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, 1996
[ ] 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, 1996:
Common Stock, No Par Value 1,387,626
Class Number of Shares
<PAGE>
COMSOUTH BANKSHARES, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 . . . . . . . . . . . 1
Consolidated Statements of Operations
Three months and nine months ended
September 30, 1996 and September 30, 1995 . . . . . . . . . . 2
Consolidated Statements of Changes in
Stockholders' Equity -
Nine months ended September 30, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 7-11
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Stock Dividend . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
Item 1. Financial Statements
COMSOUTH BANKSHARES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 9,147,390 $ 10,979,878
Federal funds sold 6,270,000
Investment securities held-to-
maturity, at amortized cost (fair
value: 1996 - $6,413,093;
1995 - $9,333,599) 6,460,432 9,319,839
Investment securities available-for-
sale, at fair value (amortized
cost: 1996 - $21,345,510;
1995 - $12,671,841) 21,152,807 12,815,394
Loans
(less allowance for loan losses:
1996 - $1,800,167; 1995 -
$1,784,508) 106,250,881 91,024,087
Premises and equipment 1,556,324 1,287,558
Accrued interest receivable 1,020,608 1,104,905
Other assets 588,679 620,967
------------ ------------
Total Assets $146,177,121 $133,422,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit:
Noninterest bearing deposits $ 25,455,122 $ 24,246,101
NOW, money market and savings 52,796,252 49,321,293
Time deposits of $100,000 or more 17,377,815 18,785,241
Time deposits less than $100,000 29,748,340 23,255,643
Other time 2,455,958 2,154,512
------------ ------------
Total deposits 127,833,487 117,762,790
Short-term borrowings 2,428,161 1,754,912
Note payable 900,000
U.S. Treasury tax and loan accounts 1,207,886 438,486
Other liabilities 890,823 1,587,302
------------ ------------
Total liabilities 133,260,357 121,543,490
------------ ------------
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; shares issued and
outstanding - 1,386,626 in 1996 and
1,385,701 in 1995) 11,835,461 11,830,145
Accumulated profit (deficit) 1,208,619 (45,752)
Unrealized (loss) gain on investment
securities available-for-sale, net
of tax (127,316) 94,745
------------ ------------
Total Stockholders' Equity 12,916,764 11,879,138
------------ ------------
Total Liabilities and Stockholders'
Equity $146,177,121 $133,422,628
============ ============
</TABLE>
1
<PAGE>
COMSOUTH BANKSHARES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on
loans $2,419,860 $2,046,206 $6,897,456 $5,589,103
Investment securities 433,217 356,277 1,228,740 956,882
Federal funds sold 13,148 42,067 98,023 116,600
---------- ---------- ---------- ----------
Total Interest Income 2,866,225 2,444,550 8,224,219 6,662,585
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 1,179,283 1,100,158 3,458,379 2,874,679
Securities sold under
agreements to repurchase 30,566 10,797 62,308 65,651
U.S. Treasury tax and
loan 8,339 10,634 24,819 25,009
Note payable 14,467 27,119 233
---------- ---------- ---------- ----------
Total Interest Expense 1,232,655 1,121,589 3,572,625 2,965,572
---------- ---------- ---------- ----------
Net interest income 1,633,570 1,322,961 4,651,594 3,697,013
Provision for loan losses 0 65,000 50,000 105,000
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 1,633,570 1,257,961 4,601,594 3,592,013
---------- ---------- ---------- ----------
Noninterest Income:
Lending operations
and services 98,021 199,543 342,537 403,018
Service charges on
deposit accounts 138,056 109,691 394,010 326,548
Gain on sale of
real estate owned 8,063
Other 164,969 124,446 467,767 307,372
---------- ---------- ---------- ----------
Total Noninterest Income 401,046 433,680 1,204,314 1,045,001
---------- ---------- ---------- ----------
Noninterest Expense:
Salaries and employee
benefits 659,361 647,257 1,998,789 1,827,242
Occupancy expenses 109,230 107,382 326,222 320,609
Furniture and equipment
expenses 110,282 89,819 298,760 254,034
Advertising and marketing 23,192 20,509 67,959 62,695
Other 468,310 239,818 1,232,598 884,005
---------- ----------- ---------- ----------
