1ST QUARTER REPORT 2004
Selected Financial Ratios
------------------------------------------------------------
For the three months
ended March 31,
2004 2003
---- ----
(unaudited)
Significant Operating Ratios Based on Earnings
Return on average assets 1.37% 1.42
Return on average equity 16.44 17.01
Net interest margin 4.72 5.16
Efficiency ratio 61.10 60.49
Significant Capital Ratios
Average equity to average assets 8.31% 8.33
Equity to assets at year end 8.35 8.18
Tier 1 risk based capital 9.32 9.51
Total risk based capital 10.36 10.52
Tier 1 leverage ratio 7.77 7.70
Significant Credit Quality Ratios
Nonaccrual loans to total assets 0.36% 0.42
Net charge-offs to average loans
less mortgage loans held for sale 0.30 0.34
Bank Notes
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The Palmetto Bank has announced the following new officer appointments:
James M. (Jim) Eanes has been appointed Vice President for the
Travelers Rest office. Eanes is a University of Virginia graduate with
25 years of banking experience. Jim has been actively involved in the
community as a Rotary Club member and recently retired as a commander
in the United States Naval Reserve.
Paula L. Parrott has joined The Palmetto Bank as Vice President for
Cherokee County with responsibility for commercial lending. With more
than 10 years of banking experience, she is an active member of First
Baptist Church of Spartanburg.
James T. (Jimmy) Rambo, Jr. has been promoted to Commercial Loan
Officer in the Greenwood office. He joined The Palmetto Bank in 2002 in
our Management Training Program, is a graduate of Wofford College and
earned his MBA from the Moore School of Business at the University of
South Carolina.
Ida L. Smith has been named Marketing Officer in The Palmetto Bank's
Corporate Center, where she will manage the bank's public relations and
corporate communications projects. Smith has worked in advertising and
public relations for more than 15 years. She is a graduate of Limestone
College in Gaffney, SC.
NEW PLATINUM VISA CARD NOW BEING OFFERED
A new Palmetto Bank Platinum Visa card recently was added to the bank's
line of financial products. The new credit card includes a no fee
transfer option that can be used to pay off other high interest rate
credit cards.
PALMETTO BANCSHARES, INC.
To Our Shareholders:
As we complete the first quarter of another year, we are pleased to report on
the excellent financial condition of Palmetto Bancshares, Inc. and improved
operating results over the first quarter of last year. Net income for the first
quarter of this year was $3.0 million, an increase of 4% over the $2.9 million
posted for the first quarter of 2003. Net income per share on a fully diluted
basis was $.48 compared with $.45 for the same period of 2003, an increase of
7%. Return on average assets was 1.37% for the first quarter of 2004 while
return on average shareholders' equity was 16.44%.
To date, we see excellent operating results that support an increased dividend
payment of $.14 per share and a good increase in the per share trading price for
your company. Recent trades in the $30.00 to $31.00 per share range continue to
compare favorably with the broad indexes for equity investments in the first
quarter of 2004.
The increase in first quarter net income was achieved primarily through an 8.0%
improvement in noninterest income and prudent expense controls compared with
first quarter 2003.
Growing our asset base is particularly strategic to bottom line results.
Expanded loan volume is particularly significant to producing greater net
interest income at a time when margins continue to decline in a low interest
rate environment. We are pleased with an 8% growth in the total loan portfolio
to $713.4 million at March 31, 2004 over the same period for 2003.
Asset quality continues to receive close management attention. In the first
quarter of 2004, net charged-off loans declined four basis points from levels
reported in the first quarter of 2003 to .30%, as a percentage of average loans,
less those mortgage loans held for sale, reflecting improved loan quality even
under challenging times for many of our local economies. We continue to see
excellent progress toward developing a credit culture for The Palmetto Bank that
reflects a desire for the highest possible asset quality under present
conditions. We have also experienced a decline in nonperforming loans as a
percentage of total assets from .42% at March 31, 2003 to .36% at March 31,
2004. At the same time, we have boosted our allowance for loan losses with
coverage at March 31, 2004 totaling 1.09% of our loan portfolio excluding
mortgage loans held for sale.
From our retail offices we continued to see strong deposit growth. Excellent
growth in transaction balances partly reflects a shift to financial asset
stability and safety from the volatility of equity investments in recent years.
We, of course, could expect this trend to reverse as equity markets continue to
improve. Total deposits increased 5% at March 31, 2004 over the same period of
2003.
