock may be granted. No options have been
granted to date under this plan.
As an inducement to the President of BOCL to enter into an employment
agreement with the Corporation, ComSouth granted total stock options for 22,222
shares of stock at a purchase price of $4.00 each. These options were earned
based on the below schedule.
Vesting Date Number of Shares
Execution date of Agreement (1/28/93) 7,407
First Anniversary (1/28/94) 7,407
Second Anniversary (1/28/95) 7,408
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES
The Corporation adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosure" on January 1, 1995. These
standards address the accounting for certain loans when it is probable that all
amounts due pursuant to the contractual terms of the loan will not be collected.
Individually identified impaired loans are measured based on the present value
of payments expected to be received, using the historical effective loan rate as
the discount rate. Loans that are to be foreclosed or that are solely dependent
on the collateral for repayment may alternatively be measured based on the fair
value of the collateral for such loans. Measurement may also be based on
observable market prices. If the recorded investment in the loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for credit losses. The adoption of the standards did not have a
material impact on the Corporation's financial position or results of
operations. Currently, the Banks are reserving 100 percent of the principal on
all impaired loans as future cash flow projections on the borrowers cannot
reasonably be forecasted.
NOTE 5 - INCOME TAXES
Deferred tax assets and (liabilities) and related valuation allowance
arising in accordance with SFAS No. 109 at September 30, 1995 and December 31,
1994 are as follows:
8
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Excess tax over book depreciation $106,010 $ 71,021
Allowance for loan losses 482,903 406,569
Federal tax net operating loss carryforward 0 116,754
State net operating loss carryforward 0 78,313
Unrealized loss on available-for-sale
securities - SFAS 115 0 93,016
Alternative minimum tax credit 13,000 13,000
Other 428
-------- --------
Gross deferred tax asset 601,913 779,101
-------- --------
Accretion of discounts on bonds (56,063) (46,671)
Adjustments from accrual to cash basis
for tax reporting (45,954) (65,790)
Unrealized gain on available-for-sale
securities - SFAS 115 (5,856)
-------- --------
Gross deferred tax liability (107,873) (112,461)
-------- --------
Net deferred tax asset before
valuation allowance 494,040 666,640
Less valuation allowance (394,040) (460,624)
-------- --------
Net deferred tax asset $100,000 $206,016
======== ========
</TABLE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
ComSouth Bankshares, Inc. (the "Corporation") is a registered bank holding
company incorporated on May 15, 1987 pursuant to the laws of the state of South
Carolina. It presently conducts its business through its two bank subsidiaries
(the "Banks"), Bank of Columbia, N.A. ("BOCL") and Bank of Charleston, N.A.
("BOC").
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. The Corporation's primary source of liquidity is funds derived from
the deposit gathering operations of the Corporation's two subsidiary banks - BOC
and BOCL, with additional funds provided from maturing loans, investment
securities and sales of temporary investments. These funds are used to pay
interest on deposits and to fund deposit outflows. Any remaining funds are
utilized for investments and to fund loan commitments and disbursements, to
repay debt, and to fund operating expenses. Negative funds positions are dealt
with by a combination of actions including borrowing from other banks or
rediscounting qualifying loans with the Federal Reserve Bank. At September 30,
1995, BOCL had approximately $3.9 million while BOC had approximately $8.0
million in standby credit available to them from other financial institutions.
Management believes that a sufficient liquidity balance is maintained through
the operation of its asset and liability management program. Additionally, the
standby credit facilities provide adequate protection in the event of negative
cash flows.
9
<PAGE>
At September 30, 1995 and December 31, 1994, liquid assets of
approximately $39.3 million and $27.0 million, respectively, were available to
meet demands for deposit withdrawals, undisbursed amounts on lines of credit
("loan commitments") of $18,254,000 and $13,882,000 respectively, and letters of
credit totaling $2,276,000 and $1,437,000 respectively.