Total Noninterest Expense 1,370,375 1,104,785 3,924,328 3,348,585
---------- ----------- ---------- ----------
Income before provision
for income taxes 664,241 586,856 1,881,580 1,288,429
Income tax expense (217,807) (271,670) (627,209) (332,787)
---------- ---------- ---------- ----------
Net Income $ 446,434 $ 315,186 $1,254,371 $ 955,642
========== ============ ========== ==========
Earnings per common share:
Net income per
common share $0.32 $0.23 $0.90 $0.70
========== ============ ========== ==========
</TABLE>
2
<PAGE>
COMSOUTH BANKSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain(loss)
Accumulated on Total
Common Stock Profit Investment Stockholders'
Shares Amount (Deficit) Securities Equity
------ ------ --------- ---------- ------
Balance at
<S> <C> <C> <C> <C> <C>
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 Stock 700 4,116 4,116
Net income 955,642 955,642
--------- ----------- ----------- -------- -----------
Balance at September 30, 1995 1,369,301 $11,716,627 ($472,333) $11,366 $11,255,660
========= =========== =========== ======== ===========
Balance at
December 31, 1995 1,385,701 $11,830,145 ($45,752) $94,745 $11,879,138
Change in unrealized
loss on investment
securities
available-for-
sale, net of tax (222,061) (222,061)
Issuance of common
stock 925 5,316 5,316
Net income 1,254,371 1,254,371
--------- ----------- ----------- --------- -----------
Balance at September 30, 1996 1,386,626 $11,835,461 $ 1,208,619 ($127,316) $12,916,764
========= =========== =========== ========= ===========
</TABLE>
3
<PAGE>
COMSOUTH BANKSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,254,371 $ 955,642
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 237,696 213,536
Provision for loan losses 50,000 105,000
Deferred Tax Benefit (75,000)
Amortization of premium and accretion
of discount on investment securities 6,368 16,436
Decrease (increase) in interest receivable 84,297 (197,540)
Decrease in other assets 172,874 52,979
(Decrease) increase in interest payable (107,441) 293,334
(Decrease) increase in other liabilities (540,230) 294,585
----------- ----------
Cash provided by operating activities 1,082,935 1,733,972
----------- ----------
Cash flows from investing activities:
Purchases of investment securities,
held-to-maturity (1,499,400)
Purchases of investment securities,
available-for-sale (11,174,538) (10,380,950)
Maturities of investment securities,
held-to-maturity 4,353,109 3,739,743
Maturities of investment securities,
available-for-sale 2,500,000 19,100
Net increase in loans (15,276,794) (16,522,268)
Purchases of premises and equipment (506,462) (256,938)
----------- ------------
Cash used for investing activities (21,604,085) (23,401,313)
----------- ------------
Cash flows from financing activities:
Net increase in deposits 10,070,697 26,595,223
Increase in (maturities of) short-term
borrowings 673,249 (487,481)
Proceeds (payments) of note payable 900,000 (125,000)
Increase in U.S. treasury tax and
loan accounts 769,400 1,083,409
Proceeds from issuance of common stock 5,316 4,116
----------- ------------
Cash provided by financing activities 12,418,662 27,070,267
----------- ------------
(Decrease) increase in cash and
cash equivalents (8,102,488) 5,402,926
Cash and cash equivalents
at beginning of period 17,249,878 5,106,898
----------- ------------
Cash and cash equivalents at end of period $ 9,147,390 $ 10,509,824
=========== ============
Supplemental disclosures of cash flow information:
Cash paid for interest $3,680,066 $2,672,238
Cash paid for taxes $1,244,155 $78,624
Noncash adjustments to report investment
securities available-for-sale at fair value:
Investment securities, available-for-sale ($192,703) $17,222
Other assets (other liabilities) 65,387 (5,856)
Unrealized (loss) gain on available-for-sale
securities, net of tax ($127,316) $11,366
</TABLE>
4
<PAGE>
COMSOUTH BANKSHARES
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, 1995, appearing in the Corporation's 1995 Annual Report and
included in the Corporation's Form 10-K Annual Report for the year ended
December 31, 1995. The unaudited results of operations for the nine month period
ended September 30, 1996 may not necessarily be indicative of the results for
the year that will end December 31, 1996.
