The Palmetto Bank
Quarterly Report - 2nd Quarter
As of and for the six
months ended June 30,
2004 2003
---- ----
(unaudited)
Significant Operating Ratios Based on Earnings
Return on average assets 1.30 % 1.35
Return on average equity 15.74 16.09
Net interest margin 4.66 5.07
Efficiency ratio 62.69 62.15
Significant Capital Ratios
Average equity to average assets 8.24 % 8.40
Equity to assets at period end 7.92 8.38
Tier 1 risk based capital 9.43 9.53
Total risk based capital 10.49 10.55
Tier 1 leverage ratio 7.76 7.78
Significant Credit Quality Ratios
Nonaccrual loans to total assets 0.32 % 0.48
Net charge-offs to average loans
less mortgage loans held for sale 0.28 0.37
Bank Notes
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Debbie C. Sloan has joined The Palmetto Bank as mortgage originator for Anderson
and Oconee Counties. With more than 30 years of experience in banking, Sloan
will originate mortgage loans for customers at the bank's four branch offices in
Anderson, Seneca and Pendleton. An Upstate native, she is a board member and
treasurer of the Community Housing Resource Board of Anderson and an active
member of the Association of Realtors and the Home Builders Association in
Anderson.
NEW INTERNET BANKING ENHANCEMENTS
The Palmetto Bank recently enhanced its Internet Banking service to include
check image retrieval. After signing into Internet Banking accounts, customers
can go to their Account History to view checks. Any check for which an image
exists has a blue hyperlink that displays View Image. When the customer clicks
on this link, both the front and back of the check are displayed.
More features also have been added to The Palmetto Bank's Bill Pay service to
give customers more flexibility and control for organizing the bill payment
process. The new Bill Pay system includes bill presentment, online help and the
ability to track the status of payments.
To Our Shareholders:
We are pleased to report on the second quarter and six-month periods ended June
30, 2004. Excellent results in the second quarter were achieved amid growing
optimism with consumer and business confidence for the Upstate economy. The July
1 increase in short-term rates by the Federal Reserve signaled improvement for
the national economy with a cautionary eye toward the future. Upstate South
Carolina, while still adjusting to the loss of jobs in the past three years,
continues to grow opportunity for a brighter economic recovery. Strong demand
for credit in the Upstate is our barometer for a growing, healthy economy, and
as we enter into the second half of the year, we see real evidence of
improvement.
We are pleased with second quarter net income of $2.8 million, a 3% increase
over net income for the second quarter of 2003. While this result reflects lower
margins over the past 12 months-an industry-wide event-it also shows evidence of
improved credit quality and excellent expense control. Net income per share on a
diluted basis was $.44 cents per share, a 5% increase over $.42 for the same
period in 2003.
For the six-month period ended June 30, we continue to exceed annual profit
projections, posting six-month net income of $5.8 million, a 4% increase over
the first six months of 2003. Net income per diluted share for the past six
months was $.91, a 5% increase over $.87 for the same period in 2003.
Profitability returns were excellent, with a return on equity for shareholders
of 15.7% and a return on assets of 1.3%. Excellent results for the first six
months of 2004 are reflected in the year to date cash dividends paid of $.28 per
share compared with last year's dividends of $.24, an increase of 16.7%.
While net interest income is the primary driver of our bottom line, we are very
pleased that total profitability is derived from major contributions in all
income-producing areas of the company. An expertly managed securities portfolio
continues to add value to earnings per share as do activities from trust and
investment strategies. Even while the residential mortgage market has slowed in
the last six months, we continue to enjoy added income benefits from servicing a
portfolio of over $300 million residential mortgage loans.
Profit results at the end of the first six months of 2004 reflect the combined
efforts of all areas of the company responsible for earning assets and fee
income, along with holding noninterest expenses to an increase of only 2%.
Total assets at June 30 were at $941.5 million, a 9.5% increase above mid-year
2003, primarily reflecting growth of both securities held and growth in the loan
portfolio where credit quality continues to be excellent. Net charge-offs to
average loans through the first six months continues a decline to .28% versus
..37% last year, and nonaccrual loans to total loans have declined from .60% at
June 30, 2003 to .42% at June 30, 2004. Our delinquency ratios on loans in the
retail bank are among the best in recent years at .73% for loans over 30 days
past due. The allowance for loan losses has increased to approximately $8
million, a 13.7% increase over mid-year 2003.
While we remain optimistic about the next half of 2004, we recognize results
will not come without significant challenges being met. In light of this, we
continue to reinforce our aggressive business plan for the Upstate with better
technology and the most talented and capable employees in our 98-year history.