Reliance is being placed upon continued deposit growth as the principal
source of funds. Management has decided to pay competitive market rates for
deposits. Deposits were approximately $109.5 million at September 30, 1995,
which compares to $83.0 million at December 31, 1994. Of the total deposit base
of the Corporation at September 30, 1995, approximately $17,955,000 (or 16.4%)
was comprised of Certificates of Deposit in amounts $100,000 and higher ("Jumbo
Certificates"). These Jumbo Certificates are issued to local customers and none
are brokered deposits.
While most of the large time deposits are acquired from customers with
standing relationships with the Banks, it is a common industry practice not to
consider these types of deposits as core deposits because their retention can be
expected to be heavily influenced by rates offered, and they therefore have the
characteristics of shorter-term purchased funds. Certificates of deposit
$100,000 and over involve the maintenance of an appropriate matching of maturity
distribution and a diversification of sources to achieve an appropriate level of
liquidity. Management believes that the Corporation's liquidity position is
relatively strong and is adequate to meet the withdrawal demand of these Jumbo
Certificates.
One of the principal uses of funds is to meet loan demand at BOCL and BOC.
At September 30, 1995, total loans outstanding were approximately $85.4 million,
as compared to $68.9 million at December 31, 1994. During the first nine months
of 1995, both banks have experienced strong loan growth as the economic picture
in both markets serviced by the banks appears to be improving.
BOCL and BOC each maintain a loan classification system to monitor their
exposure to potential loan losses. Management of the Banks reviews the adequacy
of the allowance each quarter to identify problem loans in connection with its
assessment of the overall quality of the respective loan portfolios. At
September 30, 1995, the allowance for loan losses at BOCL and BOC was
approximately $1,003,000 and $683,000, respectively. At December 31, 1994, the
allowance for loan losses at BOCL and BOC was approximately $943,000 and
$651,000 respectively.
The Comptroller of the Currency ("OCC"), the Banks' primary regulator
requires national banks to maintain a Tier 1 (primarily shareholder's equity)
risk based capital ratio of 4.0% and a total risk based capital ratio of 8.0%.
However, the OCC reserves the right to require higher capital ratios in
individual banks on a case by case basis when, in its judgment, additional
capital is warranted. At September 30, 1995, the Tier 1 capital ratio for BOCL
was 9.9% and the total capital ratio was 11.2%, while BOC had a tier 1 capital
ratio of 14.3% and a total capital ratio of 15.5%,
The Corporation's primary regulator, the Board of Governors of the Federal
Reserve Board (the "Board") has issued guidelines requiring a minimum risk based
capital ratio of 8.0%, of which at least 4.0% must consist of Tier 1 capital.
The Corporation's Tier 1 capital ratio was approximately 12.9% and its total
capital ratio was approximately 14.1% at September 30, 1995. These ratios are
well within guidelines established by the Corporation's primary regulator.
RATE SENSITIVITY
In order to address the volatility in interest rates experienced in past
years, the Corporation continues to maintain an interest sensitivity management
program, the objective of which is to maintain reasonably stable growth and net
10
<PAGE>
interest income despite changes in market interest rates. The Interest Rate
Sensitivity Gap ("GAP") is defined as the excess of interest sensitive assets
over interest sensitive liabilities that mature or reprice within specified time
frames. The GAP is a measure of the Corporation's risk of significant changes in
net income at any point in time. Adjustable rate loans, short term loans and
temporary investments represent the majority of the Corporation's interest
sensitive assets. Money market deposit accounts, NOW accounts, savings accounts
and certificates of deposit with maturities of less than one year represent the
majority of interest sensitive liabilities.
As of September 30, 1995, the Corporation had a positive gap of less than
5% at the one year interval. In addition to gap analysis, management utilizes
simulation modeling techniques to project potential earnings impact due to rate
changes. Based on the combination of the gap analysis and simulation modeling,
management believes that any rate change would not have a material impact on
earnings.
RESULTS OF OPERATIONS
For the first nine months of 1995, the Corporation is reporting net
earnings of $956,000 or $.70 per share, compared to $723,000 or $.53 per share
for the same period of 1994. Increased non interest income as a result of
management's focus on the development of core banking customer relationships,
and improved net interest income as a result of the strong loan growth in both
banks were the major factors contributing to the improved earnings.