NOTE 1 - LOAN COMMITMENTS
At September 30, 1996, standby letters of credit of $1,770,000 and
undisbursed amounts of lines of credit of $21,454,000 were outstanding.
NOTE 2 - NOTES PAYABLE
During 1995 the Corporation established a $500,000 revolving line of credit
with another financial institution. The line of credit was based on a variable
rate of interest at the lender's prime rate and was scheduled to expire on
August 15, 1996. The line of credit was collateralized by 200,000 shares of Bank
of Columbia common stock. In addition, the line of credit contained certain
covenants with which the Corporation and its subsidiaries were required to
comply.
In April 1996, the Corporation negotiated a $1,200,000 term loan with
another financial institution with a final expiration of December 31, 2001. The
interest on the loan is a variable rate of interest at the lender's prime rate
less 1/2 of one percent. The loan may have multiple advances, however all
advances must be made by December 31, 1996. Payments are scheduled to be $60,000
plus interest per quarter beginning March 31, 1997 until final maturity on
December 31, 2001. The loan is secured by 550,000 shares of Bank of Charleston
Common Stock. In addition, the loan agreement contains certain covenants with
which the Corporation and its subsidiaries are required to comply. The principal
financial covenants require the Corporation and each subsidiary to maintain a
loan loss reserve to non-performing assets ratio of a least 100%, and the
tangible equity to total assets must equal or exceed 8% for the Bank of
Charleston ("BOC") and equal or exceed 6% for the Bank of Columbia ("BOCL"). The
Corporation must maintain a non-performing loans plus OREO to total loans plus
OREO ratio of no greater than 1.80% and must maintain a return on average assets
of no less than 1%.
Additional covenants restrict the Corporation from incurring additional
debt, from paying shareholder dividends, unless agreed to by the lender, and
require full payment to the lender, if demanded, in the event of a change in the
ownership of the Corporation. As of September 30, 1996, the Corporation was in
compliance with the covenants.
5
<PAGE>
During April 1996, the Corporation took an advance of $500,000 on this loan
to pay off the $500,000 advanced on the revolving line of credit discussed
above. As a result of the payoff, the $500,000 revolving line of credit,
discussed in the first paragraph of this section was terminated by the
Corporation. The Corporation took an additional advance of $200,000 on the
$1,200,000 loan in September, 1996 and has a current outstanding balance of
$900,000 on the loan.
At September 30, 1996, BOCL had available approximately $8.9 million and
BOC had available approximately $9.5 million in standby credit from other banks
for short-term borrowing.
NOTE 3 - 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 do not have any loans classified as impaired
loans.
NOTE 4 - INCOME TAXES
Deferred tax assets and (liabilities) and the related valuation allowance
arising in accordance with SFAS No. 109 at September 30, 1996 and December
31,1995 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Allowance for loan losses $548,755 $467,986
Excess tax over book depreciation 32,890 88,727
State income tax net operating loss
carryforward 95,302
Unrealized loss on available-for-sale
securities - SFAS 115 65,387 0
-------- --------
Gross deferred tax asset 647,032 652,015
-------- --------
Accretion of discounts on bonds (8,763) (17,864)
Adjustments from accrual to cash basis
for tax reporting (34,737)
Unrealized gain on available-for-sale
securities - SFAS 115 (48,808)
-------- --------
Gross deferred tax liability (8,763) (101,409)
-------- --------
Net deferred tax asset before
valuation allowance 638,269 550,606
Less valuation allowance (158,137) (260,624)
-------- --------
Net deferred tax asset $480,132 $289,982
======== ========
</TABLE>
6
<PAGE>
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"). On March 21, 1996, the Corporation listed its common stock on the
American Stock Exchange under the ticker symbol CSB.
