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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number: 0-19045
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 April 30, 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 -
March 31, 1996 and December 31, 1995......................3
Consolidated Statements of Operations -
Three months ended March 31, 1996 and
March 31, 1995............................................4
Consolidated Statements of Changes in
Stockholders' Equity -
Three months ended March 31, 1996 and
March 31, 1995............................................5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and
March 31, 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 SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) ----
-----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 10,514,592 $ 10,979,878
Federal funds sold 7,775,000 6,270,000
Investment securities held-to-
maturity, at amortized cost (fair
value: 1996 - $6,556,330; 1995 -
$9,333,599) 6,592,691 9,319,839
Investment securities available-for-
sale, at fair value (amortized
cost: 1996 - $18,438,377; 1995 -
$12,671,841) 18,382,772 12,815,394
Loans
(less allowance for loan losses:
1996 - $1,772,363; 1995 -
$1,784,508) 95,105,132 91,024,087
Premises and equipment 1,273,850 1,287,558
Accrued interest receivable 980,916 1,104,905
Other assets 640,954 620,967
------------ ------------
Total Assets $141,265,907 $133,422,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing demand $ 24,772,731 $24,246,101
NOW, money market and savings 57,173,092 49,321,293
Time deposits of $100,000 or more 17,749,972 18,785,241
Time deposits less than $100,000 23,627,987 23,255,643
Other time 2,603,576 2,154,512
------------ ------------
Total deposits 125,927,358 117,762,790
Short-term borrowings 771,021 1,754,912
Note payable 500,000
U.S. Treasury tax and loan accounts 888,169 438,486
Other liabilities 1,037,599 1,587,302
------------ ------------
Total Liabilities 129,124,147 121,543,490
------------ ------------
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; 1,385,701 shares
issued and outstanding) 11,830,145 11,830,145
Accumulated profit (deficit) 348,314 (45,752)
Unrealized (loss) gain on investment
securities available-for-sale, net
of tax (36,699) 94,745
------------ ------------
Total Stockholders' Equity 12,141,760 11,879,138
------------ ------------
Total Liabilities and Stockholders'
Equity $141,265,907 $133,422,628
============ ============
</TABLE>
3
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
1996 1995
---- ----
Interest Income:
Interest and fees on
<S> <C> <C>
loans $2,195,351 $1,693,857
Investment securities
368,995 297,811
Federal funds sold 46,467 14,545
---------- ----------
Total Interest Income 2,610,813 2,006,213
---------- ----------
Interest Expense:
Interest on deposits 1,142,511 778,628
Securities sold under
agreements
to repurchase 19,684 36,004
U.S. Treasury tax
and loan 8,873 7,860
Notes payable 233
---------- ----------
Total Interest Expense 1,171,068 822,725
---------- ----------
Net interest income 1,439,745 1,183,488
Provision for loan
losses 10,000 10,000
---------- ----------
Net interest income
after provision for
loan losses 1,429,745 1,173,488
---------- ----------
Noninterest Income:
Lending operations
and services 129,389 75,517
Service charges on
deposit accounts 121,609 109,485
Gain on sale of
real estate owned 8,063
Other 141,078 77,545
---------- ----------
Total Noninterest Income 392,076 270,610
---------- ----------
Noninterest Expense:
Salaries and
employee benefits 678,405 564,998
Occupancy expenses 108,227 104,588
Furniture and
equipment expenses 92,851 78,338
Advertising
and marketing 23,613 22,078
Other 366,440 308,827
---------- ----------
Total Noninterest Expense 1,269,536 1,078,829
---------- ----------
Income before
provision for
income taxes 552,285 365,269
Income tax expense (158,219) (40,390)
---------- ----------
Net income $ 394,066 $ 324,879
========== ==========
Earnings per common
share:
Net income per
common share $ .28 $ .24
========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Unrealized
Gain(Loss)
Common Stock Accumulated on Total
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 85,793 85,793
Net income 324,879 324,879
---------- ----------- ----------- --------- ------------
