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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 0-26016
PALMETTO BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
South Carolina 74-2235055
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 West Main Street, Laurens, South Carolina 29360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number - (864) 984 - 4551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of March 15, 1996. $32,817,080, based on the most recent sales
price of $40.00 per share. There is no established public trading market for the
shares. See Part II, Item 5.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 1,004,980 as of
March 15, 1996.
Documents incorporated by reference and location in Form 10-K: Definitive
Proxy Statement for the 1996 Annual Meeting of Shareholders, Part III.
PALMETTO BANCSHARES, INC.
AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on Form 8-K
Part I
Item 1. Business
Palmetto Bancshares, Inc. ("Bancshares") is a bank holding company organized in
1982 under the laws of South Carolina. Through its wholly-owned subsidiary, The
Palmetto Bank (the "Bank"), and the Bank's wholly-owned subsidiary, Palmetto
Capital, Inc. ("Capital"), Bancshares engages in the general banking business in
the upstate South Carolina market of Laurens, Greenville, Spartanburg,
Greenwood, and Anderson counties. The Bank is a state, non-member bank which was
organized and chartered under South Carolina law in 1906. There are 21 full
service branch offices in addition to the headquarters located in Laurens, South
Carolina.
The Bank performs a full range of banking activities, including such services as
checking, savings, money market, and other time deposits of various types of
consumer and commercial depositors; loans for business, real estate, and
personal uses; safe deposit box rental and various electronic funds transfer
services. The Bank also offers both individual and commercial trust services
through an active trust department. Capital is a brokerage subsidiary of the
Bank, which offers customers stocks, treasury and municipal bonds, mutual funds
and insurance annuities, as well as college and retirement planning. The Bank's
Dealer Finance Department establishes relationships with Upstate automobile
dealers to provide customer financing of automobile purchases. In the later part
of 1995, the Bank started a mortgage banking operation to continue to meet a
broader range of their customer's financial service needs.
At December 31, 1995, Bancshares had total assets of $376,241,000 loans
outstanding of $255,187,000 and deposits of $329,659,000. This compares with
total assets of $312,143,000, loans outstanding of $215,408,000 and deposits of
$274,527,000, at December 31, 1994.
Competition
The upstate South Carolina market is a highly competitive banking market in
which all of the largest financial institutions in the state are represented.
The competition among the various financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans, credit and
service charges, the quality of service rendered and the convenience of banking
facilities. The Bank believes it has competed effectively in its market.
Interstate Banking
In 1986, South Carolina adopted legislation which permits banks and bank holding
companies in certain southern states to acquire banks in South Carolina to the
extent that such other states have reciprocal legislation applicable to South
Carolina banks and bank holding companies. The legislation resulted in a number
of the Bank's competitor banks being purchased by large, out-of-state bank
holding companies. Size gives the larger banks certain advantages in competing
for business from larger corporations. These advantages include higher lending
limits and the ability to offer services in other areas of South Carolina and
the region. As a result, the Bank does not generally attempt to compete for the
banking relationships of larger corporations, but concentrates its efforts on
small and medium-size businesses and individuals. The Bank believes it has
competed effectively in this market segment by offering quality, personalized
service. It is management's intention to remain a locally-based, independent,
South Carolina Bank.
Customers
The majority of the Bank's customers are individuals and small to medium-sized
businesses headquartered within its service area. The Bank is not dependent upon
a single or a very few customers, the loss of which would have a material
adverse effect on the Bank. No customer accounts for more than 5% of the Bank's
total deposits at any time. Management does not believe that the Bank's loan
portfolio is dependent on a single customer or group of customers concentrated
in a particular industry whose loss or insolvency would have a material adverse
effect on the Bank.
1
Growth
In July 1995, the Bank added a new branch in North Anderson, South Carolina. The
Bank is leasing the premises. The North Anderson branch had deposits of $3.7
million at December 31, 1995. In October, the Bank relocated their 12 year-old
office on Howell Road in Greenville to East North Street with very favorable
customer response to date. In November 1995, the Bank successfully bid on three
First Union National Bank offices in Gaffney, Blacksburg and Ninety-Six. The
Bank expects the transaction to be completed during the second quarter of 1996,
adding approximately $60 million in deposits to the Bank. Management continually
reviews opportunities to expand in the upstate South Carolina market that it
believes to be in the best interest of the Bank and its customers.
Systems
In September 1995, the Bank successfully completed a conversion of their data
processing software. This will enable the Bank to deliver more sophisticated
user friendly financial services to their customers. The Bank incurred
conversion costs of approximately $1 million.
Employees
At December 31, 1995, the Bank had 207 full-time and 25 part-time employees,
none of whom are subject to a collective bargaining agreement. Management
believes its relationship with its employees is excellent.
Monetary Policy
The results of operations of Bancshares and the Bank are affected by credit
policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy and
in the money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Bancshares and the Bank.
Regulatory Environment
General
Bancshares and its subsidiaries are extensively regulated under federal and
state law. To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
may have a material effect on the business and prospects of Bancshares. The
operations of Bancshares may be affected by possible legislative and regulatory
changes and by the monetary policies of the United States.
Bancshares. As a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), Bancshares is subject to regulation and
supervision by the Federal Reserve. Under the BHCA, Bancshares's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity that the Federal Reserve determines to be so closely
related to banking, managing or controlling banks as to be a proper incident
thereto. The BHCA also restricts the ability of Bancshares to acquire ownership
or control of more than 5% or the outstanding voting stock of banks or certain
other nonbanking businesses.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss exposure to the depositors
of such depository institutions and to the FDIC insurance funds in the event the
depository institution becomes in danger of defaulting or in default under its
obligations to repay deposits. For example, under current federal law, to reduce
the likelihood of
2
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized: with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized,
or (ii) the amount that is necessary (or would have been necessary) to bring the
institution into compliance with all applicable capital standards as of the time
the institution fails to comply with such capital restoration plan. Under a
policy of the Federal Reserve with respect to bank holding company operations, a
bank holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. The
Federal Reserve also has the authority under the BHCA to require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal law grants federal bank regulatory
authorities additional discretion to require a bank holding company to divest
itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution's financial condition.
Bancshares is subject to the obligations and restrictions described above.
However, management currently does not expect that any of those provisions will
have any material impact on its operations.
As a bank holding company registered under the South Carolina Bank Holding
Company Act, Bancshares also is subject to regulation by the State Board.
Bancshares must file with the State Board periodic reports with respect to its
financial condition and operations, management and intercompany relationships
between Bancshares and its subsidiaries.
The Bank. The Bank is a FDIC-insured, South Carolina-chartered banking
corporation and is subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State Board and the FDIC.
These statutes, rules and regulations relate to insurance of deposits, required
reserves, allowable investments, loans, mergers, consolidations, issuance of
securities, payment of dividends, establishment of branches and other aspects of
the business of the Bank. The FDIC has broad authority to prohibit the Bank from
engaging in what it determines to be unsafe or unsound banking practices. In
addition, federal law imposes a number of restrictions on state-chartered,
FDIC-insured banks and their subsidiaries. These restrictions range from
prohibitions against engaging as a principal in certain activities to the
requirement of prior notification of branch closings. The Bank also is subject
to various other state and federal laws and regulations, including state usury
laws, laws relating to fiduciaries, consumer credit and equal credit and fair
credit reporting laws. The Bank is not a member of the Federal Reserve System.
Dividends. The holders of Bancshares common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. Bancshares is a legal entity separate and distinct from the
Bank and Palmetto Capital, Inc. and depends for its revenues on the payment of
dividends from the Bank. Current federal law would prohibit, except under
certain circumstances and with prior regulatory approval, an insured depository
institution, such as the Bank, from paying dividends or making any other capital
distribution if, after making the payment or distribution, the institution would
be considered "undercapitalized," as that term is defined in applicable
regulations. In addition, as a South Carolina-chartered bank, the Bank is
subject to legal limitations on the amount of dividends it is permitted to pay.
In particular, the Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to Bancshares.
3
Capital Adequacy
Bancshares. The Federal Reserve has adopted risk-based capital guidelines for
bank holding companies. Under these guidelines, the minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the total capital is
required to be "Tier 1 capital," principally consisting of common shareholders'
equity, noncumulative preferred stock, a limited amount of cumulative perpetual
preferred stock and minority interest in the equity accounts of consolidated
subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities, perpetual
preferred stock and a limited amount of the general loan loss allowance. In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum Tier 1 (leverage) capital ratio under which a bank holding company must
maintain a minimum level of Tier 1 capital (as determined under applicable
rules) to average total consolidated assets of at least 3% in the case of bank
holding companies which have the highest regulatory examination ratios and are
not contemplating significant growth or expansion. All other bank holding
companies are required to maintain a ratio of at least 100 to 200 basis points
above the stated minimum. At December 31, 1995, Bancshares was in compliance
with both the risk-based capital guidelines and the minimum leverage capital
ratio.
