EX-99 2 shareholdermailing.txt SHAREHOLDER MAILING PALMETTO BANCSHARES, INC. PO Box 49, Laurens, SC 29360 www.palmettobank.com Retrn Service Requeted ---------------------------------------------- 1st Quarter Report 2005 ---------------------------------------------- Selected Financial Ratios -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------------------- (in thousands, except share data) March 31, 2005 2004 ---- ---- (unaudited) ASSETS Cash and due from banks $ 36,554 26,406 Federal funds sold 1,344 10,090 ----------- --------- 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) ----------- --------- Loans, net 795,110 699,307 ----------- --------- Premises and equipment, net 22,384 21,927 Accrued interest receivable 4,452 3,784 Other assets 14,709 15,598 ----------- --------- Total assets $ 1,022,604 891,960 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing $ 124,251 122,247 Interest-bearing 706,922 656,554 ----------- --------- 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 ----------- --------- Total liabilities 940,505 817,305 ----------- --------- 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 ----------- --------- Total shareholders' equity 82,099 74,655 ----------- --------- Total liabilities and shareholders' equity $ 1,022,604 891,960 =========== ========= 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 ----------- --------- Total assets under management $ 1,680,368 1,552,243 =========== =========
CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------------------------------------------------- (in thousands, except share data) FOR THE THREE MONTHS ENDED MARCH 31, 2005 2004 ---- ---- (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 -------- ------- 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 -------- ------- Total interest expense 3,476 2,522 -------- ------- Net interest income 10,813 9,739 PROVISION FOR LOAN LOSSES 600 750 -------- ------- 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 -------- ------- 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 -------- ------- Total noninterest expense 8,799 8,246 -------- ------- Income before income taxes 5,128 4,465 PROVISION FOR INCOME TAXES 1,717 1,435 -------- ------- Net income $ 3,411 3,030 -------- ------- 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