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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number: 0-19045
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 July 31, 1996:
Common Stock, No Par Value 1,386,501
Class Number of Shares
<PAGE>
COMSOUTH BANKSHARES, INC
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995...........................3
Consolidated Statements of Operations -
Three months and Six months ended June 30, 1996 and
June 30, 1995.................................................4
Consolidated Statements of Changes in
Stockholders' Equity -
Six months ended June 30, 1996 and
June 30, 1995.................................................5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and
June 30, 1995.................................................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 4. Submission of Matters to a Vote of Security Holders............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>
June 30,
1996 December 31,
(Unaudited) 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 8,853,957 $ 10,979,878
Federal funds sold 6,270,000
Investment securities held-to-
maturity, at amortized cost (fair
value: 1996 - $6,408,180; 1995 -
$9,333,599) 6,476,029 9,319,839
Investment securities available-for-
sale, at fair value (amortized
cost: 1996 - $22,543,669; 1995 -
$12,671,841) 22,273,655 12,815,394
Loans
(less allowance for loan losses:
1996 - $1,800,725; 1995 -
$1,784,508) 100,226,796 91,024,087
Premises and equipment 1,486,775 1,287,558
Accrued interest receivable 1,288,591 1,104,905
Other assets 742,586 620,967
------------ ------------
Total Assets $141,348,389 $133,422,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing demand $ 23,345,383 $24,246,101
NOW, money market and savings 57,952,787 49,321,293
Time deposits of $100,000 or more 16,665,212 18,785,241
Time deposits less than $100,000 23,514,749 23,255,643
Other time 2,432,085 2,154,512
------------ ------------
Total deposits 123,910,216 117,762,790
Short-term borrowings 2,266,311 1,754,912
Note payable 700,000
U.S. Treasury tax and loan accounts 1,181,160 438,486
Other liabilities 871,265 1,587,302
------------ ------------
Total Liabilities 128,928,952 121,543,490
------------ ------------
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 - 1,386,501 in 1996
and 1,385,701 in 1995) 11,835,461 11,830,145
Accumulated profit (deficit) 762,185 (45,752)
Unrealized (loss) gain on investment
securities available-for-sale, net
of tax (178,209) 94,745
------------ ------------
Total Stockholders' Equity 12,419,437 11,879,138
------------ ------------
Total Liabilities and Stockholders'
Equity $141,348,389 $133,422,628
============ ============
</TABLE>
3
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
Interest Income:
Interest and fees on
<S> <C> <C> <C> <C>
loans $2,282,245 $1,849,040 $4,477,596 $3,542,897
Investment securities 426,528 302,794 795,523 600,605
Federal funds sold 38,408 59,988 84,875 74,533
---------- ---------- ---------- ----------
Total Interest Income 2,747,181 2,211,822 5,357,994 4,218,035
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 1,136,585 995,893 2,279,096 1,774,521
Securities sold under
agreements to repurchase 12,058 18,850 31,742 54,854
U.S. Treasury tax
and loan 7,607 6,515 16,480 14,375
Note payable 12,652 12,652 233
---------- ---------- ---------- ----------
Total Interest Expense 1,168,902 1,021,258 2,339,970 1,843,983
---------- ---------- ---------- ----------
Net interest income 1,578,279 1,190,564 3,018,024 2,374,052
Provision for loan
losses 40,000 30,000 50,000 40,000
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 1,538,279 1,160,564 2,968,024 2,334,052
---------- ---------- ---------- ----------
Noninterest Income:
Lending operations
and services 115,127 127,958 244,516 203,475
Service charges on
deposit accounts 134,345 107,372 255,954 216,857
Gain on sale of
real estate owned 8,063
Other 161,720 105,381 302,798 182,926
---------- ---------- ---------- ----------
Total Noninterest Income 411,192 340,711 803,268 611,321
---------- ---------- ---------- ----------
Noninterest Expense:
Salaries and
employee benefits 661,023 614,987 1,339,428 1,179,985
Occupancy expenses 108,765 108,639 216,992 213,227
Furniture and
equipment expenses 95,627 85,877 188,478 164,215
Advertising
and marketing 21,154 20,108 44,767 42,186
Other 397,848 335,360 764,288 644,187
---------- ---------- ---------- ----------
Total Noninterest Expense 1,284,417 1,164,971 2,553,953 2,243,800
---------- ---------- ---------- ----------
Income before provision for
income taxes 665,054 336,304 1,217,339 701,573
Income tax expense (251,183) (20,727) (409,402) (61,117)
---------- ---------- ---------- ----------
Net income $ 413,871 $ 315,577 $ 807,937 $640,456
========== ========== ========== ==========
Earnings per common
share:
Net income per
common share $ .30 $ .23 $0.58 $0.47
========== ========== ========= ==========
</TABLE>
4
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain(Loss)
Common Stock Accumulated on Total