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,
1996, BOCL had approximately $8.9 million while BOC had approximately $9.5
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.
At September 30, 1996 and December 31, 1995, liquid assets of approximately
$30.3 million and $30.1 million, respectively, were available to meet demands
for deposit withdrawals, undisbursed amounts on lines of credit ("loan
commitments") of $21,454,000 and $16,068,000 respectively, and letters of credit
totaling $1,770,000 and $1,584,000 respectively.
Deposit growth is the principal source of funds. The Banks generally pay
competitive market rates for deposits. Deposits were approximately $127.8
million at September 30, 1996, which compares to $117.8 million at December 31,
1995. Of the total deposit base of the Corporation at September 30, 1996,
approximately $17,378,000 (or 13.6%) was comprised of Certificates of Deposits
in amounts $100,000 and higher ("Jumbo Certificates"). These Jumbo Certificates
are primarily 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 expected withdrawal demand of
these Jumbo Certificates.
7
<PAGE>
One of the principal uses of funds is to meet loan demand at BOCL and BOC.
At September 30, 1996, total loans outstanding were approximately $108.0
million, as compared to $92.8 million at December 31, 1995. During the first
nine months of 1996, both Banks have experienced strong loan growth. The
economic picture in the markets serviced by both Banks appears to be stable.
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, 1996, the allowance for loan losses at BOCL and BOC was
approximately $1,009,000 and $791,000, respectively. At December 31, 1995, the
allowance for loan losses at BOCL and BOC was approximately $1,030,000 and
$755,000, 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, 1996, the Tier 1 risk based capital ratio
for BOCL was 9.8% and the total risk based capital ratio was 11.1%, while BOC
had a Tier 1 risk based capital ratio of 13.6% and a total risk based capital
ratio of 14.8%.
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 risk based capital ratio was approximately 11.9% and
its total risk based capital ratio was approximately 13.1% at September 30,
1996. 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, the
Corporation maintains an interest sensitivity management program, the objective
of which is to maintain reasonably stable growth in net 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, 1996, the Corporation had a negative gap of
approximately 8% 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 a rate change within generally
forseeable parameters would not have a material impact on earnings.
8
<PAGE>
RESULTS OF OPERATIONS
For the first nine months of 1996, the Corporation recorded net earnings of
$1,254,000 or $.90 per share, compared to $956,000 or $.70 per share for the
same period of 1995. Improved net interest income, resulting from strong loan
growth in both Banks since the fourth quarter of 1995, was the major factor
contributing to the increase in earnings.
For the first nine months of 1996 loans outstanding have grown by 16.4% while
deposits have grown by 8.6%.
The Corporation had total revenues of $9,428,000 and $7,708,000 and total
expenses of $7,547,000 and $6,420,000 for the nine months ended September 30,
1996 and 1995, respectively. Summarized below is an analysis of the composition
of revenues and expenses for the nine months ended September 30, 1996 and 1995.
Nine Months Ended September 30,
1996 1995
---- ----
Interest on loans $6,897,000 73.2% $5,589,000 72.5%
Interest on investment
securities 1,229,000 13.0% 957,000 12.4%
Interest on temporary
investments 98,000 1.0% 117,000 1.5%
Non-interest income 1,204,000 12.8% 1,045,000 13.6%
---------- ------ ---------- ------
Total Revenues $9,428,000 100.0% $7,708,000 100.0%
========== ====== ========== ======
The increase in income provided by interest on loans is primarily the
result of the strong loan growth realized by both Banks as loans outstanding
increased by approximately 31% between the two periods. Investment securities
income is up as a result of increased yields realized on new purchases and the
reinvestment of maturing securities. Investment securities are typically
purchased for a two to five year period, as a result, the Corporation was able
to reinvest maturing securities purchased prior to prime rate increases in 1994
at much higher yields. The decline in interest on temporary investments is the
direct result of the strong loan growth experienced by the Banks as these funds
were reallocated to fund the loan growth.