They are dedicated and understand their 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)
June 30,
2004 2003
---- ----
(unaudited)
Assets
Cash and due from banks $ 25,802 28,387
Federal funds sold 1,338 1,880
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Cash and cash equivalents 27,140 30,267
Federal Home Loan Bank (FHLB) stock, at cost 2,122 1,868
Investment securities available for sale at fair market value 152,209 115,380
Mortgage loans held for sale 4,033 12,963
Loans 719,043 666,627
Less allowance for loan losses (7,983) (7,022)
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Loans, net 711,060 659,605
Premises and equipment, net 22,488 19,934
Accrued interest receivable 4,105 4,002
Other assets 18,337 15,937
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Total assets $ 941,494 859,956
========= =========
Liabilities and shareholders' equity
Liabilities
Deposits
Noninterest-bearing $ 122,463 120,343
Interest-bearing 662,395 624,062
--------- ---------
Total deposits 784,858 744,405
Retail repurchase agreements 18,790 12,750
Commercial paper (Master notes) 15,197 19,676
Federal funds purchased 13,286 5,900
FHLB Advances 30,000 -
Other liabilities 4,808 5,119
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Total liabilities 866,939 787,850
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Shareholders' equity
Common stock - par value $5.00 per share;
authorized 10,000,000 shares; issued and
outstanding 6,269,535, 6,351,339 and 6,263,210
at June 30, 2004 and 2003 and December 31, 2003,
respectively. 31,348 31,757
Capital surplus 298 225
Retained earnings 43,525 38,260
Accumulated other comprehensive income (loss), net of tax (616) 1,864
--------- ---------
Total shareholders' equity 74,555 72,106
--------- ---------
Total liabilities and shareholders' equity $ 941,494 859,956
========= =========
Assets under management
Palmetto Bancshares, Inc. and subsidiary $ 941,494 859,956
Trust 259,327 242,223
Investment 131,092 108,449
Mortgage loans serviced for others 269,602 265,792
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Total assets under management $1,601,515 1,476,420
========== =========
Consolidated Statements of Income
(in thousands, except share data)
For the three months For the six months
ended June 30, June 30,
--------------------- ------------------
2004 2003 2004 2003
---- ---- ---- ----
(unaudited) (unaudited)
Interest income
Interest and fees on loans $ 11,232 11,629 22,503 23,172
Interest and dividends on investment securities
available for sale 1,013 872 1,969 1,878
Interest on federal funds sold 14 28 29 63
Dividends on FHLB stock 20 19 39 42
-------- ------- ------- --------
Total interest income 12,279 12,548 24,540 25,155
Interest expense
Interest on deposits, including retail repurchase
agreements 2,413 2,688 4,893 5,492
Interest on securities sold under agreements to
repurchase and reverse repurchase agreements 32 - 32 -
Interest on federal funds purchased 12 8 31 12
Interest on FHLB advances 45 - 45 -
Interest on commercial paper (Master notes) 22 29 45 52
-------- ------- ------- --------
Total interest expense 2,524 2,725 5,046 5,556
-------- ------- ------- --------
Net interest income 9,755 9,823 19,494 19,599
Provision for loan losses 750 900 1,500 1,800
-------- ------- ------- --------
Net interest income after provision for
loan losses 9,005 8,923 17,994 17,799
Noninterest income
Service charges on deposit accounts 2,197 2,217 4,280 4,221
Net fees for trust and brokerage services 768 672 1,438 1,270
Mortgage banking income 161 (14) 326 86
Investment securities gains - 186 108 281
Other 725 687 1,421 1,324
-------- ------- ------- --------
Total noninterest income 3,851 3,748 7,573 7,182
Noninterest expense
Salaries and other personnel 5,049 4,989 9,685 9,480
Occupancy 598 541 1,189 1,108
Furniture and equipment 855 839 1,738 1,652
Postage and supplies 273 409 594 805
Marketing and advertising 372 253 586 437
Telephone 187 188 369 372
Professional services 226 127 412 284
Other 1,194 1,329 2,427 2,547
-------- ------- ------- --------
Total noninterest expense 8,754 8,675 17,000 16,685
-------- ------- ------- --------
Income before income taxes 4,102 3,996 8,567 8,296
Provision for income taxes 1,306 1,288 2,741 2,686
-------- ------- ------- --------
Net income $ 2,796 2,708 5,826 5,610
======== ======= ======= ========
Share Data
Net income - Basic $ 0.45 0.43 0.93 0.89
Net income - Diluted 0.44 0.42 0.91 0.87
Cash dividends 0.14 0.12 0.28 0.24
Book value 11.89 11.35 11.89 11.35
Weighted average common shares outstanding - basic 6,266,931 6,346,105 6,265,500 6,336,455
Weighted average common shares outstanding - diluted 6,381,267 6,498,919 6,379,006 6,483,582