SELECTED FINANCIAL RATIOS
As of and for the nine
months ended
September 30,
2004 2003
(unaudited)
SIGNIFICANT OPERATING RATIOS BASED ON EARNINGS
Return on average assets 1.30 % 1.33
Return on average equity 15.92 16.08
Net interest margin 4.60 4.93
Efficiency ratio 62.31 62.31
- ------------------------------------------------------------
SIGNIFICANT CAPITAL RATIOS
Average equity to average assets 8.20 % 8.27
Equity to assets at period end 8.16 7.98
Tier 1 risk based capital 9.44 9.32
Total risk based capital 10.49 10.36
Tier 1 leverage ratio 7.75 7.50
- ------------------------------------------------------------
SIGNIFICANT CREDIT QUALITY RATIOS
Nonaccrual loans to total assets 0.36 % 0.59
Net charge-offs to average loans
less mortgage loans held for sale 0.27 0.38
Bank Notes
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Palmetto Trust & Investment Services Opens New Office
Palmetto Trust & Investment Services, a division of The Palmetto Bank, held a
ribbon-cutting ceremony to celebrate the opening of a new trust and investment
office located at 113-A Main Street in Fountain Inn on September 15. Financial
Advisor Peggy Soley, will manage the new location, serving clients in Fountain
Inn and Simpsonville.
Chad Dalton Appointed Regional Executive - Spartanburg & Cherokee Counties
Charles B. (Chad) Dalton has been appointed Senior Vice President and Regional
Executive for Spartanburg and Cherokee counties. Dalton's new role includes
responsibility for three branches in Spartanburg as well as retail offices in
Blacksburg, Duncan, Gaffney and Inman.
New PRIMEaccess Card Introduced
The Palmetto Bank has introduced an innovative product that makes it easy for
home equity customers to tap into their line of credit. Bank customers now have
the added convenience of using the new Palmetto Bank PRIMEaccess Card which is
accepted at most retail Visa locations such as department stores, home
improvement stores, grocery stores and restaurants.
New ATM Open in Simpsonville
In addition to the existing full-service branch office located at 106 West
College Street in Simpsonville, The Palmetto Bank recently added a new
stand-alone drive up ATM in the Spinx parking lot at 697 Fairview Road in
Simpsonville.
Palmetto Bancshares, Inc.
LETTER TO SHAREHOLDERS
Third Quarter 2004
- --------------------------------------------------------------------------------
To Our Shareholders:
We are pleased to provide a report on Palmetto Bancshares, Inc. for the third
quarter and for the nine-months period ending September 30, 2004. It was our
best quarter thus far this year with net income of $3.2 million, showing a 10%
increase over third quarter 2003. For the nine-months period, net income of $9.0
million was a 6% increase over the same period in 2003. On a fully diluted
basis, net income per share for the quarter rose 9% to $.49 compared to $.45 for
2003, and for the nine months net income per share fully diluted was
$1.41compared to $1.32, an increase of 7%. Through the first nine months of the
year, profitability for the company has resulted in a return on average equity
of 15.92% and a return on average assets of 1.30%.
We are very pleased with the third-quarter and nine-months results at a time
when net interest margin continues under pressure from a low interest rate
environment. The Federal Reserve's recent moves to increase short-term rates,
while not reversing this trend, should provide some improvement in margin levels
going forward. Net interest income after the loan loss provision for the nine
months improved by 3% to $27.4 million, and for the quarter posted an increase
of 8%, reflecting the added growth in loans and securities. Expense control
continues to be critical to bottom line results and for the three-month period
and nine months ending September 30, we are pleased with modest increases of 1%
and 2%, respectively, to non-interest expense.
Total assets at September 30, 2004, were $965.8 million, a 9% increase of $83
million over the same period for 2003. Exceptionally strong growth for the nine
months was due to increases in investment securities of $38.l million and $76.2
million in loan portfolio growth. While loan growth in the first nine months has
been substantial, credit quality is excellent and continues to show improvement
over 2003. Non-performing loans to total loans has declined from .77% in 2003 to
..46% at September 30, 2004, and net charge-offs to average loans has shown a
continued decline to .27% compared to .38% for 2003. These ratios are excellent
in comparison with other peer banks. Delinquency ratios on loans in the retail
bank continue among our best in recent years at .74% for loans over 30 days past
due. The loan loss reserve has been increased by 12.8% at September 30, 2004
over September 30, 2003 to $8.2 million, reflecting the added growth to loans
this year.
Deposit growth thus far this year reflects the challenge of protecting margins
while growing deposits in a low interest rate environment. Traditional deposits
secured through our 30 retail banking offices in Upstate South Carolina have
grown $15.8 million thus far in 2004, a 2% increase over September 2003. A
successful offer of our popular step-up certificate of deposit added $10 million
in growth in the summer months. To close the gap for projected deposit growth at
year-end, The Palmetto Bank is currently offering an exceptional value in a
certificate of deposit for 15 months at an APY of 3.11%-the most competitive
term and rate in our market. We hope you will take advantage of this offer while
it lasts. Non-traditional sources of funds have provided funding for strong
asset growth of 9.4% in the first nine months. Through our commercial paper
program, retail repurchase agreements, use of the Atlanta Federal Home Loan Bank
and traditional core deposits, we will continue to support asset growth with the
most advantageous funding available.