Balance at
March 31, 1995 1,368,601 $11,712,511 $(1,103,096) $ (94,767) $ 10,514,648
--------- ----------- ----------- --------- ------------
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 (131,444) (131,444)
Net income 394,066 394,066
---------- ----------- ---------- --------- -----------
Balance at 1,385,701 $11,830,145 $ 348,314 $ (36,699) $12,141,760
March 31, 1996 ========== =========== ========== ========= ===========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months ended March 31,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net income $ 394,066 $ 324,879
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 72,765 71,328
Provision for loan losses 10,000 10,000
Deferred Tax Benefit (50,000)
Amortization of premium and accretion
of discount on investment securities 1,152 4,788
Decrease (increase) in interest receivable 123,989 (59,940)
Decrease in other assets 48,919 52,726
(Decrease) increase in interest payable (15,604) 48,478
(Decrease) increase in other liabilities (485,293) 57,193
----------- ----------
Cash provided by operating activities 99,994 509,452
----------- ----------
Cash flows from investing activities:
Purchases of investment securities,
available-for-sale (5,766,800) (1,010,938)
Maturities of investment securities,
held-to-maturity 2,726,262 914,141
Net increase in loans (4,091,045) (4,870,316)
Purchases of premises and equipment (59,057) (187,091)
Proceeds from sale of other real estate owned 8,063
----------- ----------
Cash used for investing activities (7,190,640) (5,146,141)
----------- ----------
Cash flows from financing activities:
Net increase in deposits 8,164,568 7,500,740
Maturities of short-term borrowings (983,891) (74,569)
Proceeds (payments) of note payable 500,000 (125,000)
Increase in U.S. treasury, tax and
loan accounts 449,683 99,055
----------- ----------
Cash provided by financing activities 8,130,360 7,400,226
----------- ----------
Increase in cash
and cash equivalents 1,039,714 2,763,537
Cash and cash equivalents
at beginning of period 17,249,878 5,106,898
----------- ----------
Cash and cash equivalents at end of period $18,289,592 $7,870,435
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,186,672 $ 774,246
Cash paid for taxes $ 545,912 $ 14,190
Noncash adjustments to report investment
securities available-for-sale at fair value:
Investment securities, available-for-sale $ (55,605) $ (143,586)
Other Assets 18,906 48,819
Unrealized loss on available-for-sale
securities, net of tax $ (36,699) $ (94,767)
</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 three month
period ended March 31, 1996 may not necessarily be indicative of the results for
the year that will end December 31, 1996.
NOTE 1 - LOAN COMMITMENTS
At March 31, 1996, standby letters of credit of $1,809,000 and
undisbursed amounts of lines of credit of $18,580,000 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. As of March 31, 1996, the Corporation was in compliance with the
covenants and had an outstanding balance on the line of credit of $500,000.
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.
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.
At March 31, 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, or exercised during this
reporting period.
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 March 31, 1996 and December
31, 1995 are as follows:
8
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Allowance for loan losses $549,443 $467,986
Excess tax over book depreciation 8,169 88,727
State income tax net operating loss 0 95,302
carryforward
Unrealized loss on available-for-sale
securities - SFAS 115 18,906 0
-------- --------
Gross deferred tax asset 576,518 652,015
-------- --------
Accretion of discounts on bonds (2,263) (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 (2,263) (101,409)
-------- --------
Net deferred tax asset before
valuation allowance 574,255 550,606
Less valuation allowance (183,137) (260,624)
-------- --------
Net deferred tax asset $391,118 $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 March 31, 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
9
<PAGE>
asset and liability management program. Additionally, the standby credit
facilities provide adequate protection in the event of negative cash flows.
