PALMETTO BANCSHARES, INC.
PO Box 49, Laurens, SC 29360
www.palmettobank.com
Retrn Service Requeted
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1st Quarter Report 2005
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Selected Financial Ratios
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As of and for the three
months ended March 31,
2005 2004
(unaudited)
SIGNIFICANT OPERATING RATIOS BASED ON EARNINGS
Return on average assets 1.37% 1.37
Return on average equity 16.74 16.48
Net interest margin 4.66 4.73
Efficiency ratio 60.46 61.10
SIGNIFICANT CAPITAL RATIOS
Average equity to average assets 8.21% 8.33
Equity to assets at period end 8.03 8.37
Tier 1 risk based capital 9.34 9.32
Total risk based capital 10.28 10.36
Tier 1 leverage ratio 7.81 7.77
SIGNIFICANT CREDIT QUALITY RATIOS
Nonaccrual loans to total assets 0.22% 0.36
Net charge-offs to average loans
less mortgage loans held for sale 0.20 0.30
BANK NOTES
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PROMOTIONAL ANNOUNCEMENTS
The Palmetto Bank is proud to announce the following promotions:
ED SIMPSON - Ed has been with The Palmetto Bank for 14 years. He has been
serving as Vice President of Data Processing and has been promoted to Senior
Vice President, Data Processing, Application Software & Corporate Support.
LAUREN SLAUGHTER - Lauren joined The Palmetto Bank in 2002 in the position of
Finance & Accounting Officer and has now been promoted to Vice President,
Finance & Accounting.
LEN HOOKS - A veteran of more than six years at The Palmetto Bank, Len has been
promoted from Special Assets & Collections Officer to Vice President, Special
Assets & Collections.
ROBIN THOMASON - Robin has been with The Palmetto Bank for seven years. Formerly
Collections Manager, Special Assets, he has been promoted to Assistant Vice
President, Special Assets & Collections.
NEW OFFICER APPOINTMENTS
The Palmetto Bank has recognized the following employees as officers: MEGAN
HUCK, Mortgage Servicing Manager; TONY MADDOX, Data Processing Manager; WENDY
PARKMAN, Branch Manager, Howell Road; CASSIE POWER, Assistant Branch Manager,
Church Street; SUE TINNEY, Branch Manager, Church Street
NEW BUSINESS INVESTMENT MONEY MARKET ACCOUNT
On March 1, 2005, The Palmetto Bank announced a new Business Investment Money
Market Account for business customers. Our new Business Investment Money Market
Account was designed with the business owners in mind. It is a tier account,
which allows you to earn interest based on your balance. The higher the balance
the higher the rate.
To Our Shareholders:
We are pleased to provide a report on the financial condition for Palmetto
Bancshares, Inc. at the end of the first quarter 2005. And, in our 99th year
Palmetto Bancshares has achieved another milestone in its growth exceeding for
the first time $1 BILLION in total assets. On March 31, 2005 total assets
reached $1,022,604,000, a 14.6% increase over first quarter 2004.
First quarter 2005 also produced improved operating results. Net income of $3.4
million was a 12.6% increase over $3.0 million for the first quarter 2004. On a
fully diluted basis, earnings per share increased 10.4% to $0.53 compared with
$0.48 per share for the quarter ended March 31, 2004. Profitability ratios were
excellent with a return on average assets of 1.37% and a return on shareholder's
equity of 16.74% at the end of the first quarter 2005. A cash dividend payment
of $0.16 per share also reflects excellent operating results in the first
quarter. While U.S. equity markets showed weak performance in the first three
months of 2005, we are pleased with recent trades of Palmetto Bancshares in the
$33.00 per share range, an increase over the year-end 2004 trading price.
In response to an expanding U. S. economy in the fourth quarter 2004, the
Federal Reserve moved short-term rates up in February and March. In this
environment we continued to see pressure on net interest margins in the first
quarter. Fortunately, net interest income experienced excellent growth in the
first quarter fueled by a 13.3% increase in total loan volume over first quarter
2004. Growth of $1.1 million in net interest income along with further
improvement in the loan loss provision helped boost first quarter net income
results.
Total retail funds (including traditional deposits, retail repurchase agreements
and commercial paper) from branch operations experienced good growth in the
first quarter of 2005 increasing $57.9 million or 7.1% to a record $871.1
million. The introduction in early spring of a new Business Investment Money
Market Account saw great results attracting over $10 million in new deposits to
this popular account. Indexed to different levels of balance activity, the
features of this account are excellent for maximizing short-term returns on
business operating accounts.
The Upstate market for financial assets is one of the most competitive markets
in the country for gaining customer share of wallet. The names are constantly
changing. New banks have been organized. Old names disappear from the market.