The Bank. As a state-chartered, FDIC-insured institution which is not a member
of the Federal Reserve System, the Bank is subject to capital requirements
imposed by the FDIC. The FDIC requires state-chartered nonmember banks to comply
with risk-based capital standards substantially similar to those required by the
Federal Reserve, as described above. The FDIC also requires state-chartered
nonmember banks to maintain a minimum leverage ratio similar to that adopted by
the Federal Reserve. Under the FDIC's leverage capital requirement, state
nonmember banks that (a) receive the highest rating during the examination
process and (b) are not anticipating or experiencing any significant growth are
required to maintain a minimum leverage ratio of 3% of Tier 1 capital to total
assets; all other banks are required to maintain a minimum leverage ratio of not
less than 4%. As of December 31, 1995, the Bank was in compliance with both the
risk-based capital guidelines and the minimum leverage capital ratio.
Insurance
As an FDIC-insured institution, the Bank is subject to insurance assessments
imposed by the FDIC. Under current law, the insurance assessment to be paid by
insured institutions shall be as specified in a schedule required to be issued
by the FDIC that specifies, at semiannual intervals, target reserve ratios
designed to increase the FDIC insurance fund's reserve ratio to 1.25% of
estimated insured deposits (or such higher ratio as the FDIC may determine in
accordance with the statute) in 15 years. Further, the FDIC is authorized to
impose one or more special assessments in any amount deemed necessary to enable
repayment of amounts borrowed by the FDIC from the United States Department of
the Treasury (the "Treasury Department").
Effective January 1, 1993, the FDIC implemented a risk-based assessment
schedule, having assessments ranging from 0.23% to 0.31% of an institution's
average assessment base. The actual assessment to be paid by each FDIC-insured
institution is based on the institution's assessment risk classification, which
is determined based on whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized," as such terms have been defined
in applicable federal regulations adopted to implement the prompt corrective
action provisions of FDICIA (see "Other Safety and Soundness Regulations --
Prompt Corrective Action" below), and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
In August 1995, the FDIC approved a reduction in the insurance assessments for
Bank Insurance Fund ("BIF") deposits. This reduction decreased the Bank's
insurance assessment for BIF deposits from 0.26% to 0.04% of the average
assessment base. Effective January 1, 1996, the insurance assessment for the
Bank's BIF deposits was set at zero (although banks pay a $2,000 annual fee).
4
Other Safety and Soundness Regulations
Prompt Corrective Action. Current law provides the federal banking agencies with
broad powers to take prompt corrective action to resolve problems of insured
depository institutions. The extent of these powers depends upon whether the
institutions in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly capitalized" or "critically
undercapitalized." Under uniform regulations defining such capital levels issued
by each of the federal banking agencies, a bank is considered "well capitalized"
if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1
risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or
greater, and (iv) is not subject to any order or written directive to meet and
maintain a specific capital level for any capital measure. An "adequately
capitalized" bank is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater,
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank with a composite CAMEL rating of 1). A bank is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of a bank with a composite CAMEL rating
of 1); (B) "significantly undercapitalized" if the bank has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based capital
ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and (C)
"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. Bancshares and the Bank each currently
meet the definition of well capitalized.
Brokered Deposits. Current federal law also regulates the acceptance of brokered
deposits by insured depository institutions to permit only a "well capitalized"
depository institution to accept brokered deposits without prior regulatory
approval. Under FDIC regulations, "well capitalized" insured depository
institutions may accept brokered deposits without restriction, "adequately
capitalized" insured depository institutions may accept brokered deposits with a
waiver from the FDIC (subject to certain restrictions on payments of interest
rates) while "undercapitalized" insured depository institutions may not accept
brokered deposits. The regulations provide that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" are the same as
the definitions adopted by the agencies to implement the prompt corrective
action provisions of FDICIA (as described in the previous paragraph). Bancshares
does not believe that these regulations will have a material adverse effect on
its current operations.
Other FDICIA Regulations. To facilitate the early identification of problems,
FDICIA required the federal banking agencies to prescribe more stringent
reporting requirements. The FDIC final regulations implementing those
provisions, among other things, require that management report on the
institution's responsibility for preparing financial statements and establishing
and maintaining an internal control structure and procedures for financial
reporting and compliance with designated laws and regulations concerning safety
and soundness, and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws and
regulations, using FDIC approved audit procedures.
Community Reinvestment Act
The Bank is subject to the requirements of the CRA. The CRA requires that
financial institutions have an affirmative and ongoing obligation to meet the
credit needs of their local communities, including low-income and
moderate-income neighborhoods, consistent with the safe and sound operation of
those institutions. Each financial institution's efforts in meeting community
credit needs are evaluated as part of the examination process pursuant to twelve
assessment factors. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility. The Bank received an
"outstanding" rating in its most recent evaluation.
As a result of a Presidential initiative, each of the federal banking agencies
has issued a notice of proposed rulemaking that would replace the current CRA
assessment system with a new evaluation system that would rate institutions
based on their actual performance (rather than efforts) in meeting community
credit needs. Under the proposal, each institution would be evaluated based on
the degree to which it is providing loans (the lending test), branches and other
services (the service test) and investments to low-income and moderate-income
areas (the investment test). Under the lending
5
test, as proposed, an institution would be evaluated on the basis of its market
share of reportable loans in low-income and moderate-income areas in comparison
to other lenders subject to CRA in its service area, and in comparison with the
institution's market share of reportable loans in other service areas. An
institution would be evaluated under the investment test based on the amount of
investments made that have had a demonstrable impact on low-income and
moderate-income areas or persons as compared to its risk-based capital. The
service test would evaluate a retail institution primarily based on the
percentage of its branches located in, or that are readily accessible to,
low-income and moderate-income areas. Each depository institution would have to
report to its federal supervisory agency and make available to the public data
on the geographic distribution of its loan applications, denials, originations
and purchases. Small institutions could elect to be evaluated under a
streamlined method that would not require them to report this data. All
institutions, however, would receive one of five ratings based on their
performance: Outstanding, High Satisfactory, Low Satisfactory, Needs to Improve
or Substantial Noncompliance. An institution that received a rating of
Substantial Noncompliance would be subject to enforcement action. Bancshares
currently is studying the proposal and determining whether the regulation, if
adopted, would require changes to the Bank's CRA action plans.
Transactions Between Bancshares, Its Subsidiaries and Affiliates
Bancshares' subsidiaries are subject to certain restrictions on extensions of
credit to executive officers, directors, principal shareholders or any related
interest of such persons. Extensions of credit (i) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unaffiliated persons; and (ii) must
not involve more than the normal risk of repayment or present other unfavorable
features. Aggregate limitations on extensions of credit also may apply.
Bancshares' subsidiaries also are subject to certain lending limits and
restrictions on overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the bank holding
company or its nonbank subsidiary, on investments in their securities and on the
use of their securities as collateral for loans to any borrower. Such
restrictions may limit Bancshares' ability to obtain funds from its bank
subsidiary for its cash needs, including funds for acquisitions, interest and
operating expenses.
In addition, under the BHCA and certain regulations of the Federal Reserve, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. For example, a subsidiary may not
generally require a customer to obtain other services from any other subsidiary
or Bancshares, and may not require the customer to promise not to obtain other
services from a competitor, as a condition to an extension of credit to the
customer.
Item 2. Properties
The corporate headquarters and main office of Bancshares and the Bank are
located in a facility at 101 West Main Street, Laurens, South Carolina which
also contains a three lane drive-in facility. The accounting, operations, data
processing, trust department, human resources, loan administration, internal
audit and marketing departments are located in a facility at 301 Hillcrest
Drive, Laurens, South Carolina.
6
The Bank has twenty-one full-service branches in the Upstate region of South
Carolina in the following locations: Laurens (3), Duncan, Clinton, Greenwood
(2), Fountain Inn, Hodges, Simpsonville, Anderson (2), Greenville (4),
Pendleton, Spartanburg (3) and Inman.
The Bank also has automatic teller machines at its Church Street branch in
Laurens, Clinton, Fountain Inn, Simpsonville, Haywood Road (Greenville), Howell
Road (Greenville), Grove Road (Greenville), Fluor Daniel office complex
(Greenville), Blackstock Road (Spartanburg), Fernwood Drive (Spartanburg),
Duncan, Pendleton, Anderson and North Anderson branches. In addition, the Bank
owns five limited service branches in various retirement centers located in the
Upstate region of South Carolina.
