PALMETTO BANCSHARES, INC. [LOGO OMITTED]
P.O. Box 49, Laurens, SC 29360
www.palmettobank.com
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2nd Quarter Report 2005
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SELECTED FINANCIAL RATIOS
As of and for the six months
ended June 30,
2005 2004
(unaudited)
SIGNIFICANT OPERATING RATIOS BASED ON EARNINGS
Return on average assets 1.37 % 1.30
Return on average equity 16.80 15.74
Net interest margin 4.69 4.66
Efficiency ratio 61.07 62.69
SIGNIFICANT CAPITAL RATIOS
Average equity to average assets 8.13 % 8.26
Equity to assets at period end 8.10 7.93
Tier 1 risk based capital 9.26 9.43
Total risk based capital 10.18 10.49
Tier 1 leverage ratio 7.76 7.76
SIGNIFICANT CREDIT QUALITY RATIOS
Nonaccrual loans to total assets 0.22 % 0.32
Net charge-offs to average loans
less mortgage loans held for sale 0.19 0.28
BANK NOTES
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NEW OFFICER APPOINTMENTS
The Palmetto Bank has announced the following new officer appointments:
Peter J. Baldwin has joined The Palmetto Bank as Vice President, Commercial Loan
Officer and is located at the Fountain Inn branch. Peter is a graduate of
Clemson University and has nine years of banking experience in commercial
lending.
Dixon B. Bryan, Jr. was appointed to Branch Manager and Loan Officer of the
South Main office. He is a graduate of Lander University and has eleven years of
banking experience in branch management.
Valerie W. Stevenson has joined The Palmetto Bank as Vice President, Chief
Auditor and Risk Manager. Valerie is a Clemson University graduate with 12 years
experience in accounting and internal auditing in the banking industry.
Robert (Bob) A. Toggweiler was appointed to Vice President, Seneca. He is a
graduate of both the University of South Florida and the Florida School of
Banking. Bob has 29 years experience in commercial lending, business development
and branch management.
To Our Shareholders:
We are very pleased to share mid-year and 2nd quarter operating results for
Palmetto Bancshares, Inc. It was an exceptional period of profitability and
growth for your company characterized by:
- ---Solid market share growth across the Upstate in all of our 31 retail
locations,
- ---Double-digit earnings per share growth,
- ---Double-digit dividends per share growth,
- ---Double-digit loan growth,
- ---Double-digit growth in retail core deposits,
- ---Strong credit quality and improved profitability ratios.
All in all, the Company made significant progress toward achieving our vision of
being recognized as Upstate South Carolina's premier independent community
banking organization.
Profitability for the second quarter 2005 was excellent with net income of $3.5
million, a 27% increase over $2.8 million earned for the second quarter 2004. On
a diluted basis earnings per share increased 28% to $0.55 compared with $0.43
per diluted share for the second quarter 2004. Profitability ratios improved
with a return on average assets of 1.37% and a return on average shareholders'
equity of 16.80% as of June 30, 2005. A cash dividend payment of $0.16 per share
also reflects excellent profitability results for the second quarter. While
equity markets continued to show mixed results - mostly weak performance - in
the second quarter, we are pleased that recent trades, of which Management is
aware, for Palmetto Bancshares, Inc. common stock beginning the third quarter
were in the $34.00 range, a good increase for year to date.
For the six month period ended June 30, 2005, we continue to exceed annual
profit projections, posting six month net income of $7.0 million compared to
$5.8 million at the end of six months in 2004. Net income per diluted share for
the six month period ended June 30, 2005 was $1.08 compared with $0.91 in the
same period for 2004.
Second quarter and six months profitability was assisted by increases in net
interest income of 18% and 15%, respectively, over the same periods in 2004. The
balance sheet management of assets and liabilities has allowed us to achieve an
improved net interest margin in the first six months compared with 2004.
Additionally, six months net interest income was boosted by a 7% increase in
total loan volume over the first six months of 2004.
Total assets at June 30, 2005 stood at an all time high of $1.05 billion, a 12%
increase over above mid-year 2004. The increase is primarily due to growth of
$109 million in the loan portfolio over the last 12 months. Credit quality
continues to be excellent through the first six months and further reductions in
the loan loss provision enhanced line results. Nonperforming loans to total
loans declined to 0.28% at June 30, 2005 compared to 0.42% for the same period
in 2004. Net charged-off loans through the first six months were running at a
rate of 0.19% compared to 0.28% for the same period in 2004. We continue to
emphasize the importance of a strong positive credit culture to building
superior bottom line results.
All across our Upstate market, in all of our retail locations, we continue to
see good growth in core deposits. The acquisition of these deposits is
absolutely essential to our future growth. Building retail deposit market share
is one of our highest priorities. Satisfying all our customers' financial needs
and helping them to succeed financially is at the center of our strategic
planning process. The addition of the new Easley Office is central and core to
this strategy. Plans are being developed for the third quarter opening of this
new facility. The reception of the Easley community to our planning thus far has
been overwhelmingly positive. We look forward to becoming a strong positive
influence in this growing Upstate community.