Profit Investment Stockholders'
(Deficit) Securities Equity
Shares Amount
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 211,142 211,142
Net income 640,456 640,456
--------- ----------- ----------- --------- -----------
Balance at
June 30, 1995 1,368,601 $11,712,511 $ (787,519) $ 30,582 $10,955,574
========= =========== =========== ========= ===========
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 (272,954) (272,954)
Issuance of common
stock 800 5,316 5,316
Net income 807,937 807,937
--------- ----------- ----------- --------- -----------
Balance at
June 30, 1996 1,386,501 $11,835,461 $ 762,185 $(178,209) $12,419,437
========= =========== =========== ========= ===========
</TABLE>
5
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net income $ 807,937 $ 640,456
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 149,325 141,490
Provision for loan losses 50,000 40,000
Deferred Tax Benefit (50,000)
Amortization of premium and accretion
of discount on investment securities 3,546 10,637
Increase in interest receivable (183,686) (81,632)
Decrease (increase) in other assets 20,087 (6,756)
(Decrease) increase in interest payable (92,301) 220,871
(Decrease) increase in other liabilities (574,829) 94,993
----------- -----------
Cash provided by operating activities 130,079 1,060,059
----------- -----------
Cash flows from investing activities:
Purchases of investment securities,
held-to-maturity (1,499,400)
Purchases of investment securities,
available-for-sale (9,872,019) (4,911,688)
Maturities of investment securities,
held-to-maturity 4,339,855 3,725,700
Net increase in loans (9,252,709) (12,219,133)
Purchases of premises and equipment (348,542) (220,466)
Proceeds from sale of other real estate owned 8,063
----------- -----------
Cash used for investing activities (16,632,815) (13,617,524)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 6,147,426 16,839,910
Increase in (maturities of) short-term
borrowings 511,399 (1,941,843)
Proceeds (payments) of note payable 700,000 (125,000)
Increase in U.S. treasury, tax and
loan accounts 742,674 564,006
Proceeds from issuance of common stock 5,316
----------- -----------
Cash provided by financing activities 8,106,815 15,337,073
----------- -----------
(Decrease) increase in cash
and cash equivalents (8,395,921) 2,779,608
Cash and cash equivalents
at beginning of period 17,249,878 5,106,898
----------- -----------
Cash and cash equivalents at end of period $ 8,853,957 $7,886,506
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,432,270 $1,623,111
Cash paid for taxes $ 977,606 $ 53,369
Noncash adjustments to report investment
securities available-for-sale at fair value:
Investment securities, available-for-sale $ (270,014) $ 46,337
Other Assets (other liabilities) 91,805 (15,755)
Unrealized (loss) gain on available-for-sale
securities, net of tax $ (178,209) $ 30,582
</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, 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 six month period
ended June 30, 1996 may not necessarily be indicative of the results for the
year that will end December 31, 1996.
NOTE 1 - LOAN COMMITMENTS
At June 30, 1996, standby letters of credit of $1,758,000 and
undisbursed amounts of lines of credit of $20,649,000 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 at 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 June 30, 1996, the Corporation was in
compliance with the covenants.
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 June, 1996 and has a current outstanding balance of $700,000
on the loan.
At June 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.
7
<PAGE>
NOTE 3 - STOCK OPTIONS
During 1995, the Corporation reserved 100,000 shares of common stock
for issuance to employees under a nonqualified stock option plan (the "1995
Non-Qualified Plan"). Additionally, as part of the 1995 Non-Qualified Plan, each
non-employee director of the Corporation will receive 25 options to purchase
common stock for each board of directors meeting attended. The options are
exercisable after six months from date of the grant and expire at the earlier of
termination of director status or ten years after the date of grant. A total of
6,125 options were granted on May 1, 1996 to non-employee directors at an
exercise price of $13.50 per share. The bid and ask price for ComSouth
Bankshares, Inc. Common Stock on the measurement date, April 26, 1996, was
$13.50. No other options expired or were granted during this reporting period. A
total of 800 options were exercised during the second quarter of 1996. See table
below for details.
<TABLE>
<CAPTION>
Options
Price per Expiration
Non-Qualified Plan Options share Dates
- ------------------ ------- ------ -----
<S> <C> <C> <C>
December 31, 1995 39,100 $5.88-$8.70
Exercised during 1996 (400) $5.88 01/24/00
Exercised during 1996 (225) $6.95 12/31/00
Exercised during 1996 (175) $8.00 04/27/97
------ -----------
June 30, 1996 38,300 $5.88-$8.70
====== ===========
</TABLE>
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 do not have any loans classified as impaired
loans.