The Bank owns all of its facilities except the following leased facilities,
which have annual rental expenses from $7,200 to $100,200:
East North Street, Haywood Road, East North Street at Howell Road offices -
Greenville
Spartan Centre, Blackstock Road, Fernwood Road offices - Spartanburg
Montague Street, South Main Street offices - Greenwood
North Main office - North Anderson
Offices range in size from branch locations of approximately 600 to 900 square
feet, to the headquarters location of approximately 8,000 square feet. The
Laurens Center (operations center) is 55,000 square feet. All facilities are
protected by alarm and security systems which meet or exceed regulatory
standards. Each facility is in good condition and capable of handling increased
volume.
The Laurens Center is currently undergoing additional renovations with estimated
costs of approximately $500,000.
All of the locations are considered suitable and adequate for their intended
purposes.
Item 3. Legal Proceedings
Although the Company is, from time to time, involved in various legal
proceedings in the normal course of business, there are no material pending
legal proceedings to which the Company or any subsidiary is a party, or to which
any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
7
Part II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Common Stock Data
Set forth below is information concerning high and low sales prices by
quarter for each of the last two fiscal years and divided information for the
last two fiscal years. Bancshares' common stock is not traded on any established
public trading market. Bancshares' acts as its own transfer agent, and the
information concerning sales prices set forth below is derived from Bancshares'
stock transfer records. As of March 1, 1996, Bancshares' had 519 shareholders.
As of February 29, 1996, the most recent date on which shares of Bancshares'
common stock were sold, the sales price of Bancshares' common stock was $40.00
per share.
Sales Prices By Quarter
High Low
Fiscal Year 1995
First Quarter $38.00 $32.00
Second Quarter - no trades -
Third Quarter $40.00 $39.00
Fourth Quarter $40.00 $39.00
Fiscal Year 1994
First Quarter $31.00 $31.00
Second Quarter $32.00 $32.00
Third Quarter $32.00 $32.00
Fourth Quarter $35.00 $32.00
Dividends Paid Per Share
Fiscal Year 1995 Fiscal Year 1994
March 30 $.15 March 31 $.13
June 30 $.15 June 30 $.13
September 30 $.15 September 30 $.13
December 29 $.20 December 28 $.14
Bancshares expects that cash dividends will continue to be paid in the future.
The ability of Bancshares to pay dividends depends upon the amount of dividends
that is received from the Bank. Restrictions on the amount of dividends
available for payment to Bancshares are established by state regulatory
authorities for primary capital to assets ratios. The South Carolina Board of
Financial Institutions guideline suggests a ratio of at least seven percent
(7%). As of December 31, 1995, the Bank's primary capital to asset ratio was
8.33%. Current federal law would prohibit, except under certain circumstances
and with prior regulatory approval, an insured depository institution, such as
the Bank, from paying dividends or making any other capital distribution if,
after making the payment or distribution, the institution would be considered
"undercapitalized," as that term is defined in applicable regulations.
As of December 31, 1995, approximately $3,644,000 was available for payment of
dividends by the Bank. Prior approval of the Office of Commissioner of Banking,
State Board of Financial Institutions is required for any payment of dividends
by a state bank.
8
Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
Years ended December 31,
1995 1994 1994 1992 1991
---- ---- ---- ---- ----
For the Year
Total interest income $ 26,268 21,293 19,532 19,842 21,736
Total interest expense 10,842 7,208 6,666 8,025 11,296
Net interest income 15,426 14,085 12,866 11,817 10,440
Provision for loan losses 1,140 819 1,172 1,543 2,093
Total non-interest income 4,463 4,029 3,905 3,483 2,931
Total non-interest expense 13,900 13,625 12,179 10,900 9,272
Net income 3,602 2,760 2,532 2,129 1,546
Per Common Share(1)
Net income before cumulative
effect of change in
accounting method 3.59 2.76 2.57 2.12 1.54
Cumulative effect of change
in accounting for income taxes - - 0.05 - -
Net income 3.59 2.76 2.52 2.12 1.54
Cash dividends declared .65 .53 .48 .45 .40
Book value at year end 27.81 24.21 22.15 19.89 18.04
Average common shares
outstanding 1,003,440 1,000,230 1,006,479 1,006,494 1,006,136
At Year End
Total assets 376,241 312,143 286,267 262,750 247,335
Investment securities 83,404 63,909 65,887 59,478 59,265
Loans 255,187 215,408 191,491 171,964 167,103
Total deposits 329,659 274,527 249,976 226,883 211,592
Total shareholders' equity (2) 27,909 24,213 22,287 20,047 18,149
Total shareholders' equity 25,138 24,213 22,287 20,047 18,149
Common shares outstanding 1,004,980 1,004,484 1,003,884 1,007,784 1,006,184
Full-time equivalent employees 219 210 205 184 178
Average Balances
Assets 342,374 304,883 270,401 260,638 247,700
Investment securities 73,395 67,364 61,063 58,389 49,620
Loans 230,908 204,959 180,880 168,265 166,328
Deposits 329,777 264,785 239,237 223,215 211,868
Total shareholders' equity 26,142 22,868 21,208 19,304 17,608
Key ratios (1)
Return on average assets 1.05% 0.91% 0.91% 0.82% 0.63%
Return on average equity 13.78% 12.07% 11.94% 11.03% 8.78%
Primary capital to assets at year end 8.33% 8.64% 8.38% 8.35% 7.95%
Net interest margin 4.99% 5.09% 5.31% 5.20% 4.79%
Allowance for loan losses to total loans 1.45% 1.40% 1.25% 1.20% 1.00%
Nonperforming assets to total assets 0.20% 0.20% 0.19% 0.50% 1.23%
Net charge-offs to average loans 0.19% 0.10% 0.47% 0.68% 1.24%
(1) Per share data and financial ratios are calculated using balances and shares
of total common stock outstanding excluding reclassification of ESOP stock
for $2,770,528.
(2) Excluding reclassification of ESOP stock for $2,770,528.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto. The consolidated
financial~statements of Palmetto Bancshares, Inc. and subsidiaries (the
"Company"), represent account balances for Palmetto Bancshares, Inc., (the
"Parent"), and its wholly-owned subsidiary, The Palmetto Bank, (the "Bank"), and
the Bank's wholly-owned subsidiary, Palmetto Capital, Inc.
The Company's assets grew $64.1 million, or 20.5%, total loans grew $39.8
million, or 18.5% and deposits grew $55.1 million, or 20.1% in 1995 as a result
of growth in all geographic markets. Total assets grew by approximately $25.9
million, or~9.0%, total loans grew $23.9 million, or 12.5% and deposits grew
$24.6 million, or 9.8% in 1994.
Results of Operations
Three Years Ended December 31, 1995, 1994 and 1993
Net income for 1995 was $3.6 million, an increase of 30.5% from the $2.8~million
reported in 1994. Net income in 1994 increased 9.0% from the $2.5~million
reported in 1993. Net income per share was $3.59 in 1995, $2.76 in
1994, compared with $2.52 in 1993. Return on average assets was 1.05% in 1995,
compared with .91% in 1994 and 1993.
Net Interest Income
The Company's earnings are dependent to a large degree on its net
interest income, defined as the difference between gross interest and fees on
earning assets (primarily loans and investment securities), and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rate earned or paid and by volume changes in loans, securities, deposits and
borrowed funds.
In 1995, net interest income was $15.4 million which represented a 9.5%
increase over the $14.1 million earned in 1994. In 1994, net interest income
increased $1.2 million or 9.5%, over the $12.9 million earned in 1993.
During 1995, the average yield on all interest-earning assets was 8.48% up from
7.93%, for both 1994 and 1993. The Bank's average effective rate paid on all
interest-bearing liabilities increased in 1995 to 4.07%, from 2.57% in 1994 and
2.61% in 1993. The Bank's net yield on interest-earning assets was 4.99%, 5.33%
and 5.31% in 1995, 1994 and 1993, respectively.
Interest and fees on loans increased $4.0 million from 1994 to 1995, and
increased $1.8 million from 1993 to 1994. Interest on investment
securities increased $759,000, or 20.5%, from 1994 to 1995 due primarily to a
$26.0 million increase in the investment securities portfolio balance. This
compares to an increase of $91,000, or 2.5%, from 1993 to 1994, due to higher
average balances in 1994 compared to 1993, offset by lower yields. Interest
income of federal funds sold increased $183,000, or 93%, from 1994 to 1995 due
to both higher average balances invested and higher yields earned. This compares
to a decrease of $178,000, or 48%, from 1993 to 1994 due to lower average
balances.