At March 31, 1996 and December 31, 1995, liquid assets of approximately
$43.3 million and $39.3 million, respectively, were available to meet demands
for deposit withdrawals, undisbursed amounts on lines of credit ("loan
commitments") of $18,580,000 and $16,068,000 respectively, and letters of credit
totaling $1,809,000 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 $125.9
million at March 31, 1996, which compares to $117.8 million at December 31,
1995. Of the total deposit base of the Corporation at March 31, 1996,
approximately $17,750,000 (or 14.1%) 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 March 31, 1996, total loans outstanding were approximately $96.9
million, as compared to $92.8 million at December 31, 1995. During the first
three 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
March 31, 1996, the allowance for loan losses at BOCL and BOC was approximately
$1,006,000 and $766,000, 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 March 31, 1996, the Tier 1 capital ratio for BOCL was
11.3% and the total capital ratio was 12.5%, while BOC had a tier 1 capital
ratio of 13.4% and a total capital ratio of 14.6%.
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 12.5% and its
total capital ratio was approximately 13.8% at March 31, 1996. These ratios are
well within guidelines established by the Corporation's primary regulator.
10
<PAGE>
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.
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 three months of 1996, the Corporation is reporting net
earnings of $394,000 or $.28 per share, compared to $325,000 or $.24 per share
for the same period of 1995.
For the first three months of 1996 loans outstanding have grown by 4.4%
while deposits have grown by 6.9%. Most significant is the fact that higher
priced CD's and time deposits declined by 1.6% during this period.
The Corporation had total revenues of $3,003,000 and $2,277,000, and
total expenses of $2,609,000 and $1,952,000 for the three months ended March 31,
1996 and 1995, respectively. Summarized below is an analysis of the composition
of revenues and expenses for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C> <C> <C>
Interest on loans $2,195,000 73.1% $1,694,000 74.4%
Interest on investment
securities 369,000 12.3% 298,000 13.1%
Interest on temporary 47,000 1.5% 14,000 .6%
investments
Non-interest income 392,000 13.1% 271,000 11.9%
---------- ------ ---------- ------
Total Revenues $3,003,000 100.0% $2,277,000 100.00%
========== ====== ========== =======
</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, coupled with modest growth
during the first quarter 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 primarily due to fees generated
from the origination and sale of mortgage loans. These fees increased by $53,000
over
11
<PAGE>
the same period of 1995 due to increased efforts by management in the offering
of this service.
The continued growth of income derived from the Business Manager
Product was another major contribution to the growth in non-interest income.
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. Fees from this
product, mostly from the success of the product in BOC, accounted for $62,000 of
the $121,000 increase in non interest income between the two periods.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C> <C> <C>
Interest on deposits $1,142,000 43.8% $779,000 39.9%
Interest on notes payable
and securities sold under
agreements to repurchase 29,000 1.1% 44,000 2.3%
Provision for loan losses 10,000 .4% 10,000 .5%
Salaries and employee
benefits 678,000 26.0% 565,000 28.9%
Occupancy expenses 108,000 4.1% 105,000 5.4%
Furniture and equipment
expenses 93,000 3.6% 78,000 4.0%
Legal and Regulatory 163,000 6.2% 126,000 6.5%
Printing and Supplies 38,000 1.5% 28,000 1.4%
Advertising and marketing 24,000 .9% 22,000 1.1%
Other 324,000 12.4% 195,000 10.0%
---------- ------ ---------- -------
Total Expenses $2,609,000 100.0% $1,952,000 100.00%
========== ====== ========== =======
</TABLE>
The change in interest paid on deposits is principally due to a strong
growth in deposits during 1995. The increase in salaries and employee benefits
is primarily due to increased staffing needed to support the strong loan and
deposit growth during 1995. 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. The NOL was fully liquidated during the first
half of 1995.
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 three months ended March 31, 1996 and 1995
was $1,440,000 and $1,184,000 respectively. The average yield on earning assets
was 8.5% and 8.7%, the average rate paid on interest bearing liabilities was
4.7% and 4.3%, and the annualized net interest margin was 4.7% and 4.3% for the
quarters ended March 31, 1996 and 1995, respectively. The change in yields on
earning assets and rates paid on interest bearing deposits between the two
periods is basically due to a prime rate reduction of 25 basis points in January
of 1996.