NOTE 5 - INCOME TAXES
Deferred tax assets and (liabilities) and the related valuation
allowance arising in accordance with SFAS No. 109 at June 30, 1996 and December
31, 1995 are as follows:
8
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Allowance for loan losses $556,158 $467,986
Excess tax over book depreciation 18,454 88,727
State income tax net operating loss 0 95,302
carryforward
Unrealized loss on available-for-sale
securities - SFAS 115 91,805 0
-------- --------
Gross deferred tax asset 666,417 652,015
-------- --------
Accretion of discounts on bonds (6,815) (17,864)
Adjustments from accrual to cash basis
for tax reporting 0 (34,737)
Unrealized gain on available-for-sale
securities - SFAS 115 0 (48,808)
-------- --------
Gross deferred tax liability (6,815) (101,409)
-------- --------
Net deferred tax asset before
valuation allowance 659,602 550,606
Less valuation allowance (183,137) (260,624)
-------- --------
Net deferred tax asset $476,465 $289,982
======== ========
</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"). 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 June 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.
9
<PAGE>
At June 30, 1996 and December 31, 1995, liquid assets of approximately
$37.6 million and $39.3 million, respectively, were available to meet demands
for deposit withdrawals, undisbursed amounts on lines of credit ("loan
commitments") of $20,649,000 and $16,068,000, respectively, and letters of
credit totaling $1,758,000 and $1,584,000, respectively.
Deposit growth is the principal source of funds. Management has decided
to pay competitive market rates for deposits. Deposits were approximately $123.9
million at June 30, 1996, which compares to $117.8 million at December 31, 1995.
Of the total deposit base of the Corporation at June 30, 1996, approximately
$18,036,000 (or 14.6%) 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 June 30, 1996, total loans outstanding were approximately $102.0
million, as compared to $92.8 million at December 31, 1995. During the first six
months of 1996, both banks have experienced modest 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
June 30, 1996, the allowance for loan losses at BOCL and BOC was approximately
$1,012,000 and $789,000, 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 June 30, 1996, the Tier 1 capital ratio for BOCL was
10.0% and the total capital ratio was 11.3%, while BOC had a Tier 1 capital
ratio of 13.8% and a total capital ratio of 15.0%.
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 11.2% and its
total capital ratio was approximately 12.4% at June 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
10
<PAGE>
accounts and certificates of deposit with maturities of less than one year
represent the majority of interest sensitive liabilities.
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 rate changes of the magnitudes that might be reasonably expected to occur
in the forseeable future would not have a material impact on earnings.
RESULTS OF OPERATIONS
For the first six months of 1996, the Corporation had net earnings of
$808,000 or $.58 per share, compared to $640,000 or $.47 per share for the same
period of 1995.
For the first six months of 1996 loans outstanding grew by 9.9% while
deposits grew by 5.2%. Higher priced CD's declined by 4.4% during this period.
The Corporation had total revenues of $6,161,000 and $4,829,000, and
total expenses of $5,353,000 and $4,189,000 for the six months ended June 30,
1996 and 1995, respectively. Summarized below is an analysis of the composition
of revenues and expenses for the six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------------------ ----------------------------
<S> <C> <C> <C> <C>
Interest on loans $4,478,000 72.7% $3,543,000 73.4%
Interest on investment
securities 795,000 12.9% 601,000 12.4%
Interest on temporary
investments 85,000 1.4% 74,000 1.5%
Non-interest income 803,000 13.0% 611,000 12.7%
---------- ------ ---------- ------
Total Revenues $6,161,000 100.0% $4,829,000 100.00%
========== ====== ========== =======
</TABLE>
The increase in revenue provided by interest on loans in the 1996
period over the 1995 period is primarily the result of the strong loan growth
realized by both banks during the last half of 1995, and the first six months of
1996. 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 fees generated
from the origination and sale of mortgage loans. These fees increased by
approximately $40,000 over the same period of 1995 due to increased efforts by
management in the offering of this service.
Income derived from the Business Manager product was another major
factor contributing to the growth in non-interest income as fees generated from
this product increased by approximately $110,000 over the same six month period
of 1995. This product provides immediate cash flow to small businesses through
the purchase by the bank of customer 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.
In addition to fees generated from the lending and Business Manager
functions, income derived from deposit services increased by approximately
$40,000 over the same six month period last year as a result of the deposit
growth realized between the two periods.
