Bank Notes | |
KNIGHT APPOINTED TO SOUTH CAROLINA BANKERS ASSOCIATION Teresa W. Knight, executive vice president, bank administration, human resources and marketing, was elected as the first vice chairman of the South Carolina Bankers Association (SCBA). She was installed at the SCBA’s 2008 Annual Convention held June 12-15, 2008.
OFFICER APPOINTMENT Cindi S. Adams was appointed to The Palmetto Bank as senior vice president, Rock Hill. A Rock Hill native, Adams attended Winthrop University. She has 26 years banking experience in business development, commercial lending, small business banking and retail management. |
To Our Shareholders: | ||
Since the last report to you, as of March 31, 2008, very little of positive news has occurred in the financial sector of the U.S. economy. Indeed, for the economy as a whole we are now challenged with slower growth and rising prices both of which impact consumer spending that accounts for roughly 70 percent of economic output. Consumers are closely watching disposable income and household budgets like never before. Additionally, the much reported mortgage crisis continues to unwind with much uncertainty still as to how long this will last. And, if this was not enough to cause concern, add stock market performance of recent months and we would conclude that the economy has seen better days. Financial reporting for the second quarter and at mid-year can be characterized as not good but not as bad as was expected in many cases. In spite of these conditions, we are pleased to issue this positive report for your company.
Earlier we sent to you our press release on financial performance in the second quarter and for the six months period ended June 30. With the recent failure of a large FDIC insured savings bank in California we felt it important to show the strong capital position of your company and The Palmetto Bank at mid-year and what we feel has been excellent operating results in the current banking environment. We were pleased to report an increase of 6.5% in net income for the second quarter on a record total of $4.3 million earnings. And, for the six months period we reported a record total of $8.0 million in net income as compared with $7.8 million in the first six months of 2007. Year-to-date profitability ratios at June 30, 2008 were excellent with a return on average assets of 1.24% and a return on shareholder’s equity of 14.06%, both ratios showing improvement over the year-to-date first quarter 2008 ratios. Shareholders equity at June 30 stood at $114.7 million in a well-capitalized category for federal regulatory purposes.
| Current stock values reflect real or perceived asset quality and to a lesser degree expected future earnings, which of course are impacted ultimately by credit quality. Thus, with some uncertainty over asset quality some publically traded bank stocks have been trading at 20% to 60% off their twelve month highs. Palmetto Bancshares, most recently traded at $42.00 per share, we believe reflects the soundness of our balance sheet, the consistent growth in earnings over time and the excellent asset quality of our loan portfolio. Non-performing loans to total loans improved over the same period in 2007 with a decline to .56% as compared to 1.26% at June 30, 2007. The loan loss reserve is considered adequate for any future doubtful loans. Charge-offs of loans are running at a rate of ..18% year-to-date, which we judge to be excellent performance at this time. Although cautious about the balance of this year, we remain optimistic about full year operating performance. These are unusual times for the U.S. economy although fluctuating business cycles are part of longer term economic trends. That is not new. Downturns wring out the bad unfortunately at the expense often of some good.
It affords an opportunity to prepare and build for the future, and for those who are judged to be strong, an opportunity to take advantage of market weaknesses to create competitive advantage. We are pleased to announce construction soon to begin for a new Greer location to replace an older facility and that progress is being made toward the opening of the new Rock Hill Office. We are delighted to have staff in place under the leadership of Senior Vice President Cindi Adams and Vice President Liz Winterburn. Our Greenwood office on Montague Avenue will soon celebrate the grand completion of its multi-year renovation. And last, the new headquarters facility in downtown Greenville continues to move along on schedule. Dry walls are in place on all four floors and what we see exceeds our expectations. This building continues to draw much attention and interest to Greenville’s Gateway location.
We appreciate your continued support as a shareholder and friend of the company. We hope you will help us spread the good news across Upstate South Carolina about The Palmetto Bank.