12
<PAGE>
Although deposit rates are not directly tied to prime rate changes, the market
price of deposits will generally adjust when prime rate changes occur. 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 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 10, Loan Agreement between Wachovia Bank of South
Carolina and ComSouth Bankshares dated April 18, 1996.
Exhibit 27, Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter.
13
<PAGE>
SIGNATURE
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: 5/14/96 By:___________________________
(Harry R. Brown)
Chief Financial Officer,
Chief Operating Officer,
Secretary and Treasurer
14
<PAGE>
EXHIBIT INDEX
Exhibit 10 Loan Agreement between Wachovia Bank of South Carolina and
ComSouth Bankshares
Exhibit 27 Financial Data Schedule
15
April 18, 1996
Dear Mr. Arthur M. Swanson:
RE: Line of Credit/Loan Agreement (the "Agreement")
Wachovia Bank of South Carolina, N.A. (the "Lender") agrees to open a line of
credit (the "Line of Credit") in favor of ComSouth Bankshares, Inc., a South
Carolina corporation (the "Borrower"), so the Borrower may borrow, from time to
time, subject to the terms and conditions of this Agreement, up to a maximum
aggregate principal amount outstanding of $1,200,000 (the "Committed Amount").
The obligation of the Borrower to repay any Advances under the Line of Credit
shall be evidenced by the Note and Security Agreement (the "Note"). The terms
and conditions of the Agreement are incorporated in the Note by reference as
though the same were written therein. Accrued interest on all advances under
this Line of Credit shall be payable on each Interest Payment Date. On December
31, 1996 (the "Conversion Date"), the Lender's obligation to make Advances or
extend further credit under the Line of Credit shall cease and the aggregate
outstanding principal amount of all Advances under the Line of Credit shall be
payable in quarterly payments of $60,000.00 each, together with accrued
interest, commencing on March 31, 1997, and continuing each June 30, September
30, December 31, and March 31, thereafter until December 31, 2001, when any and
all outstanding principal, together with accrued unpaid interest thereon, shall
be paid in full. All payments of principal and interest due on the Note shall be
made in immediately available funds in Columbia, South Carolina. After the
Conversion Date, any prepayment shall be applied to installments of principal in
the inverse order of maturities.
1. Lender's obligation to make Advances under the Line of Credit is subject to
the following conditions precedent: (i) the Lender shall have received, on
or before the date of the first Advance (a) a copy of the Resolutions of
the Board of Directors of the Borrower, certified on such date, authorizing
the execution and delivery of the Agreement, and the borrowing hereunder
and the execution and delivery of the Note; (b) such additional documents
as the Lender may reasonably request; (ii) on the date of any Advance, each
of the representations and warranties made by the Borrower in Paragraph 4
hereof shall be true on and as of the date of the making of such Advance
with the same force and effect as if made on and as of such date; and (iii)
at the time of each Advance, the Borrower and each Subsidiary shall be in
compliance with all of the terms and provisions set forth herein on their
part to be observed and performed, and no event of default as specified in
Paragraph 6 hereof, nor any event which upon notice or lapse of time, or
both, would constitute such an event of default, shall have occurred at the
time of such Advance.
2. For purposes of this Agreement the following terms shall have the following
definitions:
"Advance" shall mean any borrowing by the Borrower hereunder.
"Business Day" means any other day other than Saturday, Sunday, or other
day on which commercial banks in South Carolina are authorized or required
to close under the laws of the State of South Carolina. In addition, where
such day relates to an Advance bearing interest at the Eurodollar Rate,
"Business Day" means only a day on which dealings in United States dollar
time deposits are carried out in the Eurodollar interbank market and which
is also a Business Day in accordance with the immediately preceding
sentence.
"Interest Payment Date" shall mean the last day of each calendar quarter.
"Interest Rate" shall mean the Prime Rate minus one-half percent.