All in all, we remain optimistic about the remainder of 2005. The first six
months' results have been excellent. This is due, without question, to a truly
exceptional team effort from all of our employees. We are also mindful of your
supporting role as shareholders. Our job is to enhance shareholder value for
you. Whatever you can do on behalf of your company can also make a difference to
our bottom line. We hope you will think Palmetto whenever an opportunity might
arise for us to serve. Thank you for your continued loyalty and support.
Sincerely,
/s/ L. Leon Patterson
L. Leon Patterson
Chairman and Chief Executive Officer
Consolidated Balance Sheets
(in thousands, except share data)
June 30,
2005 2004
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(unaudited)
ASSETS
Cash and due from banks $ 37,635 25,802
Federal funds sold 7,260 1,338
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Total cash and cash equivalents 44,895 27,140
Federal Home Loan Bank (FHLB) stock, at cost 5,339 2,122
Investment securities available for sale, at fair market value 134,121 152,209
Mortgage loans held for sale 4,889 4,033
Loans 826,802 719,043
Less allowance for loan losses (8,051) (7,983)
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Loans, net 818,751 711,060
Premises and equipment, net 22,527 22,488
Accrued interest receivable 4,598 4,105
Other assets 16,882 17,150
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Total assets $1,052,002 940,307
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 130,702 122,463
Interest-bearing 729,029 662,395
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Total deposits 859,731 784,858
Retail repurchase agreements 19,130 18,790
Commercial paper (Master notes) 17,701 15,197
Federal funds purchased - 13,286
FHLB borrowings 65,400 30,000
Other liabilities 4,826 3,621
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Total liabilities 966,788 865,752
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Shareholders' Equity
Common stock - par value $5.00 per share; authorized 10,000,000
shares; issued and outstanding 6,317,285 and 6,269,535 at
June 30, 2005 and June 30, 2004, respectively. 31,586 31,348
Capital surplus 596 298
Retained earnings 52,861 43,525
Accumulated other comprehensive income (loss), net of tax 171 (616)
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Total shareholders' equity 85,214 74,555
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Total liabilities and shareholders' equity $1,052,002 940,307
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ASSETS UNDER MANAGEMENT
Palmetto Bancshares, Inc. and subsidiary $1,023,690 940,307
Trust 265,874 259,327
Investment 146,427 131,092
Mortgage loans serviced for others 294,074 269,602
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Total assets under management $1,730,065 1,600,328
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Consolidated Statements of Income
(in thousands, except share data)
For the three months For the six months ended
ended June 30, June 30,
2005 2004 2005 2004
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(unaudited) (unaudited)
Interest income
Interest and fees on loans $ 14,099 11,232 26,990 22,503
Interest and dividends on investment securities
available for sale 1,305 1,013 2,639 1,969
Interest on federal funds sold 34 14 55 29
Dividends on FHLB stock 59 20 102 39
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Total interest income 15,497 12,279 29,786 24,540
Interest expense
Interest on deposits including retail repurchase
agreement 3,445 2,413 6,533 4,893
Interest on securities sold under agreements to
repurchase and reverse repurchase agreements - 32 - 32
Interest on federal funds purchased 40 12 65 31
Interest on FHLB advances 365 45 662 45
Interest on commercial paper (Master notes) 93 22 159 45
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Total interest expense 3,943 2,524 7,419 5,046
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Net interest income 11,554 9,755 22,367 19,494
Provision for loan losses 600 750 1,200 1,500
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Net interest income after provision for
loan losses 10,954 9,005 21,167 17,994
Noninterest income
Service charges on deposit accounts 1,992 2,197 3,839 4,280
Net fees for trust and brokerage services 706 768 1,458 1,438
Mortgage banking income 474 161 756 326
Investment securities gains 15 - 69 108
Other 788 726 1,566 1,421
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Total noninterest income 3,975 3,852 7,688 7,573
Noninterest expense
Salaries and other personnel 5,608 5,049 10,572 9,685
Occupancy 659 598 1,259 1,189
Furniture and equipment 920 855 1,805 1,738
Postage and supplies 315 273 632 594
Marketing and advertising 261 372 523 586
Telephone 183 187 366 369
Professional services 219 226 400 412
Other 1,428 1,194 2,835 2,427
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Total noninterest expense 9,593 8,754 18,392 17,000
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Net income before income taxes 5,336 4,103 10,463 8,567
Provision for income taxes 1,788 1,306 3,505 2,741
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Net income $ 3,548 2,797 6,958 5,826
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Share Data
Net income - basic $ 0.56 0.45 1.10 0.93
Net income - diluted 0.55 0.43 1.08 0.91
Cash dividends 0.16 0.14 0.32 0.28
Book value 13.49 11.89 13.49 11.89
Weighted average common shares outstanding -
basic 6,314,043 6,266,931 6,311,798 6,265,500
Weighted average common shares outstanding -
diluted 6,420,995 6,381,267 6,418,417 6,379,006