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest on deposits $2,279,000 42.6% $1,775,000 42.4%
Interest on notes payable
and securities sold under
agreements to repurchase 61,000 1.1% 69,000 1.6%
Provision for loan losses 50,000 .9% 40,000 .9%
Salaries and employee
benefits 1,339,000 25.0% 1,180,000 28.2%
Occupancy expenses 217,000 4.1% 213,000 5.1%
Furniture and equipment
expenses 188,000 3.5% 164,000 3.9%
Legal and Regulatory 354,000 6.6% 268,000 6.4%
Printing and Supplies 81,000 1.5% 70,000 1.7%
Advertising and marketing 45,000 .8% 42,000 1.0%
Other 739,000 13.9% 368,000 8.8%
---------- ------ ---------- -------
Total Expenses $5,353,000 100.0% $4,189,000 100.00%
========== ====== ========== =======
</TABLE>
The change in interest paid on deposits is principally due to a strong
growth in deposits. The increase in salaries and employee benefits is primarily
due to increased staffing needed to support the strong loan and deposit growth,
and the increase in legal and regulatory expenses is primarily due to increased
activity in the defense of a pending lawsuit. The increase in other expenses is
almost entirely due to federal income tax expense as the Corporation was in a
net operating loss carryforward (NOL) position during the first quarter of 1995.
As a result, tax expense increased by $348,000 between the two periods.
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 six months ended June 30, 1996 and 1995 was
$3,018,000 and $2,374,000 respectively. The average yield on earning assets was
8.5% and 8.7%, the average rate paid on interest bearing liabilities was 4.6%
and 4.6%, and the annualized net interest margin was 4.8% and 4.9% for the six
months ended June 30, 1996 and 1995, respectively.
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.
SECOND QUARTER EARNINGS
Earnings for the second quarter of 1996 were $414,000 or $.30 per
share, up 31 percent over the $316,000 or $.23 per share reported for the second
quarter of 1995. Net interest income showed an increase of approximately
$385,000 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 six
months of 1996 as the net interest margin for each period was basically the
same.
12
<PAGE>
Total non-interest income increased by $70,000 between the periods as
fees generated by the Business Manager program increased by $55,000 and deposit
service fees increased by $25,000 over the same period last year. The increased
fees from the Business Manager program were the result of increased sales
efforts for the product and the increase in fees derived from deposit services
resulted from the deposit growth realized between the two periods.
Total non-interest expenses increased by $350,000 for the second
quarter of 1996, compared to the same quarter in 1995. Federal income tax
expense increased by $230,000 as the Corporation was in a net operating loss
carryforward position in 1995, but was fully liable for taxes in 1996. The other
major factors contributing to the increase of non-interest expenses were
salaries and employee benefits which increased by $35,000 due to additional
staff needed to support the loan and deposit growth realized during the last
half of 1995 and the first half of 1996 and legal fees increased by
approximately $50,000 due to increased activity during the second quarter of
1996 related to a pending lawsuit.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting: April 30, 1996
(b) The following directors were elected at the annual meeting:
VOTES
-----
FOR AGAINST
--- -------
Mason R. Chrisman 747,649 31,925
John C. B. Smith, Jr. 779,229 345
Arthur M. Swanson 701,178 78,396
The following directors continue their terms of office as directors:
W. Carlyle Blakeney, Jr.
LaVonne N. Phillips
Arthur P. Swanson
R. Lee Burrows, Jr.
Charles R. Jackson
J. Michael Kapp
(c) J. W. Hunt and Company LLP was appointed independent accountants
of the Corporation for the fiscal year ending December 31, 1996.
The shareholders voted 774,011 votes for and 1,115 against this
appointment, with 4,448 votes abstaining.
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.
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: 8/13/96 By:___________________________
(Harry R. Brown)
Chief Financial Officer,
Chief Operating Officer,
Secretary and Treasurer
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at June 30, 1996 (Unaudited) and
the Consolidated Statement of Income for the Six Months Ended June 30, 1996
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $8,853,957
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,273,655
<INVESTMENTS-CARRYING> 6,476,029
<INVESTMENTS-MARKET> 6,408,180
<LOANS> 102,027,521
<ALLOWANCE> (1,800,725)
<TOTAL-ASSETS> 141,348,389
<DEPOSITS> 123,910,216
<SHORT-TERM> 2,266,311
<LIABILITIES-OTHER> 871,265
<LONG-TERM> 700,000
0
0
<COMMON> 11,835,461
<OTHER-SE> 583,976
<TOTAL-LIABILITIES-AND-EQUITY> 141,348,389
<INTEREST-LOAN> 4,477,596
<INTEREST-INVEST> 795,523
<INTEREST-OTHER> 84,875
<INTEREST-TOTAL> 5,357,994
<INTEREST-DEPOSIT> 2,279,096
<INTEREST-EXPENSE> 2,339,970
<INTEREST-INCOME-NET> 3,018,024
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,553,953
<INCOME-PRETAX> 1,217,339
<INCOME-PRE-EXTRAORDINARY> 1,217,339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807,937
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<YIELD-ACTUAL> 4.80
<LOANS-NON> 69,731
<LOANS-PAST> 64,289
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,784,508
<CHARGE-OFFS> 60,528
<RECOVERIES> 26,745
<ALLOWANCE-CLOSE> 1,800,725
<ALLOWANCE-DOMESTIC> 1,630,474
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 170,251
</TABLE>