"Maturity" shall mean prior to the Conversion Date the last day of any
Interest Period with respect to an Advance and after the Conversion Date,
December 31, 2001.
"Person" shall mean an individual, corporation, a partnership, an
association, a trust, or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Prime Rate" refers to that interest rate so denominated and set by the
Lender from time to time as an interest rate basis for borrowings. The
Prime Rate is but one of several interest rate bases used by the Lender.
The Lender lends at rates above and below the Prime Rate.
"Subsidiary" and "Subsidiaries" means any corporation of which fifty
percent (50%) or more of the voting stock at any time is owned or
controlled directly or indirectly by the Borrower.
Words importing the singular include the plural and vice versa unless the
context otherwise requires.
3. Each Advance under the Line of Credit shall bear interest for each day at
the Prime Rate minus one-half percent.
After the occurrence of an Event of Default hereunder, which Event of
Default is not waived by the lender in writing, interest on any unpaid
Advance hereunder, the indebtedness evidenced by the Note and any other
indebtedness of the Borrower, hereunder shall bear interest at the rate per
annum equal to the Prime Rate plus 1.00%, and shall be due and payable on
demand.
In all cases, interest shall be calculated on the outstanding principal
amount of each outstanding Advance on the basis of a 360-day year and the
actual days during which such Advance is outstanding.
The Lender or other holder shall be and is hereby authorized by the
Borrower to set forth on the reverse side of the Note, or on an attachment
thereto: (1) the amount and date of each Advance made hereunder; (2) the
Maturity date of each such Advance; (3) the Interest Rate for each such
Advance; (4) the Interest Payment Dates for each such Advance, and (5) each
payment of principal received thereon and the date of such payment;
provided however, any such notation or the failure to make any such
notation shall not limit or otherwise affect the obligation of the Borrower
with respect to the payment of all Advances actually made hereunder.
4. Borrower represents and warrants to the Lender that (i) it is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) the making and performance by
Borrower of this Agreement and the Note are within Borrower's corporate
powers and will not contravene any provisions of law or its charter or
by-laws or of any indenture or other agreement or instrument to which it is
now or by which it or any of its properties may be bound or affected; (iii)
it has the corporate authority to execute, deliver and perform this
Agreement and to borrow in accordance with the terms of this Agreement and
it has taken all necessary and appropriate corporate action to authorize
the borrowing under and the execution, delivery and performance of this
Agreement and the Note; (iv) this Agreement is and the Note, when executed
and delivered, will be valid in accordance with their respective terms; (v)
there are no pending or threatened proceedings before any court or
administrative body which might materially and adversely affect the
financial condition or operations of Borrower; (vi) the annual audit
reports and financial statements of Borrower and consolidated Subsidiaries
for the fiscal year most recently ended previously furnished to Lender have
been prepared in accordance with generally accepted accounting principles
and fairly present the financial condition of Borrower and consolidated
Subsidiaries as of such date and since such date there has been no material
adverse change in such condition; and (vii) there are no material
liabilities of Borrower and consolidated Subsidiaries, direct, contingent
or otherwise, not reflected in such audit reports and financial statements
referred to in clause (vi) above.
5. Financial Statement: So long as the Lender's obligation to extend credit
under this Line of Credit exists or any amount payable on the Note remains
unpaid, the Borrower agrees to furnish the Lender:
a. Consolidated financial statements of the Borrower and its Subsidiaries
for each fiscal year, prepared in conformity with generally accepted
accounting principles and compiled by an independent certified public
accountant satisfactory to the Lender.
b. A consolidated balance sheet and related statements of income and
changes in financial position for the Borrower and its Subsidiaries
for each quarter, signed by an officer of the Borrower.
c. With each delivery of financial statements required in a. and b. above
Borrower will deliver to the Lender a certificate signed by an
authorized representative stating that the Borrower is in compliance
with the provisions of this Agreement and the Note.