Sincerely, Leon Patterson Chairman and Chief Executive Officer
| |
Consolidated Balance Sheets | |||||||||
(dollars in thousands, except common and per share data) (unaudited) | |||||||||
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| June 30, |
| June 30, |
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| 2008 |
| 2007 |
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Assets |
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Cash and cash equivalents |
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| Cash and due from banks | $ | 37,978 |
| 33,986 |
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| Federal funds sold | - |
| 9,272 |
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| Total cash and cash equivalents | 37,978 |
| 43,258 |
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Federal Home Loan Bank ("FHLB") stock, at cost | 5,913 |
| 2,527 |
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Investment securities available for sale, at fair value | 133,199 |
| 104,708 |
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Mortgage loans held for sale | 3,801 |
| 1,294 |
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Loans, gross | 1,114,522 |
| 986,529 |
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| Less: allowance for loan losses | (7,645) |
| (8,515) |
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| Loans, net | 1,106,877 |
| 978,014 |
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Premises and equipment, net | 26,395 |
| 24,952 |
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Goodwill, net | 3,691 |
| 3,691 |
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Core deposit intangibles, net | 57 |
| 102 |
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Accrued interest receivable | 6,257 |
| 6,201 |
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Other |
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| 18,187 |
| 15,843 |
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| Total assets | $ | 1,342,355 |
| 1,180,590 |
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Liabilities and shareholders' equity |
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Liabilities |
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Deposits |
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| Noninterest-bearing | $ | 144,959 |
| 137,182 |
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| Interest-bearing | 905,720 |
| 864,643 |
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| Total deposits | 1,050,679 |
| 1,001,825 |
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Retail repurchase agreements | 15,579 |
| 12,145 |
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Commercial paper (Master notes) | 32,401 |
| 27,737 |
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Other short-term borrowings | 67,671 |
| 24,500 |
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Long-term borrowings | 52,000 |
| - |
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Accrued interest payable | 1,709 |
| 1,523 |
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Other |
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| 7,602 |
| 6,748 |
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| Total liabilities | 1,227,641 |
| 1,074,478 |
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Shareholders' equity |
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Common stock - par value $5.00 per share; authorized 10,000,000 |
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| shares; issued and outstanding 6,442,090 and 6,389,660 |
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| at June 30, 2008 and 2007, respectively | 32,211 |
| 31,948 |
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Capital surplus | 2,013 |
| 1,391 |
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Retained earnings | 84,521 |
| 73,531 |
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Accumulated other comprehensive loss, net of tax | (4,031) |
| (1,479) |
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| Total shareholders' equity | 114,714 |
| 105,391 |
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| Total liabilities and shareholders' equity | $ | 1,342,355 |
| 1,179,869 |
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| SIGNIFICANT CAPITAL RATIOS |
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| Total shareholders' equity as a percentage of total assets | 8.55 | % | 8.93 |
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| Tier 1 risk-based capital | 9.57 |
| 9.63 |
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| Total risk-based capital | 10.21 |
| 10.43 |
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| Tier 1 leverage ratio | 8.71 |
| 8.85 |
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| Nonaccrual loans as a percentage of total assets | 0.48 | % | 1.05 |
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| Full-time equivalent employees | 421 |
| 413 |
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| Banking offices | 29 |
| 32 |
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| Automatic teller machines | 37 |