For the first nine months of 1995 loans outstanding have grown by 27%
while deposits have grown by 32%. Most significant is the fact that higher
priced CD's and time deposits declined by 2.5% during this growth period.
The Corporation had total revenues of $7,708,000 and $5,508,000, and total
expenses of $6,420,000 and $4,801,000 for the nine months ended September 30,
1995 and 1994, respectively. Summarized below is an analysis of the composition
of revenues and expenses for the nine months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
September
1995 1994
<S> <C> <C> <C> <C>
Interest on loans $5,589,000 72.5% $3,987,000 72.4%
Interest on investment 957,000 12.4% 910,000 16.5%
securities
Interest on temporary 117,000 1.5% 64,000 1.2%
investments
Non interest income 1,045,000 13.6% 547,000 9.9%
---------- ------ ---------- ------
Total Revenues $7,708,000 100.0% $5,508,000 100.00%
========== ====== ========== =======
</TABLE>
The increase in revenue provided by interest on loans in the 1995 period
over the 1994 period is primarily the result of the strong loan growth realized
by both banks during the nine months, coupled with several prime rate increases
which occurred throughout 1994. A significant portion of the loan portfolio is
indexed to the prime lending rate for pricing purposes. The growth in revenue
related to temporary investments is due to the steady growth of deposits. Funds
provided by this deposit growth have typically been invested in temporary
investments so that funding for loan growth would be readily available as
needed.
The growth in non interest income was partially due to the success
achieved by the management of both banks in the acquisition of transaction
deposit
11
<PAGE>
accounts during 1994 and the first nine months of 1995. The growth in deposit
relationships was responsible for a 28% increase in revenue derived from deposit
service categories over the same period of 1994. Also, the Bank of Columbia
restructured its Mortgage Lending Operations during the second quarter of 1994.
As a result, fees generated from the sale of Mortgage Loans in the Bank of
Columbia, contributed an additional $239,000 in non interest income over the
same period last year.
The Bank of Charleston introduced a new product "Business Manager" in the
second quarter of 1994. This product provides immediate cash flow to small
businesses through the purchase by the bank of company receivables. The bank is
paid a fee for the billing and collection of these receivables and retains full
recourse against the seller of the purchased receivables in case of default. The
Bank of Columbia also began to offer this service in the first quarter of 1995.
Fees from this product, mostly from the success of the product in the Charleston
Bank, accounted for $176,000 of the $498,000 increase in non interest income
between the two periods.
<TABLE>
<CAPTION>
September
1995 1994
<S> <C> <C> <C> <C>
Interest on deposits $2,875,000 44.8% $1,832,000 38.2%
Interest on notes payable
and securities sold under
agreement to repurchase 91,000 1.4% 59,000 1.2%
Provision for loan losses 105,000 1.6% 25,000 .5%
Salaries and employee
benefits 1,827,000 28.5% 1,545,000 32.2%
Occupancy expenses 321,000 5.0% 285,000 5.9%
Furniture and equipment
expenses 254,000 4.0% 204,000 4.2%
Legal and Regulatory 342,000 5.3% 352,000 7.3%
Printing and Supplies 97,000 1.5% 90,000 1.9%
Advertising and marketing 63,000 1.0% 56,000 1.2%
Other 445,000 6.9% 353,000 7.4%
---------- ------ ---------- -------
Total Expenses $6,420,000 100.0% $4,801,000 100.00%
========== ====== ========== =======
</TABLE>
The change in interest paid on deposits is principally due to a 32% growth
in deposits during the first nine months of 1995. In addition, the keen
competition between financial institutions to acquire deposit customers which
has impacted rates paid. The increase in interest on notes payable and
securities sold under agreement to repurchase is due to higher rates on
borrowings due to prime rate changes in 1994 which have carried forward to 1995
and increased borrowings to fund the strong loan growth during the period. The
increase in salaries and employee benefits is primarily due to commissions paid
to loan originators as a result of the restructure of the Mortgage Lending
Operation of the Bank of Columbia during the second quarter of 1994. The
reduction in Legal and Regulatory expenses is primarily due to the change in
deposit insurance rates by the FDIC during 1995. The increase in other expenses
is due to an increase in postage expense as a result of a rate increase and
significant growth in deposit customers between the periods. Consulting expenses
increased from the prior period due to expenses related to the relocation of the
data processing facility during the first quarter of 1995. In addition to the
increased consulting expense, the Bank of Columbia approved and implemented the
payment of
12
<PAGE>
Directors' fees during the first quarter of 1995. Both banks have also utilized
temporary employment services to fill employee vacancies and to support asset
growth.