The annual and quarterly financial statements shall be delivered to the
Lender within 90 days and 60 days, respectively, after the close of the
fiscal period. The Borrower also shall provide the Lender, with reasonable
promptness, such further information regarding the Borrower's business
affairs, and financial condition as the Lender may reasonably request.
6. Covenants: So long as the Lender's obligation to extend credit under this
Line of Credit exists or any amount payable on the Note remains unpaid, the
Borrower agrees that:
a. Affirmative Covenants: The Borrower will and will require its
Subsidiaries to adhere to the following Affirmative Covenants:
1. Maintain insurance, in such amounts and against such risks, as is
satisfactory to the Lender.
2. Maintain its corporate existence and comply with all valid and
applicable statutes, rules and regulations, and maintain its
properties in good operating condition.
3. Comply with all statutes and government regulations and pay
promptly when due all taxes, assessments, governmental charges,
claims for labor, supplies, rent and other obligations, which, if
unpaid, might become a lien against the property of the Borrower
or any Subsidiary, except liabilities being contested in good
faith and against which, if requested by the Lender, the Borrower
will set up reserves satisfactory to the Lender.
b. Negative Covenants: The Borrower also agrees that it will not:
1. Incur or permit to exist any encumbrance (including capital
leases), security interest, pledge or lien against any of its
properties, other than those that currently exist at the time of
closing, except: (i) liens or security interests securing
indebtedness owed to the Lender; (ii) pledges or deposits in
connection with or to secure workmen's compensations,
unemployment insurance, pensions or other employee benefits
occurring under provisions of law or under agreements now in
force and disclosed to the Lender; and (iii) tax liens not due or
which are being contested in good faith and against which, if
requested by the Lender, the Borrower will establish reserves
satisfactory to the Lender.
2. Sell, lease, convey or otherwise dispose of any material property
or material assets, except in the ordinary course of business.
3. Pay shareholder dividends.
4. Incur any additional borrowings.
5. Wachovia may demand payment in full if there is a change in
ownership of ComSouth Bankshares, Inc.
c: Financial Covenants: The Borrower also agrees to comply with the
following Financial Covenants:
1. At all times, maintain a Loan Loss Reserves/Non-Performing Assets
Ratio of 100% or greater for ComSouth Bankshares, Bank of
Columbia, and Bank of Charleston.
2. Tangible Equity/Assets Ratio of 8% or greater for Bank of
Charleston and 6% or greater for Bank of Columbia. This ratio
shall be computed by dividing tangible equity (total equity less
intangible assets) by total assets.
3. Return on Average Assets of 1% or greater for ComSouth
Bankshares. This ratio shall be computed on a calendar year basis
by dividing net income by total average assets.
4. Non-Performing Loans + OREO/Total Loans + OREO Ratio not to
exceed 1.80% for ComSouth Bankshares.
7. To secure the indebtedness evidenced by this Agreement, the Borrower does
hereby assign, pledge, transfer, and convey to the lender 100% of the Bank
of Charleston stock as collateral for the obligations evidenced by the Note
and Securities Agreement dated April 18, 1996.