The exceptional performance of the first quarter is a direct result of the
outstanding abilities and efforts of our employees and their desire to achieve
superior long-term shareholder value for the company.
As we enter the 98th year in our history and growth, we are mindful of the
lessons and experiences of the past, yet are comfortable in the knowledge that
we have assembled a staff of dedicated employees who individually and
collectively understand a responsibility to shareholders, to customers, to each
fellow employee, and to our communities. As shareholders, we are always mindful
of your concerns, and we appreciate your continued loyal support.
Sincerely,
/s/ L. Leon Patterson
L. Leon Patterson
Chairman and Chief Executive Officer
Consolidated Balance Sheets
(in thousands, except share data)
March 31,
2004 2003
--------- ---------
(unaudited)
Assets
Cash and due from banks $ 26,406 32,953
Federal funds sold 10,090 14,479
---------- ----------
Cash and cash equivalents 36,496 47,432
Federal Home Loan Bank (FHLB) stock, at cost 2,122 1,868
Investment securities available for sale at fair market value 106,373 113,138
Mortgage loans held for sale 6,353 11,093
Loans 706,999 646,628
Less allowance for loan losses (7,692) (6,771)
---------- ----------
Loans, net 699,307 639,857
========== ==========
Premises and equipment, net 21,927 19,805
Accrued interest receivable 3,784 4,114
Other assets 17,331 15,792
---------- ----------
Total assets $ 893,693 853,099
========== =========
Liabilities and shareholders' equity
Liabilities
Deposits
Noninterest-bearing $ 122,247 116,615
Interest-bearing 656,554 622,144
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Total deposits 778,801 738,759
Retail repurchase agreements 18,126 16,261
Commercial paper (Master notes) 16,339 16,965
Other liabilities 5,772 11,358
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Total liabilities 819,038 783,343
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Shareholders' equity
Common stock - par value $5.00 per share; authorized
10,000,000 shares; issued and outstanding 6,265,440
and 6,329,909, respectively. 31,327 31,650
Capital surplus 268 89
Retained earnings 41,607 36,314
Accumulated other comprehensive income, net of tax 1,453 1,703
---------- ----------
Total shareholders' equity 74,655 69,756
---------- ----------
Total liabilities and shareholders' equity $ 893,693 853,099
=========== ==========
Assets under management
Palmetto Bancshares, Inc. assets $ 893,693 853,099
Trust assets 264,731 229,110
Investment assets 123,806 95,408
Mortgage assets serviced for others 272,118 256,303
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Total assets under management $1,554,348 1,433,920
=========== ==========
Consolidated Statements of Income
(in thousands, except share data)
For the three months
ended March 31,
2004 2003
-------- -------
(unaudited)
Interest income
Interest and fees on loans $ 11,271 11,543
Interest and dividends on investment securities
available for sale 956 1,006
Interest on federal funds sold 15 35
Dividends on FHLB stock 19 23
--------- ------
Total interest income 12,261 12,607
Interest expense
Interest on deposits, including retail repurchase
agreements 2,480 2,804
Interest on other borrowings 19 4
Interest on commercial paper (Master notes) 23 23
-------- ------
Total interest expense 2,522 2,831
-------- ------
Net interest income 9,739 9,776
Provision for loan losses 750 900
-------- ------
Net interest income after provision for
loan losses 8,989 8,876
Noninterest income
Service charges on deposit accounts 2,083 2,004
Net fees for trust and brokerage services 670 598
Mortgage banking income 165 100
Investment securities gains 108 95
Other 696 637
-------- ------
Total noninterest income 3,722 3,434
Noninterest expense
Salaries and other personnel 4,636 4,491
Occupancy 591 567
Furniture and equipment 883 813
Postage and supplies 321 396
Marketing and advertising 214 184
Telephone 182 184
Professional services 186 157
Other 1,233 1,218
-------- ------
Total noninterest expense 8,246 8,010
-------- ------
Income before income taxes 4,465 4,300
Provision for income taxes 1,435 1,398
-------- ------
Net income $ 3,030 2,902
======== ======
Share Data
Net income - Basic $ 0.48 0.46
Net income - Diluted 0.48 0.45
Cash dividends 0.14 0.12
Book value 11.92 11.02
Weighted average common shares outstanding - Basic 6,264,069 6,326,698
Weighted average common shares outstanding - Diluted 6,365,180 6,482,699