10
Total interest expense increased 50% or $3.6 million from 1994 to 1995 and 18%
or $542,000 from 1993 to 1994. Due to a 20% increase in deposits and a 33%
increase in average rate paid, interest expense on deposits increased $3.2
million or 48% from 1994 to 1995. Interest expense on deposits increased
$375,000 or 5.9% from 1993 to 1994 due to a 10% growth in deposits offset by
decline in interest rates paid. The average rate paid on deposits was 3.39%,
2.55% and 2.67% in 1995, 1994 and 1993, respectively. Interest on securities
sold under agreements to repurchase increased $256,800, or 105% from 1994 to
1995 due to an increase in the average rate paid from 2.58% to 4.31%. This
compares to an increase of $85,000, or 54%, from 1993 to 1994, due to an
increase in the average rate paid from 1.55% to 2.58%. Interest on commercial
paper increased $169,000, or 98%, from 1994 to 1995 due to higher average
balances and an increase in the average rate paid from 2.72% to 4.28%. This
compares to an increase of $94,000, or 1.22%, from 1993 to 1994, due to higher
rates paid and higher average balances.
The Company's rate sensitive assets are those paying interest at variable
rates and those maturing within one year. Rate sensitive assets thus include
both loans and investment securities. Rate sensitive liabilities include
insured money market accounts, savings accounts, interest bearing transaction
accounts, time deposits and borrowings. The profitability of the Company is
influenced significantly by management's ability to control the relationship
between rate sensitive assets and liabilities.
At December 31, 1995, approximately 27% of the Company's earning assets could
be repriced within one year compared to approximately 95% of its interest
bearing liabilities. This compares to 28% and 71% in 1994 and 33% and 97% in
1993.
The Bank's policy is to minimize interest rate risk between interest bearing
assets and liabilities at various maturities. In adhering to this policy, it is
anticipated that the Bank's net interest margins will not be materially affected
by inflation and changing prices. Management will continue to monitor its asset
sensitive position in times of lower interest rates which might adversely effect
its net interest margin.
Provision For Loan Losses
The allowance for possible loan losses is established through charges to
expense in the form of a provision for loan losses. Loan losses and recoveries
are charged or credited directly to the allowance. The amount charged to
the provision for loan losses by the Bank is based on management's judgment as
to the amount required to maintain an allowance adequate to provide for
potential losses in the loan portfolio. The level of this allowance is dependent
upon the total amount of past due loans, general economic conditions and
management's assessment of potential losses.
At December 31, 1995, impaired and non-performing loans were $743,000, or 0.31%
of total loans. Non-performing loans for 1994 and 1993 were $636,000, or 0.30%,
and $500,000, or 0.29%, respectively. The provision for loan losses was
$1,140,000, $819,000 and $1,172,000, respectively, for the years ended December
31, 1995, 1994, and 1993. The provision in 1995 reflects replenishing the
allowance for loan losses for net chargeoffs of $457,000, plus raising the level
of the allowance in response to a 18% increase in total loans outstanding. The
allowance for loan losses totaled $3.7 million, $3.0 million and $2.4 million at
December 31, 1995, 1994 and 1993, respectively. Management increased the level
of the allowance for loan losses to total loans outstanding to 1.45% as of
December 31, 1995. This compares to 1.40% and 1.25% as of December 31, 1994 and
1993, respectively. Net charge-offs to average loans are 0.20% for 1995 as
compared to 0.10% for 1994 and 0.47% for 1993.
11
Non-Interest Income
Non-interest income for 1995 increased by $433,000 or 10.8% over 1994,
as compared to an increase in 1994 of $124,000 or 3.18% over 1993. These
increases generally resulted from increased service charges on deposit accounts
as a result of increases in the volume of deposit relationships. Management
views deposit fee income as a critical influence on profitability. Periodic
monitoring of competitive fee schedules and examination of alternative
opportunities insure that the Company realizes the maximum contribution to
profits from this area.
Fees for trust services continued to increase in 1995 to $773,000 from $670,000
in 1994 and $621,000 in 1993 as a result of increased activity.
There were $93,000 and $13,000 of losses from sales of investment securities
realized during 1995 and 1994, respectively. These securities were sold in
response to rising interest rates and declining market value. In June 1993,
management responded to the anticipated increased loan demand and interest rate
changes by selling $5 million of U.S. Treasury securities from the investment
securities portfolio prior to the adoption of SFAS No. 115. This sale resulted
in an investment securities gain of $149,000. The remaining 1993
investment securities gains of $15,000 resulted in various bonds being called at
gains.
Non-Interest Expenses
Non-interest expenses totaled $13.9 million in 1995 as compared to $13.6 million
in 1994 and $12.2 in 1993. This represented a 2% increase from 1994 to 1995, and
a 12% increase from 1993 to 1994. The overall increases during 1994 and
1995 were due to growth in all geographic markets and expenses directly related
to the opening of additional branches and a new operations center. Salaries and
other personnel expense, which comprised 53% of total other operating expenses
for 1995, was up $58,000 or 1% over 1994. During 1994 and 1993, salaries and
other personnel expenses accounted for 54% and 55%, of total other operating
expenses, respectively.
Combined net occupancy and furniture and equipment expenses increased $148,000,
or 6.8% from 1994 to 1995, as compared to an increase of $328,000, or 18%, in
1994. These increases were due primarily to the support of the growth in retail
operations and the opening of the new corporate center.
Income Taxes
Income tax expense totaled $1.2 million in 1995 as compared to $910,000 in 1994
and $833,000 in 1993. In addition to the expense for 1993, $56,000 was recorded
as the result of the adoption of Financial Accounting Standards Board SFAS No.
109. The changes in income tax expense for all three years was due to changes in
taxable income for each respective year.
12
Liquidity
The Company's liquidity position is dependent upon its debt servicing needs
and dividends declared. The Company's long-term debt to equity ratio was .0%,
.73% and 2.15% at December 31, 1995, 1994 and 1993, respectively.
As of December 31, 1995, the Company had no outstanding debt. In June 1995 the
Company paid the remaining outstanding balance of the note with Trust Company
Bank.
In December 1993 the final payment of $200,000 was paid on the debt of the
Employee Stock Ownership Trust. In addition, during 1991 the Company began
selling commercial paper as a alternative investment tool for its commercial
customers. The commercial paper is issued only in conjunction with the automated
sweep account customer agreement on deposits at the Bank level. At December 31,
1995, the Company had $6.2 million in commercial paper with a weighted average
rate of 3.30%, as compared to $6.9 million in 1994 with a weighted average of
3.10% and $5.2 million in 1993 with a weighted average rate of 1.32%.
The Company's liquidity needs are met through the payment of dividends from
the Bank. At December 31, 1995 the Bank had available retained earnings of $3.6
million for payment of dividends.
The Bank's liquidity is provided by its ability to attract deposits, the
maturity of its loan portfolio, the flexibility of its investment securities,
lines of credit from correspondent banks, and current earnings. Sufficient
liquidity must be available to meet continuing loan demand and deposit
withdrawal requirements. Competition for deposits is intense in the markets
served by the Bank. However, the Bank has been able to attract deposits as
needed through pricing adjustments and expansion of its geographic market area.
The deposit base is comprised of diversified customer deposits with no one
deposit or type of customer accounting for a significant portion. Therefore,
withdrawals are not expected to fluctuate from historical levels. The loan
portfolio of the Bank is a source of liquidity through maturities and repayments
by existing borrowers. The investment securities portfolio is a source of
liquidity through scheduled maturities and sales of securities. Approximately
65% of the securities portfolio was pledged to secure liabilities as of December
31, 1995, as compared to 64% at December 31, 1994. Management believes that
its sources of liquidity are adequate to meet operational needs. Additional
sources of short-term liquidity are existing lines of credit from correspondent
banks totaling $9 million, all of which are available. Loan demand has been
constant and loan origination's can be controlled through pricing decisions.
In November 1995, the FASB issued a guide to implementation of SFAS No. 115 on
accounting for certain investments in debt and equity securities which allows
for the one time transfer of certain investments classified as held for
investment to available for sale. The Company transferred investment securities
with an amortized cost of $29,106,899 and a related unrealized gain of $69,363
in the fourth quarter of 1995. This transfer will enable the Company to better
position its balance sheet for asset/liability management.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Virtually all of the assets and
liabilities of the Bank are monetary in nature and, as a result, its operations
can be significantly affected by interest rate fluctuations as discussed
above. Therefore, inflation will affect the Bank only to the extent that
interest rates change and according to the Bank's sensitivity to such changes.