8. The occurrence or existence of any one or more of the following events or
conditions will constitute an event of default by the Borrower under this
Agreement, whereupon the Lender's obligation to make Advances under the
Line of Credit will immediately terminate and the Note and all indebtedness
of the Borrower to the Lender will, at the option of the Lender,
immediately become due and payable without presentation, demand, protest,
or notice of any kind, all of which are hereby expressly waived by the
Borrower, and the Borrower will pay the reasonable attorney's fees incurred
by the Lender in connection with such default or recourse against any
collateral held by the Lender as security for the indebtedness owed by the
Borrower:
a. Nonpayment when due, whether by acceleration or otherwise, of any
payment of interest or of principal and interest on the Note;
b. Nonpayment when due of any fee or other charge under this Agreement;
c. A breach or failure of performance by the Borrower or any Subsidiary
of any other provision of this Agreement which is not remedied within
30 days after written notice by the Lender;
d. A material representation or warranty by the Borrower shall prove to
have been false or erroneous when made or when deemed made or any
certificate or financial statement provided to the Lender proves to be
inaccurate in any material respect when delivered or when deemed to
have been delivered;
e. The Borrower, or any Subsidiary: (i) files a petition or has a
petition filed against it under the Bankruptcy Code (as it now exists
or may be amended) or an admission seeking the relief therein
provided, (ii) is unable, or admits in writing its inability, to pay
its debts as they become due, (iii) makes an assignment for the
benefit of creditors, (iv) has a receiver appointed, voluntarily or
otherwise, for its property, (v) is adjudicated a bankrupt, (vi)
suspends business, (vii) permits a judgment in the amount of
$1,000,000.00 or more to be obtained against it which is not promptly
appealed and secured pending appeal, (viii) becomes insolvent, however
otherwise evidenced, or (ix) breaches or defaults under any other
agreement involving the borrowing of money or the extension of credit
under which the Borrower or any Subsidiary may be obligated as
borrower or guarantor, if such default consists of the failure to pay
any indebtedness when due or if such default permits or causes (or
upon lapse of time or notice or both would permit or cause) the
acceleration of any indebtedness or the termination of any commitment
to lend; or
f. (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act
of 1934) of 25% or more of the outstanding shares of the voting stock
of the Borrower; or (ii) there is any change in the management of the
Borrower (including, without limitation of any of the individuals
holding the following offices on the date of this Agreement shall
cease to hold such office Chairman, CEO, President) within three years
of the date of loan closing or unless waived by Wachovia; (iii) as of
any date a majority of the Board of Directors of the Borrower consists
of individuals who were not either (A) directors of the Borrower as of
the corresponding date of the previous year, (B) selected or nominated
to become directors by the Board of Directors of the Borrower of which
a majority consisted of individuals described in clause (A), or (C)
selected or nominated to become directors by the Board of Directors of
the Borrower of which a majority consisted of individuals described in
clauses (A) and (B).
9. If the Lender shall have determined that after the date hereof the adoption
of any applicable law, rule or regulation regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof, or compliance by the Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
authority, has or would have the effect of reducing the rate of return on
the Lender's capital as a consequence of its obligations hereunder to a
level below that which the Lender could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's
policies with respect to capital adequacy) by an amount deemed by the
Lender to be material, then from time to time, within 15 days after demand
by the Lender, the Borrower shall pay to the Lender such additional amount
or amounts as will compensate the Lender for such reduction.
10. No amendment or waiver of any provision of this Agreement or consent to any
departure by the Borrower therefore shall in any event be effective unless
the same shall be in writing and signed by the Lender. Any such amendment,
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
11. The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided that the Borrower may not assign or otherwise transfer any of its
rights under this Agreement.
12. This Agreement and the Note issued and all other documents furnished
hereunder shall be governed by and be construed according to the laws of
the State of South Carolina.
If the foregoing terms and conditions are acceptable to Borrower, please
indicate Borrower's agreement to such terms and conditions by executing this
Agreement in the appropriate space provided below by executing the Note and by
returning this Agreement, and the Note to the Lender.
Very truly yours,
WACHOVIA BANK OF SOUTH CAROLINA, N.A.
By: ________________________________________
Its: Senior Vice President
ACCEPTED AND AGREED TO this _18__ day of _April_________, 1996.
Borrower: ComSouth Bankshares, Inc.
By: ________________________________________
Arthur M. Swanson
Its: President
By: ________________________________________
Harry R. Brown
Its: Secretary
<PAGE>
MASTER NOTE
April 18, 1996 $1,200,000.00
-------------
FOR VALUE RECEIVED, the undersigned, ComSouth Bankshares, Inc., a corporation
("Borrower"), hereby promises to pay to the order of Wachovia Bank of South
Carolina, N.A., a national banking association ("Lender") at its office located
at Columbia South Carolina, in lawful money of the United States of America in
immediately available funds, the principal sum of $1,200,000.00 or if less, the
aggregate unpaid principal amount of all Advances outstanding made by the Lender
pursuant to the Line of Credit Agreement dated April 18, 1996 ("Agreement")
between the Borrower and the Lender, and to pay interest on the unpaid principal
amount hereof, at said office, in like money and funds, during the period
commencing on the date hereof until paid at the rates per annum and at the times
provided in the Agreement. Capitalized terms used in this Note, unless otherwise
defined herein, shall have the respective meanings assigned to them in the
Agreement.
