Exhibit 99.1
306 East North Street, Greenville, SC 29601
www.palmettobank.com
Return Service Requested
Bank Notes
OFFICER PROMOTIONS
Leslie B. Gibbons has been promoted to Assistant Vice President, Loan Accounting Specialist. She is a graduate of the University of South Carolina. Gibbons has been employed with The Palmetto Bank since January 2008.
Carolyn C. Nelson has been promoted to Assistant Vice President, Bank Card Manager. She is a graduate of the University of Charleston in West Virginia. Nelson has been employed with The Palmetto Bank since November 2004.
OFFICER APPOINTMENT
Jeffrey C. Nix joined The Palmetto Bank as Special Assets Manager. Nix is a graduate of Clemson University and has 17 years banking experience in special asset management and commercial credit.
TERESA W. KNIGHT APPOINTED CHAIRMAN OF SOUTH CAROLINA BANKERS ASSOCIATION
Teresa W. Knight, Chief Administration Officer, Executive Vice President, has been installed as the 110th Chair of the South Carolina Bankers Association for the 2010-2011 fiscal year.
Knight, who has almost thirty years in banking, earned her B.A. degree from Clemson University, cum laude. She is a graduate of the Graduate School of Banking of the South at Louisiana State University, the South Carolina Bankers School and attended The University of Virginia Darden Leadership School. Within the South Carolina Banker Association, Knight serves on the South Carolina Bankers Employee Benefit Trust and is the former chairman for both the Trust and the South Carolina Bankers School.
THE PALMETTO BANK PARTICIPATED IN TEACH CHILDREN TO SAVE DAY
The Palmetto Bank joined banks across the nation for the 14th annual Teach Children to Save Day (TCTSD) on Tuesday, April 27, 2010. Founded by the American Bankers’ Association in 1997, the campaign has reached 3.4 million young people during the past 13 years. The Palmetto Bank visited elementary and high school classrooms to teach students about the importance of saving money. Lessons and activities centered on the concept of saving, how interest makes money grow, how to budget, and determining needs and wants.
August 13, 2010
To Our Shareholders:
For the quarter ended June 30, 2010, the Company reported a net loss of $8.5 million, compared to a net loss of $5.3 million for the quarter ended March 31, 2010. Similar to the previous quarter, the net loss in the second quarter was driven primarily by the elevated level of provision for loan losses to address the credit quality of the loan portfolio and related declines in commercial real estate collateral values.
During the second quarter 2010, substantially all of our loan chargeoffs were concentrated in commercial real estate loans, with $8.3 million of the $13.1 million in total loan chargeoffs related to four individual commercial real estate loans. Given the overall challenging economic environment and the negative impact on appraised values, we recorded write downs on our problem loans based on updated appraisals that continue to come in at significantly depressed values. On a positive note, however, the amount of loans that migrated into the problem loan category declined during the second quarter, which coupled with increased sales of our foreclosed assets, resulted in a 17% decrease in nonperforming assets from the previous quarter. We are hopeful that this will be the beginning of a declining trend in our problem assets.
On August 6, you approved the proposals to increase the number of authorized common shares and reduce the par value of the Company’s common stock. This was a very important step in the process of completing the private placement of the Company’s common stock with the institutional investors. As discussed at the annual meeting, we recognize the significant impact of the private placement on our current shareholders. As disappointing as it is to the value of your investment in the Company, we believe it is the appropriate course of action to position to Company to manage through these very difficult times and position the Company to recover the loss in market value in the post-recession environment. Thank you for your support, and as said before -we are absolutely dedicated to addressing the issues we face as quickly as possible to return The Palmetto Bank to a position of strength.Additional capital, combined with an improving economy, will clearly accelerate our road to recovery and return to profitability. Creating long-term shareholder value remains a critically important element of our corporate mission, and we continue to take value generating actions to reposition the Company for the future.