The Company attempts to manage the effects of inflation through its
asset/liability management as described above in "Net Interest Income."
13
Accounting and Reporting Changes
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by
Creditors for Impairment of a Loan, and subsequently amended by SFAS No. 118,
which became effective for the Company beginning January 1, 1995. This statement
requires the Company to consider a loan to be impaired if the Company believes
it is probable that it will be unable to collect all principal and interest due
according to the contractual terms of the loan. If a loan is impaired, the
Company is required to record a loan valuation allowance equal to the difference
between the present value of the estimated future cash flows discounted at the
loan's effective rate and the loan's carrying value. The adoption of the
Statements required no increase to the allowance for loan losses and had no
impact on net income in 1995.
SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value
of Financial Instruments, was issued in late 1994 and is effective for fiscal
years ending after December 15, 1994, except for entities with less than $150
million in total assets. For those entities, this statement is effective for
fiscal years ending after December 15, 1995. SFAS No. 119 requires disclosure
about amounts, nature and terms of derivative financial instruments. It also
requires that a distinction be made between financial instruments held or issued
for trading purposes or issued for purposes other than trading. The adoption of
this statement did not have an impact on the Company as it does not own any
derivatives at this time.
In March, 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which is
effective for financial statements issued for fiscal years beginning after
December 15, 1995. SFAS No. 121 provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable intangibles
and goodwill related both to assets to be held and used and assets to be
disposed of. This statement is not anticipated to have a material effect on the
Company.
In May, 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing
Rights, an Amendment of SFAS No. 65, which is effective prospectively for years
beginning after December 15, 1995. The statement requires the recognition of an
asset for the right to service mortgage loans for others, regardless of how
those rights were acquired (either purchased or originated). Further, it amends
SFAS No. 65 to require assessment of impairment based on fair value. The Company
recently commenced the origination and sale of mortgage loans. Currently, the
Company is pre-selling all mortgages and, based upon the Company's present
mortgage lending operation, does not anticipate that this statement will have a
material adverse effect on the Company.
In October, 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation. This statement is effective for financial statements issued for
fiscal years beginning after December 15, 1995. SFAS No. 123 provides guidance
on the valuation of compensation costs arising from both fixed and performance
stock compensation plans. This statement is not expected to have a material
effect on the Company.
14
Table 1
Distribution of Assets and Liabilities
(Dollars in Thousands)
Years Ended December 31,
1995 1995 1994 1994 1993 1993 1992 1992
-------------------------------------------------------------------------------
Average % of Average % of Average % of Average % of
-------------------------------------------------------------------------------
ASSETS Balance Total Balance Total Balance Total Balance Total
------- ----- ------- ----- ------- ----- ------- -----
Cash and due from banks $ 21,724 6.35% 16,629 5.45% 14,996 5.39% 13,175 5.05%
Federal funds sold 3,684 1.08 5,016 1.65 12,709 4.56 12,670 4.86
Taxable investment securities 47,618 13.91 44,500 14.60 40,018 14.37 38,353 14.72
Non-taxable investment securities 25,777 7.53 22,864 7.50 21,046 7.56 20,036 7.69
Loans, net of unearned discount 230,908 67.44 204,959 67.26 180,880 64.97 168,265 64.56
Less: allowance for loan losses (3,247) (0.95) (2,766) (0.91) (2,125) (0.76) (1,816) (0.70)
----------- --------- --------- ------- --------- ------- ---------- --------
Net loans 227,661 66.50 202,193 66.35 178,755 64.21 166,449 63.86
Premises and equipment, net 10,275 3.00 9,011 2.96 6,080 2.18 5,043 1.93
Goodwill 1,102 0.32 1,164 0.38 1,225 0.44 1,286 0.49
Other assets 4,533 1.27 3,506 1.15 3,572 1.28 3,626 1.39
----------- --------- --------- ------- --------- ------- ---------- --------
Total assets $ 342,374 100.00% 304,883 100.00 278,401 100.00% 260,638 100.00%
=========== ========= ========= ======= ========= ======= ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest-bearing deposits 46,731 13.65% 42,080 13.80% 34,594 12.43% 30,174 11.58%
Interest-bearing demand 97,804 28.57 100,708 33.03 87,298 31.36 82,289 31.57
Savings 21,518 6.28 23,305 7.64 23,156 8.32 28,649 10.99
Time 128,555 37.55 98,692 32.37 94,189 33.83 82,103 31.50
----------- --------- --------- ------- --------- ------- ---------- --------
Total deposits 294,608 86.05 264,785 86.85 239,237 85.93 223,215 85.64
Federal funds purchased and securities sold
under agreements to repurchase 12,020 3.51 8,964 2.94 10,239 3.68 9,075 3.48
Commercial paper 8,017 2.34 6,312 2.07 5,424 1.95 6,176 2.37
Debt of the Employee Stock Ownership Plan - - - - 200 0.07 400 0.15
Note payable to a bank 107 0.03 630 0.21 933 0.34 1,235 0.47
Other liabilities 1,480 0.43 1,324 0.43 1,160 0.42 1,233 0.47
----------- --------- --------- ------- --------- ------- ---------- --------
Total liabilities 316,232 92.36 282,015 92.50 257,193 92.38 241,334 92.59
Shareholders equity:
Common stock - $5.00 par value 5,054 1.48 5,001 1.64 5,042 1.81 5,039 1.93
Surplus 10,442 3.05 10,425 3.42 5,992 2.15 5,407 2.07
Retained earnings 10,615 3.10 7,724 2.53 10,430 3.75 9,258 3.55
Less debt in connection with funds used to
acquire company shares by Employee Stock
Ownership Plan - 0.00 - - (200) (0.07) (400) (0.15)
Less treasury stock (239) (0.07) (282) (0.09) (56) (0.02) - -
Unrealized gain (loss) on investment 270 0.08 - 0.00 - 0.00 - 0.00
securities ----------- --------- --------- ------- --------- ------- ---------- --------
Total shareholders' equity 26,142 7.64 22,868 7.50 21,208 7.62 19,304 7.41
----------- --------- --------- ------- --------- ------- ---------- --------
Total liabilities and shareholders' $ 342,374 100.00% 304,883 100.00% 278,401 100.00% 260,638 100.00%
equity =========== ========= ========= ======= ========= ======= ========== ========
15
INVESTMENT PORTFOLIO
The following table shows, as of December 31, 1995, 1994 and 1993, the book
value and market values of investments in obligations of (i) the U.S. Government
and its agencies, (ii) states, counties, and municipalities, and (iii)
mortgage-backed securities.
TABLE 2
Investment Portfolio
(Dollars in Thousands)
INVESTMENTS HELD TO MATURITY
1995 1994 1993
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
U.S. Treasury and U.S.
Government agencies $ 15,033 15,176 30,537 29,908 32,548 33,162
State and municipals 22,593 23,183 24,168 23,999 21,170 22,571
Mortgage-backed securities 6,163 6,190 - - - -
Total $ 43,789 44,549 54,705 53,907 53,718 55,733
INVESTMENTS AVAILABLE FOR SALE
1995 1994 1993
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
U.S. Treasury and U.S.
Government agencies $ 29,996 30,686 9,467 9,204 11,988 12,169
State and municipals 8,584 8,929 - - - -
Total $ 38,580 39,615 9,467 9,204 11,988 12,169
The following table indicates the maturities and respective yields by investment
category as of December 31, 1995. Yields on tax exempt securities are stated on
a tax equivalent basis using a federal tax rate of 34%.
TABLE 3
Investment Portfolio Maturity Schedule
(Dollars in Thousands)
December 31, 1995
INVESTMENTS HELD TO MATURITY
Due After Due After
Due One Year Five Years
Within Through Through Due After
One Year Yield Five Years Yield Ten Years Yield Ten Years Yield
U.S. Treasury and
U.S. Government
agencies $ - - 12,547 6.46% 8,650 7.23% - -
State and municipals - - - - 16,593 8.18 5,999 8,06
Total $ - - 12,547 6.46% 25,243 7.85% 5,999 8.06%
16
INVESTMENTS AVAILABLE FOR SALE
Due After Due After
Due One Year Five Years
Within Through Through Due After
One Year Yield Five Years Yield Ten Years Yield Ten Years Yield
U.S. Treasury and U.S.
