The Palmetto Bank Reports Second Quarter Net Income of $2.0 Million

GREENVILLE,  SC – Palmetto Bancshares, Inc. (NASDAQ: PLMT) (the “Company”) reported second quarter 2014 net income of $2.0 million ($0.16 per diluted share), which is unchanged from the first quarter 2014 and an increase from $1.5 million ($0.12 per diluted share) for the second quarter 2013. For the six months ended June 30, 2014, the Company reported net income of $4.1 million ($0.32 per diluted share) compared to net income of $3.7 million ($0.29 per diluted share) for the six months ended June 30, 2013. The Company also declared a $0.05 per common share cash dividend payable on August 18, 2014 to shareholders of record on August 4, 2014.

“Our earnings for the second quarter and the first half of 2014 continued to reflect progress towards our objective of achieving high-performing financial results. While economic softness in the first half of the year and increasing competition in our markets resulted in a slight reduction in our loan portfolio, we are encouraged by the strength of our loan pipeline as we begin the second half of 2014,” said Samuel L. Erwin, Chairman and Chief Executive Officer. “During the second quarter we further strengthened our deposit funding base through growth of low-cost transaction deposits. In addition, we completed work on a number of revenue enhancement and process improvement initiatives that we believe will positively contribute to higher earnings beginning in the third quarter 2014.”

Highlights for the second quarter 2014 are summarized as follows:

• Net income was $2.0 million for both the first and second quarters. An increase in noninterest income and reduction in expenses during the quarter were offset by a reduction in net interest income and a writedown on a single real estate development included in foreclosed real estate.
• Net interest margin declined 13 basis points from the first quarter to 3.81%, reflecting a reduction in loan yields from the continued low interest rate environment. The reduction in loan yields includes a 4 basis point impact from the reversal of accrued interest income related to one borrower relationship that was placed on nonaccrual status during the second quarter.
• No provision for loan losses was recorded in the first and second quarters as the risk profile of the loan portfolio continued to improve and net charge-offs remained low at annualized 0.34% of average loans during the quarter. The allowance for loan losses coverage ratio declined to 2.07%, also reflecting continued positive trends in credit quality.
• Noninterest income increased $124 thousand from the first quarter primarily due to higher deposit-related fees, trust and brokerage income, mortgage banking income and debit card income resulting from a seasonal increase in transaction volumes. The increases in noninterest income were partially offset by the absence of gains on sales of investment securities and gains on sales of Small Business Administration (“SBA”) loans during the second quarter.
• Non-credit expenses decreased $397 thousand from the first quarter primarily due to reductions in salaries and other personnel costs, professional fees, marketing, and occupancy and equipment expenses.
• Credit-related expenses, defined as foreclosed real estate writedowns and expenses and loan workout expenses, increased $392 thousand from the first quarter due to a $478 thousand writedown related to a single real estate development included in foreclosed real estate.
• Total period-end loans held for investment declined $2.8 million from the first quarter reflecting continued softness in commercial loan demand through much of the quarter and an elevated level of unscheduled commercial real estate loan payoffs. Consumer loans increased during the quarter as home equity and indirect auto loans increased $3.0 million and $413 thousand, respectively.
• Nonperforming assets increased $1.2 million from the first quarter due to the addition of one borrower relationship totaling $4.3 million, partially offset by ongoing payments and dispositions of other problem loans and foreclosed assets.

The discussion of the Company’s results of operations and financial condition below is supplemented by the accompanying financial tables.

About The Palmetto Bank: Headquartered in Greenville, South Carolina, The Palmetto Bank is a 107-year old community bank and is the third largest banking institution headquartered in South Carolina. The Palmetto Bank has assets of $1.1 billion and serves the Upstate of South Carolina through 25 branch locations in nine counties along the economically attractive I-85 corridor, as well as 24/7/365 service through online and mobile banking, ATMs and telephone. The Bank has a unique understanding of the Upstate market and delivers local decision making with greater responsiveness to clients. Through its Retail, Commercial and Wealth Management lines of business, the Bank specializes in providing financial solutions to consumers and small to mid-size businesses with deposit and cash management products, loans (including consumer, mortgage, credit card, automobile, Small Business Administration, commercial, and corporate), lines of credit, trust, brokerage, private banking, financial planning and insurance. Recognized in the past year by several international publications for innovative client technology solutions, the Bank provides solutions that improve the client experience by providing clients the ability to bank whenever they want, wherever they want. Additional information may be found at the Bank’s website at palmettobank.com or on Facebook.