The change in non-interest income is almost entirely due to growth in the
Business Manager Product, a fee based receivables billing and collection service
offered by the Banks to their customers. The Bank of Charleston has continuously
had success with the product since its implementation in 1994. The Bank of
Columbia began to offer the product in early 1995 and has experienced steady
growth in the product since its introduction into the Columbia market place.
9
<PAGE>
Nine Months Ended September 30,
1996 1995
---- ----
Interest on deposits $3,458,000 45.8% $2,875,000 44.8%
Interest on notes payable
and securities sold under
agreements to repurchase 114,000 1.5% 91,000 1.4%
Provision for loan losses 50,000 .7% 105,000 1.6%
Salaries and employee
benefits 1,999,000 26.5% 1,827,000 28.5%
Occupancy expenses 326,000 4.3% 321,000 5.0%
Furniture and equipment
expenses 299,000 4.0% 254,000 4.0%
Legal and Regulatory 551,000 7.3% 342,000 5.3%
Printing and Supplies 124,000 1.6% 97,000 1.5%
Advertising and marketing 68,000 .9% 63,000 1.0%
Other 558,000 7.4% 445,000 6.9%
---------- ------ ---------- ------
Total Expenses $7,547,000 100.0% $6,420,000 100.0%
========== ====== ========== ======
The increase in interest on deposits during the period was the result of
deposit growth by both banks to support the funding needs required by the strong
loan demand. The increase in interest on the notes payable category is mostly
due to the $900,000 borrowing by the holding company during the period to
support short falls in its cash flow due to payment of legal expenses and
corporate taxes. The increase in salary and wages expense was the result of
annual merit increases and the addition of clerical staff to support the loan
and deposit growth. Activity significantly increased during this period in the
defense of the pending lawsuit filed by a former director resulting in the
higher expense noted in the Legal and Regulatory category. However, the efforts
made in this defense appeared to bring what management believes to be positive
results concerning the suit. More information is provided in Part II - Other
Information, Item 1. Legal Proceeding concerning this suit. Other expenses
increased as a result of a loss recognized during the third quarter of $25,000
on a counterfeit check, a loss of approximately $23,000 on the sale during the
third quarter of a piece of other real estate held (OREO) and the remainder
principally due to various expenses such as temporary employees to support the
strong growth during the period. The decrease in the provision for loan losses
reflected management's assessment that the quality of the loan portfolio
continued to be strong and no additional provision was warranted.
10
<PAGE>
NET INTEREST INCOME
Net interest income represents the difference 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, 1996 and 1995
was $4,651,000 and $3,697,000, respectively. The average yield on earning assets
was 8.6% and 8.7%, the average rate paid on interest bearing liabilities was
4.6% and 4.7%, and the annualized net interest margin was 4.8% and 4.9% for the
nine months ended September 30, 1996 and 1995, respectively.
In an effort to minimize any earnings impact as a result of 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.
THIRD QUARTER EARNINGS
Earnings for the third quarter of 1996 were $446,000 or $.32 per share, up
41 percent over the $315,000 or $.23 per share reported for the third quarter of
1995. Net interest income showed an increase of approximately $310,000 between
the two periods. This increase is the result of the strong loan growth realized
by both Banks during the second half of 1995 and the first nine months of 1996
as the net interest margin for each period was basically the same.