Under the stock purchase agreement with the investors, the Company also is permitted to conduct a $10 million offering after the closing of the private placement that would allow our current shareholders to purchase common stock of the Company. Details related to this offering will be provided after we consummate the private placement.
As you know from our previous letters, we have been working very hard to deal with the impact of the extended recession of the past two years, and we believe that we have made substantial progress. Many believe the recession officially ended in 2009; however, it is not yet clear if a sustained economic recovery has begun. An improving economy is critical to help our borrowers recover and therefore result in improvement in our financial results. We are monitoring our loan portfolio very carefully and continue to work proactively with our borrowers to obtain repayment of their loans. Our recovery is directly linked to the ability of our borrowers to repay their loans.
The banking industry has been severely affected by the challenging economic environment. Your management team and all of the employees of the Company come to work every day focused on the “reinvention of The Palmetto Bank” to address the issues that resulted in our poor financial performance in 2009 and 2010 and to adapt to the rapidly changing financial services industry. These are trying times in the banking industry, and we know that you pose your questions and concerns because you care – you care about your Company, our employees, our customers, and the communities we serve. Please do not hesitate to contact either one of us, or any other employee of the Company, with questions or concerns about your Company.
Thank you for your continued patience and support.
Sincerely,
Leon Patterson | Sam Erwin | |
Chairman of the Board of Directors | Chief Executive Officer |
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, 2010 | March 31, 2010 | December 31, 2009 | ||||||||||
(unaudited) | ||||||||||||
Assets | ||||||||||||
Cash and cash equivalents | ||||||||||||
Cash and due from banks | $ | 236,029 | $ | 156,984 | $ | 188,084 | ||||||
Total cash and cash equivalents | 236,029 | 156,984 | 188,084 | |||||||||
Federal Home Loan Bank (“FHLB”) stock, at cost | 7,010 | 7,010 | 7,010 | |||||||||
Investment securities available for sale, at fair value | 112,316 | 115,893 | 119,986 | |||||||||
Mortgage loans held for sale | 1,898 | 1,121 | 3,884 | |||||||||
Loans, gross | 967,244 | 1,010,247 | 1,040,312 | |||||||||
Less: allowance for loan losses | (28,383 | ) | (28,426 | ) | (24,079 | ) | ||||||
Loans, net | 938,861 | 981,821 | 1,016,233 | |||||||||
Premises and equipment, net | 29,344 | 30,225 | 29,605 | |||||||||
Goodwill, net | 3,691 | 3,691 | 3,691 | |||||||||
Accrued interest receivable | 4,222 | 4,221 | 4,322 | |||||||||
Real estate acquired in settlement of loans | 26,521 | 28,867 | 27,826 | |||||||||
Income tax refund receivable | 4,721 | 738 | 20,869 | |||||||||
Other | 23,308 | 17,892 | 14,440 | |||||||||
Total assets | $ | 1,387,921 | $ | 1,348,463 | $ | 1,435,950 | ||||||
Liabilities and shareholders’ equity | ||||||||||||
Liabilities | ||||||||||||
Deposits | ||||||||||||
Noninterest-bearing | $ | 143,223 | $ | 139,454 | $ | 142,609 | ||||||
Interest-bearing | 1,048,152 | 989,159 | 1,072,305 | |||||||||
Total deposits | 1,191,375 | 1,128,613 | 1,214,914 | |||||||||
Retail repurchase agreements | 24,674 | 21,417 | 15,545 | |||||||||
Commercial paper (Master notes) | — | 18,948 | 19,061 | |||||||||
FHLB borrowings | 96,000 | 96,000 | 101,000 | |||||||||