NET INTEREST INCOME
Net interest income represents the differences between interest earned on
assets and the interest paid on liabilities. It traditionally constitutes the
largest source of a financial institution's earnings.
Net interest income for the nine months ended September 30, 1995 and 1994
was $3,697,000 and $3,071,000 respectively. The average yield on earning assets
was 8.7% and 7.5%, the average rate paid on interest bearing liabilities was
4.7% and 3.5%, and the annualized net interest margin was 4.9% and 4.7% for the
quarters ended September 30, 1995 and 1994, respectively. The change in yields
on earning assets and rates paid on interest bearing deposits between the two
periods is primarily due to several prime rate changes during the twelve month
period. In an effort to minimize any earnings impact as a result of the rate
changes, management concentrated on maintaining a relatively stable net interest
margin during the period, as can be seen by the minimal change in the margin
between the two periods.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
In August 1995, the six shareholders of the Company who had formed the
group to solicit proxies in opposition to management of the Company and filed a
suit in the United States District Court for the District of South Carolina
against the Company and eight of its officers and directors voluntarily
dismissed this suit without prejudice.
ITEM 5. OTHER MATTERS
The Corporate Board authorized the Corporation to repurchase up to 130,000
shares of its Common Stock at its September 1995 meeting. The terms of the
repurchase of any of the common stock must comply with the provisions of the
Anti-Greenmail Resolution which was previously adopted by the Board.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibit 27, Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter.
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.
COMSOUTH BANKSHARES, INC.
(Registrant)
Harry R. Brown
Date: November 1, 1995 By:___________________________
(Harry R. Brown)
Chief Financial Officer,
Chief Operating Officer,
Secretary and Treasurer
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
Exhibit 27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1995 (Unaudited) and the
Consolidated Statement of Operation for the Nine Months Ended September 30, 1995
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,339,824
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,170,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,413,229
<INVESTMENTS-CARRYING> 12,361,293
<INVESTMENTS-MARKET> 12,281,004
<LOANS> 85,403,565
<ALLOWANCE> (1,685,475)
<TOTAL-ASSETS> 125,731,263
<DEPOSITS> 109,503,632
<SHORT-TERM> 2,458,268
<LIABILITIES-OTHER> 1,078,736
<LONG-TERM> 0
<COMMON> 11,716,627
0
0
<OTHER-SE> (460,967)
<TOTAL-LIABILITIES-AND-EQUITY> 125,731,263
<INTEREST-LOAN> 5,589,103
<INTEREST-INVEST> 956,882
<INTEREST-OTHER> 116,600
<INTEREST-TOTAL> 6,662,585
<INTEREST-DEPOSIT> 2,874,679
<INTEREST-EXPENSE> 2,965,572
<INTEREST-INCOME-NET> 3,697,013
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,348,585
<INCOME-PRETAX> 1,288,429
<INCOME-PRE-EXTRAORDINARY> 1,288,429
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 955,642
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<YIELD-ACTUAL> 4.90
<LOANS-NON> 101,776
<LOANS-PAST> 20,502
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,593,771
<CHARGE-OFFS> 73,417
<RECOVERIES> 60,121
<ALLOWANCE-CLOSE> 1,685,475
<ALLOWANCE-DOMESTIC> 1,513,871
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 171,604
</TABLE>