Total non-interest income declined by approximately $30,000 between the
periods as fees generated by the mortgage lending function decreased by $100,000
due to the downsizing of the function in the Bank of Columbia during the first
half of 1996. Business Manager fees increased by $45,000 over the same period
last year as the BOC program continued to perform well. BOCL implemented the
product in the first quarter of 1996, and has begun to realize revenue from its
efforts as well. Additionally, fees from deposit services increased by $20,000
between the two periods as a result of the strong deposit growth since the
previous year.
Total non-interest expense, including income tax expense, increased by
approximately $212,000 in the third quarter of 1996 as compared to the same
quarter in 1995. The major factors contributing to this increase were an
increase of $125,000 in legal fees as a result of increased activity in the law
suit during the third quarter 1996, the increase in other expenses of
approximately $45,000 is primarily due to a loss incurred on a counterfeit check
of $25,000 and a loss of $23,000 on the sale of a piece of OREO property during
the quarter.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
Reference is made to the discussions under "Legal Proceedings" in the
Corporation's Forms 10-Q for each of the quarters ended March 31, 1996 and June
30, 1996.
On October 8, 1996, the judge handling the stockholder litigation by Carl
Almond against the Corporation and eight of its present and former directors
ruled that the plaintiff could not maintain the suit as a class action or as a
derivative suit. Only the individual claims of the named plaintiff will be
covered by the suit. Those claims will continue to be vigorously defended.
Plaintiff has requested that the judge reconsider his ruling.
On or about November 5, 1996, through November 9, 1996, five other
stockholders of the Corporation, James E. Finley, William Blaylock, William S.
Minter, Jr., William S. Minter, III, and Vernon E. Sanders instituted nearly
identical suits against the Corporation and the same directors and former
directors of the Corporation who are defendants in the suit referenced above.
The suits were instituted in the Court of Common Pleas for Richland County,
South Carolina and make essentially the same allegations as the Carl Almond
lawsuit and seek damages on account of the alleged activities of the defendant
directors. The plaintiffs do not seek to recover any damages from the
Corporation but the Corporation may, nevertheless, incur significant expenses to
indemnify the defendant directors pursuant to applicable law.
ITEM 2. STOCK DIVIDEND
At its October 29, 1996 Board of Directors Meeting, the board declared a
ten percent (10%) stock dividend for holders of record as of November 15, 1996.
The dividend is to be paid on December 2, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter.
12
<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: 11/13/96 By: --------------------------------
(Harry R. Brown)
Chief Financial Officer,
Chief Operating Officer,
Secretary and Treasurer
(Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1996 (Unaudited)
and the Consolidated Statement of Income for the Nine Months Ended September 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $9,147,390
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,152,807
<INVESTMENTS-CARRYING> 6,460,432
<INVESTMENTS-MARKET> 6,413,093
<LOANS> 108,051,048
<ALLOWANCE> (1,800,167)
<TOTAL-ASSETS> 146,177,121
<DEPOSITS> 127,833,487
<SHORT-TERM> 2,428,161
<LIABILITIES-OTHER> 890,823
<LONG-TERM> 900,000
0
0
<COMMON> 11,835,461
<OTHER-SE> 1,081,303
<TOTAL-LIABILITIES-AND-EQUITY> 146,177,121
<INTEREST-LOAN> 6,897,456
<INTEREST-INVEST> 1,228,740
<INTEREST-OTHER> 98,023
<INTEREST-TOTAL> 8,224,219
<INTEREST-DEPOSIT> 3,458,379
<INTEREST-EXPENSE> 3,572,625
<INTEREST-INCOME-NET> 4,651,594
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,924,328
<INCOME-PRETAX> 1,881,580
<INCOME-PRE-EXTRAORDINARY> 1,881,580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,254,371
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 4.80
<LOANS-NON> 146,765
<LOANS-PAST> 56,781
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,784,508
<CHARGE-OFFS> 65,053
<RECOVERIES> 30,712
<ALLOWANCE-CLOSE> 1,800,167
<ALLOWANCE-DOMESTIC> 1,639,787
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 160,380
</TABLE>