Government agencies $ 6,358 6.99% 24,328 6.51% - - - -
State and municipals 1,167 12.07 7,762 9.31 - - - -
Total $ 7,525 7.78% 32,090 7.19% - - - -
LOAN PORTFOLIO
Management of the Company believes that the loan portfolio is adequately
diversified. The table below summarizes loans by classification for the five
year period ended December 31, 1995.
TABLE 4
Loan Portfolio Composition
(Dollars in Thousands)
December 31,
1995 1994 1993 1992 1991
Commercial, financial and
agricultural $ 45,377 32,672 31,107 26,486 32,643
Real estate-construction 5,453 1,941 1,156 732 889
Real-estate-mortgage 149,017 134,789 121,884 113,442 101,488
Installment loans to individuals 55,340 46,006 37,344 31,304 32,083
Total $ 255,187 215,408 191,491 171,964 167,103
Commercial loans are spread through numerous types of businesses with no
particular industry concentrations. Loans to individuals are made primarily to
finance consumer goods purchased. At December 31, 1995, total loans, net of
unearned discounts, were 74.9% of total earning assets. Loans secured by real
estate accounted for 60.5% of total loans as of December 31, 1995. Most of the
loans classified as real estate-mortgage are commercial loans where real estate
provides additional collateral.
The table below shows the amounts of loans at December 31, 1995, except for real
estate mortgage and installment loans to individuals, due to mature and
available for repricing within the time period stated.
TABLE 5
Maturities and Sensitivity of Loans
to Changes in Interest Rates
(Dollars in Thousands)
After 1 Year
1 Year Through After 5
or Less Five Years Years Total
Commercial, financial and agricultural $ 24,311 17,033 4,033 45,377
Real estate-construction 3,697 1,548 208 5,453
Total $ 28,008 18,581 4,241 50,830
17
The amounts of the preceding loans with a maturity over one year which have a
predetermined interest rate or a floating or adjustable interest rate are as
follows:
December 31, 1995
Predetermined interest rate $ 22,822
Floating or adjustable interest rate -
Total $ 22,822
Thirty-two percent of total loans are repricable within one year.
Non-accrual loans are those loans which management, through its continuing
evaluation of loans, has determined offer a more than normal risk of
collectability of future interest. Interest income on non-accrual loans is
recognized only as received. Interest on past due loans continues to accrue
until such time that the loans are either charged-off or placed in non-accrual
status. The non-accrual loan policy provides that it is the responsibility of
the chief credit officer to administer the placing of loans on non-accrual
status. Loans which become ninety days past due will be placed on non-accrual.
Loans on which bankruptcy notices are received will also be placed on
non-accrual. In addition, other loans on which repayment appears doubtful may be
placed on non-accrual at the discretion of the chief credit officer.
The following table sets forth, for each loan category, the amounts of total
loans 90 days or more past due and on non-accrual, the amounts of total loans 90
days or more past due and accruing, total loans outstanding, the percentage of
each type of loan 90 days or more past due and the amount of foregone interest
income for each of the five years for December 31, 1991 through December 31,
1995. In addition to the non-performing loans disclosed below, the Company had
$743,050 in impaired loans at December 31, 1995. During 1995, the average
recorded investment in impaired loans was approximately $545,357. Included in
the allowance for loan losses at December 31, 1995 is approximately $97,000
related to these impaired loans.
18
TABLE 6
Nonperforming Loans
(Dollars in Thousands)
90 Days Foregone
or More Interest
Past Due Percentage Income
and not on Total 90 Days From
Non- Non- Loans or More Non-
Accrual Accrual Outstanding Past Due Accrual
December 31, 1995:
Commercial, financial and agricultural $ 146 - 45,377 0.32% 20
Real estate - construction - - 5,453 0.00 -
Real estate - mortgage 241 - 149,017 0.16 11
Installment loans to individuals 409 3 55,340 0.74 35
Total $ 796 3 255,187 0.31% 66
December 31, 1994:
Commercial, financial and agricultural 295 - 32,672 0.90 14
Real estate - construction - - 1,941 0.00 -
Real estate - mortgage - - 134,789 0.00 9
Installment loans to individuals 341 18 46,006 0.78 27
Total $ 636 18 215,408 0.30% 50
December 31, 1993:
Commercial, financial and agricultural 44 - 31,107 0.14 3
Real estate - construction - - 1,156 0.00 -
Real estate - mortgage 204 - 121,884 0.17 16
Installment loans to individuals 306 - 37,344 0.82 24
Total $ 554 - 191,491 0.29% 43
December 31, 1992:
Commercial, financial and agricultural 748 - 26,486 2.82 33
Real estate - construction - - 732 0.00 -
Real estate - mortgage - - 113,442 0.00 -
Installment loans to individuals 573 - 31,304 1.83 25
Total $ 1,321 - 171,964 0.77% 58
December 31, 1991:
Commercial, financial and agricultural 1,093 - 32,643 3.35 120
Real estate - construction - - 889 0.00 -
Real estate - mortgage 324 - 101,488 0.32 36
Installment loans to individuals 1,616 - 32,083 5.04 178
Total $ 3,033 - 167,103 1.82% 334
19
TABLE 7
Summary of Loan Loss and Recovery Experience
(Dollars in Thousands)
The allowance for loan losses is based on an in-depth analysis of the loan
portfolio. Specifically, included in that analysis are the following types of
loans: loans determined to be of a material amount, loans commented on by
regulatory authorities, loans which are past due more than 60 days and loans
which are in a non-accrual status. In addition, based on past experience, an
unallocated portion of the reserve is established which does not relate to any
specific loan or category of loans. Based on the above analysis, management
makes a provision for possible loan losses which will bring the allowance for
loan losses to an adequate level.
The following table summarizes the activity in the allowance for loan losses for
the years indicated:
1995 1994 1993 1992 1991
Average loans, net of unearned discount $ 227,661 204,959 180,880 168,265 166,328
Allowance for loan losses:
Beginning balance $ 3,016 2,394 2,064 1,671 1,640
Additional allowance of acquired bank - - - - -
Add provision for loan losses 1,140 819 1,172 1,543 2,093
Loan charge-offs:
Commercial, financial and agricultural 262 100 521 663 1,298
Real estate - construction - - - - -
Real estate - mortgage 14 - - - -
Installment loans to individuals 337 357 469 679 855
Total loan charge-offs 613 457 990 1,342 2,153
Recoveries of loans previously charged-off:
Commercial, financial and agricultural 60 123 42 102 44
Real estate - construction - - - - -
Real estate - mortgage 33 - - - -
Installment loans to individuals 64 137 106 90 47
Total recoveries of loans previously charged off 157 260 148 192 91
Net charge-offs 456 197 842 1,150 2,062
Ending balance $ 3,700 3,016 2,394 2,064 1,671
Net charge-offs to average loans, net 0.20% 0.10% 0.47% 0.68% 1.24%
Allowance for loan losses to average
loans, net 1.63 1.47 1.32 1.23 1.00
Allowance for loan losses to total loans at
period-end 1.45 1.40 1.25 1.20 1.00
Losses and recoveries are charged or credited to the allowance at the time
realized.
The following table summarizes the allocation of the allowance for loan losses
at December 31:
1995 1994 1993 1992 1991
% of % of % of % of % of
Total Total Total Total Total Total Total Total Total Total
Balance applicable to:
Commercial,
financial and
agricultural$ 658 17.78% 457 15.15% 190 7.94% 1,020 49.42% 357 21.36%
Real estate -
construction 79 2.14 27 0.90 - - - - 2 0.12
Real estate -
mortgage 2,161 58.40 1,887 62.60 882 36.84 - - 963 57.63
Installment loans
to individuals 802 21.68 644 21.35 1,322 55.22 1,044 50.58 349 20.89
Total $ 3,700 100.00% 3,016 100.00% 2,394 100.00% 2,064 100.00% 1,671 100.00%
20
DEPOSITS
The following table presents average balances and average rates paid by category
of deposit for the years ended December 31, 1995, 1994 and 1993:
TABLE 8
Deposits
(Dollars in Thousands)
1995 1994 1993
Average Average Average
Average Interest Rate Average Interest Rate Average Interest Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
Non-interest bearing
demand $ 46,731 - - $ 42,080 - - $ 34,594 - -
Interest-bearing
demand 100,236 2,480 2.47% 100,708 2,519 2.51% 87,298 2,108 2.41%
Savings 21,518 1,125 5.23 23,305 598 2.57% 23,156 675 2.92%
Time 128,555 6,382 4.96 98,692 3,634 3.68% 94,189 3,593 3.81%
Total deposits $ 297,040 9,987 3.36% $ 264,785 6,751 2.55% $ 239,237 6,376 2.67%
The following table sets forth, by time remaining to maturity, domestic
certificates of deposit over $100,000 as of December 31, 1995, 1994 and 1993.