The amount and date of each Advance made by the Lender to the Borrower
hereunder, the Maturity date of each such Advance, the Interest Rate for each
such Advance, the Interest Payment Dates for each such Advance and each payment
of principal received thereon and the date of such payment shall be recorded by
the Lender and endorsed on the schedule attached hereto which is made a part of
this Note. All such endorsements shall be conclusive absent manifest error but
failure to make any such endorsement shall not affect the Borrower's obligations
hereunder or under the Agreement of such Advances and the interest thereon.
All parties to this Note, including the makers, endorsers, sureties and
guarantors, whether bound by this or by separate instruments or agreement,
hereby (1) waive presentment for payment, demand, protest, notice of nonpayment
or dishonor and of protest and any and all other notices and demands whatsoever;
(2) consent that at any time or from time to time, payment of any sum payable
under this Note may be extended without notice, whether for a definite or
indefinite time; and (3) agree to remain liable until the indebtedness evidence
hereby is paid in full irrespective of any extension, modification or renewal.
Should the indebtedness represented by this Note or any part hereof be collected
at law or in equity or in bankruptcy, receivership or other court proceedings or
this Note be placed in the hands of attorneys for collection on default, the
Borrower agrees to pay in addition to the principal and interest due and payable
hereon reasonable attorney's fees and legal expenses, together with all other
costs of collection.
<PAGE>
The terms and conditions contained in the Agreement shall be considered a part
hereof to the same extent as if written herein.
This Note shall be construed in accordance with and be governed by the laws of
the State of South Carolina. This Note is intended to be effective as an
instrument executed under seal, as of the date first above written.
IN WITNESS WHEREOF, the Borrower has caused this instrument to be executed as of
the date first above written.
Borrower: ComSouth Bankshares, Inc.
ATTEST: By: _____________________________________
Arthur M. Swanson
___________________ Its: President
___________________Secretary
(CORPORATE SEAL)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at March 31, 1996 (Unaudited) and the Consolidated
Statements of Income for the Three Months Ended March 31, 1996 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,514,592
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,775,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,382,772
<INVESTMENTS-CARRYING> 6,592,691
<INVESTMENTS-MARKET> 6,556,330
<LOANS> 96,877,495
<ALLOWANCE> (1,772,363)
<TOTAL-ASSETS> 141,265,907
<DEPOSITS> 125,927,358
<SHORT-TERM> 771,021
<LIABILITIES-OTHER> 1,037,599
<LONG-TERM> 500,000
0
0
<COMMON> 11,830,145
<OTHER-SE> 311,615
<TOTAL-LIABILITIES-AND-EQUITY> 141,265,907
<INTEREST-LOAN> 2,195,351
<INTEREST-INVEST> 368,995
<INTEREST-OTHER> 46,467
<INTEREST-TOTAL> 2,610,813
<INTEREST-DEPOSIT> 1,142,511
<INTEREST-EXPENSE> 1,171,068
<INTEREST-INCOME-NET> 1,439,745
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,269,536
<INCOME-PRETAX> 552,285
<INCOME-PRE-EXTRAORDINARY> 552,185
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,066
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 4.70
<LOANS-NON> 65,907
<LOANS-PAST> 55,358
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,784,508
<CHARGE-OFFS> 32,993
<RECOVERIES> 10,848
<ALLOWANCE-CLOSE> 1,772,363
<ALLOWANCE-DOMESTIC> 1,599,021
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 173,342
</TABLE>
