EX-99 2 shareholder-mailing.txt SHAREHOLDER MAILING 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 ---------- 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 -------- --------- 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) --------- --------- 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 --------- --------- 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 --------- --------- Total liabilities 866,939 787,850 --------- --------- 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 ---------- --------- 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