While competition is keen, in one respect, as a financial institution, we are
fortunate to operate in a high growth market. There remains much opportunity for
us as we go forward. We continue to fill in gaps in The Palmetto Bank's Upstate
marketplace where acceptance has been very favorable. At present, construction
is underway for a new facility in Easley, South Carolina. We expect a grand
opening in September, 2005. Early indications are very encouraging for one of
the most successful start-ups in our branch network. As a shareholder you can
assist our success by spreading the word at every opportunity throughout the
Easley area. It does make a difference.
The first quarter 2005 was time for optimism. It was a cause for celebration. It
was a time of gratitude for those who have entrusted us with their financial
assets. We are mindful of a great responsibility. It was also a time of sadness
and loss of special people. In January a former and valued Director, Nancy
Bates, died in Greenwood, S.C. On March 26, 2005 in Spartanburg, S.C. Director
Bill Moore passed away after a short illness. Both of these members of the
Palmetto Bancshares family have been instrumental to our past and present
successes and for their many contributions we shall forever be grateful.
We wish to especially express our gratitude to you for your loyalty and support
as a Palmetto Bancshares customer and shareholder.
Sincerely,
/s/ Leon Patterson
Leon Patterson
Chairman and Chief Executive Officer
Consolidated Balance Sheets
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(in thousands, except share data)
March 31,
2005 2004
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(unaudited)
ASSETS
Cash and due from banks $ 36,554 26,406
Federal funds sold 1,344 10,090
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Cash and cash equivalents 37,898 36,496
Federal Home Loan Bank (FHLB) stock, at cost 4,331 2,122
Investment securities available for sale at fair market value 138,385 106,373
Mortgage loans held for sale 5,335 6,353
Loans 802,948 706,999
Less allowance for loan losses (7,838) (7,692)
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Loans, net 795,110 699,307
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Premises and equipment, net 22,384 21,927
Accrued interest receivable 4,452 3,784
Other assets 14,709 15,598
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Total assets $ 1,022,604 891,960
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 124,251 122,247
Interest-bearing 706,922 656,554
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Total deposits 831,173 778,801
Retail repurchase agreements 20,981 18,126
Commercial paper (Master notes) 18,993 16,339
Federal funds purchased 13,320 -
FHLB Advances 52,000 -
Other liabilities 4,038 4,039
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Total liabilities 940,505 817,305
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Shareholders' equity
Common stock - par value $5.00 per share; authorized 10,000,000
shares; issued and outstanding 6,313,535 and 6,265,440
at March 31, 2005 and 2004, respectively. 31,567 31,327
Capital surplus 555 268
Retained earnings 50,324 41,607
Accumulated other comprehensive income, net of tax (347) 1,453
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Total shareholders' equity 82,099 74,655
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Total liabilities and shareholders' equity $ 1,022,604 891,960
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ASSETS UNDER MANAGEMENT
Palmetto Bancshares, Inc. and subsidiary (less
Trust deposits) $ 1,009,623 891,588
Trust 252,732 264,731
Investment 145,929 123,806
Mortgage loans serviced for others 272,084 272,118
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Total assets under management $ 1,680,368 1,552,243
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CONSOLIDATED STATEMENTS OF INCOME
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(in thousands, except share data)
FOR THE THREE MONTHS ENDED MARCH 31,
2005 2004
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(unaudited)
INTEREST INCOME
Interest and fees on loans $ 12,891 11,271
Interest and dividends on investment securities
available for sale 1,334 956
Interest on federal funds sold 21 15
Dividends on FHLB stock 43 19
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Total interest income 14,289 12,261
INTEREST EXPENSE
Interest on deposits, including retail repurchase
agreements 3,088 2,480
Interest on federal funds purchased 25 19
Interest on FHLB advances 297 -
Interest on commercial paper (Master notes) 66 23
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Total interest expense 3,476 2,522
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Net interest income 10,813 9,739
PROVISION FOR LOAN LOSSES 600 750
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Net interest income after provision for
loan losses 10,213 8,989
NONINTEREST INCOME
Service charges on deposit accounts 1,847 2,083
Net fees for trust and brokerage services 752 670
Mortgage banking income 282 165
Investment securities gains 54 108
Other 779 696
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Total noninterest income 3,714 3,722
NONINTEREST EXPENSE
Salaries and other personnel 4,964 4,636
Occupancy 600 591
Furniture and equipment 885 883
Postage and supplies 317 321
Marketing and advertising 262 214
Telephone 183 182
Professional services 181 186
Other 1,407 1,233
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Total noninterest expense 8,799 8,246
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Income before income taxes 5,128 4,465
PROVISION FOR INCOME TAXES 1,717 1,435
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Net income $ 3,411 3,030
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SHARE DATA
Net income - basic $ 0.54 0.48
Net income - diluted 0.53 0.48
Cash dividends 0.16 0.14
Book value 13.00 11.92
Weighted average common shares outstanding -
basic 6,309,527 6,264,069
Weighted average common shares outstanding -
diluted 6,407,359 6,365,180