1995 1994 1993
Maturities:
3 months or less $17,598 3,609 2,993
3 through 6 months 11,722 10,828 10,466
6 through 12 months 6,512 6,608 8,913
Over 12 months 3,798 2,526 1,401
$39,630 23,571 23,773
The company has no foreign deposits.
21
RETURN ON EQUITY AND ASSETS
The table below illustrates the return on average assets (net income divided by
average total assets), return on average equity (net income divided by average
equity), dividend payout ratio (dividends declared divided by net income), and
average equity to average assets ratio (average equity divided by average total
assets) for the years indicated:
TABLE 9
Return on Equity and Assets
(Dollars in thousands, except per share data)
Years Ended December 31,
1995 1994 1993
Net income $ 3,602 $ 2,760 $ 2,532
Average shareholders' equity $ 26,142 $ 22,868 $ 21,208
Average total assets $ 342,374 $ 304,883 $ 278,401
Dividends declared $ 652 $ 530 $ 483
Dividends per share* $ 0.65 $ 0.53 $ 0.48
Net income per share* $ 3.59 $ 2.76 $ 2.52
Return on average assets 1.05% 0.91% 0.91%
Return on average equity 13.78% 12.07% 11.94%
Dividend payout ratio 18.10% 19.20% 19.08%
Average equity to average asset ratio 7.64% 7.50% 7.84%
* Based on 1,003,440, 1,000,230 and 1,006,479 weighted average shares for 1995,
1994 and 1993, respectively.
22
SHORT - TERM BORROWINGS
The following table sets forth certain information regarding short term
borrowings at December 31:
TABLE 10
Short-Term Borrowings
(Dollars in thousands)
1995 1994 1993
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Amount outstanding at year-end $ 7,546 5,252 7,021
Average amount outstanding during year 10,228 8,596 10,239
Maximum amount outstanding at any month end 11,680 9,551 13,940
Weighted average rate paid at year end 3.05% 2.85% 1.38%
Weighted average rate paid during the year 4.31% 2.58% 1.55%
FEDERAL FUNDS PURCHASED
Amount outstanding at year end $ 2,900 - -
Average amount outstanding during year 2,380 369 4
Maximum amount outstanding at any month end 3,000 - -
Weighted average rate at year end 5.50% - -
Weighted average rate paid during the year 5.68% 5.33% 3.06%
COMMERCIAL PAPER
Amount outstanding at year end $ 6,187 6,914 5,191
Average amount outstanding during year 8,017 6,312 5,424
Maximum amount outstanding at any month end 9,370 7,601 5,623
Weighted average rate paid at year end 3.30% 3.10% 1.32%
Weighted average rate paid during the year 4.28% 2.72% 1.43%
RATE / VOLUME ANALYSIS
The following table includes, for the years ended December 31, 1995, 1994 and
1993 interest income on earning assets and related average yields, as well as
interest expense on liabilities and related average rates paid. Also shown are
the dollar amounts of change due to rate and volume variances. The effect of the
combination of rate and volume change has been divided equally between the rate
change and volume change.
23
TABLE 11
Rate Volume Analysis
1995
Average Income/ Volume Rate
Assets Balances Expense Yield Change Change
Cash and due from banks $ 21,723,557
Federal funds sold 3,683,473 379,846 10.31% (94,788) 278,062
Taxable investment securities 47,617,846 3,123,646 6.56 37,873 743,900
Non-taxable investment securities 25,777,154 2,032,442 7.88 264,319 (299,410)
Loans, net of unearned discount 230,907,962 21,423,236 9.28 2,508,177 1,525,505
Less: allowance for loan losses (3,246,805)
Net loans 227,661,157
Premises an equipment, net 10,275,067
Goodwill 1,102,233
Other assets 4,533,021
--------------
Total assets $ 342,373,508
==============
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing demand $ 46,730,731 - - - -
Interest-bearing demand 97,803,638 2,479,455 2.54% (11,757) (27,687)
Savings 21,518,313 1,125,420 5.23 (69,633) 597,153
Time 128,554,854 6,382,228 4.96 1,291,091 1,457,229
Total deposits 294,607,536 9,987,103 3.39 953,413 2,282,982
Federal funds purchased and securities
old under agreement to repurchase 12,019,526 500,860 4.17 30,627 226,176
Commercial paper 8,017,222 340,712 4.25 54,700 114,077
Debt of the Employee Stock
Ownership Plan -
Note payable to a bank 107,136 13,389 12.50 (49,779) 21,977
Other liabilities 1,480,125
--------------
Total liabilities 316,231,545
Shareholders' equity:
Common stock - $5.00 par value 5,054,420
Surplus 10,442,083
Retained earnings 10,614,534
Less debt in connection with
Employee Stock Ownership
Plan -
Less treasury stock (238,727)
Unrealized gain (loss) on investment
securities 269,653
Total shareholders' equity 26,141,963
Total liabilities and
shareholders' equity $ 342,373,508
Average yield on all interest - earning assets 8.75%
Average effective rate paid on all interest-bearing liabilities 3.44%
Net yield on interest-earning assets 5.23%
Yields on nontaxable securities are stated on a fully taxable equivalent basis,
assuming a federal tax rate of 34% for the three years reported on. The
adjustments made to convert to a fully taxable equivalent basis were $691,030,
$702,961, and $672,937 for 1995, 1994 and 1993, respectively.
The effect of foregone interest income as a result of loans on non-accrual was
not considered in the above analysis.
24
1994 1993
---------------------------------------------------------- ------------------------------------------------------------
Average Income/ Volume Rate Average Income/ Volume Rate
Balances Expense Yield Change Change Balances Expense Yield Change Change
16,629,235 14,996,307
5,015,564 196,572 3,92% (264,220) 85,918 12,708,712 374,874 2.95% 1,220 (48,216)
44,500,029 2,341,872 5.26 247,250 (214,199) 40,017,677 2,308,821 5.77 105,412 (439,696)
22,864,228 2,067,533 9.04 167,724 (79,418) 21,045,789 1,979,227 9.40 96,332 (55,412)
204,958,651 17,389,554 8.48 2,055,905 (208,367) 180,880,379 15,542,016 8.59 1,122,953 (1,078,317)
(2,765,847) (2,125,355)
------------ -----------
202,192,804 178,755,024
9,010,820 6,080,154
1,163,548 1,224,862
3,506,736 3,572,873
------------ -----------
304,882,964 278,401,398
============ ===========
42,079,852 34,593,666
100,708,482 2,518,900 2.50% 329,649 80,717 87,298,552 2,108,534 2.42% 133,689 (429,681)
23,304,780 597,900 2.57 4,092 (81,119) 23,155,462 674,927 2,91 (194,936) (328,284)
98,691,592 3,633,909 3.68 168,757 (127,589) 94,189,274 3,592,741 3.81 528,105 (978,555)
------------ ----------- ------ ---------- ---------- ----------- ---------- ----- ---------- ----------
264,784,706 6,750,709 2.55% 666,124 (291,617) 239,236,954 6,376,202 2.67% 487,920 (1,757,582)
8,963,863 244,057 2.72 (27,254) 112,383 10,238,925 158,928 1.55 20,855 (46,272)
6,311,701 171,935 2.72 18,430 75,945 5,424,349 77,560 1.43 (12,589) (28,478)
- - 200,000 10,695 5.35 (10,910) (644)
630,209 41,191 6.54 (18,563) 6,247 932,709 53,507 5.74 (17,961) (4,350)
1,324,637 1,160,454
------------ -----------
282,015,116 257,193,391
5,001,150 5,041,720
10,425,483 5,992,378
7,723,615 10,430,128
- (200,000)
(282,400) (56,219)
- -
22,867,848 21,208,007
------------ -----------
304,882,964 278,401,398
============ ===========
7.93% 7.93%
2.57% 2.61%
5.33% 5.31%
25
TABLE 12
Interest Rate Sensitivity
(Dollars in Thousands)
2 Days
to 3 3-6 6-12 1-5 Over
1 Day Months Months Months Years 5 Years Total
Assets:
Federal funds sold $ 2,097 - - - - - 2,097
Investment securities - 327 361 6,837 44,637 31,242 83,404
Total loans 47,402 14,978 8,193 11,684 139,542 33,387 255,186
Non-interest earnings asset - - - - - - 39,254
Total $ 49,499 15,305 8,554 18,521 184,179 64,629 379,941
Liabilities and Shareholders Equity
Demand deposits 53,330 - - - - - 53,330
Interest checking 60,932 - - - - - 60,932
Retail repurchase agreements 7,546 - - - - - 7,546
Insured money markets 42,114 - - - - - 42,114
Savings deposits 20,262 - - - - - 20,262
Time deposits over $100,000 - 17,598 11,722 6,512 3,798 - 39,630
Other time deposits - 40,031 42,400 19,539 11,421 - 113,391
Commercial paper 6,187 - - - - - 6,187
Federal funds purchased 2,900 - - - - - 2,900
Non-interest bearing liabilities
and shareholders' equity - - - - - - 33,649
Total $ 193,271 57,629 54,122 26,051 15,219 - 379,941
Interest rate sensitivity gap $ (143,772) (42,324) (45,568) (7,530) 168,960 64,629 -
Cumulative interest rate
sensitivity gap $ (143,772) (186,096) (231,664) (239,194) (70,234) (5,605) -
26
An important aspect of achieving satisfactory net interest income is the
composition and maturities of rate sensitive assets and liabilities. The
preceding table generally reflects that in periods of declining interest rates,
rate sensitive liabilities will reprice slightly slower than rate sensitive
assets, thus having a negative effect on net interest income. It must be
understood, however, that such an analysis is only a snapshot picture and does
not reflect the dynamics of the market place. Therefore, management reviews
simulated earnings statements on a monthly basis to more accurately anticipate
its sensitivity to changes in interest rates.