| 39 |
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| Consolidated Statements of Income | ||||||||||||
(dollars in thousands, except common and per share data) (unaudited) |
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| For the three month |
| For the six month | ||||||
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| periods ended June 30, |
| periods ended June 30, | ||||||
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| 2008 |
| 2007 |
| 2008 |
| 2007 | ||
Interest income |
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| Interest earned and fees on loans | $ | 18,290 |
| 19,301 |
| 37,341 |
| 38,067 | ||||
| Interest earned on investment securities available for sale | 1,661 |
| 1,130 |
| 2,751 |
| 2,301 | |||||
| Dividends paid on FHLB stock | 86 |
| 38 |
| 143 |
| 75 | |||||
| Interest earned on federal funds sold | 10 |
| 211 |
| 47 |
| 419 | |||||
| Interest earned on cash and due from banks | 3 |
| 16 |
| 8 |
| 32 | |||||
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| Total interest income | 20,050 |
| 20,696 |
| 40,290 |
| 40,894 | |||
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| Interest paid on deposits | 5,653 |
| 7,437 |
| 12,769 |
| 14,664 | |||||
| Interest paid on retail repurchase agreements | 57 |
| 130 |
| 169 |
| 276 | |||||
| Interest paid on commercial paper | 87 |
| 289 |
| 231 |
| 527 | |||||
| Interest paid on other short-term borrowings | 258 |
| 54 |
| 509 |
| 83 | |||||
| Interest paid on long-term borrowings | 373 |
| 78 |
| 441 |
| 173 | |||||
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| Total interest expense | 6,428 |
| 7,988 |
| 14,119 |
| 15,723 | |||
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| Net interest income | 13,622 |
| 12,708 |
| 26,171 |
| 25,171 | ||
Provision for loan losses | 687 |
| 433 |
| 1,175 |
| 800 | ||||||
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| Net interest income after provision for loan losses | 12,935 |
| 12,275 |
| 24,996 |
| 24,371 | ||
Noninterest income |
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| Service charges on deposit accounts, net | 2,127 |
| 1,991 |
| 4,294 |
| 3,899 | |||||
| Fees for trust and investment management and brokerage services | 755 |
| 826 |
| 1,511 |
| 1,522 | |||||
| Mortgage-banking income, net | 384 |
| 171 |
| 637 |
| 519 | |||||
| Investment securities gains | 1 |
| - |
| 1 |
| - | |||||
| Other |
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| 1,293 |
| 956 |
| 2,806 |
| 1,903 | |||
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| Total noninterest income | 4,560 |
| 3,944 |
| 9,249 |
| 7,843 | |||
Noninterest expense |
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| Salaries and other personnel | 6,070 |
| 6,057 |
| 12,265 |
| 12,194 | |||||
| Occupancy | 803 |
| 722 |
| 1,608 |
| 1,430 | |||||
| Furniture and equipment | 985 |
| 894 |
| 1,929 |
| 1,833 | |||||
| Marketing |
| 291 |
| 219 |
| 623 |
| 487 | ||||
| Amortization of core deposit intangibles | 11 |
| 12 |
| 22 |
| 24 | |||||
| Other |
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| 2,666 |
| 2,046 |
| 5,546 |
| 4,191 | |||
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| Total noninterest expense | 10,826 |
| 9,950 |
| 21,993 |
| 20,159 | |||
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| Net income before provision for income taxes | 6,669 |
| 6,269 |
| 12,252 |
| 12,055 | ||
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Provision for income taxes | 2,340 |
| 2,204 |
| 4,277 |
| 4,229 | ||||||
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| Net income | $ | 4,329 |
| 4,065 |
| 7,975 |
| 7,826 | |
Common share data |
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| Net income - basic | $ | 0.67 |
| 0.64 |
| 1.24 |
| 1.23 | ||||
| Net income - diluted | 0.66 |
| 0.63 |
| 1.22 |
| 1.21 | |||||
| Cash dividends | 0.20 |
| 0.19 |
| 0.40 |
| 0.38 | |||||
| Book value | 17.81 |
| 16.49 |
| 17.81 |
| 16.49 | |||||
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| Weighted average common shares outstanding - basic | 6,435,515 |
| 6,385,483 |
| 6,433,343 |
| 6,382,019 | |||||
| Weighted average common shares outstanding - diluted | 6,521,169 |
| 6,499,649 |
| 6,518,299 |
| 6,480,454 | |||||
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| SIGNIFICANT OPERATING RATIOS BASED ON EARNINGS |
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| Return on average assets | 1.32 | % | 1.40 |
| 1.24 |
| 1.36 | |||||
| Return on average shareholders' equity | 15.08 |
| 15.50 |
| 14.06 |
| 15.22 | |||||
| Net interest margin | 4.39 |
| 4.64 |
| 4.33 |
| 4.65 | |||||
| SIGNIFICANT CAPITAL RATIOS |
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| Average total shareholders' equity as a percentage of average total assets | 8.74 | % | 9.02 |
| 8.84 |
| 8.93 | |||||
| SIGNIFICANT CREDIT QUALITY RATIOS |
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| Net loans charged-off as a percentage of average loans less |
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| mortgage loans held for sale | 0.19 | % | 0.16 |
| 0.18 |
| 0.17 |