Convertible debt | 380 | 380 | — | |||||||||
Accrued interest payable | 1,695 | 1,528 | 2,020 | |||||||||
Other | 11,154 | 10,599 | 8,395 | |||||||||
Total liabilities | 1,325,278 | 1,277,485 | 1,360,935 | |||||||||
Shareholders’ equity | ||||||||||||
Preferred stock - par value $0.01 per share | — | — | — | |||||||||
Common stock - par value $5.00 per share | 32,309 | 32,295 | 32,282 | |||||||||
Capital surplus | 2,758 | 2,677 | 2,599 | |||||||||
Retained earnings | 33,269 | 41,802 | 47,094 | |||||||||
Accumulated other comprehensive loss, net of tax | (5,693 | ) | (5,796 | ) | (6,960 | ) | ||||||
Total shareholders’ equity | 62,643 | 70,978 | 75,015 | |||||||||
Total liabilities and shareholders’ equity | $ | 1,387,921 | $ | 1,348,463 | $ | 1,435,950 | ||||||
Consolidated Statements of Loss
(in thousands) (unaudited)
For the three month period ended June 30, 2010 | For the three month period ended March 31, 2010 | For the six month period ended June 30, 2010 | ||||||||||
Interest income | ||||||||||||
Interest earned on cash and cash equivalents | $ | 88 | $ | 67 | $ | 155 | ||||||
Dividends paid on FHLB stock | 5 | 4 | 9 | |||||||||
Interest earned on investment securities available for sale | 786 | 1,203 | 1,989 | |||||||||
Interest and fees earned on loans | 13,571 | 13,605 | 27,176 | |||||||||
Total interest income | 14,450 | 14,879 | 29,329 | |||||||||
Interest expense | ||||||||||||
Interest paid on deposits | 3,274 | 3,563 | 6,837 | |||||||||
Interest paid on retail repurchase agreements | 13 | 14 | 27 | |||||||||
Interest paid on commercial paper | 11 | 10 | 21 | |||||||||
Interest paid on FHLB borrowings | 408 | 493 | 901 | |||||||||
Other | 10 | — | 10 | |||||||||
Total interest expense | 3,716 | 4,080 | 7,796 | |||||||||
Net interest income | 10,734 | 10,799 | 21,533 | |||||||||
Provision for loan losses | 12,750 | 10,750 | 23,500 | |||||||||
Net interest income (loss) after provision for loan losses | (2,016 | ) | 49 | (1,967 | ) | |||||||
Noninterest income | ||||||||||||
Service charges on deposit accounts, net | 2,027 | 1,950 | 3,977 | |||||||||
Fees for trust and investment management and brokerage services | 735 | 651 | 1,386 | |||||||||
Mortgage-banking | 377 | 620 | 997 | |||||||||
Automatic teller machine | 321 | 303 | 624 | |||||||||
Merchant services | 101 | 794 | 895 | |||||||||
Investment securities gains | — | 8 | 8 | |||||||||
Other | 500 | 614 | 1,114 | |||||||||
Total noninterest income | 4,061 | 4,940 | 9,001 | |||||||||
Noninterest expense | ||||||||||||
Salaries and other personnel | 6,302 | 6,137 | 12,439 | |||||||||
Occupancy | 1,148 | 1,171 | 2,319 | |||||||||
Furniture and equipment | 927 | 967 | 1,894 | |||||||||
Loss on disposition of premises, furniture, and equipment | 3 | 5 | 8 | |||||||||
FDIC deposit insurance assessment | 981 | 715 | 1,696 | |||||||||
Mortgage-servicing rights portfolio amortization and impairment | 197 | 191 | 388 | |||||||||
Marketing | 450 | 295 | 745 | |||||||||
Real estate acquired in settlement of loans writedowns and expenses | 2,550 | 1,012 | 3,562 | |||||||||
Other | 2,813 | 2,830 | 5,643 | |||||||||
Total noninterest expense | 15,371 | 13,323 | 28,694 | |||||||||
Net loss before benefit for income taxes | (13,326 | ) | (8,334 | ) | (21,660 | ) | ||||||
Benefit for income taxes | (4,793 | ) | (3,042 | ) | (7,835 | ) | ||||||
Net loss | $ | (8,533 | ) | $ | (5,292 | ) | $ | (13,825 | ) | |||
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Additional information can be found in our filed reports at the SEC’s Internet site (http://www.sec.gov).