We remain optimistic for good results in the remaining quarter of 2004. Asset
quality and asset growth have been significant components to our operating plan
in 2004. Thus far we are pleased with the results. As we enter The Palmetto
Bank's 99th year, we are mindful of our rich heritage in serving the Upstate and
the important role your support plays in our future.
Sincerely,
L. Leon Patterson
Chairman and Chief Executive Officer
Consolidated Balance Sheets
(in thousands, except share data)
September 30,
2004 2003
----------- ----------
(unaudited)
Assets
Cash and due from banks $ 27,935 32,898
Federal funds sold 976 24,745
----------- ---------
Cash and cash equivalents 28,911 57,643
Federal Home Loan Bank (FHLB) stock, at cost 2,725 1,868
Investment securities available for sale at fair market value 148,611 110,506
Mortgage loans held for sale 3,560 8,363
Loans 747,010 670,850
Less allowance for loan losses (8,170) (7,241)
----------- ---------
Loans, net 738,840 663,609
Premises and equipment, net 22,214 21,378
Accrued interest receivable 4,087 3,880
Other assets 16,851 15,527
----------- ---------
Total assets $965,799 882,774
=========== =========
Liabilities and shareholders' equity
Liabilities
Deposits
Noninterest-bearing $ 124,136 118,710
Interest-bearing 659,109 648,771
----------- ---------
Total deposits 783,245 767,481
Retail repurchase agreements 19,779 15,373
Commercial paper (Master notes) 16,564 21,750
Federal funds purchased 7,070 -
FHLB Advances 54,500 -
Other liabilities 5,800 7,766
----------- ---------
Total liabilities 886,958 812,370
----------- ---------
Shareholders' equity
Common stock - par value $5.00 per share; authorized 10,000,000
shares; issued and outstanding 6,281,185 and 6,256,624
at September 30, 2004 and September 30, 2003, respectively. 31,406 31,283
Capital surplus 358 244
Retained earnings 45,794 37,967
Accumulated other comprehensive income, net of tax 1,283 910
----------- ---------
Total shareholders' equity 78,841 70,404
----------- ---------
Total liabilities and shareholders' equity $ 965,799 882,774
=========== =========
Assets under management
Palmetto Bancshares, Inc. and subsidiary $ 965,799 882,774
Trust 260,132 246,725
Investment 136,930 100,790
Mortgage loans serviced for others 267,264 270,634
----------- ---------
Total assets under management $ 1,630,125 1,500,923
=========== =========
Consolidated Statements of Income
(in thousands, except share data)
For the three months For the nine,months
ended September 30, ended September 30,
2004 2003 2004 2003
-------- -------- ------- -------
(unaudited) (unaudited)
Interest income
Interest and fees on loans $ 11,542 11,510 34,045 34,682
Interest and dividends on investment
securities available for sale 1,368 689 3,337 2,567
Interest on federal funds sold 7 48 36 111
Dividends on FHLB stock 21 18 60 60
-------- ------- ------- --------
Total interest income 12,938 12,265 37,478 37,420
Interest expense
Interest on deposits, including retail
repurchase agreements 2,581 2,642 7,474 8,134
Interest on securities sold under agreements
to repurchase and reverse repurchase agreements - - 32 -
Interest on federal funds purchased 23 7 54 19
Interest on FHLB advances 259 - 304 -
Interest on commercial paper (Master notes) 30 28 75 80
-------- ------- ------- --------
Total interest expense 2,893 2,677 7,939 8,233
-------- ------- ------- --------
Net interest income 10,045 9,588 29,539 29,187
Provision for loan losses 650 900 2,150 2,700
-------- ------- ------- --------
Net interest income after provision for
loan losses 9,395 8,688 27,389 26,487
Noninterest income
Service charges on deposit accounts 2,164 2,196 6,444 6,417
Net fees for trust and brokerage services 666 671 2,104 1,941
Mortgage banking income 213 219 539 305
Investment securities gains (18) 81 90 362
Other 710 673 2,131 1,997
-------- ------- ------- --------
Total noninterest income 3,735 3,840 11,308 11,022
Noninterest expense
Salaries and other personnel 4,617 4,869 14,302 14,349
Occupancy 591 583 1,780 1,691
Furniture and equipment 878 884 2,616 2,536
Postage and supplies 301 318 895 1,123
Marketing and advertising 285 195 871 632
Telephone 189 185 558 557
Professional services 238 51 650 335
Other 1,401 1,351 3,828 3,898
-------- ------- ------- --------
Total noninterest expense 8,500 8,436 25,500 25,121
-------- ------- ------- --------
Income before income taxes 4,630 4,092 13,197 12,388
Provision for income taxes 1,482 1,235 4,223 3,921
-------- ------- ------- --------
Net income $ 3,148 2,857 8,974 8,467
======== ======= ======= ========
Share Data
Net income - Basic $ 0.50 0.46 1.43 1.34
Net income - Diluted 0.49 0.45 1.41 1.32
Cash dividends 0.14 0.12 0.42 0.36
Book value 12.55 11.25 12.55 11.25
Weighted average common shares outstanding -
basic 6,272,918 6,273,780 6,267,991 6,315,334
Weighted average common shares outstanding -
diluted 6,382,823 6,370,340 6,378,884 6,410,952