NON - INTEREST INCOME
Non-interest income increases have primarily resulted from increased volume and
selected fee increases in deposit accounts and trust services. Service charges
on deposit accounts were responsible for 56% of other operating income in 1995
and 1994 as compared to 52% in 1993. The following table sets forth the
components of other operating income:
TABLE 13
Non-Interest Income
(Dollars in thousands)
Years Ended December 31,
1995 1994 1993
Service charges on deposit accounts $ 2,494 2,254 2,012
Fees for trust services 773 670 621
Investment securities gains (losses) (93) (13) 164
Other 1,289 1,118 1,108
Total non-interest income $ 4,463 4,029 3,905
NON - INTEREST EXPENSES
Non-interest expense increases have primarily resulted from expenses associated
with the opening of additional branches and a new operations center. This
includes increased salary and other personnel expenses as a result of additional
staff and annual pay increases as well as increased depreciation expenses as a
result of additional buildings being purchased. Salaries and other personnel
expenses account for approximately 53% of total non-interest expenses in 1995 as
compared to 54% in 1994 and 1993.
The following table sets forth the components of non-interest expense:
TABLE 14
Non-Interest Expenses
(Dollars in thousands)
Years Ended December 31,
1995 1994 1993
Salaries and other personnel expense $ 7,399 7,340 6,687
Net occupancy expense 1,219 1,126 892
Furniture and equipment expense 1,092 1,037 944
FDIC assessment 320 584 526
Postage and supplies expense 702 599 521
Advertising expense 570 556 515
Telephone expense 407 384 334
Other expense 2,191 1,999 1,760
Total non-interest expense $ 13,900 13,625 12,179
27
Item 8. Financial Statements and Supplementary Data
The response to this item is set forth in the financial statements appended to
this report. In addition, the table below sets forth selected unaudited
quarterly financial information.
TABLE 15
Selected Quarterly Financial Information
(Dollars in thousands, except per share data)
1995
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net interest income $ 3,633 3,725 3,874 4,194 15,426
Provision for loan losses 195 195 300 450 1,140
Non-interest income 987 1,067 1,123 1,285 4,462
Non-interest expense 3,446 3,377 3,311 3,766 13,900
Income taxes 275 305 340 326 1,246
Net income $ 704 915 1,046 937 3,602
Earnings per share $ 0.70 0.91 1.04 0.94 3.59
1994
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net interest income $ 3,342 3,476 3,636 3,631 14,085
Provision for loan losses 285 270 105 159 819
Non-interest income 1,006 1,042 1,002 979 4,029
Non-interest expense 3,304 3,395 3,421 3,505 13,625
Income taxes 190 213 334 173 910
Net income $ 569 640 778 773 2,760
Earnings per share $ 0.57 0.64 0.78 0.77 2.76
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
28
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is set forth under the headings "Election
of Directors" and "Executive Officers" on pages 2 through 5 in the definitive
Proxy Statement of the Company filed in connection with its 1996 Annual Meeting
of the Shareholders, which information is incorporated herein by reference.
Item 11. Compensation of Directors and Officers
The information required by this item is set forth under the headings
"Compensation of Directors and Executive Officers", "Aggregated Option Exercises
in Last Fiscal Year and Year-end Option Values" and "Security Ownership of
Certain Beneficial Owners and Management" on pages 6 through 13 in the
definitive Proxy Statement of the Company filed in connection with its 1996
Annual Meeting of Shareholders, which information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" on pages 12 through 13 in
the definitive Proxy statement of the Company filed in connection with its 1996
Annual Meeting of Shareholders, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under the heading "Certain
Relationships and Related Transactions" on page 14 in the definitive Proxy
Statement of the Company filed in connection with its 1996 Annual Meeting of
Shareholders, which information is incorporated herein by reference.
29
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The following are filed as a part of this report on Form 10-K.
Report of Independent Certified Public Accountant
Consolidated Statements of Financial Condition as of December 31,
1995 and 1994.
Consolidated Statements of Operations for the Years Ended December
31, 1995, 1994 and 1993.
Consolidated Statements of Changes in Shareholder's Equity for the
Years Ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended December
31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(2) Additional financial statement schedules furnished pursuant to the
requirements of Form 10-K
All other schedules have been omitted as the required information
is either inapplicable or included in the Notes to the
Consolidated Financial Statements.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. Description
3.1.1 Articles of incorporation filed on May 13, 1982 in the office of the Secretary of State of South Carolina:
Incorporated by reference to Exhibit 3 to the Company's Registration Statement on Form S-4, Commission File
No. 33-19367, filed with the Securities and Exchange Commission on December 30, 1987
3.1.2 Articles of Amendment filed on May 5, 1988 in the office of the Secretary of State of South Carolina:
Incorporated by reference to Exhibit 4.1.2 to the Company's Registration Statement on Form S-8, Commission
File No. 33-51212, filed with the Securities and Exchange Commission on August 20, 1992
3.1.3 Articles of Amendment filed on January 26, 1989 in the office of the Secretary of State of South Carolina:
Incorporated by reference to Exhibit 4.1.3 to the Company's Registration Statement on Form S-8, Commission
File No. 33-51212, filed with the Securities and Exchange Commission on August 20, 1992
3.1.4 Articles of Amendment filed on April 23, 1990 in the office of the Secretary of State of South Carolina:
Incorporated by reference to Exhibit 4.1.4 to the Company's Registration Statement on Form S-8, Commission
File No. 33-51212, filed with the Securities and Exchange Commission on August 20, 1992
3.2 By-Laws: Incorporated by reference to Exhibit 3 to the Company's Registration Statement on Form S-4,
Commission File No. 33-19367, filed with the Securities and Exchange Commission
4.1.1 Articles of Incorporation of the Registrant: Included in Exhibits 3.1.1 - .4
4.2 Bylaws of the Registrant: Included in Exhibit 3.2
30
4.3 Specimen Certificate for Common Stock: Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8, Commission File No. 33-51212, filed with the Securities and
Exchange Commission on August 20, 1992
10.1* Palmetto Bancshares, Inc. Stock Option Plan: Incorporated by reference to Exhibit 10(a) to the Company's
Registration Statement on Form S-4, Commission File No. 33-19367, filed with the Securities and Exchange
Commission on December 30, 1987
10.2.1* The Palmetto Bank Employee Stock Ownership Plan and Trust
10.2.2* First Amendment to The Palmetto Bank Employee Stock Ownership Plan and Trust
10.2.3* Second Amendment to The Palmetto Bank Employee Stock Ownership Plan and Trust
10.2.4* Third Amendment to The Palmetto Bank Employee Stock Ownership Plan and Trust
10.3* The Palmetto Bank Pension Plan and Trust Agreement
10.4 Trust Company Bank Term Note: Incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
21.1 List of Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP to incorporation by reference to the Company's Registration Statement on
Form S-8
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the three
months ended December 31, 1995.
(c) Exhibits required to be filed with this Form 10-K by Item 601 of
Regulation S-K are filed herewith or incorporated by reference herein.
(d) Certain additional financial statements.
Not Applicable.
31
Appendix
Independent Auditors' Report
The Board of Directors
Palmetto Bancshares, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheets of Palmetto
Bancshares, Inc. and subsidiary (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Palmetto Bancshares,
Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in